RESOLUTION NO. 25-4897
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
MURRIETA, CALIFORNIA, ADOPTING THE FISCAL YEAR 2025/26
INVESTMENT POLICY
WHEREAS, California Government Code section 53646 provides for the treasurer or chief financial officer of a local agency to present to the legislative body of that agency a statement of the agency’s investment policy; and
WHEREAS, on December 3, 2024, the City Council of the City of Murrieta (“City”) adopted Resolution 24-4797 approving the City’s Investment Policy (“Policy”); and
WHEREAS, the Policy should 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 and financial and economic trends; and
WHEREAS, the Treasurer of the City has, through its agent, Chandler Asset Management (“CAM”), reviewed the current Policy, as well as any actions taken by the Legislature of the State of California that would have affected the City’s Policy; and
WHEREAS, Assembly Bill (AB) 2618 went into effect on January 1, 202 5, and implemented changes to local government investing; and
WHEREAS, there are four proposed changes to the Policy recommended by CAM that are consistent with AB 2618; and
WHEREAS, the proposed changes conform with the California Government Code; and
WHEREAS, the Treasurer is recommending that these changes be made to the Policy.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF
MURRIETA, CALIFORNIA, DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. The recitals above are true and correct and incorporated herein by this reference.
Section 2. That the Investment Policy for Fiscal Year 202 5/26, attached hereto as Exhibit A, is approved.
PASSED, APPROVED, AND ADOPTED this 2nd day of December 2025.
______________________________
Cindy Warren, Mayor
ATTEST:
Cristal McDonald, City Clerk
APPROVED AS TO FORM:
Tiffany J. Israel, City Attorney
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE )§
CITY OF MURRIETA )
I, Cristal McDonald, City Clerk of the City of Murrieta, California, do hereby certify that the foregoing Resolution No. 25-4897 was duly passed and adopted by the City Council of the City of Murrieta at the regular meeting thereof, held on the 2nd day of December 2025, and was signed by the Mayor of the said City, and that the same was passed and adopted by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
Cristal McDonald, City Clerk
City of Murrieta Investment Policy Page 1
I - INTRODUCTION
The City Council of the City of Murrieta (City) has adopted this Investment Policy (Policy) in order to establish the investment scope, objectives, delegation of authority, standards of prudence, reporting require ments, internal controls, eligible investments and transactions, diversification requirements, risk tolerance, and safekeeping and custodial procedures for the investment of the funds of the City. All su ch funds will be invested in accordance with this Policy and with applicabl e sections of the California Government Code. This Policy was endorsed and adopted by t he City and is effective as of the 2 nd day of December 2025, and replaces any previous versions.
II - SCOPE
This Policy applies to all operating funds of the City. Non-operating funds may be subject to other prevailing documents, such as a governing bond indenture. This policy excludes Employee Retirement and Deferred Compensation Funds. Additional funds that may be created from time to time shall be added to t he City’s investment portfolio (portfolio) and managed in accordance with the provisions of this Policy.
All cash shall be pooled for investment purpos es. The investment income derived from the pooled investment account shall be alloca ted to the contributing funds based upon the proportion of the respective average balances relative to the total pooled balance in the portfolio. Investment income shall be dist ributed to the individual funds not less than annually.
III - OBJECTIVES
The City’s funds shall be invested in accordance with the City’s Municipal Code and all applicable State statutes and Federal r egulations, and in a manner designed to accomplish the following objectives, which are listed in priority order:
1. Preservation of capital and prot ection of investment principal.
2. Maintenance of sufficient liquidi ty to meet anticipated cash flows.
3. Attainment of a market value rate of return.
4. Diversification to avoid in curring unreasonable market risks.
IV - DELEGATION OF AUTHORITY
The management responsibility for the City’s investment program is delegated by the City Council to the Treasurer pursuant to Ca lifornia Government Code Section 53607 and Section 2.20.030 of the City’s Municipal Code. The City Manager serves as the Treasurer.
The Treasurer has delegated the authority to conduct investment transactions
CITY OF MURRIETA
INVESTMENT POLICY
City of Murrieta Investment Policy Page 2
and to manage the operation of the portfolio to the Finance Director. These officers shall meet regularly to discuss economic and market conditions, and to plan investment strategy to meet the City’s fiscal objecti ves. No person may engage in an investment transaction except as expressly provided under the terms of this Policy.
V - PRUDENCE
The standard of prudence to be used for m anaging the City’s investments shall be California Government Code Section 53600. 3, the prudent invest or standard, which states that “When investing, reinvesting, purchasing, acqui ring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then preva iling, including, but not limit ed 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 w ould 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.”
The City’s overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that no investment is totally without risk and that the investment ac tivities of the City are a matter of public record. Accordingly, the City recognizes that occasional measured losses may occur in a diversified portfolio and shall be considered wit hin the context of the overall portfolio’s return, provided that adequate diversification has been implemented and that the sale of a security is in the best long-term interest of the City.
If, due to market changes or fluctuations in the size of the City’s portfolio, a percentage of portfolio limitation is exceeded, the affected securities may be held to their maturity if the Treasurer believes it is prudent to do so.
The Treasurer and authorized in vestment personnel exercisi ng due diligence shall be relieved of personal responsibility for an indivi dual security’s credit risk or market price changes, provided that the deviations from expec tations are reported in a timely fashion to the City Council and appropriate action is taken to control adverse developments.
VI - ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the City’s investment program shall refrain from personal business activity that could conflict with proper execution of the investment program or that could impair or create the appearance of an impairment of their ability to make impartial investment decisions. These individuals shall disclose to the City Manager any material interests they have in financial institutions that conduct business with the City and they shall subordinate their personal investment transactions to those of the City.
The Treasurer and the Finance Director shall file a Statement of Economic Interests each year pursuant to California Government Code Section 87203 and regulations of the Fair Political Practices Commission.
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VII - AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the City shall be made in accordance with California Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that, pursuant to California Government Code Se ction 5903(e), proceeds of bonds and any moneys set aside or pledged to secure paym ent of the bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of the above referenced code sections will be assumed to be part of this Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Policy and past City investment prac tices, the City may delay adherence to the new requirements when it is deemed in the bes t interest of the Cit y to do so. In such instances, after consultation with the City’ s attorney, the Treasurer will present a recommended course of action to the City Council for approval. Percentage holding limits and credit quality minimums listed in this sect ion apply at the time the security is purchased.
The City has further restricted the eligible types of securities and transactions as follows:
A. United States Treasury bills, bonds, and notes with a final maturity not exceeding five years from the date of trade settlement. There is no limitation as to the percentage of the portfolio that can be invested in this category.
B. Federal Agency Obligations for which the faith and credit of the United States are pledged for the payment of principal and interest, and which have a final maturity not exceeding five years from the date of trade settlement. There is no limitation as to the percentage of the portfolio that can be invested in this category.
C. Federal Instrumentality (government sponsored enterprise) debentures, discount notes, callable securities and step- up securities with a final maturity not exceeding five years from the date of trade settlement. No more than 30% of the portfolio may be invested in any single Federal In strumentality/GSE issuer. The maximum percentage of callable agency securities in the portfolio is 20%.
D. Mortgage-backed Securities, Collateralized Mortgage Ob ligations and Asset- backed Securities limited to mortgage-backed pass-through securities issued by a US government agency or consumer receivable pa ss-through certificates or bonds with a final maturity not exceeding fi ve years from the date of tr ade settlement. The securities are rated in a rating categor y of “AA” or its equivalent or higher by a NRSRO. The aggregate investment in mortgage-backed and asset-backed securities described in this section shall not exceed 20% of the portfolio with no more than 5% held in any one issuer that is not a US government agency.
E. Repurchase Agreements with a final termination date not exceeding one year collateralized with securities authorized un der California Government Code. For the purpose of this section, the term collatera l shall mean purchased securities under the terms of the City’s approved Master Repurchase Agreement. The purchased securities shall have a minimum market value including accrued interest of 102% of the dollar value City of Murrieta Investment Policy Page 4
of the funds borrowed. Coll ateral shall be hel d in the City’s cu stodian bank, as safekeeping agent, and the market value of the collateral securities shall be marked-to- the-market daily.
Repurchase Agreements shall be entered in to only with broker/dealers who are recognized as Primary Dealers by the Federal Reserve Bank of New York or with firms that have a primary dealer wit hin their holding company structure. The Treasurer shall maintain a copy of the City's approved Master Repurchase Agreement along with a list of the broker/dealers who have executed same.
The aggregate investment in Repurchase Ag reements shall not exceed 20% of the portfolio.
F. Prime Commercial Paper with a maturity not exc eeding 270 days from the date of trade settlement with the highest ranking or of the highest le tter and number rating assigned by a NRSRO. The entity that issues the commercial paper shall meet all of the conditions in either sub-paragraph 1) or sub-paragraph 2) below:
1) The entity shall (a) be organized and operat ing in the United St ates as a general corporation, (b) have total assets in excess of $500,000,000, and (c) have debt other than commercial paper, if an y, that is rated in a ra ting category of “A” or its equivalent or higher by a NRSRO.
2) The entity shall (a) be organized withi n the United States as a special purpose corporation, trust, or lim ited liability company, (b) have program-wide credit enhancements, including, but not limited to, over collateralization, letters of credit or surety bond and (c) have commercial paper that is rated in a rating category of “A-1” or its equivalent or higher by a NRSRO.
Not more than 5% of the portfolio may be invested in the commercial paper and medium- term notes of any issuer and the aggregate in vestment in commercial paper shall not exceed 25% of the portfolio. Under a provis ion sunsetting on January 1, 2026, no more than 40% of the portfolio may be invested in Commercial Paper if the Agency’s investment assets under management are greater than $100,000,000.
G. Eligible Bankers Acceptances issued by Federal Deposit Insurance Corporation (FDIC) insured commercial banks, rated at least “A-1” or the equivalent by a NRSRO with maturities not exceeding 180 days from the date of trade settlement. If issuers have senior debt outstanding, it shall be rated in a rating category of “A” or its equivalent or higher by a NRSRO. No more than 5% of th e portfolio shall be invested in bankers acceptances of any one commercial bank, and the aggregate investment in bankers acceptances shall not exceed 30% of the portfolio.
H. Medium-Term Notes issued by corporations organi zed and operating within the United States or by depository institutions licensed by the United States or any state and operating within the Unit ed States. Medium-Term Notes shall have a final maturity not exceeding five years from t he date of trade settlement and must be rated in a rating category of “A” or its equivalent or higher by a NRSRO at the time of purchase. Not more than 5% of the City’s total portfolio shall be invested in the Medium-Term Notes and City of Murrieta Investment Policy Page 5
commercial paper of any one issuer and the aggregate investment in Medium-Term Notes may not exceed 30% of the portfolio.
I. Supranational Securities that are United States dollar denominated senior unsecured unsubordinated obli gations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale withi n the United States.
Investments under this subdivision shall be ra ted in a rating categor y of “AA” or its equivalent or higher by a NRSRO and shall not exceed 30% of the portfolio with no more than 10% invested in any one issuer.
J. State of California’s Local Agency Investment Fund (LAIF), The City may invest up to the maximum amount permitted by LAIF, pursuant to California Government Code Section 16429.1. LAIF’s investments in instruments prohibited by or not specified in the City’s policy do not exclude the investment in LAIF itself from the City’s list of allowable investments, provided LAIF’s reports allow the Treasurer to adequately judge the risk inherent in LAIF’s portfolio.
K. Municipal Bonds , State of California registered warrants or treasury notes or bonds, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state.
Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of t he revenues from a rev enue producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California.
Bonds, notes, warrants, or other evidences of indebtedness of a local agency within California including bonds payable solely out of the revenues fr om a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency.
In addition, these securities must be rated in a rating category of “A” or its equivalent or higher by a NRSRO with maturities not exc eeding five years from the date of trade settlement. No more than 5% of the portfolio shall be invested in any one municipal issuer and the aggregate investment in municipal bonds shall not exceed 30% of the portfolio.
L. Money Market Funds registered under the Investment Company Act of 1940 that are (1) “no-load” (meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the securities and obligations aut horized in the applicable Califo rnia statute; and (4) have a rating in a rating category of “AAA” or its equivalent by at least two NRSROs. Investment in any individual fund may not exceed 10% of the fund, and the aggregate investment in any combination of Money Market Funds and Mutual Funds shall not exceed 20% of the portfolio.
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M. Mutual Funds registered under the Investment Company Act of 1940 that are (1) “no-load” (meaning no commission or fee s hall be charged on purchases or sales of shares); (2) invest only in the securities and obligations authorized in the applicable California statute; and (3) have a rating in a ra ting category of “AAA” or its equivalent by at least two NRSROs. The investment in an y individual Mutual Fund shall not exceed 10% of the portfolio. In addition, investment in any individual fund may not exceed 10% of the fund, and the aggregate investment in any combination of Mutual Funds and money market funds shall not exceed 20% of the portfolio.
N. Negotiable Certificates of Deposit (NCDs) , issued by a nationally or state- chartered bank, a savings associ ation or a federal associati on, a state or federal credit union, or by a federally licensed or state-licensed branch of a foreign bank, provided that:
The amount of the NCD insured up to the FDIC limit does not require any credit ratings; Any amount above the FDIC insured limit must be issued by institutions which have short- term debt obligations rated “A-1” or its equiva lent or better by at least one NRSRO; or long-term obligations rated in a rating category of “A” or its equivalent or higher by at least one NRSRO; No more than 30% of the total portfolio may be invested in NCDs (combined with CDARS); No more than 5% of the portfolio may be invested in any single issuer; The maximum maturity does not exceed five (5) years.
O. Federally Insured Time Deposits (Non- Negotiable Certificates of Deposit) in state or federally chartered banks, savings and loans, or credit unions, provided that: (1) The amount per institution is limited to the maximum covered under federal insurance; (2) No more than 20% of the portf olio will be invested in a combi nation of federally insured and collateralized time deposits; and (3) The maximum maturity does not exceed five (5) years.
P. Collateralized Time Deposits (Non-Negotiable Certificates of Deposit) in state or federally chartered banks, savings and loans, or credit unions in excess of insured amounts which are fully collateralized with se curities in accordance with California law, provided that: No more than 20% of the por tfolio will be invested in a combination of federally insured and collateralized time deposits; The maximum maturity does not exceed five (5) years.
Q. Placement Service Deposits provided that: No more than 30% of the total portfolio may be invested in a combination of qualify ing placement service deposits, including CDARS; Under a provision sunsetting on J anuary 1, 2031, no more than 50% of the portfolio may be invested in deposits through a pl acement service, including Certificates of Deposit, if the Agency is a city, district or local agency that does not pool money with other local agencies. The maximum maturity does not exceed five (5) years.
R. Collateralized Bank Deposits. The City’s deposits with financial institutions will be collateralized with pledged securities per California Government Code, Section 53651.
There are no limits on the dol lar amount or percentage that the City may invest in collateralized bank deposits.
S. Shares of Beneficial Inte rest Issued by A Joint Powers Authority (JPA) , provided that: The JPA is organized pursuant to California Government Code Section 6509.7 and invests in the securi ties and obligations authorized in subdivisions (a) to (r), inclusive. Each share shall represent an equal proportional interest in the underlying pool City of Murrieta Investment Policy Page 7
of securities owned by the JPA. The JPA has retained an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Section 53601, subdivisions (a) to (q).
Summary of Allowable Investments
State Code CGC 53601 City of Murrieta Policy
Max % Required Max % Required
Investment Type Maturity Limit Rating Maturity Limit Rating
US Treasury
5 years
None
None
5 years
None
None
US Agency 5 years None None 5 years None None
US Instrumentality 5 years N one None 5 years None None Mortgage and Asset Backed 5 years 20% “AA” 5 years 20% “AA” Securities2
Repurchase Agreement4 1 year None None 1 year 20% None
Commercial Paper1 270 days 25% 7 A-1/P-1 270 days 25% 7 A-1/P-1 Bankers Acceptances1 180 days 40% A-1/P-1 180 days 30% A-1/P-1 Corporate Notes1 5 years 30% “A” 5 years 30% “A”
Supranational1 5 years 30% “AA” 5 years 30% “AA”
LAIF N/A LAIF None N/A LAIF None
Max Max
Cal. Local Agency1 5 years None None 5 years 30% “A”
State Bonds1 5 years None None 5 years 30% ”A”
Money Market Fund3 N/A 20% Multiple N/A 20% “AAA”
Mutual Fund3 N/A 20% Multiple N/A 20% Multiple
Negotiable CDs5 5 years 30% None 5 years 30% A-1/P-1
FDIC Insured TD6 5 years None None 5 years 20% None
Time Deposits (TD)6 5 years None None 5 years 20% “A”
Placement Deposit Services5 5 years 50% None 5 years 50% None Joint Powers Authority (JPA) N/A None None
N/A None None
1) All non-federal governmental securities are limited to no more than 5% per issuer, with the exception of money market funds, mutual funds, supranationals, LAIF, or unless otherwise specified in this investment policy. 2) Total of all asset backed and mortgage backed securities may not exceed 20% of the portfolio. 3) Money Market Funds must be rated “AAA” by two NRSROs, no fund can have more than 10% of the portfolio and the total of all money market and mutual funds cannot exceed 20% of the portfolio. 4) Securities held as collateral must have a value that is more than 102% of the funds invested in the repo. 5) No more than 30% of the total portfolio may be invested in NCDs (combined with Placement Deposit Services) 6) No more than 20% of the portfolio will be invested in a combination of federally insured and collateralized time deposits 7) Under a provision sunsetting on January 1, 2026, no more than 40% of the portfolio may be invested in Commercial Paper if the Agency’s investment assets under management are greater than $100,000,000.
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VIII – MITIGATING CREDIT RISK IN THE PORTFOLIO
Credit risk is the risk that a security or a por tfolio will lose some or all its value due to a real or perceived change in the ability of the issuer to repay its debt. The City will mitigate credit risk by adopting the following strategies:
The diversification requirements include d in the “Authorized Securities and Transactions” section of this policy ar e designed to mitigate credit risk in the portfolio.
The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to manage the quality, liquidity or yield of the portfolio in response to market conditions or City’s risk preferences.
If a security owned by the City is downgr aded to a level below the requirements of this policy, making the security ineligib le for additional purchases, the following steps will be taken:
o Any actions taken related to the do wngrade by the investment manager will be communicated to the Treasurer in a timely manner.
o If a decision is made to retain the security, the credit situation will be monitored and reported to the City Council.
The foregoing list of authorized securities a nd transactions shall be strictly interpreted.
Any deviation from the list must be preapproved by the City Council.
IX – PROHIBITED INVESTMENT VEHICLES AND TRANSACTIONS
State law notwithst anding, any investments not s pecifically described herein are prohibited, including, but not limited to futures and options. In accordance with California Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage-derived interest-only strips is prohibited. Investment in any security that could resu lt in a zero interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government that could result in a zero- or negative-interest accrual if held to maturity are permitted.
Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited.
Purchasing or selling securities on margin is prohibited. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited.
The purchase of foreign currency denom inated securities is prohibited. Securities with forward settlement date exceeding 45 days from the time of the investment is prohibited.
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X - INVESTMENT DIVERSIFICATION
The City shall diversify the portfolio to avoid incurring unreasonable risks inherent in over investing in specific instruments, individual financial institutions or maturities. The asset allocation in the portfolio should, however, be flexible depending upon the outlook for the economy, the securities market, and the City’s anticipated cash flow needs.
XI - PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments s hall be matched with anticipated cash flow requirements and known future liabilities. The Cit y will not invest in securities maturing more than five years from t he date of trade settlement, unl ess the City Council has by resolution granted authority to make such an investment at least three months prior to the date of the investment.
XII - SELECTION OF BROKERS/DEALERS
The Treasurer shall maintain a list of broker/dealers approv ed for investment purposes, and it shall be the policy of the City to purc hase securities only from those brokers and the firms they represent. Each approved br oker/dealer must possess an authorizing certificate from the California Commissioner of Corpor ations as required by Section 25210 of the California Corporations Code. The firms they represent must:
1. be recognized as Primary Dealers by the Federal Rese rve Bank of New York or have a primary dealer within their holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net Capital Rule).
The City may engage the services of invest ment advisory firms to assist in the management of the portfolio and investment advisors may utilize their own list of approved Broker/Dealers. Such Broker/Dealers will comply with the selection criteria above and the list of approved firms shall be provided to the City on an annual basis or upon request.
In the event that an exter nal investment advisor is not used in the process of recommending a particular transaction in the City’s portfolio each authorized broker/dealer shall be required to s ubmit and annually update a City approved Broker/Dealer Information Reque st form that includes the firm's most recent financial statements.
The City may purchase Commercial Paper from direct issuers even though they are not on the approved broker/dealer list as long as t hey meet the criteria outlined in Item F of the Authorized Securities and Transactions section of this Policy.
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XIII – COMPETITIVE TRANSACTIONS
All investment transactions shall be conducted competitively with authorized broker/dealers. At least thre e broker/dealers shall be contacted for each transaction and their bid or offering prices shall be recor ded. When purchasing original issue securities, no competitive offerings will be required as a ll dealers in the selling group offer at the same new issue price.
If the City is offered a security for which t here is no other readily available competitive offering, then the Treasurer will document quot ations for comparable or alternative securities.
XIV - SAFEKEEPING AND CUSTODY
To protect against potential losses due to failure of individual securities dealers, and to enhance access to securities, interest paym ents and maturity proceeds, all cash and securities in the City’s portfolio shall be held in safekeeping in the City’s name by a third party custodian, acting as agent for the Cit y under the terms of a custody agreement executed by the bank and the City. All investment transactions will require a safekeeping receipt or acknowledgment generated from the trade. A monthly report will be received by the City from the custodian listing all securities held in safekeeping with current market data and other information.
The only exceptions to the foregoing sha ll be depository accounts and securities purchases made with: (i) local government investment pools; ( ii) time certificates of deposit, and (iii) mutual funds and money market mutual funds, since these securities are not deliverable.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery-versus-payment basis.
XV - PORTFOLIO PERFORMANCE
The portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account prevaili ng market conditions, risk constraints for eligible securities, and cash flow requirements. The performance of the portfolio shall be compared to the performance of the ICE BofAML 1-3 year Treasury Index. The duration of the portfolio will be approximately equal (+/- 20%) of the benchmark.
XVI - REPORTING
Monthly transaction reports wil l be submitted by the Treasur er to the City Council in accordance with California Government Code Section 53607.
Quarterly, the Treasurer sha ll submit to the City Council a report of the investment earnings and performance results of the po rtfolio within 45 days after the end of the quarter. The report shall include the following information:
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1. Investment type, issuer, date of maturi ty, par value and dollar amount invested in all securities, and investments and monies held by the City;
2. A description of the f unds, investments or progr ams under the management of contracted parties, including securities lending programs;
3. A market value as of the dat e of the report (or the most recent valuation as to assets not valued monthly) and the source of the valuation;
4. Overall portfolio yield based on historical cost;
5. Weighted average maturity;
6. A statement of the portfolio’s compliance with this Investment Policy or an explanation for non-compliance; and
7. A statement of the ability or inability to meet expenditure requirements for six months, as well as an explanation of why money will not be available if that is the case.
XVII - POLICY REVIEW
This Investment Policy shall be adopted by resolution of the City Council annually. It shall be reviewed at least annually to ensure its consistency with the ov erall objectives of preservation of principal, liquidity, yield and diversification and its relevance to current law and economic trends. Any amendments to this In vestment Policy shall be forwarded to the City Council for approval.
GLOSSARY OF INVESTMENT TERMS
AGENCIES. Shorthand market terminology for any obligation issued by a government- sponsored entity (GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the fu ll faith and credit of the US government. Examples are:
FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB issues discount notes and bonds.
FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues discount notes and bonds.
FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the housing market. FHLMC, also called “Freddie Mac”, issues discount notes, bonds and mortgage pass-through securities.
FNMA. Like FHLB and Freddie Mac, the Feder al National Mortgage Association was established to provide credit and liquidity in the housing market. FNMA, also known as “Fannie Mae,” issues discount notes, bonds and mortgage pass- through securities.
GNMA. The Government National Mortgage Association, known as “GinnieMae,” issues mortgage pass-through securities, which are guaranteed by the full faith and credit of the US Government.
PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed by the full faith and credit of the US government.
TVA. The Tennessee Valley Authority prov ides flood control and power and promotes development in portions of the Tennessee, Oh io, and Mississippi River valleys. TVA currently issues discount notes and bonds.
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ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of revolving lines of credit.
BANKER’S ACCEPTANCE. A money market instrument creat ed to facilitate international trade transactions. It is highly liquid and safe because the risk of the trade transaction is transferred to the bank which “accepts” the obligation to pay the investor.
BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects the mix of securities allowed under a specific investment policy.
BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A broker does not sell securities from his own position.
CALLABLE. A callable security gives the issuer the opt ion to call it from the investor prior to its maturity. The main cause of a call is a decline in interest rates. If interest rates decline, the issuer will likely call its cu rrent securities and reissue them at a lower rate of interest.
CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate.
COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also, securities pledged by a financial institution to secure deposits of public monies.
COLLATERALIZED BANK DEPOSIT. A bank deposit that is coll ateralized at least 100% (principal plus interest to maturity). The deposit is collateralized using assets set aside by the issuer such as Treasury secu rities or other qualified collateral to secure the deposit in excess of the limit covered by the Federal Deposit Insurance Corporation.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of mortgage securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to the underlying mortgage securities.
COLLATERALIZED TIME DEPOSIT. Time deposits that are collateralized at least 100% (principal plus interest to maturity). These instruments are collateralized using assets set aside by the issuer such as Treasury securities or other qualified collateral to secure the deposit in excess of the limit covered by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The short-term unsecured debt of corporations.
COUPON. The rate of return at which interest is paid on a bond.
CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer.
DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position.
DELIVERY VS . PAYMENT (DVP). A securities industry proc edure whereby payment for a security must be made at the time the security is delivered to the purchaser’s agent.
DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of another security which has been separated from other components (“Stripped” coupons and principal). A derivative is also defined as a financial instrument the value of whic h is totally or partially derived from the value of another instrument, interest rate, or index.
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DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some short-term securities, such as T-bills and banker’s acceptances, are known as discount securi ties. They sell at a discount from par and return the par value to the investor at maturity without additional interest. Other securities, which have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for securities of that maturity and/or quality.
DIVERSIFICATION. Dividing investment funds among a va riety of investments to avoid excessive exposure to any one source of risk.
DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a security to changes interest rates.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC). The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency in suring deposits in U.S. banks and thrifts in the event of bank failu res. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices.
FEDERALLY INSURED TIME DEPOSIT. A time deposit is an inte rest-bearing bank deposit account that has a specified date of maturity, such as a certificate of deposit (CD).
These deposits are limited to funds insu red in accordance with FDIC insurance deposit limits.
FIDUCIARY. A person or organization that acts on behalf of another person(s) or organization that puts their clients’ interest ahead of their own, as they are bound both legally and ethically to act in the best interests of their clients.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate higher than the cost of borrowing.
LIQUIDITY. The speed and ease with which an asset can be converted to cash.
LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office.
LOCAL GOVERNMENT INVESTMENT POOL. Investment pools that range from the State Treasurer’s Office Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds.
MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early. Unlike a call option, with a make whole call provision, the issuer makes a lump sum payment that equals the net present value (NPV) of future coupon payments that will not be paid because of the call. With this type of call, an investor is compensated, or "made whole."
MARGIN. The difference between the market value of a security and the loan a broker makes using that security as collateral.
MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest rates.
MARKET VALUE. The price at which a security can be traded.
MATURITY. The final date upon which the principal of a security becomes due and payable.
The investment’s term or remaining maturity is measured from the settlement date to final maturity.
MEDIUM TERM NOTES. Unsecured, investment-grade seni or debt securities of major corporations which are sold in relative ly small amounts on eith er a continuous or an intermittent basis. MTNs are highly fl exible debt instruments that can be structured to respond to market opportunities or to investor preferences.
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MODIFIED DURATION. The percent change in price for a 100-basis point change in yields.
Modified duration is the best single measure of a portfolio’s or security’s exposure to market risk.
MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes, commercial paper, and banker’s acceptances) are issued and traded.
MONEY MARKET MUTUAL FUND. A mutual fund that invests exclusively in short-term securities. Examples of investments in money market funds ar e certificates of deposit and U.S. Treasury securities. Money market funds attempt to keep their net asset values at $1 per share.
MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and principal cash flows from a specif ied pool of mortgages. Principal and interest payments made on the mortgages are passed through to the holder of the security.
MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating expenses.
MUTUAL FUND. An entity which pools the funds of in vestors and invests those funds in a set of securities which is specifically defined in the fund’s prospectus. Mutual funds can be invested in various types of dom estic and/or international stocks, bonds, and money market instruments, as set forth in the individual fund’s prospectus. For most large, institutional in vestors, the costs associated with investing in mutual funds are higher than the investor c an obtain through an individually managed portfolio.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO).
A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory purposes. Cr edit rating agencies provide assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent NRSROs are Fitch, S&P, and Moody's.
NEGOTIABLE CERTIFICATE OF DEPOSIT (CD). A short-term debt instrument that pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. N egotiable CDs are traded in a secondary market.
OFFER (ASK). An indicated price at which market participants are willing to sell a security.
Also referred to as the “ask price”.
PLACEMENT SERVICE DEPOSITS. A private service that allows local agencies to invest in FDIC-insured deposits with one or more banks, savings and loans, and credit unions located in the United States. In traFi (formerly known as CDARS) is an example of an entity that provides this service.
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of market operat ions to carry out U. S. monetary policy, and (2) that participates for statistical reporting purposes in compiling data on activity in the U.S. Government securities market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to fiduciaries. In California, the rule is stated as “Investments shall be managed with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of like character and with like aims to accomplish similar purposes.”
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REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back at a higher price. From the seller’s point of view, the same transaction is a reverse repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer’s name.
SECURITIES AND EXCHANGE COMMISSION (SEC). The U.S. Securities and Exchange Commission (SEC) is an independent federal government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets and facilitating capital formation. It was created by Congress in 1934 as the first federal regulator of securities markets. The SEC promotes fu ll public disclosure, protects investors against fraudulent and manipulative practices in the market, and monitors corporate takeover actions in the United States.
SECURITIES AND EXCHANGE COMMISSION SEC) RULE 15C3-1. An SEC rule setting capital requirements for brokers and dealers. Under Rule 15c3-1, a broker or dealer must have sufficient liquidity in order to cove r the most pressing obligations. This is defined as having a certain amount of liquidity as a percentage of the broker/dealer's total obligations. If the percentage falls below a certain point, the broker or dealer may not be allowed to take on new clients and may have restrictions placed on dealings with current client.
STRUCTURED NOTE. Notes issued by Government Sponsored Enterprises (FHLB, FNMA, 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 t he fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve.
SUPRANATIONAL. A Supranational is a multi-national organization whereby member states transcend national boundaries or interests to share in the decision making to promote economic development in the member countries.
TOTAL RATE OF RETURN. A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginn ing value of the portfolio with the ending value; it includes interest earnings, rea lized and unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of t he United States. Treasuries are considered to have no credit risk and are the benchmark for interest rates on all other securities in the US and overseas. The Treasury issues both di scounted securities and fixed coupon notes and bonds.
TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments and are called Treasury bills. The Treasury currently issues three- and six-month T-bills at regular weekly auctions. It also issues “cash management” bills as needed to smooth out cash flows.
TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes and pay interest semi-annually.
TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like Treasury notes, they pay interest semi-annually.
YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected cash flows from the investment to its cost.