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CC Res 6315 2012-09-24
RESOLUTION NUMBER 6315 A RESOLUTION OF THE SEAL BEACH CITY COUNCIL APPROVING INVESTMENT POLICY AND SUPERVISION OF MANAGED FUNDS FOR THE FISCAL YEAR 2012/13 THE SEAL BEACH CITY COUNCIL DOES HEREBY RESOLVE: Section 1. The City Council hereby approves FY 2012/13 Investment Policy as stated in Exhibit A. Section 2. The City Council hereby authorizes and approves the supervision of the City's Managed Funds by PFM Asset Management LLC. PASSED, APPROVED and ADOPTED by the Seal Beach City Council at a regular meeting held on the 24th day of September , 2012 by the following vote: - , I AYES: Council Members ..'f r 1, i 4_4' - I i NOES: Council Members ABSENT: Council Members ABSTAIN: Council Members 91\1M v cr��,conPOk41ed ; Mayor i•# %I- cc 9 • ??ATTEST: Fs' ._D 5--- - • C ..NTY ¢ Ca s44 ', : _Al. ., es Clerk STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk of the City of Seal Beach, do hereby certify that the foregoing resolution is the original copy of Resolution Number 6315 on file in the office of the City Clerk, passed, approved, and adopted by the Seal Beach City Council at a regular meeting held on the 24th day of September , 2012. City Clerk t. c. a y a Ss rr-v:x '9�kS1at3'r ms3'We i t r u;y'•• -s t a s n G.a .'.mp .5z^ .z ,x' �W k y` :s x._ i X^, x J-thex "' .r- z %1',°.;;;P:: S :3r, ' a4 > :ql ' " ti t 1" t :eh fsn'I:;5 t } s! t h{ ix r[v t.;a"7,LJh r i M r',x' r s s a 47.0 s i a R s�a� ei �a.! .a. 4. 7i5 `'3 kt . 7,a a.+.a l t zi ? : t r-Ay 'f i{;1f;:M t�}} e���{ �,..&a 7 n-i'�µ �'.�v€� ", ei tl r �- x,-t! 3'4' ti "pry 4 y }: t t M a - � 3 itx?'w �� R°e a�✓`4'x� T44S j� � b tJ i x e $ }'V� i,it � F. t ; � � ; 1it �(t i ay} y i s.i i e xt x ,% s? ^:':{[ i sF ti�� k 1 ' R4.:3:;fli 1 '["'` s,0 rin %F( 7'8[t vKx3 k�s fi �"7 r s 1 r _ :.' ' „ `l pp ' }t Lr r * -r � +' ? § 4afn� } p -�#''e c, � a` � ,a � ' c t to a�.. t� # •�� t } F d : kt *"4 pwc u s:: t ;r t6�+Y ixi n'k y' t.4 V. i A M `^;`; ./" Ch 'f" '°t 3� 1:J } �- ea s}' 3 <n n 'p t€L S x x 'y a � n x4x cc ,U. `E mt m $ s k ' n"sy��w n � i • — . ' t s ` ' t1' ,' A.f x 7% 9rr x ec+ ke.3e� r ''+}s r # rz t q∎ e rht. t.Ft. �Y'. a , e..�ezV",.±�, , ry G.� a7? i 1 ,7, ` ' #} Sim '12,....z,.. .a .v- - 1 • 414,4 !• . - 1 \ g r •v i.'IS i . a=, ' I City of Seal Beach Review of Investment Policy Nancy Jones, Managing Director I Sarah Meacham, Senior Managing Consultant September 24, 2012 PFM Asset Management LLC o- v yr» ,� h"titY,i. ^* ' ,�9 , <� x 9sa6 6 d t*ia ih a xzr t. ' ,,,,,:r.th'J.,r" x fmt � " :: y ` ( �rt tp w ,,,4: . , ,, ,.t T> .t©2012PY. . ..'Err'''. d r et ManagementLLC ta� „..„„,,,f., k f4 S-5Id 54 N*.^i i'k i'O # 1..7-14-71. C Ydl.Ri ? %. Y ni f 'S elit t fiF " t '7.71•:•T‘•.; c2 tiu '� v „A` �1Ras�el R 2.2 a xi fi 'N 2o 2'2 , • a P F M bl4e of:Contentscla, ? 2 e : ,3q. w .' _ , 122 + ° •, 2 >�«<+.��k. I. Review of Investment Policy Memorandum II. Recommended Investment Policy III. City of Seal Beach 2010/11 Investment Policy IV. Association of Public Treasurers of the United States & Canada (APT) Investment Policy Certification 1 0: A; ' -1 hf �,o 4144* . - 7;rt c't u i +as ✓ ssr y ,,a." am( ©Lunar rr Asset Management LLC t" y �. i ., #«ri g� u, r En^'.k k i G S' 'mY4: .t"%T SI .A .T' - .- $*-.7 °Y£Jl t4-- AW ! { A '`'T! ''^L la JKS li I 'S 't ..l° H ..Yi ) ! `t m x h r (tiE � i''' s .w� e ^��a ' s " s"*'-r.-4,4,;,:-,. 4 �`eSays ^r� ro rs '� ?-1Y � Sgh 4df�.N i .�£� e..21-2.$''' S' £ am..] L:k �h( £ ! _� S c �� 3:• Y c j a 1g,� v�4. B'�� '°g '. �Sa M 'Cio sa Ida ), ¢ "t t-" S-a a r ,F>sx= sl.! ' . i�rr x x. M i ,£x Via;?'' !�i °��, a w.. u.vfi ve 3T o-St� R £ v ■so [ ' QC` r F �'P£ o-£ €� 'o a '� 1 �' . e. ky r xaP 4'Ya S `,x ry i e t S r ,�>u r ` ,`" r a-'^# s � in�#.'- liar h is Ks rr' Id "i t $7i mr ,t „ s isr`h,*.1.17,ire: k � "' Gxi ., " .'; §y bar o f sj £ .. ., I. em.ate' ,f .F. ,. .�,a A . kl Review of Investment Policy II Memorandum I , - ,`f a'aA;'}`wsEE 4 4 u'�, �:S r�3iry� ,z" 3�+:�`".azi H k^ffi �ix< '�?a f.?�" v � *.��L 5s aj i w# s V-- s at a 50 Suite 2300 Street 415 982-5544 Suite 2300 415 982-4513 fax ��1" San Francisco,CA 94111 vmay.pfm.com The PFM Group Public Financial Management,Inc. PFM Asset Management LLC PFM Advisors September 24,2012 • Memorandum To: Jill Ingram,City Manager Vikki Beasley,Director of Fiance/City Treasurer City of Seal Beach From: Nancy Jones,Managing Director Sarah Meacham,Senior Managing Consultant PFM Asset Management LLC Re: Investment Policy Review ' We have completed our review of the City's Investment Policy. Our approach to evaluating the Investment Policy was comprehensive including removing any discrepancies within the Policy and bringing it up to date with current practices and standards. First, we checked for compliance with the California Government Codes that regulate the investment of public funds. Second, we rewrote and updated the Policy to incorporate "best practices" for investment policies from the Government Finance Officers Association ("GFOA") and the Association of Public Treasurers of the U.S. and Canada ("APT"). Our recommended Policy includes all of the requirements for the Policy to be certified as professionally accepted by the APT's Investment Policy Certification Program. Council members may appreciate having the Policy certified that it provides guidance for the safe and prudent investment of the City's funds. The table below shows a comparison of the topics that the APT recommends be covered in the Policy to the Policy we have recommended for the City to adopt. APT US&C Certification Standards • City of Seal Beach' Policy Yes Scope Yes Prudence Yes • Objective Yes Delegation of Authority Yes Investment Procedures Yes Ethics and Conflicts of Interest Yes w^� City of Seal Beach P iM September 24,2012 Page 2 APT US&C Certification Standards` : City of Seal Beach Authorized Financial Dealers and Institutions Yes Authorized and Suitable Investments Yes Investment Pools/Mutual Funds Yes Collateralization Yes Safekeeping and Custody Yes Diversification Yes Maximum Maturities Yes Internal Controls Yes Performance Standards Yes Reporting Yes • Policy Review Ycs Glossary Yes ant :pC 2 �An •t�5� � kj�_ n a�a �t x?. sss$±G °��r:7.F ��. ��. rt [ �°'{_ �`�,' �rr$a �' r�k✓ $' Y a, � 'S� s s Al xj3zi { L" s*.- t +.r °fir es ci" ' rs s .r' '� At. £'"^ a F' :, c r r u r i s 'ik ssrs xa w"'� u .a c. s s6'� � n ts.,�'''� ache +i s}m r -' 2 ''�—y s6� n s a *: t rs i �— T this �i �sg... ' iti #! ' "X ° �tk£i°nr ate— � 3'� "' ss x � �ss is ��. s,a€ ti, 'w� .�° € � M .4 r� � h. �'g ; =t,,✓: "La..� ..afi° . :sx „- r. iwi-.� vwt `xAixF; �5 Recommended Investment Policy I ii 1 CITY OF SEAL BEACH STATEMENT OF INVESTMENT POLICY 2012/2013 I. POLICY This Statement of Investment Policy is intended to identify the policies for prudent investment of temporarily idle funds of the City of Seal Beach (the "City") by providing guidelines for suitable investments while maximizing the efficiency of the City's Cash Management Program. The City's Cash Management Program is designed to accurately monitor and forecast expenditures and revenues, thus enabling the investment of funds to the fullest extent possible. The investment policies and practices of the City of Seal Beach are based upon state law and prudent money management. All funds will be invested in accordance with California Government Code Sections 53601 et seq. and the City's Investment Policy. II. SCOPE The Investment Policy applies to all funds and investment activities of the City except the investment of bond proceeds, which are governed by the appropriate bond documents, and any pension or other post-employment benefit funds held in a trust. III. PRUDENCE The standard of prudence to be used by investment officials will be the "prudent investor" standard, which states that, "when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." IV. OBJECTIVES The primary objectives, in priority order, of the investment activities of the City are: 1. SAFETY— Safety of principal is the foremost objective of the City of Seal Beach. 2. LIQUIDITY— The City's portfolio will remain sufficiently liquid to enable the City to meet its cash flow requirements. It is important that the portfolio contain 1 2012-2013 investments which provide the ability of being easily sold at any time with minimal risk of loss of principal or interest. 3. YIELD — The City's portfolio will be designed to attain a market rate of return through economic cycles consistent with the constraints imposed by its safety objective and cash flow considerations. V. DELEGATION OF AUTHORITY The management responsibility for the investment program is hereby delegated to the Director of Finance/City Treasurer. The Director of Finance/City Treasurer will monitor and review all investments for consistency with this Investment Policy. The Director of Finance/City Treasurer may delegate investment decision making and execution authority to an investment advisor. The advisor will follow the Investment Policy and such other written instructions as are provided. VI. INVESTMENT PROCEDURES The Director of Finance/City Treasurer will establish investment procedures for the operation of the City's investment program. 111 VII. ETHICS AND CONFLICTS OF INTEREST Officers and employees involved in the investment process will refrain from personal business activities that could conflict with proper execution of the investment program, or which could impair their ability to make impartial decisions. VIII. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The Director of Finance/City Treasurer will maintain a list of financial dealers and institutions qualified and authorized to transact business with the City. The purchase by the City of any investment other than those purchased directly from the issuer, will be purchased either from an institution licensed by the State as a broker- dealer, as defined in Section 25004 of the Corporations Code, which is a member of the Financial Industry Regulatory Authority (FINRA), 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. The Director of Finance/City Treasurer will investigate all institutions that wish to do business with the City, to determine if they are adequately capitalized, make markets in securities appropriate for the City's needs, and agree to abide by the conditions set forth in the City of Seal Beach's Investment Policy and any other guidelines that may be provided. This will be done annually by having the financial institutions: 2 2012-2013 1. Provide written notification that they have read, and will abide by, the City's Investment Policy. 2. Submit their most recent audited Financial Statement within 120 days of the institution's fiscal year end. If the City has an investment advisor, the investment advisor may use its own list of authorized broker/dealers to conduct transactions on behalf of the City. Purchase and sale of securities will be made on the basis of competitive bids and offers with a minimum of three quotes being obtained. IX. AUTHORIZED AND SUITABLE INVESTMENTS Where this section specifies a percentage limitation for a particular security type, that percentage is applicable only on the date of purchase. Credit criteria listed in this section refers to the credit rating at the time the security is purchased. If an investment's credit rating falls below the minimum rating required at the time of purchase, the Director of Finance/City Treasurer will perform a timely review and decide whether to sell or hold the investment. • The City will limit investments in any one non-government issuer, except investment pools, to no more than 5% regardless of security type. 1. U.S. Treasury obligations for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Federal agency or 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. This will include any mortgage pass through security issued and guaranteed by a Federal Agency with a maximum final maturity of five years. Purchase of Federal Agency issued mortgage-backed securities authorized by this subdivision may not exceed 20% of the City's investment portfolio; all other investments in Federal Agency securities are unrestricted. 3. Obligations of the State of California or any local agency within the state, including bonds payable solely out of revenues from a revenue producing property owned, controlled or operated by the state or any local agency, or by a department, board, agency or authority of the state or any local agency. 4. Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state, or by a department, board, agency, or authority of any of these states. 3 2012-2013 1 5. Bankers' Acceptances with a rating of the highest ranking or highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO). Purchases of bankers' acceptances may not exceed 180 days. No more than 40% of the City's portfolio may be invested in bankers' acceptances. 6. Commercial Paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper must meet all of the following conditions in either paragraph a or paragraph b: a. The entity meets the following criteria: (i) is organized and operating in the United States as a general corporation, (ii) has total assets in excess of five hundred million dollars ($500,000,000), and (Hi) has debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b. The entity meets the following criteria: (i) is organized within the United States as a special purpose corporation, trust, or limited liability company, (H) has program-wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond, and (iii) has commercial - ' paper that is rated "A-1" or higher, or the equivalent, by a NRSRO. Eligible commercial paper will have a maximum maturity of 270 days or less. No more than 25% of the City's portfolio may be invested in commercial paper. The City may purchase no more than 10% of the outstanding commercial paper of any single issuer. 7. Non-negotiable Certificates of Deposit (time CDs) in a state or national bank, savings association or federal association, or federal or state credit union with a branch in the State of California. In accordance with California Government Code Section 53635.2, to be eligible to receive City deposits, a financial institution will have received an overall rating of not less than "satisfactory" in its most recent evaluation by the appropriate federal financial supervisory agency of its record of meeting the credit needs of California's communities. Time CDs are required to be collateralized as specified under Government Code Section 53630 et seq. The City, at its discretion, may waive the collateralization requirements for any portion that is covered by federal deposit insurance. The City will have a signed agreement with any depository accepting City funds per Government Code Section 53649. No deposits will be made at any time in time CDs issued by a state or federal credit union if a member of the City Council or the Director of Finance/City Treasurer serves on the board of directors or any committee appointed by the board of directors of the credit union. In accordance with Government Code Section 53638, any deposit will not exceed that total shareholder's equity of any depository bank, nor will the deposit exceed the total net worth of any institution. 4 2012-2013 1 8. Negotiable Certificates of Deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally- or state- licensed branch of a foreign bank. No more than 30% of the City's portfolio may be invested in negotiable CDs. 9. Medium-Term Notes issued by corporations organized and operating within the United States or by depository institutions licensed by the U.S. or any state and operating within the U.S. Medium-term corporate notes will be rated in a rating category "A" or its equivalent or better by a NRSRO. No more than 30% of the City's portfolio may be invested in medium-term notes. 10.Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). To be eligible for investment pursuant to this subdivision these companies will either: (i) attain the highest ranking letter or numerical rating provided by at least two NRSROs or (ii) have retained an investment advisor registered or exempt from registration with the Securities and Exchange . Commission with not less than five years of experience managing money market mutual funds and with assets under management in excess of $500,000,000. No more than 20% of the City's investment portfolio may be invested in money market funds. 11.State of California's Local Agency Investment Fund (LAIF) an investment pool run by the State Treasurer. The City can invest up to the maximum amount permitted by the State Treasurer. 12.Shares of beneficial interest issued by a joint powers authority (Local Government Investment Pools) organized pursuant to Government Code Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o) of California Government Code Section 53601, inclusive. Each share will represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. The Pool will be rated in a rating category "AAA" or its equivalent by a NRSRO. To be eligible under this section, the shares will maintain a stable net asset value (NAV) and the joint powers authority issuing the shares will have retained an investment adviser that meets all of the following criteria: a. The adviser is registered or exempt from registration with the Securities and Exchange Commission. b. The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (o) Government Code Section 53601, inclusive. c. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 5 2012-2013 X. INVESTMENT POOLS/MONEY MARKET FUNDS A thorough investigation of investment pools and money market funds is required prior to investing, and on a continual basis. XI. MAXIMUM MATURITY Maturities will be based on an analysis of the receipt of revenues and maturity of investments. Maturities will be scheduled to permit the City to meet all disbursement requirements. The City may not invest in a security whose maturity exceeds five years from the date of purchase unless City Council has provided approval for a specific purpose at least 90 days before the investment is made. XII. PROHIBITED INVESTMENTS Investments not described herein, including, but not limited to, reverse repurchase agreements, stocks, inverse floaters, range notes, commercial mortgage-backed, ' interest-only strips, or any security that could result in zero interest accrual if held to • maturity are prohibited for investment by the City. XIII. INTERNAL CONTROL The Director of Finance/City Treasurer will establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. XIV. CUSTODY OF SECURITIES All securities owned by the City except time deposits and securities used as collateral for repurchase agreements, will be kept in safekeeping by a third-party bank's trust department, acting as an agent for the City under the terms of a custody agreement executed by the bank and the City. All securities will be received and delivered using standard delivery versus payment procedures. XV. REPORTING The Director of Finance/City Treasurer will provide a monthly investment report to the City Council showing all transactions, type of investment, issuer, purchase date, maturity date, purchase price, yield to maturity, and current market value for all securities. 6 2012-2013 1 XVI. POLICY REVIEW This Investment Policy will be reviewed at least annually to ensure its consistency with: 1. The California Government Code sections that regulate the investment and reporting of public funds. 2. The overall objectives of preservation of principal, sufficient liquidity, and a market return. 1 1 7 2012-2013 1 Glossary Bankers' Acceptances are short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at maturity. An acceptance is a high-grade negotiable instrument. Broker-Dealer is a person or a firm who can act as a broker or a dealer depending on the transaction. A broker brings buyers and sellers together for a commission. They do • not take a position. A dealer acts as a principal in all transactions, buying and selling for his own account. Certificates Of Deposit 1. Negotiable Certificates of Deposit are large-denomination CDs. They are issued at face value and typically pay interest at maturity, if maturing in less than 12 months. CDs that mature beyond this range pay interest semi-annually. Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of foreign banks (Yankee CDs), and thrifts. There is an active secondary market for negotiable domestic and Yankee CDs. However, the negotiable thrift CD secondary market is limited. Yields on CDs exceed those on U.S. treasuries and agencies of similar maturities. This higher yield compensates the investor for accepting the risk of reduced liquidity and the risk that the issuing bank might fail. State law does not require the collateralization of negotiable CDs. 2. Non-negotiable Certificates of Deposit are time deposits with financial institutions that earn interest at a specified rate for a specified term. Liquidation of the CD prior to maturity incurs a penalty. There is no secondary market for these instruments, therefore, they are not liquid. They are classified as public deposits, and financial institutions are required to collateralize them. Collateral may be waived for the portion of the deposits that are covered by FDIC insurance. Collateral refers to securities, evidence of deposits, or other property that a borrower pledges to secure repayment of a loan. It also refers to securities pledged by a bank to secure deposits. In California, repurchase agreements, reverse repurchase agreements, and public deposits must be collateralized. Commercial Paper is a short term, unsecured, promissory note issued by a corporation to raise working capital. Federal Agency Obligations are issued by U.S. Government Agencies or Government Sponsored Enterprises (GSE). Although they were created or sponsored by the U.S. Government, most Agencies and GSEs are not guaranteed by the United States Government. Examples of these securities are notes, bonds, bills and discount notes 8 2012-2013 1 issued by Fannie Mae (FNMA), Freddie Mac (FHLMC), the Federal Home Loan Bank system (FHLB), and Federal Farm Credit Bank (FFCB). The Agency market is a very large and liquid market, with billions traded every day. Issuer means any corporation, governmental unit, or financial institution that borrows money through the sale of securities. Liquidity refers to the ease and speed with which an asset can be converted into cash without loss of value. In the money market, a security is said to be liquid if the difference between the bid and asked prices is narrow and reasonably sized trades can be done at those quotes. Local Agency Investment Fund (LAIF) is a special fund in the State Treasury that local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum of $50 million for any California public agency. It offers high liquidity because deposits can be converted to cash in twenty-four hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly via direct deposit to the agency's LAIF account. The State - keeps an amount for reasonable costs of making the investments, not to exceed one- quarter of one per cent of the earnings. Market Value is the price at which a security is trading and could presumably be purchased or sold. Maturity is the date upon which the principal or stated value of an investment becomes due and payable. Medium-Term Notes are debt obligations issued by corporations and banks, usually in the form of unsecured promissory notes. These are negotiable instruments that can be bought and sold in a large and active secondary market. For the purposes of California Government Code, the term "Medium Term" refers to a maximum remaining maturity of five years or less. They can be issued with fixed or floating-rate coupons, and with or without early call features, although the vast majority are fixed-rate and non-callable. Corporate notes have greater risk than Treasuries or Agencies because they rely on the ability of the issuer to make payment of principal and interest. Money Market Fund is a type of investment comprising a variety of short-term securities with high quality and high liquidity. The fund provides interest to shareholders and must strive to maintain a stable net asset value (NAV) of$1 per share. Principal describes the original cost of a security. It represents the amount of capital or money that the investor pays for the investment. 9 2012-2013 I Repurchase Agreements are short-term investment transactions. Banks buy temporarily idle funds from a customer by selling him U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date at an agreed upon interest rate. Repurchase Agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal Funds and the maturity of the Repo. Repurchase Agreements must be collateralized. U.S. Treasury Issues are direct obligations of the United States Government. They are highly liquid and are considered the safest investment security. U.S. Treasury issues include: 1. Treasury Bills which are non-interest-bearing discount securities issued by the U.S. Treasury to finance the national debt. Bills are currently issued in one, three, six, and twelve month maturities. 2. Treasury Notes that have original maturities of one to ten years. 3. Treasury Bonds that have original maturities of greater than 10 years. 1111 Yield to Maturity is the rate of income return on an investment, minus any premium above par or plus any discount with the adjustment spread over the period from the date of the purchase to the date of maturity of the bond. I 10 . 2012-2013 , a s �. t S- x �= sa se 4 E'mx t�aeY ' P '}.y .fr" r s €' d'4'' x s'xs} e ° s ^wP Y ,.�' z': W ^t =;E'' y'r�y�' „� u t'^� ��$ r r�k asr� '�' �^ 3'C. r� .. r"� er.M�t�—'°a "�cl. '�° 1r```w �� lk �M1:, ' :ro °`i 9a t C.. , t� ✓:�M � -� 3 C �' � � 4 -�,' 4 F Ni ,3 4 � '�ir s .. �lra �' ?ga '°t.� nlz�h^s5' ai"^ -� t ''� C d2:w rs R'»?si ye3.k wd ix w dY '} 4 k 9 t�°F3 �y �!. ,�ir ) P tA. 3+'3yY t GY ,,.. w .r s°.s.,:'°e + ,.i.. .::� L �i.. �r:�y}lid e City of Seal Beach 2010/11 Investment Policy 1 t�$(�*pmat i t'+' u •i"s3a�i,�'.± t&! is,hi°rX=sFS^.�?.a..s�`. - sk a.ra: '::t:. S.- ['�s"?-v.. x.Fqfi7s .✓,'�Y's—t'phip 11., .t`! CITY OF SEAL BEACH STATEMENT OF INVESTMENT POLICY 2010/2011 INTRODUCTION: This statement is intended to outline the policies for prudent investment of idle City funds by providing guidelines for suitable investments while maximizing the efficiency of the City's Cash Management Program. The responsibility for the day to day investment of the City's funds is the responsibility of the Director of Administrative Services/City Treasurer. The investment policy applies to all financial assets of the city and is pooled in a managed portfolio. The investment pool or portfolio will be referred to as the "Fund"throughout this document. The City's Cash Management Program is designed to accurately monitor and forecast expenditures and revenues, thus enabling the investment of funds to the fullest extent possible. Maturities are matched as close as possible to coincide with cash requirements. Length of maturities is based on consideration of the yield curve and estimate of future interest rate movement. The investment policies and practices of the City of Seal Beach are based upon Federal, State and Local law and prudent money management. The primary goals of these policies are: 1. To assure compliance with all Federal, State and Local law governing the investment of moneys; 2. To protect the principal moneys of the City; 3. To generate the maximum amount of investment income within the parameters of this Statement of Investment Policy and the Investment Portfolio Guidelines. OBJECTIVES: 1. SAFETY OF PRINCIPAL— Safety of principal is the foremost objective of the City of Seal Beach. Each investment transaction shall seek to ensure capital losses are avoided. 2. LIQUIDITY — Liquidity is the second most important objective of the City of Seal Beach. It is important that the portfolio contain investments, which provide the ability of being easily sold at any time with minimal risk of loss of principal or interest. 3. YIELD — The City's Fund shall be designed to attain a market-average rate of return through economic cycles. The market-average rate of 2010-2011 1 1 return is defined as the average return on three-month U.S. Treasury Bills. The City strives to maintain 100% investment of idle funds after consideration for a compensating balance to cover the cost of services provided by the bank. The funds available for investments are determined by cash flow projections updated daily. Investments are monitored so those legal limits on types of investments are not exceeded. Seal Beach invests idle funds under the Prudent Man Rule° which states that: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." AUTHORIZED INVESTMENTS: The City is governed by the California Government Code, Sections 53600 et seq. Within the context of these limitations, the following investments are authorized, reflected by the advantages of each: U.S. Treasury Securities — These securities are highly liquid in addition to being considered the safest of all investments. Federal Agency Securities—These securities are highly liquid and considered riskless. Bankers Acceptances — These instruments, which are frequently the highest in yield, are safe highly liquid investments. Commercial Paper — These instruments are issued by prime rated industrial and financial institutions and allow the investment of money from one to 270 days at rates higher than we can earn from the previously listed securities. Certificates of Deposits—These deposits allow the City to select the exact amount and day of maturity as well as the exact depository. There are penalties for withdrawal of funds prior to the original maturity date. Negotiable Certificates of Deposit — These deposits are high-grade instruments, paying a higher interest rate than regular certificates of deposit. They are liquid because they can be traded in the secondary market. Negotiable Certificates of Deposits must meet the following criteria to be eligible for investment by the City: They must be issued by a Nationally or State- Chartered Bank or a State or Federal savings and Loan Association. No more than 30% of the city's idle funds may be invested in Negotiable Certificates of Deposits. 2010-2011 2 REPURCHASE AGREEMENTS—These agreements with banks and dealers with which the city has entered into a master repurchase contract, which specifies terms and conditions of repurchase agreements. The maturity of repurchase agreements shall not exceed 90 days. The market value of securities used as collateral for repurchase agreements shall be monitored daily by the Director of Administrative Services and will not be allowed to fall below 102% of the value of the repurchase agreement. In order to conform with provisions of the Federal Bankruptcy Code which provides for the liquidation of securities held as collateral for repurchase agreements, the only securities acceptable as collateral shall be eligible negotiable certificates of deposit, eligible banker's acceptances, or securities that are direct obligations of, or that are fully guaranteed as to principal and interest by the United States or any agency of the United States. The use of Repurchase Agreements is limited to the extent they are investment vehicles periodically used by the Local Agency Investment Fund (LAIF) and not a direct purchase by the City of Seal Beach. LOCAL AGENCY INVESTMENT FUND — This fund was established by the State Treasurer for the benefit of local agencies. The City can invest up to the maximum amount permitted by State Law. MEDIUM-TERM NOTES — The City can invest in these notes with 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 and operating within the United Sates. Per Government Code Section 53601 (j) medium-term notes are to be rated °A" or better by a nationally recognized rating service. No more than 30% of the City's idle funds may be invested in Medium-Term notes. MUTUAL FUNDS - These funds or shares of beneficial interest issued by diversified management companies as defined in Section 23701 (m) of the Revenue and Taxation Code, investing in the securities and obligations as authorized by subdivisions (A) to (L), inclusive, of that section and which comply with the investment restrictions (California Government Code, commencing with Section 53630), companies shall either. 1) 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, and 2) Have an investment adviser registered with the Securities and Exchange Commission with not less than five years experience investing in securities and obligations as authorized by subdivisions (a) to (m), inclusive and with assets under management in excess of$500,000,000. The purchase price of shares of beneficial interest, (mutual funds) purchase pursuant to this subdivision shall not include any commission that these companies may charge. No more than 15% of the Funds may be invested in mutual funds. Investments not described herein, including but not limited to common stocks are prohibited from use in this Fund. GUIDELINES These guidelines are established to direct and control investment activities in such a manner to assure that the goals established in the Investment Policy are attained. 2010-2011 3 1 CASH FORECAST -The cash flow of the City shall be analyzed with the receipt of revenues and maturity of- investments scheduled so that adequate cash will be available to meet the disbursement requirements. POOLED CASH - Whenever practical, the City's cash should be consolidated into one bank account and invested on a pooled concept basis. Interest earnings may be allocated according to fund cash and investment balances. LONG TERM MATURITIES - As a general rule, long term maturities should not represent a significant percentage of the total Fund, as the principal risk involved can outweigh the potential for higher earnings. No more than 15% of the total Fund may be invested in securities with maturities greater than three years. DIVERSIFICATION -The Fund should consist of a mix of various types of securities, issuers, and maturities. COMPETITIVE BIDS - Purchase and sale of securities shall be made on the basis of competitive bids and offers with a minimum of two quotes being obtained, when practical. SAFEKEEPING - Securities purchased from broker/dealers shall be held in third party safekeeping by the Trust Department of the Bank designated by the Director of Administrative Services. Said Securities shall be held in the name of the City of Seal Beach with the trustee executing transactions as directed by the Director of Administrative Services. STRATEGY - Strategy refers to the plan of action for managing financial resources in the most advantageous manner. The Director of Administrative Services uses the following elements in developing strategy. Economic Forecasts - Economic forecast information developed by economists and financial experts and obtained through bankers and brokers is used to assist with the formulation of an investment strategy for the City. Investment Implementing - Execute only investment transactions which conform with anticipated cash flow requirements, economic condition and interest rate trends and are consistent with the established Investment Policy Statement. Rapport - A close working relationship with City Departments having a significant impact on cash flow is maintained in order to maximize the efficiency of the City's cash management system and establish cash flow requirements. Yield Enhancement - Utilize investment techniques to increase yield and to maintain a fully invested position. 2010-2011 4 1 Preserve Portfolio Value - Develop yield standards in order to maintain earnings consistent with the market average rate of return to preserve the value of the portfolio. INVESTMENT VEHICLES. The following parameters are outlined for authorized investments as provided in the Statement of Investment Policy: U.S. TREASURY'S are direct obligations for which the full faith and credit of the United States Government are pledged for payment of principal and interest. There is no limitation as to the percentage of the portfolio that can be invested in this category, as they are both safe and liquid. The U.S. TREASURY BILLS, U.S. TREASURY NOTES and U.S. TREASURY BONDS are included in this category. FEDERAL AGENCY ISSUES or obligations qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than treasury issues with all of the same advantages. Federal Agency Issues include, but are not limited to GNMA (Government National Mortgage Association), FFCB (Federal Farm Credit Bank), FHLB (Federal Home Loan Bank Board), FHLMC (Federal Home Loan Mortgage Corporation), FNMA. (Federal National Mortgage Association), SLMA (Student Loan Mortgage Administration), REFCORP (Resolution Funding Corporation), FHA (Federal Housing Administration) and TVA (Tennessee Valley Authority). Although there is no percentage limitation on these issues, the "prudent investor" rule shall apply for a single agency name as U.S. Government backing is implied rather than guaranteed. BANKERS' ACCEPTANCES or bills of exchange or time drafts drawn on and accepted by a commercial bank. Banker's Acceptances purchased may not exceed 180 days to maturity or 40% of the city's surplus funds. No more than 30% of the city's surplus funds may be invested in banker's acceptances issued by any one bank. COMMERCIAL PAPER must be ranked "P1"by Moody's Investor Services or "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 indebtedness other than commercial paper and be organized and operating within the United States. Commercial Paper may not exceed 270 days to maturity. No more than 25% of the city's idle funds may be invested in commercial paper and the City may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. 2010-2011 5 CERTIFICATE OF DEPOSIT shall be evaluated in terms of Federal Deposit Insurance Corporation (FDIC) coverage. For deposits in excess of the insured maximum of$250,000, approved collateral at the percentage above market value as specified by law shall be required. The Director of Administrative Services may at their discretion waive security for that portion of a deposit that is insured pursuant to federal law. Repurchase Agreements allow us to invest large amounts of money for less than thirty days at rates higher than we can earn from other short-term investments. The City will not invest in Repurchase Agreements. The authorization shall limit Repurchase Agreements to those investment vehicles purchased only through the Local Agency Investment Fund (LAIF). The Local Agency Investment Fund of the State of California offers high liquidity because our deposits can be wired to our checking account with in twenty-four hours. Interest is computed on a daily basis. Medium Term Corporate Notes offer a competitive alternative to Negotiable Certificates of Deposits and standard Certificates of Deposits. These securities enjoy an active secondary Market to provide liquidity. Mutual Funds are another authorized investment allowing the City to maintain liquidity and receive money market rates. DEPOSITORY SERVICES Money must be deposited in state or national banks, state or federal savings associations or state or federal credit unions in the state. It may be in inactive deposits, active deposits or interest-bearing active deposits. The deposits cannot exceed the amount of the banks or savings and loan's paid up capital and surplus. The bank or savings and loan must secure the active and inactive deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is letters of credit drawn on the Federal Home Loan Bank (FHLB). The treasurer may at their discretion waive security for that portion of a deposit, which is insured pursuant to federal law. Currently, the first $250,000 because we receive a higher interest rate. 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 2010-2011 6 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 (NASD)/Financial Industry Regulatory Authority (FINRA), 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. The City Treasurer shall investigate all institutions that wish to do business with the City, in order to determine if they are adequately capitalized, make markets in securities appropriate to the City's needs, and agree to abide by the conditions set forth in the City of Seal Beach's Investment Policy and Investment Portfolio Guidelines. This will be done annually by having the Financial Institutions complete and return the appropriate questionnaire and an audited Financial Statement must be provided within 120 days if the Institution's fiscal year end. 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 agreements, shall be kept in safekeeping by a third party bank trust department, acting as an agent for the City under the terms of a custody agreement executed by the bank and by the City under the terms of a custody agreement executed by the bank and by the City. All securities will be received and delivered using standard delivery versus payment procedures. REPORTING: The Treasurer shall render a monthly report to the City Council showing the type of Investment, institution, date of maturity, amount of deposit, current market value for all securities with a maturity of more than twelve months, rate of interest, and such data as may be required by the City Council. POLICY REVIEW: This investment policy shall be reviewed at least annually to ensure its consistency with overall objectives of preservation of PRINCIPAL, LIQUIDITY, AND YIELD and its relevance to current law, financial and economic trends, and to meet the needs of the City of Seal Beach. Robbeyn Bird, CPA Director of Administrative Services/City Treasurer 2010-2011 7 �jj eat. 4-5dtSo 4�#x i to ° '" e -s prG s - b .#k5} �.1-" rsa;'° �" ^a" 5 �¢s - F VIM. BRA#+F+" ,- °i .1ek't e, I�p tMTr #. ,i h, ,, } . s a r: sr• '�+" �" �� "� '` s Ai Cy`a$�� �" tedi _fib— r r `iiFµ, r t ate y7 .3a p �t #sy °'�1 ens 4�c H.+[e1 e ad . i 1 e¢ew$1 Yx �.az3�l >,�1.'�'{:''�'�:�,�xw"lxai�� •":3���i��2^S���E iii.�k��� s""n a �tue� lx 5 4" n��w,.3'k= Association of Public Treasurers of the United States & Canada (APT) Investment Policy Certification I ( Fa .�' egg r- ¢e P '�` E..F� * s.11'h ti 44 /4 .+rti 1 APT US&C Investment Policy Certification Program 1 The Association of Public Treasurers of the United States&Canada...of TIIE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. c. 1 Dear Applicant: Thank you for your interest in APT US&C's Investment Policy Certification Program. The Investment Policy Certification Program provides professional guidance and assistance in developing or improving existing investment policies in the public sector. Entities may request the Investment Policy Certification Committee to review their policy to determine if they have met the standards set forth by the Association. Those jurisdictions that comply with APT US&C's criteria are presented with the Association's Written Investment Policy Certification. Enclosed please find the necessary documents to apply for APT US&C's Written Investment Policy Certification Application Form and APT US&C Model Investment Policy. The application form along with specified documentation must be completed and forwarded directly to APT US&C. The information solicited will assist die assigned reviewers in analyzing your investment policy. Program Procedures 1. Submit five copies of the application form and appropriate documentation to APT US&C. The program fee is $200 for APT US&C members ($300 for non-members). If the first submission is unsuccessful, the application fee will be waived for a second submission. Resubmissions must be made by June 1st of the following year. 2. The submitted investment policy documentation will be forwarded to three reviewers who will evaluate the investment policy and make a recormnendation as to certification. Two out of three members must vote in favor of awarding certification in order for the entity to receive APT US&C's Written Investment Policy Certification. To assist the reviewers, please enclose five copies of your investment policy, including your glossary. 3. Approximately six weeks after receipt of submission, notification of certification will be mailed to the individual identified on the application form (Item 15) as well as the treasurer requesting the review. Comments from the reviewers will be forwarded to both successful and unsuccessful applicants. 4. Investment Policy review and certification occur continually throughout the year. However, investment policies must be submitted by June 1st in order for successful applicants and entities to receive recognition and a plaque at APT US&C's annual conference in August. Should you have any questions about the application or the model investment policy, please contact the Chair of the Investment Policy Certification We appreciate your comments or suggestions relating to this certification program. Kelley Noone Executive Director The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. Application Form for a Written Investment Policy Certification Please return this application form along with the program fee of$200 ($300 for non-members) to APT US&C, Investment Policy Certification Program, 962 Wayne Avenue, Suite 910, Silver Spring, MD 20910. Enclose five copies of the application form and five copies of your investment policy. 1.Name of government: (as it will appear on your plaque) Mailing Address: 2. Population of govemment/size of district/retirement system: 3. Size of total investment portfolio: 4. Indicate below the composition of the current portfolio: Treasuries $ CD's $ Agencies $ BA's $ Govt. Pool $ Repos $ Mutual Funds $ Other$ 5. What is the average maturity of your investment portfolio? days 6. Are you a member of APT US&C? yes no 7. Has your investment policy been adopted by the appropriate legislative body? yes no (Not required prior to submission) 8. Does your state/province or jurisdiction specifically mandate the adoption of an investment? policy? State/Province yes no Jurisdiction yes no 9. Does your state/province specifically outline types of authorized investments? yes no (If yes, attach five copies of the legislation or a typed summary of types of authorized investments). 10. Does your entity have a separate investment procedure manual?yes no (It is not required that you send your procedure manual.) The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. 1 11. List investment staff by title and telephone number: 12. If the policy permits investment in repurchase agreements, does your entity have a signed Master Repurchase Agreement? yes no n/a If"Yes"—A Master Repurchase Agreement is required for certification. • 13. Do you employ an active or passive approach to investing? Active Passive • 14. Treasurer requesting review: Name: Title: Address: Phone number: 15. In addition to the Treasurer requesting review (item 14), who should the formal announcement of the awarding of the Written Investment Policy Certification be addressed to? Name: Title: Address: 16. Have you enclosed five copies of the following documents? • Application Form • Investment Policy • Glossary • State/Province Statutes Listing Authorized Investments • 17. Date submitted The APT US&C Model Investment Policy is intended to provide guidance in the formulation of a structure to govern the investment of public funds. It must be implemented in conjunction with a careful reading of and strict adherence to applicable statutes,judicial decisions and legal opinions. It is not a guarantee against loss due to economic and market conditions or human behavior. APT US&C strongly recommends updating your policy at least every five (5) years. APT use only: Date Received Reviewers Check# Amount Date Sent for Review Result/Date The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised I/05—Replaces all previous editions. ASSOCIATION OF PUBLIC TREASURERS' OF THE UNITED STATES AND CANADA Model Investment Policy For permission to reprint the Model Investment Policy, call the APT US&C at(301) 495-5560. 1.0 Policy: (maximum points: 4) SAMPLE LANGUAGE: It is the policy of the (entity) to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all state/province and local statutes governing the investment of public funds. 2.0 Scope: (maximum points: 7) Rationale: *An investment policy should explain its scope Does the policy apply to all funds held in the custody of the government jurisdiction and all of its offices? SAMPLE LANGUAGE: This investment policy applies to all financial assets of the (entity). These funds are accounted for in the (entity's) Comprehensive Annual Financial Report and include: 2.1 Funds: (Specifically designate. Following isa sample list.) 2.1.1 General Fund 2.1.2 Special Revenue Funds 2.1.3 Capital Project Funds 2.1.4 Enterprise Funds 2.1.5 Trust and Agency Funds 2.1.6 Retirement/Pension Funds 2.1.7 (Any new fund created by the legislative body, unless specifically exempted.) 3.0 Prudence: (maximum points: 4) Rationale: *To burden a conscientious professional with personal responsibility for a default on a single item within a diversified portfolio seems unduly severe. (Accordingly,public entities with The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. portfolios of sufficient size are urged to apply the prudence concept to the overall portfolio.) Following is the prudent person standard: SAMPLE LANGUAGE: Investments shall be made with judgment and care—under circumstances then prevailing— which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. 3.1 The standard of prudence to be used by investment officials shall be the"prudent person" and/or"prudent investor" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 4.0 Objective: (maximum points: 10) Rationale: *Every investment policy should contain a concise and clear statement(s) of objectives. The effectiveness of the investment program is set by the caliber of the staff, the procedures used, the working environment and the policy guidance provided by governing officials. Through its statement of objectives, the governing body sets the tone and direction of the policy and investment program. SAMPLE LANGUAGE: The primary objectives, in priority order, of the entity's) investment activities shall be: 4.1 Safety: Safety of principal is the foremost objective of the investment program. Investments of the (entity) shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the (entity) will diversify its investments by investing funds among a variety of securities offering independent returns and financial institutions. 4.2 Liquidity: The (entity's) investment portfolio will remain sufficiently liquid to enable the (entity) to meet all operating requirements which might be reasonably anticipated. 4.3 Return on Investments: The (entity's) investment portfolio shall be designed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles, commensurate with the (entity's) investment risk constraints and the cash flow characteristics of the portfolio. The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1105—Replaces all previous editions. • 1 5.0 Delegation of Authority: Delegation of Authority: (maximum points: 4) Rationale: *After the investment objectives have been identified, the next logical element of an investment policy is an explicit delegation of authority to investment officials responsible for conducting transactions and managing the entity's investment program. SAMPLE LANGUAGE: Authority to manage the (entity's) investment program is derived from the following: (e.g., trading resolutions, code citations, ordinances, statutes, etc.). Management responsibility for the investment program is hereby delegated to the (designated official) who 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 (Designated Official). 5.1 Investment Procedures: (maximum points: 4) The (designated official) shall establish written investment policy procedures for the operation of the investment program consistent with this policy. The procedures should include reference to: safekeeping, PSA repurchase agreements, wire transfer agreements, banking service contracts and collateraUdepository 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 (designated official). See appendix to APT US&C's Model Investment Policy entitled APT US&C's Guidelines for an Investment Procedures Manual. 6.0 Ethics and Conflicts of Interest: (maximum points: 4) Rationale: *Some governments have adopted conflict-of interest legislation that regulates the activities of certain officers and employees. In the investment area, general code provisions, so separate policies may be redundant, may govern certain conflicts. Sonic jurisdictions, however, may seek to adopt policies regarding ethical behavior and conflicts of interest. SAMPLE LANGUAGE: Officers and 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. Employees and investment officials The Association of Public Treasurers of the United States&Canada...oF TILE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. • shall disclose to the (Chief Executive Officer) any material financial interests in financial institutions that conduct business within their jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the(entity). 7.0 Authorized Financial Dealers and Institutions: (maximum points: 7) Rationale: *The investment policy should require that a set formal process be used to select depositories and brokers/dealers in money market instruments. Because the policy is intended to endure, it should not mention specific firms or depositories. Rather it should provide for a process that will screen out institutions that lack economic viability or whose past practices suggest that the safety of public capital would be impaired if transactions were directed to or through such firms. SAMPLE LANGUAGE: The Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained for approved or security broker/dealers selected by credit worthiness that are authorized to provide investment services in the State/Province of ( ). These may include "primary" dealers or regional dealers that qualify under Securities & Exchange Commission Rule I5C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state/province laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the treasurer with the following: (e.g. audited financial statements, proof of National Association of Security Dealers certification, trading resolution, proof of state/province registration, completed broker/dealer questionnaire, certification of having read entity's investment policy and depository contracts.) An annual review of the financial condition and registrations of qualified bidders will be conducted by the Treasurer. A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the (entity) invests. 8.0 Authorized & Suitable Investments: (maximum points: 10) Rationale: *The selection of investment instruments to be allowed for investment purposes is a significant policy issue for many governments. Although day-to-day selection of specific instruments should be treated as a management function, the policy should define the general universe. From the governing body perspective, special care must be taken to ensure that the list of 111 instruments includes only those allowed by law and those that local investment managers are trained and competent to handle. The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05 Replaces all previous editions. c SAMPLE LANGUAGE: The (entity) is empowered by statute to invest in the following types of securities. (List types of investments authorized by state/province law, ordinance, or charter. Consider appending copies of these specific requirements to the investment policy.) (In selecting authorized investments, consideration should be given to credit ratings on commercial paper, bankers acceptance, and collateralization of applicable instruments) 8.1 Master Repurchase Agreement: (maximum points: 10) If repurchase agreements are legal and authorized by policy, a Master Repurchase Agreement must be signed with the bank or dealer. (e.g., a PSA Master Repurchase Agreement or equivalent) 9.0 Investment Pools/Mutual Funds: (maximum points: 7) Rationale: Governmental sponsored pools and money market mutual funds are excellent short-term cash management facilities. These pools/funds can provide safety, liquidity and yield in a single investment instrument. However, there is a due diligence standard, which applies to the use of pools/finds, as there is no safety net. If governmental sponsored pools and/or mutual funds are included in Authorized Investments, a section on investigation and due diligence must be included. SAMPLE LANGUAGE: A thorough investigation of the pool/fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed which 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 and 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 the securities are priced and the program audited. —A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. A schedule for receiving statements and portfolio listings. Are reserves, retained earnings, etc. utilized by the pool/fund? —A fee schedule, and when and how is it assessed. —Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. • 1 NOTE: The topics listed above are not all encompassing, but only a sampling of what might be covered in a questionnaire. APT US&C will be developing a questionnaire in the near future for use when pools/funds are part of the list of Authorized Investments. 10.0 Collateralization: (maximum points: 7) Rationale: *Several states require collateralization of all public funds.In these states a collateralization section must be included for any certificates of deposit. In addition, collateralization must be required on any repurchase agreement or reverse repurchase agreement. For these items, the policy should address such points as market valuation responsibility and tinting, specific collateral provisions such as type and maturity, safekeeping by a third party, and evidence of ownership. SAMPLE LANGUAGE: Collateralization will be required on two types of investments: certificates of deposit and repurchase(and reverse) agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be (102%) of market value of principal and accrued interest. The entity chooses to limit collateral to the following:- (list) Collateral will always be held by an independent third party with whom the entity has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt)must be supplied to the entity and retained. The right of collateral substitution is granted. 11.0 Safekeeping and Custody: (maximum points: 10) Rationale: *Like private investors, governing officials feel more secure about their entity's investments if they know that the securities are physically safe. Investment policies should include a clause regarding third-party safekeeping and custody of securities and collateral. SAMPLE LANGUAGE: All security transactions, including collateral for repurchase agreements, entered into by the (entity) shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. 12.0 Diversification: (maximum points: 7) Rationale: *...govermnents should state the purpose of diversification—to reduce overall portfolio risks while attaining benchmark average rate of return. Diversification should be conceptualized in terms of maturity as well as instrument type and issuer. thus, the diversification concept in a cash management fund should include prohibition against over The Association of Public Treasurers of the United States&Canada...of THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. concentration in a specific maturity sector, as well as constraining the reliance on specific risky instruments and issuers. SAMPLE LANGUAGE: The(entity) will diversify its investments by security type and institution. With the exception of U.S. Treasury securities and authorized pools, no more than 50% of the(entity's) total investment portfolio will be invested in a single security type or with a single financial institution. 13.0 Maximum Maturities: (maximum points: 7) Rationale *To protect public funds from market price losses resulting from rising interest rates, some states and many local governments limit the maximum term to maturity on current operating fluids'investments, some limit the maximum term to maturity to current operating funds' investments. Some limit the maximum maturity on cash management funds to 12 months. Others find this unduly restrictive and employ a two-year rule. The latter seems reasonable,provided that only a portion of the assets is invested beyond one year. SAMPLE LANGUAGE: To the extent possible, the (entity) will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the (entity) will not directly invest in securities maturing more than ( ) years from the date of purchase. However, the (entity) may collateralize its repurchase agreements using longer-dated investments not to exceed ( ) years to maturity. Reserve funds may be invested in securities exceeding( ) years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. • 14.0 Internal Control: (maximum points: 4) Rationale: *The development of internal controls remains a management function. A statement of investment policy therefore should avoid specific internal control measures. Instead,policy makers should require that a system of internal controls be established. The policy can also provide for periodic reviews and monitoring of the controls. The review of internal controls might be assigned to a committee or to the independent auditor. SAMPLE LANGUAGE: The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. 15.0 Performance Standards: (maximum points: 4) The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. 1 Rationale: *Much of the investment policy focus is directed toward control. Yield objectives are just as important, however. The long-run interests of the jurisdiction go beyond simple prudence and safety offunds. The investment policy should provide a formal evaluation of performance and occasional operational audits. SAMPLE LANGUAGE: The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. 15.1 Market Yield (Benchmark): The entity's investment strategy is (passive or active). Given this strategy, the basis used by the Treasurer to determine whether market yields is being achieved shall be to identify a comparable benchmark to your portfolio investment duration, e.g., 90-day US Treasury Bill, 6-month US Treasury Bill, Average Fed Funds Rate. 16.0 Reporting: (maximum points: 10) Rationale: Periodic required investment reports to policymakers and elected officials provide necessary written communication regarding investment performance, risk analysis, adherence to policy provisions, as well as other information. SAMPLE LANGUAGE: The Treasurer shall provide (the legislative authority) quarterly investment reports which provide a clear picture of the status of the current investment portfolio. The management report should include comments on the fixed income markets and economic conditions, discussions regarding restrictions on percentage of investment by categories, possible changes in the portfolio structure going forward and thoughts on investment strategies. Schedules in the quarterly report should include the following: 1. A listing of individual securities held at the end of the reporting period by authorized investment category. 2. Average life and final maturity of all investments listed. 3. Coupon, discount or earnings rate. 4. Par value, Amortized Book Value and Market Value. 5. Percentage of the Portfolio represented by each investment category. NOTE:Depending on the degree of comprehension of those receiving the reports and their desire, or lack thereof for detail,you may choose to provide the information in executive summary format. 17.0 Investment Policy Adoption: (maximum points: 4) The Association of Public Treasurers of the United States&Canada...oa THE UNITED STATES AND CANADA Revised I/05 Replaces all previous editions. • The (entity's) investment policy shall be adopted by resolution of the (entity's) legislative authority. The policy shall be reviewed annually by the (legislative authority) and any modifications made thereto must be approved by the (legislative authority). 18.0 Glossary: (maximum points: 4) *Because this policy is to be available to the public as well as the governing body, it is important that a glossary of related terminology be part of the policy. *Rationale:Adapted from Investing Public Funds, Girard Miller, 1986 • The Association of Public Treasurers of the United States&Canada_.oF'rHE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. • 1 GLOSSARY (Note: Entities are encouraged to include a glossary as part of the investment policy. All words of a technical nature should be included. Following is an example of common treasury terminology.) AGENCIES: Federal agency securities and/or Government-sponsored enterprises. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. 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. ' CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a . Certificate. Large-denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the . 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. COUPON: (a)The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) 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. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. 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. DERIVATIVES: (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 lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT 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. 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, fanners, faun 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), which 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 corporation working under the auspices of the Department of Housing and Urban Development (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 are widely accepted. FNMA assumes and 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 The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05 Replaces all previous editions. • 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 a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (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 Maes. 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. MARKET VALUE: The price at which a security is trading and could presumably be purchased 111 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-terns debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. 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 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 most flexible monetary policy tool. The Association of Public Treasurers of the United States Sr Canada...oF TIIE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. • PORTFOLIO: Collection of securities held by an investor. 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. 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 or ad valorem taxes under the laws of this state, which has 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 yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities 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 tenns of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending 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: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded The Association of Public Treasurers of the United Suites&Canada...oF'111E UNITED STATES AND CANADA Revised I/05—Replaces all previous editions. • options and shifts in the shape of the yield curve. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that 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. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b)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. The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised I/05—Replaces all previous editions. • • 1 • Appendix Guidelines for an Investment Procedures Manual For permission to reprint the Guidelines, call APT US&C at(301) 495-5560 1. Purpose The purpose of these guidelines is to help create a Procedures Manual to assist Treasury staff with day-to-day investment operations. As each jurisdiction's investment operations are unique, these guidelines are an outline, with individual items to be added or deleted as necessary or appropriate. Numerical references and subjects at the beginning of each Section refer to elements in APT's Model Investment Policy. 2. Cash Review 0.0 Policy 1.0 Scope 2.0 Delegation of Authority ' The Treasurer or his/her delegate(hereafter referred to as Investment Officer) must review the cash balances and investment portfolio daily, or as needed. Items to be reviewed should include: a) Balances, by fund if so deposited, at primary bank. b) Balances, by fund if so deposited, at other banks. c) Maturing investments (includes Repo's, CD's, Commercial Paper, Bankers' Acceptances and general securities). d) Bond sales and other large, periodic receipts. e) Bond and coupon payments (debt service) and other large periodic cash disbursements. 3. Investment Selection 3.0 Prudence 4.0 Objective 8.0 Authorized& Suitable Investments 12.0 Diversification 13.0 Maximum Maturities The Investment Officer determines how much of the cash balance is available for investment and selects the area of the yield curve that most closely matches the required maturity date. In detennining the maturity date, the Investment Officer should consider liquidity, cash flow and expected expenditures. A review of some of the following sources should be made to determine whether the investments should be placed to match projected expenditures or shorter, or to take advantage of current and expected interest rate environments: The Association of Public Treasurers of the United Slates&Canada...oF THE UNITED STATES AND CANADA Revised I/05—Replaces all previous editions. 1 a) Wall Street Journal or similar daily business publication. b) Input from approved broker/dealers. c) Input from depository banks. d) Publications on general trends of economic statistics. e) Input from data services (Telerate, Bloomberg, Reuters, etc.) 4. Purchasing an Investment 7.0 Authorized Financial Dealers 8.0 Authorized& Suitable 9.0 Investment Pools 10.0 Collateralization &Institutions 11.0 Safekeeping& Custody. 12.0 Diversification Investments 13.0 Maximum Maturities Establish with whom the jurisdiction is going to transact business. This should be accomplished through the use of a questionnaire, which helps provide the following evaluation: a) Financial condition, strength and capability to fulfill commitments. b) Overall reputation with other dealers and investors. c) Regulatory status of the broker/dealer(providers). d) Background and expertise of the individual representative. Financial (banking) institutions should be selected through the use of a "Request for Proposal (RFP)."The use of a nationally recognized financial institution rating organization(Lace, Sheshunoff, Thompson Bankwatch, etc.) will assist in the evaluation. Contact an appropriate number of institutions, as specified by policy. The Investment Officer should be as specific as possible in requesting the offering. If a particular type of investment or a particular issuing agency is to be excluded due to policy limitations that should be stated to the providers. If collateral is required (i.e. for Repo's or CD's), the collateral limitations (excess margin, types of securities, maximum maturity, etc.) should be specified. The following must be determined prior to contacting the providers: a) Settlement—cash, regular(next day), corporate (3 business days) or when issued if a new issue. b) Amount either par value or total dollars to be invested. c) Type of security to be purchased, or type to be excluded. d)Targeted maturity, or maturity range. e) Time limit to show offering—5 minutes, 15 minutes, etc. If choosing an external pool or fund as the preferred investment vehicle, the following should be available for inspection prior to purchase and at any reasonable time thereafter: The Association of Public Treasurers of the United States&Canada...oF THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions. • a) A written investment policy, if a government-run investment pool. b) A prospectus for money-market funds, mutual funds or bank-managed funds. c)A schedule of the types of reports and the frequency of distribution. d) A clear description of how interest rates are calculated (30/360, actual/365, etc.) e) A schedule of when and how income is distributed. f)Are the pool or fund types of investments restricted to your own legal and policy limits? g) Are the pool or fund investments restricted to your own maturity limits? Before concluding the transaction, the Investment Officer should validate the following: a) The security selected for purchase meets all criteria, including portfolio diversification, collateralization(if appropriate) and maturity. If the security has any imbedded options such as call provisions or coupon adjustments, these should also be reviewed. b) Yield calculations should be verified. c)Total purchase cost (including accrued interest) does not exceed funds available for investment. d) Advise the successful provider that their offering has been selected for purchase. e) After confirmation of the purchase, as a courtesy, notify the other broker/dealers that you have placed the investment. Best price may be disclosed, if you choose. After consummation of the transaction, and prior to settlement date, the Investment Officer and the provider should exchange and review the following information to ensure prompt, and uninterrupted settlement: a)Name of third-party safekeeping agent. b) ABA number of safekeeping agent. c) Safekeeping account number. d) Reconfirm amount of transaction. e) Reconfirm settlement date. f) Acquire CUSIP number of security, if applicable. 5. Settlement& Follow-through 10 Delegation of A uthority 6.0 The Investment Officer should forward to the safekeeping agent a report of the investment transaction. The report may be verbal,but a written form should be sent and acknowledged. When applicable, the following should be verified: a) Provision of receipt or disbursement of funds. b) Internal transfer or wiring of funds. c)Validation of written"safekeeping receipt". 111 d)Notification of discrepancy prior to acceptance or rejection of the transaction. e) Immediate notification if a fail has occurred: by provider if they are responsible, by safekeeping agent if they are responsible. The Association of Public Treasurers of the United States&Canada...oh THE UNITED STATES AND CANADA Revised 1/05—Replaces all previous editions.