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21-1018DocuSign Envelope ID: 4893EEgB-5DDE-406E-AC19-D8238BES5g84 Attest Saralt" L. l,tauu Sata anwanng,City Clerk Approved as to form T. rdlu hing, City Attorney RESOLUTTON NO. 21-1018 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MENIFEE, CALIFORNIA,APPROVING THE FISCAL YEAR 20.21 INVESTMENT POLICY AND APPROVINGDELEGATION TO THE CITY TREASURER TO CARRY OUT SUCH POLICY WHEREAS, Government code section 53607 permits the city councir to deregateits investment authority to the City Treasurer by resolution each fiscal yejr; and WHEREAS, the city councir desires to make such deregatron in conjuncrion withthe approval of an investment policy, _ _ - - Nqw THEREFORE, the cjly councir of the city of r\irenifee, carifornia, does herebyRESOLVE, DETERMTNE and ORDER as fo ows: sEcrloN 1: The city councir hereby adopts the statement of rnvestment poricy, attached and incorporated here as Exhibit ,,A,,. sEcrloN 2: The city councir hereby deregates to the city Treasurer the city counci|sinvestment authority and authonzes^the city Treasurer to appoint deputies to assist 1n carrylngout this function for fiscal year 2020-21 . PASSED, APPROVED AND AOOPTED rhis 5s day of May,202t mmerman,Mayor J DocuSign Envelope lDr 4893EEgB-SDDE-406E-AC1 g-O823e8E55984 1. PURPOSE The purpose of this investment policy is to identify various policies and procedures thatwill foster a.prudent and systematic investment piogram designed to seek the City ofMenifee's objectives of safety, liquidity and return on investm6nt through a diversrfiedinvestment portfolio. This poricy arso serves to organize and formarizeihe city ofMenifee's investment-related activities, while complying with all applicable st;tutesgoverning the investment of public funds. This policy is written to incorporate industrybest practices and recommendations from sources such as the Government Financeofficers Association (GFoA), carifornia Municipar rreasurers Association (cMTA),california Debt and lnvestment Advisory commission (cDlAc) and the Association ofPublic Treasurers (APT). This investment policy was endorsed and adopted by the city of Menifee's GoverningBody and is effective as ofthe sth day of May, 2021, and reflaces any previous versions. 2. SCOPE / BA CKGROUND . Proceeds of debt issuance shall be invested in accordance with the City of Menifee's general investment philosophy as set forth in this policyt however, such proceeds are to be invested pursuant to the permitted investment provisions of their specifi c bond indentures. Any other funds specifically exempted by the Governing Body This policy covers all funds and investment activities under the direct authority of the city of Menifee, as set forth in the State Government Code, Sectlons 53600 et seq., with the following exceptions: POOLING OF FUNDS Except for cash in certain restricted and special funds, the City of Menifee will consolidate cash and reserve balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. lnvestment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. CITY OF MENIFEE City Council Policy Policy Number: CC-11 Approving Authorjty: ci Council Effective Date: 1 0/'112008 Last Modified: 51512021lnvestment Policy (FY 2020-20211 Subject Page I of 25 DocuSign Envelope ID: B3FF668F-A4OD-4732-ABCA-BEEDOBE6FOl i city of Menifee 3. ROLES AND RESPO NSIBILITIES Revision Histo The Menifee city council is responsible for the management of the city of Menifee,sfunds, including the administration of this investment policy. Managementresponsibility for the cash management of the city of Menifee's funds is herebydelegated to the Treasurer. The Treasurer will be responsrble for all transactionsundertaken and will establish a system of procedures and controls to regulate theactivities of subordinate officials and employees. Policy CC-11 Page 2 of 25lnvestment Policy mmerman,Mayor Revision No. Date Approved Approved By:Comments 1011t2008 City Council 2008-2009 lnvestment Poficyi Resolution No. 08-18 ,1 814t2009 City Council 2009-2010 lnvestment Policy, Resolution No. 09-1 10 2 City Council 201 1 -20 12 I nvestment Policy; Resolutron No. '11-240 3 12t4t2012 City Council 20 1 2-201 3 lnvestment Policy; Resolution No. 12-299 4 11t6t2013 City Council 201 3-201 4 lnvestment Policy; Resolution No. '13-345 5 316t2019 City Council 201 8-201 I lnvestment Policy; Resolution No. 19-775 6 5t5t2021 2020-2021 lnvestment Policy; Resolution No.21-1018 0 11t15t2011 City Council DocuSign Envelope lD: 4893EE98-5DDE-406E-AC19-D82388E55984 City of Menifee Policy CC-1 1 Page 3 of 25 t. II. III. IV. VI. VII. VIII. IX. X. xt. XII. XIII. XIV. XV. XVI. XVII. XVIII. xtx. XX. Appendix A: Permifted Investments . ....... GLossARy or. INvTSTMENT TERMS... ................ . ..... . INT ItoDUC oN Scot,u............... PRtIr)ENCL......... OBJlic nvES . ...... DItt-t,tcAt toN ot-' AUi HoRIt y E fl rrcs ANr) CoNljt-r('ts ot: IN I ltRt s t........... INt LRNAI. CoNTRot_s .................. At-I tot zH) Ft,iANCIAI_ lNSl ttirloNS. DF.t,ost loR ,s. ANt) BROKI,R/DI At.t._Rs . ALJ] ItoRrzED INVt:st'Ml]Nt s..... PRol IB ED INVlisrMIrNt VEHt(.t.lis ANI) pRACt l(.F.s......... INV[srMt]Nt Pool.s/Mrit r r^t. FIJNt)s .............. Cot.t-A niRAt-tzA'l'toN .... ........ . . .... DEt-rvDRy, SAI,I KDEptNC AND Cus tr)Dy . ..... . . MAXTMUM MATURt ry RISK MANACIiMUN I AND f)tvt RS ,lc'At roN ....... .. . . .. REVILw of INVES tMr,NT PoRII,oLlo PERt,oRMANCD EvAl-UATIoN .... REPottnNc........ REV ,W ()t, L\-VES I MtNT POr_t( y .... . . ...... . . ..3 ..4 ..4 E ..5 ,, b ., o ,'7 ..8 13 '13 13 14 15 15 16 16 to 17 21 lN I RoDU(rrtoN The purpose of this investment policy is to identify various policies and procedures that will foster a prudent and systematic investment program designed to seek the City of Menifee's objectives of safety, liquidity and retum on investmenl through a diversified investment portfolio. This policy also serves to organize and lbrmalize the City of Menifee's investment-related activities, while complying with all applicable sratures J lnvestment Policy Crry or Mrxrnpr INvESTMENT PoLICY ADOP'I ED MA\'5, 202t Conrerurs DocuSign Envelope lD: 4893EE98-5DDE<06E-AC1S-DB238BE5S9E4 City of Menifee I. ScopE Policy CC-1'l Page 4 of 25 lnvestment policy goveming.the investment of public funds. This policy is written to incorporate industrybest practices and recommendations from sources such as the Government Financlofficers. Association (GFoA), california Municipal rreasurers Association (CMTA), Califomia Debt and Investment Advisory commission (cDlAC) and the Association of Public Treasurers (APT). This investment policy was endorsed and adopted by the City of Menifee's Governing Body and is efrective as ofthe 5th day of May, 2021, and replaces any previous versionsl This policy covers all funds and investment activities under the direct authority ofthe cityof Menifee. as set forrh in the state covemment Code, Secrions 53600 et seq., with thefollowing exceptions: Proceeds of debt issuance shall be invested in accordance with the city of Menifee'sgeneral investment philosophy as set fofth in this policy; however, such proceeds are to be invested pursuant to the permitted investment provisions of their specific bond indentures. o Any other funds specifically exempted by the Governing Body. PooLING oF FUNDS Except for cash in certain restricted and special f'unds, the City of Menitbe will consolidate cash and reserve balances from all f'unds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. lnvestment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. II. PRTJDf,NCE Pursuant to California Govemment Code, Section 53600.3, all persons authorized to make investment decisions on behalfofthe city of Menifee are trustees and therefore fiduciaries subject to the Prudent Investor Standard: ". . .all govern ing bodies of local agencies or persons authorized to make investment decisions on behalfofthose local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling. or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs ofthe City of Menifee. that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the City of Menifee. Within the 4 DocuSign Envelope lDr 4893EEgeLsDDE-406E-AC19-D82388E55984 City of Menifee III. OBJECTIVEs limitations of this section and considering individual investments as pa,t of an overall strategy. investments may be acquired as authorized by law.,. The Treasurer and other authorized persons responsible for managing City olMenifeefunds acting in accordance with written procedures and this invesiment policy and exercising due diligence shall be relieved of personal responsibility for an individualsecurity's credit risk or market price changes provided that the Treasurer or other authorized persons acted in good faith. Deviations from expectations ofa security's credit or market risk should be reported to the goveming body in a timely fashion and appropriate action should be taken to control adverse developments. Policy CC-11 Page 5 of 25 lnvestment Policy The City of Menifee's overall investment program shall be designed and managed with adegree of professionalism worthy of the public trust. The overriding objectiies of theprogram are to preserve principal, provide sufficient liquidity, and manage investment risks, while seeking a market-rate of return. SAFETv. Safety of principal is the fbremost objective of the investment program. Investments will be undertaken in a rnanner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective. the Ciry of Menifee will diversify its investments by investing f'unds among a variety of securities with independent retums. LtQUIDITv. The investment portfolio will remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. RETURN oN INvEsrMENTs. The investment portfolio will be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints fbr safety and liquidity needs. IV. DELEGATION OF AT.]THORITY Authority to manage the City of Menifee's investment program is derived from California Government Code, Sections 41006 and 53600 et seq. The Goveming Body is responsible for the management of the City of Menifee's funds, including the administration of this investment policy. Management responsibility for the cash management ofthe City of Menifee's funds is hereby delegated to the Treasurer. The Treasurer will be responsible lor all transactions undertaken and will establish a system ofprocedures and controls to regulate the activities ofsubordinate officials and employees. Such procedures will include explicit delegation of authority to persons responsible for 5 DocuSign Envelope lDi 4893EE98-5DDE-406E-AC1$D82388E55984 City of Menifee Policy CC-l'l Page 6 of 25lnvestment Policy V. ETHICS AND CoNFLICTS oF INTEREST Employees and investment officials shall disclose to the City Manager any material interests in financial institutions with which they conduct business, and ihey shall further disclose any large personal financial/investment positions that could be related to theperformance of the investment portfolio. Employees and officers shall refrain from undertaking any personal investment transactions with the same individual with whom business is conducted on behalfofthe Citv of Menifee. VL INTERNAL CoNTRor.s The Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets ofthe entity are protected from loss, theft or misuse. The intemal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (l) the cost ofa control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. Periodically, as deemed appropriate by the City of Menifee and/or the Goveming Body. an independent analysis by an external auditor shall be conducted to review internal controls. account activity and compliance with policies and procedures. Investment transactions. No person may engage in an investment transaction except asprovided under the terms of this policy and the procedures established by the Treasurer. The city of Menifee may engage the services ofone or more externar investment advisers.who are registered under the Investment Advisers Act of 1940, to assist in the managementof the City of Menifee's investment porttblio in a manner consistent with the -ity ofMenifee's objectives. External investment advisers may be granted discretion to purcirase and sell investment securities in accordance with this investment policy. The city of Menifee's overall investment program shall be designed and managed with a degree ofprofessionalism that is worthy ofthe public trust. The city of Menifee iecognizesthat in a diversified portfolio, occasional measured losses may be inevitable and m-ust be considered within the context of the overall portfolio's return and the cash flow requirements of the City of Menifee. All participants in the investment process shall act as custodians of the public trust. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. Thus employees and officials involved in the investment process shall refrain from personal business activity that could create a conflict of inierest or the appearance ofa conflict with proper execution ofthe investment program, or which could impair their ability to make impartial investment decisions. 6 DocuSign Envelope lD: 4893EEgB-5DDE-i06E-AC j 9D82388ES5984 City of Menifee Policy CC-'l l Page 7 of 25 lnvestment Policy VII. AUTHORIZf,D FINANCIAL INSTITUTIONS, DEPOSITORIES, AND BROKER/DEALERS To the extent practicable, the Treasurer shall endeavor to complete investment transactions using a competitive bid process whenever possible. The City of Menifee,s Treasurer will determine which financial institutions are authorized to provide investment services to thecity of Menifee. It shall be the City of Menifee's policy ro purchase securities only from authorized institutions and firms. The Treasurer shall maintain procedures lbr establishing a list ofauthorized broker/dealers and financial institutions which are approved lor investment purposes that are selected through a process ofdue diligence as determined by the City of Menifee. Due inquiry shall determine whether such authorized broker/dealers, and the individuals covering the -ity of Menifee are reputable and trustworthy, knowledgeable and experienced in Ruutic c;ty ot Menifee investing and able to meet alloitheir tinancial obligations. These institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchangl Commission (SEC) Rule l5c3-l (uniform net capital rule). ln accordance with Section 53601 .5, institutions eligible to transacr investment business with the City of Menifee include: . Primary govemment dealers as designated by the Federal Reserve Bank and non- primary government dealers.. Nationally or state-chartered banks.o The Federal Reserve Bank.o Direct issuers ofsecurities eligible for purchase. Selection of financial institutions and broker/dealers authorized to engage in transactions will be at the sole discretion of the City of Menifee, except where the City of Menifee utilizes an external investment adviser in which case the City of Menifee may rely on the adviser for selection. All financial institutions which desire to become qualified bidders for investment transactions (and which are not dealing only with the inveslment adviser) must supply the Treasurer with audited financials and a statemenl certifying that the institution has reviewed the California Govemment Code, Seclion 53600 et seq. and the City of Menifee's investment policy. The Treasurer will conduct an annual review ofthe financial condition and registrations ofsuch qualified bidders. Selection of broker/dealers used by an extemal investment adviser retained by the City of Menifee will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall 7 Public deposits will be made only in qualified public depositories as established by Srate law. Deposits will be insured by the Federal Deposit Insurance Corporation, or, to rhe extent the amount exceeds the insured maximum. will be collateralized in accordance with State law. DocuSign Envelope lD: 4893EEgB-5DDE406E-ACtS-D82388ES5984 City of Menifee VIII. AlrTHoRrzED INvEs'r'MEN.t s Policy CC-1 1 Page 8 of 25 lnvestment policy be recorded. Ifthere is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. when purchasing original issue instrumentality securities, no competitive offbrings will be required as aii dealers in the selling group offer those securities at the same original issue priie. The City of Menifee's investments are governed by Califomia covernment Code, Sections 53600 el seq. within the investments permitted by rhe code, the city of Menifee seeks to further restrict eligible investments to the guidelines listed below. In the event a discrepancy is found between this policy and the code, the more restrictive parameters will take precedence. Percentage holding limits listed in this section apply at the time the security is purchased. l. MuNrcrpAL SEcuRrrrEs include obligations of the City of Menifee, the State of California and any local City of Menifee within rhe Stale of Califomia. provided that: o The securities are rated in a rating category of"A" or its equivalent or better by at least one nationally recognized statistical rating organizarion ("NRSRO").o No more than 5% ofthe portfolio may be invested in any single issuer.o No more than 30% of the portfolio may be in Municipal Securities.o The maximum maturity does not exceed five (5) years. 2. MuNrcrpAL SEctJRrTtEs (REcISTERED TREASURY NOTES OR BONDS) of any of the other 49 states in addition to Califomia. 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, City of Menifee, or authority of any of the other 49 states. in addition to Califomia. . The securities are rated in a rating category of "A" or its equivalent or better by at least one nationally recognized statistical rating organization ("NRSRO").o No more than 5% ofthe portfblio may be invested in any single issuer.o No more than 30% of the portfolio may be in Municipal Securities.. The maximum maturity does not exceed five (5) years. 8 Any investment currently held at the time the policy is adopted which does not meet the new policy guidelines can be held until maturity, and shall be exempt from the currentpolicy. At the time of the investment's maturity or liquidation. such funds shall be reinvested only as provided in the current policy. An appropriate risk level shall be maintained by primarily purchasing securities that are of high quality, liquid, and marketable. The portl'olio shall be diversified by security type and institution to avoid incurring unreasonable and avoidable risks regarding specific security types or individual issuers. DocuSign Envelope lD: 4893EESB-5DDE406E-AC.t9-D82388E55984 City of Menifee Policy CC-l'l Page 9 of 25 The maximum maturity is five (5) years 4, FEDERAL AcENCtEs or United States Govemment-sponsored Enterprise obligations, participations, or other instruments. including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. There are no limits on the dollar amount or percentage that the City of Menifee may invest in Federal City of Menifee or Covemment-sponsored Enterprises (CSEs), provided that: o No more lhan 25yo of the portfolio may be invested in any single City of Menifee/GSE issuer.o The maximum maturity does not exceed five (5) years.o The maximum percent of City of Menifee callable securities in the portfolio will be 20o/o. 5. BANKER'S AccEprANCEs, provided thal: . They are issued by institutions which have short-term debt obligations rated "A- l" or its equivalent or better by at least one NRSRO; or long-term debt obligations which are rated in a rating category of"A" or its equivalent or better by at least one NRSRO.o No more than 40yo ofthe potfolio may be invested in Banker's Acceptances.. No more than 5% ofthe portfolio may be invested in any single issuer.r The maximum maturity does not exceed 180 days. . The issuer is a corporation organized and operating in the United States with assets in excess of $500 million.o The securities are rated "A- l" or its equivalent or better by at least one NRSRO.. They are issued by corporations which have long-term obligations rated in a rating category of"A" or its equivalent or better by at least one NRSRO.. City of Menifee may purchase no more than l0% of the outstanding commercial paper of any single issuer.. No more than 25o/o of the portfolio may be invested in Commercial Paper.. No more than 5% ofthe portfolio may be invested in any single issuer.o The maximum maturity does nol exceed 270 days. 7. NEGoTTABLE CERTIFTcATES oF DEposrr (NCDs). issued by a nationally or state- chartered bank, a savings association or a federal association, a state or federal credit 9 lnvesfunent Policy 3, U.S.TREAsunrns and other government obligations for which the full faith and credit ofthe United Stales are pledged for the payment ofprincipal and interesr. There are no limits on the dollar amount or percentage that the City of Menifee may invest in U.S. Treasuries, provided that: 6. CoMMERCTAL PAPER, provided that: DocuSign Envelope lD: 4893EE98-5DDE-406E-AC19-D82388E55984 City of Menifee Policy CC-l1 Page l0 of 25 lnvestment Policy union. or by a federally licensed or state-licensed branch of a foreign bank, provided that: . The amount of the NCD insured up to the FDIC limit does not require any credit ratings.. Any amount above the FDIC insured limit must be issued by institutions which have short-term debt obligations rated "A- l " or its equivalent or better by at least one NRSRO; or long-term obligations rated in a rating category of '.A" or its equivalent or better by at least one NRSRO.o No more than 30% of the total portfolio may be invested in NCDs (combined with CDARS).o No more than 5% ofthe portfolio may be invested in any single issuer.o The maximum maturity does not exceed five (5) years. 8. Fsosnll-I"y INSURED TIME DEposrrs (Non-Negotiable Certificates of Deposit) in state or federally chartered banks, savings and loans, or credit unions. provided that: The amount per institution is limited to lhe maximum covered under federal insurance. No more than 20o/o of the portfblio will be invested in a combination of federally insured and collateralized time deposits. The maximum maturity does not exceed five (5) years. 9. CoLLATERALTZED TrME DEposlrs (Non-Negotiable Certificates of Deposit) in state or federally chartered banks, savings and loans. or credit unions in excess of insured amounts which are fully collateralized with securities in accordance with Califomia law, provided that: No more than 20Yo of the portfolio will be invested in a combination of federally insured and collateralized time deposits. The maximum maturity does not exceed five (5) years. 10. CERrrFrcArE oF DEposrr PLACEMENT SERvrcE (CDARS), provided that: No more than 30% of the total portfolio may be invested in a combination of Certificates of Deposit, including CDARS. The maximum maturity does not exceed five (5) years. I l. CoLLATERALIZED BANK DEposrrs, City of Menifee's deposits with financial institutions will be collateralized with pledged securities per Califomia Govemment Code. Section 53651. There are no limits on the dollar amount or percentage that the City of Menifee may invest in collateralized bank deposits. 12. REPURcHASE AcREEMENTS collateralized with securities authorized under Califomia Government Code, maintained aI a level of at least l02o/o ol the market value of the t0 DocuSign Envelope lD: 4893EEgB-5DDE-406E-AC19-D82388E55984 City of Menifee Policy CC-11 Page 't 'l of 25 lnvestment Policy Repurchase Agreement. There are no limits on the dollar amount or percentage that the City of Menifee may invest, provided that: Securities used as collateral for Repurchase Agreements will be delivered to an acceptable third party custod ian. Repurchase Agreements are subject to a Masler Repurchase Agreement between the City of Menilee and lhe provider of the repurchase agreement. The Master Repurchase Agreement will be substantially in the fbrm developed by the Securities Industry and Financial Markets Association (SIFMA). The maximum maturity does not exceed one ( I ) year. 13. SrArE oF CALTFoRNTA LocAL CrTy oF MENTFEE INVESTMENT FUND (LAIF), provided that: o The City of Menifee may invest up to the maximum amount permitted by LAIF.. LAIF's investments in instruments prohibited by or not specified in the City of Menifee's policy do not exclude the investment in LAIF itself from the Cily of Menifee's list of allowable investments. provided LAIF's reports allow the Treasurer to adequately judge the risk inherent in LAIF's portfolio. 14. LocAL GovERNMENT INvESTMENT PooLS o Other LGIPs permitted by client.. There is no issuer limitation lor Local Government Investment Pools 15. CoRpoRArE MEDTUM TERM NorEs (MTNs), provided that: o The issuer is a corporation organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.. The securities are rated in a rating category of"A" or its equivalent or better by at least one NRSRO.o No more than 30% of the total portfolio may be invested in MTNs.o No more than 5% ofthe portfolio may be invesled in any single issuer.o The maximum maturity does not exceed five (5) years. I6. ASs0T-BACKED, MoRTGAcE-BACKED, MoRTCACE PAss-THRoUCH SECURI .IEs. AND CoLLATERALIZED MoRTGACE OBLIGATIONS T.RoM IssUERs NoT DEFINED IN SECTIONS 3 AND 4 OF THE AUTHORIZED INVESTMENTS SECTION OF THIS POLICY. provided that: The securities are rated in a rating category of "AA" or its equivalent or better by a NRSRO. No more than 20yo of the total portfolio may be invested in these securities. il DocuSign Envelope ID: 4893EEgB-5DDE-406E-AC.t9-D82388E5S984 City of Menifee Policy CC-l'l Page 12 ol 25 lnvestment Policy No more than l0% ofthe total portfolio may be invested in shares ofany one mutual fund. o No more than 5% ofthe portfolio may be invested in any single Asset_Backed or Commercial Mortgage security issuer.o The maximum legal final maturity does not exceed tive (5) years. 17. MUTUAL FUNDS AND MoNEY MARKET MUTUAL Fuxos that are registered with the Securities and Exchange Commission under the lnvestment Company Act of 1940, provided thar: (i) Attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or (ii) Have retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years, experience investing in the securities and obligations authorized by California Government Code, Section 53601 and with assets under management in excess of $500 million. b. MoNoy MARKET MuruAL Fultos registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and issued by diversified management companies and meet either of the following criteria: (i) Have attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or (ii) Have retained an investment adviser registered or exempt tiom registration with the Securities and Exchange Commission with not Iess than five years' experience managing money market mutual funds with assets under management in excess of $500 million. o No more than 20o/o ofthe total portfolio may be invested in the shares ofany one Money Market Mutual Fund. c. No more than 20o/o of the total portfolio may be invested in these securities. 18. SUPRANATToNALS, provided that: Issues are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development. Internalional Finance Corporation, or lnter-American Development Bank. t2 a. MuruAL FUNDS that invest in the securities and obligations as authorized under California Government Code, Section 53601 (a) to (k) and (m) ro (q) inclusive and that meet either of the following criteria: DocuSign Envelope lD: 4893EEgB-5DDE406E-AC1e-DB238BES5084 NRSRO.. No more than 30% ofthe total portfolio may be invested in these securities.o No more than l0% ofthe portfolio may be invested in any single issuer.o The maximum maturity does not exceed five (5) years. . State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited ro lutures and options.o [n accordance with Government Code, Section 53601 .6, investment in inverse floaters, range notes, or mortgage derived interest-only strips is prohibited.. lnvestment in any security that could result in a zero interesl accrual if held to maturity is prohibited.o Trading securities for the sole purpose ofspeculating on the future direction ofinterest rates is prohibited.o Purchasing or selling securities on margin is prohibited.. The use of reverse repurchase agreements. securities lending or any other lorm of borrowing or leverage is prohibited.o The purchase offoreign currency denominated securities is prohibited. X. INvESTMENTPooLs/MurriAt,FUNDs 'l'he City of Menifee shall conduct a thorough investigation of any pool or mutual fund prior to making an investment, and on a continual basis thereafter. The Treasurer shall develop a questionnaire which will answer the following general questions: o A description of eligible investment securities, and a written statement of investment policy and objectives.o A description of interest calculations and how it is distributed, and how gains and losses are treated.o A description of how the securities are safbguarded (including the settlement processes), and how often the securities are priced and the program audited.o A description ofwho may invest in the program. how often, what size deposit and withdrawal are allowed.. A schedule for receiving statements and portfolio listings.o Are reserves, retained earnings, etc. utilized by the pool/fund?. A fee schedule. and when and how is it assessed.o Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? City of Menifee policy CC-,11 Page '13 of 25 lnvestment Policy . The securities are rated in a rating category of .'AA" or its equivalent or better by a COLLATERA LIzATIoNxI. tl IX. PRoHIBITED INvEs lltENT VEIIICLES AND pRAC.t t(.t s DocuSign Envelope lD: 4893EEgB-5DDE4O6E-AC1g-D8238BE55g84 city of Menifee Policy CC-11 Page 14 ot 25 lnvesfunent policy CERTIFICATEs oF DEposrr (cDs). 'fhe city ol Menifee shall require any commercial bank or savings and loan association to deposit eligible securities wiih an city of Menifeeofa depository approved by the state Banking Department to secure any uniniured portionof a Non-Negotiable certificate of Deposit. The value of eligible securities as defined pursuant to califomia covernment Code, Section 5365 l. pledged against a certificate of Deposit shall be equal to I50% ofthe face value ofthe cD if the securities are classified as mortgages and I l0% ofthe t'ace value ofthe CD for all other classes ofsecurity. CoLLATERALTZATToN oF BANK DEposrrs, This is the process by which a bank orfinancial institution pledges securities, or other deposits for the purpose of securing repayment of deposited funds. The City olMenifee shall require any bank or financial institution to comply with the collateralization criteria defined in Califomia Govemment Code. Section 5365 I . REpURCHAsE AGREEMENTs. The city of Menifee requires that Repurchase Agreements be collateralized only by securities authorized in accordance with c;lifbrnia Gtivernrnent Code: The securities which collateralize the repurchase agreement shall be priced at Market Value, including any Accrued Interest plus a margin. The Market Value of the securities that underlie a repurchase agreement shall be valued at 1O2o/o or greater ofthe funds borrowed against those securities. Financial institutions shall mark the value of the collateral to market at least monthly and increase or decrease the collateral to satisfy the ratio requirement described above. The City of Menifee shall receive monthly statements of collateral. XII. DELIvERY, SAFEKEEPING AND CUSToDY DELtvERy-vERsus-PAyMENT (DVP). All investment transactions shall be conducted on a delivery-versus-payment basis. SAFEKEEPTNG AND CusToDy. To protect against potential losses due to flailure of individual securities dealers. and to enhance access to securities, interest payments and maturity proceeds, all cash and securities in the City of Menifbe's portfblio shall be held in safekeeping in the City of Menifee's name by a third party cusrodian, acting as agent for the City of Menifee under the terms of a custody agreement execuled by the bank and the City of Menifee. All investment transactions will require a safekeeping receipt or acknowledgment generated from the trade. A monthly report will be received by the City of Menifee from the custodian listing all securities held in safekeeping with current market data and other information. The only exceptions to the foregoing shall be depository accounts and securities purchases made with: (i) local government investment pools; (ii) time certificates ofdeposit, and, (iii) money mutual funds, since the purchased securities are not deliverable. 1.1 DocuSign Envelope lDr 4893EEgB-5DDE406E-AC jg-D82388ES5984 City of Menifee Policy CC-11 Page 15 of 25 lnvestment Policy XIII. MAxtMr;MMATrIRtry To the extent possible, investments shall be requirements and known future liabilities. rnalched with anticipated cash flow 'l'he City of Menifee will not invest in securities maturing more than five (5) years from the date oftrade setllement. unless the Goveming Body has by resolution granted authority to make such an investment. XIV. RrsK MANAGEMENT AND DlvERStFtcATtoN MTTTGATTNC CREDTT RrsK rN THE P0RTFoLro Credit risk is the risk that a security or a portfolio will lose some or all its value due to a real or perceived change in the ability ofthe issuer to repay its debt. The City of Menifeewill mitigate credit risk by adopting the following strategies: o The diversification requirements included in the "Authorized Investments" section of this policy are designed to mitigate credit risk in the porrfblio. No more than 5% ofthe total portfolio may be deposited with or invested in securities issued by any single issuer unless otherwise specified in this policy. The C ity of Menifee may elect to sell a security prior to its maturity and record a capital gain or loss in order to manage the quality, liquidity or yield ofthe portfolio in response to market conditions or City of Menifee's risk preferences. Ifthe credit ratings ofany security owned by the City of Menifee are downgraded to a level below the quality required by this investment policy. ir will be the City of Meni[ee's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. lf a security is downgraded, the Treasurer will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer. and other relevant faclors. Ifa decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported monthly to the Goveming Body. MTTIGATING MARKET RIsK IN THE PoRTFoLIo Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates. The City of Menifee recognizes that, over time, longer-term portfolios have the potential to achieve higher returns. On the other hand, longer-term portfolios have higher volatility of retum. The City of Menifee will mitigate market risk by providing adequate liquidity for short-term cash needs. and by making longer-term investments only with funds that are not needed for current cash flow purposes. l5 DocuSign Envelope lD: 4893EEgB-5DDE-406E-AC1g-D82388E5S984 City of Menifee Policy CC-l1 Page 16 of 25 lnvestment Policy The City of Menifee fufther recognizes thar certain types of securities, including variable rate securities, securities with principal paydowns prior to maturity. and securities with embedded options, will affect the market risk profile ofthe portfolio diflbrently in differenr int€rest rate environments. The city of Menifee, therefore, adopts the following strategies to control and mitigate its exposure to market risk: o The City of Menifee will maintain a minimum of six months of budgeted operating expenditures in short term investments to provide sullcient liquidity for .*p""t"d disbursements. The duration of the portfolio will generally be approximately equal to the duration (typically, plus or minus 20Yo) of a Market Benchmark. an index selected by the City of Menifee based on the City of Menifee's investment objectives, constraints and risk tolerances. XV. REvIEw oF INvESTMENT PoRTFoLIo The Treasurer shall periodically, but no less than quarterly, review the portfolio to identity investments that do not comply with this investment policy and establish protocols lor reporting major and critical incidences ofnoncompliance to the Coverning Body. XVI. PER},oRMANCEEVALT]ATIoN The investment portfolio shall be designed to attain a market-average rate of return throughout budgetary and economic cycles, taking into account the City of Menifee's risk constraints, the cash flow characteristics of the portfolio, and state and local laws, ordinances or resolutions that restrict investments. The Treasurer shall monitor and evaluate the portfolio's performance relative to the chosen market benchmark(s), which will be included in the Treasurer's quarterly report. The Treasurer shall select an appropriate, readily available index to use as a market benchmark. XVII. R!:PoRTrN(l MONTHLY REPORTS Monthly transaction reports will be submitted by the Treasurer to the Governing Body within 30 days of the end of the reporting period in accordance with Califomia Government Code Section 53607. i6 o The maximum stated final maturity of individual securities in the portfolio will be five (5) years, except as otherwise stated in this policy. DocuSign Envelope lD: 4893EEgB-5DDE-406E-AC19-D82388E55984 City of Menifee 2. Transactions for the period. QUARTERLY REPoRTs The Treasurer.will submit a quarterry invesrment report to the Governing Body whichprovides full disclosure of the city of Menifee's investment activities within 30 davs at-lerthe end_of the quarter. These reports willdisclose, at a minimum, the following information about the City of Menifee's portfolio: l. An ass€t listing showing par value, cost and independenr third-party fair market valueof each security as of the date of the reporr, the source of ihe'varuation, type ofinvestment, issuer, maturity date and interest rate. Policy CC-l l Page 17 ol 25lnvestment Policy 3. A description ofthe funds, investments and programs (including lending programs) managed by contracted parties (i.e. LAIF; investment pools, outside ,on"y'n,u-nug.., and securities Iending agents) 4. A one-page summary report that shows:a. Average maturity ofthe portlolio and modified duration ofthe portfolio;b. Maturity distribution of the portfolio:c. Percentage ofthe portfolio represented by each investment category;d. Average portfolio credit quality: and,e. Time-weighted total rate of retum lor the portfolio for the prior one month, three months, twelve months and since inception compared to the City of Menilee.s market benchmark returns for the same periods; A statement of compliance with investment policy. including a schedule of any transactions or holdings which do not comply with this policy or with the Califomia Government Code, including a justification for their presence in the poftfolio and a timetable for resolution. 5 6. A statement that the city of Menifee has adequate funds to meet its cash flow requirements for the next six months. ANNUAL REPoRTS A comprehensive annual report will be presented to the Governing Board. This report will include comparisons of the City of Menitbe's retum to the market benchmark return, suggest policies and improvements that might enhance the investment program, and will include an investment plan for the coming year. XVIII. REvrEw oF INvESTMEN'r' PoLtcy The investment policy will be reviewed and adopted at least annually within 120 days of the end of the fiscal year, to ensure its consistency with the overall objectives of preservation ofprincipal. liquidity and return, and its relevance to current law and financial and economic trends. t7 OocuSign Envelope lDi 4893EE9B-5DDE-406E-AC 1 9-DB23e8E5S9S4 City of Menifee Policy CC-l1 Page 18 of 25 Any recommended modifications or amendments shall be presented by Staff to the Governing Body for their consideration and adoption. lnvestment Policy APPENDIX A PERMITTED INVESTMENTS Itt Oocusign Envelop€ lDi 4893EE9&5DDE-406E-ACl gD8238BE55984 City of Menifee Policy CC-11 Page 19 of 25 lnvestment Policy ALIOWASLT INVESTMENT INSTRUMENTS PER STATE GOVERNMTNTCODE (As oF JANUARv 1,202L1o acelrcletr to lLt rocat lctlcrrs" See "Table of Notes" on the next pate for rootnotes related to this table. INVESTMENT TYPE REMAINING MATURITY MAXIMUM SPECIFIED % Of PORTFOLIO City ofMenifee Policy MINIMUM QUALITY REOUIREMENTS GOVERNMENT CODE SECTIONS Localagency Bonds 5 years s3601(a) U-S. Treasury Obligations 5 years State Obligationsr CA and Others s3601(d) CA Local ABency Oblications 5 years None s3601(e) u.S, ASency ObliSations None s3601(f) Bankers Acceptance 180 days aoN'aox's3601(s) Commercial Paper: Non-pooled Fundsr 270 days or less 25% of the a8encl's 2596 of the aSency's Highest letter and number ratinc bv an NRsRoN s3601th)(2)(c) commer€ial Papel| Pooled Fundsl 270 days or less 40% of the aaency's 25% ofthe agency's Highest letter and number retinp bv an NRsRoH s363s(a)(1) NeSotiable Certficates of Deposit 5 years lovJ zoNt Non-neSotieble Certificates of Oeposit 5 years None None 53630 et seq Placement Service Deposlts :ox*:o**53601.8 and 5363s.8 Placement Service Certificates of Deposit 5 years 3o%'3o%*53601.8 and 53635.8 Repurchase ASreements None 51601(l) Reverse Repurchase Agreements and Securities Lendin8 A8reements 20% of the base value of the pordolio 20x of the base value ofthe portfolio s3601(l) Medium Term NotesN 5 years or less 30%30%"A" rating cate8ory or its equivalent or better 53601(k) Mutual Funds and Money Market Mutual zo*o zo*o MultipleP'a s3601(l)and s3601.6(b) Collateralized Bank OepositsR 5 years ?o%53630 et seq. and s3601(n) Mortgage Pass-throuSh and asset Ba€ked Securities 5 years or less 2A%20%"AA" ratinScategory or ats equivalent or better S3601(o) County Pooled lnvestment Funds 27133 Joint Powers Authority Pool None MultlpLes s3601(p) Local Agency lnvestment Fund (LAlf )None 16429 1 Voluntary lnvestment Program Fundr N/A 16340 Supranational Obligation5u 5 years or less 30%3A%"AA" rating cateSory or its equivalent or better s3601(q) l9 s3601(b) s3601li) 92 daysl None None ssa/.ro a^a la wnatxew0z e w^'(gov \ueg uewdop^eo uvJuewv -!eu pue '(c! uo\etodloc ecueuJ puoueweu '(oagl luowdop eO pue uotlcruFuocoy )o! \ueg puotJewelq eql Aq Neuereni qPualqu@un )o potlsst suoD&Ro esoq lpo n -IU1OCCV lUeWlSeAUl ieUON pepodqql u pelse{ut eq n pury eql u! sltsodeo sepoq 6uuo^06 roql lq P^udde uodn 'puu wa6o1d pewpe^q fueynpA eql op uoUffi o$ pue uo ltw ooz$ ueeryeq l9odep uec seultue pco'l ! 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'lueq le eww@ ouo lue lo socualdecce ,sla\uequ eq leuleuow s,lcuobe oq lo yeued Oe ueqt erou oN-J 'suolcuFeJ eq ol lzelqns eq gnot UeweqDB eseqctndd *n q e wo4qsec'ecuequ )o! spunl lo @rnos ./o sso/prs6eJ sluerrrso^ ut otlwod F ot fidde sebeposed.O )tul lqnpa Jeel-o^! eql 'upeecxenunces lue lo esoqr,rnd eqt ol roud sqluoa odql ueql ssel ou penss eq gnw p^udde qans Wukunpw buueuet leet e ! stq spe€oxe pq l$q e^qeq$et oql tq W ojdde weJ^otd lueu$e^ut uelo Uad e se Jo irca@eds )eqlte sluewge^u erpw ol huoqne sserdxo luab leu ipoq eNBgtbol stll ')e eMoH .sJeel eNl st pglels esr t/eqlo sse/u, 'uolces s ll )epun pezuoqlne uew$o^ut iue lo wet anuxew eql pqt sspt^ord Llgtg uolr,ei.C eteq pessetppe tou sotuncos ueyoc ut tse^uol Llgzl ooucos epoc sottlqn crynd eql )epun fu)oqne eqt e eq spulse se tn pdaunw.g t0919 pue '9 9e9c9 '0e909 "bes 16 oe9e9 '8 Log€g'g Logtg'togtg'ttLlz t.6zt9L'oreg, suoljcos ise..,nos v Acrlo6 luaulseru; eeluayy;o firg tg699f88ezao{t3v-:90}-foo9-9633e68t :ot adop u3 uo€rt]oo gZ lo OZ o6ed ! t-cc Ic!tod slroN lo ]l8vt DocuSign Envelope lDr 4893EE98-SODE-406E-AC j SD82388ESSg84 City of Menifee Policy CC-'l l Page 21 ot 25 GLoSSARY oF INvESTMENT T0RMS AGENCTES. shorthand market terminology for any obligation issued by a govemment-sponsored entity (GSE), ot a federally related institution. Most obligations of GSEs are not guaianteeoby the full faith and credit of the US government. Examples are: FFCB. The Federar Farm- credit Bank system provides credit and riquidity in theagricultural industry. FFCB issues discount notes and bonds.FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market.FHLB issues discount notes and bonds. FHLMC. Like FHLB, the Federal Home Loan Mortgage corporation provides credit andliquidity in the housing market. FHLMC, arso ialed "FieddieMac" issues discountnotes, bonds and mortgage pass-through securities. FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association wasestablished to provide credit and liquidity in the housing markEt.-FNMA, also knownas "FannieMae," issues discount notes, bonds and mortgage pass{hrough securities.GNMA. The Government Nationar Mortgage Association, rnown as "Ginnie-Mae," issuesmortgage pass{hrough securities, which are guaranteed by the full faith and credit ofthe US Government. PEFCO. The Private Export Funding Corporation assists exporters. Obligations of pEFCO are not guaranteed by the full faith and credit of the US government. TVA. The Tennessee Valley Authority provides flood contiol and power and promotes development in portions of the Tennessee, ohio, and Mississippi River valeys. TVAcurrently issues discount notes and bonds. AssET BACKED sEcuRrrEs. securities supported by pools of installment loans or leases or bypools of revolving lines of credit. AVERAGE L|FE. ln mortgage-related investments, including cMos, the average time to expected _ receipt of principal payments, weighted by the amount of principal ex[ected.BANKER'S AccEPTANCE. A money market instrument created to facilitate international tradetransactions. lt is highly liquid and safe because the risk of the trade transaction is transferred to the bank which "accepts" the obligation to pay the investor. BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects the mix of securities allowed under a specific investment policy. BRoKER. A broker brings buyers and sellers together for a transaction for which ihe broker receives a commission. A broker does not sell securities from his own posrtion. CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity. The main cause of a call is a decline in interest rates. lf interest rates decline, the issuer will likely call its cunent securities and reissue them at a lower rate of interest. CERrlFlcArE oF DEPoslr (CD). A time deposit with a specific maturity evrdenced by a certificate. CERTIFICATE oF DEPoSIT AccoUNT REGISTRY SYSTEM (CDARS). A private placement Service that allows local agencies to purchase more than $250,000 in cDs from a single financial institution (must be a participating institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is currently the only entity providing this service. CDARS facilitates the trading of deposits between the California institution and other participating institutions in amounts that are less than $250,000 each, so that FDIC coverage is maintained. lnvestment Policy 2l DocuSign Envelope lD: 4893EEgB-5DDE-406E-AClg-D82388E55984 City of Menifee Policy CC-11 Page 22 ot 25 lnvestment Policy CoLLATERAL. securities or cash pledged by a borrower to secure repayment of a loan orrepurchase agreement. Also, securities pledged by a financial institution to secure deposits of public monies. coLLATERALIZED BANK oEPOSIT. A bank deposit that is collateralized at least 100% (principal plus interest to maturity). The deposit is collateralized using assets set aside by the issuer such as Treasury securities or other qualified collateral to secure the deposit in excess of the limit covered by the Federal Deposit lnsurance Corporation. CoLLATERALIZED MORTGAGE OBLIGATTONS (CMO). Classes of bonds that redistribute the cashflows of mortgage securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to the underlying mortgage securities. CoLLATERALIZED TIME DEPoslT. Time deposits that are collateralized at least 100% (principal plus interest to maturity). These instruments are collateralized using assets set aside by the issuer such as Treasury securities or other qualified collateral to secure the depoiit in excess of the limlt covered by the Federal Deposit lnsurance Corporation. CoMMERcTAL PApER. The short-term unsecured debt of corporations. CoupoN. The rate of return at which interest is paid on a bond. CREolr RlsK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer. DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position. DEBENTURE. A bond secured only by the general credit ofthe issuer. DELTVERY vs. PAYMENT (DVP). A securities industry procedure whereby payment for a security must be made at the time the security is delivered to the purchaser,s agent. DERrvATrvE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of another security which has been separated from other components ("Stripped" coupons and principal). A derivative is also defined as a financial instrument the value of which is totally or partially derived from the value of another instrument, interest rate, or index. DtscoUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some short-term securities, such as T-bills and banker's acceptances, are known as discount securities. They sell at a discount from par and return the par value to the investor at maturity without additional interest. Other securities, whlch have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for securities of that maturity and/or quality. DlvERslFlcATloN. Dividing investment funds among a variety of investments to avoid excessive exposure to any one source of risk. OuRATroN. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a security to changes interest rates. FEDERAL DEposrr lNsuRANcE CoRpoRATtoN (FDIC). The Federal Deposit lnsurance Corporation (FDIC) is an independent federal City of Menifee insuring deposits in U.S. banks and thrifts in the event of bank failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. FEDERALLY lNsuRED T|ME DEposrr. A time deposit is an interest-bearing bank deposit account that has a specifled date of maturity, such as a certificate of deposit (CD). These deposits are limited to funds insured in accordance with FDIC insurance deposit limits. LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate hrgher than the cost of borrowing. LreurDrry. The speed and ease with which an asset can be converted lo cash. 12 DocuSign Envelope lD: 4893EEgB-5ODE406E-AC19-D823BBESSg84 City of Menifee Policy CC-11 Page 23 of 25 lnvestment Policy LocAL ClTy oF MENTFEE INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer's Office. LocAL GovERNMENT INVESTMENT PooL. lnvestment pools that range from the state Treasurer's Office Local City of Menifee lnvestment Fund (LAIF) to county pools, to Joint powers Authorities (JPAS). These funds are not subject to the same SEC rules applicable to money market mutual funds. MAKE WHoLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early. Unlike a call option, with a make whole call provision, the issuer makes a lump sum payment that equals the net present value (NpV) of future couponpayments that will not be paid because of the call. With this type of call, an investor is compensated, or "made whole." MARGIN. The difference between the market value of a security and the loan a broker makes using that security as collateral. MARKET RlsK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest rates. MARKET VALUE. The price at which a security can be traded. MATURrry. The final date upon which the principal of a security becomes due and payable. MEDIUM TERM NorEs. Unsecured, investment-grade senior debt securities of major corporations which are sold in relatively small amounts on either a continuous or an intermittent basis. MTNS are highly flexible debt instruments that can be structured to respond to market opportunities or to investor preferences. MoDTFTED DURAT|oN. The percent change in price for a 1oo-basis point change in yields. Modified duration is the best single measure of a portfolio's or security's exposure to market risk. MoNEy MARKET. The market in which short{erm debt instruments (T-bills, discount notes, commercial paper, and banker's acceptances) are issued and traded. MoNEY MARKET MUTUAL FUND. A mutual fund that invests exclusively in short-term securities. Examples of investments in money market funds are certificates of deposit and U.S. Treasury securities. Money market funds attempt to keep their net asset values at g1 per share. MoRTGAGE PASS-THRoUGH SEcuRrrES. A securitized participation in the interest and principal cash flows from a specified pool of mortgages. Princapal and interest payments made on the mortgages are passed through to the holder of the security. MuNrcrpAL SEcuRrTrEs. Securities issued by state and local agencies to finance capital and operating expenses. MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities which is specifically defined in the fund's prospectus. Mutual funds can be invested in various types of domestic and/or international stocks, bonds, and money market instruments, as set forth in the individual fund's prospectus. For most large, institutional investors, the costs associated with investing in mutual funds are higher than the investor can obtain through an individually managed portfolio. NATIoNALLY REcoGNtzED STAT|ST|cAL RATTNG ORGANtzATtoN (NRSRO), A credit rating City of Menifee that the Securities and Exchange Commission in the United States uses for regulatory purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent NRSROs are Fitch, S&P, and Moody's. NEGoTTABLE CERTTFTCATE oF DEpoSrT (CD). A shortterm debt instrument that pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state- licensed branch of a foreign bank. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). 23 Policy CC-l'l Page 24 ot 25lnvestment Policy PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reservein its execution of market operations to carry out u.s. moretary poricy, and (2) ihatparticipates for statistical reporting purposes in compiling data on activity in tne U.s.Government securities market. PRUDENT PERSoN (PRUDENT INVESToR) RULE. A standard of responsibility which applies tofiduciaries. ln California, the rule is stated as "lnvestments shall be managed withihe care,skill, prudence and diligence, under the circumstances then prevailin!, that a prudentperson, acting in a like capacity and familiar with such mafters, would uie in the conductof an enterprise of like character and with like aims to accomplish similar purposes.,, REPURcHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement tosell the securities back at a higher price. From the seller's point of viewl the sametransaction is a reverse repurchase agreement. SAFEKEEPTNG. A service to bank customers whereby securities are held by the bank in thecustomer's name. sEcuRrrEs AND ExcHANGE coMMrssroN (sEc). The u.s. securities and Exchange commission(sEC) is an independent federal government city of Menifee responsibl6 for protecting investors, maintaining fair and orderly functionrng of securities markets and iacilitatingcapital formation. lt was created by Congress in 1934 as the first federal regulator oisecurities markets. The sEC promotes full public disclosure, protects investo[ againstfraudulent and manipulative practices in the market, and monitors corporate tak-eoveractions in the United States. sEcuRrrEs AND EXCHANGE coMMrssroN sEc) RULE 1sc3-1. An sEc rule setting capitalrequirements for brokers and dealers. under Rule 15c3-1, a broker or dealer m-ust havesufficient liquidity in order to cover the most pressing obligations. This is defined as havinga certain amount of liquidity as a percentage of the broker/dealer's total obligations. lf thepercentage falls below a certain point, the broker or dealer may not be allowed to take onnew clients and may have restrictions placed on dealings with current client. STRUcTURED NorE. A complex, fixed income instrument, which pays interest, based on a formulatied to other interest rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase when other interest rates are falling, and which fall when other interest rates are rising, and "dual index floaters," which pay interest basedon the relationship between two other interest rates - for example, the yield on the ten-year Treasury note minus the Libor rate. lssuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap agreements. supRANATroNAL. A supranational is a multi-national organization whereby member states transcend national boundaries or interests to share in the decision making to promote economic development in the member countries. ToTAL RATE oF RETURN. A measure of a portfolio's performance over time. lt is the internal rateof return, which equates the beginning value of the portfolio with the ending value; rt includes interest earnings, realized and unrealized gains, and losses in the portfolio. u.s. TREASURY oBLtGAroNs. securities issued by the u.s. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk and arethe benchmark for interest rates on all other securities in the US and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds. TREASURY BlLLs. All securities issued with initial maturities of one year or less are issued as discounted instruments and are called Treasury bills. The Treasury currently issues three- and six-month T-bills at regular weekly auctions. lt also issues "cash management" bills as needed to smooth out cash flows. TREASURY NoTES, All securities issued with initial maturities of two to ten years are called Treasury notes and pay interest semi-annually. 24 DocuSign Envelope lD: 4893EEgB-5DDE4O6E-AC19D82388E55984 City of Menifee DocuSign Envelope ID: 4893EE98-5DDE-406E-AClgOB2388E5S984 Gity of Menifee Policy CC-l1 Page 25 ot 25 TREASURY BoNDs. All securities issued with initial maturities greater than ten years are calledTreasury bonds. Like Treasury notes, they pay interest iemi_annually. YIELD To MATURITY. The annualized internal rate of return on an Investment which equates theexpected cash flows from the investment to its cost. lnvestment Policy 25 DocuSign Envelope lD: 4893EEgB-5DDE-406E-AC19-D82388E55984 STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF MENIFEE l, Sarah A. Manwaring, City Clerk of the City of Menifee, do hereby certify that the foregoing Resolution No. 21-1018 was duly adopted by the City Council of the City of Menifee at a meeting thereof held on the 5th day of May 2021 by the following vote: Ayes: Deines, Karwin, Liesemeyer, Sobek, Zimmerman Noes: None Absent: None Abstain: None ) )ss ) Sualt I luzruwrttu4 Sarah A anwaring, City Clerk Ft^ \# grJlrl