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Minutes - Investment - 2008-05-22• COSTA MESA SANITARY DISTRICT MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING May 22, 2008 CALL TO ORDER The meeting was called to order at 5:00 p.m. by Treasurer /Finance Director Marc Davis ROLL CALL Committee Members Present: Director James Ferryman (rotating committee member) Director Bob Ooten (rotating committee member) Mr. Rob Harriers, Manager /District Engineer Staff Members Present: Mr. Marc Davis, Treasurer /Finance Director Mr. Thomas Fauth, Assistant Manager Ms. Joan Revak, Board Secretary/Program Manager /Clerk of the District Ms. Teresa Gonzalez, Accountant NEW BUSINESS Review of Treasurer's Report Mr. Davis reported that the District's portfolio is earning approximately 2.877% as of April 2008. Mr. Davis reported that as of April 30th only one security remained in the portfolio other than money deposited with LAIF and with Bank of New York, the District's third party custodian. This was as a result of calls made by the bond issuers due to our investments having higher interest rates than the current market. The final security will be maturing next week. The District is now actively attempting to purchase securities. Money will be withdrawn from LAIF and used to purchase longer term securities. The District has the flexibility to purchase securities now because everything is liquid. It is anticipated that the investment settlements will begin by the end of May; therefore, securities will be reported on the May Treasurer's Report. Mr. Harriers asked if longer term securities would have a higher yield because of interest rates possibly going down. Mr. Davis replied that the yields are unknown at this time until we obtain quotes. The yields will depend on whether we will be buying new securities, which the pessimistic view is to assume that long term rates will not be good, or we could be buying securities on the secondary market, which we would pay a premium for, but earn a higher rate. MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING May 22, 2008 Page 2 Mr. Davis discussed the process for purchasing new securities. The Treasurer obtains three quotes from approved broker /dealers that already have our investment policy and understand what we are allowed to invest in. Mr. Davis will call three broker /dealers and communicate to them the parameters that he is interested in. The broker /dealers will look at their inventory and what is out on the street and will come back with a variety of options. He will then compare and make a selection at that time. Once a selection is made, Mr. Davis will notify the District's third party custodian with the information of the security to be purchased. The money will be wired to the third party custodian and the party from whom we want to purchase the security will forward the security to the third party custodian. The third party custodian then matches the information received from the District and security received. If everything matches then the money is released to buy the security. Mr. Hamers identified that funds in the Money Market (Sweep Account) were in excess of the 20% investment policy limit. Mr. Davis replied that the excess funds were a result of the various unanticipated bondcalls and that by policy if we go into a situation where something falls out of compliance, we do not have to take immediate action to rectify situation, we just have to monitor it so that we are not in the situation where we are forced to react to something that was out of our control. Review of CalTrust Investment Pool Upon request by Director Schafer, Mr. Davis researched the CaITRUST Investment Pool (CaITRUST) as a possible investment option. Mr. Davis reported that CaITRUST is an alternative to LAIF. It originally started as an alternative for the Cal State system and subsequently opened to include other public agencies. The Pool has approximately $700 million in total assets. CaITRUST offers three fund options: Short-Term, Medium -Term and Long -Term Funds. Presently there are no participants in the Long -Term Fund and participation in this fund would be custom tailored. The Short- Term Fund allows for an unlimited number of deposits and withdrawals and immediate access to the funds, while the Medium -Term Fund limits transactions to once a month. Mr. Davis compared CaITRUST to LAIF. He reported that in the month of February 2008 LAIF, had a rate of return of about 3.8 %, the CaITRUST . Short-Term Fund had a rate of return of about 3.4% and the Medium -Term Fund had a rate of return of 4.4 %. It appears that by participating in CaITRUST we could have some investing alternatives. Because of the withdrawal limitation in the Medium -Term Fund, a cash flow analysis would be required prior to investing in this fund. If the Board decides to participate in this pool then the steps to take would be to include the CaITRUST investment pool as an investing alternative on the District's Investment Policy and secondly adopt a resolution authorizing Treasurer to place funds in the pool. MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING May 22, 2008 Page 3 Director Ferryman questioned if yield was similar to LAIF and whether the pool is insured. Mr. Davis replied that the different funds available give the District more flexibility and that funds in the CaITRUST, as well as LAIF, are not insured per say, but reassured Director Ferryman that all CaITRUST funds comply with the limits and restrictions placed on local agency investments by the California Government Code. The Short -Term Fund's yield is comparable to LAIF but the Medium -Term Fund provides the option of obtaining a higher yield with certain withdrawal limitations. The once a month Medium -Term Fund withdrawal limitation would not create a cash flow problem. Proposed Investment Policy for Fiscal Year 2008 -09 Mr. Davis reported that Section II, Investment Selection Objective, was the only section with real changes in the District's Investment Policy. This section was replaced with the current section in the California Government Code. Special attention was also made to page 12, the listing of the segregation of Treasury functions. The 08 -09 District Investment Policy will be presented with any changes decided at this meeting to the Board at their June 2008 meeting. Mr. Davis proposed to add the CalTRUST investment pool alternative to the District Investment Policy for consideration by the entire Board at the June 2008 Board meeting. Director Ferryman and Director Ooten agreed to add the CalTRUST investment pool alternative to the District Investment Policy. Mr. Davis reviewed the primary components of our investment policy: legality, safety, liquidity, diversification and yield. Only once we have met the above objectives can we then chase yield as long as we can cover the District's cash flow needs. Director Ferryman questioned the reason for reduced projected interest earnings for the upcoming fiscal year 08 -09. Mr. Davis replied that the budget for interest earnings is lower than in prior years because of where the market is right now and having to reinvest the dollars in lower interest rate securities. In addition, the District has lower cash balances because of the large capital outlays occurring over the past year. The projected yield used for the budgeted interest earnings was 3.0 %. PUBLIC COMMENTS There were no items discussed under public comments. ADJOURNMENT The meeting adjourned at 5:20 p.m. Approved by: Secretary, Costa Mesa Sanitary District F30 ard.of,Directors _ ti. �osia iviesa z5aniv Board of Directors