CITY
CALIFORNIA
City of Laguna Beach
Calendar Year Effective March 10, 20252026
Approved by the City Council December 10, 2024March XX, 2026 City of Laguna Beach Investment Policy
City of Laguna Beach
Investment Policy
January 1, 2025 through Deeember 31, 2025Effective March 10, 2026 Table of Contents
1.0 Policy Statement
2.0 ANMM
3.0 4.0
5.0 6.0
7.0 8.0
9.0 8
11.0 12.0
13.0 10
1.0 Diversificatic 10
15.0 Maximum Maturiti 10
16.0 17.0 Socially Responside Investing
18.0 9.0 Investment of Debt Proceeds and Other Financing Proceeds1
20.0 eportil 11
21.0 vestment Policy Adopti 12
Glossary 13
Broker/Dealer Questionnaire 17
Page
1 City of Laguna Beach Investment Policy
City of Laguna Beach Investment Policy
Effective January xx March 10, 2025 2026 through December 31, 20252026
3.01.0 POLICY STATEMENT:
It is the policy of the City of Laguna Beach (the "City") to invest public funds based on compliance with state law and prudent investment practices. The primary goal of the City's Investment Policy is to invest in a manner that will provide the maximum security of the principal invested with a secondary emphasis on providing adequate liquidity and finally to achieve a rate of return within the parameters of prudent risk management while conforming to all state statutes and local regulations governing the investment of public funds.
6.02.0 SCOPE:
This investment policy applies to all financial assets of the City that are included in the These funds are accounted for in the City's Annual Comprehensive Financial Report. The financial assets result from various programs that are accounted for by fund within the following fund types. and- include:
General Fund (Measure LL, Open Space, Parking Authority.
Parking in Lieu, Park in Lieu, Art in Lieu, Drainage Fund, Housing. in Lieu, Disaster Contingency, Transportation Infrastructure), Measure LI,Special Revenue Funds (Gas Tax, Street Lighting and Utility, Housing, National Opioid Settlement, Asset Forfeiture, Policy Grants, LB Developer Deposit,
Cultural & Environmental Stewardship, Air Quality Management District, Animal Shelter),
Open Space,
Capital Improvement,
Parking Authority,
Parking in Lieu,
Park in Lieu,
Art in Lieu,
Drainage Fund,
Housing in Lieu,
Gas Tax,
Street Lighting and Utility,
Wastewater,
Disaster Contingeney,
Housing;
Wildfire Mitigation &-and Fire Safety,
Transportation Infrastrueture,
South Laguna, Fund
Transit,
Trust Funds.
Internal Service Funds, Insuranee,
Page
2 City of Laguna Beach Investment Policy
Internal Service Funds - Vehiele Replacement,
Assessment District Construction Debt Service Funds (see section 19.0 Investment of Debt Proceeds and other Financing Proceeds'"). Debt issuance proceeds shall be invested in accordance with related debt service agreements if they are different than this Investment Policy.
Specific Investment Accounts - From time to time, the City Council may authorize an investment in other specific investments or the management of bond proceeds issued by the City-of Laguna Beach. This may include deposits that are set aside for future needs of a long-term nature and may be invested in longer-term securities as allowed by the Government Code No investment will be made in any security with a remaining maturity in excess of five years at the time of purchase or a below market rate of return, unless the City Council has granted express authority to make such an investment. Inter-fund transfers are not covered by this policy.
4.03.0_INVESTMENT PHILOSOPHY:
The City's investment philosophy is to invest conservatively to minimize risk. Investments shall be made in a manner consistent with the Prudent Investor Standard for trustees of local government monies, as described in Government Code section 53600.3, which states as follows:
All governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
7.04.0 OBJECTIVE:
The authority governing surplus investments for municipal governments is set forth in Government Code sections 53600 et seq. The primary objectives of investment activities, in order of priority, are:
7.34.1_SAFETY:
Safety of principal is the foremost objective of the investment program. The investment of City funds shall be undertaken to seek to ensure the preservation of capital in the overall portfolio. To attain this objective, le City shall diversify its investments by investing funds among a variety of securities offering independer eturns and from various financial institution:
7.64.2 LIQUIDITY:
The investment portfolio will remain sufficiently liquid to enable the City to meet the operating requirements that are reasonably anticipated.
4.3 YIELD:
_Page
City of Laguna Beach Investment Policy
The City's investment portfolio shall be designed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles, commensurate with the City!'s investment risk constraints and the cash flow characteristics of the portfolio. The benchmark rate of return is defined in paragraph 17.1.
9.05.0_INVESTMENT AUTHORITY:
The authority to manage the City's investment of surplus funds is derived from Government Code Section 53600 et seq. The City Council is statutorily prescribed with the authority to invest, reinvest, purchase, acquire, exchange, sell, or manage the City's surplus funds, unless the City Council expressly delegates the responsibility of managing such funds, which it may do from time-to-time in accordance with Government Code Section 53607 ("Section 53607"). The City Council, or the City Council's designee under Section 53607, shall be fully responsible for investment management decisions and transactions and shall establish a system of controls and safeguards.
Notwithstanding the foregoing, the City Council, or its designee under Section 53607, may authorize the investment of surplus funds to be managed by an outside investment manager in a manner consistent with the City's objectives, the objectives set forth in Government Code Section 53600.6, and this Investment Policy.
When investments are directed by the City Council to be managed by an outside investment manager, the City Manager or designee shall oversee the day-to-day activities of such outside investment manager, ensuring compliance with this Investment Policy, and shall regularly report back to and solicit feedback from the City Council on investment performance and strategy. In overseeing the outside investment manager, the City Manager or designee shall, amongst other things, provide monthly reports on investment performance and strategy to the City Council, and shall solicit the input of the City Council, if any. The City Manager or designee shall also participate in (I) investment strategy meetings with the outside investment manager, as needed, including but not limited to a monthly meeting with the outside investment manager, as well as the City Treasurer and other City staff, as appropriate, for strategy meetings to discuss economic and market conditions, portfolio structure and composition, investment strategies, changes to California Code, and other related items; and (2) quarterly meetings of the Citizens! Audit Review and-Investment Advisory Committee, along with the outside investment manager and the City Treasurer, to discuss the portfolio's performance and investment strategy.
Further, when the City Council has directed an outside investment manager to manage the surplus funds investments. the Citv Treasurer shall nevertheless remain responsible for non-surplus funds and ensuring that liquidity is adequate for the next six months.;. Specifically (1) the management of bond proceeds and (2) the City's more liquid investments that utilize the investment categories "investment pools" and "bank deposits" to meet the City's immediate operating expenses or obligations. Further, for the avoidance of doubt. when the City Council retains its investment authority under Section 53607, the City Treasurer shall have access to the information necessary related to such investments (as may be managed by an outside investment manager), including investment receipts, in order to satisfy the City Treasurer's reporting obligations under Government Code section 41004 ("Section 41004"). The City Treasurer shall provide monthly reports on investment performance which includes the affirmation that there is adequate liquidity for the City's obligations for the next six months, to the City Council and City Manager, in accordance with Section 41004.
-The City Treasurer shall designate one or more persons, subject to approval by the City Council, to serve as Deputy Treasurer when timely action is required and the City Treasurer is not available. No Deputy Treasurer may engage in an investment transaction except as provided under this Investment Policy. The City Treasurer retains full responsibility for the actions of the City Treasurer and any Deputy Treasurer appointed.
Page
City of Laguna Beach Investment Policy
6.0 ETHICS AND CONFLICTS OF INTEREST:
All participants in the investment process shall act as fiduciaries of the public trust. All persons engaged in the investment, management, or oversight of investment of any funds described in this Investment Policy shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. All such persons shall disclose any material financial interests in financial institutions that conduct business with the City and they shall further disclose any personal financial/investment positions that could be affected by the performance of the City's operations and functions or by the management of the City's investment program.
7.27.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS:
The person responsible for investing or overseeing the management of investments as set forth in Section 5.0 of this Investment Policy shall maintain a list of broker/dealers and financial institutions authorized to provide investment services to the City of Laguna Beach for the investments for which they are responsible or oversee. These may include primary dealers or regional dealers that qualify under Securities & Exchange CommissionSEC Rule 15C3-1 (uniform net capital rule).
Annually, the person responsible for investing or overseeing the management of investments as set forth in Section 5.0 of this Investment Policy -shall review each approved broker/dealer's financial condition and registrations to determine whether he/she should remain on their respective approved list. Additional broker/dealers may be added to the approved list as needed. The questionnaire used for these processes is attached to this Investment Policy.
If the City utilizes a SEC registered external investment advisor, the advisor shall maintain a list of authorized broker-dealers and complete the appropriate due diligence required by the SEC. The external investment advisor may use its own list of approved broker/dealers and financial institutions for investment purposes on behalf of the City. The investment advisor shall submit the list of approved broker/dealers to the City Manager or designee on an annual basis.
8.0 AUTHORIZED AND SUITABLE INVESTMENTS:
Investment alternatives are governed by California statute and are further limited by the provisions of this Investment Policy. The following investment types are authorized and may be selected for investment given the liquidity needs and economic circumstances of the City, pursuant to the authority set forth in Section 5.0. For any investment eligible for purchase which requires a rating, as set forth in more detail below. such rating standard shall be applicable at the time of purchase.
Rating standards for rated investments shall be reviewed and reported periodically thereafter.
8.38.1 U.S. Treasury Securities
8.58.2 U.S. Government Agency Securities
Obligations, participations or other instruments of or issued by a federal agency or a United Page
City of Laguna Beach Investment Policy
States government-sponsored enterprise. There is no limit on the percentage of a portfolio that can be invested in this category.
8.78.3 Certificates of Deposit
Certificates of deposit include the traditionally known form, negotiable certificates of deposit or the investment commonly known as CDARS. All certificates of deposit must be collateralized or fully insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). The Certificates of Deposit must comply with Government Code section 53601(i). There is 25% limit on the percentage of a portfolio that can be invested in this category.
8.8Bankers'' Acceptanees
Bankers'' Aceeptances, also known as time drafts (bills of exchange) are drawn on and accepted- by a commercial bank. Purchases of bankers"" acceptances shall not exceed 180 days maturity and- must be issued by one of the 10 largest domestie banks or one of the 20 largest international banks.
There is 25% limit on the percentage of a portfolio that can be invested in this category:
8.138.4 Commercial Paper
At the time of purchase, commercial paper must be rated either A-1/P-1/F1 or better by at least two Nationally Recognized Statistical Rating Organizations or have an A rating or better when applicable.
No more than 3% of the total assets of the portfolio may be invested in any one issuer's commercial paper and corporate notes when combined. There is 25% limit on the percentage of a portfolio that can be invested in this category.
8.168.5_Bank Deposits
Funds in banks or other depository institutions may be in demand accounts (checking) or investments in accounts that have a fixed term and negotiated rate of interest. California law requires that public deposits in banks be insured by the Federal Deposit Insurance Corporation (FDIC), or, to the extent not insured, collateralized with certain types of securities. There is no limit on the percentage of a portfolio that can be invested in this category.
8.198.6 Medium-term Corporate Notes
Medium-term notes are defined as all corporate and depository institution debt securities with a maximum remaining maturity of not more than five years. They must be issued by corporations organized and operating within the United States. Notes eligible for investment shall be rated in the A category by a Nationally Recognized Statistical Rating organization. No more than 3% of the total assets of the portfolio may be invested in any one issuer's medium-term corporate notes and commercial paper when combined. There is 25% limit on the percentage of a portfolio that can be invested in this category.
8.228.7 Municipal Notes or Bonds
Obligations of a political subdivision of the United States are investments authorized by this policy.
Page
City of Laguna Beach Investment Policy
At the time of purchase, long-term investments must have a rating in the A category, or better, by at least two Nationally Recognized Statistical Rating Organizations. Short-term investments must have a rating of A-1/P-1/F1 or better by a Nationally Recognized Statistical Rating Organization. Municipal debt issued by the City of Laguna Beach is exempt from the credit rating requirement.
No more than 5% of the total assets of the portfolio may be invested in any one issuer's municipal notes or bonds unless the issuer is the City of Laguna Beach and the investment was qualified as a Specific Investment described in 2.0 of this policy, in which case the limit is 10% of total assets in the portfolio. There is 25% limit on the percentage of a portfolio that can be invested in this category.
8.258.8 Investment Pools
Investment pools are organized and operated by a treasurer, investment officer, or external investment advisory firm. The Local Agency Investment Fund (LAIF is the only -investment Ppool authorized as of the date this policy was adopted though additional pools may be recommended from time to time for approval by the City Council in accordance with Section 10.0d. LAIF is a State of California managed investment pool established by the State Treasurer for the benefit of local agencies. There is no limit on the percentage of a portfolio that can be invested in this category.
8.9+ Supranational Securities
Supranational securities are defined as United States dollar denominated senior unsecured. unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) or Inter- American Development Bank (IADB), with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Supranational securities eligible for investment shall be in the rating category "_AA"" or better from at least two Nationally Recognized Statistical Rating Organizations. There is a 5% limit on the percentage of a portfolio that can be invested in this category.
8.288.9 8.10 Money Market Mutual Funds/Share of Beneficial Interest Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940.
Investments in this category shall be restricted to money market mutual funds which seek to maintain a Net Asset Value of $1.00. Money market mutual funds provide daily liquidity; therefore, there is no final stated maturity for this investment category. Investments in mutual funds shall be restricted to funds which have the highest ranking or the highest letter and numerical rating provided by not less than two of the following nationally recognized statistical rating organizations: Moody's, Standard & Poor's, or Fitch. Purchases in this category shall not exceed 20% of the book value of the investment portfolio.
Purchases in a single money market mutual fund shall not exceed 20% of the book value of the investment portfolio.
U.S. Government Agency Mortgage Passthrough Securities
Obligations, participations or other instruments of or issued by a Federal agency or a United States Government Sponsored Enterprise (GSE). Mortgage Pass Through securities eligible for investment shall be fully backed by a GSE and in the rating category "AA" or better from at least two Nationally Recognized Statistical Rating Organizations. Any purchases in this category will consist of high quality. liquid securities with a maximum maturity of 5 years. There is 2% limit on the percentage of the portfolio 7 City of Laguna Beach Investment Policy
that can be invested in this category and at or below Par dollar price.
8.1220 Additional Considerations and Special Legal Note Within the portfolio, callable securities (i.e. securities redeemable in part or in full by the issuer prior to the maturity date) shall not exceed 30% of the portfolio. Callable securities- which have passed their final call date and are no longer callable will not be included when- calculating the 30% limit.
Any State of California legislative action that further restricts allowable maturities, investment type or percentage allocations, shall be incorporated into this Investment Policy and supersede any and all previous applicable provisions inconsistent with such legislative action.
9.19.0 REVIEW OF INVESTMENT PORTFOLIO:
Securities shall be purchased in conformity with Section 5, '_Investment Authority," and must comply with Section 8.0 '"Authorized and Suitable Investments, " at the time of purchase. If at a later date, a security is no longer in compliance with Section 8.0, the person responsible for the investment, management, or oversight of the security in accordance with Section 5.0 of this Investment Policy, shall report the non-compliant security to the City Council (and the City Manager, as appropriate) and shall include a disclosure in the monthly Investment Report if the security is held at the date the report is prepared.
10.210.0 INVESTMENT POOLS:
A thorough investigation of the pool is required prior to recommending authorization for investment. A questionnaire shall be developed that will provide the following information; A description of eligible investment securities, and a written statement of investment policy and objectives;
• A description of interest calculations and how they are distributed, and how gains and losses are treated; A description of how the securities are safeguarded (including the settlement processes) and how often the securities are priced and the program audited;
• A description of who may invest in the program, how often, and what size deposits and withdrawals are allowed:
• A schedule for receiving statements and portfolio listings; • A description of the utilization and level of reserves, retained earnings or other collateral and how they are used by the fund;
• A fee schedule, and when and how is it assessed; and
• Whether the fund is eligible for bond proceeds and/or whether it will accept such proceeds.
11.0 UNAUTHORIZED INVESTMENTS:
Certain investments are prohibited by Government Code section 53601.6. Additionally, any except Page
8 City of Laguna Beach Investment Policy
for investments not specifically authorized by this policy, including without limitation those; authorized as Specific Investment Accounts (Section 2.0): or authorized within a debt financing agreement (Section
19.0), are prohibited by the policy. Without limiting the foregoing. this policy expressly disallows investment in the following due to a higher perceived risk: , any investment not specifically authorized by ageney holds the security to maturity (except for money market funds). Besides investments prohibited by statute, this Policy disallows investment in the following due to a higher perceived risk:
• Asset -backed securities (ABS) are supported by pools of installment loans or leases or by pools of revolving lines of credit;
Investment agreements are contracts regarding funds deposited by an investor often separated into those offered by banks and those offered by insurance companies commonly known as GICs;
Non-GSE Mortgage-backed securities are created when a non-GSE mortgagee or purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interests or participations in the pool; Repurchase agreements are a short-term purchase of securities with a simultaneous agreement to sell the securities back on a specified date at an agreed upon price;
• • Reverse-repurchase agreements involve an investor borrowing cash from a financial institution for securities;
• Securities lending agreements allow local agencies to earn incremental income on their investment portfolio by loaning securities in their portfolio to financial services companies for a limited time;
• Mutual funds are various forms of beneficial interests, issued by diversified management companies that do not maintain a stable Net Asset Value of In addition to the above specific investments, it can be generalized that investments with the following characteristics are unauthorized by this City Investment Policy:
• asperiter pite for a peived the buyer the right to buy or sell an obligation at • Derivatives have a principal and/or interest payment subject to uncertainty a o timing and/or amount
• instrument at a specte price and on a spedid contracts to buy or sell financial
12.0 COLLATERALIZATION:
Page
9 City of Laguna Beach Investment Policy
All demand deposits, time deposits and certificates of deposits that are not insured by the Federal Deposit Insurance Corporation "_FDIC"" must be fully collateralized under the Government Code.
15.013.0 SAFEKEEPING AND CUSTODY:
All security transactions entered into by the City of Laguna Beach shall be conducted on a delivery-versus-payment (DVP) basis. An independent, third-party custodian designated by the person responsible for investing, managing, or overseeing the management of such securities as set forth in Section 5.0 of this Investment Policy shall hold all securities. The third-party custodian shall be required to issue a safekeeping receipt to the City that lists the specific instrument, rate, maturity and other pertinent information.
16.014.0 DIVERSIFICATION:
Consistent with the City's investment philosophy described in Section 3.0 above, it is the policy to diversify the investment portfolio to minimize the risk of loss resulting from over concentration of assets in a specific maturity, specific issuer, or specific class of securities. Diversification strategies- shall be established and periodically reviewed.
Diversification standards by security type and issuer shall be:
0%to 100%
• U.S. Treasury securities;
• U.S. Government Agency securities;
• Local Agency Investment Fund;
• Bank Deposits.
0%to 25%
• Certificates of Deposit;
• Bankers' Acceptances;
~ Commercial Paper*;
• Medium term corporate notes *;
• Municipal notes or bonds**.
0%to 5%
• Supranational securities.
0%to 20%
• Money market mutual funds.
*No more than 3% of the total assets of the portfolio may be invested in the securities issued by- a single entity.
** No more than 5% of the total assets of the portfolio may be invested in the securities issued by- a single entity.
Page
10 City of Laguna Beach Investment Policy
17.015.0 MAXIMUM MATURITIES:
To the extent possible, the City of Laguna Beach will match security maturities to cash flow requirements during the remaining budgeted period. Investments will have a maximum remaining maturity of only the limitations imposed by state law or five (5) years from purchase, whichever is shorter. (
19.016.0_INTERNAL CONTROL:
The City Treasurer, in cooperation with the City Manager, and the City Manager shall each establish a process of independent review every year for the investments of which they are respectively responsible or oversee the management, as set forth in Section 5.0 of this Policy. The independent auditor to perform the review shall be selected by the City Council. This review shall include procedures that test the compliance with the policies and procedures set forth in this Investment Policy.
22.017.0 PERFORMANCE STANDARDS:
The investment portfolio shall be designed with the objective of obtaining a benchmark rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs.
22.317.1 Benchmark Rate of Return
The City"'s investment strategy is passive. Given this strategy, the person responsible for, managing, or overseeing the investments, as set forth in Section 5.0 of this Policy, shall determine whether market yields are being achieved by comparing the average City portfolio yield to the 2- year U.S. Treasury Note or the treasury security that most closely matches the duration of the portfolio, whichever is shorter. The market yield (benchmark rate of return) is an objective of this Investment Policy, as referenced above in Section 4.3.
25.018.0 _SOCIALLY RESPONSIBLE INVESTING:
In addition to the philosophy and objectives established in Sections 3.0 and 4.0, direct investments should not be made in the securities of companies in the following industries:
• Drilling and production of fossil fuels.
• Manufacture of tobacco products.
19.0 INVESTMENT OF DEBT PROCEEDS AND OTHER FINANCING PROCEEDS:
22.020.0 REPORTING:
The City Treasurer shall prepare a monthly investment report, in accordance with this Section, Page
11 City of Laguna Beach Investment Policy
Section 5.0, and Section 41004, to be submitted to the City Council and City Manager. However, when surplus investments are directed by the City Council to be managed by an outside investment manager, the City Manager or designee, in addition to the City Treasurer, shall prepare a monthly investment report to be submitted to the City Council, as detailed in Section 5.0 Each monthly investment report required by this Section, Section 5.0, and Section 41004 shall provide a clear, accurate and complete depiction of the relevant investment portfolio. Each monthly report shall be provided to the City Council at a public meeting and shall be available for public viewing on the City of Laguna Beach website. Schedules in the monthly investment report shall include the following;
• A listing of individual securities held at the end of the reporting period by authorized investment category,
• Average duration and final maturity of all investments listed, • Credit rating.
• Coupon, discount or earnings rate, and yield.
• The benchmark 2-year U.S. Treasury note,
• Par value and fair value and
including a
• Pemention of thelmortions set presh in this polich investment category, Quarterly, an expanded report that includes distribution maturity, investment type summaries, rating summary and a two-year cash flow forecast by quarter will be prepared and presented at a public meeting if requested by the City Council.
23.021.0 INVESTMENT POLICY ADOPTION:
The City's Investment Policy shall be adopted by resolution of the City Council. The Investment Policy shall be reviewed annually by the City Council. Any modifications made to the Investment Policy must be approved by the City Council.
Page
12 City of Laguna Beach Investment Policy
GLOSSARY
AGENCY SECURITIES (AGENCIES): Sponsored by the Federal government set up to supply credit to various classes of institutions. Examples include Federal Home Loan Banks (FHLB), Federal Farm Credit Bank (FFCB), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and Sallie Mae.
ANNUAL COMPREHENSIVE FINANCIAL REPORT: The official annual report for the City of Laguna Beach (formerly known as the ACFR). It summarizes the City's financial activity for its fiscal year and all funds of the City, including funds relating to those agencies over which the City Council exercises control and appoints the voting majority of the governing board. The annual fiscal year for the City begins on July Ist and ends on June 30th of the following year. The ACFR is prepared in conformity with Generally Accepted Accounting Principles (GAAP) and pronouncements set forth by the Governmental Accounting Standards Board (GASB) and is audited by a firm of licensed independent public accountants.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust- company. The accepting institution guarantees payment of the bill and the issuer.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments.
BOOK VALUE: Generally recognized as amortized cost (also known as carrying value) for a given investment security.
BROKER/DEALER: An individual or firm that brings buyers and sellers together in a securities transaction.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a Certificate. Large-denomination CD's are typically negotiable.
CITY TREASURER: The official holding the elected Office of City Treasurer.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public CREDIT RATING: An independent. letter-based assessment by a Nationally Rated Statistical Rating Organization evaluating the creditworthiness of a debt issuer and their capacity to repay financial obligations. It measures default risk, with higher ratings which indicate a lower risk and lower borrowing cost.
CREDIT RISK: The possibility that an issuer or counterparty will fail to meet its financial obligations in part or in whole.
ANNUAL COMPREHENSIVE FINANCIAL REPORT: The official annual report for the- City of Laguna Beach (formerly known as the CAFR). It includes five combined statements for each- City of Laguna Beach Investment Policy
individual fund and account group prepared in conformity with Generally Accepted Accounting Principles (GAAP). It also includes supporting schedules necessary to demonstrate compliance with- GAAP, finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section.
CITY MANAGER: The City Official appointed to serve as the executive and administrative head of the City-of Laguna Beach, as set forth in Chapter 2.08 of the Laguna Beach Municipal Code.
CORPORATE MEDIUM-TERM NOTE - Corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment CURRENT YIELD: The earnings rate which is calculated by the custodial bank. It is defined as the income from a security divided by the fair value.
DEALER: A dealer acts as a principal in all transactions, buying and selling for his own account.
DELIVERY VERSUS PAYMENT (DVP): Delivery of securities with a simultaneous exchange of money.
DEPUTY: Deputy Treasurer that is appointed by the City Treasurer and for whose acts she or her bondsmen are responsible. The Deputy Treasurers) eligible to work in the area of investment of funds are subject to City Council approval.
DERIVATIVES: Financial products dependent for their value on (or derived from) an underlying financial instrument, a commodity, or an index.
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 at a discount.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns.
EXTERNAL MANAGERS/ADVISORS: Professional firms who manage Investment. portfolios for Corporations and Public entities. Generally, these firms provide "best practice" reviews and recommendations to the contracting party on portfolio selection, duration and other factors including the impact to the contracting parties' cash flow.
EXTERNAL PORTFOLIO: Defined as one or more of the Investment Pool managed by an outside Investment Advisor
FAIR VALUE: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date as determined by the custodial bank. The value of a securitv on the date that financial statements are prepared in Page
14 City of Laguna Beach Investment Policy
accordance with Generally Accepted Accounting Principles.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits up to $250,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (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, second loans and 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 to influence the volume of bank credit and money.
GOVERNMENT CODE: The Government Code of the State of California.
GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB): The independent organization that establishes and improves standards of accounting and financial reporting for the United States, state and local governments.
INTEREST RATE RISK: The possibility that an instrument's value will fluctuate in response to current or expected market interest rate changes.
INTERFUND TRANSFER: The transfer or loan from another fund within the City-of Laguna- Beach.
INVESTMENT ADVISORY COMMITTEE: A committee created by Resolution 25.035 to provide additional oversight of investment policies, promote diversified and risk-appropriate investment strategies, and ensure alignment with investment objectives. The committee serves in an advisory capacity to the City Treasurer and City Council.
LIQUIDITY: An asset that could be converted easily and rapidly into cash without a substantial LIQUIDITY RISK: The possibility that an investment cannot immediately be converted into cash at little or no loss of value.
Page
15 City of Laguna Beach Investment Policy
LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from political subdivisions 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.
MARKET RATE OF RETURN: A rate of return commensurate with the market for similar securities (maturity, credit rating, duration and liquidity would be considered a market rate of MATURITY: The date upon which the principal or stated value of an investment becomes due.
MONEY MARKET MUTUAL FUNDS: Open-ended mutual fund that invests in commercial paper, banker's acceptances, repurchase agreements, government securities, certificates of deposit and other highly liquid securities and pays money market rates of interest.
MUNICIPAL ADVISOR RULE: A regulation of non-dealer municipal advisors"'" such as financial advisors. In addition, the rule pertains to banks and broker dealers acting as municipal advisors. Municipal advisors have a fiduciary responsibility to the government agency receiving their services and they must register with the SEC. Municipal finance professionals that do not have a fiduciary duty to issuers cannot provide advice to governments unless certain exemptions are met.
The SEC has published a list of frequently asked questions:
http://www.sec.gov/info/municipal/mun-advisors-faqs.pdf.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO):
Firms that review the creditworthiness of the issuers of debt securities and express their opinions in the form of letter rating categories (e.g., AAA, AA, A, BBB, etc). The rating agencies include but are not limited to: Standard & Poor"'s Corporation, Moody's Investor Services, Inc.; Fitch, Inc. and Dominion Bond Rating Service, Ltd. Each investment is to comply with the credit quality requirements specified for its class. If split-rated, the lower investment rating will be measured.
NET ASSET VALUE: The per-share market value of a mutual fund. calculated by subtracting total liabilities from total assets and dividing by outstanding shares. It acts as the "price at which investors buy or redeem fund shares, updated daily after market close.
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 to PAR VALUE: The face value or principal amount payable at maturity.
PORTFOLIO: Collection of securities held by an investor.
RIMARY DEALER: A group of government securities dealers that serve as tradin ounterparties of the New York Federal Bank in implementing monetary policy. This role include e obligations to (i) participate consistently in open market operations to carry out U.S. moneta licy under the direction of the Federal Open Market Committee (FOMC) and (ii) provide the Ne _Page
16 City of Laguna Beach Investment Policy
York Federal Banks's trading desk with market information and analysis helpful in the formation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Federal Bank when it transacts for its foreign official account holders.
PRUDENT INVESTOR STANDARD: When investing. reinvesting. purchasing. acquiring. exchanging, selling. or managing public funds, a trustee shall act with care, skill. prudence and diligence under the circumstances then prevailing. including. but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
PURCHASE YIELD: The income provided by a security and expressed as a percentage at the time of purchase as calculated by Bloomberg Financial Services. It is defined as the income from the security divided by the purchase price.
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 City of Laguna- Beach-calculates the rate of return based on the purchase price and the interest rate paid by the security when the Investment Report was prepared.
SAFEKEEPING: A service provided by banks and trust companies when the bank or trust company stores the securities, receives interest payments and redeems issues at maturity.
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.
SUPRANATIONAL SECURITIES: Development banks that share the same goal of providing an improved standard of living in their member countries, but each having different mandates.
There are three banks (supranationals) in which California local agencies can invest in their debt obligations: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) and Inter-American Development Bank (IADB).
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 NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direc bligations of the U.S. Government and having initial maturities of one to 10 year YIELD: (The rate of annual income returnreturned on an investment, expressed as a percentage. - Commented [KC1]: Revise There are nine-multiple methods of calculating yield identified by the California Debt and Page
17 City of Laguna Beach Investment Policy
Investment Advisory Commission. The Treasurer shall seleet the method he or she thinks would be- most informative to the reader of the report:At a minimum, the Current Yield reported by the custodian shall be reported for each investment.
Page
18 City of Laguna Beach Investment Policy
CALIFORNIA
City of Laguna Beach
Broker/Dealer Questionnaire and Certification
2.1. _N
ame of Firm:
4.2. A
ddress:
5.3. _Telephone: ( )
7.4. E
-mail and website:
7.5. rimary Representative:
Title:
Telephone: ( )_
E-mail:
Are you or have you been a broker or dealer approved by the City Treasurer? If so, how many years?
13.7. What type of investments authorized by the California investment code and the City of Laguna Beach Investment Policy does your firm offer? _Page
19 City of Laguna Beach Investment Policy
Please identify three California governmental agencies with a contact name, phone number and the number of years you have been doing business with that agency that we may contact for a reference.
15.9. des your firm current
id during the prior seven years comply with the net capital requirements i SEC rule 15c3-1?
17.10._ Has your firm ever been subject to a regulatory, state or federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities? Have any of your employees been investigated? If so, please explain.
18.11. Please provide the audited financial statement for your firm and proof of FINA report and California registration with this questionnaire and certification.
CERTIFICATION
I certify under penalty of perjury under the laws of the State of California that I have read the City of Laguna Beach!'s Investment Policy and the laws of the State of California related to authorized and suitable investments and that I will only offer such authorized and suitable investments for sale to the Signed:_
Dated:
_Page
20 City of Laguna Beach Investment Policy