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HomeMy WebLinkAboutRES FA-681 RESOLUTION NO. FA-68 A RESOLUTION OF THE PALM DESERT FINANCING AUTHORITY APPROVING THE PALM DESERT STATEMENT OF INVESTMENT POLICY, AS AMENDED WHEREAS, pursuant to California Government Code Section 53646, the Treasurer has proposed a Statement of Investment Policy for consideration by the Palm Desert Financing Authority (hereafter referred to as the "Financing Authority"), which is attached hereto, and incorporated herein by reference; and WHEREAS, pursuant to Palm Desert Municipal Code Section 3.08.020, the Agency Board has delegated the authority to invest all public funds that the Agency holds, to the Treasurer. NOW, THEREFORE BE IT RESOLVED, by the Financing Authority, as follows: Section 1. The Palm Desert Statement of Investment Policy is hereby approved and adopted. Section 2. The authority to invest and reinvest all public funds that the Financing Authority holds, and to sell or exchange the securities so purchased, in compliance with the terms of the approved Statement of Investment Policy, is hereby delegated to the Treasurer. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert Financing Authority, held on this 8th day of June, 2017, by the following vote to wit: AYES: JONATHAN, KELLY, NESTANDE, WEBER, and HARNIK NOES: NONE ABSENT: NONE ABSTAIN: NONE ATTEST: a ilk IP A RA ELLE D. LASSEN, CRETARY PALM DESERT FINANCING AUTHORI APPROVS TOFORM: J ROBERT W-HfCRGREAVES, CITY ATTORNEY BEST, BEST & KRIEGER, LLP AN C. HARNIK, PRESIDENT RESOLUTION NO. FA-68 [This page has intentionally been left blank.] RESOLUTION NO. FA-68 1 1 CITY OF PALM DESERT FISCAL YEAR 2018 PREPARED BY THE CITY TREASURER'S OFFICE Thomas J. Metz, J.D., M.B.A. Deputy City Treasurer REVIEWED AND APPROVED BY Janet M. Moore City Treasurer Administrative Policy No. FIN002 (Revision No. 20) Adopted by the City Council on June 8, 2017 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" TABLE OF CONTENTS Revision No. 20 Adopted: 6/8/17 OVERVIEW PAGE 1.0 Policy 1 2.0 Scope 1 3.0 Prudence 1 4.0 Objectives 2 INVESTMENT AUTHORITY 5.0 Delegation of Aithority 3 6.0 Investment Procedures 4 7.0 Ethics and Conflicts of Interest 4 INVESTMENTS 8.0 Authorized. Financial Dealers and Institutions 4 9.0 Authorized v!d Suitable Investments 7 10.0 Prohibited Investments 12 11.0 Investment Pools/Mutual Funds 12 PORTFOLIO MANAGEMENT 12.0 Collateralization 13.0 Safekeeping and Custody 14.0 Diversification 15.0 Maximum Maturities 16.0 Basic Investment Strategy 17.0 Portfolio Rebalancing 18.0 Credit Downgrading 19.0 Bond Proceeds 20.0 Internal Controls 13 13 14 14 14 14 15 15 16 PERFORMANCE MEASUREMENT 21.0 Performance Standards 16 22.0 Portfolio Benchmark 16 23.0 Reporting 17 LEGAL REQUIREMENTS 24.0 Investment Policy Adoption 27 APPENDICES A: List of Authorized Financial Institutions 18 B: Glossary 19 1 1 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" 1.0 Policy Revision No. 20 Adopted: 6/8/17 It is the policy of the City of Palm Desert; the Successor Agency to the Palm Desert Redevelopment Agency; the Palm Desert Housing Authority; the Palm Desert Financing Authority; and the Palm Desert Recreational Facilities Corporation (hereafter referred to collectively as the "City") to: (1) comply with applicable law governing the investment of public monies under the City Treasurer's control; (2) protect the principal monies entrusted to the City; and (3) maximize profit within the parameters of prudent risk management. 2.0 Scope This investment policy shall apply to all financial assets of the City of Palm Desert as accounted for in the City's Comprehensive Annual Financial Report, including, but not limited to, the following funds: 1. General Fund. 2. Special Revenue Funds. 3. Debt Service Funds. 4. Capital Project Fund. 5. Enterprise Funds. 6. Internal Service Funds. 7. Trust and Agency Funds. This policy does not cover funds held by the California Public Employees Retirement System or funds of the Deferred Compensation Plan. 3.0 Prudence Pursuant to California Government Code Section 53600.3, the City Treasurer and the Deputy City Treasurer (hereafter collectively referred to as "Investment Officers"), as trustees of public monies, shall adhere to the "prudent investor" standard • when managing the City's investment portfolios. They shall invest "...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." Investment Officers who follow the provisions of this policy and who exercise due diligence shall be relieved of personal responsibility for a security's credit risk or market price risk; provided that they report substantial deviations from expectations to the City Manager and to the Audit, Investment & Finance Committee ("Finance Committee") in a timely manner, and that they take appropriate action to control adverse developments. Page 1 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 "Substantial deviations" shall be defined as either a decline of 10 percent or more in the market value of a security due to issuer default or a credit risk downgrade, or the sale of a security prior to maturity at 10 percent or more below its acquisition cost. 4.0 Objectives The City's investment objectives, in order of priority, shall be: 4.0.1 Safety. Safety of principal shall be the foremost objective. Investments shall be made with the aim of avoiding capital losses due to issuer default; broker default; or market value erosion. Principal shall be preserved by mitigating: Credit Risk, the risk of loss due to the failure of the issuer of the security, shall be mitigated by investing in only the highest quality securities; by diversifying investments; and by pre -qualifying securities brokers and public depositories; and Market Risk, the risk of loss due to a decline in bond prices because of rising market interest rates, shall be mitigated by structuring the portfolios so that issues mature concurrently with the City's anticipated cash requirements, thereby eliminating the need to sell securities prematurely on the open market. It is recognized, however, that in a diversified portfolio, occasional measured losses are inevitable, and must be considered within the context of overall investment return. 4.0.2 Liquidity. An adequate percentage of the portfolios shall be maintained in liquid, short-term securities that can be converted to cash, if necessary, to meet disbursement requirements. Since all cash requirements cannot be anticipated, the portfolios should consist largely of relatively low -duration securities with active secondary markets. The City shall seek to minimize liquidity risk by dividing its investment portfolio into two separate portfolios: the Liquidity Portfolio and the Income Portfolio. The Liquidity Portfolio shall consist of short-term investments that mature within one year. Its purpose shall be to ensure that there is sufficient liquidity to fund 12 months of City expenditures. The Income Portfolio shall consist of long-term investments that mature in one -to -five years. Its purpose shall be to maximize profit within the parameters of prudent risk management. Page 2 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 Liquidity Portfolio investments shall be in short-term assets including, but not limited to, commercial paper, repurchase agreements, negotiable certificates of deposit, the State of California Local Agency Investment Fund ("LAIF"), and California local govemment investment pools. The Liquidity Portfolio shall be subdivided into primary and secondary sub -portfolios. The primary sub -portfolio shall contain the equivalent of three months' of City expenditures which shall be invested either in LAIF or in a local agency investment pool. All assets shall mature in 90 days or less. The secondary sub -portfolio shall contain an amount equal to nine months' of City expenditures which may be invested in short-term assets that are laddered in equal amounts, on a monthly basis, starting four months out. All assets shall have 91-to-360 day maturities. Since not all possible cash demands can be anticipated, an amount equal to the City's annual expenditures shall be invested in securities that mature in less than one year. 4.0.3 Yield. Yield shall be considered only after the basic requirements of safety and liquidity have been met. Whenever possible and in a manner ,consistent with the objectives of safety and liquidity, a yield higher than the market rate of retum shall be sought. 5.0 Delegation of Authority California Government Code Sections 53607 and 53608 authorize the legislative body of a local agency to invest, deposit, and provide for the safekeeping of the local agency's funds or to delegate those responsibilities to the treasurer of the local agency. City of Palm Desert Municipal Code Section 3.08.010 delegates the authority to invest, deposit, and provide for the safekeeping of City public monies to the City Treasurer. City of Palm Desert Municipal Code Section 2.16.010 authorizes the City Director of Finance to serve ex officio as City Treasurer. The City Treasurer shall be responsible for all investment transactions that are executed on behalf of the City. The City Treasurer and the Deputy City Treasurer shall have exclusive authority to buy and sell securities on behalf of the City. The Deputy City Treasurer may execute investment transactions on behalf of the City only if the City Treasurer has previously authorized the transactions. If the City Treasurer is unavailable, then the Assistant Finance Director must authorize the investment transactions prior to execution. Page 3 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 6.0 Investment Procedures The City Treasurer shall establish written procedures for the operation of the City's investment program that are consistent with the provisions of this policy. The procedures shall include reference to: safekeeping, PSA repurchase 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 under the procedures that the City Treasurer establishes. 7.0 Ethics and Conflicts of Interest Investment Officers shall not conduct any personal business activity that could conflict with the proper execution of the City's investment program or impair their ability to make impartial investment decisions. They shall disclose to the City Council any material financial interest in financial institutions that conduct business within the City's jurisdiction. They shall also disclose any personal investment positions that could be related to the performance of the City's investment portfolios. Investment Officers shall subordinate their personal investment transactions to those of the City, particularly with regard to the timing of securities purchases and sales, and shall avoid transactions that might impair public confidence. Investment Officers and their immediate relatives shall not accept or solicit any gifts, gratuities, honorariums, or favors from persons or entities who provide or who are seeking to provide financial services to the City. 8.0 Authorized Financial Dealers and Institutions The City Treasurer shall maintain an authorized list (see Page 18) of all securities brokers that the Finance Committee and the City Council have authorized to transact securities business with the City. This list shall be provided to all members of the City Council and the Finance Committee. Only primary government securities dealers ("primary dealers") that regularly report to the Federal Reserve Bank of New York shall be eligible for inclusion on the City's authorized list. The only exception to the foregoing shall be that the Finance Committee and the City Council may, at their discretion, accept, review, and approve Requests for Information ("RFI") from secondary brokers that: (1) have been in existence for more than five years; (2) have a net capital position in excess of $100 million; (3) are licensed as brokers by the State of California; and (4) are headquartered or have a branch office in California. Page 4 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 The total number of primary dealers and secondary brokers on the authorized list .shall not exceed four at any time. The City shall accept and review new broker applications only when there is an immediate need to fill a vacancy on the authorized list. In all cases, the City shall only accept RFIs from and transact business with the institutional securities sales departments of primary dealers and secondary brokers. The City shall not transact business with an authorized securities firm until all of the documentation that both parties require has been executed and delivered. All brokers who wish to apply for inclusion on the authorized list must, at a minimum, provide the City Treasurer with a copy of the following documents, unless otherwise noted: 8.0.1 Completed "Primary Dealer Request for Information" (signed original only). 8.0.2 The firm's most recent Annual Report and Securities and Exchange Commission ("SEC") Form 10-K or 20-F. 8.0.2 The-firm's National Association of Securities Dealers ("NASD") Form BD -- Uniform Application for Broker -Dealer Reaistration or, in the case of an investment department within a commercial bank, SEC Form MSD. 8.0.3 The firm's current NASD Form BD Status Report. 8.0.4 NASD Form U-4 -- Uniform Application for Securities Industry Reaistration or Transfer for each employee would who might be trading with the City. 8.0.5 Current NASD Form U-4 Status Report on each employee who might be trading with the City. 8.0.6 A resume from each of the firm's employees who might be trading with the City. 8.0.7 The firm's delivery and wiring instructions. 8.0.8 An executed corporate resolution that identifies employees who are authorized to trade, and who might be trading with the City. 8.0.9 The firm's current investment policy. Page 5 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 In addition to the above documents, secondary brokers must also submit: 8.0.10 The firm's most recent SEC Form X-17 A-5 or, in the case of an investment department within a commercial bank, SEC Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices -- FFIEC 031. Investment Officers shall investigate all broker applicants in order to determine if they: (1) are adequately capitalized; (2) are subject to pending legal action (either the firm or the trader); (3) make markets in securities that are appropriate for the City's needs; (4) are licensed as a broker by the State of California Department of Corporations; and (5) are a member of the National Association of Securities Dealers. Broker applicants shall be required to provide state or local government references from within California. Any broker that has made a political contribution within any consecutive four-year period following January 1, 1996 in an amount that exceeds the limits in Municipal Securities Rulemaking Board ("MSRB") Rule G-37, to any member of or candidate for the City Council, the RDA Successor Agency — Palm Desert Board, the Housing Authority Commission, or the Finance Committee shall be ineligible to transact business with the City. The Finance Committee and the City Council shall review the submitted documents, along with the Investment Officers's recommendations, and decide if any new brokers should be added to the authorized list. If, in the City's opinion, a broker's RFI is missing, incomplete, late (submitted after the specified deadline), or contains false or misleading information, or if the broker has not submitted all of the documents that the City requires, then the City shall automatically reject that broker's RFI, and the broker shall not be eligible to submit another RFI to the City for three years. The City Treasurer shall provide all authorized brokers with a copy of the City's investment policy and any amendments as they occur. The City Treasurer shall maintain an authorized list (see Page 18) of all commercial banks, savings associations, and federal associations• (as defined by California Financial Code Section 5102), and trust companies that the Finance Committee and the City Council have authorized as public depositories of City monies, in the form of checking, savings, and money market accounts, and certificates of deposit. This list shall be provided to all members of the City Council and the Finance Committee. Page 6 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 The City shall only deposit public monies in financial institutions that have: 8.0.11 At least $5 billion in total assets. 8.0.12 A core capital -to -total assets ratio of at least five percent. 8.0.13 Favorable statistical ratings from a nationally recognized rating service, as determined by the City Treasurer. 8.0.14 A federal or a state charter. 8.0.15 A branch office within Riverside County. 8.0.16 A "satisfactory" overall rating in their most recent evaluation by the appropriate federal financial supervisory agency, in terms of meeting the credit needs of California communities, pursuant to federal law. Under no circumstances shall the City's deposits in a financial institution exceed the total shareholders' equity of that institution. 9.0 Authorized and Suitable Investments The City Treasurer shall be authorized to invest in the following financial instruments pursuant to California Govemment Code Section 53600 et seq. No. Type of Investment 1. United States Treasury bills, notes, bonds, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Federal Agency or United States government -sponsored enterprise ("GSE") obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by Federal Agencies or by GSE. % of Portfolio Authorized Other Restrictions 100% Maximum maturity: 5 Years 100% Maximum maturity: 5 years No more than 30% of the portfolio may be invested in any one issuer (excluding the proceeds of tax-exempt bonds). Page 7 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 3. California State and Local Agency debt obligations that are general obligation bonds or revenue bonds that are issued by the state or local agency or by a department, board, agency, or authority of the state or a local agency. 4. Banker's Acceptances("BA") issued by commercial banks. 5. Commercial Paper ("CP") (Non -Pooled Fund) issued by general corporations organized and operating in the United States with assets exceeding $500 million. % of Portfolio Authorized Revision No. 20 Adopted: 6/8/17 Other Restrictions 100% Maximum maturity: 5 Years Rated "A" or higher by S&P or by Moody's. 40% Rated "A-1" or higher by S&P or"P-1" by Moody's. Maximum maturity: 180 days No more than 30% of the portfolio may be invested in any one BA issuer. 25% Maximum maturity: 270 days Rated "A-1" by S&P or"P-1" by Moody's. No more than 10% of the outstanding CP of any one issuer may be purchased. No more than 10% of the portfolio may be invested in the commercial paper and medium -term notes of any one issuer. No more than 45% of the portfolio may be invested in commercial paper and medium -term notes. Asset -backed commercial paper is ineligible for Page 8 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 6. Negotiable Certificates of Deposit ("NCD") issued by a nationally- or state -chartered bank, a savings association, a federal association, or by a state -licensed branch of a foreign bank. 7. Time Certificates of Deposit ("TCD") issued by qualified public depositories. 8. Repurchase Agreement ("RP") sold by authorized brokers. % of Portfolio Authorized Revision No. 20 Adopted: 6/8/17 Other Restrictions purchase. 30% Maximum maturity: 5 years Long-term debt rated "AA-" higher by S&P or by Moody's. 15% Maximum maturity: 1 year TCDs exceeding the FDIC limit must be collateralized. TCDs must be centralized at one location for each bank or S&L. If TCD is uncollateralized, then no more than 90 percent of the FDIC limit may be invested per TCD. Issuing public depository must meet qualifying criteria on Pages 6 and 7 of this SOIP. 20% Maximum maturity: 30 days Collateral must be United States Treasury, Federal, Agency, or GSE obligations. Zero coupon and stripped coupon instruments are not acceptable as collateral. Collateral must be valued at Page 9 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 9. Medium -Term Notes issued by Corporations organized and operating in the United States, or by depository institutions operating in the United States and licensed by the United States or by any state. % of Portfolio Authorized Revision No. 20 Adopted: 6/8/17 Other Restrictions 102% of cost and adjusted weekly. City must have first lien and security interest in all collateral. City's custodian must hold collateral. An authorized broker must file a Public Securities Association (PSA) Master Repurchase Agreement with the City treasurer, and the City Attorney must review the agreement, prior to the transaction of RP business with that broker. 30% Maturity maturity: 5 years Rated "A" or higher by S&P or by Moody's. No more than 10% of the portfolio may be invested in the commercial paper and medium -term notes of any one issuer. No more than 45% of the portfolio may be invested in commercial paper and medium -term notes. Page 10 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 10. Money Market Mutual Funds ("MMF") that are registered with the SEC under the Investment Act of 1940. 11. State of California Local Agency Investment Fund ("LAIF") that is managed by the State Treasurer's Office. 12. Structured Notes in the form of callable securities or "STRIPS" issued by the United States Treasury or by Federal Agencies or government - sponsored enterprises ("GSE") % of Portfolio Authorized 20% (excluding bond proceeds) $50,000,000 per account (except for bond trustee accounts which have no deposit limit) Revision No. 20 Adopted: 6/8/17 Other Restrictions Either rated "AAA" by S&P, "Aaa" by Moody's, or "AAA-V- 1+" by Fitch (2 of 3), or retains an investment advisor registered or exempt from registration with SEC, with at least 5 years of experience managing a MMF with $500 million or more in assets. MMF must have dollar - weighted average maturity of 90 days or less. MMF must buy securities that mature in 13 months or less. No commission may be charged. City Council and Redevelopment Agency approved participation in LAIF on 12/12/81 in Resolution No. 81-161. 20% Maximum maturity: 5 years Page 11 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 13. Local Government Investment Pools ("LGIP") 10.0 Prohibited Investments of Portfolio Authorized 75% (excluding bond proceeds) Revision No. 20 Adopted: 6/8/17 Other Restrictions Must meet above criteria for MMFs (except for the Riverside County Treasurer's Pooled Investment Fund). Investment Officers shall not invest public monies in financial instruments that are not authorized under this policy. Prohibited investments shall include, but shall not be limited to, equity securities, bond mutual funds, reverse repurchase agreements, and derivative contracts (forwards, futures, and options). The purchase of derivative securities shall be prohibited, unless specifically authorized in this policy. Investment Officers shall not engage in securities lending, short selling, or other hedging strategies. LAIF and MMFs shall be exempt from the prohibitions on derivative contracts, derivative securities, reverse repurchase agreements, securities lending, short selling, and other hedging strategies. 11.0 Investment Pools/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: 11.0.1 A description of eligible investment securities, and a written statement of investment policy and objectives. 11.0.2 A description of interest calculations and how it is distributed, and how gains and losses are treated. 11.0.3 A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 11.0.4 A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. Page 12 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 11.0.5 A schedule for receiving statements and portfolio listings. 11.0.6 A verification on whether or not reserves or retain eamings are utilized by the pool/fund. 11.0.7 A fee schedule, and when and how it is assessed. 11.0.8 The eligibility of the pool/fund for bond proceeds, and whether it will accept such proceeds. 12.0 Collateralization Investment Officers shall ensure that all demand deposits and all non-negotiable certificates of deposit that exceed the Federal Deposit Insurance Corporation ("FDIC") limit shall be fully collateralized with securities authorized under state law and under this SOIP. Collateral may be waived for the amount of the FDIC limit. Any amount on deposit that exceeds the FDIC limit plus accrued interest, however, shall be collateralized with United States Treasury or federal agency securities at a constant margin ratio of 110 percent or with mortgage -backed collateral at a constant margin ratio of 150 percent. Collateralized investments and demand deposits may require substitution of collateral. The City Treasurer must approve all requests from financial institutions for substitution of collateral that involve interchanging classes of securities. An independent third party with which the City has a current custodial agreement shall always hold the collateral. The independent third party shall provide the City Treasurer with a safekeeping receipt that he shall retain. 13.0 Safekeeping and Custody Investment Officers shall conduct all security transactions on a delivery -versus - payment ("DVP") or on a receipt -versus -payment ("RVP") basis. A third -party bank trust department ("Custodian") that acts as an agent for the City, under the terms of a custody agreement executed between both parties, shall hold the securities. The custodial bank shall be one of the 20 largest commercial banks in the world, as measured by total assets. The City's Custodian shall be represented on the authorized list (see Page 18). The only exception to the foregoing shall be securities purchases made with: 13.0.1 Local government investment pools. 13.0.2 Money market mutual funds. Page 13 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 13.0.3 Federal Reserve Banks ("Treasury Direct Program") since the purchased securities are not deliverable. No securities broker or investment advisor shall have access to City monies, accounts, or investments. Any transfer of monies to or through a securities broker must have the City Treasurer's prior written approval. If the City Treasurer is unavailable, then the Assistant Finance Director must authorize the transfer, in writing. The City shall require Broker Trade Confirmations for all trades. Investment Officers shall review these confirmations immediately upon receipt, for conformity with the terms of the City's Trade Sheets. 14.0 Diversification Investment Officers shall diversify the City's investment portfolios by security type and by issuer, except for bond reserve monies; bond escrow monies; and any other monies that the City Council or the Finance Committee designates. 15.0 Maximum Maturities Investment Officers shall not invest in securities with maturities exceeding five years. The Finance Committee and the City Council, however, may approve longer maturities for the investment of bond reserve, bond escrow, and other funds if the maturities of such investments are expected to coincide with the expected use of the funds. 16.0 Basic Investment Strategy The City portfolio shall be invested using a passive strategy of "buying and holding" fixed -income securities. Whenever possible, a bond ladder shall be constructed with laddered maturities that support anticipated cash flow dates. Securities may be sold prior to maturity only to: 1) address an actual or potential deterioration in credit quality; 2) rebalance the portfolio; or 3) meet unanticipated financial obligations. Active strategies, such as market timing, sector rotation, or indexing to a benchmark shall be prohibited. 17.0 Portfolio Rebalancing If portfolio percentage constraints are violated due to a temporary imbalance in the portfolio, then Investment Officers shall hold the affected securities to maturity in order to avoid capital losses. Page 14 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 If no capital losses would be realized upon sale, however, then Investment Officers shall consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalanced. Portfolio percentage limits are in place in order to ensure diversification of the City investment portfolio; a small, temporary imbalance will not significantly impair that strategy. 18.0 Credit Downgrading This policy sets forth minimum credit risk criteria for each type of security. This credit risk criteria applies to the initial purchase of a security; it does not automatically force the sale of a security if its credit risk ratings fall below policy limits. If a security is downgraded below the minimum credit risk criteria specified in this policy, then Investment Officers shall evaluate the downgrade on a case -by -case basis in order to determine the security should be held or sold. The City Treasurer shall inform the Finance Committee at its next monthly meeting of the credit downgrade and of the Investment Officers's decision to hold or sell the downgraded security. Investment Officers shall review the credit standing of all securities in the City's investment portfolios annually, at a minimum. 19.0 Bond Proceeds The City Treasurer shall segregate the gross proceeds of tax-exempt bonds from the City general pool and shall keep them in a separate pool. They shall be invested pursuant to the instructions in the respective bond indentures of trust. If the bond indenture authorizes investments that conflict with this policy, then such investments shall be made only with the Finance Committee's prior approval. All securities shall be held in third -party safekeeping with the bond trustee ("Trustee") and all DVP and RVP rules shall apply. The Trustee shall be represented on the authorized list (see Page 18). Investment Officers shall use competitive offerings, whenever practical, for all investment transactions that involve the gross proceeds of tax-exempt bonds. The City shall obtain a minimum of three competitive offers. Any exceptions to this policy shall be documented and shall be reported to the Finance Committee at its next monthly meeting. The City is required under the "U.S. Tax Reform Act of 1986" to perform annual arbitrage calculations and to rebate excess earnings to the United States Treasury from the investment of the gross proceeds of tax-exempt bonds that Page 15 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 were sold after the effective date of that law. The City Treasurer may contract with qualified outside financial consultants to provide the necessary technical expertise that is required to comply with this law. 20.0 Internal Controls The City Treasurer shall ensure that all investment transactions comply with the City's policy, and shall establish internal controls that are designed to prevent losses due to fraud, negligence, and third -party misrepresentation. Internal controls deemed most important shall include: avoidance of collusion; separation of duties and administrative controls; separating transaction authority from accounting and record keeping; custodial safekeeping; clear delegation of authority; management approval and review of investment transactions; specific limitations regarding securities losses and remedial action; written confirmation of telephone transactions; documentation of investment transactions and strategies; and monitoring of results. The City Treasurer shall establish a process of independent review by an external audit firm of the City's investment program every three years. The external auditor shall review the program's management in terms of compliance with the internal controls that are specified in the City's Treasury Policies and Procedures Manual. A Finance Committee consisting of City officials and community representatives shall be responsible for reviewing the City investment reports, transactions, policies and procedures, and strategies on a monthly basis, or less frequently if the Finance Committee determines that a less -frequent schedule would not diminish its effectiveness. The Mayor, the Mayor Pro Tempore, the City Manager/Executive Director of the Successor Agency to the Palm Desert Redevelopment Agency, the City Attorney, the City Treasurer, and various citizens who are appointed by the City Council pursuant to City ordinance, shall sit on this committee. 21.0 Performance Standards The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs. 22.0 Portfolio Benchmark The City shall adopt the average monthly effective yield of the LAIF Pooled Money Investment Account as a performance benchmark for the City investment portfolio. Page 16 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 23.0 Reporting The City Treasurer shall provide the City Council with an investment report within 30 days after Finance Committee review of the report. Pursuant to Governmental Accounting Standards Board ("GASB") Statement Number 40, as amended March 2003, the monthly investment report shall: 23.0.1 Organized individual securities by investment type (e.g., U.S. Treasuries, corporate bonds, commercial paper, etc.). Dissimilar investments (e.g., U.S. Treasury bills and Treasury strips) should not be aggregated. 23.0.2 List credit risk ratings for each security, mutual fund, or investment pool from at least two nationally recognized statistical rating organizations ("NRSRO"). If the security, mutual fund, or investment pool has not rating, then it shall be shown as "unrated". 23.0.3 Disclose the amount of individual securities and corresponding issuers if they exceed five percent of net plan assets, except for securities guaranteed by the U.S. Government, money market mutual funds, and external investment pools. 23.0.4 Use the specific identification method to reflect interest -rate risk by investment type and amount. This report shall include a complete portfolio inventory with details on issue, par value, book value, coupon/rate, original settlement date of purchase, final maturity date, CUSIP number, average weighted yield, average days to maturity, and market value (including source of market valuation). The report will include a statement on compliance or noncompliance with the City's SOIP and a statement on whether there are or are not sufficient funds to meet the City's anticipated cash requirements for the next six months. 24.0 Investment Policy Adoption The City Treasurer shall submit a Statement of Investment Policy to the Finance Committee; the City Council; the Successor Agency to the Palm Desert Redevelopment Agency Board; the Housing Authority Board; the Financing Authority Commission; and the Recreational Facilities Corporation Board of Directors annually for their review and adoption. Page 17 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 Appendix A: List of Authorized Financial Institutions The City Treasurer's Office is authorized to transact investment and depository business with the following financial institutions. Investment and depository transactions with firms other than those appearing on this list are prohibited. UNITED STATES GOVERNMENT 1. Federal Reserve Bank PRIMARY DEALERS 1. J.P. Morgan Securities LLC 2. Wells Fargo Securities LLC SECONDARY BROKERS 1. Piper Jaffray & Company 2. Stifel, Nicolaus & Company PUBLIC DEPOSITORIES 1. Citibank, N.A. 2. JP Morgan Chase & Co. 3. Rabobank, N.A. 4. MUFG Union Bank, N.A. 5. Wells Fargo Bank, N.A. CUSTODIAN 1. MUFG Union Bank Global Custody Services TRUSTEE 1. U.S. Bank Global Corporate Trust Services Page 18 RESOLUTION NO. FA-68 1 1 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 Appendix B: Glossary AGENCIES. Federal agency and instrumentality securities. ASKED. The price at which securities are offered. BANKERS' ACCEPTANCE ("BA"). A draft, bill, or exchange accepted by a bank or a trust company. Both the issuer and the accepting institution guarantee payment of the bill. BID. The price offered by a buyer of securities (when one sells securities, one asks for a bid). See "Offer". BROKER. A broker brings buyers and sellers together so that he can earn a commission. CERTIFICATE OF DEPOSIT ("CD"). A time deposit with a specific maturity, as evidenced by a certificate. Large -denomination CDs are typically negotiable. COLLATERAL. Securities, evidence of deposit, or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT ("CAFR"). The official annual report for the City of Palm Desert. It includes five combined statements for each individual fund and account group, that are prepared in conformity with GAAP. It also includes supporting schedules that are necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed statistical section. COUPON. (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond, that evidences interest due on a payment date. DEALER. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE. A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT. There are two methods of delivery of securities: (1) delivery versus payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange of money for the securities. DVR is delivery of securities with an exchange of a signed receipt for the securities. Page 19 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures Revision No. 20 No. 2: "Statement of Investment Policy" Adopted: 6/8/17 DERIVATIVES. (1) Financial instruments that are linked to, or derived from, the movement of one or more underlying indexes or securities, and may include a leveraging factor; or (2) financial contracts based upon a notional amount whose value is derived from an underlying index or security (e.g., interest rates, foreign exchange rates, equities, or commodities). DISCOUNT. The difference between the acquisition cost of a security and its value at maturity, when quoted at lower than face value. A security that sells below original offering price shortly after sale, is also is considered to be at a discount. DISCOUNT SECURITIES. Non -interest bearing money market instruments that are issued a discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills). DIVERSIFICATION. Dividing investment funds among a variety of securities that offer independent returns. FEDERAL CREDIT AGENCIES. Agencies of the Federal Government that were established to supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students, farmers, farm cooperatives, and exporters). FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"). A federal agency that insures bank deposits. FEDERAL FUNDS RATE. The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS ("FHLB"). Government -sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLBs is to liquefy the housing -related assets of its members, who must purchase stock in their District Bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA"). FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder -owned corporation. The corporation's ,purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE ("FOMC"). The FOMC consists of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent Page 20 1 1 1 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market, as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM. The central bank of the United States created by Congress and consisting of a seven -member Board of Governors in Washington, D.C., 12 regional banks, and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA" or "Ginnie Mae"). Securities that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. A security holder is protected by the full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA, or FMHM mortgages. The term "pass-throughs" is often used to describe Ginnie Maes. LIQUIDITY. A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow, and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT FUND ("LAIF"). Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose 'of investment. MARKET VALUE. The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT. A written contract covering all future transactions between the parties to repurchase -reverse repurchase agreements, that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer (lender) to liquidate the underlying securities in the event of default by the seller (borrower). MATURITY., The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET. The market in which short-term debt instruments (e.g., bills, commercial paper, bankers's acceptances) are issued and traded. OFFER. The price asked by a seller of securities (when one buys securities, one asks for an offer). See "Asked"and "Bid': OPEN MARKET OPERATIONS. Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence the volume of money and credit in the economy. Page 21 RESOLUTION NO. FA-68 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 20 Adopted: 6/8/17 Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO. A collection of securities that an investor holds. PRIMARY DEALER. A group of government securities dealers that submit daily reports of market activity and positions, and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -- registered securities broker - dealers, banks, and a few unregulated firms. PRUDENT INVESTOR RULE. An investment standard. A fiduciary, such as a trustee, may invest in a security if it is one that would be bought by a prudent investor acting in like capacity, who is seeking reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES. A financial institution that: (1) does not claim exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of this state; (2) has segregated for the benefit of the commission eligible collateral having a value of not Tess than its maximum liability; and (3) has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN. The yield obtainable on a security based on its purchase price or its current market price. REPURCHASE AGREEMENT ("RP" OR "REPO"). A holder of securities sells them to an investor with an agreement to repurchase the securities at a fixed price on a fixed date. The security "buyer", in effect, lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: when the Fed is said to be doing RP, it is lending money (increasing bank reserves). SAFEKEEPING. A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET. A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES AND EXCHANGE COMMISSION. An agency created by Congress to administer securities legislation for the purpose of protecting investors in securities transactions. SEC RULE 15c3-1. See "Uniform Net Capital Rule". Page 22