Agenda packet — Live Oak City Council, October 19, 2022 (part 2 of 2)

Investments shall be made 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 a broad spectrum of investment opportunities as long as the investment is deeded prudent under current law.

The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio.

All persons investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds shall act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the City.

It is the City's intent at the time of purchase to hold all investments until maturity to ensure the return of all invested principal dollars but sales prior to maturity are permitted.

IV. Objectives
A. Investment Criteria:

Government Code Section 53600.5 states: “When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, the primary objective of the trustee shall be to safeguard the principal of funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its control”.

Simply stated, safety of principal is the foremost objective, followed by liquidity and return on investment (known as yield). Each investment transaction shall seek to first ensure the capital losses are avoided, whether they are from market erosion or security defaults.

The primary objectives, in priority order, of the City's investment activities shall be:

1. Safety - Safety of principal is the foremost objective of the investment program. The City's investments shall be undertaken in a manner that 320

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3 seeks to ensure preservation of capital in the portfolio. The City shall seek to preserve principal by mitigating the two types of risk, credit risk and market risk. Investment decisions should not incur unreasonable credit or market risks in order to obtain current investment income. a. Credit Risk: Defined as the risk of loss due to failure by the issuer of a security
b. Market Risk: Defined as the risk of market value
fluctuations due to overall changes in the general level of interest rates.

2. Liquidity - The City's investment portfolio will remain sufficiently liquid to enable the City to meet its cash flow requirements. An adequate portion of the portfolio should be maintained in liquid short-term securities which can be converted to cash and guarantee the City’s ability to meet operating expenditures.

3. Return on Investment (Yield) - The City's investment portfolio shall be designed with the objective of attaining a market rate of return on its’ investments consistent with the constraints imposed by its safety objective and cash flow considerations. Yield is to be a consideration only after the basic requirements of adequate safety and liquidity have been met.

B. Market Rate of Return
The investment portfolio shall be managed to attain a market average rate of return throughout budgetary and economic cycles. This takes into account the City’s cash flow requirements and investment risk constraints, state and local laws and ordinances or resolutions that restrict the placement of short-term funds.

C. Performance Standards
The investment portfolio shall be managed with the objective of producing a yield meeting or exceeding the average return on the one-year U.S. Treasury.

This index is considered a benchmark for low to moderate risk investment transactions. Therefore, they comprise a minimum standard for the portfolio’s rate of return. The investment program shall seek to augment returns above this threshold, consistent with risk limitations identified herein and prudent investment principles. This benchmark will be reviewed thoroughly and may be adjusted as required by market conditions to prevent incurring unreasonable 321

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4 risks to attain yield.

D. Diversification
The investment portfolio shall be diversified to prevent incurring unreasonable and avoidable risks regarding specific security types, individual financial institutions or maturity segments.

E. Public Trust
Public Trust - All participants in the investment process shall act responsibly as custodians of the public trust. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust.

V. Delegation of Authority
The management and oversight responsibility for the investment program in hereby delegated to the Finance Director (Treasurer) and City Manager who shall monitor and review all investments for consistency with this investment policy. The City Manager and Treasurer shall jointly establish procedures to implement and monitor this investment policy. Such procedures shall include explicit delegation of persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the limits of this policy.

VI. Ethics and Conflict of Interest
Officers and employees involved in the investment process shall refrain from personal business activities that could conflict with proper execution of the investment program, or that could impair their ability to make impartial decisions.

VII. Selection of Financial Institutions and Broker/Dealers To provide for the optimum yield in the City's portfolio, the City's procedures shall be designed to encourage multiple bids and offers on investment transactions from an approved list of broker/dealers. The Treasurer shall maintain a list of authorized broker/dealers and financial institutions, which are approved for investment purposes, in the State of California, and it shall be the policy of the City to purchase securities only form authorized institutions or firms. The investment guidelines and procedures shall identify the criteria under which brokers and dealers may qualify to conduct business with the City.
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In addition, all dealers approved to do business with the City shall receive a copy of the Investment Policy annually. Confirmation of receipt of this policy shall signify that the dealer understands the Investment Policy and intends to present only appropriate investments.

VIII. Permitted Investment Instruments
Allowable investment instruments are defined in the California Government Code Section 53600 et. seq., as amended. If the Code is further revised to allow additional investments or is changed regarding the limits on certain categories of investments, the City is authorized to conform to these changes, excluding those changes that may be prohibited by this policy. Where Government Code Section specifies a percentage limitation for a particular category of investments, that percentage is only applicable only at the date of purchase.

Investments may be made in the following instruments:

1. Government obligations pledged by the full faith and credit of the United States for the payment of principal and interest.

2. Obligations issued by Agencies or Instrumentalities of the U.S. Government.

3. Repurchase Agreements used solely as short-term investments not to exceed one year.

The following collateral restrictions will be observed: Only U.S. Treasury securities or Federal Agency securities will be acceptable collateral. All securities underlying Repurchase Agreements must be delivered to the City's custodian bank versus payment. 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 reviewed on a regular basis and adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investment in repurchase agreements shall be in compliance if the value of the underlying securities is brought back to 102 percent no later than the next business day.

Repurchase Agreements are required to be signed with a bank or dealer prior to investment.
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6 4. Banker's Acceptances issued by domestic or foreign banks, which are eligible for purchase by the Federal Reserve System, the short-term paper of which is rated in the highest category by Moody's Investors Services or by Standard & Poor's Corporation.

Purchases of Banker's Acceptances may not exceed 180 days maturity or 40 percent of the City's surplus money. However, no more than $2,000,000 of the City's surplus funds may be invested in the Banker's Acceptance of any one commercial bank.

5. Commercial paper rated in the highest short term rating category, as provided by Moody's Investors Service, Inc. (P-1) or Standard & Poor's Corporation (A-1) provided that the issuing corporation is organized and operating within the United States, has total assets in excess of $500 million, and has an "A" or higher rating for its long-term debt, (if any, as provided by Moody's or Standard & Poor's).

Purchases of eligible commercial paper may not exceed 270 days maturity nor represent more than $1,000,000 from an issuing corporation.

Purchases of commercial paper may not exceed 15 percent of the City's surplus money that may be invested.

6. Medium term corporate notes of a maximum of five years maturity 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. Medium term corporate notes shall be rated in a rating category of “A” or its equivalent or better by a nationally recognized rating agency.

Investments will be limited to a maximum of 30% of the City's portfolio. The maximum principal amount in any one company will not exceed $1,000,000.

7. FDIC insured or fully collateralized time certificates of deposit in financial institutions located in California, including United States branches of foreign banks licensed to do business in California. The maximum maturity of a time deposit shall not exceed 180 days. All time deposits must be collateralized in accordance with California Government Code section 53651 and 53652, either using:
a) 150% of promissory notes secured by first mortgages and first trust deeds upon improved residential property in California eligible under Section 53601 (m), or
b) 110% of eligible marketable securities listed in subsections (a) through (l) 324

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7 and (n).

8. Negotiable certificates of deposit or deposit notes issued by a nationally or state chartered bank or a state or federal savings and loan association or by a state licensed branch of a foreign bank; provided that the senior debt obligations of the issuing institution are rated "AA" or better by Moody's or Standard & Poor's.

Purchase of negotiable certificates of deposit may not exceed 30 percent of the City's surplus money.

9. State of California's Local Agency Investment Fund. (LAIF) Investment in LAIF may not exceed limits as set forth by the LAIF Board and adjusted from time to time. The current per account limit is $2075 million per account.

10. CLASS - the California Pooled Investment Authority - a statewide joint powers authority (JPA), locally controlled by municipal finance professionals.

CLASS is a program provided through MBIA Municipal Investors Service Corporation, backed by a letter of credit, and limited to investment practice consistent with California State Government Code Section 53600 et. al.

11. Shares of beneficial interest issued by diversified management companies (Money Market Mutual Funds) investing in the securities and obligations authorized by sections a through l of Government Code section 53601. To be eligible for investment pursuant to this subdivision these companies shall either:
(1) attain the highest ranking letter or numerical rating provided by not less than two of the three largest nationally recognized rating services or (2) have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in securities and obligations authorized by Government Code Section 53601 and with assets under management in excess of $500,000,000.

The purchase price of shares shall not exceed 10 percent of the City's surplus money.

Table A summarizes the maximum percentage and maturity limits, plus other constraints, by instrument, established for the City's total pooled funds portfolio. 325

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8 IX Safekeeping of Securities
To protect against fraud or embezzlement or losses caused by collapse of an individual securities dealer, all securities owned by the City shall be held in safekeeping by a third party bank trust department. Designated third party's shall act as agent for the City under the terms of a custody agreement or PSA agreement (repurchase agreement collateral). All trades executed by a dealer will settle delivery vs. payment (DVP) through the City's safekeeping agent. Original copies on non-negotiable certificates of deposit and confirming copies (safekeeping receipts) of all other investment transactions must be delivered to the City. Investment officials shall be bonded to protect the public against possible embezzlement or malice.

Securities held in custody for the City shall be independently audited on an annual basis to verify investment holdings as part of the City’s annual financial statement audit.

X Maximum Maturity
Investment maturities shall be based on a review of cash flow forecasts. Maturities will be scheduled so as to permit the City to meet all projected obligations.

Investments that mature more than five years from the date of purchase cannot occur without prior approval of the City Council or Agency Board. As defined in Government Code Section 53601, “no investment shall be made in any security… that at the time of investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment approved by the legislative body no less than three months prior to the investment.”
XI Ineligible Investments
Certain investments are prohibited under Government Code Sections 53601.6 and 53631.5. Security types, which are prohibited, include, but are not limited to:
(a) "Complex" derivative structures such as range notes, dual index notes, inverse floaters, leveraged or deleveraged floating rate notes, or any other complex variable rate or structured note. (b) Interest only strips that are derived from a pool of mortgages or any security that could result in zero interest accrual if held to maturity.
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9 (c) Reverse Repurchase Agreements.

Purchasing these types of instruments does not coincide with this Policy’s objectives and would require a thorough review and monitoring of the underlying security.

Although some of these transactions are legal under Government Code, they do not meet the objectives contained herein.

By virtue of the allowable investment in the State or CLASS Pools, the City is investing idle cash with a large number of government agencies. The Pools are managed by outside administrators and are subject of the Government Codes as well as polices put in place by their governing boards. Either Pool’s investment policy may allow for investment in some of the prohibitions noted above for San Rafael. Investment in the State and County Pools is permitted, assuming a diminutive portion of their portfolio (10% or less) is tied to the high-risk products noted above. The Treasurer responsible to monitor and review the Pooled funds portfolio on an ongoing basis. The City shall take any necessary action should either Pool exceed the allowable 10% limit.

XII Reporting Requirements
Pursuant to Government Code Section 53646(a)(2), the Treasurer shall render to the City Council and agency board a separate monthly annual investment report, which shall include, at a minimum, the following information for each individual investment:
- Type of investment instruments (i.e. Treasury Bill, medium term note) - Issuer names (i.e., General Electric)
- Purchase date (trade and settlement date)
- Maturity date
- Par value
- Current rate of interest
- Purchase price
- Current market value and the source of the valuation
- Overall portfolio yield based on cost
- Weighted average days to maturity
The monthly annual report also shall (i) state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance, (ii) include a description of any of the City's funds, investments or programs that are under the management of contracted parties, including lending programs, and (iii) include a statement denoting the ability of the City to meet its expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available.
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10 Market value adjustments, as required under Government Accounting Standards Board (GASB), are treated as year-end accounting adjustments to the financial records of the City. Monthly Annual investment reports will demonstrate market fluctuations and continue to compare purchase price versus market value status. Accounting adjustments under GASB, which compare changes to beginning and ending par market value in each fiscal year, are not included as part of monthly investment reports.

This monthly annual report shall be submitted to the City Council and within 30 60 days following the end of the monthfiscal year. Reporting to the California Debt and Investment Advisory Commission (CDIAC) commenced in January 2001. Live Oak will comply with CDIAC or any other oversight agency reporting requirements.

XIII Policy Adopting Changes and Updates
The Treasurer shall annually render to the Council a statement of investment policy, which the Council shall consider at a public meeting.

The policy shall be reviewed annually by the City Manager and Treasurer to ensure its consistency with the global objective of preservation of investment principal, sufficient liquidity, rate of return and relevance to current laws and financial trends. Any modifications to the policy must be approved by the City Council.

XIV Internal Controls
The Treasurer shall establish and implement a system of internal controls, which shall be documented in writing. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets or imprudent actions by employees and officers of the City.

XV Depositories
The Treasurer shall establish selection criteria for pre-approval of institutions that do business with the City of Live Oak. To qualify for consideration, an institution must have an office in California and that office must perform the transactions with the City.

The Treasurer will maintain a listing of approved institutions.

XVI Risk Tolerance
The City recognizes that investment risk can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Portfolio 328

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11 diversification is employed as a way to minimize and control these risks.

GLOSSARY OF TERMS
Bankers' Acceptances - negotiable time drafts or bills of exchange drawn on and accepted by a commercial bank. Acceptance of the draft obligates the bank to pay the bearer the face amount of the draft at maturity. In addition to the guarantee by the accepting bank, the transaction is identified with a specific commodity. The sale of the underlying goods will generate the funds necessary to liquidate the indebtedness. Banker's Acceptances are usually created to finance the import and export of goods, the shipment of goods within the United States and the storage of readily marketable staple commodities. Banker's Acceptances are sold at a discount from par and the amount and maturity dates are fixed.

Bankers' Acceptances have the backing of both the bank and the pledged commodities with no known principal loss in over 70 years. State law permits cities to invest up to 40% in bankers' acceptances.

Certificate of Deposit - A deposit insured up to $100,000 by the FDIC at a set rate for a specified period of time.

Collateral - Securities, evidences of deposit or pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposit of public moneys.

Corporate Medium Term Notes - Unsecured promissory notes issued by corporations operating within the United States. The notes mature in one to five year periods. Purchase of these notes may not exceed 30% of the City's portfolio and the notes must have at least an "A" rating by a nationally recognized rating service.

Commercial Paper - An unsecured promissory note of industrial corporations, utilities and bank holding companies having assets in excess of $500 million and an "A" or higher rating for the issuer's debentures. Interest is discounted from par and calculated using the actual number of days on a 360-day year. The notes are in bearer form, mature from one to 270 days and generally start at $100,000. There is a secondary market for commercial paper and an investor may sell them prior to maturity. Unused lines of credit back commercial paper from major banks. State law permits cities to invest up to 30% in commercial paper.

Credit Risk - Defined as the risk of loss due to failure of the issuer of a security. This loss shall be mitigated by investing in investment grade securities and by diversifying the investment portfolio so that the failure of any one issuer does not unduly harm the City's capital base and cash flow.

Current Yield - The interest paid on an investment expressed as a percentage of the current 329

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12 price of the security.

Custody - A banking service that provides safekeeping for the individual securities in a customer's investment portfolio under a written agreement which also calls for the bank to collect and pay out income, to buy, sell, receive and deliver securities when ordered to do so by the principal.

Delivery vs. Payment (DVP) - Delivery of securities with a simultaneous exchange of money for the securities.

Fannie Mae - Trade name for the Federal National Mortgage Association (FNMA), a United States sponsored corporation.

Federal Reserve System - The central bank of the United States which consists of a seven member Board of Governors, 12 regional banks and 5,700 commercial banks that are members.

Federal Deposit Insurance Corporation (FDIC) - Insurance provided to customers of a subscribing bank that guarantees deposits to a set limit (currently $100,000) per account.

Freddie Mac - Trade name for the Federal Home Loan Mortgage Corporation (FHLMC), a United States sponsored corporation.

Ginnie Mae - Trade name for the Government National Mortgage Association (GNMA), a direct obligation bearing the full faith and credit of the United States Government.

Interest Rate - The annual yield earned on an investment, expressed as a percentage.

Liquidity - Refers to the ability to rapidly convert an investment into cash.

Local Agency Investment Fund (LAIF) Demand Deposit - Was established by the state to enable treasurers to place idle funds in a pool for investment. Each agency is currently limited by LAIF to an investment of $30 million plus any bond proceeds.

Market Risk - Defined as market value fluctuations due to overall changes in the general level of interest rates. Adverse fluctuation possibilities shall be mitigated by limiting the maximum maturity of any one security to five years, structuring the portfolio based on historic and current cash flow analysis, and eliminating the need to sell securities prior to maturity.

Also, avoiding the purchase of long-term securities for the sole purpose of short-term speculation mitigates marker risk.

Market Value - The price at which a security is trading and could presumably be purchased 330

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13 or sold.

Maturity - the date the principal or stated value of an investment becomes due and payable.

Portfolio - Collection of securities held by an investor.

Purchase Date - The date in which a security is purchased for settlement on that or a later date.

Rate of Return - The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return.

Repurchase Agreement (REPO) - Are contractual arrangements between a financial institution or dealer and an investor. The investor puts up their funds for a certain number of days at a stated yield. In return, they take title to a given block of securities as collateral. At maturity, the securities are repurchased and the funds are repaid with interest.

Reverse Repurchase Agreement (Reverse REPO) - A transaction where the seller (City) agrees to buy back from the buyer (bank) the securities at an agreed upon price after a stated period of time.

Sallie Mae - Trade name for the Student Loan Marketing Association (SLMA), a United States sponsored corporation.

Treasury Bills - United States Treasury Bills which are short term, direct obligations of the United States Government issued with original maturities of 13 weeks, 26 weeks and 52 weeks; sold in minimum amounts of $10,000 in multiples of $5,000 above the minimum.

Issued in book entry form only. T-bills are sold on a discount basis.

United States Government Agencies - Instruments issued by various United States Government Agencies most of which are secured only by the credit worthiness of the particular agency.
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14 Permitted Investments
Table A
State Code City Policy Maximum
Legal Limit Legal Limit Maturity City Policy
Permitted
Investments
(% or $) (% or $) Constraints Other Constraints
U.S. Government
Obligations
Unlimited Unlimited 5 years * None
U.S. Government
Agencies &
Instruments
Unlimited Unlimited 5 years * None
Repurchase
Agreements
Unlimited Unlimited 1 year 102% Market value on underlying securities Bankers
Acceptances
40% 40% 180 days No more than $2,000,000 invested in any one commercial bank
Commercial
Paper
30% 30% 270 days U.S. Corporations with assets in excess of $500,000,000; “A” debt rating; maximum of $1,000,000 from an issuing
corporation
Medium Term
Corporate Notes
30% 30% 5 years U.S. Corporations; “A” debt rating maximum of $1,000,000 per issuing company
Certificates of
Deposit
Unlimited Unlimited 5 years * Must be collateralized to 110% of the CD value by other eligible securities or 150% by promissory notes secured by California Deeds & Mortgages
Negotiable
Certificates of
Deposit
30% 30% 5 years * State and Federally chartered banks and savings institutions, “AA” rating by one agency
LAIF State Pool $3075,000,00
0 **
$3075,000,0
00 **
N/A Limited to 10 transactions per month, per account, per State Policy - last changed 7/1/98
CLASS Unlimited*** Unlimited**
*
N/A None
Mutual Funds 15% 10% N/A Funds invested as defined in Section 53601 (a) to (l); highest debt rating from 2 of top 3 national rating services OR investment advisor registered with SEC for at least 5 years and assets under management in excess of
$500,000,000.
* Maximum terms unless the City Council expressly authorizes longer maturities and within the prescribed time frame for said approval.
**Not set by Government Code, but instead by LAIF Governing Board. ***Investment limits set by California Pooled Investment Authority & MBIA 332

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1 I. Introduction
The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment process and to organize and formalize investment-related activities. Related activities, which comprise sound cash management, include accurate cash flow projections, control of disbursements, expedient collection of revenues, cost effective banking relations and a short term borrowing program, which coordinates investment opportunity with working capital requirements. The ultimate goal is to enhance the economic status of Live Oak while protecting its pooled cash resources.

The investment policies and practices of the City of Live Oak are based on state law and prudent money management. All funds will be invested in accordance with the City's Investment Policy and the authority governing investments for municipal governments as set forth in the California Government Code, Sections 53601 through 53659. Any investment of bond proceeds are to be restricted by the provisions of relevant bond documents.

II. Scope
It is intended that this policy cover all short-term operating funds and investment activities of the City. These funds are accounted for in the annual audited financial statements, and include:
 General Fund
 Special Revenue Funds
 Debt Service Funds
 Capital Projects Funds
 Enterprise Funds
 Internal Service Funds
 Fiduciary Funds
This investment policy applies to all City transactions involving the financial assets and related activity of the above-mentioned funds. Any additional funds that may be created from time to time shall also be administered with the provisions of this policy and comply with current State Government Code.

III. Prudence (Standard of Care)
The City of Live Oak operates its pooled idle cash investments under the prudent man rule (Civil Code Section 2261, et. seq.). In addition, Government Code Section 53600.3 provides that those persons to whom investment decisions have been 333

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2 delegated are trustees with a fiduciary responsibility to act as a prudent investor.

The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio.

It is the City's intent at the time of purchase to hold all investments until maturity to ensure the return of all invested principal dollars but sales prior to maturity are permitted.

IV. Objectives
A. Investment Criteria:

The primary objectives, in priority order, of the City's investment activities shall be:

1. Safety - Safety of principal is the foremost objective of the investment program. The City's investments shall be undertaken in a manner that 334

C. Performance Standards
The investment portfolio shall be managed with the objective of producing a yield meeting or exceeding the average return on the one-year U.S. Treasury.

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4 risks to attain yield.

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5 In order to assist in identifying qualified financial institutions, the Treasurer shall forward copies of the City’s investment policy to those financial institutions with which the City is interested in doing business and will require written acknowledgment of the policy. In addition, all dealers approved to do business with the City shall receive a copy of the Investment Policy annually. Confirmation of receipt of this policy shall signify that the dealer understands the Investment Policy and intends to present only appropriate investments.

Investments may be made in the following instruments:

1. Government obligations pledged by the full faith and credit of the United States for the payment of principal and interest.

2. Obligations issued by Agencies or Instrumentalities of the U.S. Government.

3. Repurchase Agreements used solely as short-term investments not to exceed one year.

Repurchase Agreements are required to be signed with a bank or dealer prior to investment.
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Purchases of eligible commercial paper may not exceed 270 days maturity nor represent more than $1,000,000 from an issuing corporation.

Purchases of commercial paper may not exceed 15 percent of the City's surplus money that may be invested.

Investments will be limited to a maximum of 30% of the City's portfolio. The maximum principal amount in any one company will not exceed $1,000,000.

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7 (l) and (n).

Purchase of negotiable certificates of deposit may not exceed 30 percent of the City's surplus money.

9. State of California's Local Agency Investment Fund (LAIF) Investment in LAIF may not exceed limits as set forth by the LAIF Board and adjusted from time to time. The current per account limit is $75 million per account.

10. CLASS - the California Pooled Investment Authority - a statewide joint powers authority (JPA), locally controlled by municipal finance professionals.

11. Shares of beneficial interest issued by diversified management companies (Money Market Mutual Funds) investing in the securities and obligations authorized by sections a through l of Government Code section 53601. To be eligible for investment pursuant to this subdivision these companies shall either: (1) attain the highest ranking letter or numerical rating provided by not less than two of the three largest nationally recognized rating services or (2) have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in securities and obligations authorized by Government Code Section 53601 and with assets under management in excess of $500,000,000.

The purchase price of shares shall not exceed 10 percent of the City's surplus money.

Table A summarizes the maximum percentage and maturity limits, plus other constraints, by instrument, established for the City's total pooled funds portfolio. 339

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8 IX Safekeeping of Securities
To protect against fraud or embezzlement or losses caused by collapse of an individual securities dealer, all securities owned by the City shall be held in safekeeping by a third party bank trust department. Designated third party's shall act as agent for the City under the terms of a custody agreement or PSA agreement (repurchase agreement collateral). All trades executed by a dealer will settle delivery vs. payment (DVP) through the City's safekeeping agent. Original copies on nonnegotiable certificates of deposit and confirming copies (safekeeping receipts) of all other investment transactions must be delivered to the City. Investment officials shall be bonded to protect the public against possible embezzlement or malice.

Securities held in custody for the City shall be independently audited on an annual basis to verify investment holdings as part of the City’s annual financial statement audit.

X Maximum Maturity
Investment maturities shall be based on a review of cash flow forecasts. Maturities will be scheduled so as to permit the City to meet all projected obligations.

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9 (c) Reverse Repurchase Agreements.

Purchasing these types of instruments does not coincide with this Policy’s objectives and would require a thorough review and monitoring of the underlying security.

Although some of these transactions are legal under Government Code, they do not meet the objectives contained herein.

XII Reporting Requirements
Pursuant to Government Code Section 53646(a)(2), the Treasurer shall render to the City Council and agency board a separate annual investment report, which shall include, at a minimum, the following information for each individual investment:
- Type of investment instruments (i.e. Treasury Bill, medium term note) - Issuer names (i.e., General Electric)
- Purchase date (trade and settlement date)
- Maturity date
- Par value
- Current rate of interest
- Purchase price
- Current market value and the source of the valuation
- Overall portfolio yield based on cost
- Weighted average days to maturity
The annual report also shall (i) state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance, (ii) include a description of any of the City's funds, investments or programs that are under the management of contracted parties, including lending programs, and (iii) include a statement denoting the ability of the City to meet its expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available.
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10 Market value adjustments, as required under Government Accounting Standards Board (GASB), are treated as year-end accounting adjustments to the financial records of the City. Annual investment reports will demonstrate market fluctuations and continue to compare purchase price versus market value status. Accounting adjustments under GASB, which compare changes to beginning and ending par market value in each fiscal year, are not included as part of monthly investment reports.

This annual report shall be submitted to the City Council within 60 days following the end of the fiscal year. Reporting to the California Debt and Investment Advisory Commission (CDIAC) commenced in January 2001. Live Oak will comply with CDIAC or any other oversight agency reporting requirements.

XIII Policy Adopting Changes and Updates
The Treasurer shall annually render to the Council a statement of investment policy, which the Council shall consider at a public meeting.

The Treasurer will maintain a listing of approved institutions.

XVI Risk Tolerance
The City recognizes that investment risk can result from issuer defaults, market price 342

CITY OF LIVE OAK
INVESTMENT POLICY (October 2022)
11 changes or various technical complications leading to temporary illiquidity. Portfolio diversification is employed as a way to minimize and control these risks.

Bankers' Acceptances have the backing of both the bank and the pledged commodities with no known principal loss in over 70 years. State law permits cities to invest up to 40% in bankers' acceptances.

Certificate of Deposit - A deposit insured up to $100,000 by the FDIC at a set rate for a specified period of time.

Collateral - Securities, evidences of deposit or pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposit of public moneys.

CITY OF LIVE OAK
INVESTMENT POLICY (October 2022)
12 Current Yield - The interest paid on an investment expressed as a percentage of the current price of the security.