HomeMy WebLinkAbout2024-31 CC ResolutionRESOLUTION NO.2024-31
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF TEMECULA, APPROVING AND ADOPTING THE
STATEMENT OF INVESTMENT POLICY AND
DELEGATING INVESTMENT AUTHORITY TO THE CITY
TREASURER
THE CITY COUNCIL OF THE CITY OF TEMECULA DOES HEREBY RESOLVE AS
FOLLOWS:
Section 1. The City Council of the City of Temecula at a duly noticed public meeting
has received, reviewed, and adopts the City of Temecula Statement of Investment Policy (the
"Policy"), set forth in Exhibit A, attached hereto and incorporated herein by this reference.
Section 2. Any and all prior resolutions adopting an investment policy for the City of
Temecula are hereby rescinded.
Section 3. Pursuant to Resolution No. 13-38, the City Council has appointed the
Finance Director as the City Treasurer.
Section 4. Pursuant to California Government Code Section 53607, the City Council
hereby delegates its investment authority for Fiscal Year 2024-2025 to the City's duly appointed
City Treasurer and designates the City Treasurer as the City's Investment Officer.
Section 5. The City Council hereby delegates authority to the Investment Officer or
her/his designee(s), including but not limited to the City Manager, Assistant City Manager, and
the Assistant Director of Finance, to invest funds in accordance with the Policy.
Section 6. Certification. The City Clerk shall certify to the passage and adoption of
this resolution and enter it into the book of original resolutions.
Section 7. Severability. If any section, subsection, subdivision, sentence, or clause or
phrase in this resolution or any part thereof is for any reason held to be unconstitutional, invalid
or ineffective by any court of competent jurisdiction, such decision shall not affect the validity or
effectiveness of the remaining portions of this resolution or any part thereof. The City Council
hereby declares that it would have adopted each section irrespective of the fact that any one or
more subsections, subdivisions, sentences, clauses, or phrases are declared unconstitutional,
invalid, or ineffective.
Section 8. Effective Date. This resolution shall become effective immediately.
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PASSED, APPROVED, AND ADOPTED by the City Council of the City of Temecula
this 28"' day of May, 2024.
_ vr�li
James Stewart, Mayor
[SEAL]
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STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss
CITY OF TEMECULA )
I, Randi Johl, City Clerk of the City of Temecula, do hereby certify that the foregoing
Resolution No. 2024-31 was duly and regularly adopted by the City Council of the City of
Temecula at a meeting thereof held on the 280' day of May, 2024, by the following vote:
AYES: 4 COUNCIL MEMBERS: Alexander, Kalfus, Schwank, Stewart
NOES: 0 COUNCIL MEMBERS:
ABSTAIN: 0 COUNCIL MEMBERS:
ABSENT: 0 COUNCIL MEMBERS:
1
1
None
None
None
Randi Johl, City Clerk
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Exhibit A
Statement of Investment Policy
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CITY OF TEMECULA
CALIFORNIA
The Heart of Southern California
Wine Country
STATEMENT OF INVESTMENT POLICY
Adopted May 28, 2024
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11
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City of Temecula Statement of Investment Policy
TABLE OF CONTENTS
1.0
POLICY..................................................................................................................................3
2.0
SCOPE...................................................................................................................................3
3.0
PRUDENCE.............................................................................................................................4
4.0
INVESTMENT OBJECTIVES......................................................................................................4
5.0
DELEGATION OF AUTHORITY..................................................................................................4
6.0
ETHICS AND CONFLICTS OF INTEREST.....................................................................................5
7.0
AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS...........................................................5
8.0
AUTHORIZED AND SUITABLE INVESTMENTS...........................................................................6
9.0
REVIEW OF INVESTMENT PORTFOLIO.....................................................................................7
10.0
INVESTMENT POOLS / MUTUAL FUNDS..................................................................................7
11.0
COLLATERALIZATION.............................................................................................................8
12.0
SAFEKEEPING AND CUSTODY OF SECURITIES..........................................................................8
13.0
DIVERSIFICATION...................................................................................................................8
14.0
MAXIMUM MATURITIES........................................................................................................8
15.0
INTERNAL CONTROLS.............................................................................................................8
16.0
PERFOMANCE STANDARDS....................................................................................................9
17.0
REPORTING...........................................................................................................................9
18.0
INVESTMENT POLICY COMPLIANCE AND ADOPTION...............................................................9
19.0
APPENDIX A - ALLOWABLE INVESTMENT INSTRUMENTS.......................................................10
20.0
APPENDIX B - GLOSSARY OF TERMS.....................................................................................12
Adopted May 28, 2024
Page 2 of 15
City of Temecula Statement of Investment Policy
1.0 POLICY
It is the policy ("Investment Policy' or the "Policy') of the City of Temecula, the Temecula Community
Services District, and the Successor Agency to the Temecula Redevelopment Agency (hereafter referred
to collectively as the "City") to invest public funds in a manner which will provide the highest investment
return, with the maximum security, while meeting the daily cash flow demands of the City, and
conforming to all State of California and City laws governing the investment of public funds.
Therefore, in accordance with the State of California authority governing investments for municipal
governments as set forth in the California Government Code Sections 53600 et seq., and the powers and
duties of the City Treasurer and other fiscal provisions as set forth in the Temecula Municipal Code, the
City shall invest public funds in such a manner as to comply with state and local laws; ensure prudent
money management; provide for daily cash flow requirements; and meet the objectives of this Policy, in
priority order of safety, liquidity and return on investment.
For the purposes of this Policy, "Investment Officers" shall be defined as the City Manager, Assistant City
Manager, Director of Finance/City Treasurer, Assistant Director of Finance, and/or any other official that
has been delegated authority by the City Treasurer.
2.0 SCOPE
This Policy applies to all investment activities and financial assets of the City. The funds covered by this
Policy are accounted for and incorporated in the City's Annual Comprehensive Financial Report (ACFR)
and include:
• General Fund;
• Special Revenue Funds;
• Debt Service Funds;
• Capital Projects Funds;
• Internal Services Funds;
• Agency Funds; and
• Any new fund created by the City Council unless specifically exempted.
Funds excluded from this Policy include:
• Bond Proceeds. Proceeds of debt issuance shall be invested in accordance with the bond
documents governing such funds as approved by the City Council or related governing board.
• Deferred Compensation Plans. Investments related to the City's deferred compensation plans
are not subject to this policy since third -party administrators manage them and the individual
plan participant's direct investment and mutual fund selection. Deferred compensation plans
must be approved by the City Council.
• Section 115 Trusts. Investments related to the City's Section 115 trusts are not subject to this
policy since third -party administrators manage them and direct the investments and mutual fund
selection. Section 115 trusts must be approved by the City Council.
All monies entrusted to the City Treasurer may be pooled in a diversified portfolio unless specifically
exempted or excluded. Investments made on a pooled basis may include investments of the City and its
Adopted May 28, 2024 Page 3 of 15
City of Temecula Statement of Investment Policy
component units and agencies. Investment income will be allocated to the various funds based on their
respective participation in accordance with general accepted accounting principles.
3.0 PRUDENCE
Investments shall be made with judgment and care under circumstances then prevailing which persons of
prudence, discretion and intelligence exercise in the management of their own financial affairs, not for
speculation, but for investment, considering the probable safety of their capital as well as the probable
income to be derived. The standard of prudence to be used by the designated representative shall be the
"prudent investor" standard and shall be applied in the context of managing the overall portfolio. Persons
authorized to make investment decisions on behalf of local agencies investing public funds are trustees
and therefore fiduciaries subject to 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.
Investment Officers acting in accordance with written procedures and the Investment Policy and
exercising due 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.
4.0 INVESTMENT OBJECTIVES
The primary objectives, in priority order, of the City's investment activities shall be:
Safety. Safety of principal is the foremost objective of the investment program. Investments of
the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the
overall portfolio. To attain this objective, the City will diversify its investments by investing funds
among a variety of securities with independent returns.
Liquidity. The City's investment portfolio will remain sufficiently liquid to enable the City to meet
all operating requirements which might be reasonably anticipated.
Return on Investments. The City's investment portfolio shall have the objective of attaining a
comparative performance measurement or an acceptable rate of return throughout budgetary
and economic cycles. These measurements should be commensurate with the City's investment
risk constraints identified in the Investment Policy and the cash flow characteristics of the
portfolio.
5.0 DELEGATION OF AUTHORITY
California Government Code Sections 53607 and 53608 authorize the legislative body of a local agency to
invest, deposit, and provide for the safekeeping of the local agency's funds or to delegate those
responsibilities to the treasurer of the local agency for a one-year period. The City of Temecula Municipal
Code delegates to the City Treasurer the authority to invest and reinvest moneys of the City, to sell or
Adopted May 28, 2024 Page 4 of 15
City of Temecula Statement of Investment Policy
exchange securities, and to deposit them and provide for their safekeeping. The City Treasurer is
responsible for daily management of the investment program, including:
1.
Establishing procedures for operation consistent with the Investment Policy;
2.
Approving daily investment transactions;
3.
Developing projections of the City's cash requirements for operating needs;
4.
Reviewing the liquidity position of the investment portfolio;
5.
Ensuring that the City's cash position is consistent with operating requirements;
6.
Preparing appropriate investment reports;
7.
Developing, implementing, and monitoring controls over investments; and
8.
Developing record keeping for investment transactions.
The City Treasurer may delegate investment authority to qualified and competent officials and City
employees such as the Investment Officers.
6.0 ETHICS AND CONFLICTS OF INTEREST
The Investment Officers shall refrain from personal business activity that could conflict with proper
execution and management of the Policy and the investment program, or which could impair their ability
to make impartial decisions. The Investment Officers must provide a public disclosure document by
April 1st of each year or when material interest in financial institutions or personal investment positions
require it. Furthermore, the Investment Officers must refrain from undertaking personal investment
transactions with the same individual(s) employed by the financial institution with whom business is
conducted on behalf of the City.
7.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City Treasurer (or Investment Officers) will maintain a list of approved financial institutions authorized
to provide investment services to the City. These may include "primary" dealers or regional dealers that
qualify under Securities & Exchange Commission Rule 150-1 (uniform net capital rule). Best practices
include the following:
1. A determination that all approved broker/dealer firms, and individuals covering the public agency,
are reputable and trustworthy;
2. The broker/dealer firms should have the ability to meet all their financial obligations in dealing
with the City;
3. The firms, and individuals covering the City, should be knowledgeable and experienced in public
agency investing and the investment products involved;
4. No public deposit shall be made except in a qualified public depository as established by the
established state laws; and
5. All financial institutions and broker/dealers who desire to conduct investment transactions with
the public agency may supply the City Treasurer (or Investment Officers) with audited financial
statements, proof of FINRA certification, trading resolution, proof of State of California
registration, a completed broker/dealer questionnaire, certification of having read the City's
investment policy and depository contracts.
Adopted May 28, 2024 Page 5 of 15
City of Temecula Statement of Investment Policy
An annual review of the financial condition and registrations of qualified bidders may be conducted by
the City Treasurer (or Investment Officers) and a current audited financial statement requested for each
financial institution and broker/dealer in which the City invests.
8.0 AUTHORIZED AND SUITABLE INVESTMENTS
From the governing body perspective, special care must be taken to ensure that the list of instruments
includes only those allowed by law and those that local investment managers are trained and competent
to handle. Therefore, in accordance with Government Code Sections 53601, 53601.6, 53601.8, 53635,
53635.2, 53638 and 53684, investments will only be made in authorized securities with a maturity date
of five (5) years or less from the transaction settlement date.
For the purpose of approved investments and compliance with the investment percentage limits
compared to the overall portfolio balance, calculations shall be performed on the date the investment is
purchased. If the percentage is legally compliant on the date of purchase, then compliance with the Law
shall have been met. Calculations are to be based on the final maturity date, and neither duration nor
average days may be used.
The investment instruments listed in Appendix A are authorized for investment and any instrument not
listed are specifically prohibited. Authorized investments are allowed under California State Government
Code 53601 and 53635 and concentration limitations are equivalent to, or more conservative than, the
code allows.
8.1 MASTER REPURCHASE AGREEMENTS
If repurchase agreements are legal or authorized, a Master Repurchase Agreement must be
signed with the bank or dealer.
8.2 LEGISLATIVE CHANGES
Any State of California legislative action that further restricts allowable maturities, investment
type or percentage allocations, will be incorporated into the City's Investment Policy and
supersede any and all previous applicable language.
8.3 INTEREST EARNINGS
All monies earned and collected from investments authorized in this policy shall be allocated
monthly based on the cash balance in each fund as a percentage of the entire investment
funds portfolio.
8.4 LIMITING MARKET VALUE EROSION
The longer the maturity of securities, the greater their market price volatility. Therefore, it is
the general policy of the City to limit the potential effects from erosion in market values by
adhering to the following guidelines:
• All immediate and anticipated liquidity requirements will be addressed prior to
purchasing all investments;
• Maturity dates for long-term investments will coincide with significant cash flow
requirements where possible; and
• All long-term securities will be purchased with the intent to hold all investments to
maturity under then prevailing economic conditions. However, economic or market
Adopted May 28, 2024 Page 6 of 15
City of Temecula Statement of Investment Policy
■ conditions may change, making it in the City's best interest to sell or trade a security prior
to maturity.
8.5 SECURITY SWAPS
A security swap is the movement from one security to another and may be done to for a
variety of reasons, such as to increase yield, lengthen or shorten maturities, to take a profit,
or to increase investment quality. A swap which improves the portfolio yield may be selected
even if the transactions result in an accounting loss. Documentation for swaps will be
included in the City's permanent investment file documents.
8.6 PORTFOLIO ADJUSTMENTS
Should an investment percentage -of -portfolio limitation be exceeded due to an incident such
as fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses.
When no loss is indicated, the City Treasurer will consider reconstructing the portfolio basing
his or her decision, in part, on the expected length of time the portfolio will be unbalanced.
8.7 CREDIT DOWNGRADING
This Investment Policy sets forth minimum credit risk criteria for each type of security. This
credit risk criteria applies to the initial purchase of a security; it does not automatically force
the sale of a security if its credit risk ratings fall below policy limits.
If a security is downgraded below the minimum credit risk criteria specified in this Investment
Policy, then the City Treasurer shall evaluate the downgrade on a case -by -case basis in order
to determine if the security should be held or sold.
9.0 REVIEW OF INVESTMENT PORTFOLIO
The securities held by the City must be in compliance with Section 8.0 Authorized and Suitable
Investments at the time of purchase. Because some securities may not comply with Section 8.0
Authorized and Suitable Investments subsequent to the date of purchase, the Investment Officers should
at least annually review the portfolio to identify those securities that do not comply. The City Treasurer
should establish procedures to report to the City Council/Board of Directors and to any oversight
committee, should one exist, major and critical incidences of noncompliance identified through the review
of the portfolio.
10.0 INVESTMENT POOLS / MUTUAL FUNDS
A thorough investigation of the pool/fund is required prior to investing, and on a continual basis. Best
efforts will be made to acquire the following information:
1. A description of eligible investment securities, and a written statement of investment policy and
objectives;
2. A description of interest calculations and how it is distributed, and how gains and losses are
treated;
3. A description of how the securities are safeguarded (including the settlement processes), and how
often the securities are priced and the program audited;
4. A description of who may invest in the program, how often, what size deposit and withdrawal are
allowed;
Adopted May 28, 2024 Page 7 of 15
City of Temecula Statement of Investment Policy
5. A schedule for receiving statements and portfolio listings;
6. Are reserves, retained earnings, etc. utilized by the pool/fund;
7. A fee schedule, and when and how is it assessed; and
8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
11.0 COLLATERALIZATION
Collateralization will be required on two types of investments: certificates of deposit and repurchase (and
reverse repurchase) agreements. To anticipate market changes and provide a level of security for all
funds, the collateralization level will be 110% of market value for Certificate of Deposits and 102% for
reverse repurchase agreements of principal and accrued interest.
The City chooses to limit collateral to U.S. Treasuries. Collateral will always be held by an independent
third party with whom the entity has a current custodial agreement. A clearly marked evidence of
ownership (safekeeping receipt) must be supplied to the City and retained. The right of collateral
substitution is granted.
12.0 SAFEKEEPING AND CUSTODY OF SECURITIES
To protect against potential losses by collapse of individual securities dealers, all securities owned by the
City, including collateral on repurchase agreements, will 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 by the City. All securities will be received and delivered using standard delivery -versus -payment (DVP)
procedures (i.e., the City's safekeeping agent will only release payment for a security after the security
has been properly delivered). Securities will be held by a third -party custodian designated by an
Investment Officer and evidenced by safekeeping receipts. This section is intended to comply with
Government Code Sections 53601 and 53608.
13.0 DIVERSIFICATION
The City will diversify its investments by security type and institution. With the exception of U.S. Treasury
securities and authorized pools, no more than 50% of the City's total investment funds portfolio will be
invested in a single security type or with a single financial institution.
14.0 MAXIMUM MATURITIES
To the extent possible, the City will attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City will not directly invest in securities
maturing more than five (5) years from the date of purchase. With the express approval of the City
Council, reserve funds may be invested in securities exceeding five (5) years if the maturity of such
investments is made to coincide as nearly as practicable with the expected use of the funds.
15.0 INTERNAL CONTROLS
The City Treasurer shall be responsible for ensuring that all investment transactions comply with the City's
Investment Policy and for establishing and maintaining an internal control structure designed to ensure
that the assets of the City are protected from loss, theft, fraud or misuse. The City Treasurer shall establish
Adopted May 28, 2024 Page 8 of 15
City of Temecula Statement of Investment Policy
written procedures for the operation of the City's investment program that are consistent with this
Investment Policy.
Internal controls deemed most important shall include: avoidance of collusion; separation of duties and
administrative controls; separating transaction authority from accounting and record keeping; custodial
safekeeping; clear delegation of authority; management approval and review of investment transactions;
specific limitations regarding securities losses and remedial action; written confirmation of telephone
transactions; documentation of investment transactions and strategies; and monitoring of results.
Accordingly, the City Treasurer shall establish an annual process of independent review by an external
auditor, which as part of its annual audit of the City, the City's external auditor will review compliance
with statutes, policies, and procedures. This review will provide internal control by assuring compliance
with policies and procedures.
16.0 PERFOMANCE STANDARDS
The investment portfolio shall be designed with the objective of obtaining a rate of return throughout
budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow
needs.
The City's investment strategy is passive. Given this strategy, the basis used by the City Treasurer to
determine whether market yields are being achieved shall be to identify a comparable benchmark to the
portfolio investment duration (i.e., 90-day US Treasury Bill, 6-month US Treasury Bill, 2-year CMT-
' Constant Maturity Treasury). Benchmarks may change over time based on changes in market conditions
or cash flow requirements.
17.0 REPORTING
Pursuant to California Government Code Section 53607, the authority of the legislative body to invest or
to reinvest funds of a local agency, or to sell or exchange securities so purchased, may be delegated for a
one-year period by the legislative body to the treasurer of the local agency, who shall thereafter assume
full responsibility for those transactions until the delegation of authority is revoked or expires, and shall
make a monthly report of those transactions to the legislative body. Subject to review, the legislative
body may renew the delegation of authority pursuant to this section each year.
18.0 INVESTMENT POLICY COMPLIANCE AND ADOPTION
Pursuant California Government Code Section 53646(a)(2), the City's Investment Policy may be reviewed
annually by the City Council and shall be adopted via resolution. Any modifications to the Investment
Policy must be approved by the City Council.
The City Treasurer shall establish written investment policy 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 service contracts 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 City.
Adopted May 28, 2024 Page 9 of 15
City of Temecula
Statement of Investment Policy
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19.0 APPENDIX A - Allowable Investment Instruments
ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE (AS OF JANUARY 1, 2021)A
APPLICABLE TO ALL LOCAL AGENCIESB
MAXIMUM
INVESTMENT
MAXIMUM
SPECIFIED %
MINIMUM QUALITY
GOVERNMENT CODE
TYPE
MATURITYC
OF
REQUIREMENTS
SECTIONS
PORTFOLIO°
5 years
None
53601(a)
Local Agency Bonds
None
None
U.S. Treasury Obligations
5 years
None
53601(b)
State Obligations— CA And Others
5 years
None
None
53601(c) and 53601(d)
CA Local Agency Obligations
5 years
None
None
53601(e)
U.S Agency Obligations
5 years
None
None
53601(f)
Bankers' Acceptances
180 days
40%E
None
53601(g)
25% of the
Highest letter and
Commercial Paper— Non -Pooled FundsF
270 days
agency's
number rating by an
53601(h)(2)(c)
monieSG
NRSRO"
40% of the
Highest letter and
Commercial Paper— Non -Pooled Funds'
270 days
agency's
number rating by an
53601(h)(2)(c)
monieSG
NRSRO"
40% of the
Highest letter and
Commercial Paper— Pooled Funds'
270 days
agency's
number rating by an
53635(a)(1)
monieSG
NRSRO"
Negotiable Certificates of Deposit
5 years
30%K
None
53601(i)
Non-negotiable Certificates of Deposit
5 years
None
None
53630 et seq.
Placement Service Deposits
5 years
50%L
None
53601.8 and 53635.8
Placement Service Certificates of Deposit
5 years
50%L
None
53601.8 and 53635.8
Repurchase Agreements
1 year
None
None
536010)
20% of the
Reverse Repurchase Agreements and
92 daysm
base value of
None"
53601(j)
Securities Lending Agreements
the portfolio
"A" rating category
Medium -Term Notes°+
5 years
30%
or its equivalent or
53601(k)
better
Mutual Funds and Money Market Mutual
N/A
20%P
MultipleaR
53601(1) and
Funds
53601.6(b)
53630 et seq. and
Collateralized Bank Deposits
5 years
None
None
53601(n)
"AA" rating category
Mortgage Pass —Through Securities
5 years
20%
or its equivalent or
53601(o)
better
County Pooled Investment Funds
N/A
None
None
27133
Joint Powers Authority Pool
N/A
None
Multiples
53601(p)
Local Agency Investment Fund (LAIF)
N/A
None
None
16429.1
Voluntary Investment Program Fundv
N/A
None
None
16340
"AA" rating category
Supranational Obligations`"
5 years
30%
or its equivalent or
53601(q)
better
Public Bank Obligations
5 Years
None
None
53601(r), 53635(c), and
57603
Adopted May 28, 2024
Page 10 of 15
City of Temecula
Statement of Investment Policy
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TABLE OF NOTES
A. Sources: Sections 16340, 16429.1, 27133, 53601, 53601.6,
53601.8, 53630 et seq., 53635, 53635.8, and 57603.
B. Municipal Utilities Districts have the authority under the
Public Utilities Code Section 12871 to invest in certain
securities not addressed here.
C. Section 53601 provides that the maximum term of any
investment authorized under this section, unless otherwise
stated, is five years. However, the legislative body may
grant express authority to make investments either
specifically or as a part of an investment program approved
by the legislative body that exceeds this five-year
remaining maturity limit. Such approval must be issued no
less than three months prior to the purchase of any security
exceeding the five-year maturity limit.
D. Percentages apply to all portfolio investments regardless of
source of funds. For instance, cash from a reverse
repurchase agreement would be subject to the restrictions.
E. No more than 30 percent of the agency's money may be in
bankers' acceptances of any one commercial bank.
F. Includes agencies defined as a city, a district, or other local
agency that do not pool money in deposits or investment
with other local agencies, other than local agencies that
have the same governing body.
G. Local agencies, other than counties or a city and county,
may purchase no more than 10 percent of the outstanding
commercial paper of any single issuer.
H. Issuing corporation must be organized and operating
within the U.S., have assets in excess of $500 million, and
debt other than commercial paper must be in a rating
category of "A" or its equivalent or higher by a nationally
recognized statistical rating organization, or the issuing
corporation must be organized within the U.S. as a special
purpose corporation, trust, or LLC, has program wide credit
enhancements, and has commercial paper that is rated "A-
1" or higher, or the equivalent, by a nationally recognized
statistical rating agency.
I. Includes agencies defined as a county, a city and county, or
other local agency that pools money in deposits or
investments with other local agencies, including local
agencies that have the same governing body. Local
agencies that pool exclusively with other local agencies
that have the same governing body must adhere to the
limits set forth in Section 53601(h)(2)(C).
J. No more than 30 percent of the agency's money may be in
negotiable certificates of deposit that are authorized under
Section 53601(i).
K. Effective January 1, 2020, no more than 50 percent of the
agency's money may be invested in deposits, including
certificates of deposit, through a placement service as
authorized under 53601.8 (excludes negotiable certificates
of deposit authorized under Section 53601(i)). On January
1, 2026, the maximum percentage of the portfolio reverts
back to 30 percent. Investments made pursuant to 53635.8
remain subject to a maximum of 30 percent of the
portfolio.
L. Reverse repurchase agreements or securities lending
agreements may exceed the 92-day term if the agreement
includes a written codicil guaranteeing a minimum earning
or spread for the entire period between the sale of a
security using a reverse repurchase agreement or securities
lending agreement and the final maturity dates of the same
security.
M. Reverse repurchase agreements must be made with
primary dealers of the Federal Reserve Bank of New York
or with a nationally or state -chartered bank that has a
significant relationship with the local agency. The local
agency must have held the securities used for the
agreements for at least 30 days.
N. "Medium -term notes' are defined in Section 53601 as "all
corporate and depository institution debt securities with a
maximum remaining maturity of five years or less, issued
by corporations organized and operating within the United
States or by depository institutions licensed by the United
States or any state and operating within the United States."
O. No more than 10 percent invested in any one mutual fund.
This limitation does not apply to money market mutual
funds.
P. A mutual fund must receive the highest ranking by not less
than two nationally recognized rating agencies or the fund
must retain 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
Sections 53601 and 53635.
Q. A money market mutual fund must receive the highest
ranking by not less than two nationally recognized
statistical rating organizations or retain an investment
advisor registered with the SEC or exempt from registration
and who has not less than five years' experience investing
in money market instruments with assets under
management in excess of $500 million.
R. Investments in notes, bonds, or other obligations under
Section 53601(n) require that collateral be placed into the
custody of a trust company or the trust department of a
bank that is not affiliated with the issuer of the secured
obligation, among other specific collateral requirements.
S. A joint powers authority pool must retain 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 (o).
T. Local entities can deposit between $200 million and $10
billion into the Voluntary Investment Program Fund, upon
approval by their governing bodies. Deposits in the fund
will be invested in the Pooled Money Investment Account.
U. Only those obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction
and Development (IBRD), International Finance
Corporation (IFC), and Inter -American Development Bank
(IADB), with a maximum remaining maturity of five years or
less.
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City of Temecula Statement of Investment Policy
20.0 APPENDIX B - Glossary of Terms
Accrued Interest: Interest earned but not yet received.
Active Deposits: Funds which are immediately required for disbursement.
Agencies: Federal agency securities and/or Government Sponsored Enterprises (GSE) which include
Federal Home Loan Bank (FHLB), Federal National Mortgage Association (FNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal Farm Credit Bank (FFCB), and Federal Agricultural Mortgage
Association (Farmer Mac).
Amortization: An accounting practice of gradually decreasing (increasing) an asset's book value by
spreading its depreciation (accretion) over a period of time.
Annual Comprehensive Financial Report (ACFR): The official annual financial report for the City. It
includes five combined statements and basic financial statements for each individual fund and account
group prepared in conformity with Generally Accepted Accounting Principles (GAAP).
Ask Price: The price a broker/dealer offers to sell securities.
Bankers' Acceptance (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting
institution guarantees payment of the bill, as well as the issuer.
Basis Point: One basis point is one hundredth of one percent (0.01).
Benchmark: A comparative base for measuring the performance or risk tolerance of the investment
portfolio. A benchmark should represent a close correlation to the level of risk and the average duration
of the portfolio's investments.
Bid Price: The price a broker/dealer offers to purchase securities.
Bond: A financial obligation for which the issuer promises to pay the bondholder a specified stream of
future cash flows, including periodic interest payments and a principal repayment.
Book Value: The value at which a debt security is shown on the holder's balance sheet. Book value is
acquisition cost less amortization of premium or accretion of discount.
Certificate of Deposit: A deposit insured up to $250,000 (current amount) by the FDIC at a set rate for a
specified period of time.
Collateral: Securities, evidence of deposit, or pledges to secure repayment of a loan. Also refers to
securities pledged by a bank to secure deposit of public moneys.
Constant Maturity Treasury (CMT): An average yield of a specific Treasury maturity sector for a specific
time frame. This is a market index for reference of past direction of interest rates for the given Treasury
maturity range.
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City of Temecula Statement of Investment Policy
Coupon: The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's
face value.
Credit Analysis: A critical review and appraisal of the economic and financial conditions or of the ability
to meet debt obligations.
Current Yield: The interest paid on an investment expressed as a percentage of the current price of the
security.
Custody: A banking service that provides safekeeping for the individual securities in a customer's
investment portfolio under a written agreement which also calls for the bank to collect and pay out
income, to buy, sell, receive and deliver securities when ordered to do so by the principal.
Delivery vs. Payment (DVP): Delivery of securities with a simultaneous exchange of money for the
securities.
Discount: The difference between the cost of a security and its value at maturity when quoted at lower
than face value.
Diversification: Dividing investment funds among a variety of securities offering independent returns and
risk profiles.
Duration: The weighted average maturity of a bond's cash flow stream, where the present value of the
cash flows serve as the weights; the future point in time at which on average, an investor has received
exactly half of the original investment, in present value terms; a bond's zero -coupon equivalent; the
fulcrum of a bond's present value cash flow time line.
Fannie Mae: Trade name for the Federal National Mortgage Association (FNMA), a U.S. sponsored
corporation.
Federal Reserve System: The central bank of the U.S. which consists of a seven -member Board of
Governors, 12 regional banks, and 5,700 commercial banks that are members.
Federal Deposit Insurance Corporation (FDIC): Insurance provided to customers of a subscribing bank
which guarantees deposits to a set limit (currently $250,000) per account.
Fed Wire: A wire transmission service established by the Federal Reserve Bank to facilitate the transfer
of funds through debits and credits of funds between participants within the Fed system.
Freddie Mac: Trade name for the Federal Home Loan Mortgage Corporation (FHLMC), a U.S. sponsored
corporation.
Ginnie Mae: Trade name for the Government National Mortgage Association (GNMA), a direct obligation
bearing the full faith and credit of the U.S. Government.
Inactive Deposits: Funds not immediately needed for disbursement.
Interest Rate: The annual yield earned on an investment, expressed as a percentage.
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City of Temecula Statement of Investment Policy
Investment Agreements: An agreement with a financial institution to borrow public funds subject to
certain negotiated terms and conditions concerning collateral, liquidity and interest rates.
Liquidity: Refers to the ability to rapidly convert an investment into cash.
Market Value: The price at which a security is trading and could presumably be purchased or sold.
Maturity: The date upon which the principal or stated value of an investment becomes due and payable.
Medium Term Notes: Corporate and depository institution debt securities with a maximum remaining
maturity of five years or less, issued by corporations organized and operating within the United States or
by depository institutions licensed by the United States or any state and operating within the United
States.
New Issue: Term used when a security is originally "brought" to market.
Perfected Delivery: Refers to an investment where the actual security or collateral is held by an
independent third party representing the purchasing entity.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A group of government securities dealers that submit daily reports of market activity and
security positions held to the Federal Reserve Bank of New York and are subject to its informal oversight.
Purchase Date: The date in which a security is purchased for settlement on that or a later date.
Rate of Return: The yield obtainable on a security based on its purchase price or its current market price.
This may be the amortized yield to maturity on a bond or the current income return.
Repurchase Agreement (REPO): A transaction where the seller (bank) agrees to buy back from the buyer
(City) the securities at an agreed upon price after a stated period of time.
Reverse Repurchase Agreement (REVERSE REPO): A transaction where the seller (City) agrees to buy
back from the buyer (bank) the securities at an agreed upon price after a stated period of time.
Risk: Degree of uncertainty of return on an asset.
Safekeeping: see Custody.
Sallie Mae: Trade name for the Student Loan Marketing Association (SLMA), a U.S. sponsored
corporation.
Secondary Market: A market made for the purchase and sale of outstanding issues following the initial
distribution.
Settlement Date: The date on which a trade is cleared by delivery of securities against funds.
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City of Temecula Statement of Investment Policy
1
Structured Notes: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, FHLMC, 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 the
fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield
curve.
Supranationals: A supranational organization is formed by a group of countries through an international
treaty with specific objectives such as promoting economic development. Supranational organizations
also issue debt in the United States. The most commonly recognized supranational debt is the
International Bank for Reconstruction and Development (IBRD or World Bank), International Finance
Corporation (IFC) and Inter -American Development Bank (IADB).
Treasury Bills: U.S. Treasury Bills which are short-term, direct obligations of the U.S. Government issued
with original maturities of 13 weeks, 26 weeks and 52 weeks; sold in minimum amounts of $10,000 in
multiples of $5,000 above the minimum. Issued in book entry form only. T-bills are sold on a discount
basis.
Treasury Bonds: Long-term coupon -bearing U.S. Treasury securities issued as direct obligations of the
U.S. Government and having initial maturities of more than 10 years.
Treasury Notes: Medium -term coupon -bearing U.S. Treasury securities issued as direct obligations of the
U.S. Government and having initial maturities from two to 10 years.
U.S. Government Agencies: Instruments issued by various US Government Agencies most of which are
secured only by the credit worthiness of the particular agency.
Yield: The rate of annual income return on an investment, expressed as a percentage. It is obtained by
dividing the current dollar income by the current market price of the security.
Yield to Maturity: The rate of income return on an investment, minus any premium or plus any discount,
with the adjustment spread over the period from the date of purchase to the date of maturity of the bond,
expressed as a percentage.
Yield Curve: The yield on bonds, notes or bills of the same type and credit risk at a specific date for
maturities up to thirty years.
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