Reso 2006-724RESOLUTION NO. 2006 -724
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA
SANITARY DISTRICT, ADOPTING THE 2006 -2007 STATEMENT OF INVESTMENT
POLICY, AND AUTHORIZING THE TREASURER TO INVEST AND REINVEST IDLE
MONIES OF THE COSTA MESA SANITARY DISTRICT IN ACCORDANCE WITH THE
2006 -2007 STATEMENT OF INVESTMENT POLICY, AND AUTHORIZING THE SAID
TREASURER TO DELEGATE TO A DEPUTY THE CARRYING OUT OF ANY SUCH
TASKS.
THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT DOES
HEREBY RESOLVE AS FOLLOWS:
WHEREAS, Government Code Section 53601 sets forth the investments that the
District may lawfully make; and
i
WHEREAS, Government Code Section 53646 sets forth that the District's Treasurer
shall annually render to the Board of Directors a Statement of Investment Policy at a public
meeting for the Board to consider; and
WHEREAS, The Board has reviewed the Statement of Investment Policy; and
WHEREAS, Government Code Section 53607 authorizes the Board to delegate the
authority to make investments and to sell or exchange securities for a one year period to the
Treasurer provided that monthly reports are thereafter made of the status of said
transactions;
NOW, THEREFORE, the Board of Directors of the Costa Mesa Sanitary District does
hereby resolve as follows:
1. That the Statement of Investment Policy is approved.
2. That the Treasurer is authorized to make investments consistent with said Policy
and is required to report to the Investment Oversight Committee and Board on a
monthly basis on the status of those transactions. The Treasurer is hereby given
all of the authority provided by Government Code Section 53607, including the
power to invest and reinvest and the power to sell or exchange securities,
consistent with. the District's policy.
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3. That the Treasurer may delegate some part of these duties to a deputy
provided that the Treasurer remains responsible for such decisions and provides
oversight.
The Clerk of the District shall certify to the passage and adoption of this resolution, and it
shall thereupon be in full force and effect.
PASSED AND ADOPTED this 12th day of July 2006.
ATTEST:
Secretary, Costa Mesa Sanitary Dist
Board of Directors
L
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss
COSTA MESA SANITARY DISTRICT )
91resideent, Costa Vesa. Sanitary District
Board of Directors
I, JOAN REVAK, Clerk of the Costa Mesa Sanitary District, hereby certify that the
above and foregoing Resolution No. 2006 -724 was duly and regularly passed and
adopted by said Board of Directors at a regular meeting thereof held on the 12th day of
July 2006.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Costa Mesa Sanitary District this 12th day of July 2006.
Clerk of s 'Costa Mesa Sa' riitary District
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COSTA MESA SANITARY DISTRICT
STATEMENT OF INVESTMENT POLICY
I. PURPOSE
This statement is intended to formalize the various policies and procedures for the prudent investment of
temporarily idle cash for the Costa Mesa Sanitary District. It outlines the investment - related activities, which
comprise good cash management. In concert with these activities there are many facets of an appropriate
secure short -term investment program, which will enhance the economic condition of the District while
safeguarding its assets.
II. INVESTMENT SELECTION OBJECTIVE
The District strives to maintain the level of investment of all idle funds as near 100% as possible. All
temporarily pooled idle cash is invested under the "Prudent Man Rule" (Civil Code Sect. 2261, et seq.) which
states, in essence:
"in investing... property for the benefit of another, a trustee shall exercise the
judgment and care, under the circumstances then prevailing, which men of
prudence, discretion and intelligence exercise in the management of their own
affairs..."
This affords the District a broad spectrum of investment opportunities as 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 the Costa Mesa Sanitary District Statement of Investment Policy. The District Treasurer, after meeting
the legality, safety, liquidity and diversification criteria, will attempt to obtain the highest yield possible. The
criteria for selecting investments, in order of priority are:
1. Legality - The District's investments must conform to federal laws, state statutes, District
ordinances and internal policies and procedures. The District has established internal controls to
ensure that investment activities comply with all applicable statutes, ordinances and policies.
2. Safety - The safety and risk associated with an investment refers to the potential loss of principal,
interest or a combination of these amounts. The District only operates in those investments that are
considered very safe.
3. Liquidity - This refers to the ability to "cash in" at any moment in time with a minimal chance of
losing some portion of principal or interest. The District's investment portfolio will remain sufficiently
liquid to enable the District to meet all operating requirements as well as unanticipated needs for
funds.
4. Diversification - The District's investment portfolio will be sufficiently diversified to avoid
incurring unreasonable risks resulting from saturation of assets in specific security types, maturities
or individual financial institutions.
5. Yield - Yield is the potential dollar earnings an investment can provide, and sometimes is
described as the rate of return.
The basic premise underlying the District's investment philosophy is to ensure that funds are always safe and
available when needed. The District does not buy stocks, speculate or deal in futures or options. Any
investment extending beyond a five -year period requires prior District Board approval.
III. -AUTHORIZED INVESTMENTS
The District limits its investments to the following vehicles:
US Treasury Bills
US Treasury Notes
Federal Agency Issues - Examples include:
• Federal Intermediate Credit Bank Debentures (FICB)
• Federal Farm Credit Bank (FFCB)
• Federal Land Bank Bonds (FLB)
• Federal Home Loan Bank Notes and Bonds (FHLB)
• Federal National Mortgage Association (FNMA)
• Federal Home Loan Mortgage Corporation (FHLMC)
Banker's Acceptances
Certificates of Deposit (CD)
Negotiable Certificates of Deposit
Commercial Paper
Medium Term Corporate Notes
Money Market Mutual Funds
Passbook Savings Account
Local Agency Investment Fund (LAIF)
IV. DELEGATION OF AUTHORITY
The District Board hereby delegates its authority to invest surplus District funds to the District Treasurer.
Delegation of the investment function by the District Board is limited to a one -year period. Failure to delegate
deems the District Board to be trustee and fiduciary, therefore subject to the prudent investor standard.
V. INTERNAL CONTROLS
A system of internal control shall be established and documented in writing. The controls shall be designed to
prevent loss of public funds arising from irregularities, employee error, misrepresentation of third parties,
unanticipated changes in financial markets, or imprudent actions by employees and officers of the District.
Controls deemed most important include: control of collusion, separation of duties, custodial safekeeping, clear
delegation of authority, confirmation of transactions, minimizing the number of authorized investment officials,
documentation of transactions and strategies, and code of ethics standards.
VI. REPORTING
Under provisions of Section 53607 of the California Government Code, the District Treasurer shall submit a
monthly investment report to the District Board. This report will list the type of investment, institution, date of
maturity, amount of deposit, rate of interest, current market value of securities with maturities in excess of 12
months, source of market valuations, and statement of compliance. Also provided shall be a schedule of
market values maturing by date and type, and such other data as required by the District Board.
VII. LEGAL CONSTRAINTS
Surplus funds must be deposited in state or national banks, state or federal savings associations or federal
credit unions within the State of California. These deposits cannot exceed the amount of the institution's paid -
up capital and surplus. The bank or savings and loan must secure public funds deposits with eligible securities
having a market value of 110% of the total amount of the deposits or first trust deeds having a value of 150% of
the total amount of the deposits. A third class of collateral is a 105% letter of credit drawn on the Federal Home
Loan Bank. The Treasurer may waive security for that portion of a deposit, which is insured pursuant to
Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits over $100,000 are
collateralized as indicated above.
VIIt.DERIVATIVES
The term derivative is a commonly used name that describes a variety of securities whose values are "derived
from" the value of another asset, a reference rate or an index. Investment in derivative instruments is limited to
securities that have periodic increases, or step -up interest rate adjustments that provide a increased yield.
Investment in callable securities are also allowed, but must comply with other restrictions as specified in this
Investment Policy. Derivative securities known as "inverse floaters" and other such securities that produce
higher yields when purchased but have the possibility of producing low or no return through the life of the
security, are not allowable.
IX. BOND PROCEEDS
When investing bond proceeds, the Costa Mesa Sanitary District will adhere to this Investment Policy when
determining appropriate instruments for placing monies. If the bond's trust agreement is more restrictive than
the District's Policy, then the trust agreement supersedes the District's Policy. The District may delegate its
responsibly to the fiscal agent to ensure compliance with the bond covenants when managing bond proceeds
on behalf of the District. Borrowing money solely for the purpose of investing and earning arbitrage is
specifically prohibited.
X. GRANDFATHER PROVISIONS
The Costa Mesa Sanitary District investment strategy is to buy and hold until maturity. As legislation and the
District's Statement of Investment Policy change, certain investments may become prohibited. Under Section
53601.6 of the California Government Code, the District may hold prohibited investments until their maturity to
avoid incurring a loss. This allows the District to "grandfather" in securities purchased prior to the effective date
of new legislation.
When selling securities prior to maturity, losses are only acceptable if the proposed swap /trade can clearly
enhance yield (value) over the life of the new security on a total return basis, or to prevent the further loss of
principal. Sufficient written documentation to facilitate the audit of the transaction must be maintained.
In the event that an issuer's rating is downgraded from when the security was purchased, the District
Treasurer's awareness is heightened and the security will be closely monitored to determine if credit risk has
been significantly increased. The District Treasurer will evaluate the need to sell the security prior to maturity.
XI. BANKS AND SECURITIES DEALERS
The Costa Mesa Sanitary District shall transact business only with banks, savings and loans, and "primary" or
"regional" registered investment securities broker /dealers with offices located in the State of California. Any
broker /dealer or financial institution wishing to provide services must complete the District's questionnaire and
be approved by the District Treasurer. The number of broker /dealers authorized to transact business with the
District is one broker /dealer for every $3,000,000 of portfolio size.
XII. SAFEKEEPING AND CUSTODY
Securities should be held in a third party custodian/safekeeping account. Said securities shall be held in a
manner that establishes the District's right of ownership pursuant to Government Code Sections 53601 and
53608 et seq.
All securities owned by the District should be held by a third party except the collateral for time deposits in
banks and savings and loans, which is held by the Federal Home Loan Bank or an approved Agent of
Depository. The collateral for time deposits in banks should be held in the District's name by the bank's Trust
Department, or alternately, by the Federal Reserve Bank pursuant to Government Code Sections 53656 and
53657 et seq.
XI11. INDEMNIFICATION
Any authorized investment personnel acting with prudence and in accordance with the District Statement of
Investment Policy, will not be held personally liable for any investment losses. Through surety bonds the
District is indemnified against any investment personnel acting with malfeasance, misfeasance or nonfeasance.
XIV. CONFLICT OF INTEREST
Any firm proposing to provide any type of investment service to the District shall acknowledge their familiarity
with and agree to abide by any Federal and State laws or regulations pertaining to contractual conflicts of
interest or contributions by such firms, their employees, spouses or agents. Any persons, firms, dealers,
brokers and advisors providing investment services or bond issue assistance shall disclose to the District
Treasurer all fee sharing and commission arrangements with other entities or persons prior to the District
agreeing to buy an investment or issuing bonds.
XV. POLICY REVIEW
The District Treasurer shall be responsible for reviewing and modifying this Statement of Investment Policy
annually for District Board approval to ensure its consistency with the overall objectives of safety, preservation
of principal, and liquidity, and its relevance to current law and current financial and economic conditions.
XVI. SUMMARY
The basic premise underlying the District's investment philosophy is conservative, and will continue to be, to
ensure that money is always safe and available when needed.
H' ' � :T1 `z ,n, C_
District Trea r Date
Accountant Date
Attachments: Prudent Man Rule
Investment Guidelines and Strategy
Investment Procedures Internal Control - Guidelines
Cash Controls
Segregation of Responsibilities of the Treasury Functions
INVESTMENT GUIDELINES AND STRATEGY
I. GUIDELINES:
Guidelines are established to direct and control activities in such a manner that previously established goals
are achieved.
1. Investment Transaction: Every investment transaction must be authorized and reviewed by the District
Treasurer.
2. Pooled Cash: Whenever practical, cash is consolidated into one bank account and invested on a pooled
concept basis. Interest earnings are allocated quarterly to each fund according to fund actual month -end
cash balances.
3. Competitive Bids: Purchases and sales of securities are made on the basis of competitive offers and
bids when practical.
4. Cash Forecastina: The cash flow for the District is projected with the receipt of revenues and maturity of
investments scheduled so that adequate cash will be available to meet disbursement requirements.
5. Investment Limitations: Security purchases and holdings are maintained within statutory limits imposed
by the California Government Code. The District's current limits are:
Permitted Investments/
Deposits
US Government Securities
Certificates of Deposits
Bankers' Acceptances (1)
Commercial Paper (1)
Negotiable CD's (1)
Medium Term Notes (1)
LAIF
Time Deposits
DISTRICT POLICY
Maximum
Maximum
Percent
Maturity
Unlimited
5 years
25%
1 year
25%
180 days
25%
270 days
25%
5 years
25%
5 years
40mm **
n/a
Unlimited 5 years
* Maximum term unless expressly authorized by Governing Body.
** Limit set by LAIF Governing Board (per individual entity account).
(1) Individual issuer limit of 10 %.
GOVERNMENT CODE
6. Li uidi : The marketability (salability) of a security is considered at the time of purchase, as the security
may have to be sold at a later date to meet unanticipated cash demands.
7. Diversification: The portfolio. should consist of various types of securities, issuers, and maturities.
8. Evaluate Certificates of Deposit:
a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. The District does not purchase
Certificates of Deposit in excess of $100,000.
b) Negotiable Certificates of Deposit shall be evaluated in terms of the creditworthiness of the issuer, as
. these deposits are uninsured and u ncol lateral ized promissory notes.
Maximum
Percent
Maturity
Unlimited
5 years*
Unlimited
5 years*
40%
180 days
30%
270 days
30%
5 years
30%
5 years
40mm **
n/a
Unlimited
5 years
6. Li uidi : The marketability (salability) of a security is considered at the time of purchase, as the security
may have to be sold at a later date to meet unanticipated cash demands.
7. Diversification: The portfolio. should consist of various types of securities, issuers, and maturities.
8. Evaluate Certificates of Deposit:
a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. The District does not purchase
Certificates of Deposit in excess of $100,000.
b) Negotiable Certificates of Deposit shall be evaluated in terms of the creditworthiness of the issuer, as
. these deposits are uninsured and u ncol lateral ized promissory notes.
INVESTMENT GUIDELINES AND STRATEGY (cont)
II. STRATEGY:
Strategy refers to the ability to manage financial resources in the most advantageous manner.
1. Economic Forecasts: Economic forecasts are obtained periodically from economists and financial experts
through bankers and brokers to assist with the formulation of an investment strategy for the local agency.
2. Implementing Investment Strategy: Investment transactions are executed which conform with anticipated
interest rate trends and the current investment strategy plan.
3. Rapport: A close working relationship is maintained with large vendors of the District. The objective is to
pinpoint when large disbursements will clear the District's bank account. It is essential for good cash control
that such large expenditures be anticipated, estimated as to dollar amount, and communicated to the
Treasurer for liquidity planning purposes.
4. Preserve Portfolio Value: Standards are developed in order to maintain earnings near the market and to
preserve the value of the portfolio.
III. AUDIT:
Annually, the District's external auditors analyze the District's portfolio for purchase price, market value,
maturity date and yield associated with each investment for financial statement purposes.
INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES
I. OBJECTIVES OF INTERNAL CONTROL:
Internal control is the plan of organization and all the related systems established by management's objective of
ensuring, as far as practicable:
• The orderly and efficient conduct of its business, including adherence to management policies.
• The safeguarding of assets.
• The prevention or detection of errors and irregularities.
• The accuracy and completeness of the accounting records.
• The timely preparation of reliable financial information.
II. LIMITATIONS OF INTERNAL CONTROL:
No internal control system, however elaborate, can by itself guarantee the achievement of management's
objectives. Internal control can provide only reasonable assurance- that the objectives are met, because of its
inherent limitations, including:
• Management's usual requirement that a control be cost - effective.
• The direction of most controls at recurring, rather than unusual, types of transactions.
• Human error due to misunderstanding, carelessness, fatigue or distraction of functions.
-The potential for a person responsible for exercising control abusing that responsibility. Frequently, a member
of management is in a position to override controls which management has set up.
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INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES (cont)
III. ELEMENTS OF INTERNAL CONTROL:
Elements of a system of internal control are the means by which an ,organization can satisfy the objectives of
internal control. These elements are:
1. ORGANIZATION: Specific responsibility for the performance of duties should be assigned and lines of
authority and reporting clearly identified and understood.
2. PERSONNEL: Personnel should have capabilities commensurate with their responsibilities. Personnel
selection and training policies, together with the quality and quantity of supervision, are thus important.
3. SEGREGATION OF FUNCTIONS: Segregation of incompatible functions reduces the risk that a person is
in a position both to perpetrate and conceal errors or irregularities in the normal course of duty. If different
people handle two parts of a transaction, collusion is necessary to conceal errors or irregularities. In
particular, the functions that should be considered when evaluating segregation of functions are authorization,
execution, recording, custody of assets, and performing reconciliations.
4. AUTHORIZATION: An appropriate responsible individual should authorize all transactions. The
responsibilities and limits of authorization should be clearly delineated. The authorization for a specific
transaction or granting general authority for transactions should be to a position commensurate with the
significance of the transactions. Delegation of authority to authorize transactions should be handled very
carefully.
5. CONTROLS OVER AN ACCOUNTING SYSTEM: Controls over an accounting system include manual
and computerized procedures carried out independently to ascertain that transactions are complete, valid,
authorized and properly recorded.
CASH CONTROLS
L PROCEDURES PERFORMED BY AUDITORS WITH RESPECT TO CASH RECEIPTS:
District procedures and controls are reviewed. Some of the system strengths are:
a. Receipts are controlled upon receipt by proper registration devices.
b. Receipts are reconciled on a daily basis.
c. Amounts are deposited intact.
d. All bank accounts are authorized by the District Board.
e. Cash counts are done by two or more individuals.
f. Bank reconciliations are reviewed.
g. The posting of cash receipt entries in books is prompt.
h. Receipt forms are prenumbered, accounted for, and physically secured.
i. Proper approval required for write -off's of customer accounts.
j. Checks are restrictively endorsed upon receipt.
k. Adequate physical security over cash.
i. Individuals who handle cash do not post account records or process billing statements.
m. Adequate supervision of financial operations.
2. Significant revenues are confirmed directly with payor and compared with District books to make sure
amounts are recorded properly.
3. Cash balances are substantiated by confirming all account balances. Bank reconciliations are reviewed
for propriety and recalculated by the auditor. All significant reconciling items on bank reconciliations are
verified as valid reconciling items by proving to subsequent bank statements.
SEGREGATION OF RESPONSIBILITIES
OF THE TREASURY FUNCTIONS
Function
Responsibility
Authorization of Investment Transactions:
A) Formal Investment Policy should be:
• Prepared by:
District Treasurer
• Approved by:
District Board
• Adopted by:
District Board
B) Investment Transactions should be approved by:
District Treasurer
C) Monthly Investment Report should be:
• Prepared by:
District Treasurer
• Reviewed by:
Accountant
• Submitted to:
District Board
2. Execution of investment transactions: District Treasurer
3. Timely recording of investments in Treasurer's records: District Treasurer
4. Recording of investments in the accounting records: Accountant
5. Accounting records approved by: District Treasurer
6. Verification of investment, match broker. confirmation
of Treasurer's records: Accountant
7. Safeguarding of Assets and Records:
A) Reconciliation of Treasurer's records to accounting
records, bank statements and safekeeping records: Accountant
B) Approved by: District Treasurer
C) Review of financial institution's financial condition,
safety, liquidity, and yield potentials of investments: District Treasurer
8. Wire Transfer Control Procedures:
A) Written amount, account and authorization agreement: Bank
B) Call -back verification of District Treasurer phone transfers: District Treasurer
9. Annual review of investment portfolio prepared
by Accountant/ District Treasurer including: Investment types,
purchase price, market values, maturity dates, yields Independent Auditors for
and Safekeeping reports. Financial Statements
GLOSSARY OF INVESTMENTS
US Treasury Bills - are direct obligations of the United States Government issued weekly with maturity dates up to
one year. They are issued and traded on a discount basis with interest calculated on a 360 -day basis and actual
invested days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid
security. An unlimited amount may be invested in US Treasury Bills.
US Treasury Notes - are direct obligations of the United States Government with original maturities of 1 to 10
years. They are generally available in minimum denominations of $5,000 for two and three -year maturities, and
$1,000 denominations for all other maturities. Notes are actively traded in a large secondary market and are very
liquid. An unlimited amount of funds may be invested in US Treasury Notes with maximum terms of five years.
The term may be extended if authorized by the District Board.
Federal Agency Issues - are guaranteed directly or indirectly by the United States Government. All agency
obligations qualify as legal investments and are acceptable as security for public deposits. Agencies usually
provide higher yields than direct Treasury issues with all of the same advantages. An unlimited amount of funds
may be invested in Federal Agency issues with maximum maturities of less than five years. The District Board
must expressly authorize any investment with a maturity greater than five years. Examples include:
Federal Intermediate Credit Bank Debentures (FICB) - are loans to lending institutions used to finance the
short -term and intermediate needs of farmers, such as seasonal production. They are usually issued
monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity
and is calculated on a 360 -day, 30 -day month basis.
Federal Farm Credit Bank (FFCB) - are debt instruments used to finance the short and intermediate term
needs of farmers and the national agricultural industry. They are issued monthly with three and six -month
maturities. The FFCB issues larger issues (one to ten years) on a periodic basis. These issues are highly
liquid.
Federal Land Bank Bonds (FLB) - are long -term mortgage credit provided to farmers by Federal Land Banks.
These bonds are issued at irregular times for various maturities ranging from a few months to ten years.
The minimum denomination is $1,000. They carry semi - annual coupons. Interest is calculated on a 360 -
day, 30 -day month basis.
Federal Home Loan Bank Notes and Bonds (FHLB) - are issued by the Federal Home Loan Bank System to
help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to
savings and loan associations, mutual savings banks, cooperative banks, insurance companies and
mortgage- lending institutions. They are issued irregularly for various maturities. The minimum
denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at
maturity. The bonds are issued with various maturities and carry semi - annual coupons. Interest is
calculated on a 360 -day, 30 -day month basis.
Federal National Mortgage Association (FNMA) - are used to assist the home mortgage market by
purchasing mortgages insured by the Federal Housing Administration and the Farmers Home
Administration; as well as those guaranteed by the Veterans Administration. They are issued four times a
year with maturities from a few months to eight years. The minimum amount is $10,000 and carry semi-
annual coupons, with interest computed on a 360 -day, 30 -day month basis.
Federal Home Loan Mortgage Corporation (FHLMC) - is a government- sponsored corporation established
to develop the secondary market for conventional home mortgages. Mortgages are purchased solely from
the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies
of the United States Government. They are issued for various maturities and in minimum denominations of
$10,000. Interest is paid semi - annually and is calculated on a 360 -day, 30 -day month basis.
GLOSSARY OF INVESTMENTS (cont)
Government National Mort-gage Association (GNMA) - is established to monitor compliance with
requirements for the structuring of securities backed by pools of mortgages guaranteed by the Federal
Housing Administration, the Farmers' Home Loan Administration and the Veterans' Administration. All
mortgages in the pool must carry the same interest rate and, when possible, the same maturity. Interest
and principal on the mortgage pools is "passed through" to investors monthly after the deduction of service
and guarantee fees.
Student Loan Marketing Association (SLMA) - is established by the Education Amendments Act of 1972 by
the US Congress to increase funds into student loans. SLMA is a for - profit, stockholder -owned corporation
with the specific purpose of providing a secondary market for the federally sponsored student loans.
Discount notes are issued on a daily basis to mature in one year or less with a minimum denomination of
$100,000. Six -month floating rate notes are issued monthly with a minimum denomination of $10,000.
Longer term fixed rate and floating rate securities are issued as needed. All loans are guaranteed by either
the federal government or by a state or private agency.
Bankers' Acceptances - are short -term credit arrangements to enable businesses to obtain funds to finance
commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay
for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its
maturity. An acceptance is a high -grade negotiable instrument. Acceptances are purchased in various
denominations for 30, 60, or 90 days, but no longer than 180 days. The interest is calculated on a 360 -day
discount basis similar to Treasury Bills. The District may not invest more than 25% of its surplus money in
Bankers' Acceptances with each issuer limited to 10 %.
Certificates of Deposit (CD) - are time deposits of a bank or savings and loan. They are purchased in various
denominations with maturities ranging from 30 to 360 days. The District does not purchase Certificates of Deposit
that are not FDIC insured. The interest is calculated on a 360 -day, actual day month basis and is payable monthly.
The District may invest up to 25% of its surplus money in insured CD's with maturities of one year of less.
Negotiable Certificates of Deposit - are unsecured obligations of the financial institution, bank or savings and
loan, bought at par value with the promise to pay face value plus accrued interest at maturity. They are high -grade
negotiable instruments, paying a higher interest rate than regular certificates of deposit. The primary market
issuance is in multiples of $1,000,000, the secondary market usually trades in denominations of $500,000, and
smaller lots are occasionally available. As a matter of practice, only the ten largest US banks, where there is a
secondary market established for continued liquidity, are considered for investment. Purchases of Negotiable
Certificate of Deposit may not exceed 25% of the District's surplus funds and five years to maturity. The District
may not buy more than 10% of any single issuer.
Commercial Paper - are short-term unsecured promissory notes issued by a corporation to raise working capital.
These negotiable instruments are purchased at a discount to par value or at par value with interest bearing.
Commercial Paper is issued by corporations such as General Motors, IBM, etc. Local agencies are permitted by
State law to invest in Commercial Paper of the highest ranking or of the highest letter and numerical rating as
provided by Moody's Investor's Service, Inc., or Standard and Poor's Corporation. Purchases of eligible
Commercial Paper may not exceed 270 days maturity, nor exceed 25% of the District's surplus funds. The District
may not purchase more than 10% of any single issuer.
Medium Term Corporate Notes - 'are unsecured promissory notes issued by a corporation organized and
operating in the United States. These are negotiable instruments and are traded in the secondary market. Medium
Term Corporate Notes can be defined as extended maturity Commercial Paper. Local agencies are restricted by
the Government Code to investments in corporations rated in the top three note categories by a nationally -
recognized rating service, five year maximum maturity and may not exceed 30% of surplus funds. The District's
restrictions are a maximum term of five years to maturity and total investments in Medium Term Corporate Notes
may not exceed 25% of the District's surplus funds. The District may not purchase more than 10% of any single
issuer.
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GLOSSARY OF INVESTMENTS (cont)
Passbook Savings Account Demand Deposit - are interest bearing active deposits placed at state or national
banks, state or federal savings and loan associations, state or federal credit unions and federally insured industrial
loan companies. Monies placed in a savings account earn short -term interest. Deposits are FDIC insured up to
$100,000, and may be in any amount.
Local Agency Investment Fund (LAIF) - a special fund in the State Treasury which local agencies may use to
deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum balance of $40,000,000 for any agency. The District is restricted
to 15 transactions per month for each LAIF account. LAIF offers high liquidity because deposits can be converted
to cash in 24 hours with no interest lost. Interest is distributed to those agencies participating on a per share basis
determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The
State retains a portion for administrative costs, not to exceed one - quarter of one percent of the earnings.
The pooling of the State's surplus cash with the participant's surplus cash creates a multi - billion dollar money pool
and allows diversified investments. In a high interest rate market, the District does better than LAIF however, in
times of low interest rates, LAIF's yields are higher. The District invests in the Local Agency Investment Fund
whose Investment Policy allows investments in securities not specifically authorized by the District's Investment
Policy, but allowable under the California Government Code.
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