HomeMy WebLinkAboutFC_2020-08-27 AgendaPacket CITY OF ATASCADERO FINANCE COMMITTEE AGENDA
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Page 1 of 37
CITY OF ATASCADERO
FINANCE COMMITTEE
AGENDA
Thursday, August 27, 2020
3:00 p.m.
Atascadero City Hall – Webinar
6500 Palma Avenue, Atascadero, California
CALL TO ORDER:
ROLL CALL: Chairperson: Charles Bourbeau
Vice-Chairperson: Susan Funk
Committee Member: Gere Sibbach
Committee Member: Rachelle Rickard
Committee Member: Jeri Rangel
A. CONSENT CALENDAR:
1. Finance Committee Draft Action Minutes – May 30, 2019
Recommendation: Committee approve the Draft Action Minutes of the
May 30, 2019 Finance Committee Meeting. [City Clerk]
PUBLIC COMMENT: At this time members of the public may address the Committee
regarding any items within the subject matter jurisdiction of the Committee whether or not
the item appears on the agenda. Individual audience participation is limited to three
minutes per speaker. Please state your name for the record before making your
presentation. Following Public Comment, the floor will be closed to public participation
and open for business.
B. BUSINESS: This portion of the agenda is for all matters where staff and public
participation is anticipated. Individual audience participation is limited to three
minutes per speaker. Please state your name for the record before making your
presentation.
1. Amendment of Investment Policy
Fiscal Impact: A modest increase in interest earnings is anticipated with
this Policy update.
Recommendation: Committee recommend Draft Resolution amending the
City of Atascadero Investment Policy to the City Council for approval. [City
Treasurer]
Page 2 of 37
C. INDIVIDUAL DETERMINATIONS:
1. Chair
2. Vice Chair
3. Treasurer
4. City Staff
ADJOURN
Page 3 of 37
ITEM NUMBER: FC A-1
DATE: 08/27/20
Atascadero Finance Committee
May 30, 2019
Page 1 of 2
CITY OF ATASCADERO
FINANCE COMMITTEE
DRAFT MINUTES
Thursday, May 30, 2019
3:00 p.m.
Atascadero City Hall – Conference Room 306
6500 Palma Avenue, Atascadero, California
CALL TO ORDER:
Chairperson Bourbeau called the meeting to order at 3:07 p.m.
PRESENT: COMMITTEE MEMBERS: Charles Bourbeau, Chair
Susan Funk, Vice Chair
Gere Sibbach
Rachelle Rickard
Jeri Rangel
ABSENT: COMMITTEE MEMBERS: None
ALSO PRESENT: Amanda Muther, Deputy City Clerk
Cindy Chavez, Deputy Administrative Services Director
A. CONSENT CALENDAR:
1. Finance Committee Draft Action Minutes – May 23, 2019
Recommendation: Committee approve the Draft Action Minutes of the
May 23, 2019 Finance Committee Meeting. [City Clerk]
Motion: By Vice Chairperson Funk and seconded by Committee Member Sibbach
to approve the Consent Calendar.
Motion passed 5:0 by a roll-call vote.
Page 4 of 37
ITEM NUMBER: FC A-1
DATE: 08/27/20
Atascadero Finance Committee
May 30, 2019
Page 2 of 2
PUBLIC COMMENT:
The following citizens spoke during Public Comment: None.
Chairperson Bourbeau closed the PUBLIC COMMENT period.
B. BUSINESS:
1. Budget Review – Operational Funds
Administrative Services Director Rangel distributed handouts (Exhibits A-D) presented the
item and answered questions from the Committee. City Manager Rickard also answered
questions from the Committee.
PUBLIC COMMENT:
Chairperson Bourbeau allowed for public comments and questions during the
Committee’s discussion on this item.
The following citizens spoke during this time: Karen Peterson
Committee Member Sibbach left at 4:59 p.m.
C. INDIVIDUAL DETERMINATIONS: None.
ADJOURN
Chairperson Bourbeau adjourned the meeting at 5:20 p.m.
MINUTES PREPARED BY:
______________________________________
Amanda Muther
Deputy City Clerk
The following exhibits are available for review in the City Clerk’s office:
Exhibit A – Operational Funds handout
Exhibit B – 2019-2020 Supplemental
Exhibit C – General Fund Seven Year Projection
Exhibit D – General Fund History and Projections
APPROVED:
Page 5 of 37
ITEM NUMBER: FC B-1
DATE: 08/27/20
Atascadero Finance Committee
Staff Report – Office of the City Treasurer
Amendment of Investment Policy
RECOMMENDATION:
Committee recommend Draft Resolution amending the City of Atascadero Investment
Policy to the City Council for approval.
DISCUSSION:
The Investment Policy provides guidelines for the prudent investment of funds, outlines
policies for maximizing the efficiency of the City’s cash management system, protects
pooled cash and ultimately enhances the economic status of the City. California
Government Code defines the parameters within which City funds may be invested. The
priorities of the Policy continue to be safety, liquidity, and yield.
The City’s investment portfolio is concentrated primarily in FDIC insured certificates of
deposit, U.S. Government Issues (Agencies) such as Federal Home Loan Bank (FHLB) or
Federal National Mortgage Association (FNMA), Supranational Agency Securities, and the
State Treasurer’s Local Agency Investment Fund (LAIF).
California Government Code Section 53601 (c)-(e) authorizes investments in California
and California Local Agency Municipal Obligations (limited to 30%) and other State
Municipal Obligations (limited to 30%). These are not currently included in the City’s
Policy of authorized investments, but are considered relatively safe investments,
particularly those that are highly rated and those that are General Obligation bonds. In
the current environment, municipal bonds are yielding higher than Agencies or
Certificates of Deposit. Opening up the policy to allow for these investments will provide
more tools to assist the City in maximizing investment returns.
Additionally, the draft update to the Investment Policy calls for removing the maximum
investment in Agencies. Government Code Sections 53601 (b) and (f) allow for these
investments and do not impose a maximum. The City’s Policy separately imposed a
maximum of 40%. Agencies are considered to be among some of the safest instruments,
and can be prudent investments. The City employs a “ladder system” of staggering the
maturity dates of investments. This provides greater diversification in the portfolio,
Page 6 of 37
ITEM NUMBER: FC B-1
DATE: 08/27/20
maintains sufficient liquidity, and stabilizes returns. In some economic environments, it is
beneficial to the City to invest more than 40% of the idle cash in Agencies, particularly in
those maturity dates that correspond with holes in the laddered investment system. Doing
so could potentially increase the city yield without subjecting the City to additional risk.
In addition to the investment-related updates in the draft Investment Policy, additional
clarifying language is proposed in Section II. Investment Authority and Responsibilities.
California Government Code Section 53607 authorizes the City Council to delegate the
investment authority to the City Treasurer on an annual basis. Adoption of the attached
Draft Resolution by City Council delegates such authority. Staff will bring an update of
the Investment Policy to Council for consideration each year hereafter, which will serve
as the Council’s formal delegation of authority to the City Treasurer.
FISCAL IMPACT:
A modest increase in interest earnings is anticipated with this Policy update .
ATTACHMENTS:
1. Draft Resolution–Approving an amendment of the City of Atascadero Investment
Policy.
2. Draft City of Atascadero Investment Policy dated September 8, 2020 (Redline
Version)
Page 7 of 37
ITEM NUMBER: FC B-1
DATE:
ATTACHMENT:
08/27/20
1
DRAFT RESOLUTION
RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF ATASCADERO, CALIFORNIA,
AMENDING THE CITY OF ATASCADERO
INVESTMENT POLICY
WHEREAS, the City Council of the City of Atascadero desires to prudently invest idle
funds of the City to maximize the use of taxpayer funds; and
WHEREAS, California Government Code, Section 53646, requires all local agency
governing boards to adopt an investment policy and requires the Treasurer or Chief Financial
Officer to provide an investment report to the legislative body at least quarterly; and
WHEREAS, the City of Atascadero Investment Policy was last updated in 2017.
NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of
Atascadero:
SECTION 1. Recitals. The foregoing recitals are true and correct and the City Council
so finds and determines.
SECTION 2. Investment Policy. The Investment Policy, attached as Exhibit A to this
Resolution and incorporated herein by this reference, shall become part of this Resolution.
SECTION 3. Approval. The City Council of the City of Atascadero, in a regular session
assembled on _____, 2020, resolved to adopt the City of Atascadero Investment Policy, attached
as Exhibit A to this Resolution and incorporated herein by this reference.
SECTION 4. Effective Date. This Resolution shall take effect upon its adoption and shall
remain in effect until revised by the City Council.
Page 8 of 37
ITEM NUMBER: FC B-1
DATE:
ATTACHMENT:
08/27/20
1
PASSED AND ADOPTED at a regular meeting of the City Council held on the __th day of
________, 2020.
On motion by ________________ and seconded by ____________, the foregoing Resolution
is hereby adopted in its entirety on the following roll call vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
CITY OF ATASCADERO
______________________________
Heather Moreno, Mayor
ATTEST:
______________________________
Lara K. Christensen, City Clerk
APPROVED AS TO FORM:
______________________________
Brian A. Pierik, City Attorney
Page 9 of 37
City of Atascadero
Investment Policy
Dated November 28, 2017September 8, 2020
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 10 of 37
TABLE OF CONTENTS
Page
I. OVERVIEW…………...……………………………………………………………….. 1
Introduction
Scope
General Objectives
Standards of Care
II. INVESTMENT AUTHORITY AND RESPONSIBILITIES.….……………..………. 4
Authorized Investment Officers
Investment Procedures
Internal Control
State Oversight
Conflicts of Interest
III. ELIGIBLE FINANCIAL INSTITUTIONS………………………………………..…... 6
Selection of Eligible Financial Institutions
Safekeeping and Custody
IV. AUTHORIZED INVESTMENTS…………………………………………………….. 8
Investment Types
Due Diligence Requirement
Prohibited Investments
Legislative Changes
V. INVESTMENT
PARAMETERS……………………………………………….…….. 132
Diversification
Maximum Maturities
VI. CASH MANAGEMENT………………………………………………………..……..
143
VII. EVALUATION OF INVESTMENT
PERFORMANCE…………………….………. 154
Benchmark Comparison
VIII. INVESTMENT REPORTING……………………………………….………………. 165
IX. INVESTMENT POLICY REVIEW AND ADOPTION…………………………….. 176
X. APPENDIX
Glossary…..………………………………………………………………… Glossary-1
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 11 of 37
I. OVERVIEW
City of Atascadero Investment Policy 2020 Page 1
INTRODUCTION
The purpose of this document is to provide guidelines for the prudent investment of funds
not required for the immediate needs of the City, and outline policies for maximizing the
efficiency of the City’s cash management system. The ultimate goal is to enhance the
economic status of the City while protecting its pooled cash.
SCOPE
Included in the scope of the City’s investment policy are the following major guidelines
and practices, which are to be used in achieving the City’s primary investment objectives:
Investment Authority and Responsibilities
Eligible Financial Institutions
Authorized Investments
Investment Parameters
Cash Management
Evaluation of Investment Performance
Investment Reporting
Investment Policy Review and Adoption
It is intended that this policy cover all funds and investment activities under the direct
authority of the City. These funds are accounted for in the Annual Financial Report and
include the general fund, special revenue funds, debt service funds, capital project funds,
enterprise funds, internal service funds and agency funds, including any Successor
Agency funds in the City’s pooled cash funds.
Subject to the prior written consent and approval of the City Treasurer and City Manager,
financial assets held and invested by trustees or fiscal agents are excluded from this
policy. However, such assets are nevertheless subject to the regulations established by
the State of California pertaining to investments by local agencies as well as the related
bond indentures.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 12 of 37
I. OVERVIEW (continued)
2
GENERAL OBJECTIVES
The primary objectives of investment activities, in priority order, shall be safety, liquidity,
and yield:
1. Safety
Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation
of capital in the overall portfolio. The objective will be to mitigate credit risk and
interest rate risk.
a. Credit Risk
The City will minimize credit risk, the risk of loss due to the failure of the
security issuer or backer, by:
Limiting investments to the safest types of securities.
Pre-qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which the City will do business.
Diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
b. Interest Rate Risk
The City will minimize the risk that the market value of securities in the
portfolio will fall due to changes in general interest rates, by:
Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby avoiding
the need to sell securities on the open market prior to maturity.
Investing operating funds primarily in shorter-term securities,
money market mutual funds, or similar investment pools.
2. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
structuring the portfolio so that securities mature concurrent with cash needs to
meet anticipated demands (static liquidity). Furthermore, since all possible cash
demands cannot be anticipated, the portfolio should consist largely of securities
with active secondary or resale markets (dynamic liquidity). A portion of the
portfolio will also be placed in money market mutual funds or local government
investment pools, which offer same-day liquidity for short-term funds.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 13 of 37
I. OVERVIEW (continued)
3
GENERAL OBJECTIVES (continued)
3. Yield
The investment portfolio shall be designed with the objective of attaining a market
rate of return throughout budgetary and economic cycles, taking into account the
investment risk constraints and liquidity needs. Return on investment is of
secondary importance compared to the safety and liquidity objectives described
above. The core of investments is limited to relatively low risk securities in
anticipation of earning a fair return relative to the risk being assumed. For
purposes of comparing alternative investments all yields should be converted to a
"money market" equivalent yield. Securities shall not be sold prior to maturity with
the following exceptions:
a. A security with declining credit may be sold early to minimize loss of
principal.
b. A security swap would improve the quality, yield, or target duration in the
portfolio.
c. Liquidity needs of the portfolio require that the security be sold.
d. A capital gain would be realized that better positions the overall portfolio in
achieving investment policy goals.
STANDARDS OF CARE
The City operates its pooled idle cash investments under the “Prudent Person Rule” which
obligates a fiduciary to ensure that investments shall be made:
“…using the judgment and care, under circumstances then prevailing,
which persons of prudence, discretion, and intelligence exercise in the
management of their own affairs, not in regard to speculation but in regard
to the permanent disposition of their funds, considering the probable income
as well as the probable safety of their capital”. (Uniform Prudent Investor
Act)
Investment officers acting in accordance with written procedures and this investment
policy and exercising due diligence shall be relieved of personal responsibility for an
individual security’s credit risk or market price changes, provided deviations from
expectations are reported in a timely fashion and the liquidity and the sale of securities
are carried out in accordance with the terms of this policy.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 14 of 37
II. INVESTMENT AUTHORITY AND RESPONSIBILITIES
4
AUTHORIZED INVESTMENT OFFICERS
California Government Code Section 53601 states that the legislative body of a local
agency (i.e., the City Council) is authorized to invest surplus moneys as specified in that
code section. In accordance with California Government Code Section 53607, this
authority may be delegated to the City Treasurer for a one-year period by the City Council.
Subject to review, the City Council may renew the delegation of authority under this code
section each year. The ultimate responsibility for investment activity shall reside with the
City Council. Idle cash management and investment transactions are the responsibility
of the City Treasurer or designee. The City Council has authorized the following officials
to undertake investment transactions on behalf of the City:
City Treasurer
City Manager
Director of Administrative Services
Deputy Director of Administrative Services
It is the policy of the City for the Director of Administrative Services to manage the
investment activity of the funds of the City. The City Manager and the City Treasurer shall
supervise the activities of the Director of Administrative Services.
The Finance Review Committee may meet to discuss the status of current investments,
strategies for future investment, and other investment matters deemed relevant, and shall
report to the City Council as necessary. The City Attorney shall, as required by
Government Code section 36518, review the bonding requirement for the City Treasurer
upon entering the duties of the Treasurer’s office.
INVESTMENT PROCEDURES
The authorized investment officers as stated above, in accordance with the City of
Atascadero Investment Policy, are responsible for administering an investment program
which:
• Adheres to the Statement of Investment Policy
• Prioritizes safety and liquidity
• Determines risk and optimizes return
• Provides for a system of due diligence in making investment decisions.
INTERNAL CONTROL
The Director of Administrative Services is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the City are protected from
loss, theft or misuse. The internal control structure shall be designed to provide
reasonable assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits likely
to be derived and (2) the valuation of costs and benefits requires estimates and judgments
by management.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 15 of 37
II. INVESTMENT AUTHORITY AND RESPONSIBILITIES (continued)
5
INTERNAL CONTROL (continued)
Accordingly, the Director of Administrative Services shall establish a process for an
annual independent review by an external auditor to assure compliance with policies and
procedures. The internal controls shall address the following points:
Control of collusion
Separation of transaction authority from accounting and record keeping
Custodial safekeeping
Avoidance of physical delivery securities
Clear delegation of authority to subordinate staff members
Written confirmation of transactions for investments and wire transfers
Development of a wire transfer agreement with the lead bank and third party
custodian
STATE OVERSIGHT
The City shall comply with the regulations established by the State of California pertaining
to investments.
CONFLICTS OF INTEREST
The City adopts the following policy concerning conflicts of interest:
1. 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.
2. Officers and employees involved in the investment process shall disclose to the
City Clerk any material financial interest in financial institutions that conduct
business with the City of Atascadero and they shall further disclose any large
personal financial/investment positions that could be related to the
performance of the City’s portfolio.
3. Officers shall refrain from undertaking personal investment transactions with
the same individual with which business is conducted on behalf of the City.
4. In making investment decisions, the Investment Officers shall be guided by the
recommendations of the Finance Review Committee and avoid the undue
influence of individual City officers and officials.
5. Investments are prohibited in certificates of deposit of s tate or federal credit
unions if any city officer, city manager or city fiscal officer serves on the credit
union board or in any key committee positions.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 16 of 37
III. ELIGIBLE FINANCIAL INSTITUTIONS
6
SELECTION OF ELIGIBLE FINANCIAL INSTITUTIONS
Broker/dealers and safekeeping/custodial agents who d esire to become qualified for
investment transactions must provide the following documents (as appropriate) for annual
review by the Director of Administrative Services:
Audited financial statements
Proof of National Association of Securities Dealers (NASD) certification
Proof of state registration
Completed broker/dealer questionnaire
Certification of having read and understood and agreeing to comply with the
City’s investment policy.
In selecting financial institutions for deposit or investment of funds, the authorized
Investment Officers shall consider the credit-worthiness of the institution.
Deposits The City will only deposit funds with an institution that has a rating of at
least “A” as assigned by an established rating service based on quarterly financial
information provided by the Federal Reserve Board and the Federal Home Loan Bank
Board (i.e., The Financial Directory). Ratings will be monitored on a quarterly basis
and any downgrade in rating below “A” will be reported to the Finance Review
Committee together with a recommendation for possible action.
Brokers/Dealer Investments must be purchased directly from the issuer, from an
institution licensed by the state as a broker-dealer, from a member of a federally
regulated securities exchange, or from a brokerage firm designated as a primary
government dealer by the Federal Reserve Bank. Broker/dealers shall be selected
by creditworthiness (e.g., a minimum capital requirement of $10,000,000 and at least
five years of operation).
Safekeeping and Custodial Institutions Safekeeping and custodial institutions shall
be selected on the basis of credit worthiness with a minimum of capitalization of
$100,000,000 and at least 5 years of operation. Safekeeping and custodial institutions
must be fiduciaries of the City and independent of any broker/dealers. All safekeeping
and custodial arrangements shall require written agreements. All safekeeping and
custodial agreements shall be reviewed by the City Treasurer and Director of
Administrative Services and approved by the City Attorney prior to conducting any
investment activities.
From time to time, the investment officer may choose to invest in instruments offered by
minority and community financial institutions. In such situations, a waiver to the above
criteria may be granted. Deposits covered by insurance can be exempted from the
Safekeeping and Custodial Institutions clause related to credit worthiness. All terms and
relationships will be fully disclosed prior to purchase and will be report ed to the
appropriate entity on a consistent basis and should be consistent with state or local law.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 17 of 37
III. ELIGIBLE FINANCIAL INSTITUTIONS (continued)
7
SELECTION OF ELIGIBLE FINANCIAL INSTITUTIONS (continued)
These types of investment purchases should be approved by City Council in advance.
The authorized Investment Officers will maintain a file of the broker/dealers and
authorized safekeeping/custodial institutions with which it is currently doing business
which will include the firm name, contact person, telephone number, and current audited
financial statements.
SAFEKEEPING AND CUSTODY
All trades where applicable will be executed by delivery vs. payment (DVP) to ensure that
securities are deposited in an eligible financial institution prior to the release of funds. A
third-party custodian as evidenced by safekeeping receipts will hold securities.
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 18 of 37
IV. AUTHORIZED INVESTMENTS
8
INVESTMENT TYPES
The California Government Code Sections 16429.1 and 53601 govern investment of City
funds. Investments may not have a term or maturity at the time of investment of longer
than that authorized by Section 53601 or five years unless the City Council has granted
prior express authority.
As previously stated, the City operates its investments under the prudent personman rule
(Civil Code Section 2261, et. seq.), except where more specifically restricted. This affords
the City a broad spectrum of investments, so long as the investment is deemed prudent
and is allowable under current legislation of the State of California (Government Code
Section 53600, et. seq.) and applicable City trust agreements, if any.
It should be noted that while the Government Code specifies the maximum percentage
of the portfolio that may be held in each type of investment at any one time, fluctuations
in the portfolio balance will prevent strict adherence to such restrictions. Therefore,
percentage limitations shall apply to investments at the time of purchase.
Consistent with the GFOA Policy Statement on State and Local Laws Concerning
Investment Practices, the following investments will be permitted by this polic y and are
those defined by state and local law where applicable:
1. State Treasurer’s Local Agency Investment Fund (LAIF)
Government Code Section 16429.1: The City may invest in the Local Agency
Investment Fund. LAIF is a diversified investment pool administered by the
California State Treasurer. Monies invested with LAIF are pooled with State
monies in order to earn the maximum rate of return consistent with safe and
prudent treasury management.
LAIF information including LAIF policies and restrictions shall be available in the
City’s Administrative Services Department. A thorough investigation of the pool is
required on a continual basis. (See Due Diligence Requirement on page 1110.)
2. U.S. Government Issues
Government Code Sections 53601 (b) and (f): A maximum forty percent (40%) of
theThe City’s portfolio may be invested in U.S. government obligations, U.S.
government agency obligations, and U.S. government instrumentality obligations,
which have a liquid market with a readily determinable market value.
3. California and California Local Agency Municipal Obligations
Government Code Sections 53601 (c) and (e): The City may invest in oObligations
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. In addition, these securities
shall be rated in a rating category of “A” or its equivalent or higher by a nationally
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 19 of 37
IV. AUTHORIZED INVESTMENTS
9
INVESTMENT TYPES (continued)
3. California and California Local Agency Municipal Obligations (cont.)
recognized statistical rating organization (NRSRO). Purchase of California and
California local agency municipal obligations, together with other state municipal
obligations, may not exceed thirty percent (30%) of the City's investment portfolio.
4. Other State Municipal Obligations
Government Code Section 53601 (d): The City may invest in rRegistered treasury
notes or bonds of any of the other 49 United 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 the other 49 United States, in addition to California
(Government Code section 53601[d]). In addition, these securities shall be rated
in a rating category of “A” or its equivalent or higher by a NRSRO. Purchase of
other state municipal obligations, together with California and California local
agency municipal obligations, may not exceed thirty percent (30%) of the City's
investment portfolio
35. Bankers Acceptances
Government Code Section 53601 (g): Up to forty percent (40%) of the City’s
portfolio may be invested in Bankers Acceptances which are defined
as bills of exchange or time drafts, drawn on and accepted by a commercial
ITEM NUMBER: FC B-1
DATE: 08/27/20
ATTACHMENT: 1A
Page 20 of 37
IV. AUTHORIZED INVESTMENTS (continued)
10
INVESTMENT TYPES (continued)
3. Bankers Acceptances (continued)
bank, which are eligible for purchase by the Federal Reserve System, although no
more than thirty percent (30%) of the portfolio may be invested in Bankers
Acceptances with any one commercial bank. Additionally, the maturity periods
cannot exceed 180 days.
46. Commercial Paper
Government Code Section 53601 (h): A maximum of twenty five percent (25%) of
the City’s portfolio may be invested in highest tier (e.g. A -1, P-1, F-1 or D-1 or
higher) commercial paper as rated by Moody’s or Standard and Poor’s rating
service. Issuing corporations must be organized and operating in the United
States, have in excess of $500 million total assets, and have at least an “A” rating
(by Moody’s or Standard and Poor’s) on debt other than commercial paper. The
maturity period cannot exceed 270 days. Purcha ses of eligible commercial paper
may not exceed ten percent (10%) of the outstanding paper of an issuing
corporation.
INVESTMENT TYPES (continued)
57. Certificates of Deposit and Passbook Savings Accounts
A maximum of thirty percent (30%) of the City’s portfolio may be invested in
certificates of deposit or passbook savings account. The minimum requirements
for Certificate of Deposit investments shall be:
Investments and accrued interest shall never exceed the FDIC insurance
limit in any one institution.
Qualified institutions must have a minimum equity ratio of 6% and a
minimum capitalization of $10,000,000.
Purchases of negotiable certificates of deposit, issued by a nationally or state -
chartered bank or a state or federal association, or by a state licensed branch of a
foreign bank, may not exceed 30 percent of the agency's surplus money, which
may be invested pursuant to this section, per Government Code Section 53601.
Negotiable certificates of deposit may be purchased in the secondary mar ket at a
discount but never at a premium, since the premium would not be FDIC insured.
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IV. AUTHORIZED INVESTMENTS (continued)
11
California law requires that public funds be collateralized by maintaining with the
agent of the depository government securities having a market value of at least
one hundred ten percent (110%) of the value of the public fund accounts. The
collateralization requirement may be waived to the extent that funds are federally
insured. For deposits equivalent to the maximum insured amount, security may
also be waived for interest accrued on the deposit provided the interest is
computed by the depository on the average daily balance of the deposits, paid
monthly and computed on a 360-day basis.
INVESTMENT TYPES (continued)
68. Money Market Mutual Funds
Government Code Section 53601 (l): 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-l et seq.) shall not exceed twenty percent (20%) of the
agency's surplus money that may be invested pursuant to this section. The fund
shall be managed by a registered or exempt investment advisor with not less than
5 years’ experience managing money market mutual funds with as sets under
management in excess of five hundred million dollars ($5 00,000,000). The fund
shall have attained the highest ranking or the highest letter and numerical rating
provided by not less than two nationally recognized statistical rating
organizationsNRSROs. No more than ten percent (10%) of the agency's surplus
funds may be invested in shares of beneficial interest of any one money market
mutual fund.
INVESTMENT TYPES (continued)
79. Supranational Agency Securities
Government Code Section 53601 (q): Up to thirty percent (30%) of the City’s
portfolio may be invested in United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development, International Finance
Corporation, or Inter-American Development Bank, with a maximum remaining
maturity of five years or less, and eligible for purchase and sale within the United
States. Investments under this paragraph shall be rated in a rating category of “AA”
or its equivalent or better by an nationally recognized statistical rating organization
(NRSRO). No more than 10% of the City’s portfolio shall be invested in obligations
of any one bank.
DUE DILIGENCE REQUIREMENT
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IV. AUTHORIZED INVESTMENTS (continued)
12
As stated, a thorough investigation of an investment pool or mutual fund is required prior
to investing and on a continual basis. At a minimum, the following information shall be
reviewed periodically for each pool and/or mutual fund:
1. A description of eligible investment securities, an d a written statement of
investment policy and objectives.
2. A description of interest calculations, how interest is distributed, and how gains
and losses are treated.
3. A description of how these securities are safeguarded (including the settlement
process), and how often these securities are priced and the program audited.
4. A description of who may invest in the program, how often, and the size of
deposits and withdrawals.
DUE DILIGENCE REQUIREMENT (continued)
5. A schedule for receiving statements and portfolio listings.
6. Whether reserves, retained earnings, etc. are utilized by the pool/fund.
7. A fee schedule and when and how fees are assessed.
8. Whether the pool/fund is eligible for bond proceeds and/or will it accept such
proceeds.
PROHIBITED INVESTMENTS
The City of Atascadero shall not invest in any investment instrument/pool/fund unless
specifically allowed under the “Investment Types” section of this policy.
The City of Atascadero shall comply with Government Code Section 53601.6 that states
in pertinent part, “(a) A local agency shall not invest any funds pursuant to this article in
inverse floaters, range notes, or mortgage-derived interest-only strips. (b) A local agency
shall not invest any funds pursuant to this article in any security that could result in zero
interest accrual if held to maturity.”
LEGISLATIVE CHANGES
Any State of California legislative action that further restricts allowable maturities,
investment types or percentage allocations will be incorporated into the City of
Atascadero Investment Policy and supersede any and all previous applicable language.
If the City is holding an investment that is subsequently prohibited by a legislative change,
the City may hold that investment, if it is deemed prudent by the Finance Review
Committee, until the maturity date to avoid an unnecessary loss.
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V. INVESTMENT PARAMETERS
13
DIVERSIFICATION
The investments shall be diversified by:
Limiting investments to avoid over concentration in securities from a specific
issuer or business sector (excluding Local Agency Investment Fund and U.S.
Treasury securities),
Limiting investment in securities that have higher credit risks,
Investing in securities with varying maturities, and
Continuously investing a portion of the portfolio in readily available funds such
as local government investment pools (LAIF), or money market funds to ensure
that appropriate liquidity is maintained in order to meet ongoing obligations.
MAXIMUM MATURITIES
In order to minimize the impact of market risk, it is intended that all investments will be
held to maturity.
To the extent possible, the City shall attempt to match its investments with anticipated
cash flow requirements. Unless matched to a specific cash flow, the City will not directly
invest in securities maturing more than five (5) years from the date of purchase or in
accordance with state and local statutes and ordinances. The Finance Review
Committee may meet to review weighted average maturity limitations (which often range
from 90 days to 2 years), consistent with investment objectives and e conomic conditions.
Investments may be sold prior to maturity for cash flow, appreciation purposes or in order
to limit losses; however, no investment shall be made based solely on earnings
anticipated from capital gains.
Because of inherent difficulties in accurately forecasting cash flow requirements, a portion
of the portfolio should be continuously invested in readily available funds.
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VI. CASH MANAGEMENT
14
In order to obtain a reasonable return on public funds, the following cash management
practice will be followed:
1. Maintain maximum investment of all City funds not required to meet immediate
cash flow needs.
2. Except for cash in certain restricted and special funds, the City will consolidate
cash balances from all funds to maximize investment earnings. Investment
income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles.
3. Maximize the City’s cash flow through immediate deposit of all receipts, use of
direct deposit when available, and appropriate timing of payment to vendors.
4. Daily cash flow management shall be the responsibility of the Director of
Administrative Services in conjunction with the City Treasurer.
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VII. EVALUATION OF INVESTMENT PERFORMANCE
15
The investment portfolio will be designed to obtain a market avera ge rate of return during
budgetary and economic cycles, taking into account the City’s investment risk constraints
and cash flow needs.
BENCHMARK COMPARISON
The investment portfolio shall be structured to optimize the return given the risk
constraints and cash flow needs.
Investment activity activity summary reports shall be generated on a monthly basis for
presentation to the City Council.
In evaluating the performance of the City’s portfolio in complying with this policy, it is
expected that yields on City investments will regularly meet or exceed the average return
on a two-year U.S. Treasury Note. However, the Finance Review Committee for
evaluation purposes considers a variance of .5% positive or negative from the benchmark
reasonable.
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VIII. INVESTMENT REPORTING
16
REPORTS TO CITY COUNCIL
The City Treasurer shall prepare and submit a quarterly investment report to the City
Council. This report will include the following elements relative to the investments held at
quarter-end.
1. Face value.
2. Security description.
3. Coupon rate.
4. Maturity date.
5. Investment rating.
6. Investment type.
7. Purchase date.
8. Cost of security.
9. Yield-to-Maturity
10. Estimated market value.
11. Amortized premium/discount.
12. Unrealized Gain <Loss>.
13. Listing of investment by maturity.
14. Gains or Losses on the sale of securities not held to maturity.
15. Bank failures.
16. Investment ratings downgraded by Moody’s or Standard and Poor’s.
17. Statement relating the report to the Statement of Investment Policy.
18. Statement that there are sufficient funds to meet the next six months’
obligations.
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IX. INVESTMENT POLICY REVIEW AND ADOPTION
17
The Statement of Investment Policy shall be submitted as needed to the City Council for
adoption. The policy shall be reviewed periodically to ensure its consistency with the
overall objectives of the City and its relevance to current law and financial and economic
trends. Any modifications made thereto must be approved by the City Council.
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APPENDIX: Glossary
Glossary-1
The following is a glossary* of key investing terms.
Accrued Interest - The accumulated interest due on a bond as of the last interest
payment made by the issuer.
Agency - A debt security issued by a federal or federally sponsored agency. Federal
agencies are backed by the full faith and credit of the U.S. Government. Federally
sponsored agencies (FSAs) are backed by each particular agency with a market
perception that there is an implicit government guarantee. An example of federal agency
is the Government National Mortgage Association (GNMA). An example of a FSA is the
Federal National Mortgage Association (FNMA).
Amortization - The systematic reduction of the amount owed on a debt issue through
periodic payments of principal.
Average Life - The average length of time that an issue of serial bonds and/or term bonds
with a mandatory sinking fund feature is expected to be outstanding.
Basis Point - A unit of measurement used in the valuation of fixed -income securities
equal to 1/100 of 1 percent of yield, e.g., “1/4” of 1 percent is equal to 25 basis points.
Bid - The indicated price at which a buyer is willing to purchase a security or commodity.
Book Value - The value at which a security is carried on the inventory lists or other
financial records of an investor. The book value may differ significantly from the security’s
current value in the market.
Callable Bond - A bond issue in which all or part of its outstanding principal amount may
be redeemed before maturity by the issuer under specified conditions.
Call Price - The price at which an issuer may redeem a bond prior to maturity. The price
is usually at a slight premium to the bond’s original issue price to compensate the holder
for loss of income and ownership.
Call Risk - The risk to a bondholder that a bond may be redeemed prior to maturity.
Cash Sale/Purchase - A transaction that calls for delivery and payment of securities on
the same day that the transaction is initiated.
*This glossary has been adapted from an article, entitled “Investment terms for everyday use,” that appeared in the April 5, 1996,
issue of Public Investor, GFOA’s subscription investment newsletter.
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APPENDIX: Glossary (continued)
Glossary-2
Collateralization - Process by which a borrower pledges securities, property, or other
deposits for the purpose of securing the repayment of a loan and/or security.
Commercial Paper - An unsecured short-term promissory note issued by corporations,
with maturities ranging from 2 to 365 days.
Convexity - A measure of a bond’s price sensitivity to changing interest rates. A high
convexity indicates greater sensitivity of a bond’s price to interest rate changes.
Coupon Rate - The annual rate of interest received by an investor from the issuer of
certain types of fixed-income securities. Also known as the “interest rate”.
Credit Quality - The measurement of the financial strength of a bond issuer. This
measurement helps an investor to understand an issuer’s ability to make timely interest
payments and repay the loan principal upon maturity. Generally, the higher the credit
quality of a bond issuer, the lower the interest rate paid by the issuer because the ris k of
default is lower. Credit quality ratings are provided by nationally recognized rating
agencies.
Credit Risk - The risk to an investor that an issuer will default in the payment of interest
and/or principal on a security.
Current Yield (Current Return) - A yield calculation determined by dividing the annual
interest received on a security by the current market price of that security.
Delivery Versus Payment (DVP) - A type of securities transaction in which the purchaser
pays for the securities when they are delivered either to the purchaser or his/her
custodian.
Derivative Security - Financial instrument created from, or whose value depends upon,
one or more underlying assets or indexes of asset values.
Discount - The amount by which the par value of a security exceeds the price paid for
the security.
Diversification - A process of investing assets among a range of security types by sector,
maturity, and quality rating.
Duration - A measure of the timing of the cash flows, such as the interest payments
and the principal repayment, to be received from a given fixed -income security. This
calculation is based on three variables: term to maturity, coupon rate, and yield to
maturity. The duration of a security is a useful indicator of its price volatility for given
changes in interest rates.
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APPENDIX: Glossary (continued)
Glossary-3
Fair Value - The amount at which an investment could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Federal Funds (Fed Funds) - Funds placed in Federal Reserve banks by depository
institutions in excess of current reserve requirements. These depository institutions may
lend fed funds to each other overnight or on a longer basis. They may also transfer funds
among each other on a same-day basis through the Federal Reserve banking system.
Fed funds are considered to be immediately available funds.
Federal Funds Rate - Interest rate charged by one institution lending federal funds to the
other.
Government Securities - An obligation of the U.S. government, backed by the full faith
and credit of the government. These securities are regarded as the highest quality of
investment securities available in the U.S. securities market. See “Treasury Bills, Notes,
and Bonds.”
Interest Rate - See “Coupon Rate”.
Interest Rate Risk - The risk associated with declines or rises in interest rates that cause
an investment in a fixed-income security to increase or decrease in value.
Internal Controls - An internal control structure designed to ensure that the assets of the
entity are protected from loss, theft, or misuse. The internal control structure is designed
to provide reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that 1) the cost of a control should not exceed the
benefits likely to be derived and 2) the valuation of costs and benefits requires estimates
and judgments by management. Internal controls should address the following points:
1. Control of collusion - Collusion is a situation where two or more employees are working
in conjunction to defraud their employers.
2. Separation of transaction authority from accounting and record keeping - By
separating the person who authorizes or performs the transaction from the people who
record or otherwise account for the transaction, a separation of duties is achieved.
3. Custodial safekeeping - Securities purchased from any bank or dealer including
appropriate collateral (as defined by state law) shall be placed with an independent
third party for custodial safekeeping.
4. Avoidance of physical delivery securities - Book-entry securities are much easier to
transfer and account for since actual delivery of a document never takes place.
Delivered securities must be properly safeguarded against loss or destruction. The
potential for fraud and loss increases with physically delivered securities.
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APPENDIX: Glossary (continued)
Glossary-4
Internal Controls (continued)
5. Clear delegation of authority to subordinate staff members - Subordinate staff
members must have a clear understanding of their authority and responsibilities to
avoid improper actions. Clear delegation of authority also preserves the internal
control structure that is contingent on the various staff positions and their respective
responsibilities.
6. Written confirmation of transactions for investments and wire transfers - Due to the
potential for error and improprieties arising from telephone and electronic transactions,
all transactions should be supported by written communications and approved by the
appropriate person. Written communications may be via fax if on letterhead and if the
safekeeping institution has a list of authorized signatures.
7. Development of a wire transfer agreement with the lead bank and third -party custodian
- The designated official should ensure that an agreement will be entered into and will
address the following points: controls, security provisions, and responsibilities of each
party making and receiving wire transfers.
Inverted Yield Curve - A chart formation that illustrates long-term securities having lower
yields than short-term securities. This configuration usually occurs during periods of high
inflation coupled with low levels of confidence in the economy and a restrictive monetary
policy.
Investment Company Act of 1940 - Federal legislation which sets the standards by
which investment companies, such as mutual funds, are regulated in the areas of
advertising, promotion, performance reporting requirements, and securities valuations.
Investment Policy - A concise and clear statement of the objectives and parameters
formulated by an investor or investment manager for a portfolio of investment securities.
Investment-grade Obligations - An investment instrument suitable for purchase by
institutional investors under the prudent person rule. Investment -grade is restricted to
those obligations rated BBB or higher by a rating agency.
Liquidity - An asset that can be converted easily and quickly into cash.
Local Agency Investment Fund (LAIF) - The Local Agency Investment Fund (LAIF) is
a voluntary program created by statute; began in 1977 as an investment alternative for
California's local governments and special districts and it continues today. The enabling
legislation for the LAIF is Section 16429.1 et seq. of the California Government Code.
This program offers local agencies the opportunity to participate in a major portfolio, which
invests hundreds of millions of dollars, using the investment expertise of the State
Treasurer's Office investment staff at no additional cost to the taxpayer. This in-house
management team is comprised of civil servants who have each worked for the State
Treasurer's Office for an average of 20 years.
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APPENDIX: Glossary (continued)
Glossary-5
Mark-to-market - The process whereby the book value or collateral value of a security is
adjusted to reflect its current market value.
Market Risk - The risk that the value of a security will rise or decline as a result of
changes in market conditions.
Market Value - Current market price of a security.
Maturity - The date on which payment of a financial obligation is due. The final stated
maturity is the date on which the issuer must retire a bond and pay the face value to the
bondholder. See “Weighted Average Maturity.”
Money Market Mutual Fund - Mutual funds that invest solely in money market
instruments (short-term debt instruments, such as Treasury bills, commercial paper,
bankers’ acceptances, repos and federal funds).
Mutual Fund - An investment company that pools money and can invest in a variety of
securities, including fixed-income securities and money market instruments. Mutual
funds are regulated by the Investment Company Act of 1940 and must abide by the
following Securities and Exchange Commission (SEC) disclosure guidelines:
1. Report standardized performance calculations.
2. Disseminate timely and accurate information regarding the fund’s holdings,
performance, management and general investment policy.
3. Have the fund’s investment policies and activities supervised by a board of trustees,
which are independent of the adviser, administrator or other vendor of the fund.
4. Maintain the daily liquidity of the fund’s shares.
5. Value their portfolios on a daily basis.
6. Have all individuals who sell SEC-registered products licensed with a self-regulating
organization (SRO) such as National Association of Securities Dealers (NASD).
7. Have an investment policy governed by a prospectus that is updated and filed by the
SEC annually.
Mutual Fund Statistical Services - Companies that track and rate mutual funds, e.g.,
IBC/Donoghue, Lipper Analytical Services, and Morningstar.
National Association of Securities Dealers (NASD) - A self-regulatory organization
(SRO) of brokers and dealers in the over-the-counter securities business. Its regulatory
mandate includes authority over firms that distribute mutual fund shares as well as other
securities.
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APPENDIX: Glossary (continued)
Glossary-6
Net Asset Value - The market value of one share of an investment company, such as a
mutual fund. This figure is calculated by totaling a fund’s assets which includes securities,
cash, and any accrued earnings, subtracting this from the fund’s liabilities and dividing
this total by the number of shares outstanding. This is calculated once a day based on
the closing price for each security in the fund’s portfolio. (See below.)
[(Total assets) - (Liabilities)]/ (Number of shares outstanding)
No Load Fund - A mutual fund that does not levy a sales charge on the purchase of its
shares.
Nominal Yield - The stated rate of interest that a bond pays its current owner, based on
par value of the security. It is also known as the “coupon,” “coupon rate,” or “interest
rate.”
NRSRO - Nationally recognized statistical rating organization
Offer - An indicated price at which market participants are willing to sell a security or
commodity. Also referred to as the “Ask price.”
Par - Face value or principal value of a bond, typically $1,000 per bond.
Positive Yield Curve - A chart formation that illustrates short-term securities having lower
yields than long-term securities.
Premium - The amount by which the price paid for a security exceeds the security’s par
value.
Prime Rate - A preferred interest rate charged by commercial banks to their most
creditworthy customers. Many interest rates are keyed to this rate.
Principal - The face value or par value of a debt instrument. Also may refer to the amount
of capital invested in a given security.
Prospectus - A legal document that must be provided to any prospective purchaser of a
new securities offering registered with the SEC. This can include information on the
issuer, the issuer’s business, the proposed use of proceeds, the experience of the issuer’s
management, and certain certified financial statements.
Prudent Person Rule - An investment standard outlining the fiduciary responsibilities of
public funds investors relating to investment practices.
Regular Way Delivery - Securities settlement that calls for delivery and payment on the
third business day following the trade date (T+3); payment on a T+1 basis is currently
under consideration. Mutual funds are settled on a same day basis; government
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APPENDIX: Glossary (continued)
Glossary-7
securities are settled on the next business day.
Reinvestment Risk - The risk that a fixed-income investor will be unable to reinvest
income proceeds from a security holding at the same rate of return currently generated
by that holding.
Repurchase Agreement (Repo or RP) - An agreement of one party to sell securities at
a specified price to a second party and a simultaneous agreement of the first party to
repurchase the securities at a specified price or at a specified later date.
Reverse Repurchase Agreement (Reverse Repo) - An agreement of one party to
purchase securities at a specified price from a second party and a simultaneous
agreement by the first party to resell the securities at a specified price to the second party
on demand or at a specified date.
Rule 2a-7 of the Investment Company Act - Applies to all money market mutual funds
and mandates such funds to maintain certain standards, including a 13 -month maturity
limit and a 90-day average maturity on investments, to help maintain a constant net asset
value of one dollar ($1.00).
Safekeeping - Holding of assets (e.g., securities) by a financial institution.
Serial Bond - A bond issue, usually of a municipality, with various maturity dates
scheduled at regular intervals until the entire issue is retired.
Sinking Fund - Money accumulated on a regular basis in a separate custodial account
that is used to redeem debt securities or preferred stock issues.
Supranational Agency – Global entity whose membership transcends national
boundaries and whose constituent countries share in decision making, such as the
International Bank of Reconstruction and Development (IBRD) or the World Bank, whose
purpose is to promote economic development.
Swap - Trading one asset for another.
Term Bond - Bonds comprising a large part or all of a particular issue that come due in
a single maturity. The issuer usually agrees to make periodic payments into a sinking
fund for mandatory redemption of term bonds before maturity.
Total Return - The sum of all investment income plus changes in the capital value of the
portfolio. For mutual funds, return on an investment is composed of share price
appreciation plus any realized dividends or capital gains. This is calculated by taking the
following components during a certain period.
(Price appreciation) + (Dividends paid) + (Capital gains) = Total Return
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APPENDIX: Glossary (continued)
Glossary-8
Treasury Bills - Short-term U.S. government non-interest bearing debt securities with
maturities of no longer than one year and issued in minimum denominations of $10,000.
Auctions of three- and six-month bills are weekly, while auctions of one-year bills are
monthly. The yields on these bills are monitored closely in the money markets for signs
of interest rate trends.
Treasury Notes - Intermediate U.S. government debt securities with maturities of one to
ten years and issued in denominations ranging from $1,000 to $1,000,000 or more.
Treasury Bonds - Long-term U.S. government debt securities with maturities of ten years
or longer and issued in minimum denominations of $1,000. Currently, the lon gest
outstanding maturity for such securities is 30 years.
Uniform Net Capital Rule - SEC Rule 15C3-1 outlining capital requirements for
broker/dealers.
Volatility - A degree of fluctuation in the price and valuation of securities.
“Volatility Risk” Rating - A rating system to clearly indicate the level of volatility and
other non-credit risks associated with securities and certain bond funds. The rating for
bond funds range from those that have extremely low sensitivity to changing market
conditions and offer the greatest stability of the returns (“aaa” by S&P; “V-1” by Fitch) to
those that are highly sensitive with currently identifiable market volatility risk (“ccc -“ by
S&P, “V-10” by Fitch).
Weighted Average Maturity (WAM) - The average maturity of all the securities that
comprise a portfolio. According to SEC rule 2a -7, the WAM for SEC registered money
market mutual funds may not exceed 90 days and no one security may have a maturity
that exceeds 397 days.
When Issued (WI) - A conditional transaction in which an authorized new security has
not been issued. All “when issued” transactions are settled when the actual security is
issued.
Yield - The current rate of return on an investment security generally expressed as a
percentage of the security’s current price.
Yield-to-call (YTC) - The rate of return an investor earns from a bond assuming the bond
is redeemed (called) prior to its nominal maturity date.
Yield-to-maturity - The rate of return yielded by a debt security held to maturity when
both interest payments and the investor’s potential capital gain or loss are included in the
calculation of return.
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APPENDIX: Glossary (continued)
Glossary-9
Zero-coupon Securities - Security that is issued at a discount and makes no periodic
interest payments. The rate of return consists of a gradual accretion of the principal of
the security and is payable at par upon maturity.
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