Resolution Number SJCHA 13-06-18-010If9M ' 1:1-: RIMItim[oIiigo] I .1110:061
A RESOLUTION OF THE SAN JUAN CAPISTRANO HOUSING
AUTHORITY, APPROVING THE HOUSING AUTHORITY INVESTMENT
POLICY
WHEREAS, the San Juan Capistrano Housing Authority ("Authority) has been
activated pursuant to San Juan Capistrano City Council Resolution 12-01-17-02 on
January 17, 2012; and,
WHEREAS, it is appropriate for the Authority, as a separate public entity, to
adopt a separate investment policy from the City of San Juan Capistrano.
NOW THEREFORE, BE IT RESOLVED, that the San Juan Capistrano Housing
Authority hereby adopts the Housing Authority Investment Policy that is attached hereto
as Exhibit A.
PASSED, APPROVED and ADOPTED this 18'" day of June 2013.
HOUSING AUTHORITY
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss.
CITY OF SAN JUAN CAPISTRANO )
I, MARIA MORRIS, appointed Housing Authority Secretary of the San Juan Capistrano
Housing Authority of the City of San Juan Capistrano, do hereby certify that the
foregoing Resolution No. SJCHA 13-06-18-01 was duly adopted by the
Commissioners of the San Juan Capistrano Housing Authority at a special meeting
thereof, heli the 18th day of June 2013, by the following vote:
AYES:C MMISSIONERS:Allevato,
NOES C MISSIONERS: None
ABSENT: I C MISSIONERS: Byrnes
U011
Kramer, Reeve and Taylor
SJCHA 13-06-18-01
SAN JUAN CAPISTRANO
HOUSING AUTHORITY
INVESTMENT POLICY
FIRST ADOPTED: JUNE 18, 2013
POLICY STATEMENT
It is the policy of the SAN JUAN CAPISTRANO HOUSING AUTHORITY (Authority) to
invest public funds in a manner which will provide the security of principal invested
with secondary emphasis on providing the highest yield while meeting the daily cash
flow needs of the and conforming to all applicable State and local statutes governing
the investment of public funds.
II. SCOPE
This investment policy applies to all financial assets and funds held by the Authority.
III. OBJECTIVES
The primary objectives, in priority order of the Authority's investment activities shall be
A. SAFETY OF PRINCIPAL - Safety of principal is the foremost objective of the
Authority. Investments of the Authority shall be undertaken in a manner that seeks
to insure the preservation of capital in the overall portfolio. One of the methods to
obtain this goal is diversification which is required in the portfolio's composition.
B. LIQUIDITY - The Authority's investment portfolio will remain sufficiently liquid to
enable it to meet all operating requirements which might be reasonably anticipated.
"Liquidity" refers to the ability to sell at any given moment with a minimal chance of
losing some portion of principal or interest.
C. YIELD - The Authority's investment portfolio shall be designed with the objective of
attaining a market average rate of return throughout budgetary and economic
cycles, taking into account the Authority's risk constraints and the cash flow of the
portfolio.
The Authority shall not engage in any activity that is designed to raise funds
specifically for the purpose of investing (i.e. borrowing funds to invest, or
leveraging). The Authority is not restricted from investing proceeds from a
bonafide debt issuance in accordance with this investment policy until such time as
funds are needed for the purpose intended.
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IV. DELEGATION OF AUTHORITY
A. The Commissioners' authority to invest or reinvest funds of the Authority is
delegated for a one-year period to the Authority's Finance Officer, who shall
thereafter assume full responsibility for those transactions until the delegation
of authority is revoked or expires. Subject to review, the Commissioners may
renew the delegation of authority each year.
B. The Finance Officer shall develop and maintain written administrative
procedures for the operation of the investment program which are consistent
with this investment policy. Procedures will include reference to safekeeping,
master repurchase agreements, wire transfer agreements, collateral and
deposit agreements, banking service contracts, and other investment related
activities.
C. The Executive Director is designated as a liaison/deputy in the event
circumstances require timely action and the Finance Officer is not present.
D. No officer or designee may engage in an investment transaction except as
provided under terms of this investment policy and the procedures
established by the Finance Officer and approved by the Executive Director.
E. The Finance Officer shall be responsible for all transactions undertaken and
shall establish a system of controls to regulate the activities of subordinate
officials.
F. The Finance Officer and other personnel involved in the investment process
shall refrain from personal business activities that could conflict with proper
execution of the investment program, or which could impair their ability to
make impartial investment decisions.
V. PRUDENCE
A. The standard of prudence to be used in the investment function shall be the
"prudent investor" standard and shall be applied in the context of managing
the overall portfolio. This standard states "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 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."
B. The Finance Officer, acting in accordance with written procedures and this
investment policy, shall not be held personally accountable for a specific
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4 SJCHA 13-06-18-01
security's credit risk or market price change, provided that any unexpected
deviations are reported in a timely manner and that appropriate action is
taken to control adverse development.
C. The Authority may invest debt issuance proceeds to match or meet the
anticipated timing of the expenditures. The Authority may not incur debt with
the specific and sole purpose of arbitrage investment.
VI. INTERNAL CONTROLS
The Finance Officer shall establish a system of written internal controls which will
be reviewed annually with the independent auditor. The controls shall be
designed to prevent loss of public funds due to fraud, employee error,
misrepresentation by third parties, unanticipated market changes or imprudent
actions by employees of the Authority.
VII. AUTHORIZED INVESTMENTS
A. Obligations of the United States Government, its agencies and
instrumentalities and government sponsored enterprises.
B. Non-negotiable deposits in a state or national bank, savings association or
federal association, federal or state credit union in the State of California. In
accordance with California Government Code Section 53635.2, to be eligible
to receive the public agency's deposits, a financial institution shall have
received an overall rating of not less than "satisfactory" in its most recent
evaluation by the appropriate federal financial supervisory agency of its
record of meeting the credit needs of California's communities. Certificates of
deposit are required to be collateralized as specified under Government Code
Section 53630 et seq. The public agency, at its discretion, may waive the
collateralization requirements for any portion that is covered by Federal
Deposit Insurance Corporation (FDIC) insurance. The public agency shall
have a signed agreement with any depository accepting the agency's funds
per Government Code Section 53649. No deposits shall be made at any time
in certificates of deposit issued by a state or federal credit union if a member
of the governing body or the Chief Financial Officer serves on the board of
directors or any committee appointed by the board of directors of the credit
union. In accordance with Government Code Section 53638, any deposit shall
not exceed that total shareholder's equity of any depository bank, nor shall
the deposit exceed the total net worth of any institution.
C. Negotiable certificates of deposit issued by a nationally or state -chartered
bank, a savings association or a federal association (as defined by Section
5102 of the Financial Code), a state or federal credit union, or by a federally -
or state -licensed branch of a foreign bank. Negotiable certificates of deposit
with maturity in excess of one year must be rated "A" or its equivalent or
better by a nationally recognized statistical -rating organization (NRSRO).
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SJCHA 13-06-18-01
Negotiable certificates of deposit with maturities under one year must be
rated at least "A-1," its equivalent, or better by a nationally recognized
statistical -rating organization (NRSRO). No more than 30% of the public
agency's investment portfolio may be invested in negotiable certificates of
deposit.
D. Repurchase agreements, up to a one year term, whose underlying collateral
consists of obligations of the United States Government, its agencies and
instrumentalities and government sponsored enterprises, fully insured or
collateralized certificates of deposit and other evidence of deposit at banks
and savings and loan associations, provided a signed Master Repurchase
Agreement is on file with the counterparty bank or broker/dealer.
E. Money Market Funds whose portfolio consists of the foregoing.
F. The Local Agency Investment Fund (State pool) provided that the pool has
supplied the Authority with a copy of its current investment policy and
portfolio.
G. Orange County Investment Pool, as authorized by the Government Code
Section 53684, provided that the pool has provided the Authority with a copy
of its current investment policy and portfolio.
H. Local government investment pools, as authorized by the Government Code
Section 53601(p), provided that the pool has provided the Authority with a
copy of its current investment policy and portfolio.
Passbook Savings Account Demand Deposits in California financial
institutions.
J. Taxable or Tax -Exempt warrants, notes, bonds or similar evidences of
indebtedness issued by the State of California or any local agency within the
State of California having received a rating of "A" or better by at least two
nationally recognized rating agencies upon approval of the Authority
Commissioners.
If additional types of securities are approved for investment of public funds by
State Statute, they will not be eligible for investment by the Authority until this
investment policy is amended and the amendment passed by the
Commissioners.
VIII. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
For any investment transaction not conducted directly with the issuer, the
Authority shall maintain a list of financial institutions which are authorized to
provide investment services. Banks and Savings and Loans shall provide their
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most recent "Consolidated Report of Condition" (call report) at the request of the
Authority. At a minimum, the Authority shall conduct an annual evaluation of
each bank's creditworthiness to determine whether it should be on the "Qualified
Institution" listing.
Securities dealers not affiliated with a bank shall be required to be classified as
reporting dealers affiliated with the New York Federal Reserve Bank as Primary
Dealers, or meet certain other criteria as determined by the Finance Officer and
approved by the Executive Director.
DIVERSIFICATION AND MATURITY
A. It is the policy of the Authority to diversify its investment portfolio. Invested
funds shall be diversified to minimize the risk of loss resulting from over
concentration of assets in a specific maturity, specific issuer, or specific class
of securities. Diversification strategies shall be established and periodically
reviewed by the Finance Officer and Executive Director. The minimum
diversification standards by security type and issuer shall be:
U.S. Treasuries and securities having principal and interest guaranteed by the
U.S. Government........................................................................................... 100%
U.S. Government agencies, instrumentalities and government
sponsored enterprises............................................................... no more than 50%
Fully collateralized and negotiable CD's .................................... no more,than 30%
Money Market Funds................................................................. no more than 20%
Local Agency Investment Fund (LAIF)...................................... no more than 75%
Orange County or Other Local Government Investment Pools.. no more than 75%
Passbook Savings Account Demand Deposit ........................... no more than 5%
Securities issued by the State of California or
local agencies within the State of California .............................. no more than 25%
B. The Finance Officer shall be required to diversify maturities. The Finance
Officer, to the extent possible, will attempt to match investments with
anticipated cash flow requirements. Matching maturities with cash flow dates
will reduce the need to sell securities prior to maturity, thus reducing market
risk. Unless matched to a specific requirement, the Finance Officer may not
invest more than 25% of the portfolio for a period greater than three years.
When matched to a specific requirement and with approval by the
Commissioners, the Finance Officer may invest any portion of the portfolio for
a period greater than three years.
SAFEKEEPING AND COLLATERALIZATION
A. All security transactions, including collateral for repurchase agreements,
entered into by the Authority shall be conducted on a delivery versus payment
(DVP) basis.
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B. Where applicable, all securities shall be held by a third party custodian
designated by the Finance Officer. The third party custodian shall be required
to issue a safekeeping receipt to the Authority listing the specific instrument,
rate, maturity and other pertinent information. The only exception to the
foregoing shall be depository accounts and securities purchases made with:
(i) LAIF and local government investment pools; (ii) placement certificates of
deposit, and, (iii) money market mutual funds, since the purchased securities
are not deliverable. Evidence of each these investments will be held by the
Authority Treasurer.
C. Collateralization shall be required on two types of investments:
Bank Deposits (including Certificates of Deposit and Passbook
Savings Account Demand Deposit) - In accordance with state law.
2. Repurchase Agreements - In order to anticipate market changes and
provide a level of additional security for all funds, the collateralization
level will be 102% of market value of principal and accrued interest.
XI. PERFORMANCE EVALUATION
A. The Finance Officer shall make a quarterly report of investment transactions
to the Commissioners.
B. The Finance Officer shall submit quarterly and annual reports to the
Executive Director and Commissioners containing sufficient information to
permit an informed outside reader to evaluate the performance of the
investment program.
XII. AFFILIATED AGENCIES AND JOINT POWERS AGREEMENT
The Authority representative to any affiliated agency or joint powers agreement
such as California JPIA or SOCWA, will encourage adoption of an investment
policy similar to this investment policy and in conformance with State guidelines.
On an annual basis a report will be made to the Commissioners by the Finance
Officer disclosing any significant differences in policies and investment holdings.
XIII. INVESTMENT POLICY ADOPTION
The Authority's investment policy shall be adopted by the Commissioners. The
investment policy shall be reviewed on an annual basis by the Executive Director
and the Commissioners and any significant modifications recommended thereto
must be approved by the Commissioners.
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X. GLOSSARY
A glossary of financial terms referenced herein is appended. See Appendix A.
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APPENDIX A
GLOSSARY OF FINANCIAL TERMS
APPENDIX A
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GLOSSARY
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the
issuer.
BASIS POINT: A basis point equals one one-hundredth of 1% (.01%).
BID: The price offered for securities.
BOOK ENTRY SECURITIES: All U.S. Treasury and Federal Agencies are maintained
on computerized records at the Federal Reserve now known as "wire able" securities.
BROKER: A broker brings buyers and sellers together for a commission paid by the
initiator of the transaction or by both sides; he does not position. In the money market,
brokers are active in markets in which banks buy and sell money and in interdealer
markets.
COLLATERAL: Securities, evidence of depositor 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.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by
a certificate. Large -denomination CD's are typically negotiable.
COMMERCIAL PAPER (CP): An unsecured promissory note with a fixed maturity no
longer than. 270 days. Public offerings are exempt from SEC registration.
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 evidencing
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.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities:
delivery versus payment and delivery versus receipt (also called free). Delivery versus
payment is delivery of securities with an exchange of money for the "securities."
Delivery versus receipt is delivery of securities with an exchange of a signed receipt for
the securities.
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DEBENTURE: A bond secured only by the general credit of the issuer.
DISCOUNT: The difference between the cost price of a security and its value at maturity
when quoted at lower than face value. A security selling below the original offering price
shortly after sale also is considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instruments that are
issued at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury
bills.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply
credit to various classes of institutions and individuals, e.g., S&L's, small business firms,
students, farmers, farm cooperatives, and exporters.
FEDERAL FUNDS: Non-interest bearing deposits held by member banks at the Federal
Reserve. Also used to denote "immediately available" funds in the clearing sense. "Fed
funds" also used to refer to these funds.
FEDERAL FUNDS RATE: The rate of interest at which Federal funds are traded. This
rate is currently pegged by the Federal Reserve through open -market operations.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that
insures bank deposits, currently up to $100,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to
savings and loan associations. The Federal Home Loan Banks play a role analogous to
that played by the Federal Reserve Banks vis-a-vis member commercial banks.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): A U.S. Corporation
and instrumentality of the U.S. government. Through its purchases of conventional
mortgages, it provides liquidity to the mortgage markets, much like FNMA.. FHLMC's
securities are highly liquid and widely accepted. FHLMC assumes and guarantees that
all security holders will receive timely payment of principal and interest.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae): 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 & Urban Development, H.U.D. 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
assumes and guarantees that all security holders will receive timely payment of
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APPENDIX A
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12 SJCHA 13-06-18-01
principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The
president of the New York Federal Reserve Bank is a permanent 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 guaranteed by GNMA and issued by mortgage bankers, commercial banks,
savings and loans associations and other institutions. Security holder is protected by full
faith and credit of the U.S. Government. Ginnie Mae securities are backed by FHA, VA
or FMHM mortgages. The term, "pass-through" 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 AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from political
subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
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
establish 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 (bills, commercial
paper, bankers' acceptances, etc.) are issued and traded.
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
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13 SJCHA 13-06-18-01
the FOMC, in order to influence the volume of money and credit in the economy.
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: Collection of securities held by an investor.
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.
PRIME RATE: The rate at which banks lend to their best or "prime" customers. Also
known as the "reference rate."
PRUDENT - PERSON RULE: An investment standard: In some states the law requires
that a fiduciary, such as a trustee may invest money only in a list of securities selected
by the state (the so-called legal list). In other states, the trustee may invest in a
security if it is one which would be bought by a prudent person of discretion and
intelligence who is seeking a reasonable income- and preservation of capital.
QUALIFIED PUBLIC Depositories: A financial institution which does not claim
exemption from the payment of any sales or compensating use or ad valorem taxes
under the laws of this state, which was segregated for the benefit of the commission
eligible collateral having a value of not less than its maximum liability and which has
been approved by the Public Deposit Protection Comm1 ssion to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or
its current market price. This may be the amortized yield to maturity on a bond or the
current income return.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them 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 Federal
Reserve Bank is said to be doing RP, it is lending money that is, 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 banks' vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding
issues following the initial distribution.
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14 SJCHA 13-06-18-01
SEC RULE 15C3 -I: See uniform net capital rule.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SETTLEMENT DATE: The date on which a trade is cleared "by delivery of securities
against funds. This date may be the same as the trade date or later.
TRADE DATE: The date on which a transaction is initiated or entered into by the buyer
and seller.
TREASURY BILL: A non-interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three months,
six months, or one year.
TREASURY BONDS: Long-term U.S. Treasury securities having initial maturities of
more than ten years.
TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury securities having
initial maturities of from one to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement
that member firms as well as nonmember broker-dealers in securities maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1; also called the net capital rule
and net capital ratio. Indebtedness covers all money owed to a firm, including margin
loans and commitments to purchase securities. This is one reason new public issues
are spread among members of underwriting syndicates. Liquid capital includes cash
and as sees easily converted into cash.
WHEN -ISSUED TRADES: Typically, there is a lag between the time a new bond is
announced and sold, and the time when it is actually issued.
YIELD: The rate of annual income return on an investment, expressed as a
percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the
current market price, for the security. (b) NET YIELD or YIELD TO MATURITY is the
current income yield minus any premium above par or plus any discount from par in
purchase price, with the adjustment spread over the period from the date of purchase to
the date of maturity of the bond.
YIELD TO MATURITY: The rate of return yielded by a debt security held to maturity
when both interest payments and the investor's capital gain or loss on the security are
taken into account.
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APPENDIX A
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