Res 98-034RESOLUTION NO. 98-034
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
AMENDING INVESTMENT POLICY FOR PUBLIC FUNDS
AND RESCINDING RESOLUTION NO. 96-114
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway,
California, that the Statement of Investment Policy, attached as Exhibit A, is hereby adopted
as the Investment Policy of the City of Poway.
BE IT FURTHER RESOLVED, that Resolution No. 96-114 is hereby rescinded.
PASSED, ADOPTED AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting thereof this 14th day of April, 1998.
ATTEST:
Marjoril~ K~ Wahlsten, City Clerk
'..._j
STATE OF CALIFORNIA )
COUNTY OF SAN DIEGO )
I, Marjorie K. Wahlsten, City Clerk of the City of Poway, do hereby certify under penalty of
perjury that the foregoing Resolution No. 98-034 was duly adopted by the City Council at a
meeting of said City Council held on the 14th day of April, 1998, and that it was so adopted by
the following vote:
AYES: CAFAGNA, EMERY, GOLDBY, REXFORD, HIGGINSON
NOES: NONE
ABSTAIN: NONE
ABSENT: NONE
Marjorle I~. Wahlsten, City Clerk
City of P..~ay
Resolution
Page 2
CITY OF POWAY
STATEMENT OF INVESTMENT POLICY
APRIL 1998
No. 98-034
This statement is intended to outline the policies for maximizing the efficiency of the
City of Poway's Cash Management System and for prudent investment of the City's
funds, and to provide guidelines for suitable investments.
The ultimate goal is to enhance the economic status of the City while protecting its
funds.
The City's Cash Management System is designed to accurately monitor and forecast
expenditures and revenues, thus striving to maintain the level of investment of all idle
funds as near 100% as possible, through daily and projected cash flow determinations.
The City shall attempt to obtain the highest yield, provided that all investments meet the
criteria established for safety and liquidity.
The investment policies and practices, idle cash management and investment
transactions are the joint responsibility of the City Treasurer and the Administrative
Services Department. These City of Poway policies and practices are based upon
federal, state, and local law and prudent money management. The primary goals of
these policies are:
To assure compliance with all federal, state and local laws
governing the investment of monies under the control of the
City Treasurer and the Administrative Services Department.
2. To protect the principal monies entrusted to these offices.
3. To ensure that money is always available when needed.
To generate the maximum amount of investment income within the
parameters of this Statement of Investment Policy and the
guidelines for suitable investments.
In accordance with City of Poway Resolution No. 98-034, the City Treasured
Administrative Services Department are authorized to invest the City's funds in
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EXHIBIT A
Investment Policy
Resolution No. 98-034
Page 3
accordance with the California Government Code Sections 53601.1, 53602 and
53635. This investment policy applies to all financial assets, investment
activities and debt issues of the City of Poway (which are invested by trustees
appointed under the indenture, Investment Policy with direction from the City
Treasurer/Administrative Services Department), except for the employees'
retirement and deferred compensation funds.
All monies entrusted to the City Treasurer/Administrative Services Department
will be pooled in an actively managed portfolio. The Investment Pool or
"Portfolio" will be referred to as the "Fund" throughout the remainder of this
document.
The City's Fund will be invested by an investment manager. The investment of
the Fund will be overseen by a City Investment Oversight Committee comprised
of the Director of Administrative Services, the Deputy Director of Administrative
Services, the Finance Manager, and the Senior Accountant.
The investment manager will observe, review and react to changing conditions
that affect the fund. The investment manager will keep the Investment Oversight
Committee apprised of the changing investment environment and any potential
restructuring of the portfolio which could result.
II.
A. SAFETY OF PRINCIPAL
Safety of principal is the foremost objective of the City of Poway. Each
investment transaction shall seek to ensure that capital losses are avoided,
whether from institution default, broker-dealer default, or erosion of market
value of securities. The City shall seek to preserve principal by mitigating
the two types of risk-- credit risk and market risk.
~. Credit risk, defined as the risk of loss due to failure of an
issuer of a security, shall be mitigated by investing in only very safe
institutions and by diversifying the fund so that the failure of any one
issuer would not unduly harm the City's cash flow.
Market Risk. The risk of market value fluctuations due to overall
changes in the general level of interest rates, shall be mitigated by
limiting the weighted average maturity of the City's fund to less than five
years.
Investment Policy
Resolution No. 98-034
Page 4
Liquidity is the second most important objective of the City of Poway. The
basic premise underlying the City's investment policy is to ensure that
money is always available when needed and at the same time reaping the
highest and best return. In order to maintain liquidity, a periodic cash flow
analysis of the City's sources and uses of funds will be conducted. The
investment portfolio will be structured so that it complements the City's cash
flow requirements. A prudent reserve of highly liquid, short-term assets
maturing in six months or less will be established to ensure that unforeseen
cash requirements of the City can be met.
C. RETURN ON INVESTMENT
The City's fund shall be designed to attain a market-average rate of return
through economic cycles. The market-average rate of return is defined as
the average return on one-year U.S. Treasury Bills. Whenever possible, and
consistent with risk limitations as defined herein and prudent investment
principles, the City shall seek to augment returns above the market-average
rate of return.
The performance of the portfolio will be reviewed monthly versus the one-
year U.S. Treasury Bill Index. Periodically, the investment manager and the
Investment Oversight Committee will review the appropriateness of the
reference index and change it as necessary.
III. AUTHORIZEDINVESTMENTS
The City of Poway has a fiduciary responsibility to maximize the productive use
of assets entrusted to its care and to invest and manage those public funds
wisely and prudently. The City of Poway operates its pooled idle cash to afford a
broad spectrum of investment opportunities that are deemed prudent and are
legally allowable under both state legislation and local ordinances. These
investment decisions shall be made using the trust principles and general
"prudent man theory" outlined below:
"In acquiring, investing, reinvesting, exchanging, selling and managing
property for the benefit of another, a fiduciary shall exercise the judgment
and care under the circumstances then prevailing, which men of prudence,
discretion and intelligence exercise in the management of their own affairs,
not in regard to speculation but in regard to the permanent disposition of
Investment Policy
Resolution No. 98-034
Page 5
their funds, considering the probable income as well as the probable safety
of their capital. Within the limitations of the foregoing standard, and subject
to any express provisions or limitations contained in any particular trust
instrument, a fiduciary is authorized to acquire and retain every kind of
property-real, personal or mixed-and every kind of investment specifically
including, but not by way of limitation, debentures and other corporate
obligations, and stocks--preferred or common-which men of prudence,
discretion and intelligence acquire for their own account."
In addition, the City recognizes that it has an equal obligation to be aware of the
social and political impacts of its investments, and subsequently to act
responsibly in making its financial decisions.
The City shall not knowingly make any investments in any institution, company,
corporation, subsidiary or affiliate that practices or supports directly or indirectly
through its actions discrimination on the basis of race, religion, color, creed,
national or ethnic origin, age, sex, sexual preference, or physical disability.
As stated above, the City is governed by the California Government Code,
Sections 53601.1,53602 and 53635. Within the context of these limitations, the
following investments are authorized, as further limited herein:
United States Treasury Bills, Notes and Bonds, or those for which the full
faith and credit of the United States are pledged for payment of principal and
interest with remaining maturities of five years or less. There is no limitation
as to the percentage of the fund which can be invested in this category as
they are both safe and liquid.
Obligations issued by the Government National Mortgage Association
(GNMA), the Federal Farm Credit Bank System (FFCB), the Federal Home
Loan Bank Board (FHLB), the Federal National Mortgage Association
(FNMA), those insured by the Federal Housing Association (FHA), and other
U.S. government agency obligations with remaining maturities of five years
or less. Despite the implied government guarantee, "Agencies" that are not
direct obligations of the U.S. government will be limited to 50% of the
portfolio in aggregate and no more than 25% of the portfolio may be in any
one Agency.
Bills of exchange or time drafts drawn on and accepted by a commercial
bank, otherwise known as banker's acceptances with a maximum maturity of
270 days. No more than 5% of the market value of the fund may be
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Investment Policy
Resolution No. 98-034
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invested in banker's acceptances issued by any one bank. No more than
30% of the portfolio may be in bankers acceptances. Issuing banks must be
rates "P1" by Moody's Investor Services and "Al" by Standard and Poor's.
Commercial paper with a maximum maturity of 180 days, rated "PI" by
Moody's Investor Services and "Al" by Standard and Poor's, and issued by
a domestic corporation having assets in excess of $500,000,000, and having
an "A" or better rating on its long-term debentures as provided by Moody's or
Standard and Poor's. No more than 3% of the market value of the fund may
be invested in commercial paper issued by any one corporation. Investment
in one issuer's commercial paper may not exceed 10% of that issuer's
outstanding commercial paper. Total investments in commercial paper may
not exceed 15% of the portfolio except if the dollar weighted average
maturity of all commercial paper owned is 31 days or less. If the average
maturity is 31 days or less, the limitation is 30% of the portfolio.
Negotiable Certificates of Deposits of "Al" and "PI" rated commercial banks
with maturities of five years or less. Eligible banks must also have no long-
term ratings below "A" or equivalent. No more than 5% of the fund may be
invested in CD's of one issuer. No more than 20% of the portfolio may be
invested in CD's.
Repurchase agreements. The City may enter into repurchase agreements
with banks and dealers with which the City has entered into a master
repurchase contract which specifies terms and conditions of repurchase
agreements, and are fully collateralized by delivery to an independent third
party custodian for the City's account or to the City's custodian. In order to
conform with provisions of the Federal Bankruptcy Code which provides for
the liquidation of securities held as collateral for repurchase agreements,
only those marketable securities eligible for investment by the City are
permitted as collateral. Treasuries, Agencies, and eligible money market
instruments will collateralized at 102%. Corporates and other eligible
collateral will be collateralized at 105%. Repurchase agreements will be
conducted with only primary dealers. Repurchase agreements shall not
exceed 90 days.
Reverse repurchase agreements. The City may enter into reverse
repurchase agreements only with those primary dealers with which the City
has entered into a master repurchase contract outlining terms and conditions
of reverse repurchase agreements. The City may enter into reverse
repurchase agreements for the following purpose: when an unanticipated
cash outflow can, in the judgment of the City Treasurer/Administrative
Services Department, be met more advantageously by entering into a
Investment Policy
Resolution No. 98-034
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reverse repurchase agreement than by selling securities outright. In such a
case, the reverse repurchase shall not exceed 30 days, and shall be
matched to a known cash inflow of sufficient size to repay the principal and
interest of the reverse repurchase agreement.
Reverse repurchase agreements will be limited to 20% of the unleveraged
portfolio. Only securities that have been owned and paid for by the City for
30 days are eligible to be used for collateral. Collateralization must be
maintained at 102%.
No reverse repurchase agreements will be entered into by the investment
advisor without the prior written permission of the City.
Local Agency Investment Fund Demand Deposits. The City may invest in
the local Agency Investment Fund (LAIF) established by the State Treasurer
for the benefit of local agencies up to the maximum permitted by State law.
The County of San Diego's Investment Pool. The City may invest in this
investment pool established by the San Diego County Treasurer for the
benefit of local public agencies.
Certificates of Deposit. The City may invest in non-negotiable (CD's which
cannot be sold in the secondary market) insured, or collateralized time
deposits in accordance with the California Government Code, in commercial
banks, savings and loan companies and industrial thrift associations. The
City shall deposit funds only with financial institutions which operate in
California. These institutions must be insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Savings and Loan Insurance
Corporation (FSLIC), or other federal government insurance banking
systems.
The City's policy shall be to waive security for the amount insured. Deposits
in excess of the insured amount shall be secured with eligible securities
specified in Government Code Section 53651. The City shall comply with
and act to secure compliance with the security (collateralization) system
specified in the Government Code Section 53649 and 56652.
Insured passbook savings account demand deposits in commercial banks
and savings and loan companies.
Medium-term notes and other corporate notes of a maximum of five years
maturity issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state
Investment Policy
Resolution No. 98-034
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and operating within the United States. Notes eligible for investment shall
be rated in a rating category of "^" or its equivalent or better by a nationally
recognized rating service. No more than 30% of the fund may be invested in
medium-term notes or other corporates. No more than 5% of the portfolio
may be invested in the obligations of one issuer.
Shares of beneficial interest issued by diversified management companies,
otherwise known as mutual funds and as defined in Section 23701(m) of the
Revenue and Taxation Code. Mutual funds must consist of securities and
obligations of the U.S. government authorized by Section 53601 of the
California Government Code as amended. Said companies shall either:
Attain the highest ranking or the highest letter and numerical rating
provided by not less than two of the three largest nationally recognized
rating services, or
Have an investment adviser registered with the Securities and Exchange
Commission with not less than five years' experience investing in the
securities and obligations as authorized above, and with assets under
management in excess of $500,000,000. The price of shares of
beneficial interest (mutual funds) shall not include any commission that
these companies may charge at the time of purchase or redemption. No
more than 20% of the fund may be invested in mutual funds. The limit
for one mutual fund is 10% of the fund.
3. Mutual Fund investments will be limited to Money Market Mutual Funds
with a par value of $1.00.
Obligations of state or municipal governments or their public agencies, which
are rated in the three highest categories of a national rating service.
Any mortgage pass-through security, collateralized mortgage obligation,
mortgage-backed or other pay-through bond, equipment lease-back
certificate, consumer-receivable pass-through certificate, or consumer-
receivable-backed bond of a maximum of five years' expected maturity.
These securities must be rated "AAA" or equivalent. Total investment in this
category may not exceed 20% of the fund.
Other prudent investment instruments, approved prior to purchase by a two-
thirds majority of the governing body.
Investment Policy
Resolution No. 98-034
Page 9
Ineligible investments. Investments not described herein, including but not
limited to common stocks, are prohibited from use in this fund. Derivatives
such as inverse floaters, mismatched floaters, yield curve notes and other
securities that magnify interest rate risk are expressly prohibited.
In determining the amount of investment for compliance purposes, the book
value of the security will be used. For instance, if the City purchases $1
million of a medium-term note at a price of 103% (1.03), the investment for
compliance purposes will be $1,030,000 since this is the City's actual
exposure to the issuer.
Private placements are not acceptable investments. Commercial paper of
six months or less maturity issued under the 4(2) exemption is acceptable as
long as it is an acceptable investment for Money Market Mutual Funds.
Corporates including MTN's rated single "A" may not be purchased if they
are currently on the downgrade list at either Moody's or S&P. Commercial
Paper of issuers with long-term ratings of single "A" may not be purchased if
the issuer is currently on the downgrade list of either S&P or Moody's.
Effective January 1, 1989, all new investments must have a remaining life to
maturity of no more than five years without specific approval from the City
Council. Investments held at December 31, 1988, with maturities greater than
five years may be held until maturity or until they are sold.
IV. INVESTMENT MANAGEMENT AND REPORTING
The City has employed an investment advisor to manage its portfolio. The
investment advisor will be bound by this policy and the various state and local
laws and regulations that govern the investment activity of the City. While the
City entrusts its investment portfolio to the advisor, the City retains the right to
ultimately make the decisions on how to invest its monies. Besides the other
parts of this policy, the investment advisor will be bound by the following:
While it is understood that occasionally it may be in the best interest of the
City to take losses in its security portfolio, losses taken to increase the yield
in the portfolio may only be taken if the increased yield results in the loss
being recouped in one year or less. Credit-related losses on the other hand
are taken to prevent potentially larger losses in the future. When possible,
the investment manager will get prior approval of the City before taking
credit-related losses. In any case, the City will be notified as soon as
possible about any losses taken in the portfolio.
Investment Policy
Resolution No. 98-034
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Securities that are downgraded by one or more rating agency to below the
ratings required by this policy do not have to be sold. However, the
investment advisor will immediately notify the City of the downgrade. The
advisor will prepare a credit report on the downgraded security and forward it
to the City.
The investment advisor will prepare monthly reports for the City on its
investment portfolio. The reports will include all information required by the
City and applicable state and local laws and regulations. The investment
advisor may be requested by the City to prepare periodically such special
reports as may reasonably be required of the investment advisor.
It is expected that the investment advisor will make at least a quarterly visit
to the City to discuss the investment performance of the City's portfolio. The
City expects the investment advisor to make such additional trips as
necessary to develop investment strategy, discuss investment performance,
or to review investment policy. These additional trips will be scheduled at
the convenience of the City and the investment advisor.
At least annually, the investment advisor will review the City's investment
policy and make recommendations to the City on changes in the policy
necessary to bring it into compliance with state and local laws and
regulations and to generally update the policy for the changing investment
environment. All changes are subject to City approval.
The investment advisor will, as necessary, revise the list of approved
broker/dealers. All changes are subject to City approval.
V. QUALIFIED DEALERS AND INSTITUTIONS
The City shall transact business only with banks, savings and loans, and
registered investment securities dealers. The purchase by the City of
any investment, other than those purchased directly from the issuer, shall be
purchased either from an institution licensed by the State as a broker-dealer, as
defined in Section 25004 of the Corporations Code, who is a member of the
National Association of Securities Dealers, or a member of a federally regulated
securities exchange, a national or state-chartered bank, a federal or state
association (as defined by Section 5102 of the Financial Code), or a brokerage
firm designated as a primary government dealer by the Federal Reserve Bank.
A list of approved broker/dealers is attached. All trades must be done with
approved broker/dealers.
Investment Policy
Resolution No. 98-034
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VI. SAFEKEEPING OF SECURITIES
To protect against potential losses caused by collapse of individual securities
dealers, all securities owned by the City, except securities used as collateral for
repurchase and reverse repurchase agreements, shall be kept in safekeeping
with "perfected interest" 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-
vs-payment procedures.
VII. ~
Under provision of Section 53646 of the California Government Code, the
Treasurer or chief fiscal officers shall render a monthly report to the City Council
showing the type of investment, the institution, date of maturity, amount of
deposit, current market value for all securities, rate of interest, and such data as
may be required by the City Council, state of California, or the federal
government. The report shall also detail all repurchase and reverse repurchase
agreements, and shall state its relationship to this Statement of Investment
Policy, as directed under the Code. The report shall be submitted to the City
Council within 30 days following the month being reported. The investment
manager will submit its report to the Investment Oversight Committee no later
than 15 days after the end of the month being reported.
vi. INVESTMENT CONTROLS
The City Treasurer/Administrative Services Department have developed a
system of internal investment controls and a segregation of responsibilities of
investment functions in order to assure an adequate system of internal control
over the investment function.
VIII. SEGREGATION OF RESPONSIBILITIES
FUNCTION
1.0 Investment policy:
1.1 Preparation and annual review
of investment policy.
1.2 Approval of investment policy.
2.0 Investment transactions:
2.1 Calculation of cash position.
Director of Admin. Services/
Oversight Committee
City Council
Senior Accountant/
Finance Manager
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Investment Policy
Resolution No. 98-034
Page 12
2.2 Investment recommendation:
Determination of amount to be invested,
selection of type of investment, and
term of investment.
2.3 Review of investment recommendation
and execution of transaction.
3.0 Recording of transactions:
3.1 In investment subsidiary ledgers.
3.2 In accounting records.
3.3 Match investment confirmation
to subsidiary ledgers.
4.0 Safeguarding of assets and records:
4.1 Reconciliation of subsidiary records to
the accounting records.
4.2 Reconciliation of subsidiary records to
bank statements and safekeeping records.
4.3 Review of financial institutions and
investment brokers' reputation and
financial condition.
4.4 Review of collaterals.
5.0 Investment portfolio:
5.1 Preparation of investment report.
5.2 Review of portfolio for compliance
with stated investment policy.
5.3 Approval of investment report.
Investment Managed
Finance Manager
Oversight Committee
Accountant/Account Clerk
Accountant/Account Clerk
Senior Accountant/
Accountant
Senior Accountant
Senior Accountant
Investment Managed
Oversight Committee
Senior Accountant
Oversight Committee
City Council
X. INVESTMENT INCOME ALLOCATION
Investment income shall be shared by the General Fund, the Water Fund, the
Sewer Fund, and other funds as budgeted or required by legislation. This
income shall be a proportionate ratio of balances to total pooled cash and
investment income credited accordingly on a monthly basis.
Xl. CALIFORNIA CODE OF ECONOMIC INTEREST
Additionally, the investment responsibility carries with it the added duties of
ensuring that investments placed are done so without the appearance of
improper influence. The personnel in Administrative Services or the Treasurer's
Office involved in the investment function shall adhere to the State's Code of
Economic Interest and to the following:
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Investment Policy
Resolution No. 98-034
Page 13
All persons authorized to place or approve investments shall not personally
nor through a close relative maintain any accounts, interest, or private
dealings with any firm with which the City places investments, except for
regular savings accounts, checking accounts, money market accounts, or
other similar transactions which are offered on a non-negotiable basis to the
general public. Such accounts shall be disclosed annually to the City Clerk in
conjunction with annual disclosure statements of economic interest.
All persons authorized to place or approve investments shall report quarterly
to the City Clerk kinship relations with principal employees of firms with
which the City places investments.
All persons authorized to place or approve investments shall report quarterly
to the City Clerk any meals, entertainment, gifts, or other items of monetary
value in excess of $50.00 received from any person employed by a firm with
which the City places investments.
This Investment Policy shall be reviewed at least annually to ensure its
consistency with the overall objectives of SAFETY OF PRINCIPAL, LIQUIDITY,
and RETURN ON INVESTMENT, and its relevance to current law, financial and
economic trends, and to meet the needs of the City of Poway.
c:\data\wpfiles\policy, rpt
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Resolution No. 98-034
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APPROVED BROKER/DEALERS
3/2/98
The following BrokedDealers are approved for execution of trades, repurchase
agreements and reverse repurchase agreements. Repurchase and reverse repurchase
agreements require a signed PSA Agreement prior to execution. Reverse repurchase
agreements may not be executed without the prior written approval of the City.
BancAmerica Robertson Stephens Securities
Bear Stearns
Chase Securities
C.S. First Boston
Deutsche Morgan Grenfell
Donaldson, Lufkin & Jenrette
Goldman Sachs
Greenwich Securities
HSBC Securities
J.P. Morgan Securities
Lehman Brothers
Merrill Lynch
Miller & Schroeder Financial Inc.
Morgan Stanley Dean Witter
Nomura Securities
PaineWebber
Prudential Securities
Salomon Smith Barney
SBC Warburg Dillon Read
Smith Barney
UBS Securities
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