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ATTACHMENT # 1
City of Thousand Oaks
Administrative Policies and Procedures
SUBJECT:
Investment Policy
DEPARTMENT: FIN
APP NO.:
14.012
Submission Date:
09/24/96
Revision Dates:
Revised Annually by
Resolution
AUTHORITY:
Adoption/Approval Date:
Revised Annually; 01/16/24
Revision Dates:
1.0 Policy:
This policy is intended to provide guidelines for the prudent investment of the City’s funds and to enhance the economic status of the City while protecting its pooled cash. Funds will be invested in accordance with this policy and with applicable sections of the California Government Code.
The City’s policy received certification from the California Municipal Treasurers Association in 2021.
The policy should be resubmitted periodically for peer review and certification to confirm compliance with best practices and industry standards. While a certification does not serve as a substitute for review by the Investment Review Committee or adoption by City Council, it does demonstrate staff’s due diligence in the preparation and updating of the policy.
2.0 Scope
This policy generally applies to all financial assets of the City which are included in the City’s Annual Comprehensive Financial Report (ACFR). The City funds subject to this policy are: General Fund, Special Revenue Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, Internal Service Funds, Fiduciary Funds, and any other fund authorized by the City Council, unless specifically exempted.
The following assets are exempt from the policy: proceeds of City bond issues, Hourly/Part-time Employee Retirement Plan, Other Postemployment Benefits Plan, Pension Rate Stabilization Trust Fund and assets held by the City as fiduciary for other agencies and subject to separate agency agreement(s). The exempt assets are invested in accordance with regulations established by the State of California and any agreements specific to the funds.
All monies shall be pooled for investment purposes. The investment income derived from the pooled investment account shall be allocated 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 distributed to the individual funds not less than annually.
3.0 Objectives
The primary objectives of the City’s investment activities, in priority order, shall be:
3.1. SAFETY: Preserving and protecting principal is the foremost objective of the investment program. Investment activities shall be undertaken in a manner that seeks to ensure the preservation of principal in the overall portfolio. Diversification of the portfolio will spread credit risk over a variety of authorized investment types.
3.2. LIQUIDITY: The City’s investment portfolio shall remain sufficiently liquid to enable the City to meet all operating requirements which can be reasonably anticipated.
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3.3. YIELD (Return on Investments): The City’s investment strategy shall be designed with the objective of obtaining a market rate of return over budgetary and economic cycles while complying with the list of authorized investments.
4.0 Delegation of Authority/Procedures
Authority to manage the City’s investment program is derived from State of California Government Code Section 53607 and City of Thousand Oaks Ordinance 889-NS. Management responsibility for the investment of City funds is delegated annually by City Council to the City Treasurer (“Treasurer”) who shall be responsible for all transactions undertaken and who shall establish a system of controls to regulate the activities of subordinate investment officers.
The Treasurer may authorize the Deputy Finance Director to act as the Treasurer’s deputy in performing the Treasurer’s functions and duties under this policy in the absence of the Treasurer. The Treasurer may authorize a manager in the Finance Department to execute transactions as prescribed by the Treasurer in the absence of the Treasurer and Deputy Finance Director. When acting as the Treasurer’s deputy as provided in this paragraph, the deputy shall be subject to the same limitations, obligations, and requirements as the Treasurer.
The Treasurer shall establish written investment procedures for the operation of the investment program consistent with this policy. The procedures should describe custody/safekeeping agreements, repurchase agreements, wire transfer agreements, banking services agreements, cash flow forecasting and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer.
5.0 Prudence
The standard of prudence to be used for managing the City's investments shall be California Government Code Section 53600.3, the prudent investor standard, which states “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.”
The standard of prudence to be used by City staff shall be applied in the context of managing the overall portfolio. City staff acting in accordance with written procedures and this policy and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes. City staff shall ensure that deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
6.0 Ethics and Conflicts of Interest
City staff involved in the investment program shall refrain from personal business activity that could conflict with the proper execution of the investment program activities, or which could impair the ability to make impartial investment decisions. City staff shall disclose to the City Manager and on the annual Statement of Economic Interest Form any material financial interests in financial institutions that conduct business with the City, and they shall disclose any material personal financial/investment positions that could be related to the City’s investment performance.
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7.0 Providers of Financial Services
The Treasurer shall maintain a list of financial institutions formally authorized to provide investment services. The City shall enter into formal contracts for banking services, safekeeping services and investment advisory services.
7.1 Authorized Broker/Dealers
The Treasurer shall formally authorize investment broker-dealers to provide investment services to the City. Investment brokers-dealers may be primary dealers or regional brokers with branch offices in the State of California performing the transactions with the City. Broker- dealers must complete a broker-dealer statement of qualifications before being approved by the Treasurer. Annually the broker/dealers will acknowledge receipt and execute a certification that the broker-dealer’s employees and supervisory personnel have read and understand the City’s investment policy. The Treasurer may periodically reevaluate the approved list of investment broker-dealers, including review of Financial Industry Regulatory Authority (FINRA) reports and requesting updated statements of qualification.
7.2 Contracted Investment Advisor Services
The City may engage the support services of outside investment advisors in regard to its investment program, so long as it can be clearly demonstrated that these services produce a net financial advantage or necessary financial protection of the City's financial resources.
Investment advisors shall follow this policy, State law, and other such written instructions as provided by the Treasurer. Contracted investment advisors may use their own brokers. The Treasurer may conduct periodic reviews of contracted investment advisors, including review of FINRA reports.
7.3 Safekeeping and Custody
The Treasurer shall select one or more financial institutions to provide safekeeping and custodial services for the City in accordance with the provisions of Section 53608 of the California Government Code. Third-party safekeeping arrangements will be approved by the Treasurer and documented by a written agreement.
The purchase and sale of negotiable securities and repurchase agreement transactions shall be settled on a delivery versus payment basis. Negotiable securities purchased by the City will be delivered by book entry and will be held in third-party safekeeping by a City-approved custodian bank, its correspondent bank or its Depository Trust Company (DTC) participant account.
Non-negotiable investments such as money market funds, mutual funds, collateralized bank deposits, county investment pools, joint powers authority agreements, and the Local Agency Investment Fund (LAIF) will be in the name of City with statements and/or receipts evidencing investment.
7.4 Banking Services
Banking services for the City shall be provided by qualified depositories of public funds as defined in California Government Code Section 53630.5 and which secure deposits in excess of insurance coverage in accordance with California Government Code Section 53652.
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8.0 Authorized Investments
Investments and deposits not specifically excluded in Section 2.0 shall be made in accordance with California Government Code Sections 16429.1-16429.4, 53600-53610 and 53630-53686.
Percentage limitations and rating requirements, where indicated, apply at the time of purchase.
Although minimum ratings listed use Standard and Poor’s rating scale, an equivalent rating from another nationally recognized rating organization is acceptable. Appendix A provides a comparison of the different credit ratings. Securities that have been downgraded to a level that is below the minimum rating described herein may be sold or held at the Treasurer’s discretion. The portfolio will be brought back into compliance with policy guidelines as soon as it is practical. Securities may not be purchased with a forward settlement date in excess of 45 days from the trade date. Maximum maturity limits are measured from date of settlement to maturity. Investments with maturities exceeding five years require either specific authorization by the City Council or approval by the City Council as part of an investment program no less than three months prior to purchase.
Investments not specifically listed in Section 8.1 are deemed inappropriate and are prohibited:
8.1 City Authorized Investments
Authorized
Investment
Govt.
Code
Maximum
Percentage
Maximum
Maturity
Minimum
Quality 1
Other
U.S. Treasury
Obligations 53601(b) •No Limit 5 Years None Notes, bonds, bills U.S. Agency
Obligations 53601(f) •No Limit 5 Years None
Federal agency or United
States government-
sponsored enterprise
obligations, participations, or
other instruments
City of
Thousand
Oaks
Obligations
53601(a)
(e) •5% 5 Years None
•Bonds, notes, warrants or
other evidences of
indebtedness
•Purchases made in
consultation with bond
counsel
State
Obligations (CA
and others)
53601(c)
and (d) •No Limit 5 Years Underlying A,
or SP-1
•Registered state warrants,
treasury notes or bonds of
California
•Registered treasury notes
or bonds from any of the
other 49 states
California Local
Agency
Obligations
53601(e) •No Limit 5 Years Underlying A,
or SP-1
•Bonds, notes, warrants or
other evidences of
indebtedness of any local
agency within California
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Authorized
Investment
Govt.
Code
Maximum
Percentage
Maximum
Maturity
Minimum
Quality 1
Other
Supranationals 53601(q)
•20% of
portfolio
•10%
single
issuer
5 years AAA
U.S. dollar denominated
senior unsecured
unsubordinated obligations
issued by or unconditionally
guaranteed by:
•International Bank for
Reconstruction and
Development
•International Finance
Corporation
•Inter-American
Development Bank
Medium-Term
Notes 53601(k)
•30% of
portfolio
•5% single
issuer2
5 Years A
Issued by:
•Corporations organized
and operating in the United
States
or
•Depository institutions
licensed by the United
States or any state and
operating in the United
States
Negotiable
Certificates of
Deposit
53601(i)
•10% of
portfolio
•$250,000
single
issuer
5 Years
Investments
with a single
issuer may
not exceed
$250,000 and
must be
insured by
the Federal
Deposit
Insurance
Corporation
(FDIC) or the
National
Credit Union
Administratio
n (NCUA)
•Issued by nationally or
state-chartered banks;
savings or federal
associations; state or
federal credit unions; or
federally licensed or state
licensed branches of
foreign banks.
and
•Per 53638 deposits may
not exceed bank
shareholder equity; total
net worth of depository
savings or federal
association; unimpaired
capital and surplus of a
credit union; unimpaired
capital and surplus of
industrial loan companies.
Bankers’
Acceptances 53601(g)
•25% of
portfolio
•5% single
issuer
180 Days Issuer rating
of at least A-1
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Authorized
Investment
Govt.
Code
Maximum
Percentage
Maximum
Maturity
Minimum
Quality 1
Other
Commercial
Paper 53601(h)
•25% of
portfolio
•5% single
issuer2
270 Days A-1
•Corporation must be
organized and operating
within the United States;
have assets in excess of
$500 million; and have at
least an A rating on its long-
term debt, if any
or
•Corporation must be
organized within the
United States as a special
purpose corporation, trust,
or limited liability company;
have program-wide credit
enhancements including,
but not limited to
overcollateralization,
letters of credit or a surety
bond.
Repurchase
Agreements 53601(j) 25% of
portfolio 30 Days N/A
•Subject to a Master
Repurchase Agreement
with a Primary Dealer
approved by City Council
•Comply with Government
Code 53601 (j)
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Authorized
Investment
Govt.
Code
Maximum
Percentage
Maximum
Maturity
Minimum
Quality 1
Other
Bank Deposits
– Collateralized
or FDIC
Insured
53630 et
seq. No Limit 5 Years
Satisfactory
rating from
national bank
rating service
and from
Community
Reinvestment
Act review.
•Amounts up to $250,000
per institution are insured
by the FDIC.
•Amounts over the
insurance limit must be
placed with financial
institutions participating in
the California Local Agency
Security Program,
providing for
collateralization of public
funds.
•Per 53638 deposits may
not exceed bank
shareholder equity; total
net worth of depository
savings or federal
association; unimpaired
capital and surplus of a
credit union; unimpaired
capital and surplus of
industrial loan companies.
•Treasurer may waive
collateral for the portion of
any deposits insured
pursuant to federal law.
•The use of private sector
entities authorized by
53601.8 to assist in the
placement of deposits is
NOT permitted.
LAIF 16429.1
et seq.
As permitted
by LAIF N/A N/A
County Pooled
Investment
Funds
53684 •20% of
portfolio N/A None
Joint Powers
Authority Pool 53601(p)
•15% of
portfolio
•10% from
single pool
or
maximum
allowed by
JPA
whichever
is less
N/A None
JPA must be
•Organized pursuant to
Section 6509.7;
•Invest in securities in 53601
subdivisions (a) to (q); and
•Retain investment advisor
registered or exempt from
registration with the SEC,
with at least 5 years’
experience, and has assets
under management in
excess of $500 million.
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Authorized
Investment
Govt.
Code
Maximum
Percentage
Maximum
Maturity
Minimum
Quality 1
Other
Money Market
Funds 53601(l) •15% of
portfolio N/A
Fund must
either have
the highest
ranking by not
less than 2
NRSROs
Retain an investment adviser
registered or exempt from
registration with the SEC with
5 years’ experience
managing money market
funds in excess of $500
million.
Mutual Funds 53601(l)
•15% of
portfolio
•5% from
single
mutual
fund
company
N/A
Fund must
either have
the highest
ranking by not
less than 2
NRSROs
•Fund must invest in
securities that comply with
the investment restrictions
of 53601 (a) through (k) and
(n) through (o); and
•Retain an investment
adviser registered or
exempt from registration
with the SEC with 5 years’
experience managing
money market funds in
excess of $500 million.
1 Standard and Poor’s rating system is used for minimum quality requirements. An equivalent rating from another nationally recognized rating organization is acceptable. Appendix A. provides a comparison of the different credit ratings. 2 No more than 10 percent of portfolio may be invested in the commercial paper and the medium-term notes of a single issuer.
9.0 Ineligible Investments
Investments not described above as authorized investments are ineligible for purchase. The policy specifically prohibits the investment of any funds in common stock, financial futures, options, inverse floaters, range notes, or mortgage-derived, interest-only strips.
Government Code Section 53601.6(b)(1) also prohibits the investment in any security that could result in zero-interest accrual if held to maturity. Per the California Debt and Investment Advisory Commission, zero interest accrual is defined as a security having the potential to realize zero interest based on the structure of the security. Therefore, zero coupon bonds, discounts notes, and similar investments that are purchased below face value are authorized. This Section does not apply to investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 that are authorized pursuant to Government Code Section 53601(l).
Despite the above restriction, purchases of securities issued by, or backed by, the United States government that could result in zero- or negative-interest accrual if held to maturity are permitted in the event of, and for the duration of, a period of negative market interest rates pursuant to Government Code Section 53601.6 (b)(2). Investments may be held until maturity. This exception shall remain in effect until January 1, 2026, at which time it is repealed.
10.0 Collateralization
Collateralization is required on two types of investments: uninsured bank deposits and repurchase agreements.
Uninsured bank deposits may only be invested with financial institutions which participate in the California Local Agency Security Program (LASP) administered by the California Department of FIN:350-10\ja\C:\inetpub\wwwroot\multitenant\Uploads\Temp\toaks\tempForConvert\temp_F221A7.docx
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Business Oversight. LASP provides for collateral requirements, oversight and monitoring, and reporting by financial institutions.
Collateral is also required for repurchase agreements. The market value of securities that underlie a repurchase agreement shall not be allowed to fall below 102% of the value of the repurchase agreement and the value shall be adjusted no less than quarterly. Securities that can be pledged for collateral shall consist only of securities permitted in this policy. Collateral shall be held by an independent third party with whom the City has established a custodial agreement.
11.0 Investment Pools
Investment pools include LAIF, county pooled investment funds, shares of beneficial interest (mutual funds and money market funds), and joint powers authority pools. A thorough investigation of any pool or fund is required prior to the City’s investment and on a periodic basis while funds are invested. The investigation will include review of the following items:
•Eligible investments;
•Investment policy and/or investment objectives;
•Security safeguarding, settlement process, pricing;
•Allowable deposits and withdrawals;
•Interest calculation, distribution, and treatment of gains/losses; •Schedule for receiving statements and portfolio listings; •Fees.
12.0 Review of Portfolio
The securities held by the City must be in compliance with the authorized investments in Section 8.0 at the time of purchase. Because the City is typically a buy and hold investor, some securities may not comply with this section subsequent to the date of purchase. The Treasurer shall at least quarterly review the portfolio to identify those securities that do not comply and establish procedures to report these securities to the City Council and the Investment Review Committee.
13.0 Competitive Offers
It is preferred that investment purchases be made through a competitive offer process with three quotes. This policy, however, recognizes that competitive offers may not always be applicable or practical. If the City is offered a security for which there is no other readily available competitive offering on the same issue, then quotes for comparable or alternative securities will be documented.
Competitive quotes are not required for U.S. Treasury instruments if the offer is within one quarter of a thirty-second of the offer price as posted by Bloomberg or similar pricing service. When purchasing original issue securities, competitive offerings are not required as those securities are offered at the same original issue price.
14.0 Diversification
The Treasurer shall diversify the investment portfolio by security type, institution, and maturity. The restriction on concentration in a single security type or institution is detailed in Section 8.0.
15.0 Maturities
Individual investments within the investment portfolio are limited to a maximum of five years except where further limited by State Law and/or this policy. The City is a “buy and hold” investor whereby securities are purchased with the intent of being held until maturity. Maturities will be matched with the City’s cash flow requirements. After cash flow requirements are met, investment considerations will include seeking additional yield that may be available in the market.
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16.0 Internal Controls
The Treasurer shall maintain a system of internal controls designed to prevent losses due to fraud, employee error, imprudent actions by employees, misrepresentation by third parties or unanticipated changes in financial markets.
The City Manager’s Office, at least quarterly, shall randomly select line items from the investment report and send the City’s custodian or investment provider an independent confirmation letter to verify information about the investment.
Annually, the City’s independent auditor will conduct an independent review of investment records and verify the investments have been made in accordance with this policy.
17.0 Performance Standards
Investment return or yield becomes a consideration only after the basic requirements of investment safety and liquidity have been met. The City’s portfolio shall be designed to attain a competitive yield or rate of return. At least quarterly, the portfolio yield will be compared to the twelve-month moving average of the two-year Constant Maturity Treasury Index (CMT).
18.0 Investment Review Committee
In 1997 an investment committee consisting of five members appointed by the City Council was established to act as an advisory committee to Council. The Investment Review Committee periodically monitors and reviews the Treasurer’s compliance with the investment policy. In addition, the committee reviews modifications and recommends amendments to the investment policy. The Treasurer is not a member of the committee but serves in a staff and advisory capacity. The committee meets at least quarterly.
19.0 Reporting
Within 30 days of the end of each month, the Treasurer shall submit the monthly investment report to the City Manager and City Council. At the end of each quarter, the report is presented to the Investment Review Committee at its meeting.
The report shall list each investment, by investment category, and include: (1) purchase and maturity dates, (2) yield, (3) original cost, (4) par value, and (5) market value. In addition, the report will provide a weighted average yield of the portfolio, the weighted average maturity of the portfolio and the monthly investment transactions.
20.0 Policy Review and Adoption
The investment policy shall be reviewed at least annually by the Treasurer and the Investment Review Committee to ensure its consistency with the City’s overall objectives and its compliance with California Government Code and best practices. The investment policy shall be submitted to City Council for consideration and adoption at a public meeting on an annual basis whether or not modifications are necessary.
21.0 Glossary
Annual Comprehensive Financial Report (ACFR): The official audited annual financial report for the City of Thousand Oaks.
Agencies: Securities issued by federal agencies and/or U.S. government-sponsored enterprises.
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Bankers’ Acceptance (BA): Time draft drawn on and accepted by a bank for a specified amount payable on a specified date. Generally drawn for effecting payment for merchandise sold in import- export transactions. The BA is collateralized by commodity products.
Bond: Interest-bearing security issued by a corporation, government, government sponsored enterprise, which can be executed through a bank or trust company. The issuer covenants through an indenture or offering memorandum to pay to the bond holder periodic interest payments and principal at maturity. The bond may be secured by specific assets of the issuer or the general credit of the issuer.
Broker-dealer: Individual or firm which acts as a principal in security transactions. The City only conducts transactions with approved broker-dealers who meet the requirements of the investment policy.
Certificate of Deposit: Debt instrument issued by a bank or other financial institution that pays interest over a fixed term to maturity.
Collateral: Securities which a borrower pledges for the repayment of a loan or securities lending transaction. Also refers to securities pledged by a bank to secure deposits of public monies.
Commercial Paper: Short term, unsecured, negotiable promissory notes issued by domestic corporations.
Community Reinvestment Act (CRA): Act intended to encourage depository institutions to meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods. The Act requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions.
County Pooled Investment Funds: The aggregate of all funds from public agencies placed in the custody of the county treasurer or chief finance officer for investment and reinvestment.
Credit Risk: The risk that an issuer will default in the payment of interest or principal due on a security.
Delivery vs. Payment (DVP): Method of delivering securities. The purchased securities and the related payment are delivered by the buyer and seller to a third-party custodian who settles the transaction and maintains custody of the security on behalf of the purchaser.
Discount: When securities are sold below par value. Some new issue securities such as Agency discount notes and U.S. Treasury Bills are sold at a discount to the par value and the purchaser receives the par value at maturity.
Diversification: Process of investing assets among a range of security types by sector and maturity.
Federal Deposit Insurance Corporation (FDIC): Federal Agency that guarantees funds on deposit in member banks, currently up to $250,000 per entity.
Inter-American Development Bank: Enterprise supporting economic development, social development and regional integration by lending to governments and government agencies.
Interest Rate: The annual rate of interest received by an investor from the issuer for a security.
Also known as “coupon” rate.
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International Bank for Reconstruction and Development: International lending organization, popularly known as the World Bank, with long-term, low-interest credit for industrial development.
International Finance Corporation: The private sector arm of the World Bank Group dedicated to encouraging development of private enterprise in nations lacking the necessary infrastructure and liquidity for businesses to secure financing.
Investment Review Committee (IRC): Five-member committee appointed by the City Council.
The IRC meets quarterly and reviews reports prepared by the Treasurer.
Joint Powers Authority Pool: An entity formed by two or more public authorities, operating collectively may issue shares of beneficial interest to participating agencies.
Liquidity: The ability of the Treasurer to meet the City’s cash flow and expenditure requirement by liquidating securities in the Investment Portfolio.
Local Agency Investment Fund (LAIF): Investment pool maintained by the California State Treasurer for investment by local agencies.
Local Agency Security Program (LASP): Under California code, financial institutions that accept local agency deposits must participate in the LASP. The program provides for collateralization of deposits and reporting requirements.
Market Value: The price at which a security is trading and could presumably be purchased or sold.
Master Repurchase Agreement: Agreement under which a buyer and seller execute Repurchase Agreements. The agreement covers ownership of securities, custody and remedies from default.
Maturity: The date that the principal of a security is due and payable.
Medium-Term Notes (MTN): Unsecured, investment-grade senior debt securities of major corporations that are sold either on a continuous or an intermittent basis. MTNs are highly flexible debt instruments that can be structured to respond to market opportunities or investor preferences.
Minimum Quality: The lowest acceptable rating of an investment issued by a Nationally Recognized Statistical Rating Organization indicating creditworthiness.
Money Market Fund: A mutual fund with investments directed in short-term money market instruments such as bankers’ acceptances, commercial paper, repurchase agreements and government bills. The fund’s objective is to maintain a net asset value (NAV) per share of $1.00.
Registered with the Securities and Exchange Commission under the Investment Act of 1940.
Mutual Funds: Pools of money that are managed by an investment company. Investors are offered a variety of goals, depending on the fund and its investment charter.
National Credit Union Administration (NCUA): Federal agency that insures the accounts in all federal credit unions and many state-chartered credit unions.
Nationally Recognized Statistical Rating Organizations (NRSRO): A SEC registered agency that assesses the creditworthiness of an entity or specific security. NRSRO typically refers to Standard and Poor’s Rating Service, Fitch, Inc. or Moody’s Investors Services.
Offer: The price asked by a seller of securities.
Original Cost: The price paid for a security.
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Par Value: The face value of a security expressed as a dollar amount. This is the amount due at maturity.
Portfolio: The combined holding of more than one investment or other asset by investor; collection of investments.
Primary Dealer: Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds.
Principal: The face or par value of a security. It does not include interest.
Prudent Investor Standard: A standard of conduct where a person acts with care, skill, prudence, and diligence when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds. The test of whether the standard is being met is if a prudent person acting in such a situation would engage in similar conduct to ensure that investments safeguard principal and maintain liquidity.
Rating: The designation used by investors’ services to rate the quality of a security’s creditworthiness.
Repurchase Agreement (RP or REPO): An agreement of one party (financial institution) to sell securities to a second party (local agency) and a simultaneous agreement by the first party to repurchase the securities at a specified price from the second party on demand or at a specified date.
Safekeeping: Service banks offer to customers where securities are held in the bank’s vaults for safekeeping.
Settlement Date: The date by which an executed security trade must be settled. That is, the date by which a buyer must pay for the securities delivered by the seller.
Supranational: An organization formed by a group of countries through an international treaty with specific objectives, such as promoting economic development.
Treasury Bills: Short term obligation of the U.S. Treasury with a maturity of one year or less. T- Bills are sold at a discount and bear no interest.
Treasury Bonds: Long term coupon bearing obligation of the U.S. Treasury with maturities of more than 10 years,
Treasury Notes: Medium-term coupon bearing obligation of the U.S. Treasury having initial maturities from two to 10 years.
Yield: The annual rate of return on an investment, expressed as a percentage of the investment.
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Appendix A
Comparison of Credit Ratings1
Long Term Debt Ratings
Rating/Interpretation Standard & Poor’s2 Moody’s3 Fitch4 Best-quality Grade
(“AAA”)
AAA Aaa AAA
High-quality Grade
(“AA”)
AA+
AA
AA-
Aa1
Aa2
Aa3
AA+
AA
AA-
Upper Medium Grade
(“A”)
A+
A
A-
A1
A2
A3
A+
A
A-
Medium Grade
(“BBB”)
BBB+
BBB
BBB-
Baa1
Baa2
Baa3
BBB+
BBB
BBB-
Speculative Grade
(“BB”)
BB+
BB
BB-
Ba1
Ba2
Ba3
BB+
BB
BB-
Highly Speculative
Grade
(“B”)
B+
B
B-
B1
B2
B3
B+
B
B-
Poor Grade CCC+ Caa1 CCC
In Poor Standing CCC
CCC-
Caa2
Caa3
Highly Speculative CC
C
Ca
C
CC
Default D DDD
DD
D
Short Term/Commercial Paper Investment Grade Ratings
Rating Interpretation Standard & Poor’s Moody’s Fitch
Superior Capacity A-1+/A-1/SP-1 P-1/MIG1 F1+/F1
Strong Capacity A-2/SP-2 P-2/MIG2 F2
Acceptable Capacity A-3/SP-3 P-3/MIG3 F3
____________________________________________________________________________________ 1 These are general credit rating guidelines and are for information only. 2 Ratings from AA through CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
3 Ratings from Aa through Caa may be appended by the numerical modifiers 1, 2, and 3 indicating the obligation ranks at the higher end, the mid-range or lower-end of the generic rating.
4 Ratings from AA through B may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.