19-775RESOLUTION NO. 19-775
Whereas, Government Code Section 53607 permits the City Council to delegate its
investment authority to the City Treasurer by resolution each fiscal year; and
Whereas, the City Council desires to make such delegation in conjunction with the approval
of an investment policy;
NOW, THEREFORE, the City Council of the City of Menifee, California, does hereby
RESOLVE, DETERMTNE and ORDER as follows:
SECTION 1 The City Council hereby adopts the Statement of lnvestment Policy, attached
and incorporated here as Exhibit "A"
SECTION 2: The City Council hereby delegates to the City Treasurer the City Council's
investment authority and authorizes the City Treasurer to appoint deputies to assist in carrying out
this function for fiscal year 2018-19.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MENIFEE, CALIFORNIA,
APPROVING THE FISCAL YEAR 2018-2019 INVESTMENT POLICY AND APPROVING
DELEGATION TO THE CITY TREASURER TO CARRY OUT SUCH POLICY
PASSED, APPROVED ANO ADOPTED this 6th day of March, 2019
1/X,kt'*" WF.*
Attest:
ah tvlanwa s ity Clerk
Approved as to form
J lching, City Atto
STATE OF CALIFORNIA
COUNTY OF RIVERSIDE
CITY OF MENIFEE
l, Sarah Manwaring, City Clerk of the City of Menifee, do hereby certify that the foregoing City
Council Resolution No, 19-775 was duly adopted by the City Council of the City of Menifee at a
meeting thereof held on the 6'h of March, 2019 by the following vote:
Ayes: Deines, Liesemeyer, Sobek, August, Zimmerman
Noes: NoneAbsent: NoneAbstain: None
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)ss
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htvanwanng,ity Clerk
MENIFEE
o
CITY OF MENIFEE
City Council Policy
Policy Number: GC-03
Approving Authority. City Council
Subject:
lnvestment Policy (FY 2018-2019)
Effective Date: March 6, 2019
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This statement is intended to provide guidelines for the prudent investment of the city of
Menifee's (city) temporary idle cash. lt is intended to provide meaningful guidance in the
management of the city's investment portfolio and not be overly restrictive given the
changing economic and investment market conditions.
2. SCOPE / BACKGROUND
This lnvestment Policy applies to all financial assets and investment activities of the City with
the following exceptions:
A. lnvestments in the City's Defined Contribution Plans (Deferred Compensation)
B. Proceeds of debt issuance shall be invested in accordance with the City,s general
investment philosophy as set forth in this policy; however, such proceeds are invested in
accordance with permitted investment provisions of their specific bond indentures
Pooling of Fundsr Except for cash in restricted and special funds, the City 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 in
accordance with generally accepted accounting principles.
3. POLTCY
It is the policy of the city of Menifee to invest public funds in a manner which will provide
the highest investment return with the maximum security, while meeting the daily cash flow
demands of the entity, and conforming to all state and local statutes governing the
investment of public funds.
This policy statement shall be reviewed no less than annually by the Finance Committee
and shall be re-adopted by the City Council every year.
A, PRUDENCE
The overall program shall be designed and managed with a degree of professionalism
worthy of the public trust.
1. PURPOSE
4. PROCEDURE
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lnvestment Policy (FY 2018-20191
lnvestment officials managing City funds shall use the "Prudent lnvestor,'standard.
lnvestment officers acting in accordance with this Policy, written portfolio guidelines and
procedures, and exercising due diligence shall be relieved of personal responsibility for
individual security's credit risk and/or market price changes, provided deviations from
expectations are reported in the monthly and quarterly investment reports to the City
Council, and appropriate action is taken to control adverse developments.
The Prudent lnvestor Standard of Care, as described in California Government Code
Section 53600.3 states that " . . . all governrng bodies of local agencies or persons
authorized to make investment decisions on behalf of those local agencies investing
public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. When tnvesting, 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 of the agency,
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 agency. Within the limitations of this
section and considering individual investments as part of an overall strategy,
investments may be acquired as authorized by law."
B. OBJECTIVES
Preservation and protection of the City's capital is the guiding philosophy of the
investment program, which will be managed in accordance with California Government
Code Section 53600 et seq.
It is expected that the City's investment objectives will be achieved over a minimum time
horizon of 3 - 5 years. Given the cyclical nature of the financial markets, the success of
the portfolio manager in achieving these goals should not be judged in any shorter period
of time.
Objectives for selecting investments in order of priority are:
Safety. Safety of principal is the foremost objective of the investment program.
lnvestments shall be undertaken in a manner that seeks to ensure the preservation
of capital in the overall portfolio. The objective will be to mitigate credit risk and
interest rate risk.
Liquidity: The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated.
Return: The investment portfolio shall be designed with the objective of attaining a
market rate of return throughout budgetary and economic cycles, taking into account
the investment risk constraints for safety and liquidity needs. The targeted rate of
return on the City's portfolio is more specifically defined in Section XVll.
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Safety of Principal
The City's first objective shall be to protect the portfolio's value by instituting prudent
practices to manage portfolio risk and by instituting a system of controls that is
adequate to protect against fraud or mismanagement. Examples of prudent practices
to manage portfolio risk include establishing a target average duration to control
exposure to market risk, establishing a minimum ratjng standard for corporate
investments to control credit risk; and establishing appropriate diversification
standards.
The City's goal is to safeguard the principal of the funds invested; however, the City
Treasurer may elect to sell a security prior to its maturity and record a capital gain or
loss in order to improve the quality, liquidity, or rate of return of the portfolio in
response to market conditions and/or the City's risk preferences.
The second objective of the lnvestment Program shall be to have sufficient funds to
ensure the City can meet all cashflow requirements that may be reasonably
anticipated. This objective may be achieved in a number of ways including purchasing
short-maturity investments, matching investment maturities to known cash outflows,
and investing in the Local Agency lnvestment Fund (LAIF), which is managed by the
State Treasurer for the benefit of California local agencies. Adequate liquid cash
should be maintained by the City so that a forced sale of longer-term securities at a
loss is unnecessary to cover short{erm cash needs.
iii. Yield (Rate of Return)
The third objective of the lnvestment Program shall be to attain an average market
rate of return through budgetary and economic cycles consistent with the risk
limitations, prudent investment principles, and cash flow characteristics identified
herein. For comparative purposes, the City will compare its performance to the
performance of market benchmarks of similar duration and sector allocatjon.
tv Preservation of Purchasing Power
The City's goal for asset growth, exclusive of contributions and withdrawals, is to
equal or exceed the rate of inflation in order to preserve the purchasing power of the
City's assets. The preservation of purchasing power is also known as the "Real Rate
of Return" (RRR).
ii. Liquidity
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Growth of Gapital and Market Benchmark
The City's portfolio is divided into two segments, designated as the Liquidity portfolio
and the Reserve Portfolio. lnvestment performance in each segment shall be
measured as the total rate of return, including interest earnings, realized gains and
losses and unrealized market value changes.
5. DELEGATION OF AUTHORITY
Authority to manage the city of Menifee's investment program is derived from city council
Resolution. Management responsibility for the investment program is hereby delegated to
the city Treasurer who shall be responsible for all transactions undertaken, and sha
establish a system of controls to regulate the activlties of subordinate officials and their
procedures in his/her absence.
The City of Menifee's Treasurer is authorized to:
A. Formulate any and all procedures necessary to implement this policy.
B. Determine the allocation of the City's total funds available for investment.
C. Engage investment management consultants to assist in the investment, management,
oversight, evaluation, or other services related to the City's investments.
D. Take other actions, as appropriate and necessary, to implement and carry out this policy.
Subject to the limitations stated herein, and when the services of an investment
management consultant are utilized, the designated investment manager is given full
discretion consistent with the investment objective of the investment portfolio.
ETHICS AND CONFLICTS OF INTEREST
Officers, employees, and agents involved in the investment process for the City of Menifee
shall refrain from personal business activities that could conflict with the proper execution of
the investment program, or which could impair their ability to make impartial decisions.
Officers, employees, and agents involved in the investment process shall abide by the
California Government Code Section 1090 et seq. and the California Political Reform Act
California Government Code Section 81000 et seq.
6. INVESTMENTPROCEDURES
The City Treasurer shall establish written jnvestment policy procedures for the operation of
the investment program consistent with this policy. The procedures should include
reference to safekeeping, wire transfer agreements, banking service contracts and
collateral/depository agreements. Such procedures shall include explicit delegation of
authority to persons responsible for investment transactions. No person may engage in an
investment transaction except as provided under the terms of this policy and the
procedures established by the City Manager.
7.
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8. AUTHORIZED FINAN CIAL DEALERS AND INSTITUTIONS
The City Treasurer will maintain a list of financial institutions authorized to provide
investment services. ln addition, a list will be maintained of approved security
broker/dealers selected by credit worthiness who are authorized to provide investment
services in the State of California. These may include "primary" dealers or regional dealers
that qualify under Securities & Exchange Commission Rule 1SC3-1 (uniform net capital
rule). No public deposit shall be made except in a qualified public depository as estabtished
by state laws.
All financial institutions and broker/dealers who desire to become qualified bidders for
investment transactions must supply the City Treasurer with the following. audited financial
statements, proof of National Association of Security Dealers certlfication, trading
resolutron, proof of state registration, completed broker/dealer questionnaire, and
certification of having read entity's investment policy and depository contracts.
An annual review of the financial condition and registrations of qualified bidders will be
conducted by the City Treasurer. AIso, a current audited financial statement is required to
be on file for each financial institution and broker/dealer in which the City invests.
The City Treasurer will require all authorized financial institutions with which City funds are
on deposit to provide a copy of the institution's annual report. The annual report shall
include audited financial statements and any other information deemed pertinent by the
City Treasurer.
The City's lnvestment Adviser may execute investment transactions using broker/dealers
approved by the lnvestment Adviser.
9. AUTHORIZED AND SUITABLE INVESTMENTS
The California Government Code authorizes public agencies to invest in a broad array of high
quality fixed income securities. However, the City of Menifee limits its investments to the
following vehicles:
A. Securities issued or guaranteed by the full faith and credit of the United States
Government or its agencies, which include, but are not limited to: FDIC, FFCB, FHLB,
FNMA, FHLMC, GNMA, ryA,
B. Negotiable and Non-negotiable Certificates of Deposit (s-year maximum).
C. Commercial PaperratedA-1 by Standard & Poor's Corporation orP-1 by Moody's lnvestor
Services.
D. Banker's Acceptances.
E. Local Agency lnvestment Fund (LAIF).
F. Passbook savings demand deposits.
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G. Mutual funds that invest only in State of California authorized investments.
H. SEC-registered money market mutual funds.
l. Corporate Bonds rated "A" or better.
J. Authorized investment pools
K. Asset-backed, mortgage-backed, mortgage pass{hrough securities, and collateralized
mortgage obligations rated "AA" or better from an issuer rated "A" or better.
L. supranational securities rated "AA" or better, which include: lnter-American Development
Bank, lnternational Bank for Reconstruction & Development, and lnternational Finance
Corp.
Any amendments to the policy must be submitted to the city council for review and approval
10.INVESTM ENT POOLS AND MUTUAL FUNDS
A thorough investigation of the pool/fund is required prior to investing, and on a continual
basis. There shall be a questionnaire developed which will answer the following general
questions:
A. A description of eligible investment securities, and a written statement of investment
policy and objectives.
B. A description of interest calculations and how it is distributed, and how gains and losses
are treated.
C. A description of how the securities are safeguarded (including the setflement
processes), and how often the securities are priced and the program audited.
D. A description of who may invest in the program, how often, what size deposit and
withdrawal are allowed.
E. A schedule for receiving statements and portfolio listings.
F. A determination of whether reserves, retained earnings, etc. are utilized by the pool.
G. A fee schedule, and when and how fees are assessed.
H. A determination of whether the pool is eligible for bond proceeds and/or will it accept
such proceeds.
1 1. PROHIBITED INVESTMENTS
Pursuanl to Government Code Section 53601.6, local agencies are prohibited from making
investments in the following vehicles:
A. lnverse floaters, range notes, or mortgage-derived interest-only strips
B. Zero-interest coupon securities
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The city further limits investments by expressly prohibiting investments in the following:
C. Stocks
D. Futures and options
E. Repurchaseagreements
F. Reverse repurchase agreements
G. Any other investment which in the future may be prohibited by applicable law
12. SAFEKEEPING AN D CUSTODY
Deposits of surplus funds must be made in State or National banks, State or Federal
savings associations or state or Federal credit unions within the state of california. The
deposits cannot exceed the amount of the institution's paid-up capital and surplus.
The institution must collateralize deposits of public funds in accordance with California law
The City Treasurer may waive collateral for that portion of a deposit which is insured
pursuant to Federal law. Currently, the first $250,000 of a deposit is federally insured
Deposits in excess of insured amounts must be collateralized.
All security transactions entered into by the City of Menifee shall be conducted on a
delivery-versus-payment (DVP) basis. Securities will be held by a third party custodian
designated by the Treasurer and evrdenced by safekeeping receipts.
13. DIVERSIFICATION
The City of Menifee will diversify its investments by security type and institution. Securities
purchases and holdings are maintained within statutory limits imposed by the California
Government Code. The City further limits its investments as follows (as a percentage of the
overall portfolio):
City of Menifee
Diversification Req uirements
lnvestment Limit
Up to FDIC insured limit
U.S. Treasury Obligations No limit
Agency Obligations No limit, <30% per agency
Local Agency lnvestment Fund (LAIF)Legal limit
Certificates of Deposit 30%
Savings Account
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lnvestment Policy (FY 2018-2019)
14. RISK MANAGEMENT
No more than 5% of the total portfolio may be deposited with or invested in securities
issued by any single issuer excluding treasuries, agencies, mutual funds, money market
mutual funds, and supranationals.
Unless matched to a specific cash flow, and with prior City Council approval, the City will
nol invest in securities maturing more than five (5) years from the date of purchase.
15. INTERNAL CONTROL
The City Treasurer shall establish an annual process of independent review by an external
auditor. This review will provide internal control by assuring compliance with policies and
procedures.
16.PERF ORMANCE STANDARDS
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with the investment risk
constraints and the cash flow needs.
Portfolio performance will be measured and reported no less than quarterly by the
investment manager. lnvestment performance will be measured against commonly
accepted market benchmarks which reflect the City's investment objectives and
constraints.
A. Liquidity Portfolio
The City shall strive to achieve a return on the Liquidity Portfolio, exclusive of
contributrons and withdrawals, that equals or exceeds the return on a market index of US
Banker's Acceptances l Oo/o
Commercial Paper 10%
Mutual Funds 2OYo; <10o/o per issuer
Money Market Mutual Funds 2Oo/o, <20o/o per issuer
Corporate Bonds rated "A" or higher 30%
Asset Backed Securities rated "AA" or higher from
an issuer rated "A" or higher 20Yo
Supranational Securities 2OYo, 310o/o per issuer
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B. Reserve Portfolio
The City shall strive to achieve a return on the Reserve portfolio, exclusive of
contributions and withdrawals, that is comparable to the return on a market index that
reflects the City's risk profile and return expectations. The current market benchmark for
the Reserve Portfolio shall be the ICE BAML 1-5 Year US Treasury and Agency lndex.
17. REPORTTNG
The city Treasurer shall render a monthly investment report to the city council and the city
Manager. The report shall include the type of investment, institution, date of maturity, par
value and amount of rnvestment, rate of interest, current market value, source of the market
value, and such other data as may be required by the City Council. The report shall also
include a statement denoting the ability of the city to meet its expenditure requirements for
the ensuing six (6) months or an explanation as to why sufficient funds may not be
available and a statement that the City's investment portfolio is in compliance with the
City's lnvestment Policy or the manner in which it may not be in compliance. {Sec. 53646}
This investment policy shall be adopted by resolution of the City Council of the City of
Menifee. The policy shall be reviewed annually by the City Council and any modifications
made thereto must be approved by the City Council.
19. ROLES AND RESPONSIBILITIES
The City Treasurer is responsible for managing the investment program in accordance with
this policy, as delegated by the City Council.
20. DEFINITIONS
Glossary of lnvestment Terms
AGENctEs. Shorthand market terminology for any obligation issued by a government-
sponsored entity (GSE), or a federally related institution. Most obligations of GSEs
are not guaranteed by the full faith and credit of the US government. Examples are:
FFCB. The Federal Farm Credit Bank System provrdes credit and liquidity in the
agricultural industry. FFCB issues discount notes and bonds.
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Treasury securities with maturities less than or equal to six months. lt is anticipated that
the return on the Liquidity Portfolio will equal the return on the Local Agency lnvestment
Fund (LAIF) over a market cycle. lf the investment policies of LAIF should change, this
objective will be re-evaluated.
18. INVESTMENT POLICY ADOPTION
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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 and
liquidity in the housing market. FHLMC, also called "FreddieMac" issues discount
notes, bonds and mortgage pass-through securities.
FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was
established to provide credit and liquidity in the housing market. FNMA, also known
as "FannieMae," issues discount notes, bonds and mortgage pass{hrough securities.
GNMA. The Government National Mortgage Association, known as "GinnieMae," issues
mortgage pass-through securities, which are guaranteed by the full faith and credit of
the 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 control and power and promotes
development in portions of the Tennessee, Ohio, and Mississippi River valleys. ryA
currently issues discount notes and bonds.
ASKED. The price at which a seller offers to sell a security.
ASSET BACKED SEcURtTtEs. Securities supported by pools of installment loans or leases or
by pools 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 expected.
BANKER'S AccEPTANGE. A money market instrument created to facilitate international trade
transactions. 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.
BtD. The price at which a buyer offers to buy a security.
BRoKER. A broker brings buyers and sellers together for a transaction for which the broker
receives a commisslon. A broker does not sell securities from his own position.
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 since an issuer issues securities, it will likely call its current securities and
reissue them at a lower rate of interest. Callable securities have reinvestment risk as
the investor may receive its principal back when interest rates are lower than when
the investment was initially made.
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CERTTFTGATE oF DEposrr (cD). A time deposit with a specific maturity evidenced by a
certificate. Large denomination CDs may be marketable.
CERTIFICATE oF DEPoSIT AccoUNT REGISTRY SYSTEM (cDARs). A private placement
service that allows local agencies to purchase more than $2S0,OOO in CDs from a
single financial institution (must be a participating institution of CDARS) while still
maintaining FDIC insurance coverage. CDARS is currenfly 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.
CoLLATERAL. securities or cash pledged by a borrower to secure repayment of a loan or
repurchase agreement. Also, securities pledged by a financial institution to secure
deposits of public monies.
CoLLATERALIZED MoRTGAGE OBLTGATToNS (CMO). Classes of bonds that redistribute the
cash flows of mortgage securities (and whole loans) to create securities that have
different levels of prepayment risk, as compared to the underlying mortgage
securities.
CoMMERctAL PAPER. The short{erm unsecured debt of corporations.
Cosr YIELD. The annual income from an investment divided by the purchase cost. Because
it does not give effect to premiums and discounts which may have been included in
the purchase cost, it is an incomplete measure of return.
CoUPoN. The rate of return at which interest is paid on a bond.
CREDIT RISK. 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.
CURRENT YIELD. The annual income from an investment divided by the current market value.
Since the mathematical calculation relies on the current market value rather than the
investor's cost, current yield is unrelated to the actual return the investor will earn if
the security is held to maturity.
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 of the issuer.
OELIVERY 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.
DERlvATlvE. 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.
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DrscouNT. The difference between the par value of a bond and the cost of the bond, when
the cost is below par. some short{erm 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, which 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.
DrvERsrFrcATroN. Dividing investment funds among a variety of investments to avoid
excessive exposure to any one source of risk.
DuRATroN. 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
bond to changes in interest rates. (See m duration
FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other
banks. The Federal Reserve Bank through open-market operations establishes it.
FEDERAL opEN MARKET coMMrrrEE. A committee of the Federal Reserve Board that
establishes monetary policy and executes it through temporary and permanent
changes to the supply of bank reserves.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay
earnings at a rate higher than the cost of borrowing.
LreutDrry. The speed and ease with which an asset can be conve(ed to cash.
LocAL AcENcy INVESTMENT FUND (LAIF). A voluntary investment fund open to government
entities and ce(ain 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 Agency 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 coupon
payments that will not be paid because of the call. With this type of call, an investor
is compensated, or "made whole."
MARG|N. 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.
MARKTNG To MARKET. The process of posting current market values for securities in a
portfolio.
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MATURrry. The final date upon which the principal of a security becomes due and payable.
MEDTUM TERM Nores. Unsecured, investment-g rade 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.
MoRTGAGE PASS-THRoUGH SEcuRrrES. A securrtized participation in the interest and
principal cash flows from a specified pool of mortgages. principal and interest
payments made on the mortgages are passed through to the holder of the security.
MuNlclPAL SEcuRlTlEs. Securities issued by state and local agencies to finance capital and
operating expenses.
MuruAL 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.
NATToNALLy REcocNtzED STAT|STtcAL RATTNG ORGANtzATtoN (NRSRO). A credit rating
agency 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 CD. A short-term 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).
PREMIUM. The difference between the par value of a bond and the cost of the bond, when
the cost is above par.
PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage
securities.
PREPAYMENT WlNoow. The time period over which principal repayments will be received on
mortgage securities at a specified prepayment speed.
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lnvestment Policy (FY 2018-2019)
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal
Reserve in its execution of market operations to carry out U.S. monetary policy, and
(2) that participates for statistical repo(ing purposes in compiling data on activity in
the U.S. Government securities market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to
fiduciaries. ln California, the rule is stated as "lnvestments shall be managed with the
care, skill, prudence and diligence, under the circumstances then prevailing, that a
prudent person, acting in a like capacity and familiar with such matters, would use in
the conduct of an enterprise of like character and with like aims to accomplish similar
purposes."
REALIZEo YIELD. The change in value of the portfolio due to interest received and interest
earned and realized gains and losses. lt does not give effect to changes in market
value on securities, which have not been sold from the portfolio.
REGIoNAL DEALER. A financial intermediary that buys and sells securities for the benefit of
its customers without maintaining substantial inventories of securities and that is not
a primary dealer.
REPURcHASE AcREEMENT. Short{erm purchases of securities with a simultaneous
agreement to sell the securities back at a higher price. From the seller's point of view,
the same transaction is a reverse repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the
customer's name.
STRUCTUREo NoTE. A complex, fixed income instrument, which pays interest, based on a
formula tied 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 based on 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.
SUPRANATIoNAL. 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 portfollo's performance over time. lt is the internal
rate of return, which equates the beginning value of the portfolio with the ending value;
it includes interest earnings, realized and unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLTGAToNS. 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 are the benchmark for interest rates on all other securities in the US and
City of Menifee Policy CC-03
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lnvestment Policy (FY 2018-2019)
overseas. The Treasury issues both discounted securities and fixed coupon notes
and bonds.
TREASURY B|LLS. 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.
TREASURY BoNDS. All securities issued with initial maturities greater than ten years are called
Treasury bonds. Like Treasury notes, they pay interest semi-annually.
VoLAT|L|TY. The rate at which security prices change with changes in general economic
conditions or the general level of interest rates,
YTELD To MATUR|TY. The annualized internal rate of return on an investment which equates
the expected cash flows from the investment to its cost.
OCopyright 2019 by Chandler Asset Management, lnc.
Revision History
Bill Zimme
Policv CC-03
Page'16 of 16
t
lnvestment Policy (FY 2018-2019)
/f_tt,.t7
Date
Revision No,Date
Approved Approved By:Comments
0 10t1t2008
2008-2009 INVESTMENT POLICY;
Resolution No. 08-18
1 81412009
2009-2010 INVESTMENT POLICY;
Resolution No. 09-1 10
2 11t15t2011
201 1 -2012 INVESTMENT POLICY;
Resolution No. 1 1-240
3 1214t2012
2O1 2-20 13 I NVESTM ENT POLICY;
Resolution No. 12-299
4 11t6t2013
2013-201 4 INVESTMENT POLICY;
Resolution No. 13-345
316t2019
2018-2019 INVESTMENT POLICY;
Resolution No. 19-775
City of Menifee