Loading...
HomeMy WebLinkAboutResolution No. 06-C043RESOLUTION NO. 06-C43 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA ADOPTING THE INVESTMENT POLICY WHEREAS, the City of Azusa receives taxes and other revenues from a variety of sources and uses the funds to pay its bills on a regular basis; and WHEREAS, the City Treasurer is charged with the duties of handling and maintaining the cash that is taken in or otherwise received by the City; and WHEREAS, the balance of these funds fluctuates between $3,000,000 and $20,000,000 or more; and WHEREAS, per Government Code Sections 53607 and 53600.5 the City Treasurer is charged with investing idle public funds on the basis of protecting the safety of the funds, ensuring the liquidity of the investments, and maximizing earnings in that order of importance and based on the "Prudent Investor Standards'; and WHEREAS, the State of California requires each City annually to adopt an investment policy per Government Code Section 53646; and WHEREAS, the City Council, with the aid of its staff has reviewed the Statement of Investment Policy and wishes to approve the same; NOW THEREFORE BE IT RESOLVED that the City Council of the City of Azusa does hereby adopt its Investment Policy attached hereto marked Exhibit A and instructs the City Treasurer to be guided by it in carrying out the duties of his office for the benefit of the City of Azusa. ADOPTED AND APPROVED this 5th day of June 2006 E 1 HEREBY CERTIFY that the foregoing resolution no. 06-C43, was duly adopted by the City Council of the City of Azusa at a regular meeting thereof on the 5" day of June 2006 by the following vote of Council: AYES: CITY COUNCIL MEMBERS: HARDISON, CARRILLO, ROCHA, HANKS, CHAGNON NOES: CITY COUNCIL MEMBERS: NONE ABSTAIN: CITY COUNCIL MEMBERS: NONE ABSENT: CITY COUNCIL MEMBERS: NONE E 0 City of Azusa, California INVESTMENT POLICY 1. POLICY STATEMENT All funds of the City of Azusa shall be invested in accordance with principles of sound treasury management and in accordance with the provisions of the California Government Code Sections 53600, et seq., (the Municipal Code), and guidelines established by the California Municipal Treasurer's Association, the California Society of Municipal Finance Officers, and this Investment Policy ("Policy"). These funds are defined and detailed in the City's Comprehensive Annual Financial Report (CAFR) and includes any new funds created unless specifically excluded by the City Council. Specifically excluded funds are: Funds deposited with the State Public Employees' Retirement System; and Bond proceeds that are subject to covenants and restrictions as defined in the Bond's indenture or are administered under the direct control of the Bond Trustee. 2. INVESTMENT POLICY OBJECTIVES A. Overall Risk ProSle The objectives of the City of Azusa's Investment Program are, in order of priority: 1. Safeguard the principal of the funds; 2. Meet the liquidity needs of the City; and 3. Achieve a return on the funds. To achieve these objectives, The City shall consider the following when making an investment: 1. Safeguard the Principal of the Funds The City shall mitigate the risk to the principal of invested funds by limiting credit and interest rate risks. Credit Risk is the risk of loss due to the failure of the security issuer or backer. Interest Rate Risk is the risk that the market value of the City's portfolio will fall due to an increase in general interest rates. a) b) 0 0 Credit risk will be mitigated by: (i) Limiting investments to the safest types of securities; (ii) By pre -qualifying the financial institutions with which it will do business; and (iii) By diversifying the investment portfolio so that the potential failure of any one issue or backer will not place an undue financial burden on the City. Interest rate risk will be mitigated by: (i) Structuring the City's portfolio so that securities mature to meet the City's cash requirements for ongoing obligations, thereby avoiding the possible need to sell securities on the open market at a loss prior to their maturity to meet those requirements; and (ii) Investing primarily in shorter -term securities. 2. Meet the Liquidity Needs of the City The City's investment portfolio shall be structured in a manner that emphasizes that securities mature at the same time as cash is needed to meet anticipated demands (Stitic Liquidity). Additionally, since all possible cash demands cannot be anticipated, the portfolio should consist of securities with. active secondary markets (Dynamic Liquidity). The maximum percentage of different investment instruments and maturities is described in Section II of this Policy. Achieve a Return on the Funds Yield on the City s investment portfolio is of secondary importance compared to the safety and liquidity objectives described above. Investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. While it may occasionally be necessary or strategically prudent for the City to sell a security prior to maturity to either meet unanticipated cash needs or to restructure the portfolio, this policy specifically prohibits trading securities for the sole purpose of speculating on the future direction of interest rates. B. Basic Investment Strategy The City's investment portfolio shall be structured to provide that sufficient funds from investments are available each month to meet the City's anticipated cash needs. Subject to the objectives stated above, the choice in investment instruments and maturities shall be based upon an analysis of future anticipated cash needs, existing and anticipated revenues, interest rate trends and specific market opportunities. No investment may have a maturity of more than five (5) years from its date of purchase without receiving prior City Council approval. After approval by City Council, reserve funds associated with bond issues may have a maturity of more than five (5) years, up to the earliest date the bonds may be redeemed or mature. 3. INVESTMENTS This section of the Investment Policy identifies the types of investments in which the City will invest its idle or surplus funds. A. Standard of Prudence The City operates its investment portfolio under the Prudent Investor Standard (California Government Code Section 53600.3) which states, in essence, that `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 need of the City, that a prudent person 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." This standard shall be applied in the context of managing the overall portfolio. Investment officers, acting in accordance with written procedures and this investment policy and exercising the above standard of diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. B. Eligible Securities The City is provided a broad spectrum of eligible investments under California Government Code Section 53600, et seq. The City may choose to restrict its permitted investments to a smaller list of securities that more closely fits the City's cash flow needs and requirements for liquidity. If a type of investment is added to CWCL rOSCTPGSWIMIILNNNIYWCRIPRNM'6I TNIl[1VM'6TMFNiWII IIYOFA3LLG.tt[d. id.LL 0 0 California State Code 53600, it will not be added to the City's Authorized Investment List until this policy is amended and approved by the City Council. If a type of investment permitted by the City should be removed from California State Code 53600, it will be deemed concurrently removed from the City's Authorized Investment List. The City's Authorized Investment List Insured Certificates of Deposit (CD's) of California banks and/or savings and loan associations, and/or savings banks that mature in five years or less, provided that the City's investments shall not exceed One Hundred Thousand Dollars ($100,000) per institution. If the investment exceeds the insured $100,000, the funds are to be collateralized at 110% of the deposit in government securities or 150% in mortgages. • Local Agency Investment Fund (LAIF) Demand Deposits. • Securities of the U.S. Government, and securities of which the principal and interest is guaranteed by the full faith and credit of the U. S. Government. • Securities issued by agencies and instrumentalities of the U. S. Government or issued by a government-sponsored enterprise. • Commercial Paper (limited to 30% of the portfolio) rated Al/P1 or the equivalent by two nationally recognized rating agencies with maturities not to exceed 181 days. • Medium -Term Corporate Notes (Limited to 20% of the portfolio) that are rated "AA" or better by two nationally recognized rating agencies. • Passbook Savings or Money Market Demand Deposits, subject to the restrictions and limitations set forth in Government Code Section 53638. • Repurchase Agreements (limited to 30% of the portfolio) with approved banks and broker-dealers who have completed and signed a Master Repurchase Agreement with the City. • Money Market Mutual Funds (with a stated objective of maintaining a $1 net asset value) that has been rated AAAm by Moody's or any two nationally recognized rating agencies. Please see Exhibit A for a more detailed description of the authorized investments listed above. [?LIXIIWNIS� SRi1HGSMXM9LTO1MlIWNNPTNM/6TMFNTIOYCYVNVFSIAWviIOLICYCITM44.2Y5/. Atm-FlMu2M • 0 A thorough investigation of any pool or fund is required prior to investing and on a continual basis. The investigation will, at a minimum, obtain the following information: • A description of eligible investment securities, and a written statement of investment policies and objectives. • A description of interest calculations and how it is distributed, and how gains and losses are distributed. • A description of how securities are safeguarded (including the settlement process) and how often the securities are marked to market and how often an audit is conducted. • A description of who may invest in the program, how often, what size deposits and withdrawals are permitted. • A schedule for receiving statements and portfolio listings. • Does the pool/fund maintain a reserve or retain earnings or is all income after expenses distributed to participants? • A fee schedule that also discloses when and how fees are assessed. • Is the pool or fund eligible for bond proceeds and/or will it accept such proceeds? The purpose of this investigation is to determine the suitability of a pool or fund and evaluate the risk of placing funds with that pool or fund. One of the purposes of this Investment Policy is to define what investments are permitted. If a type of security is not specifically authorized by this policy, it is not a permitted investment. C. Qualification of Brokers, Dealers and Financial Institutions The City Treasurer or designees will establish and maintain a list of the financial institutions and broker/dealers authorized to provide investment and depository services to the City, will perform an annual review of the financial condition and registrations of the qualified bidders, and require annual audited financial statements to be on file for each approved company. The City shall annually send a copy of their current Investment Policy to all financial institutions and broker/dealers approved to do business with the City. Receipt of the Policy and Enabling Resolution, including confirmation that it has been received and reviewed by the person(s) handling the City's account, shall be acknowledged in writing within thirty (30) days. All broker-dealers and financial institutions that desire to become qualified bidders for investment transactions must submit a `Broker -Dealer Application" and related documents relative to eligibility. This includes a current audited financial statement, proof of state registration, proof of NASD registration and a certification they have received and reviewed the City's Investment Policy and agree to comply with the cwcum�}rno zemxcswuwiomm oocuMv+�s,mmce�uvr wucrvx�snan�wucr nrvorzu,.,.aaw. rmwox provisions outlined in the Investment Policy. The City Treasurer or designees may establish any additional criteria they deem appropriate to evaluate and approve any financial services provider. The selection process for broker-dealers shall be open to both "primary dealers" and "secondary/regional dealers" that qualify under Securities and Exchange Commission Rule 15c3-1 (Uniform Net Capital Rule). The provider must have an office in .California and the provider's representative must be experienced in institutional trading practices and familiar with the California Government Code as it relates to investments by a City. D. Collateralization Requirements Uninsured Time Deposits with banks and savings and loans shall be collateralized in the manner prescribed by state law for depositories accepting municipal investment funds. Repurchase Agreements shall be collateralized in accordance with terms specified in the Master Repurchase Agreement. The valuation of collateral securing a Repurchase Agreement will be verified weekly to ensure a minimum of 102% of the value of the transaction is held by the City's depository agent. E. Diversification The City will diversify its investments by security type and investment. With the exception of bond reserve funds, bond escrow funds, and any other specific funds approved by the Treasury Committee or the City Council, the City Treasurer or designee, and the City's Investment Committee will adopt a strategy that combines current market conditions with the City's cash needs to maintain the maximum degree of safety of principal and liquidity throughout market and budgetary cycles. This strategy will include diversification by investment type and maturity allocations and will be included in the regular quarterly reports to the City Council. This strategy will be reviewed quarterly and can be changed accordingly. F. Confirmations Receipts for confirmation of purchase of authorized securities should include at a minimum the following information: trade date, settlement date, description of the security, par value, interest rate, price, yield to maturity, agency's name, net amount due, and third party custodial information. G. GASB 3 The Governmental Accounting Standards Board (GASB) issued GASB #3 in April 1986, and the local entity's investments must be categorized into three levels of credit risk as follows: 0 a) Securities that are insured or registered, or for which the securities are held by public units or its agent in the units; b) Securities that are uninsured and unregistered and are held by the broker's or dealer's trust department or agent in the unit's name; C) Securities that are uninsured and unregistered and are held by the broker or dealer, or by its trust department or agent, but not in the unit's name. The carrying amount and market value of all types of investments must be disclosed in total and for each type of investment. Governmental Accounting Standards Board 93 exempts mutual funds and LAIF investments from the mandatory risk categorization. 4. SAFEKEEPING OF SECURITIES A. Safekeeping Agreement The City shall contract with a bank or banks for the safekeeping of securities that are owned by the City as a part of its investment portfolio or transferred to the City under the terms of a Repurchase Agreement. All securities owned by the City shall be held in safekeeping by a third party bank trust department acting as agent for the City under the terms of a custody agreement executed by the bank and the City. All securities will be received and delivered using standard delivery versus payment (DVP) procedures. The third party bank trustee agreement must comply with Section 53608 of the California Government Code. No outside broker/dealer or advisor may have access to City funds, accounts or investments, and any transfer of funds must be approved by the City Treasurer. B. Security Transfers The authorization to release City's securities or funds will be telephoned to the appropriate bank representative by a finance department member other than the person who initiated the transaction. A written confirmation outlining details for the transaction and confirming the telephoned instructions will be sent to the bank within five (5) working days. C. Verification of Security Securities transferred to the City as collateral securing time deposits or repurchase agreements that are being held in safekeeping for the City will be verified in writing and examined on a surprise basis during the year by the City's independent auditors as part of the City's annual independent audit. 5. STRUCTURE AND RESPONSIBILITY This section of the Policy defines the overall structure and areas of responsibility within the investment management program. A. Responsibilities of the City Treasurer The City Treasurer is charged with responsibility for maintaining custody of all public funds and securities belonging to or under the control of the City, and for the deposit and investment of those funds in accordance with principles of sound treasury management applicable laws, ordinances, and this Investment Policy. This includes establishing written procedures for the operation of the investment program consistent with this policy. The procedures should include reference to safekeeping, master repurchase agreements, wire transfer agreements, banking services contracts and depository agreements. Such procedures shall also include explicit delegation of authority to persons responsible for investment transactions. No person may engage in any investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer and approved by the Investment Committee. Investment decisions that involve borrowing in the amount of $100,000 or more must be included as a separate discussion item on the City Council's agenda. Such items can no longer be included on the City Council's consent calendar. (Government Code Section 53635.7) B. Responsibilities of the Director of Finance The Director of Finance is responsible for keeping the City Council fully advised as to the financial condition of the City. C. Responsibilities of the City Council The City Council shall consider and adopt a written Investment Policy. As provided in that policy, the Council shall receive, review and accept monthly investment reports. D. Responsibilities of the Investment Committee There shall be an Investment Committee consisting of the Director of Finance, the City Manager, and City Treasurer and their designees. The Committee shall meet quarterly to discuss cash flow requirements, the monthly investment reports, investment strategies, investment and banking procedures and significant investment related work projects being undertaken in each department that will affect the cash flow management of the City Treasurer. This will require timely reports from the department heads to the City Treasurer concerning significant future cash flow requirements. The Committee's meetings will be summarized in minutes that are distributed to the City Council. The Investment Committee, with the approval of the City Council, may retain an external investment manager on behalf of the City. The investment manager will be required to act in accordance with this investment policy. E. Ethics and Conflicts of Interest All City officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution of the investment program, or that could impair their ability to make impartial investment decisions. Those employees and investment officials shall disclose to the appropriate City executive (City Manager, City Attorney, or the Director of Finance) anymaterial financial interest in financial institutions that conduct business within the City, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City's investments. 6. REPORTING The City Treasurer shall prepare a monthly investment report, including a succinct management summary that provides a clear picture of the status of the current investment portfolio and transactions made over the past month. This management summary shall be prepared in a manner that will allow the Director of Finance and the City Council to ascertain whether investment activities during the reporting period have deviated from the City's Investment Policy. The monthly report shall include the following: • A list of individual securities held at the end of the reporting month. • Unrealized gain or loss resulting from amortization or accretion of principal versus market value changes by listing the cost and market value of securities owned by the City. • A description of the current investment strategy and the assumptions upon which it is based. • Dollar weighted yield to maturity of the City's investments. • Maturity schedule by type of each of the City's investments. • Statement as to compliance of the City's Investment Policy with Government Code Section 53601 et seq. cmcumex�voamixaswwumrowrc rocvr.m+rsrvmrs*nm+rwucrux•.rmMwrroucrcirvornzus.-�oea. nv.u_voc 11 0 • Statement as to ability to meet expenditure requirements for next six months. • Market value, book value, par value and cost basis of all investments. • Investments "under the management of contracted parties, including lending programs" (i.e., investments held by deferred compensation administrators). PERFORMANCE STANDARDS The investment portfolio will be managed in accordance with the standards established within this Investment Policy and should obtain a market rate of return throughout budgetary and economic cycles. The Investment Committee will establish and periodically review the City's portfolio benchmarks and performance. A benchmark will be selected that compares with the portfolio composition, structure and investment strategy at that time. S. REVIEW OF INVESTMENT POLICY A. Policy Review This investment policy shall be reviewed annually by the City Council in accordance with State law to ensure its consistency with respect to the overall objectives of safety, liquidity and yield. Proposed amendments to the policy shall be prepared by the Treasurer and reviewed by the Investment Committee and City Attorney and then be forwarded to the City Council for consideration. The Investment Committee shall annually review the Investment Policy and any proposed amendments and forward to the City Council for its consideration and adoption at a public meeting. B. Internal Control and Review The external auditors shall annually review the investments and general activities associated with the investment program to ensure compliance with this Investment Policy. This review will provide internal control by assuring compliance with policies and procedures for the activities that are selected for testing. 9. ADOPTION OF POLICY This Policy was duly adopted by the City Council of the City of Azusa on June 5, 2006. cwocvwnxs^uoscermcswuwi*om.rc mc�.+wrrvmv+�rwuc�^�a*r.+wrroucv rnrovuus.woem..i.coc EXHIBIT A EXHIBIT A DESCRIPTION OF INVESTMENTS The City of Azusa's investments may be placed in those securities as outlined below; the allocation between the various investment instruments may change in order to give the City the best combination of safety, liquidity and higher yield. Surplus funds of local agencies may only be invested in certain eligible securities. The City limits its investments to allowable securities under the State of California statutes (Government Code Section 53601, et. seq., Section 53356, et. seq., and Section 53595, et. seq.) and is further limited to those listed below. Certificates of Deposit Certificates of deposit allow the City to select the exact amount and day of maturity as well as the exact depository. Certificates of deposit are issued in any amount for periods of time as short as fourteen days and as long as several years. At any given time, the City may have certificates of deposit in numerous financial institutions in the future. The Treasurer may at his/her discretion waive security for that portion of a deposit, which is insured pursuant to federal law. Currently, the first $100,000 of a deposit is federally insured by FSLIC or FDIC. It may be to the City's advantage to waive this collateral requirement for the first $100,000 because the City may receive a higher interest rate. If funds are to be collateralized, the collateral will be 110% of the deposit in government securities or mortgages of 150%. At purchase, institutions must not show an operating loss. Banks must have an equity -to -asset ratio of at least 6%. Savings and loan associations and savings banks must have an equity -to -asset ratio of a least 3%. Local Agency Investment Fund The Local Agency Investment Fund (LAIF) of the State of California offers high liquidity because deposits can be wired to the City checking account within twenty-four hours. Interest is computed on a daily basis. This is a special fund in the State Treasury, which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000 in multiples of $1,000 above that, with a maximum of $20,000,000 for any city. It offers high liquidity because deposits can be converted to cash within twenty-four hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly by adding it to the principal. 0 0 The State charges participants a small fee to cover reasonable costs associated with operating the investment pool, not to exceed one quarter of one percent of the earnings. The interest rates received are fairly stable because of the pooling of the State's surplus cash with the surplus cash deposited by local governments. This creates a well -diversified multi -billion dollar money pool. U.S. Treasury Securities U.S. Treasury securities are highly liquid and considered the safest of all investments because they are backed by the full faith and credit of the United States Government. U.S. Treasury Bills are direct obligations of the United States Government. They are issued weekly with maturity dates up to six months. They are issued and traded on a discount basis and the interest is figured on a 360 -day basis using the actual number of days to maturity. They are issued in the minimum amount of $10,000 and in multiples of $5,000 thereafter. U.S. Treasure Notes are direct obligations of the United States Government. They are issued throughout the year with maturities from two up to 30 years. Notes are coupon securities paying a fixed amount every six months. The City will not invest in notes having maturities longer then five years. Federal Aeency Securities Federal Agency securities are highly liquid and considered to be virtually without credit risk. Federal Agency issues are guaranteed indirectly by the United States Government. All Agency obligations that are fixed-rate and meet the maturity restrictions of the State Code and this Policy qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than regular Treasury issues with all of the same advantages. Examples are: FNMA's (Federal National Mortgage Association) are used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Fanners Home Administration, as well as those guaranteed by the Veterans Administration. FHLB's (Federal Home Loan Bank Notes and Bonds) are issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies and mortgage -lending institutions. Other Federal Agency issues are Federal Home Loan Mortgage Corporation (FHLMC), Federal Farm Credit Bank (FFCB), Small Business Administration Notes (SBA's), Government National Mortgage Association (GNMA's), Tennessee Valley Authority (TVA's).and the Student Loan Marketing Association (SLMA's) 1 L oazrnrswi�..mroxx+v wc�wwrsm.�smwrwucrux.rsrnm+rwuc+' <mar,wcna�. rm.uooc 0 0 Negotiable Certificate of Deposit Negotiable certificates of deposit are high-grade instruments, paying a higher interest rate than regular certificates of deposit. They are liquid because they can be traded in the secondary market. Negotiable Certificates of Deposit (NCD's) are unsecured obligations of the issuing financial institution, bank or savings and loan, bought at face value with a promise to pay face value plus accrued interest at maturity. The primary market issuance is in multiples of $1 million. The secondarymarket usually trades in denominations of $500,000, although smaller denominations are occasionally available. Local agencies may not invest more than 30% of their surplus money in negotiable certificates of deposit. NCD's will only be placed with the largest and most financially sound institutions. Commercial Paper Commercial paper allows the investment of large amounts of money on a short-term basis at rates higher than passbook savings accounts. Commercial paper is a short-term unsecured promissory note issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value. As an example, corporations such as American Express, International Business Machines (IBM). and General Electric issue commercial paper. Local agencies are permitted by state law to invest in commercial paper of "prime" quality of the. highest ranking or of the highest letter and numerical rating as provided by Moody's Investor's Service, Inc. or Standard and Poor's Corporation (Al/pl or a1+/p]). Purchases of eligible commercial paper may not exceed 180 days maturity nor exceed 30% of the City's surplus funds. Medium -Term Corporate Notes A city may invest in medium term corporate notes with a maximum maturity of five years issued by a corporation organized and operating within the United States, a depository institution licensed by the United States Government or any state government and operating within the United States. The California State Code (53601) et seq.) permits cities to invest in corporations with a rating category of "A" or better, but the City will limit its investments in corporate medium term notes to those issued by corporations that have been rated "AA" or its equivalent by two nationally recognized ratings agencies. Passbook Savings or Money Market Account Passbook savings account allows us to transfer money from checking to savings and earn interest on smaller amounts of money, which are not available for a longer-term investment. CaDCNMEN�Sj�NOFERINC5N11MNY.iONUtt WNMINfNNY45TA�`al PollIYNVETIMIXIWIKILIiYDFKl5..1W5MIl[IX 0 0 The passbook savings account is similar to a CD except not for a fixed term. The interest rate is much lower than CD's but the savings account provides daily liquidity and funds can be deposited and withdrawn according to our daily needs. Mutual Funds Mutual Funds allow the City to maintain liquidity and receive money market rates. Mutual Funds are referred to in the Government Code, Section 5360LL, as "shares of beneficial interests issued by diversified management companies". The Mutual Fund must be restricted by its prospectus to be a "Money Market" mutual fund and be limited to the same approved investments as LAIF. These investments include U.S. Treasury and Agency issues, Bankers Acceptances, Commercial Paper, Repurchase Agreements, Certificates of Deposit, and Negotiable Certificates of Deposit. The quality rating and percentage restrictions in each investment category applicable to LAW also apply to any Mutual Fund. One of the stated objectives of the Mutual Fund must be to attempt to maintain a $1.00 Net Asset Value (NAV). A further restriction is that the purchase price of shares of any mutual fund shall not include any sales commission. Investments in mutual funds shall not exceed 15% of the City's surplus money. Repurchase A%reements Repurchase Agreements are purchases of securities by the City under an agreement with a term of one (1) year or less whereby the seller will "repurchase" the same securities on or before a specified date or on demand of either parry and for a specified amount. The underlying securities must be delivered to the City's custodial account by book entry, physical delivery or a third -party custodial agreement. C�WN.NFNjS/�.'115lTMGNMAWLION.M'CCNYINISIM'Eti MFM fOIJ[nNVF]iMPiMIICY CIttOfA2LLGiux_fINLLMC c.mcvww{s pu o semxcs+wwwvomxv oocurm+nwmaTwraT wucvuxvrnrnv+moun cmorizusn .xom _ rwu.voc Negotiable Certificate of Deposit Negotiable certificates of deposit are high-grade instruments, paying a higher interest rate than regular certificates of deposit. They are liquid because they can be traded in the secondary market. Negotiable Certificates of Deposit (NCD's) are unsecured obligations of the issuing financial institution, bank or savings and loan, bought at face value with a promise to pay face value plus accrued interest at maturity. The primary market issuance is in multiples of $1 million. The secondary market usually trades in denominations of $500,000, although smaller denominations are occasionally available. Local agencies may not invest more than 30% of their surplus money in negotiable certificates of deposit. NCD's will only be placed with the largest and most financially sound institutions. Commercial Paper Commercial paper allows the investment of large amounts of money on a short-term basis at rates higher than passbook savings accounts. Commercial paper is a short-term unsecured promissory note issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value. As an example, corporations such as American Express, International Business Machines (IBM) and General Electric issue commercial paper. Local agencies are permitted by state law to invest in commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investor's Service, Inc. or Standard and Poor's Corporation (Al/p1 or a1+/pl). Purchases of eligible commercial paper may not exceed 180 days maturity nor exceed 30% of the APFA's surplus funds. Medium -Term Corporate Notes An agency may invest in medium term corporate notes with a maximum maturity of five years issued by a corporation organized and operating within the United States, a depository institution licensed by the United States Government or any state government and operating within the United States. The California State Code (53601) et seq.) permits cities to invest in corporations with a rating category of "A" or better, but the APFA will limit its investments in corporate medium term notes to those issued by corporations that have been rated "AA" or its equivalent by two nationally recognized ratings agencies. Passbook Savings or Money Market Account Passbook savings account allows us to transfer money from checking to savings and earn interest on smaller amounts of money, which are not available for a longer-term investment. The passbook savings account is similar to a CD except not for a fixed term. The interest rate is much lower than CD's but the savings account provides daily liquidity and funds can be deposited and withdrawn according to our daily needs. Mutual Funds Mutual Funds allow the APFA to maintain liquidity and receive money market rates. Mutual Funds are referred to in the Government Code, Section 53601.L, as "shares of beneficial interests issued by diversified management companies". The Mutual Fund must be restricted by its prospectus to be a "Money Market" mutual fund and be limited to the same approved investments as LAIF. These investments include U.S. Treasury and Agency issues, Bankers Acceptances, Commercial Paper, Repurchase Agreements, Certificates of Deposit, and Negotiable Certificates of Deposit. The quality rating and percentage restrictions in each investment category applicable to LAIF also apply to any Mutual Fund. One of the stated objectives of the Mutual Fund must be to attempt to maintain a $1.00 Net Asset Value (NAV). A further restriction is that the purchase price of shares of any mutual fund shall not include any sales commission. ,Investments in mutual funds shall not exceed 15% of the APFA's surplus money. Repurchase Allreements Repurchase Agreements are purchases of securities by the APFA under an agreement with a term of one (1) year or less whereby the seller will "repurchase" the same securities on or before a specified date or on demand of either party and for a specified amount. The underlying securities must be delivered to the APFA's custodial account by book entry, physical delivery or a third -party custodial agreement. cmxumw D smcxnwxumyrr �rnrvv¢r roucw�. nzusn w UC nry CM Av HOm.m -FINS c