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HomeMy WebLinkAbout2018-05-22 - AGENDA REPORTS - 2018-19 STMT OF INVESTMENT POLICY (2)Agenda Item: 18 CITY OF SANTA CLARITA ' AGENDA REPORT CONSENT CALENDAR t, CITY MANAGER APPROVAL: �1 DATE: May 22, 2018 SUBJECT: CITY OF SANTA CLARITA'S FISCAL YEAR 2018-19 STATEMENT OF INVESTMENT POLICY DEPARTMENT: Administrative Services PRESENTER: Brittany Houston RECOMMENDED ACTION City Council adopt the City of Santa Clarita's (City) Fiscal Year 2018-19 Statement of Investment Policy, and direct staff to submit the policy to the Association of Public Treasurers of the United States and Canada (APT US&C) for certification in their annual award program. BACKGROUND Pursuant to California Government Code Section 53646, the City Treasurer may annually present the City's Investment Policy to the City Council to reaffirm or make any changes to the existing policy. The City's Investment Policy has been submitted to the APT US&C every year for the past 23 years and has received the Certificate of Excellence for each of these years. The Investment Policy (Policy) provides guidelines for the management of the City's cash and the investment of its idle funds. The Policy affords the City various investment opportunities, as long as the investment is deemed prudent under the prudent investor standard and is allowable under the legislation of the State of California (Government Code Section 53600, et seq.). The Policy's guidelines emphasize the importance of safety and liquidity first. The yield on the City's investment portfolio is secondary to these first two objectives. As part of the review process, the APT US&C and the California Debt and Investment Advisory Commission (CDIAC) may recommend changes that are then incorporated into the next year's update. The City of Santa Clarita's Investment Policy has been deemed current and up-to-date per the CDIAC Local Agency Investment Guidelines. Authorized Investments Various investment tools are used to manage the City's liquidity in a manner that meets operating requirements and cash needs. A Local Government Investment Pool (LGIP) is an Page 1 Packet Pg. 180 additional tool available to the City for managing liquidity. Adding LGIP as an allowable investment to the Policy would permit the City to invest in the California Asset Management Program (CAMP). CAMP is a Joint Powers Authority (JPA) established in 1989 to provide California public agencies with professional investment services. Diversification The City's policy nor State Code identify how much of the City's portfolio may be invested in a single issuer for investments such as commercial paper, certificates of deposit/negotiable CDs, corporate notes, and asset backed securities. It is a Government Finance Officers Association (GFOA) best practice to identify limits and create diversification among issuers to minimize risk and achieve the Policy's safety objective. A 5 percent single issuer limit for investments, excluding U.S. Treasury, Federal Agency, supranational securities, authorized pools/money market funds, repurchase agreements, and collateralized certificates of deposit, would update the Policy to reflect the City's current practice, ensure diversification, and minimize risk. Staff recommends adding Local Government Investment Pool (LGIP) as an authorized investment to allow for utilization of an additional liquidity tool. Staff also recommends revising language to limit investments, excluding U.S. Treasury, Federal Agency, supranational securities, authorized pools/money market funds, repurchase agreements, and collateralized certificates of deposit, to 5 percent in a single issuer. ALTERNATIVE ACTION Other action as determined by the City Council. FISCAL IMPACT None by this action. ATTACHMENTS Statement of Investment Policy FY 2018-19 Page 2 Packet Pg. 181 18.a CITY OF SANTA CLARITA Statement of Investment PolicyLj Fiscal Year 2018-19 Packet Pg. 182 TABLE OF CONTENTS 1.0 MISSION STATEMENT 4 2.0 SCOPE 4 3.0 PRUDENCE 5 4.0 OBJECTIVES 5 5.0 DELEGATION OF AUTHORITY 5 6.0 ETHICS AND CONFLICTS OF INTEREST 6 7.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS 7 8.0 AUTHORIZED AND SUITABLE INVESTMENTS 7 9.0 INVESTMENT POOLS/MUTUAL FUNDS 8 10.0 COLLATERALIZATION 9 11.0 SAFEKEEPING AND CUSTODY 9 12.0 DIVERSIFICATION 10 13.0 MAXIMUM MATURITIES 10 14.0 INTERNAL CONTROL 11 15.0 PERFORMANCE STANDARDS 11 16.0 REPORTING 11 17.0 PORTFOLIO REBALANCING 12 18.0 CREDIT DOWNGRADE 13 19.0 INVESTMENT POLICY ADOPTION 13 2 18.a U J O a z w co w z u- 0 z w w Q co o0 0 N Q w J Q U co rn o0 0 N w �o a r c m E r m c 0 c m E m r co r a N E u c� r r Q Packet Pg. 183 APPENDICES: A. AUTHORIZED INVESTMENTS 14 B. SUMMARY OF AUTHORIZED INVESTMENTS 20 C. GLOSSARY OF TERMS 21 D. BANK/SAVINGS AND LOAN QUESTIONNAIRE AND 28 CERTIFICATION E. BROKER/DEALER QUESTIONNAIRE AND 33 CERTIFICATION F. INVESTMENT POOL QUESTIONNAIRE 37 G. LIST OF PRIMARY GOVERNMENT SECURITIES 42 DEALERS 3 18.a U J O a z w co w z u- 0 H z w w Q co o0 0 N Q w J Q U co m rn r- ob 0 N LL V .O a r c m E r m c 0 r c m E m r r co r a N E u c� r r Q Packet Pg. 184 CITY OF SANTA CLARITA Statement of Investment Policy Fiscal Year 2018-19 1.0 MISSION STATEMENT It is the policy of the City of Santa Clarita (City) to invest public funds in a manner which will provide the maximum security with best investment return, while meeting the daily cash flow demands of the City and conforming to all state/province and local statutes governing the investment of public funds. 2.0 SCOPE This Investment Policy applies to all investment activities and financial assets of the City. These funds are accounted for in the City of Santa Clarita's Audited Annual Financial Report and include: 2.1.1 General Fund 2.1.2 Special Revenue Funds 2.1.3 Debt Service Funds 2.1.4 Capital Project Funds 2.1.5 Enterprise Funds 2.1.6 Internal Services Funds 2.1.7 Trust and Agency Funds 2.1.8 Any new funds created by the City Council unless specifically exempted 2.2 Funds Excluded From This Policy: 2.2.1 Retirement Funds 2.2.2 Pension Funds Bond funds shall be invested in the securities permitted pursuant to the City Council approved bond documents. If the bond documents are silent as to the permitted investments, bond funds will be invested in the securities permitted by this Investment Policy. Notwithstanding the other provisions of this Investment Policy, the percentage, and term limitations listed elsewhere in this Investment Policy do not apply to bond funds. 2 18.a Packet Pg. 185 18.a 3.0 PRUDENCE When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, investment officials 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 City, 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 City. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. The standard of prudence to be used by investment officials shall be the "prudent investor" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this 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 OBJECTIVES The primary objectives, in priority order, of the City's investment activities shall be: a U 4.1 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 offering independent returns and financial o N institutions. 4.2 Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. 4.3 Return on Investment: The City's investment portfolio shall be managed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles, commensurate with the City's investment risk constraints and the cash flow characteristics of the portfolio. 5.0 DELEGATION OF AUTHORITY Pursuant to City of Santa Clarita Ordinance 87-2 (Sec. 2.15.030 Santa Clarita Municipal Code), the Treasurer is authorized to invest the City's Funds (Funds) in accordance with California Government Code Sections 16429.1, 53600 et seq., and 53684et seq. (All subsequent references to code sections refer to the California Government Code unless otherwise indicated). 5 Packet Pg. 186 18.a In the absence of the City Treasurer (Treasurer), the investment of the Funds will be delegated to the City Manager. In the absence of the City Treasurer and the City Manager, the investment of the Funds will be delegated to the Assistant City Manager. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and their procedures in the absence of the City Treasurer. Prior to investing, the cash flow requirements of the City will be considered, and only securities that will not adversely affect the liquidity of the investment portfolio will be purchased. Unless otherwise specifically designated by the City Council, the only officials authorized to undertake investment transactions on behalf of the City are the: City Treasurer City Manager Assistant City Manager Mayor Further, no person may engage in an investment transaction except as provided under the terms of the City's Statement of Investment Policy. As authorized by the City Council, the City may engage the services of an investment advisor to � assist in the management of the City's investment portfolio in a manner consistent with this v Investment Policy and the City's investment objectives and direction from the City Treasurer. The advisor may be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. The advisor may not take possession of the City's cash or securities. The advisor must be registered under the Investment Advisers Act of 1940. c 5.1 Investment Procedures: The City Treasurer shall establish a separate written investment procedures manual 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, cash flow forecasting, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the City Treasurer. 6.0 ETHICS AND CONFLICTS OF INTEREST The Treasurer and other employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. The Treasurer and investment employees shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from D Packet Pg. 187 18.a undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. The Treasurer and investment employees are required to file annual disclosure statements as required by the Fair Political Practices Commission (FPPC). During the course of the year, if there is an event subject to disclosure that could impair the ability of the Treasurer or investment employees to make impartial decisions, the City Council will be notified in writing within 10 days of the event. 7.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City shall transact business only with banks, savings and loans, and registered investment securities dealers. The purchase 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 Corporation Code, who is a member of the Financial Industry Regulatory Authority, 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 dealer by the Federal Reserve Bank. The Treasurer's staff shall investigate all institutions that wish to do business with the City, in W order to determine if they are adequately capitalized, make markets in securities appropriate to _J the City's needs, and agree to abide by the conditions set forth in this Investment Policy. All v financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must provide a current audited financial statement and complete the appropriate City questionnaire. See Appendix C and Appendix D. m The City Treasurer shall conduct an annual review of the financial condition of all approved financial institutions and broker/dealers in order to determine whether they continue to meet the City's guidelines for qualifications as defined in this section. In addition, the City shall give all approved broker/dealers a copy of the City's current Statement of Investment Policy on an annual basis. The City Treasurer shall keep current audited annual financial statements on file for each approved financial institution and broker/dealer with which the City does business. All financial institutions and broker/dealers for investment transactions must supply the Treasurer with the following: audited financial statements, completed broker/dealer questionnaire, and a certificate of having read the City's investment policy. If the City has contracted with an investment advisor to provide investment services, the investment advisor may use their own list of approved issuers, brokers/dealers and financial institutions to execute transactions on the City's behalf. 8.0 AUTHORIZED AND SUITABLE INVESTMENTS From a 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 7 Packet Pg. 188 18.a trained and competent to handle. The investments set forth in this section are authorized investments pursuant to Sections 16429.1, 53600 et seq., and 53638 of the Government Code and are authorized investments for the City subject, however, to the prohibitions set forth in Section 8.2 of this Investment Policy. See Appendix G for a summary of this section. See Appendix A for a listing of authorized types of investment securities. 8.1 Master Repurchase Agreement: Repurchase agreements and Reverse Repurchase agreements are legal and authorized by this policy. If the City chooses to invest in Repurchase agreements or Reverse Repurchase agreements, a Master Repurchase Agreement must be signed with the bank or dealer prior to any Repurchase or Reverse Repurchase transactions. 8.2 Prohibited Investments and Transactions: California Government Code Section 53601.6 prohibits local agencies from investing in certain instruments, including the following: ■ Inverse floaters, range notes, or interest -only strips that are derived from a pool of mortgages. ■ Any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this N subdivision shall not apply to City investments in shares of beneficial interest issued by a diversified management companies registered under the Investment Company Act of LU 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to _J Government Code Section 53601 (k). v 9.0 INVESTMENT POOLS/MUTUAL FUNDS A thorough investigation of any pooled investment funds, including mutual funds as defined in Appendix A, is required prior to investing, and on a continual basis. To accomplish this, a questionnaire (see Appendix E) is to be used to evaluate the suitability of the pooled fund. The questionnaire will answer the following general questions: ■ A description of eligible investment securities and a written statement of investment policy and objectives. ■ A description of interest calculations, how it is distributed, and how gains and losses are treated. ■ A description of how the securities are safeguarded (including the settlement processes), and how often are the securities priced and the program audited. ■ A description of who may invest in the program, how often, and what size deposit and withdrawal are allowed. ■ A schedule for receiving statements and portfolio listings. ■ Are reserves, retained earnings, e.g. utilized by the pool/fund? ■ A fee schedule, and when and how it is assessed. ■ Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? Packet Pg. 189 18.a 10.0 COLLATERALIZATION California Government Code, Sections 53652 through 53667, requires depositories to post certain types and levels of collateral for public funds above the Federal Deposit Insurance Corporation (FDIC) insurance amounts. The collateral requirements apply to bank deposits, both active (checking and savings accounts) and inactive (non-negotiable time certificates of deposit). Collateralization will also be required on two other types of investments: collateralized certificates of deposit and repurchase (and reverse) agreements. The collateralization level required for collateralized certificates of deposits shall be at least equal to that required by Section 53652. The collateralization level for repurchase agreements will be 102 percent of market value of principal and accrued interest, and the value shall be adjusted no less than quarterly. The City requires the collateral for repurchase agreements to be in the form of U.S. Treasuries. Unless otherwise required by Code, collateral will be held by an independent third party with whom the entity has a current written 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. 11.0 SAFEKEEPING AND CUSTODY J v To protect against fraud, embezzlement, or losses caused by collapse of individual securities dealers, all deliverable securities owned by the City shall be held in safekeeping by the City's custodial bank, a third party bank trust department, acting as agent for the City under the terms of c a custody agreement. Such custodial bank must be a federal or state association (as defined by Section 5102 of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this o state, or with any Federal Reserve bank or any state or national bank located in any city a designated as a reserve city by the Board of Governors of the Federal Reserve System. Collateral r for repurchase agreements will be held by a third party custodian under the terms of a Securities y Industry and Financial Markets Association (SIFMA) master repurchase agreement. > All security transactions entered into by the City shall be conducted on a delivery -versus - payment (DVP) basis. This procedure ensures that securities are deposited with the third party custodian prior to the release of funds. Securities will be held by a third party custodian designated by the Treasurer and as evidenced by safekeeping receipts with a written custodial agreement. Investments in the State or County Pool (as described in Appendix A (15 & 16)) or money market mutual funds (as described in Appendix A (12)) or Local Government Investment Pools (as described in Appendix A (17)) of this Investment Policy are undeliverable and not subject to delivery or third party safekeeping. The Treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the Treasurer. 0 Packet Pg. 190 18.a Investment trades, as they occur but no more than daily, shall be verified against the bank transactions and broker confirmation tickets to ensure accuracy. On a monthly basis, the custodial asset statement shall be reconciled with the month-end portfolio holdings. On an annual basis, the external auditor confirms investment holdings. 12.0 DIVERSIFICATION The City will diversify its investments by security type, institution, and maturity. The amount invested in any one security type will be limited to the percentages specified in this Policy. Furthermore, with the exception of U.S. Treasury, Federal Agency, supranational securities, authorized pools/money market funds, repurchase agreements, and collateralized certificates of deposit, the amount invested in the securities of any one issuer across the other security types will not exceed 5 percent of the City's total investment portfolio. Every effort will be made to: ■ Limit investments to avoid over -concentration in securities from a specific issuer or business sector. ■ Limit investments in securities that have higher credit risks. ■ Invest in securities with varying maturities. ■ Continuously invest a portion of the portfolio in readily available funds such as local c government investment pools (LAIF), and money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing W obligations. J a U 13.0 MAXIMUM MATURITIES N To the extent possible, the City shall attempt to match its investments with anticipated cash flow requirements. The City will not directly invest in securities maturing more than five (5) years from the date of settlement, unless the City Council has granted express authority to make that investment either specifically or as a part of an investment program approved by the City Council no less than three months prior to the investment. Any investment that is further limited is noted in Appendix A, Authorized Investments. Also see Appendix G for a one-page recap of maximum maturity by investment vehicle. The weighted average maturity of the investment portfolio will be limited to three years or less. Investments may be sold prior to maturity for cash flow, appreciation purposes, or in order to limit losses; however, no investment shall be made based solely on earnings anticipated from capital gains. Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds. Reserve funds may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. 10 Packet Pg. 191 18.a 14.0 INTERNAL CONTROL The City Treasurer shall be responsible for ensuring that all investment transactions comply with the City's Statement of Investment Policy and for establishing internal controls that are designed to prevent losses due to fraud, negligence, and third -party misrepresentation. Internal controls deemed most important shall include: avoidance of collusion; separation of duties and administrative controls; separating transaction authority from accounting and recordkeeping; custodial safekeeping; clear delegation of authority; management approval and review of investment transactions; specific limitations regarding securities loss and remedial action; documentation of investment transactions and strategies; and monitoring of results. The City Treasurer shall establish an annual process of independent review by an external audit firm. The external auditor shall review the management of the City's investment program in terms of compliance with the internal controls previously established. The external auditor, serving as an independent reviewer, will review and verify the City's investment activity, holdings, and compliance with this Investment Policy on an annual basis and submit a report to the City Council relating thereto. The external auditor shall maintain errors and omissions insurance coverage. J An Investment Committee consisting of City officials and staff shall be responsible for reviewing v the City Investment reports, transactions, policies, procedures, and strategies, no less than on a bi-monthly basis. a, 15.0 PERFORMANCE STANDARDS The investment portfolio shall be designed with the objective of obtaining a market rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs. 15.1 Performance Benchmark: The City's investment strategy is active. Given this strategy, the Treasurer will identify an appropriate benchmark(s) to determine whether market rate of return is being achieved. The Treasurer shall select benchmarks that are comparable to the portfolio's investment duration, e.g. the two-year Treasury bill and a market index of government securities with maturities from one to five years, such as the Bank of America Merrill Lynch US Issuers 1-5 Year AAA -A Corporate/Government Index. 16.0 REPORTING Per Section 53646 of the Government Code, the Treasurer may annually render to the City Council and the Investment Committee (consisting of the City Manager, Assistant City Manager, Deputy City Manager, and the City Treasurer) a statement of investment policy which the City Council shall consider at a public meeting. As a best practice, the policy will be reviewed on an 11 Packet Pg. 192 18.a annual basis by the Treasurer and the Investment Committee. Any investment held at the time this Investment Policy is adopted that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, however, such monies shall be reinvested only as provided by this policy. Section 53646 of the Government Code states that the Treasurer may render a report (Report) to the City Council, City Manager, the Investment Committee, and the internal auditor (if any) containing detailed information on all securities, investments, and monies of the City. As a good reporting practice, the Report will be submitted on a monthly basis and provided to the Council within 30 days following the end of the month. Schedules in the monthly report should include the following: ■ The type of investment, name of the issuer, date of maturity, the weighted average maturity, the par, and cost of all funds invested subject to this policy. ■ Coupon, discount or earnings rate.LU ■ Percentage of the portfolio represented by each investment category. ■ A list on investment transactions. ■ The market value with the source of the market valuation for all securities held by the City, and under management of any outside party that is not also a local agency or the N State of California Local Agency Investment Fund. ■ A description of any investments, including loans and security lending programs that are W under the management of contracted parties. ■ A description of the compliance with this Investment Policy, or manner in which the a U portfolio is not in compliance. ■ A statement denoting the City's ability to meet its pool's expenditure requirements for the next six months, or an explanation as to why sufficient money shall, or may, not be available. o ■ Benchmark comparison. The investment portfolio will be managed in accordance with the parameters specified within this policy and is continually monitored and evaluated by the City Treasurer and the Investment Committee. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. 17.0 PORTFOLIO REBALANCING Where this Investment Policy specifies a percentage limitation for a particular category or issuer, that percentage is applicable only at the date of purchase. Since portfolio percentage limits are in place in order to encourage diversification of the City's investment portfolio, the Treasurer should endeavor to rebalance the portfolio, when percentage limitations are exceeded, in a manner consistent with the City's overall investment objectives. Furthermore, if percentage holding limits are exceeded, no additional investments may be made in that category or issuer until the category or issuer is in compliance with this Investment Policy's percentage holding limits. 12 Packet Pg. 193 18.0 CREDIT DOWNGRADE This Statement of 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 the Statement of Investment Policy, then the Investment Committee shall evaluate the downgrade on a case-by- case basis in order to determine whether the security should be held or sold. 19.0 INVESTMENT POLICY ADOPTION The City's investment policy shall be adopted by of the City's Council. The policy shall be reviewed at least annually by the Investment Committee to ensure its consistency with the overall objectives of preservation of principal, liquidity, and return, and its relevance to current law, financial and economic trends, and to meet the needs of the City. Any modifications made thereto must be approved by the City Council. SUBNHTTED BY: Carmen Magana Director of Administrative Services/City Treasurer Date 13 18.a Packet Pg. 194 18.a Appendix A AUTHORIZED INVESTMENTS: 1. CITY BONDS There is no limit as to the amount of the investment portfolio that may be invested in City bonds. The purchase or other acquisition of bonds by or on behalf of the state or local government that issued the bonds does not cancel, extinguish, or otherwise affect the bonds, and the bonds shall be treated as outstanding bonds for all purposes except to the extent otherwise determined by the issuer or otherwise provided in the constituent instruments defining the rights of the holders of the bonds. 2. TREASURIES United States Treasury notes, bonds, bills, certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. J There is no limit as to the amount of the investment portfolio that may be invested in v United States Treasury notes. 3. STATE BONDS Registered state warrants or treasury notes or bonds of this state and any of the 49 states in addition to California, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. There is no limit as to the amount of the investment portfolio that may be invested in state bonds. 4. MUNICIPAL BONDS Bonds, notes, warrants, or other evidences of indebtedness of any local agency within the state of California, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. There is no limit as to the amount of the investment portfolio that may be invested in municipal bonds. 14 Packet Pg. 195 18.a 5. FEDERAL AGENCIES United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. There is no limit as to the amount of the investment portfolio that may be invested in federal agencies. 6. SUPRANATIONALS Issues are unsubordinated obligations issued by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter -American Development Bank. The securities must be rated in a rating category of "AA" or its equivalent or higher by a Nationally Recognized Statistical Rating Organization (NRSRO). No more than 30 percent of the total portfolio may be invested in these securities. No more than 10 percent of the total portfolio shall be invested in any single issuer. The maximum maturity of any security of this type shall not exceed five years. 7. BANKERS ACCEPTANCES Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances. Purchases of bankers' acceptances may not exceed v 180 days' maturity or 40 percent of the City's surplus money that may be invested pursuant to this section. However, no more than 30 percent of the City's surplus funds may be invested in the bankers' acceptances of any one commercial bank pursuant to this section. m 8. COMMERCIAL PAPER Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by a NRSRO. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2): (1) The entity meets the following criteria: a. Is organized and operating in the United States as a general corporation. b. Has total assets in excess of five hundred million dollars ($500,000,000). C. Has debt other than commercial paper, if any, that is rated in a rating category of "A" or its equivalent or higher by a NRSRO. (2) The entity meets the following criteria: a. Is organized within the United States as a special purpose corporation, trust, or limited liability company. b. Has program -wide credit enhancements including, but not limited to, over- collateralization, letters of credit, or surety bond. 15 Packet Pg. 196 Has commercial paper that is rated "A-1" or higher, or the equivalent, by a NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. No more than 25 percent of the City's surplus funds may be invested in eligible commercial paper 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. 9. CERTIFICATES OF DEPOSIT Negotiable certificates of deposits issued by a nationally or state -chartered bank or a state or federal association (as defined by Section 5102 of the Financial Code) or by a federally licensed or state -licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the City's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. 10. REPURCHASE AGREEMENTS (1) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, so long as the agreements are subject to this subdivision, including, the delivery requirements specified in this section. All transactions in repurchase agreements or reverse repurchase agreements shall require a master repurchase agreement executed by the contra -party. (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlies a repurchase agreement must be valued at 102 percent or greater of the funds borrowed against those securities, and the value shall be adjusted no less than quarterly. (3) Investments in reverse repurchase agreements or similar investments in which the City sells securities prior to purchase, may only be made upon prior approval of the City Council. (4) a. "Repurchase agreement" means a purchase of securities by the City pursuant to an agreement by which the counter -party seller will repurchase the securities on or before a specified date and for a specified amount, and the counter -party will deliver the underlying securities to the City by book entry, physical delivery, or by third party custodial agreement. The transfer of 16 18.a Packet Pg. 197 18.a underlying securities to the counter -party bank's customer book -entry account may be used for book -entry delivery. b. "Securities," for purpose of repurchase under this subdivision, 4 means securities of the same issuer, description, issue date, and maturity. c. "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. d. For purposes of this section, the base value of the City's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. e. For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. f. Repurchase agreements and reverse repurchase agreements shall only be made with primary dealers of the Federal Reserve Bank of New York. v U) EL 11. CORPORATE NOTES en Medium-term notes defined 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. Notes eligible for investment under this subdivision shall be rated in a rating category of "A" or its equivalent or better by a NRSRO. Purchases of medium-term notes may not exceed 30 percent of the City's surplus money which may be invested pursuant to this section. 12. MUTUAL FUNDS AND MONEY MARKET MUTUAL FUNDS Mutual Funds and Money Market Mutual Funds that are registered with the Securities and Exchange Commission under the Investment Company Act of 1940, provided that: (1) Mutual Funds that invest in the securities and obligations as authorized under California Government Code, Section 53601 (a) to (k) and (m) to (q) inclusive and that meet either of the following criteria: 17 Packet Pg. 198 18.a Attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or b. Have retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by California Government Code, Section 53601 and with assets under management in excess of $500 million. c. No more than 10 percent of the total portfolio may be invested in shares of any one mutual fund. (2) Money Market Mutual Funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and issued by diversified management companies and meet either of the following criteria: a. Have attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or b. Have retained an investment adviser registered or exempt from registration with LU the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of v $500 million. N c. No more than 20 percent of the total portfolio may be invested in Money Market Mutual Funds. (3) No more than 20 percent of the total portfolio may be invested in these securities 13. COLLATERALIZED CERTIFICATES OF DEPOSIT Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing City deposits having a market value at least equal to that required by Section 53652 for the purpose of securing City deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. There is no limit as to the amount of the investment portfolio that may be invested in Collateralized Certificates of Deposit. IN Packet Pg. 199 18.a 14. ASSET BACKED/MORTGAGE BACKED Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay -through bond, equipment lease -backed certificate, consumer receivable pass-through certificate, or consumer receivable -backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer rated in a rating category of "A" or its equivalent or higher for the issuer's debt as provided by a NRSRO and rated in a rating category of "AA" or its equivalent or better by a NRSRO. Purchase of securities authorized by this subdivision may not exceed 20 percent of the City's surplus money that may be invested pursuant to this section. 15. LAIF State managed Local Agency Investment Fund (LAIF) pursuant to Government Code Section 16429.1 and Resolution No. 88-95 of the City Council of the City. The maximum amount permitted in LAW shall be consistent with the California State Treasurer's most current deposit limit. J 16. LACPIF a U N Los Angeles County Treasury Pooled Investment Fund (LACPIF) pursuant to Government Code Section 53684 and Resolution No. 91-185 of the City Council of the City. c There is no limit to the amount of the portfolio that can be invested in LACPlF. 17. Local Government Investment Pool (LGIP) Shares of beneficial interest issued by a joint powers authority organized pursuant to Government Code Section 6509.7. To be eligible for purchase, the pool must meet the requirements of Government Code Section 53601(p) and seek to maintain a stable share price. There is no limit to the amount of the portfolio that can be invested in a LGIP. 19 Packet Pg. 200 18.a Appendix B SUMMARY OF AUTHORIZED INVESTMENTS Authorized State Code City Policy Maximum Other Investments Portfolio Portfolio Maturity Legal Limit Limit Constraints City Bonds Unlimited Unlimited 5 years No more than 5% in any one issuer. United States Unlimited Unlimited 5 years None Treasuries State Bonds Unlimited Unlimited 5 years No more than 5% in any one issuer. Municipal Bonds Unlimited Unlimited 5 years No more than 5% in any one issuer. Federal Agencies Unlimited Unlimited 5 years None Supranationals 30% 30% 5 years Rating category of "AN' or its equivalent or better. Banker's Acceptances 40% 40% 180 days No more than 5% in any one issuer. Commercial Paper 25% 25% 270 days Rating category of "A-1" or its equivalent or better. No more than 5% with any one issuer. Certificates of Deposit 30% 30% 5 years No more than 5% with any /Negotiable CDs one issuer. Repurchase Agreements Unlimited Unlimited 1 year Requires a Master Repurchase agreement. Market value of underlying securities must be greater than 102%. Corporate Notes 30% 30% 5 years Rating category of "A" or its equivalent or better. No more than 5% with any one issuer. Mutual Funds/Money 20% 20% 5 years No more than 10% will be Market Mutual Funds invested in any one mutual fund. Collateralized Unlimited Unlimited 5 years None Certificates of Deposit Asset Backed/ 20% 20% 5 years Rating category of "AA" or Mortgage Backed its equivalent or better. No more than 5% with any one issuer. LAIF Maximum by Maximum by N/A Limited to 15 transactions law law per month, per State policy. LACPIF Unlimited Unlimited N/A None LGIP Unlimited Unlimited N/A None 20 U J O a Z w F- U) LU Z LL O F - z LU 2 LU F- F - U) U) as 00 0 N Q LU J Q U w as 00 0 N LL a 0 a c m E m c 4- 0 c m E m r c� W r c m E ca r r Q Packet Pg. 201 18.a Appendix C GLOSSARY OF TERMS ACCRUED INTEREST: The interest owed to the seller of a coupon bearing issue from the last coupon date up to the sale date. AGENCIES: Federal agency securities and/or Government-sponsored enterprises. ASKED: The price at which securities are offered. ASSET BACKED SECURITIES (ABS): Asset Backed Securities are pass-through instruments collateralized by installment loans, leases, revolving lines of credit or other consumer finance receivables. Securitizations are structured to separate the credit of the ABS issuer from the assets being securitized. BANKERS' ACCEPTANCE (BA): A draft of bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer - evidencing a loan created by the accepting bank. BASIS POINT: 1/100 of one percent (decimally, .0001) Q U 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: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See OFFER. BROKER: A broker brings buyers and sellers together for a commission. CALLABLE BOND: A bond that can be bought back from a holder by the issuer at a specific price after a specific date prior to the maturity date. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large -denomination CD's are typically negotiable. CMO (COLLATERALIZED MORTGAGE OBLIGATION): Mortgage-backed bond that separates mortgage pools into short-, medium-, and long-term portions. COLLATERAL: Securities, evidence of deposit, or other property that a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. 21 Packet Pg. 202 18.a COMMERCIAL PAPER (CP): An unsecured promissory note issued by a corporation. Maturity may not exceed 270 days. Usually sold in discount form. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of Santa Clarita. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. CORPORATE NOTES: A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. COUPON: 1) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value, and 2) a certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions buying and selling for his own account. J DEBENTURE: A bond secured only by the general credit of the issuer. N DEFAULT: The failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of a bond indenture. DELIVERY VERSUS PAYMENT (DVP): There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVE: 1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security and may include a leveraging factor, or 2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities, or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at a lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNTED SECURITIES: Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. 22 Packet Pg. 203 18.a DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small-business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) that lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLBs is to liquefy the housing -related assets of its members who must purchase stock in their district Bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal Q corporation working under the auspices of the Department of Housing and Urban Development N (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder -owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and widely accepted. FNMA assumes and N guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. 23 Packet Pg. 204 18.a GOVERNMENT NATIONAL MORTGAGE ASSOCATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings, and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA, or FmHA mortgages. The term "pass-throughs" is often used to describe Ginnie Mae. INVERSE FLOATER: A structured note in which the coupon increases as rates decline and decrease as rates rise. IO (INTEREST ONLY): A class of mortgage derivative in which the cash flow consists solely of the interest payments from a CMO. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. J MARKET PRICE: In general business, the price agreed upon by buyers and sellers of a product v or service, as determined by supply and demand. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the event of default by the seller - borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, banker's acceptances, etc.) are issued and traded. MORTGAGE PASS-THROUGH SECURITIES: A securitized participation in the interest and principle cash flows from a specified pool of mortgages. Principle and interest payments made on the mortgages are passed through the holders of the security. 24 Packet Pg. 205 18.a MUNICIPAL SECURITIES: Securities issued by state and local agencies to finance capital and operating expenses. MUTUAL FUND: An entity which pools the funds of investors and invests those funds in a set of securities which is specifically defined in the fund's prospectus. Mutual funds can be invested in various types of domestic and/or international stocks, bonds, and money market instruments, as set forth in the individual fund's prospectus. NATIONALLY RECOGNIZED STATISTICAL RATINGS ORGANIZATION (NRSRO): The formal term to describe credit rating agencies that provide credit ratings that are used by the U.S. government in several regulatory areas. Ratings provided by Nationally Recognized Statistical Ratings Organizations (NRSROs) are used frequently by investors and are used as benchmarks by federal and state agencies. Generally, to be considered an NRSRO, the agency has to be "nationally recognized" in the U.S. and provide reliable and credible ratings. Also taken into consideration is the size of the credit rating agency, operational capability, and its credit rating process. NEGOTIABLE CERTIFICATES OF DEPOSIT: Large denomination interest bearing deposits with a fixed maturity date that may be sold in the money market. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for a an offer.) See ASKED and BID. v OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into N the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and flexible monetary policy tool. PAR: 1) 100 percent of the face amount of an issue, and 2) the principal amount a holder will receive at the maturity of an issue. PORTFOLIO: Collection of securities held by an investor. PREMIUM: 1) The amount by which the market price of an issue exceeds par, 2) the amount in excess of par that an issuer must pay to call in its bonds, and 3) in the money market, the rate higher than the norm that one bank must pay to attract CD depositors. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker-dealers, banks, and a few unregulated firms. 25 Packet Pg. 206 18.a PRIME RATE: The loan rate for the best customers of a bank. PRINCIPAL: 1) The dollar cost of an issue excluding accrued interest, and 2) the one who takes ownership in a transaction, as opposed to brokering or acting as agent. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state --the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use of ad valorem taxes under the laws of this state, which as segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The gain or loss on an investment over a specified time period, expressed N as a percentage. The rate of return on investments is defined as income received plus any capital a gains/losses realized on the sale of the investment. Rate of return can also be defined as the net amount of discounted cash flows received on an investment. a U REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities N to an investor with an agreement to repurchase them at a fixed price on a fixed date. The Security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their N positions. Exception: When the Fed is said to be doing RP, it is lend money that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION (SEC): Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. SPREAD: 1) The yield or price difference between the bid and offer on an issue, and 2) the yield or price difference between different issues. 26 Packet Pg. 207 18.a STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations that 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 and the volatility of the imbedded options and shifts in the shape of the yield curve. SUPRANATIONAL: A supranational entity is formed by two or more central governments with the purpose of promoting economic development for the member countries. Supranational institutions finance their activities by issuing debt, such as supranational bonds. SWAP: The sale of one issue and the simultaneous purchase of another for some perceived advantage. TRADE DATE: The date on which the buyer and seller agree to a transaction. The trade date may or may not be the day on which the securities and money changes hands (settlement date). TREASURY SECURITIES: Securities issued as direct obligations of the U.S. Government UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that a member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. a Indebtedness covers all money owed to a firm, including margin loans and commitments to v purchase securities, one reason new public issues are spread among member so underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. a) YIELD: The rate of annual income return on an investment, expressed as a percentage. 1) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security, and 2) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 27 Packet Pg. 208 Appendix D BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION 18.a U J 0 a z w co w z u- 0 z w w Q co ob 0 N Q W J Q U co rn ob 0 N LL V .O a r c m E r m c 0 r c m E m r r co r a N E u c� r r Q Packet Pg. 209 CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION 1. Name of Firm: 2. Address: 3. Telephone No.( ) ( ) 11 97 (Local) (Nat. Headquarters) Primary Representative: Manager: Name: Name: Title: Title: Tel. No. ( ) Tel. No. ( ) What is your Community Reinvestment Act ("CRA") Rating? 6. What are the Total Assets of the Bank/Savings and Loan? 7. What is the current Net Worth Ratio of your institution? 8. What was the Net Worth Ratio for the Previous Year? 67 What is your required Capital Ratios? A. Tangible Capital Ratio B. Core Capital Ratio C. Risk -Based Capital Ratio 29 18.a U J 0 IL F_ z LU 2 F_ LU z LL 0 F_ z LU 2 LU F_ co 00 TMM0 N Q W J Q 0 M 00 0 N LL U 0 IL r c m E r a� c 0 r c m E m r 0 co c a� E 0 Q Packet Pg. 210 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION (continued) 10. What are your Ratings (i.e., S&P, Moody's, Fitch)? 30 Packet Pg. 211 w 11. What is the date of your Fiscal Year -End? Z 0 A. Has there been a year during the past three years in which the w Bank/Savings and Loan did not make a profit? w F_ a U) 12. Have you read the California Government Code Section 53630 through 53684 pertaining to the State's requirements governing the deposit of monies by N Local Agencies which includes Cities? [ ] YES [ ] NO a w 13. Amounts above the FDIC insurance coverage must be collateralized as a specified in the Government Code. Where is the collateral for Deposits held? y a� Has there ever been a failure to fully collateralize? If Yes, please attach explanation. N w 14. What is the education level of the Primary Contact(s)? 2 0 a r c m E 15. How many years of related experience do the Primary Contact(s) have? c 4- 0 r c m 16. What other banking services would you be interested in providing the City of E Santa Clarita? c a� E 17. What transaction documents and reports would we receive? .2 r a 30 Packet Pg. 211 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION (continued) 18. What information would you provide to our City Treasurer? 22. Please provide your Bank/Savings and Loan most recent certified financial statement. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. CERTIFICATION I hereby certify that I have personally read City of Santa Clarita's Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Santa Clarita and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Santa Clarita. I understand, however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Santa Clarita investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Santa Clarita Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. 31 Packet Pg. 212 w 19. Describe the precautions taken by your Bank/Savings and Loan to protect the Z LL interest of the public when dealing with government agencies as depositors or o investors. z w w Q 20. Please provide your Contract of Deposit of Moneys pre -signed and sealed by your institution, as well as any signature cards that you may require. 0 N 21. Please provide your Wiring Instructions: a LU J Q U N M 22. Please provide your Bank/Savings and Loan most recent certified financial statement. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. CERTIFICATION I hereby certify that I have personally read City of Santa Clarita's Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Santa Clarita and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Santa Clarita. I understand, however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Santa Clarita investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Santa Clarita Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. 31 Packet Pg. 212 CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION (continued) NOTE: Completion of Questionnaire is only part of City of Santa Clarita's Certification process and DOES NOT guarantee that the applicant will be approved to do business with the City of Santa Clarita. SIGNED: PRINT YOUR NAME AND TITLE: DATE: COUNTERSIGNED: DATE: PRINT YOUR NAME AND TITLE: 32 18.a J Q U co M Packet Pg. 213 Appendix E BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 33 18.a Q Packet Pg. 214 CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm 2 Address (Local) 3 Tel. No. ( ) (Local) 91 5 0 7 0 Primary Representative: Name: Title: Tel. No. ( ) No. of Years in Institutional Sales: No. of Years with Firm: (Nat. Headquarters) Tel. No. ( ) (Nat. Headquarters) Manager/Partner-in-Charge: Name: Title: Tel. No. ( ) No. of Years in Institutional Sales: No. of Years with Firm: J a Are you a Primary Dealer in U.S. Government Securities? N [ ] YES [ ] NO 18.a Are you a Regional Dealer in U.S. Government Securities? [ ] YES [ ] NO Are you a Broker instead of a Dealer, i.e., you DO NOT own positions of securities? [ ] YES [ ] NO Are you NASD certified and licensed to sell in California municipalities? [ ] YES [ ] NO What is the net capitalization of your firm? 10 What is the date of your Firm's fiscal year-end? Packet Pg. 215 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION (continued) 11 Is your Firm owned by a Holding Company? If so, what is its name and net capitalization? 12 Please provide your Wirin and Delivery Instructions: 13 Which of the following instruments are offered regularly by your local desk? [ ] T -Bills [ ] Treasury Notes/Bonds [ ] Discount Notes [ ] NCD'S [ ] Agencies (specify) [ ] BAs (Domestic) [ ] BAs (Foreign) [ ] Mid -Term Notes [ ] Commercial Paper [ ] Repurchase Agreements [ ] Reverse Agreements J a 14 Which of the above does your Firm specialize in Marketing? y M 15 Please identify your most directly comparable City Local Agency clients in our geographical area. Entity Contact Person Telephone No. Client Since 16 What reports, transactions, confirmations, and paper trail would we receive? 17 Please include samples of research reports or market information that your Firm regularly provides to local agency clients. 18 What precautions are taken by your Firm to protect the interest of the public when dealing with government agencies as investors? 35 Packet Pg. 216 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION (continued) 19 Have you or your Firm been censured or punished by a Regulatory State or Federal Agency for improper or fraudulent activities related to the sale of securities? [ ] YES [ ] NO 20 If yes, please explain. 21 Attach certified documentation of your capital adequacy and financial solvency. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. CERTIFICATION I hereby certify that I have personally read City of Santa Clarita Investment Policy a and the California Government Codes pertaining to the investments and deposits of >_ the City of Santa Clarita and have implemented reasonable procedures and a system a of controls designed to preclude imprudent investment activities arising out of y transactions conducted between our firm and the City of Santa Clarita. I understand, however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Santa Clarita investment objectives, N horizon, outlook, strategies, and risk constraints whenever we are so advised. We U_ pledge to exercise due diligence in informing City of Santa Clarita Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. c a I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of City of Santa Clarita's Certification process and DOES NOT guarantee that the applicant will be approved to do business with the City of Santa Clarita. SIGNED: PRINT YOUR NAME AND TITLE: DATE: COUNTERSIGNED: DATE: (Person in charge of government securities operations.) PRINT YOUR NAME AND TITLE: ED Packet Pg. 217 Appendix F INVESTMENT POOL QUESTIONNAIRE 37 18.a U J 0 a z w co w z u- 0 z w w Q co ob 0 N Q W J Q U co rn ob Tmm0 N LL V .O a r c m E r m c 0 r c m E m r r co r a N E u c� r r Q Packet Pg. 218 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER INVESTMENT POOL QUESTIONNAIRE SECURITIES 1. Does the pool provide a written statement of investment policy and objectives? 2. Does the statement contain: a A description of eligible investment instruments? b. The credit standards of investments? c. The allowable maturity range of investments? d. The maximum allowable dollar weighted average portfolio maturity? e. The limits of portfolio concentration permitted for each type of security? f. The policy on reverse repos? 3. Are changes in the policies communicated to the pool participants? INTEREST 4. Does the pool disclose the following about yield calculations? a. Which methodology is used to calculate interest? (simple maturity, yield to maturity, etc.) b. What is the frequency of interest payments? c. How is interest paid? (credited to principal at the end of the month, each quarter, mailed?) d. How are gains/losses reported? (factored monthly or only when realized?) 5. How often is the yield reported to participants of the pool? 6. Are expenses of the pool deducted before quoting the yield? If not, please explain 7. Is the yield generally in line with the market yields for securities in which you usually invest? Packet Pg. 219 18.a CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER INVESTMENT POOL QUESTIONNAIRE (continued) SECURITY 8. Does the pool disclose safekeeping practices? (If yes, what are they?) LU z 13. Is the pool monitored by someone on the board or a separate, neutral party external to the investment function to ensure compliance with written policies? 14. Does the pool have specific policies with regard to repurchase agreements? a. What are those policies? 15. Does the pool report the portf'olio's market value? 16. Does the pool disclose the following about portfolio valuations? a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio (cost, current value, or some other method)? 17. Are statements for each account sent to participants? a. Do statements show balances, transactions, and yield? we, Packet Pg. 220 U- 0 O z 9. Is the pool subject to audit by an independent auditor? w w a 10. Is the copy of the audit available to participants? vs 11. Who makes the portfolio decisions? 00 0 N Q 12. How does the manager monitor the credit risk of the securities in the pool? LU J a U N 13. Is the pool monitored by someone on the board or a separate, neutral party external to the investment function to ensure compliance with written policies? 14. Does the pool have specific policies with regard to repurchase agreements? a. What are those policies? 15. Does the pool report the portf'olio's market value? 16. Does the pool disclose the following about portfolio valuations? a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio (cost, current value, or some other method)? 17. Are statements for each account sent to participants? a. Do statements show balances, transactions, and yield? we, Packet Pg. 220 CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER INVESTMENT POOL QUESTIONNAIRE (continued) 18. Does the pool distribute detailed reports of its holdings? (regularly or on request only?) FEES 19. Is there a written schedule of administrative costs? a. What are the fees? b. How often are they assessed? c. How are they paid? d. Are there additional fees for wiring funds? 20. Are expenses deducted before quoting the yield? OPERATIONS 21. Does the pool limit eligible participants? a. What entities are permitted to invest in the pool? 22. Does the pool allow multiple accounts and subaccounts? 23. Is there a minimum or maximum account size? If so, what is it? 24. What is the number of transactions permitted each month? 25. Is there a limit on transaction amounts for withdrawals and deposits? a. What is the minimum and maximum withdrawal amount permitted? b. What is the minimum and maximum deposit amount permitted? .t 18.a Packet Pg. 221 CITY OF SANTA CLARITA OFFICE OF THE CITY TREASURER INVESTMENT POOL QUESTIONNAIRE (continued) 26. Does the pool require one or more days' notice for deposits and/or withdrawals? 27. Is there a cutoff time for deposits and withdrawals? If so, what is it? 28. Are the funds 100% withdrawable at any time? 29. Are there procedures for making deposits and withdrawals? a. What is the paperwork required, if any? b. What is the wiring procedure? 30. Can an account remain open with zero balance? 31. Are confirmations sent following transactions? 41 18.a Packet Pg. 222 18.a Appendix G LIST OF PRIMARY GOVERNMENT SECURITIES DEALERS List of the Primary Government Securities Dealers Reporting to the Government Securities Dealers Statistics Unit of the Federal Reserve Bank of New York: Bank of Nova Scotia, New York Agency Ed BMO Capital Markets Corp. z BNP Paribas Securities Corp. 0 Barclays Capital Inc. Cantor Fitzgerald & Co. W Citigroup Global Markets Inc. 2 LU Credit Suisse AG, New York Branch a Daiwa Capital Markets America Inc. Lo Deutsche Bank Securities Inc. v� Goldman Sachs & Co. LLC HSBC Securities (USA) Inc. �o Jefferies LLC J.P. Morgan Securities LLC W Merrill Lynch, Pierce, Fenner, & Smith Incorporated >- -j Mizuho Securities USA LLC v Morgan Stanley & Co. LLC cn Nomura Securities International, Inc. U - RBC Capital Markets, LLC RBS Securities Inc. Societe Generale, New York Branch TD Securities (USA) LLC UBS Securities LLC. Wells Fargo Securities, LLC NOTE: This list has been compiled and made available for statistical purposes only and has no significance with respect to other relationships between dealers and the Federal Reserve Bank of New York. Qualification for the reporting list is based on the achievement and maintenance of the standards outlined in the Federal Reserve Bank of New York's memorandum of January 11, 2010. Government Securities Dealers Statistics Unit Federal Reserve Bank of New York November 13, 2017 42 Packet Pg. 223