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Resolution No. 72721 RESOLUTION NO. 7272 2 A RESOLUTION OF THE CITY COUNCIL OF 3 THE CITY OF VERNON AMENDING RESOLUTION NO.7092 WHICH APPROVED 4 THE ANNUAL STATEMENT OF INVESTMENT POLICY OF THE CITY AND DELEGATED 5 INVESTMENT AUTHORITY TO THE CITY TREASURER 6 7 WHEREAS, pursuant to California Government Code 8 Section 53646(a)(2), the City Treasurer shall annually render to 9 the City Council an Annual Statement of Investment Policy; and 10 WHEREAS, pursuant to Resolution No.7092, the City 11 Council approved the Annual Statement of Investment Policy which 12 delegates investment authority to the City Treasurer, and grants 13 the City Treasurer express authority to make investments of City 14 funds in securities with a term or term remaining to maturity at 15 the time of investment in excess of five years as part of an 16 investment program; and 17 WHEREAS, the City Council desires to amend said City 18 Investment Policy so that it comports with recent changes in the 19 California Government Code concerning the types of investments in 20 which the City may invest its funds for deposit and the 21 statements concerning the investment of funds. 22 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF 23 THE CITY OF VERNON AS FOLLOWS: 24 SECTION 1: The City Council of the City of Vernon does 25 hereby find and determine that the recitals contained hereinabove 26 are true and correct. 27 SECTION 2: The City Council of the City of Vernon 28 hereby adopts the amended City investment policy, "Annual -1- 1 Statement of Investment Policy of the City of Vernon, California 2 for the Year 1999," a copy of which is attached hereto and 3 incorporated herein as Exhibit "A" to this Resolution. 4 SECTION 3: The City Council of the City of Vernon 5 hereby delegates to the City Treasurer the authority to implement 6 said Annual Statement of Investment Policy and select the 7 instruments for the City's investment portfolio in accordance 8 with said Statement of Investment Policy. 9 SECTION 4: The City Council of the City of Vernon 10 hereby grants express authority to the City Treasurer as part of 11 the City's investment program to invest in securities with a term 12 or term remaining to maturity, at the time of investment, in 13 excess of five years. 14 SECTION 5: The City Clerk of the City of Vernon shall 15 certify to the passage of this Resolution and thereupon and 16 thereafter the same shall be in full force and effect. 17 APPROVED AND ADOPTED this 16th day of February, 18 1999. 19 20 ONIS C. MALBU G, Mayo 21 22 ATTEST: 23 24 25 BRUCE V. MALKENHORST, City Clerk 26 27 28 -2- 1 STATE OF CALIFORNIA ) 2 COUNTY OF LDS ANGELES ) 3 4 I, BRUCE V. MALKENHORST, City Clerk of the City of 5 Vernon, do hereby certify that the foregoing Resolution, being 6 Resolution No. 7272 , was duly adopted by the City Council of the 7 City of Vernon at a regular meeting of the City Council duly held 8 on Tuesday, February 16th 1999, and thereafter was duly signed 9 by the Mayor of the City of Vernon. 10 11 12 / 13 f/ BRUCE V. MALKENHORST, City Clerk 14 15 16 ( SEAL) 17 18 19 20 21 22 23 24 25 26 27 28 -3- SUPPORTING DOCUMENTS ANNUAL STATEMENT OF INVESTMENT POLICY OF THE CITY OF VERNON, CALIFORNIA FOR THE YEAR 1999 raff • Monies not required for immediate expenditure by the City of Vernon shall be invested in compliance with governing provisions of law and this policy. The City will maintain adequate cash availability and strive for maximum yield on invested idle funds while insuring that the principal sum invested is protected from loss. This Investment Policy shall be in compliance with the Government Code of the State of California, including Sections 53600.3, 53600.5, 53600.6, 53601, 53601.6, 53607, 53630, 53630.1, 53631.5, 53635, 53638, 53646, 53651, 53651.2, 53651.4, 53651.6, and 53652, relating to local agency finances. I. DELEGATION OF AUTHORITY; PRUDENT INVESTOR STANDARD Pursuant to Resolution of the City of Vernon adopted February, 1999, and California Government Code Section 53607, the City Treasurer has been delegated investment authority for a one year period by the City Council. The City Treasurer, the City Administrator, and all persons and governing bodies of the City authorized to make investment decisions on behalf of the City are "trustees" and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee of the City shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the City, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the City. Within the limitations of this Investment Policy and Section 53600.3 of the California Government Code and considering individual investments as part to an overall strategy, the City Treasurer is authorized to acquire investments as authorized by law. II. INVESTMENT CRITERIA When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the primary objective of a trustee of the City shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the City. The third objective shall be to achieve a return on the funds under its control. - 1 - E4I 11T"A" M. POLICIES AND OBJECTIVES The investment program of the City shall require the City Treasurer and the Finance Department to actively manage the City's portfolio of investments in order to take advantage of changing economic conditions and to insure that the liquidity needs of the City are satisfied. As part of the City's investment program, the City Treasurer has the express authority to make investments in securities that have a term, or a term remaining to maturity, at the time of investment, in excess of five years, as long as such investments, taken in the aggregate in relation to the City's entire investment portfolio, do not adversely impact the liquidity needs of the City and its funds and enterprises. The City Treasurer has the express authority to sell, as he deems prudent, any securities in the City's portfolio of investments prior to the maturity date of the particular security. The City Treasurer has the express authority to invest in, as he deems prudent, any security authorized by this Investment Policy with the objective of selling that same security prior to its maturity date. The City Treasurer's authority to buy and sell securities for investment on behalf of the City includes the authorization to buy and sell the same security on the same trading day. Any persons authorized to make investment decisions on behalf of the City, shall be subject to daily oversight and monitoring by the City Treasurer and Finance Department in order to insure full and complete compliance with this Investment Policy and the Government Code of the State of California, relating to the deposit and investment of funds and local agency finances. IV. INSTRUMENTS AUTHORIZED FOR INVESTMENT The City, having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the City may invest any portion of the money that it deems wise or expedient in those investments set forth below. If the City purchases or obtains any securities prescribed in Section IV, in a negotiable, bearer, registered, or nonregistered format, the City shall require delivery of the securities to the City, including those purchased for the City by financial advisors, consultants, or managers using the City's funds, by book entry, physical delivery, or by third party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this Section IV counterparty means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the City. Investments may be made in any security authorized by this Section IV, including a security underlying a repurchase or reverse repurchase agreement authorized by Section 53601 of the California Government Code, that at the time of investment has a term or a term remaining to maturity in excess of five years as long as such investment comports with the policies and objectives of this Investment Policy. - 2 - EXHIBIT "A" (a) Bonds issued by the City, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the state or by a department, board -- agency, or authority of the state. (d) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. (e) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government -sponsored enterprise. (f) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the City's surplus money that may be invested pursuant to this subsection (f). However, no more than 30 percent of the City's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section. (g) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the City's surplus money that may be invested pursuant to this subsection (g). An additional 15 percent, or a total of 30 percent of the City's surplus money, may be invested pursuant to this subsection. The additional 15 percent may be so invested only if the dollar -weighted average maturity of the entire amount does not exceed 31 days. "Dollar weighted average maturity" means the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. - 3 - EXHIBIT "A" (h) Negotiable certificates of deposits issued by a nationally or state -chartered bank or a state or federal association (as defined by Section 5102 of the California Financial Code) or by a state -licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the City's surplus money which may be invested pursuant to this subsection (h). For purposes of this subsection (h), negotiable certificates of deposits do not come within Article 2 of the California Government Code (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of California Government Code Section 53638 concerning maximum deposits. (i) (1) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this subsection (i), as long as the agreements are subject to this subsection (i), including, the delivery requirements specified in this subsection (i). (2) Investments in repurchase agreements may be made, on any investment authorized in this Section IV, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements may be utilized only when either of the following conditions are met: (A) The security was owned or specifically committed to purchase by the City prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement has been owned and fully paid for by the City for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments owned by the City not purchased or committed to purchase, prior to December 31, 1994, does not exceed 20 percent of the base value of the portfolio; and the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement may not be entered into with securities not sold on a reverse repurchase agreement and purchased, or committed to purchase, prior to that date, as a means of financing or paying for the security sold on a reverse repurchase agreement, but may only be entered into with securities owned and previously paid for a minimum of 30 days prior to the settlement of the reverse repurchase agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a City obligation. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement, on securities originally purchased subsequent to December 31, 1994, shall not be used to - 4 _ EXI-IIBIT " V purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement, unless the reverse repurchase agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Reverse repurchase agreements specified in subparagraph (B) of paragraph (3) may not be entered into unless the percentage restrictions specified in that subparagraph are met, including the total of any reverse repurchase agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements or similar investments in which the City sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the City Council and shall only be made with primary dealers of the Federal Reserve Bank of New York. (6) (A) "Repurchase agreement" means a purchase of securities by the City pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the City by book entry, physical delivery, or by third party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book -entry account may be used for book -entry delivery. (B) "Securities," for purpose of repurchase under this subsection (i), means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. (D) For purposes of this subsection (i), the base value of the City's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. (E) For purposes of this subsection (i), the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. 0) Medium -term notes of a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subsection 0) shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases of medium -term notes may be not exceed 30 percent of the City's surplus money which may be invested pursuant to this subsection 0). (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subsections (a) to 0), inclusive, or subsections (m) or (n) of this Section IV and - 5 - EXHIBIT "A" that comply with the investment restrictions of Article 1 (commencing with Section 53600 of the California Government Code) and Article 2 (commencing with Section 53630 of the California Government Code). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement may be 100 percent of the sales price if the securities are marked to market daily. (2) 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.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subsections (a) to 0), inclusive, or subsections (m) or (n) and with assets under management in excess of five hundred million dollars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (5) The purchase price of shares of beneficial interest purchased pursuant to this subsection (k) shall not include any commission that the companies may charge and shall not exceed 20 percent of the City's surplus money that may be invested pursuant to this subsection (k). However, no more than 10 percent of the City's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1) of subsection (k). (1) Notwithstanding anything to the contrary contained in this Section IV, Section 53601 and Section 53635 of the California Government Code, or any other provision of law, moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provision governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in - 6 - EXHIBIT "A°" accordance with the ordinance, resolution, indenture, or agreement of the City providing for the issuance. (m) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 of the California Government Code as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 of the California Government Code for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (n) Any Mortgage pass -through security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable pass -through certificate, or consumer receivable -backed bond of a maximum of five years maturity. Securities eligible for investment under this subsection shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA' or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subsection (n) may not exceed 20 percent of the City's surplus money that may be invested pursuant to this Section IV. (o) The City shall not invest any funds pursuant to this Section IV in inverse floaters, range notes, or interest -only strips that are derived from a pool of mortgages. (p) The City shall not invest any funds pursuant to this subsection (p) in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this subsection (p) shall not apply to City investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subsection (k). V. STATEMENTS OF INVESTMENT ACTIVITIES AND POLICY The City Treasurer shall annually render to the City Council and the Finance Committee of the City a statement of investment policy, which the City shall consider at a public meeting. Any changes in this investment policy shall also be considered by the City Council of the City at a public meeting. The City Treasurer shall render a quarterly report to the Finance Committee and City Council. The quarterly report shall be so submitted within 30 days following the end of the quarter covered by the report. This report shall include the type of investment, issuer, date of maturity par and dollar amount invested on all - 7 - EXHIBIT "A" securities, investments and moneys held by the City and shall additionally include a description of any of the City's funds, investments, or programs, that are under the management of contracted parties, including lending programs. With respect to all securities held by the City and under management of any outside party that is not also a local agency or the State of California Local Agency Investment Fund, the report shall also include a current market value as of the date of the report, and shall include the source of this same valuation. For local agency investments that have been placed in the Local Agency Investment Fund, in National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 14858 of the California Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, in a_ County investment pool, or any combination of these, the City Treasurer and the Finance Department may supply to the City Council and Finance Committee the most recent statements received by the City from these institutions. The quarterly report shall state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance. The quarterly report shall include a statement denoting the ability of the City to meet its budgeted expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available. In the quarterly report, a subsidiary ledger of investments may be used in accordance with accepted accounting practices. The authority of the City Council to invest or to reinvest funds of the City, or to sell or exchange securities so purchased has been delegated for a one-year period by the City Council to the City Treasurer, who shall thereafter assume full responsibility for those transactions and shall make a monthly report of those transactions to the City Council - g - EXHIBIT "A" OFFICE OF THE CITY ADMINISTRATOR/ CITY CLERK INTER -OFFICE MEMORANDUM DATE: February 23, 1999 TO: Sharon Johnson, Deputy City Treasurer , FROM: Gloria J. Oros 'Chief Deputy City Clerk RE: Annual Statement of Investment Policy of the City of Vernon, California for the Year 1999 Enclosed, for your files, is a copy of the above referenced investment policy which was approved by City Council on February 16, 1999 through Resolution No. 7272. c: Finance Committee 1 2 3 4 5 6 7 8 9 10 11 12 13'. 14''. 151 16 17 18 19 20 21 22 23 24 251 26 27 28 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON AMENDING RESOLUTION NO.7092 WHICH APPROVED THE ANNUAL STATEMENT OF INVESTMENT POLICY OF THE CITY AND DELEGATED INVESTMENT AUTHORITY TO THE CITY TREASURER WHEREAS, pursuant to California Government Code Section 53646(a)(2), the City Treasurer shall annually render to the City Council an Annual Statement of Investment Policy; and WHEREAS, pursuant to Resolution No.7092, the City Council approved the Annual Statement of Investment Policy which delegates investment authority to the City Treasurer, and grants the City Treasurer express authority to make investments of City funds in securities with a term or term remaining to maturity at the time of investment in excess of five years as part of an investment program; and WHEREAS, the City Council desires to amend said City Investment Policy so that it comports with recent changes in the California Government Code concerning the types of investments in which the City may invest its funds for deposit and the statements concerning the investment of funds. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon does hereby find and determine that the recitals contained hereinabove are true and correct. SECTION 2: The City Council of the City of Vernon hereby adopts the amended City investment policy, "Annual -1- 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 271 281 Statement of Investment Policy of the City of Vernon, California for the Year 1999," a copy of which is attached hereto and incorporated herein as Exhibit "A" to this Resolution. SECTION 3: The City Council of the City of Vernon hereby delegates to the City Treasurer the authority to implement said Annual Statement of Investment Policy and select the instruments for the City's investment portfolio in accordance with said Statement of Investment Policy. SECTION 4: The City Council of the City of Vernon hereby grants express authority to the City Treasurer as part of the City's investment program to invest in securities with a term or term remaining to maturity, at the time of investment, in excess of five years. SECTION 5: The City Clerk of the City of Vernon shall certify to the passage of this Resolution and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this day of February, 1999. ATTEST: BRUCE V. MALKENHORST, City Clerk LEONIS C. MALBURG, Mayor -2- 1 STATE OF CALIFORNIA ) 2 COUNTY OF LOS ANGELES ) 3 4 I, BRUCE V. MALKENHORST, City Clerk of the City of 5 Vernon, do hereby certify that the foregoing Resolution, being 6 Resolution No. , was duly adopted by the City Council of the 7 City of Vernon at a regular meeting of the City Council duly held 81 on Tuesday, February , 1999, and thereafter was duly signed 91 by the Mayor of the City of Vernon. 10 11 12 13 BRUCE V. MALKENHORST, City Clerk 14 15 16 (SEAL) 17 18 19 20 21 22 23 24 25 26 27 28 -3- �&, , * ;W.7, CITY COUNCIL LEONIS C. MALBURG Mayor THOMAS A. YBARRA Mayor Pro -Tern Wm. 'BILL" DAVIS Councilman H. "LARRY" GONZALES Councilman W. MICHAEL McCORMICK Councilman BRUCE V. MALKENHORST City Administrator / City Clerk FAX (323) 581-7924 Finance Committee City of Vernon Honorable Members: DAVID B. BREARLEY City Attorney FAX: (626) 330-5818 KEVIN WILSON Director of Community Services & Water FAX: (323) 588-2761 CITY HALL 4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058 TELEPHONE (323) 583-8811 February 4, 1999 KENNETH J. DeDARIO Director of Municipal Utilities FAX: (323) 583-1983 DAVE TELFORD Fire Chief FAX: (323) 581-1385 BRUCE W. OLSON Police Chief FAX: (323) 583-5236 In accordance with Government Code Section 53646(a)(2), an Annual Statement of Investment Policy for the Year 1999 has been prepared, and transmitted herewith, for your review and acceptance. Also transmitted herewith is a communication from our legal counsel, Eric Fresch, identifying areas where the report was revised and/or changed. It is hereby recommended that this Annual Statement of Investment Policy for the Year 1999 be approved and copies disseminated to the City Council. Very truly yours, z�- � Bruce V. Malkenhorst City Treasurer BVM/gst enclosures ANNUAL STATEMENT OF INVESTMENT POLICY OF THE CITY OF VERNON, CALIFORNIA FOR THE YEAR 1999 INTRODUCTION Monies not required for immediate expenditure by the City of Vernon shall be invested in compliance with governing provisions of law and this policy. The City will maintain adequate cash availability and strive for maximum yield on invested idle funds while insuring that the principal sum invested is protected from loss. This Investment Policy shall be in compliance with the Government Code of the State of California, including Sections 53600.3, 53600.5, 53600.6, 53601, 53601.6, 53607, 53630, 53630.1, 53631.5, 53635, 53638, 53646, 53651, 53651.2, 53651.4, 53651.6, and 53652, relating to local agency finances. I. DELEGATION OF AUTHORITY; PRUDENT INVESTOR STANDARD Pursuant to Resolution of the City of Vernon adopted February, 1999, and California Government Code Section 53607, the City Treasurer has been delegated investment authority for a one year period by the City Council. The City Treasurer, the City Administrator, and all persons and governing bodies of the City authorized to make investment decisions on behalf of the City are "trustees" and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee of the City shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the City, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the City. Within the limitations of this Investment Policy and Section 53600.3 of the California Government Code and considering individual investments as part to an overall strategy, the City Treasurer is authorized to acquire investments as authorized by law. II. INVESTMENT CRITERIA When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the primary objective of a trustee of the City shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the City. The third objective shall be to achieve a return on the funds under its control. III. POLICIES AND OBJECTIVES The investment program of the City shall require the City Treasurer and the Finance Department to actively manage the City's portfolio of investments in order to take advantage of changing economic conditions and to insure that the liquidity needs of the City are satisfied. As part of the City's investment program, the City Treasurer has the express authority to make investments in securities that have a term, or a term remaining to maturity, at the time of investment, in excess of five years, as long as such investments, taken in the aggregate in relation to the City's entire investment portfolio, do not adversely impact the liquidity needs of the City and its funds and enterprises. The City Treasurer has the express authority to sell, as he deems prudent, any securities in the City's portfolio of investments prior to the maturity date of the particular security. The City Treasurer has the express authority to invest in, as he deems prudent, any security authorized by this Investment Policy with the objective of selling that same security prior to its maturity date. The City Treasurer's authority to buy and sell securities for investment on behalf of the City includes the authorization to buy and sell the same security on the same trading day. Any persons authorized to make investment decisions on behalf of the City, shall be subject to daily oversight and monitoring by the City Treasurer and Finance Department in order to insure full and complete compliance with this Investment Policy and the Government Code of the State of California, relating to the deposit and investment of funds and local agency finances. IV. INSTRUMENTS AUTHORIZED FOR INVESTMENT The City, having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the City may invest any portion of the money that it deems wise or expedient in those investments set forth below. If the City purchases or obtains any securities prescribed in Section IV, in a negotiable, bearer, registered, or nonregistered format, the City shall require delivery of the securities to the City, including those purchased for the City by financial advisors, consultants, or managers using the City's funds, by book entry, physical delivery, or by third party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this Section IV "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the City. Investments may be made in any security authorized by this Section IV, including a security underlying a repurchase or reverse repurchase agreement authorized by Section 53601 of the California Government Code, that at the time of investment has a term or a term remaining to maturity in excess of five years as long as such investment comports with the policies and objectives of this Investment Policy. Ili (a) Bonds issued by the City, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. (d) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. (e) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government -sponsored enterprise. (f) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the City's surplus money that may be invested pursuant to this subsection (f). However, no more than 30 percent of the City's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section. (g) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the City's surplus money that may be invested pursuant to this subsection (g). An additional 15 percent, or a total of 30 percent of the City's surplus money, may be invested pursuant to this subsection. The additional 15 percent may be so invested only if the dollar -weighted average maturity of the entire amount does not exceed 31 days. "Dollar weighted average maturity" means the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. 11: (h) Negotiable certificates of deposits issued by a nationally or state -chartered bank or a state or federal association (as defined by Section 5102 of the California Financial Code) or by a state -licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the City's surplus money which may be invested pursuant to this subsection (h). For purposes of this subsection (h), negotiable certificates of deposits do not come within Article 2 of the California Government Code (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of California Government Code Section 53638 concerning maximum deposits. (i) (1) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this subsection (i), as long as the agreements are subject to this subsection (i), including, the delivery requirements specified in this subsection (i). (2) Investments in repurchase agreements may be made, on any investment authorized in this Section IV, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements may be utilized only when either of the following conditions are met: (A) The security was owned or specifically committed to purchase by the City prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement has been owned and fully paid for by the City for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments owned by the City not purchased or committed to purchase, prior to December 31, 1994, does not exceed 20 percent of the base value of the portfolio; and the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement may not be entered into with securities not sold on a reverse repurchase agreement and purchased, or committed to purchase, prior to that date, as a means of financing or paying for the security sold on a reverse repurchase agreement, but may only be entered into with securities owned and previously paid for a minimum of 30 days prior to the settlement of the reverse repurchase agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a City obligation. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement, on securities originally purchased subsequent to December 31, 1994, shall not be used to - 4 - EXHIBIT "A" purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement, unless the reverse repurchase agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Reverse repurchase agreements specified in subparagraph (B) of paragraph (3) may not be entered into unless the percentage restrictions specified in that subparagraph are met, including the total of any reverse repurchase agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements or similar investments in which the City sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the City Council and shall only be made with primary dealers of the Federal Reserve Bank of New York. (6) (A) "Repurchase agreement" means a purchase of securities by the City pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the City by book entry, physical delivery, or by third party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book -entry account may be used for book -entry delivery. (B) "Securities," for purpose of repurchase under this subsection (i), means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. (D) For purposes of this subsection (i), the base value of the City's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. (E) For purposes of this subsection (i), the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. 0) Medium -term notes of a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subsection 0) shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases of medium -term notes may be not exceed 30 percent of the City's surplus money which may be invested pursuant to this subsection 0). (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subsections (a) to 0), inclusive, or subsections (m) or (n) of this Section IV and that comply with the investment restrictions of Article 1 (commencing with Section 53600 of the California Government Code) and Article 2 (commencing with Section 53630 of the California Government Code). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement may be 100 percent of the sales price if the securities are marked to market daily. (2) 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.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subsections (a) to 0), inclusive, or subsections (m) or (n) and with assets under management in excess of five hundred million dollars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (5) The purchase price of shares of beneficial interest purchased pursuant to this subsection (k) shall not include any commission that the companies may charge and shall not exceed 20 percent of the City's surplus money that may be invested pursuant to this subsection (k). However, no more than 10 percent of the City's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1) of subsection (k). (1) Notwithstanding anything to the contrary contained in this Section IV, Section 53601 and Section 53635 of the California Government Code, or any other provision of law, moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provision governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in 6 - EXHIBIT "A„ accordance with the ordinance, resolution, indenture, or agreement of the City providing for the issuance. (m) Notes, bonds, or otherobligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 of the California Government Code as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 of the California Government Code for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (n) Any Mortgage pass -through security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable pass -through certificate, or consumer receivable -backed bond of a maximum of five years maturity. Securities eligible for investment under this subsection shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subsection (n) may not exceed 20 percent of the City's surplus money that may be invested pursuant to this Section IV. (o) The City shall not invest any funds pursuant to this Section IV in inverse floaters, range notes, or interest -only strips that are derived from a pool of mortgages. (p) The City shall not invest any funds pursuant to this subsection (p) in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this subsection (p) shall not apply to City investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subsection (k). V. STATEMENTS OF INVESTMENT ACTIVITIES AND POLICY The City Treasurer shall annually render to the City Council and the Finance Committee of the City a statement of investment policy, which the City shall consider at a public meeting. Any changes in this investment policy shall also be considered by the City Council of the City at a public meeting. The City Treasurer shall render a quarterly report to the Finance Committee and City Council. The quarterly report shall be so submitted within 30 days following the end of the quarter covered by the report. This report shall include the type of investment, issuer, date of maturity par and dollar amount invested on all �� 11:11 My.`% securities, investments and moneys held by the City and shall additionally include a description of any of the City's funds, investments, or programs, that are under the management of contracted parties, including lending programs. With respect to all securities held by the City and under management of any outside party that is not also a local agency or the State of California Local Agency Investment Fund, the report shall also include a current market value as of the date of the report, and shall include the source of this same valuation. For local agency investments that have been placed in the Local Agency Investment Fund, in National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 14858 of the California Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, in a County investment pool, or any combination of these, the City Treasurer and the Finance Department may supply to the City Council and Finance Committee the most recent statements received by the City from these institutions. The quarterly report shall state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance. The quarterly report shall include a statement denoting the ability of the City to meet its budgeted expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available. In the quarterly report, a subsidiary ledger of investments may be used in accordance with accepted accounting practices. The authority of the City Council to invest or to reinvest funds of the City, or to sell or exchange securities so purchased has been delegated for a one-year period by the City Council to the City Treasurer, who shall thereafter assume full responsibility for those transactions and shall make a monthly report of those transactions to the City Council. t II: r � ) 0 ti✓ �1 tv V January 20, 1999 VvV i� LAW OFFICES OF EPIC T. FRESCH CITICORP CENTER, ONE SANSOME STREET TWENTY-FIRST FLOOR SAN FRANCISCO, CALIFORNIA 94104 TELEPHONE (415) 95I-I035 FAX (4I5) 951-4660 Mr. Bruce V. Malkenhorst City Administrator City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 S ( JAN Re: Annual Statement of Investment Policy; Legislation Affecting the Financial Affairs of Local Agencies Dear Bruce: I have drafted the I recommend the City Council and Finance Committee of the City approve and adopt the new policy. I also recommend the City Council authorize you, as City Treasurer, to make investments of City funds as you deem prudent in securities with a term or a term remaining to maturity in excess of five years. I recommend the City Council grant you the express authority to make such investments every 90 days or calendar year quarter to cover the next 90-day investment period. I have incorporated the necessary language in my draft resolution for approval of the investment policy and will provide similar documents when the quarterly report of investments is submitted to the City Council. My recommendation is based upon recent interpretations by the State of California Attorney General's office and recent legislative proposals, both concerning the relevant Government Code provisions regarding local agency finances and accountability for City investment policies. I have incorporated into this year's investment policy the amendments that were made to various sections of the California Government Code concerning instruments authorized for investment, the delegation of investment authority to the City Treasurer and the required statements of investment activity. I have reviewed various pieces of legislation that were enacted into law in the last half of 1998 which affect the types of investments the City may make and the statements the City Treasurer and Finance Department must prepare for the City Council for the investment of City funds. I have summarized the law and the recent changes in detail below. These changes intend to make the City Council, the City Treasurer and their consultants more accountable in the creation and execution of investment policy and in the reporting and disclosure of investment transactions made with the City's funds. Mr. Bruce V. Malkenhorst 1/20/99 Page 2 The following briefly outlines the requirements of both the law and of prudent practices for City investment policy and reporting requirements which will directly impact the City Treasurer and Finance Department. 1. The City Treasurer shall annually render to the City Council and Finance Committee a statement of investment policy, which the City Council shall consider at a public meeting. Any change in the investment policy shall also be considered by the City Council at a public meeting. 2. The City Council may annually, after appropriate review, renew the delegation of authority to the City Treasurer to carry out the investment policy and make investments of the City's funds. 3. The City Treasurer shall render a quarterly report of City investments to the City Administrator, the Internal City Auditors, the Finance Committee, and members of the City Council. The quarterly report shall include the type of investment, issuer, date of maturity par and dollar amount invested on all securities, investments and moneys held by the City. It is also prudent that the quarterly report include a current market value as of the date of the report. The quarterly report shall include a statement reciting the compliance of the City's portfolio of investments to the City's Annual Statement of Investment Policy and a statement denoting the ability of the City to meet its expenditure requirements for the next six months. The report shall be submitted within 30 days following the end of the quarter covered by the report. 4. The City Council may grant, as part of the City's investment program, to the City Treasurer express authority to make investments, no less than three months prior to the acquisition of the investments, in securities that have, at the time of investment, a term, or a term remaining to maturity, in excess of five years. Procedurally, the City Council may grant authority to the City Treasurer to invest in securities with maturities longer than five years on the occasion of the submission of the Quarterly Report of Investments to the City Council by the City Treasurer. This grant of investment authority to the City Treasurer will authorize the investment of City funds in longer than five-year term investments in the subsequent quarterly period following the current quarter in which the approval is granted. Mr. Bruce V. Malkenhorst 1/20/99 Page 3 5. Monthly, the City Treasurer shall make a report of all investment transactions involving City funds. The report shall be submitted by memorandum to the City Council within 10 days following the end of the month covered by the report. The law authorizes the City Council to delegate its authority to invest the City's funds to the City Treasurer. This authority to delegate is limited to a one-year period, which the City Council may renew annually after the Council has reviewed the transactions undertaken by the City Treasurer. The City is required to hold a meeting before making any decision that involves borrowing money in the amount of $100,000 or more. The City Council must discuss, consider and deliberate each decision to borrow money as a separate item of business on the agenda of its council meetings. Government Code Section 53600.3 concerns the prudent investor standard Ding applied to the City Council and City Treasurer for the investment of City funds and states that all governing bodies of the City or persons authorized to make investment decisions or give investment advice of behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When undertaking this investment function, a trustee shall act with care, skill and prudence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency. The California State Legislature recently amended various sections of the California Government Code concerning the deposit of funds of local agencies and the statements concerning the investment of funds. Recent amendments to the Government Code sections which specify percentage limitations on the amount of funds the City may place in one type of investment have been loosened a little. Now the percentage limitation is only applicable at the date of purchase of the investment. This amendment would impact a local agency's investment portfolio if its surplus funds decreased over time. Therefore, it would not be necessary for the agency to adjust its portfolio to conform to the statute's percentage limitations. Recent legislative amendments also provide that investments in repurchase agreements shall be in compliance with the Code's requirements concerning the market value of underlying securities even if the value of the underlying securities falls below 102 , as long as the securities are brought back up to 102% no later than the next business day. Mr. Bruce V. Malkenhorst 1/20/99 Page 4 This memorandum is meant to serve as an overview of the requirements of the Government Code and prudent investment practices and reporting requirements for the financial affairs of local agencies. Please call me if you need detailed information regarding these matters or have any questions or comments. Sincerely, Eric Fresch cc: Sharon Johnson