HomeMy WebLinkAboutMINUTES - 06172014 - C.115RECOMMENDATION(S):
ACCEPT the Treasurer’s Annual Investment Policy for Fiscal Year 2014-2015 (the “Investment Policy”), as
recommended by the County Treasurer-Tax Collector. The Investment Policy was reviewed but was not adopted by
the Treasury Oversight Committee due to lack of quorum.
FISCAL IMPACT:
None.
BACKGROUND:
Pursuant to Government Code Section 27133, at the May 20, 2014 Treasury Oversight Committee meeting the
Committee reviewed the Treasurer’s Investment Policy dated June 2014. The policy incorporates details of cash
management and investment guidelines of surplus funds delegated for investing and reinvesting by the County
Treasurer. However, the committee was not able to approve the policy due to the lack of a quorum. Nonetheless, the
Treasurer’s Investment Policy dated June 2014 is submitted to the Board of Supervisors for review and acceptance.
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 06/17/2014 APPROVED AS RECOMMENDED OTHER
Clerks Notes:
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Candace Andersen, District II
Supervisor
Mary N. Piepho, District III
Supervisor
Karen Mitchoff, District IV
Supervisor
Federal D. Glover, District V
Supervisor
Contact: Brice Bins, 925
957-2848
I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board
of Supervisors on the date shown.
ATTESTED: June 17, 2014
David Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc: Robert Campbell, Auditor-Controller
C.115
To:Board of Supervisors
From:Russell Watts, Treasurer-Tax Collector
Date:June 17, 2014
Contra
Costa
County
Subject:Treasurer's Investment Policy for the Fiscal Year 2014-2015
CONSEQUENCE OF NEGATIVE ACTION:
The County would not be in compliance with Government Code Section 27133.
CHILDREN'S IMPACT STATEMENT:
None.
ATTACHMENTS
TreasInvestPolicy2014
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 1
CONTRA COSTA COUNTY
TREASURER’S
ANNUAL INVESTMENT POLICY
FISCAL YEAR 2014‐2015
APPROVED BY THE BOARD OF SUPERVISORS
JUNE 2014
The Contra Costa County Treasurer will annually present to both the Board of Supervisors
(Board) and the Treasury Oversight Committee (Committee) a statement of investment policy,
which the Board shall review and approve at a public meeting. Any changes in the policy shall
also be reviewed and approved by the Board at a public meeting (Gov’t Code §53646(a)(1)).
OFFICE OF COUNTY TREASURER-TAX COLLECTOR
625 COURTS STREET, ROOM 100
MARTINEZ, CALIFORNIA 94553
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 2
Table of Contents
1.0 PURPOSE ............................................................................................................................................. 3
2.0 SCOPE .................................................................................................................................................. 3
3.0 PARTICIPANTS ..................................................................................................................................... 3
4.0 IMPLEMENTATION .............................................................................................................................. 3
5.0 OBJECTIVES ......................................................................................................................................... 3
6.0 GENERAL STRATEGY ........................................................................................................................... 4
7.0 STANDARD OF CARE ........................................................................................................................... 5
8.0 SAFEKEEPING AND CUSTODY ............................................................................................................. 6
9.0 AUTHORIZED BROKERS/DEALERS AND FINANCIAL INSTITUTIONS ................................................... 7
10.0 SUITABLE AND AUTHORIZED INVESTMENTS ..................................................................................... 7
11.0 RESTRICTIONS AND PROHIBITIONS ................................................................................................. 13
12.0 INVESTMENT PARAMETERS ............................................................................................................. 14
13.0 CALIFORNIA LOCAL AGENCY INVESTMENT FUND (LAIF) ................................................................. 16
14.0 PORTFOLIO MANAGEMENT ACTIVITY ............................................................................................. 17
15.0 REPORTING ....................................................................................................................................... 18
16.0 COMPENSATION ............................................................................................................................... 19
17.0 CALCULATING AND APPORTIONING POOL EARNINGS .................................................................... 19
18.0 NON‐MANDATED DEPOSITS AND WITHDRAWALS IN THE TREASURY ........................................... 20
19.0 TEMPORARY BORROWING OF POOL FUNDS ................................................................................... 21
20.0 INVESTMENT OF BOND PROCEEDS .................................................................................................. 22
21.0 DISASTER RECOVERY PLAN .............................................................................................................. 22
22.0 POLICY CONSIDERATIONS ................................................................................................................ 22
AUTHORIZATION FOR LAIF INVESTMENTS .................................................................................................. 23
APPROVED BROKERS ................................................................................................................................... 24
APPROVED ISSUERS .................................................................................................................................... 25
APPROVED PRIMARY DEALERS ................................................................................................................... 26
GLOSSARY OF TERMS .................................................................................................................................. 27
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 3
CONTRA COSTA COUNTY
TREASURER’S ANNUAL INVESTMENT POLICY
1.0 PURPOSE
The purpose of this Investment Policy (Policy) is to establish cash management and investment
guidelines of surplus funds entrusted to the care of the Contra Costa County Treasurer’s Office
(Treasurer’s Office) in accordance with applicable sections of California Government Code. All portfolio
activities will be judged by the standards of the Policy and its ranking of investment objectives.
2.0 SCOPE
This Policy applies to all funds over which the Treasurer’s Office has been granted fiduciary responsibility
and direct control for their management.
3.0 PARTICIPANTS
This Policy restricts deposits to those agencies mandated by California Government Code as treasury
deposits. However, subject to the consent of the Treasurer’s Office and in accordance with section
53684, exemptions may be granted to non‐mandatory depositing agencies, if it is determined that the
additional deposit provides a benefit to the investment pool as a whole while not creating
unmanageable liquidity risk.
4.0 IMPLEMENTATION
In order to provide direction to those responsible for management of surplus funds, the County
Treasurer has established this Policy and presented it to the Treasury Oversight Committee and the
Board of Supervisors, and has made available the report to the legislative body of local agencies that
participates in the County Treasurer’s investment program.
The Policy explains investable funds; authorized instruments; credit quality required; maximum
maturities and concentrations; collateral requirements; qualifications of broker‐dealers and financial
institutions doing business with, or on behalf of, the County; limits on gifts and honoraria; the reporting
requirements; the Treasury Oversight Committee; the manner of appropriating costs; and the criteria to
request withdrawal of funds.
5.0 OBJECTIVES
Gov’t Code §53600.5: When investing, reinvesting, purchasing, acquiring, exchanging, selling or
managing public funds, the primary objective of a trustee shall be to safeguard the principal of the funds
under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The
third objective shall be to achieve a return on the funds under its controls.
5.1 Safety of principal is the foremost objective of the investment program. Investments 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 market risk.
5.1.a Credit Risk
The Treasurer will minimize credit risk, the risk of loss due to the failure of the security
issuer or backer, by:
1. Limiting investments to the safest type of securities
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 4
2. Pre‐qualifying the financial institutions, broker/dealers, intermediaries, and advisers
with which the Treasurer’s Office will do business
3. Diversifying the investment portfolio so that potential losses on individual securities
will be minimized.
5.1.b Market Risk
The Treasurer’s Office will minimize the risk that the market value of securities in the
portfolio will fall due to changes in general interest rates, by:
1. Structuring the investment portfolio so that securities mature to meet cash
requirements for ongoing operations, thereby avoiding the need to sell securities on
the open market prior to maturity
2. Investing operating funds primarily in shorter‐term securities, money market mutual
funds, or similar investment pools.
5.2 Liquidity: The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by structuring the
portfolio so that securities mature concurrent with cash needs to meet anticipated demands.
Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist
largely of securities with active secondary or resale markets. A portion of the portfolio also may
be placed in money market mutual funds or local government investment pools which offer
same‐day liquidity for short‐term funds.
5.3 Yield: 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 and liquidity needs. Return on investment is of secondary importance compared to
the safety and liquidity objectives described above. The core of investments is limited to
relatively low risk securities in anticipation of earning a fair return relative to the risk being
assumed. Securities may be sold prior to maturity when deemed prudent and necessary.
Reasons of selling include but not limited to:
1. A security with declining credit may be sold early to minimize loss of principal.
2. A security swap would improve the quality, yield, or target duration in the portfolio.
3. Liquidity needs of the portfolio require that the security be sold.
4. Portfolio rebalancing would bring the portfolio back into compliance.
Investments will be made with judgment and care, under circumstances then prevailing, which
persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital
as well as the probable income to be derived.
5.4 Public Trust: All investments will be in conformance with state law and county ordinances and
policies. The investment of public funds is a task that must maintain the public trust.
6.0 GENERAL STRATEGY
6.1 Buy and Hold: The Treasurer will generally use the passive investment strategy known as BUY
AND HOLD whereas securities are purchased with the intent of holding them to maturity.
Interest income and the reinvestment of interest income usually are the only sources of return
in the portfolio.
The investment program will focus on purchasing securities that will limit or reduce the
potential default risk and ensure the reliability of cash flows from interest income. Generally,
purchases will be laddered throughout the portfolio in order to minimize the number and cost
of investment transactions.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 5
6.2 Directed Investment: Local agencies may direct the investment, exchange, liquidation and
reinvestment of their assets, but must meet the provisions of the investment objectives of this
policy. The withdrawal of funds in the Treasury shall coincide with investment maturities or
authorized sales of securities by the local agency’s legislative or governing body.
7.0 STANDARD OF CARE
The following policies are designed in accordance with Government Code to provide transparency to the
investment program while enhancing portfolio controls:
7.1 Prudent Investor Standard: “Governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds are trustees and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling or managing public funds, a trustee shall act with care,
skill, prudence and diligence under the circumstances then prevailing, 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
to an overall strategy, investments may be acquired as authorized by law.” (Gov’t Code
§53600.3.1)
7.2 Limits on Honoraria, Gifts, and Gratuities
In accordance with California Government Code Section 27133(d), this Policy establishes limits
for the Director of Finance; individuals responsible for management of the portfolios; and
members of the Investment Group and Review Group who direct individual investment
decisions, select individual investment advisors and broker/dealers, and conduct day‐to‐day
investment trading activity. The limits also apply to members of the Oversight Committee. Any
individual who receives an aggregate total of gifts, honoraria and gratuities in excess of $50 in a
calendar year from a broker/dealer, bank or service provider to the Pooled Investment Fund
must report the gifts, dates and firms to the designated filing official and complete the
appropriate State forms.
No individual may receive aggregate gifts, honoraria, and gratuities in a calendar year in excess
of the amount specified in Section 18940.2(a) of Title 2, Division 6 of the California Code of
Regulations. This limitation is $440 for the period January 1, 2013, to December 31, 2014. Any
violation must be reported to the State Fair Political Practices Commission.
Please refer to the Contra Costa County Treasurer‐Tax Collector’s Conflict of Interest Code for
further explanation of the prohibited activities, and their enforcements and exceptions.
7.3 Delegation of Authority
7.4.a Subject to Section 53607, the board of supervisors may, by ordinance, delegate to the
county treasurer the authority to invest or reinvest the funds of the county and the
funds of other depositors in the county treasury, pursuant to Chapter 4 (commencing
with Section 53600) of Part 1 of Division 2 of Title 5. The county treasurer shall
thereafter assume full responsibility for those transactions until the board of supervisors
either revokes its delegation of authority, by ordinance, or decides not to renew the
annual delegation, as provided in Section 53607 (Gov’t Code §27000.1).
7.4.b The authority of the legislative body to invest or to reinvest funds of a local agency, or to
sell or exchange securities so purchased, may be delegated for a one‐year period by the
legislative body to the treasurer of the local agency, who shall thereafter assume full
responsibility for those transactions until the delegation of authority is revoked or
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 6
expires, and shall make a monthly report of those transactions to the legislative body.
Subject to review, the legislative body may renew the delegation of authority pursuant
to this section each year (Gov’t Code §53607).
7.4.c Responsibility for the operation of the investment program is hereby delegated to the
County Treasurer, who shall act in accordance with established written procedures and
internal controls for the operation of the investment program consistent with this
investment policy. Procedures include references to: safekeeping, delivery vs. payment,
investment accounting, repurchase agreements, wire transfer agreements, and
collateral/depository agreements. No person may engage in an investment transaction
except as provided under the terms of this policy and the procedures established by the
County Treasurer.
7.5 Treasury Oversight Committee: In compliance with a Board Order of the Contra Costa County
Board of Supervisors, the County Contra Costa County Treasury Oversight Committee was
established in November 6 of 1995. The intent of the Committee is to allow local agencies,
including school districts, as well as the public, to participate in reviewing the policies that guide
the investment of public funds. The mandate for the existence of the Committee was
suspended in 2004 by the State of California; however, the Committee serves an important
function and the Treasurer’s Office has elected to continue the program.
7.5.a The Committee shall annually review and monitor the County’s Investment Policy.
7.5.b The Committee shall cause an annual audit to determine the County Treasurer’s
compliance with the Investment Policy and all investment funds in the county Treasury.
8.0 SAFEKEEPING AND CUSTODY
8.1 Delivery vs. Payment: All trades of marketable securities will be executed (cleared and settled)
on a delivery vs. payment (DVP) basis to ensure that securities are deposited in the County
Treasurer’s safekeeping institution prior to the release of funds.
8.2 Third‐party Safekeeping: Securities will be held by an independent third‐party safekeeping
institution selected by the County Treasurer. All securities will be evidenced by safekeeping
receipts in the County’s name or in a name designated by the County Treasurer. The
safekeeping institution shall annually provide a copy of its most recent report on internal
controls ‐ Service Organization Control Reports (formerly 70, or SAS 70) prepared in accordance
with the Statement on Standards for Attestation Engagements (SSAE) No. 16 (effective June 15,
2011.)
8.2.a A local agency purchasing or obtaining any securities prescribed in this section, in a
negotiable, bearer, registered or non‐registered format, shall require delivery of the
securities to the local agency, including those purchased for the agency by financial
advisors, consultants or managers using the agency’s funds, by book entry, physical
delivery or by third‐party custodial agreement. The transfer of securities to the
counterparty bank’s customer book‐entry account may be used for book‐entry delivery.
For purposes of this section, “counterparty” means the other party to the transaction. A
counterparty bank’s trust department or separate safekeeping department may be used
for the physical delivery of the security if the security is held in the name of the local
agency. Where this section specifies a percentage limitation for a particular category of
investment, that percentage is applicable only at the date of purchase. Where this
section does not specify a limitation on the term of remaining maturity at the time of
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 7
the investment, no investment shall be made in any security other than a security
underlying a repurchase or reverse repurchase agreement authorized by this section.
8.2.b In compliance with this section, the securities of Contra Costa County and its agencies
shall be in safekeeping at The Bank of New York Trust Company, N. A., a counterparty
bank’s trust department or as defined in the debt indenture and contract.
8.3 Internal Controls: The County Treasurer is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the Treasurer are protected from
loss, theft or misuse. Specifics for the internal controls shall be documented in an investment
procedures manual that shall be reviewed and updated periodically by the County Treasurer.
The internal control structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that (1) the cost of control
should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits
requires estimates and judgments by management.
9.0 AUTHORIZED BROKERS/DEALERS AND FINANCIAL INSTITUTIONS
9.1 All transactions initiated on behalf of the Pooled Investment Fund and Contra Costa County shall
be executed only through one of the following:
1. Government security dealers reporting as primary dealers to the Market Reports Division
of the Federal Reserve Bank of New York;
2. Banks and financial institutions that directly issue their own securities which have been
placed on the Approved List of Broker/Dealers and Financial Institutions;
3. Brokers/dealers in the State of California approved by the County Treasurer based on the
reputation and expertise of the company and individuals employed.
Broker/dealers and financial institutions which have exceeded the political contribution limits
as contained in Rule G‐37 of the Municipal Securities Rulemaking Board within a four year
period to the County Treasurer or an member of the governing board of a local agency or any
candidate for those offices, are prohibited from the Approval List of Broker/Dealers and
Financial Institutions.
9.2 Qualifications: All financial institutions and broker/dealers who desire to become qualified for
investment transactions must complete Contra Costa County Treasurer’s Office Broker/Dealer
Due Diligence Questionnaire which can be obtained at www.cctax.us. An annual review of the
financial condition and registration of qualified financial institutions and broker/dealers will be
conducted by the Treasurer’s Office.
9.3 List of Approved Financial Institutions, Security Brokers and Dealers
A list will be maintained of financial institutions authorized to provide investment services. In
addition, a list also will be maintained of approved security broker/dealers selected by
creditworthiness and qualifications stated in section 9.2. However, the County Treasury will not
be limited to the financial institutions and brokers/dealers on the list. Others will be included as
long as conditions for authorized financial institutions and brokers/dealers set forth in this Policy
are met. Additionally, deletions and additions are based on the maintenance of required credit
quality as rated by a nationally recognized statistical‐rating organization (NRSRO) or reliable
financial sources.
10.0 SUITABLE AND AUTHORIZED INVESTMENTS
10.1 Authorized Investment Types: (Gov’t Code §53601 et seq.) The legislative body of a local
agency having moneys in a sinking fund or moneys in its treasury not required for the immediate
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 8
needs of the local agency may invest any portion of the moneys that it deems wise or expedient
in those investments set forth below. A local agency purchasing or obtaining any securities
prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shall
require delivery of the securities to the local agency, including those purchased for the agency
by financial advisers, consultants, or managers using the agency's funds, by book entry, physical
delivery, or by third‐party custodial agreement. The transfer of securities to the counterparty
bank's customer book entry account may be used for book entry delivery.
For purposes of this section, "counterparty" means the other party to the transaction. A
counterparty bank's trust department or separate safekeeping department may be used for the
physical delivery of the security if the security is held in the name of the local agency. Where
this section specifies a percentage limitation for a particular category of investment, that
percentage is applicable only at the date of purchase. Where this section does not specify a
limitation on the term or remaining maturity at the time of the investment, no investment shall
be made in any security, other than a security underlying a repurchase or reverse repurchase
agreement or securities lending agreement authorized by this section, that at the time of the
investment has a term remaining to maturity in excess of five years, unless the legislative body
has granted express authority to make that investment either specifically or as a part of an
investment program approved by the legislative body no less than three months prior to the
investment:
10.1.a Bonds issued by the local agencies, including bonds payable solely out of the revenues
from a revenue‐producing property, owned, controlled, or operated by the local agency
or by a department, board, agency or authority of the local agency.
10.1.b United States Treasury notes, bonds, bills or certificates of indebtedness, or those for
which the faith and credit of the United States are pledged for the payment of principal
and interest.
10.1.c Registered state warrants or treasury notes or bonds of this state, including bonds
payable solely out of the revenues from a revenue‐producing property owned,
controlled, or operated by the state or by a department, board, agency or authority of
the state.
10.1.d Registered treasury notes or bonds of any of the other 49 states in addition to
California, including bonds payable solely out of the revenues from a revenue‐producing
property owned, controlled, or operated by a state or by a department, board, agency,
or authority of any of the other 49 states, in addition to California.
10.1.e Bonds, notes, warrants or other evidences of indebtedness of any local agency within
this state, including bonds payable solely out of the revenues from a revenue‐producing
property owned, controlled or operated by the local agency, or by a department, board,
agency or authority of the local agency.
10.1.f Federal agency or United States government‐sponsored enterprise obligations,
participations, or other instruments, including those issued by or fully guaranteed as to
principal and interest by federal agencies or United States government‐sponsored
enterprises.
10.1.g Bankers acceptances otherwise known as bills of exchange or time drafts drawn on
and accepted by a commercial bank. Purchases of banker’s acceptances may not exceed
180 days’ maturity or 40 percent of the agency’s money that may be invested pursuant
to this section. However, no more than 30 percent of the agency’s money may be
invested in the banker’s acceptances of any one commercial bank pursuant to this
section. This subdivision does not preclude a municipal utility district from investing any
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 9
money in its treasury in any manner authorized by the Municipal Utility District Act
(Division 6, commencing with Section 11501, of the Public Utilities Code).
10.1.h Commercial paper of “prime” quality of the highest ranking or of the highest letter and
number rating as provided for by a nationally recognized statistical‐rating organization
(NRSRO). The entity that issues the commercial paper shall meet all of the following
conditions in either paragraph (1) or paragraph (2):
1. The entity meets the following criteria:
A. Is organized and operating in the United States as a general corporation.
B. Has total assets in excess of five hundred million dollars ($500,000,000).
C. Has debt other than commercial paper, if any, that is rated “A” or higher by a
nationally recognized statistical‐rating organization (NRSRO).
2. The entity meets the following criteria:
A. Is organized within the United States as a special purpose corporation, trust, or
limited liability company.
B. Has program‐wide credit enhancements including, but not limited to, over
collateralization, letters of credit, or surety bond.
C. Has commercial paper that is rated “A‐1” or higher, or the equivalent, by a
nationally recognized statistical‐rating organization (NRSRO).
Eligible commercial paper shall have a maximum maturity of 270 days or less. Local
agencies, other than counties or a city and county, may invest no more than 25 percent
of their moneys in eligible commercial paper. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the outstanding commercial
paper of any single issuer. Counties or a city and county may invest in commercial paper
pursuant to the concentration limits in subdivision (a) of Section 53635:
i. Not more than 40 percent of the local agency’s money may be invested in
eligible commercial paper.
ii. Not more than 10 percent of the total assets of the investments held by a local
agency may be invested in any one issuer’s commercial paper.
10.1.a Negotiable certificates of deposit issued by a nationally‐ or state‐chartered bank or a
savings association or federal association (as defined by Section 5102 of the Financial
Code), a state or federal credit union, or by a state‐licensed branch of a foreign bank.
Purchases of negotiable certificates of deposit may not exceed 30 percent of the
agency’s money that may be invested pursuant to this section. For purposes of this
section, negotiable certificates of deposits do not come within Article 2 (commencing
with Section 53630), except that the amount so invested shall be subject to the
limitations of Section 53638. The legislative body of a local agency and the treasurer or
other official of the local agency having legal custody of the money are prohibited from
investing local agency funds, or funds in the custody of the local agency, in negotiable
certificates of deposit issued by a state or federal credit union if a member of the
legislative body of the local agency, or any person with investment decision making
authority in the administrative office, manager’s office, budget office, auditor‐
controller’s office, or treasurer’s office of the local agency also serves on the board of
directors, or any committee appointed by the board of directors, or the credit
committee or the supervisory committee of the state or federal credit union issuing the
negotiable certificates of deposit.
10.1.b Repurchase and reverse repurchase agreements
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 10
1. Investments in repurchase agreements or reverse repurchase agreements of any
securities authorized by this section, as long as the agreements are subject to this
subdivision, including the delivery requirements specified in this section.
2. Investments in repurchase agreements may be made on any investment authorized
in this section when the term of the agreement does not exceed one year. The
market value of securities that underlay a repurchase agreement shall be valued at
102 percent or greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly. Since the market value of the underlying
securities is subject to daily market fluctuations, the investments in repurchase
agreements shall be in compliance if the value of the underlying securities is
brought back up to 102 percent no later than the next business day.
3. Reverse repurchase agreements or securities lending agreements may be utilized
only when all of the following conditions are met:
A. The security to be sold using a reverse repurchase agreement or securities
lending agreement has been owned and fully paid for by the local agency for a
minimum of 30 days prior to sale.
B. The total of all reverse repurchase agreements and securities lending
agreements on investments owned by the local agency does not exceed 20
percent of the base value of the portfolio.
C. The agreement does not exceed a term of 92 days, unless the agreement
includes a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse repurchase
agreement or securities lending agreement and the final maturity date of the
same security.
D. Funds obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty using a reverse repurchase
agreement or securities lending agreement shall not be used to purchase
another security with a maturity longer than 92 days from the initial settlement
date of the reverse repurchase agreement or securities lending agreement,
unless the reverse repurchase agreement or securities lending agreement
includes a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse repurchase
agreement or securities lending agreement and the final maturity date of the
same security.
4. Prior approval of the governing body; only with primary dealers:
A. Investments in reverse repurchase agreements, securities lending agreements,
or similar investments in which the local agency sells securities prior to purchase
with a simultaneous agreement to repurchase the security may be made only
upon prior approval of the governing body of the local agency and shall be made
only with primary dealers of the Federal Reserve Bank of New York or with a
nationally or state‐chartered bank that has or has had a significant banking
relationship with a local agency.
B. For purposes of this policy, "significant banking relationship" means any of the
following activities of a bank:
i. Involvement in the creation, sale, purchase, or retirement of a local
agency's bonds, warrants, notes, or other evidence of indebtedness.
ii. Financing of a local agency's activities.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 11
iii. Acceptance of a local agency's securities or funds as deposits.
5. Definitions and terms of repos, securities and securities lending:
A. "Repurchase agreement" means a purchase of securities by the local agency
pursuant to an agreement by which the counterparty seller will repurchase the
securities on or before a specified date and for a specified amount and the
counterparty will deliver the underlying securities to the local agency by book
entry, physical delivery, or by third‐party custodial agreement. The transfer of
underlying securities to the counterparty bank's customer book‐entry account
may be used for book‐entry delivery.
B. "Securities," for purposes of repurchase under this subdivision, means securities
of the same issuer, description, issue date, and maturity.
C. "Reverse repurchase agreement" means a sale of securities by the local agency
pursuant to an agreement by which the local agency will repurchase the
securities on or before a specified date and includes other comparable
agreements.
D. "Securities lending agreement" means an agreement under which a local agency
agrees to transfer securities to a borrower who, in turn, agrees to provide
collateral to the local agency. During the term of the agreement, both the
securities and the collateral are held by a third party. At the conclusion of the
agreement, the securities are transferred back to the local agency in return for
the collateral.
E. For purposes of this section, the base value of the local agency's pool portfolio
shall be that dollar amount obtained by totaling all cash balances placed in the
pool by all pool participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities lending
agreements, or other similar borrowing methods.
F. For purposes of this section, the spread is the difference between the cost of
funds obtained using the reverse repurchase agreement and the earnings
obtained on the reinvestment of the funds.
10.1.c Medium‐term notes, defined as all corporate and depository institution debt securities
with a maximum remaining maturity of five years or less, issued by corporations
organized and operating within the United States or by depository institutions licensed
by the United States or any state and operating within the United States. Notes eligible
for investment under this subdivision shall be rated "A" or better by an NRSRO.
Purchases of medium‐term notes shall not include other instruments authorized by this
section and may not exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
10.1.d Shares of beneficial interest
1. Shares of beneficial interest issued by diversified management companies that
invest in the securities and obligations as authorized by subdivisions (a) to (k),
inclusive, and subdivisions (m) to (o), inclusive, and that comply with the investment
restrictions of this article and Article 2 (commencing with Section 53630). However,
notwithstanding these restrictions, a counterparty to a reverse repurchase
agreement or securities lending agreement is not required to be a primary dealer of
the Federal Reserve Bank of New York if the company's board of directors finds that
the counterparty presents a minimal risk of default, and the value of the securities
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 12
underlying a repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market daily.
2. Shares of beneficial interest issued by diversified management companies that are
money market funds registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 (l5 U.S.C. Sec. 80a‐1 et seq.).
3. If investment is in shares issued pursuant to paragraph (1), the company shall have
met either of the following criteria:
A. Attained the highest ranking or the highest letter and numerical rating provided
by not less than two NRSROs.
B. Retained an investment adviser registered or exempt from registration with the
Securities and Exchange Commission with not less than five years' experience
investing in the securities and obligations authorized by subdivisions (a) to (k),
inclusive, and subdivisions (m) to (o), inclusive, and with assets under
management in excess of five hundred million dollars ($500,000,000).
4. If investment is in shares issued pursuant to paragraph (2), the company shall have
met the following criteria:
A. Attained the highest ranking or the highest letter and numerical rating provided
by not less than two nationally recognized statistical rating organizations.
B. Retained an investment adviser registered or exempt from registration with the
Securities and Exchange Commission with not less than five years' experience
investing in the securities and obligations authorized by subdivisions (a) to (k),
inclusive, and subdivisions (m) to (o), inclusive, and with assets under
management in excess of five hundred million dollars ($500,000,000).
5. The purchase price of shares of beneficial interest purchased pursuant to this
subdivision shall not include any commission that the companies may charge and
shall not exceed 20 percent of the agency’s money that may be invested pursuant to
this section. However, no more than 10 percent of the agency’s funds may be
invested in shares of beneficial interest of any one mutual fund pursuant to
paragraph (1).
10.1.e Moneys held by a trustee or fiscal agent and pledged to the payment of security of
bonds or other indebtedness, or obligations under a lease, installment sale, or other
agreement of a local agency, or certificates of participation in those bonds,
indebtedness, or lease installment sale, or other agreements, may be invested in
accordance with the statutory provisions governing the issuance of those bonds,
indebtedness, or lease installment sale, or other agreement, or to the extent not
inconsistent therewith or if there are not specific statutory provision, in accordance with
the ordinance, resolution, indenture, or agreement of the local agency providing for the
issuance.
10.1.f Notes, bonds, or other obligations that are at all times secured by a valid first‐priority
security interest in securities of the types listed by Section 53651 as eligible securities
for the purpose of securing local agency deposits having a market value at least equal to
that required by Section 53652 for the purpose of securing local agency deposits. The
securities serving as collateral shall be placed by delivery or book entry into the custody
of a trust company or the trust department of a bank that is not affiliated with the issuer
of the secured obligation, and the security interest shall be perfected in accordance with
the requirements of the Uniform Commercial Code or federal regulations applicable to
the types of securities in which the security interest is granted.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 13
10.1.g Any mortgage pass‐through security, collateralized mortgage obligation, mortgage‐
backed or other pay‐through bond, equipment lease‐backed certificate, consumer
receivable pass‐through certificate, or consumer receivable‐backed bond of a
maximum of five years’ maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an “A” or higher rating for the issuer’s
debt as provided by a nationally recognized rating service and rated in a rating category
of “AA” or its equivalent or better by a nationally recognized rating service. Purchase of
securities authorized by this subdivision may not exceed 20 percent of the agency’s
surplus money that may be invested pursuant to this section.
10.1.h Shares of beneficial interest issued by a joint power authority organized pursuant to
Section 6509.7 that invests in the securities and obligations authorized in subdivisions
(a) to (n), inclusive. Each share shall represent an equal proportional interest in the
underlying pool of securities owned by the joint powers authority. To be eligible under
this section, the joint powers authority issuing shares shall have retained an investment
adviser that meets all of the following criteria:
1. The adviser is registered or exempt from registration with the Securities and
Exchange Commission.
2. The adviser has not less than five years of experience investing in the securities and
obligations authorized in subdivisions (a) to (n) inclusive.
3. The adviser has assets under management in excess of five hundred million dollars
($500,000,000).
11.0 RESTRICTIONS AND PROHIBITIONS
11.1 Restrictions set by the Treasurer
11.1.a All investments purchased by the Treasurer’s Office shall be of investment grade. The
minimum credit rating of purchased investments shall be as defined by Government
Code 53600 et. seq.
11.1.b All legal securities issued by a tobacco‐related company are prohibited. A tobacco‐
related company is defined as 1) an entity that makes smoking products from tobacco
used in cigarettes, cigars and/or snuff, or for smoking in pipes or 2) a company that has
total revenues of 15 percent or more from the sale of such tobacco products. The
tobacco‐related issuers restricted from any investment are Alliance One, Altria Group,
Inc., Auri Inc., British American Tobacco PLC, Imperial Tobacco Group PLC, Kirin
International Holding Inc., Lorillard, Philip Morris International, Reynolds American, Inc.,
Schweitzer‐Mauduit International Inc., Smokefree Innotec Inc., Star Scientific Inc.,
Universal Corp., and Vector Group, Ltd. Annually the Treasury staff will update the list
of tobacco‐related companies.
11.1.c Financial futures or financial option contracts will each be approved on a per trade basis
by the County Treasurer.
11.1.d Reverse repurchase agreements will be used strictly for the purpose of supplementing
income with a limit of 10 percent of the total portfolio with prior approval of the
Treasurer.
11.1.e SBA loans require prior approval of the Treasurer in every transaction.
11.1.f Securities purchased through brokers will be held in safekeeping at The Bank of New
York Trust Company, N.A. or as designated by the specific contract(s) for government
securities and tri‐party repurchase agreements.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 14
11.1.g Swaps and Trades will each be approved on a per‐trade basis by Treasurer or Assistant
Treasurer.
11.1.h Bank CDs or non‐negotiable CDs will be collateralized at 110 percent by government
securities or 150 percent by current mortgages. There will be no waiver of the first
$100,000 collateral except by special arrangement with the Treasurer.
11.2 Prohibitions by Government Code (§53601.6)
11.2.a A local agency shall not invest any funds pursuant to this Article or pursuant to Article 2
(commencing with Section 53630) in inverse floaters, range notes or interest‐only strips
that are derived from a pool of mortgages.
11.2.b A local agency shall not invest any funds pursuant to this article or pursuant to Article 2
(commencing with Section 53630) in any security that could result in zero interest
accrual if held to maturity. However, a local agency may hold prohibited instruments
until their maturity dates. The limitation in this subdivision shall not apply to local
agency investments in shares of beneficial interest issued by diversified management
companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a‐
1,et seq.) that are authorized for investment pursuant to subdivision (l) of Section
53601.
12.0 INVESTMENT PARAMETERS
12.1 Diversification: Investments shall be diversified so as to minimize the risk of loss and to
maximize the rate of return by:
1. Limiting investment to avoid overconcentration in securities from a specific issuer or
business sector (excluding U.S. Treasury securities),
2. Limiting investment in securities that have higher credit risks,
3. Investing in securities with varying maturities, and
4. Continuously investing a portion of the portfolio in readily available funds such as
investment pools, money market funds or overnight repurchase agreements to ensure
that appropriate liquidity is maintained in order to meet ongoing obligations.
12.2 Maximum Maturities: To the extent possible, the County Treasurer shall attempt to match
its investments with anticipated cash flow requirements. Unless matched to a specific cash
flow, the Treasurer will not directly invest in securities maturing more than five (5) years
from the date of purchase or in accordance with state and local statutes and ordinances.
The Treasurer shall adopt weighted average maturity limitations (which often range from 90
days to 3 years), consistent with the investment objectives.
Because of inherent difficulties in accurately forecasting cash flow requirements, a portion
of the portfolio should be continuously invested in readily available funds such as LAIF,
money market funds, or overnight repurchase agreements to ensure that appropriate
liquidity is maintained to meet ongoing obligations.
12.3 Exception to Maximum Maturity: In accordance with Government Code §53601 the County
Treasurer retains the right to petition the Board of Supervisors for approval to invest in
securities with a final maturity in excess of five years. The Board of Supervisors adoption of
any resolution allowing maturities beyond five years shall be considered an allowed
modification to this policy and any investments made in accordance with the modification
shall be allowable under this policy.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 15
12.4 Investment Criteria1: All limitations set forth in this Policy are applicable only at the time of
purchase. The County Treasurer has the full discretion to rebalance the portfolio when it is
out of compliance owing to various reasons, such as market fluctuation.
INVESTMENT TYPE
MAXIMUM
% of
PORTFOLIO
MAXIMUM
MATURITY
MAXIMUM
% of ISSUE OTHER RESTRICTIONS
Bonds issued by local agencies,
§53601 (a) 100% 5 years 100%
U.S. Treasury Obligations, §53601 (b) 100% 5 years 100%
Registered State Warrants, and CA
Treasury Notes and bonds, §53601
(c)
100% 5 years 100%
Registered Treasury Notes or Bonds
of any of the other 49 state in
addition to CA, §53601 (d)
100% 5 years 100%
Bonds and Notes issued by other
local agencies in California, §53601
(e)
100% 5 years 100%
Obligations of U.S. Agencies or
government sponsored enterprises,
§53601 (f)
100%
5 years
100%
U.S. Agencies Callables 100% 5 years 25%
Bankers Acceptances), §53601 (g)
*Domestic: ($5B min. assets)
*Foreign: ($5B min. assets)
40%
40%
180 days
180 days
30%
Aggregate
5%
Aggregate
Commercial paper, §53601 (h) and
§53635 (a) 40% 270 days
or less
10%
Aggregate
No more than 10 % of the local agency’s money
may be invested in the outstanding commercial
paper of any single issuer.
Negotiable Certificates of Deposit ($5
billion minimum assets), §53601 (i) 30% 5 years 10%
Aggregate
Repurchase Agreements secured by
U.S. Treasury or agency obligation
(102% collateral), §53601 (j)
100% 1 year
See
limitations
for
Treasuries
and Agencies
above
Generally limited to Wells Fargo Bank, Bank of
America or other institutions with whom the
County treasury has executed tri‐party
agreements. Collateral will be held by a third
party to the transaction that may include the
trust department of particular banks. Collateral
will be only securities that comply with
Government Code 53601.
Reverse Repurchase Agreements and
Securities Lending Agreements,
§53601 (j)
20% 92 days
See
limitations
for
Treasuries
and Agencies
above
Corporate bonds, Medium Term
Notes & Covered, §53601 (k)
30%
5 years 5%
Aggregate
Shares of beneficial interest issued
by diversified mgt. companies
§53601 (l)
20% N/A 10%
Aggregate
Moneys held by a trustee or fiscal
agent, §53601 (m) 20% N/A
Collateralized Notes, Bonds, Time
Deposits, or other obligations, 15% 5 years 5%
Aggregate
Collateralized by the eligible securities at a
percentage specified in Government Code
1 The rating requirement for each investment type is referenced in the relevant sections of California Government Code.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 16
INVESTMENT TYPE
MAXIMUM
% of
PORTFOLIO
MAXIMUM
MATURITY
MAXIMUM
% of ISSUE OTHER RESTRICTIONS
§53601 (n) 53652.
Mrtg Backed Securities/CMO’s:
Asset Backed Securities
§53601 (o)
20%
20%
5 Years
5 Years
5%
Aggregate
No Inverse Floaters
No Range Notes
No Interest only strips derived from a pool of
mortgages
Joint Powers Authority, CalTRUST,
§53601 (P)
As limited
by
CalTRUST
N/A As limited by
CalTRUST
Local Agency Investment Fund (LAIF),
§16429.1
As Limited
by LAIF N/A As limited by
LAIF
13.0 CALIFORNIA LOCAL AGENCY INVESTMENT FUND (LAIF)
13.1 General Information (Gov’t Code §16305.9).
13.1.a All money in the Local Agency Investment Fund shall be held in trust in the custody
of the State Treasurer.
13.1.b All money in the Local Agency Investment Fund is nonstate money. That money shall
be held in a trust account or accounts. The Controller shall be responsible for
maintaining those accounts to record the Treasurer's accountability, and shall
maintain a separate account for each trust deposit in the Local Agency Investment
Fund.
13.1.c That money shall be subject to audit by the Department of Finance and to cash
count as provided for in Sections 13297, 13298, and 13299. It may be withdrawn
only upon the order of the depositing entity or its disbursing officers. The system
that the Director of Finance has established for the handling, receiving, holding, and
disbursing of state agency money shall also be used for the money in the Local
Agency Investment Fund.
13.1.d All money in the Local Agency Investment Fund shall be deposited, invested, and
reinvested in the same manner and to the same extent as if it were state money in
the State Treasury.
13.2 Investment and Distribution of Deposits (§16429.1).
13.2.a There is in trust in the custody of the Treasurer the Local Agency Investment Fund,
which fund is hereby created. The Controller shall maintain a separate account for
each governmental unit having deposits in this fund.
13.2.b Notwithstanding any other provisions of law, a local governmental official, with the
consent of the governing body of that agency, having money in its treasury not
required for immediate needs, may remit the money to the Treasurer for deposit in
the Local Agency Investment Fund for the purpose of investment.
13.2.c Notwithstanding any other provisions of law, an officer of any nonprofit corporation
whose membership is confined to public agencies or public officials, or an officer of
a qualified quasi‐governmental agency, with the consent of the governing body of
that agency, having money in its treasury not required for immediate needs, may
remit the money to the Treasurer for deposit in the Local Agency Investment Fund
for the purpose of investment.
13.2.d Notwithstanding any other provision of law or of this section, a local agency, with
the approval of its governing body, may deposit in the Local Agency Investment
Fund proceeds of the issuance of bonds, notes, certificates of participation, or other
evidences of indebtedness of the agency pending expenditure of the proceeds for
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 17
the authorized purpose of their issuance. In connection with these deposits of
proceeds, the Local Agency Investment Fund is authorized to receive and disburse
moneys, and to provide information, directly with or to an authorized officer of a
trustee or fiscal agency engaged by the local agency, the Local Agency Investment
Fund is authorized to hold investments in the name and for the account of that
trustee or fiscal agent, and the Controller shall maintain a separate account for each
deposit of proceeds.
13.2.e The local governmental unit, the nonprofit corporation, or the quasi‐governmental
agency has the exclusive determination of the length of time its money will be on
deposit with the Treasurer.
13.2.f The trustee or fiscal agent of the local governmental unit has the exclusive
determination of the length of time proceeds from the issuance of bonds will be on
deposit with the Treasurer.
13.2.g The Local Investment Advisory Board shall determine those quasi‐governmental
agencies which qualify to participate in the Local Agency Investment Fund.
13.2.h The Treasurer may refuse to accept deposits into the fund if, in the judgment of the
Treasurer, the deposit would adversely affect the state’s portfolio.
13.2.i The Treasurer may invest the money of the fund in securities prescribed in Section
16430. The Treasurer may elect to have the money of the fund invested through the
Surplus Money Investment Fund as provided in Article 4 (commencing with Section
16470) of Chapter 3 of Part 2 of Division 4 of Title 2.
13.2.j Money in the fund shall be invested to achieve the objective of the fund, that is to
realize the maximum return consistent with safe and prudent treasury
management.
13.2.k All instruments of title of all investments of the fund shall remain in the Treasurer’s
vault or be held in safekeeping under control of the Treasurer in any federal reserve
bank, or any branch thereof, or the Federal Home Loan Bank of San Francisco, with
any trust company, or the trust department of any state or national bank.
13.2.l Immediately at the conclusion of each calendar quarter, all interest earned and
other increment derived from investments shall be distributed by the Controller to
the contributing governmental units or trustees or fiscal agents, nonprofit
corporations, and quasi‐governmental agencies in amounts directly proportionate
to the respective amounts deposited in the Local Agency Investment fund and the
length of time the amounts remained therein. An amount equal to the reasonable
costs incurred in carrying out the provisions of this section, not to exceed a
maximum of one‐half of one percent of the earnings of this fund, shall be deducted
from the earnings prior to distribution. The amount of this deduction shall be
credited as reimbursements to the state agencies having incurred costs in carrying
out the provisions of this section.
13.2.m The Treasurer shall prepare for distribution a monthly report of investments made
during the preceding month.
14.0 PORTFOLIO MANAGEMENT ACTIVITY
14.1 Passive Portfolio Management:
(See Section 6.0., General Strategy)
14.2 Competitive Bidding:
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 18
Investments will be purchased in the most cost effective and efficient manner by using a
competitive bidding process for the purchase of securities. Competitive bidding is required
from a pre‐approved list of broker/dealers on all investment transactions except for new
issue securities.
14.3 Reviewing and Monitoring of the Portfolio:
Monthly reports will review portfolio investments to ensure they are kept track of in a
timely manner. The reports will also monitor the County Treasurer’s investment practices
and the results of such practices.
14.4 Portfolio Adjustments:
Certain actions may be taken if the portfolio becomes out of compliance. For instance,
should a concentration limitation be exceeded due to an incident such as a fluctuation in
portfolio size, the affected securities may be held to maturity to avoid losses; however, the
County Treasurer may choose to rebalance the portfolio earlier to bring it back into
compliance if the portfolio will not suffer any losses for selling the investment prior to
maturity.
14.5 Performance Standards:
The investment portfolio will be managed in accordance with the parameters specified
within this Policy. The portfolio should obtain a market average rate of return during a
market/economic environment of stable interest rates. A series of appropriate benchmarks
shall be established against which portfolio performance shall be compared on a regular
basis.
15.0 REPORTING
15.1 Methodology: The County Treasurer shall prepare an investment report at least quarterly,
including a management summary that provides an analysis of the status of the current
investment portfolio and transactions made over the last quarter. This management
summary will be prepared in a manner which will allow the County Treasurer to ascertain
whether investment activities during the reporting period have conformed to the
investment policy. The report shall be provided to the Chief Administrative Officer, the
County Auditor, the Board of Supervisors, Treasury Oversight Committee and any pool
participants [Government Code 27133(e), and 53646(b)]. The report will include the
following:
1. The type of investment, issuer, date of maturity, par and dollar amount invested on all
securities, investments and moneys held by the County Treasurer
2. A description of any of the local agency's funds, investments, or programs that are
under the management of contracted parties, including lending programs.
3. A current market value as of the date of the report of all securities held by the local
agency, and under management of any outside party that is not also a local agency or
the State of California Local Agency Investment Fund, and the source of this same
valuation.
4. A statement that the portfolio is in compliance with the investment policy, or the
manner in which the portfolio is not in compliance.
5. A statement denoting the ability of the County Treasurer to meet its pool's expenditure
requirements for the next six months, or an explanation as to why sufficient money
shall, or may, not be available.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 19
6. Listing of individual securities by type and maturity date held at the end of the reporting
period.
A. PLEDGE REPORT: Any securities that are pledged or loaned for any purpose shall be
reported in the Quarterly Investment Report. The transaction detail will be
provided, including purpose, beginning and termination dates and all parties to the
contract. The security descriptions as to type, name, maturity date, coupon rate,
CUSIP and other material information will be included.
B. REVERSE REPURCHASE AGREEMENTS REPORT: All reverse repurchase agreements
entered into, whether active or inactive by the end of each quarter, shall be
reported in the Treasurer’s Quarterly Investment Report.
7. Realized and unrealized gains or losses resulting from appreciation or depreciation by
listing the cost and market value of securities over one‐year duration that are not
intended to be held until maturity.
8. Average maturity and duration of portfolio on investments as well as the yield to
maturity of the portfolio as compared to applicable benchmarks.
9. Percentage of the total portfolio which each type of investment represents.
10. Whatever additional information or data may be required by the legislative body of the
local agency.
15.2 Marking to Market: The market value of the portfolio shall be calculated at least quarterly
and a statement of the market value of the portfolio shall be issued at least quarterly. This
will ensure that review of the investment portfolio, in terms of value and price volatility, has
been performed on a regular basis.
16.0 COMPENSATION
In accordance with Government Code §§27013 and 53684, the County Treasurer will charge all
pool participants for administrative and overhead costs. Costs include, but are not limited to,
employee salaries and benefits, portfolio management, bank and custodial fees, software
maintenance fees and other indirect costs incurred from handling and managing funds. In
addition, when applicable, the costs associated with the Treasury Oversight provisions of
Government Code §§ 27130‐27137 shall be included as administrative costs. Costs will be
deducted from interest earnings on the pool prior to apportioning and payment of interest. The
County Treasurer shall annually prepare a proposed budget providing a detailed itemization of
all estimated costs which comprise the administrative fee charged in accordance with
Government Code §27013. The administrative fee will be subject to change. Fees will be
deducted from interest earnings.
16.1 Deduction of Costs: The County Treasurer deducts actual costs and makes any adjustments
from the interest earning and apportions the remaining earnings to all participants based on
the positive average daily balance.
17.0 CALCULATING AND APPORTIONING POOL EARNINGS
The Investment Pool Fund is comprised of monies from multiple units of the County, agencies,
school districts and special districts. Each entity has unique cash flow demands, which dictate
the type of investments the Treasurer’s Office may purchase. To ensure parity among the pool
members when apportioning interest earnings, the following procedures have been developed:
1. Interest is apportioned on at least a quarterly basis in accordance with Government Code
§53684.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 20
2. Interest is apportioned to pool participants based on the participant’s average daily fund
balance and the total average daily balance of deposits in the investment pool.
3. Interest is calculated on an accrual basis for all investments in the County Treasurer’s
investment pool and reported to the Auditor‐Controller for distribution into the funds of the
participants.
4. Specific fee schedules are as follow:
A. Regular and Routine Investments2
$20 per investment transaction; i.e., $20 at placement and $20 at maturity.
.00333 of interest income; i.e., $3.33 per $1,000 of interest income.
The above is charged quarterly by journal entry.
B. Special Reports and Research: Actual staff time and materials.
C. Special Bank Transactions: Actual bank fee schedule, staff time and materials.
5. Negative average daily fund balance will be charged interest at the rate of interest that is
being apportioned.
18.0 DEPOSITS AND WITHDRAWALS IN THE TREASURY
18.1 Deposit by Voluntary Participants
Following are the terms and conditions for deposit of funds for investment purposes by
voluntary participants, i.e. entities that are not legally required to deposit their funds in the
County Treasury.
18.1.a Resolution by the County Board of Supervisors authorizing the acceptance of outside
participants by the County Treasury.
18.1.b Resolution by the legislative or governing body of the local agency (voluntary
participant) authorizing the investment of funds pursuant to Government Code 53684.
18.1.c Treasury investments will be directed transactions. For each transaction, the local
agency (voluntary participant) must indicate the fund source, the amount to be invested
and the duration of the investment.
18.2 Withdrawal Request
The Treasurer’s Office has established the Withdrawal of Funds Policy for all Treasury
Investment Pool participants who seek to withdraw funds from the County Treasury Investment
Pool for various purposes. In accordance with California State Government Code Section 27136,
all participants having funds on deposit in the Pool and seeking to withdraw their funds, shall
first submit a formal written request to the County Treasurer. The County Treasurer shall
evaluate the withdrawal proposals of all Pool participants upon receipt of the written requests.
The evaluation process may take up to 30 days. The County Treasurer reserves the right to reject
any request for withdrawal if it is in the Treasurer’s opinion after thorough evaluation, that the
withdrawal will violate applicable laws and/or governing documents, compromise Treasurer’s
fiduciary responsibility, adversely impact the stability of the Pool, or harm the interests of any
Pool Participant. Such rejection shall prevent the withdrawal of the funds.
Typically, participants make withdrawals for the following two reasons: a) regular operations
and b) investing or depositing funds outside the Pool in accordance with California State
Government Code Section 27136 (a). The County Treasurer seeks to honor all written
2 Applies to directed investments as described in Section 6.2 of the Policy.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 21
withdrawal requests for regular operating purposes that are approved by the County Auditor‐
Controller’s Office in a timely fashion. However, the County Treasurer recognizes that
occasionally the Pool participants may request large amounts in withdrawals to cover
unexpected operational needs. To accommodate such withdrawals and allow for adequate time
for adjustments to the liquidity position of the Pool, the County Treasurer expects all Pool
Participants to submit their written requests within the following timeframes:
i) Withdrawals of Up to $1 million – prior to 8:00 a.m. for same day disbursement
ii) Withdrawals of between $1 million to $10 million – 1 business day in advance of
disbursement
iii) Withdrawals of more than $10 million – 3 business day in advance of disbursement
Withdrawals of investment deposits from the County Treasury Investment Pool by any Pool
participant shall coincide with investment maturities and/or authorized sale of securities by
authorized personnel of the Pool Participant. Except for funds in the California State Local
Agency Investment Fund, a five‐business‐days notification may be required when authorized
sale of securities is involved. In the event that the Treasurer must liquidate investments in order
to honor the withdrawal request, the Participant who requests the withdrawal shall be subject
to all expenses associated with the liquidation, including, but not limited to loss of principal and
interest income, withdrawal penalties, and associated fees.
To maintain full fiduciary responsibility for investment and administration of the Pool, the
County Treasurer shall NOT permit statutory participants to withdraw funds from and
subsequently deposit the funds outside the Pool for the purpose of investments without prior
approval of the County Treasurer. As permitted by the Government Code Section 53635, upon
request the County Treasurer may enter into an investment agreement with a third party
investment manager on behalf of statutory participants. However, the funds shall remain in the
Pool during the entire agreement period under the care of the custodian bank retained by the
County Treasurer.
Voluntary participants may withdraw funds from and subsequently deposit the funds outside
the Pool for investment purposes upon the County Treasurer’s approval. However, such
withdrawals shall be made for the entire amount of the participant’s funds deposited in the
Pool. Upon completion of such withdrawals, the voluntary participants will no longer be able to
participate in the Pool or receive further services from the County Treasurer’s Office. NO partial
withdrawals from the Pool for investment purposes are permitted.
Please refer to Withdrawal of Funds Policy, which is maintained as a separate document, for
detailed guidelines and procedures.
19.0 TEMPORARY BORROWING OF POOL FUNDS
Section 6 of Article XVI of the California Constitution provides in part that "the treasurer of any
city, county, or city and county shall have power and the duty to make such temporary transfers
from the funds in custody as may be necessary to provide funds for meeting the obligations
incurred for maintenance purposes by city, county, city and county, district, or other political
subdivision whose funds are in custody and are paid out solely through the treasurer's office."
The County Auditor‐Controller and the County Treasurer shall make a temporary transfer of
funds to the requesting agency, not to exceed 85% of the amount of money which will accrue to
the agency during the fiscal year, provided that the amount of such transfer has been
determined by the County Auditor‐Controller to be transferable under the constitutional and
statutory provisions cited in Article XVI and has been certified by the County Treasurer‐Tax
Collector to be available. Such temporary transfer of funds shall not be made prior to the first
day of the fiscal year nor after the last Monday in April of the current fiscal year.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 22
20.0 INVESTMENT OF BOND PROCEEDS
The County Treasurer shall invest bond proceeds using the standards of this Investment Policy.
The bond proceeds will be invested in securities permitted by the bond documents. If the bond
documents are silent, the bond proceeds will be invested in securities permitted by this Policy.
21.0 DISASTER RECOVERY PLAN
The Contra Costa County Treasurer’s Disaster Recovery Plan includes critical phone numbers and
addresses of key personnel as well as active bankers and brokers/dealers. Laptops, tablets,
smart phones, and other equivalent electronic devices shall be issued to key personnel for
communicating between staff, bank and broker/dealers. Copies of the plan shall be distributed
to the investment staff: Assistant County Treasurer, the Treasurer’s Investment Officer, and the
Investment Operations Analyst. The investment staff shall interact with one another by home
phone, cell phone, or e‐mail to decide an alternate location from which to conduct daily
operations.
In the event investment staff is unable to conduct normal business operations, the custodial
bank will automatically sweep all uninvested cash into an interest bearing account at the end of
the business day. Until normal business operations have been restored, the limitations on the
size of an individual issuer and the percentage restrictions by investment type would be allowed
to exceed those approved in this investment policy.
22.0 POLICY CONSIDERATIONS
22.1 Exemption
Any investment currently held that does not meet the guidelines of this policy shall be
exempted from the requirements of this policy. At maturity or liquidation, such monies shall be
reinvested only as provided by this policy.
22.2 Amendments
This policy shall be reviewed on an annual basis. Any changes must be approved by the County
Treasurer and any other appropriate authority.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 23
AUTHORIZATION FOR LAIF INVESTMENTS
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 24
APPROVED BROKERS
ABN AMRO, Incorporated
Alamo Capital
Bank of America Merrill Lynch
Bank of the West
Barclays Capital, Incorporated
California Arbitrage Management Program
Citigroup Global Markets
Credit Suisse
Daiwa Capital Markets America Inc.
Goldman, Sachs & Company
Government Perspectives
JP Morgan Securities LLC
Penserra Securities LLC
Prudential Securities, Incorporated
Public Financial Management, Incorporated
RBC Capital Markets, LLC
UBS Financial Services, Inc.
UnionBanc Investment Services
Wells Fargo Securities
Note: The County Treasury will not be limited to the above list. Others will be included as long as all conditions for
authorized brokers and/or dealers set forth in this policy are met. Additionally, deletions and additions are based
on many factors including the maintenance of required credit quality as rated by Standard and Poor’s, Moody’s
and other recognized rating services and reliable financial sources.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 25
APPROVED ISSUERS
Abbey National NA PepsiCo, Inc.
American Honda Finance PNC Bank NA
Australia & New Zealand Banking Group Prudential
Bank of Montreal Procter & Gamble Company
Bank of Nova Scotia Rabobank Nederland New York
BNP Paribas Royal Bank of Canada
Chevron Sciete Generale North America
Coca‐Cola Co Standard Chartered Bank
Commonwealth Bank of Australia State Street Bank & Trust Co
Credit Agricole SA Svenska Handelsbanken AB
Deer & Company Toronto‐Dominion Bank
Deutsche Bank Financial LLC Toyota Motor Credit Corp
Exxon Mobil UBS Financial
General Electric Capital Corp Union Bank
General Electric Co US Bankcorp
JPMorgan Chase & Co Walmart
John Deere Capital Corporation Walt Disney Company
Johnson & Johnson Wells Fargo Bank NA
McDonald's Corporation Westpac Banking Corp
National Australia Bank Westamerica Bank
Nestle Capital Corp
Nordea Bank AB
Note: The County Treasury will not be limited to the above list in making investments. Other issuers may be
considered as the County Treasury will perform additional due diligence on each investment decision. The list does
not reflect the actual portfolio holdings managed by the County Treasury.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 26
APPROVED PRIMARY DEALERS
Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets, Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
TD Securities (USA) LLC
UBS Securities LLC.
Note: The above list consists of primary dealers that serve as trading counterparties of the Federal Reserve Bank of
New York in its implementation of monetary policy. These primary dealers are required to participate in all
auctions of U.S. government debt. Treasury Staff will perform additional due diligence on each investment
decision, and hence, may or may not use the primary dealers listed above.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 27
GLOSSARY OF TERMS
ACCRUED INTEREST The accumulated interest due on a bond as of the last interest payment made by
the issuer.
AGENCY A debt security issued by a federal or federally sponsored agency. Federal agencies are backed
by the full faith and credit of the U.S. Government. Federally sponsored agencies (FSAs) are backed by
each particular agency with a market perception that there is an implicit government guarantee. An
example of federal agency is the Government National mortgage Association (GNMA). An example of a
FSA is the Federal National Mortgage Association (FNMA).
AMORTIZATION The systematic reduction of the amount owed on a debt issue through periodic
payments of principal.
AVERAGE LIFE The average length of time that an issue of serial bonds and/or term bonds with a
mandatory sinking fund feature is expected to be outstanding.
BANKERS ACCEPTANCES A time bill of exchange drawn on and accepted by a commercial bank to
finance the exchange of goods. When a bank “accepts” such a bill, the time draft becomes, in effect, a
predated, certified check payable to the bearer at some future specified date. The commercial bank
assumes primary liability once the draft is accepted.
BASIS POINT A unit of measurement used in the valuation of fixed‐income securities equal to 1/100 of
one percent of yield. For example, if interest rates increase from 8.25% to 8.50%, the difference is
referred to as a 25‐basis‐point increase.
BENCHMARK A comparative base for measuring the performance or risk tolerance of the investment
portfolio. A benchmark should represent a close correlation to the level of risk and the average duration
of the portfolio’s investment.
BID The indicated price at which a buyer is willing to purchase a security or commodity.
BLUE SKY LAWS Common term for state securities law, which vary from state to state. Generally refers
to provision related to prohibitions against fraud, dealer and broker regulations and securities
registration.
BOND A bond is essentially a loan made by an investor to a division of the government, a government
agency or a corporation. The bond is a promissory note to repay the loan in full at the end of a fixed
time period. The date on which the principal must be repaid is called the maturity date or maturity. In
addition, the issuer of the bond, that is the agency or corporation receiving the loan proceeds and
issuing the promissory note, agrees to make regular payments of interest at a rate initially stated on the
bond. Bonds are rated according to many factors, including cost, degree of risk and rate of income.
BOOK VALUE Refers to value of a held security as carried in the records of an investor. May differ from
current market value of the security.
BROKER/DEALER Any person engaged in the business of effecting transaction in securities in this state
for the account of others or for her/his own account. Broker/dealer also includes a person engaged in
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 28
the regular business of issuing or guaranteeing options with regard to securities not of her/his own
issue.
CALLABLE BOND A bond issue in which all or part of its outstanding principal amount may be redeemed
before maturity by the issuer under specified conditions.
CALL PRICE The price at which an issuer may redeem a bond prior to maturity. The price is usually at a
slight premium to the bond’s original issue price to compensate the holder for the loss of income and
ownership.
CALL RISK The risk to the bondholder that a bond may be redeemed prior to maturity.
CASH SALE/PURCHASE A transaction which calls for delivery and payment of securities on the same day
that the transaction is initiated.
CERTIFICATES OF DEPOSIT (CD) Certificates issued against funds deposited in a commercial bank for a
definite period of time and earning a specified rate of return. They are issued in two forms, negotiable
and non‐negotiable.
CLEAN UP CALL An action of a debt instrument issuer requiring early redemption of the instrument to
reduce its own administrative expenses. This normally occurs when the principal outstanding is
significantly reduced to a small amount, e.g., less than 10% of the original issue.
COLLATERALIZATION Process by which a borrower pledges securities, property, or other deposits for
the purpose of securing the repayment of a loan and/or security.
COMMERCIAL PAPER Short‐term, unsecured promissory notes issued in either registered or bearer
form and usually backed by a line of credit with a bank. Maturities do not exceed 270 days and generally
average 30‐45 days.
CONVEXITY A measure of a bond’s price sensitivity to changing interest rates. A high convexity
indicates greater sensitivity of a bond’s price to interest rate changes.
COUPON RATE The annual rate of interest received by an investor from the issuer of certain types of
fixed‐income securities. Also known as the “interest rate.”
CREDIT QUALITY The measurement of the financial strength of a bond issuer. This measurement helps
an investor to understand an issuer’s ability to make timely interest payments and repay the loan
principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest
rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by
nationally recognized rating agencies.
CREDIT RISK The risk to an investor that an issuer will default in the payment of interest and/or
principal on a security.
CURRENT YIELD (CURRENT RETURN) A yield calculation determined by dividing the annual interest
received on a security by the current market price of that security.
CUSIP NUMBERS CUSIP is an acronym for Committee on Uniform Security Identification Procedures.
CUSIP numbers are identification numbers assigned each maturity of a security issue and usually printed
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 29
on the face of each individual security in the issue. The CUSIP numbers are intended to facilitate
identification and clearance of securities.
DELIVERY VERSUS PAYMENT (DVP) A type of securities transaction in which the purchaser pays for the
securities when they are delivered either to the purchaser or his/her custodian.
DERIVATIVE SECURITY Financial instrument created from, or whose value depends upon, one or more
underlying assets or indexes of asset values.
DISCOUNT The amount by which the par value of a security exceeds the price paid for the security.
DIVERSIFICATION A process of investing assets among a range of security types by sector, maturity, and
quality rating.
DURATION A measure of the timing of the cash flows, such as the interest payments and the principal
repayment, to be received from a given fixed‐income security. This calculation is based on three
variables: term to maturity, coupon rate, and yield to maturity. The duration of a security is a useful
indicator of its price volatility for given changes in interest rates.
EARNINGS APPORTIONMENT The quarterly interest distribution of the Pool Participants where the
actual investment costs incurred by the Treasurer are deducted from the interest earnings of the Pool
FAIR VALUE The amount at which an investment could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
FEDERAL FUNDS (FED FUNDS) Funds placed in Federal Reserve banks by depository institutions in
excess of current reserve requirements. These depository institutions may lend fed funds to each other
overnight or on a longer basis. They may also transfer funds among each other on a same‐day basis
through the Federal Reserve banking system. Fed funds are considered to be immediately available
funds.
FEDERAL FUNDS RATE Interest rate charged by one institution lending federal funds to the other.
FEDERAL OPEN MARKET COMMITTEE (FOMC) This committee sets 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.
FIDUCIARY An individual who holds something in trust for another and bears liability for its safekeeping.
FLOATING RATE NOTE A debt security whose interest rate is reset periodically (monthly, quarterly,
annually) and is based on a market index (e.g., Treasury bills, LIBOR, etc.).
FUTURES Commodities and other investments sold to be delivered at a future date.
GOVERNMENT SECURITIES An obligation of the U.S. government, backed by the full faith and credit of
the government. These securities are regarded as the highest quality of investment securities available
in the U.S. securities market. See “Treasury Bills, Notes and Bonds.”
INTEREST RATE See “Coupon Rate.”
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INTERNAL CONTROLS An internal control structure designed to ensure that the assets of the
Treasurer’s Investment Pool are protected from loss, theft, or misuse. The internal control structure is
designed to provide reasonable assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived
and (2) the valuation of costs and benefits requires estimates and judgments by management. Internal
controls should address the following points:
1. Control of collusion—Collusion is a situation where two or more employees are working in
conjunction to defraud their employer.
2. Separation of transaction authority from accounting and record keeping—By separating the
person who authorizes or performs the transaction from the people who record or otherwise
account for the transaction, a separation of duties is achieved.
3. Custodial safekeeping—Securities purchased from a bank or dealer including appropriate
collateral (as defined by state law) shall be placed with an independent third party for custodial
safekeeping.
4. Avoidance of physical delivery securities—Book‐entry securities are much easier to transfer and
account for since actual delivery of a document never takes place. Delivered securities must be
properly safeguarded against loss or destruction. The potential for fraud and loss increases with
physically delivered securities.
5. Clear delegation of authority to subordinate staff members—Subordinate staff members must
have a clear understanding of their authority and responsibilities to avoid improper actions. Clear
delegation of authority also preserves the internal control structure that is contingent on the
various staff positions and their respective responsibilities.
6. Written confirmation of transactions for investments and wire transfers—Due to the potential for
error and improprieties arising from telephone and electronic transactions, all transactions should
be supported by written communications and approved by the appropriate person. Written
communications may be via fax if on letterhead and if the safekeeping institution has a list of
authorized signatures.
7. Development of a wire transfer agreement with the lead bank and third‐party custodian—The
designated official should ensure that an agreement will be entered into and will address the
following points: controls, security provisions, and responsibilities of each party making and
receiving wire transfers.
INVERSE FLOATERS An adjustable interest rate note keyed to various indices such as LIBOR, commercial
paper, federal funds, treasuries and derivative structures. The defined interest rate formula is the
opposite or inverse of these indices. Interest rates and pay dates may reset daily, weekly, monthly,
quarterly, semi‐annually or annually.
INVERTED YIELD CURVE A chart formation that illustrates long‐term securities having lower yields than
short‐term securities. This configuration usually occurs during periods of high inflation coupled with low
levels of confidence in the economy and a restrictive monetary policy.
INVESTMENT COMPANY ACT OF 1940 Federal legislation which sets the standards by which investment
companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance
reporting requirements, and securities valuations.
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INVESTMENT POLICY A concise and clear statement of the objectives and parameters formulated by
the investor or investment manager for a portfolio of investment securities.
INVESTMENT‐GRADE OBLIGATIONS An investment instrument suitable for purchase by institutional
investors under the prudent person rule. Investment‐grade is restricted to those obligations rated BBB
or higher by a rating agency.
LIQUIDITY Usually refers to the ability to convert assets (such as investments) into cash.
LOCAL AGENCY INVESTMENT FUND (LAIF) The State of California investment pool in which money of
local agencies is pooled as a method for managing and investing local funds.
MAKE WHOLE CALL A type of call provision on a bond allowing the borrower to pay off remaining debt
early. The borrower has to make a lump sum payment derived from a formula based on the net present
value of future coupon payments that will not be paid because of the call.
MARK TO MARKET Valuing the inventory of held securities at its current market value.
MARKET RISK The risk that the value of a security will rise or decline as a result of changes in market
conditions.
MARKET VALUE Price at which a security can be traded in the current market.
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
transaction. 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 of a security becomes due and payable to the holder.
MEDIUM‐TERM NOTES (MTNS) Corporate debt obligations continuously offered in a broad range of
maturities. MTNs were created to bridge the gap between commercial paper and corporate bonds. The
key characteristic of MTNs is that they are issued on a continuous basis.
MONEY MARKET INSTRUMENTS Private and government obligations of one year or less.
MONEY MARKET MUTUAL FUNDS Mutual funds that invest solely in money market instruments (short‐
term debt instruments, such as Treasury bills, commercial paper, banker’s acceptances, repos and
federal funds).
MUTUAL FUND An investment company that pools money and can invest in a variety of securities,
including fixed‐income securities and money market instruments. Mutual funds are regulated by the
Investment Company Act of 1940 and must abide by the following Securities and Exchange Commission
(SEC) disclosure guidelines:
1. Report standardized performance calculations.
2. Disseminate timely and accurate information regarding the fund’s holdings, performance,
management and general investment policy.
3. Have the fund’s investment policies and activities supervised by a board of trustees, which are
independent of the adviser, administrator or other vendor of the fund.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 32
4. Maintain the daily liquidity of the fund’s shares.
5. Value their portfolios on a daily basis.
6. Have all individuals who sell SEC‐registered products licensed with a self‐regulating organization
(SRO) such as the National Association of Securities Dealers (NASD).
7. Have an investment policy governed by a prospectus which is updated and filed by the SEC
annually.
MUTUAL FUND STATISTICAL SERVICES Companies that track and rate mutual funds, e.g.,
IBC/Donoghue, Lipper Analytical Services and Morningstar.
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD) A self‐regulatory organization (SRO) of
brokers and dealers in the over‐the counter securities business. Its regulatory mandate includes
authority over firms that distribute mutual fund shares as well as other securities.
NEGOTIABLE CERTIFICATES OF DEPOSIT May be sold by one holder to another prior to maturity. This is
possible because the issuing bank agrees to pay the amount of the deposit plus interest earned to the
bearer of the certificate at maturity.
NET ASSET VALUE The market value of one share of an investment company, such as a mutual fund.
This figure is calculated by totaling a fund’s assets which includes securities, cash, and any accrued
earnings, subtracting this from the fund’s liabilities and dividing this total by the number of shares
outstanding. This is calculated once a day based on the closing price for each security in the fund’s
portfolio. (See below)
[(Total assets) – (Liabilities]/(Number of shares outstanding)
NO LOAD FUND A mutual fund which does not levy a sales charge on the purchase of its shares.
NOMINAL YIELD The stated rate of interest that a bond pays its current owner, based on par value of
the security. It is also known as the “coupon,” “coupon rate,” or “interest rate.”
NON‐NEGOTIABLE CERTIFICATES OF DEPOSIT For public funds, these certificates are collateralized and
are not money market instruments since they cannot be traded in the secondary market. They are
issued on a fixed‐maturity basis and often pay higher interest rates than are permissible on other
savings or time‐deposit accounts.
OFFER The price of a security at which a person is willing to sell.
OPTION A contract that provides the right, but not the obligation, to buy or to sell a specific amount of
a specific security within a predetermined time period. A call option provides the right to buy the
underlying security. A put option provides the right to sell the underlying security. The seller of the
contracts is called the writer.
PAR Face value of principal value of a bond, typically $1,000 per bond.
PAR VALUE The stated or face value of a security expressed as a specific dollar amount marked on the
face of the security; the amount of money due at maturity. Par value should not be confused with
market value.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 33
POSITIVE YIELD CURVE A chart formation that illustrates short‐term securities having lower yields than
long‐term securities.
PREMIUM The amount by which the price paid for a security exceeds par value, generally representing
the difference between the nominal interest rate and the actual or effective return to the investor.
PRIME RATE A preferred interest rate charged by commercial banks to their most creditworthy
customers. Many interest rates are keyed to this rate.
PRINCIPAL The face value or par value of a debt instrument. Also may refer to the amount of capital
invested in a given security.
PROSPECTUS A legal document that must be provided to any prospective purchaser of a new securities
offering registered with the SEC. This can include information on the issuer, the issuer’s business, the
proposed use of proceeds, the experience of the issuer’s management, and certain certified financial
statements.
PRUDENT PERSON RULE An investment standard outlining the fiduciary responsibilities of public funds
investors relating to investment practices.
RANGE NOTES A security whose rate of return is pegged to an index. The note defines the interest rate
minimum or floor and the interest rate maximum or cap. An example of an index may be federal funds.
The adjustable rate of interest is determined within the defined range of the funds.
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 and the current income return.
REINVESTMENT RISK The risk that a fixed‐income investor will be unable to reinvest income proceeds
from a security holding at the same rate of return currently generated by that holding.
REPURCHASE AGREEMENT OR RP OR REPO An agreement consisting of two simultaneous transactions
whereby the investor purchases securities from a bank or dealer and the bank or dealer agrees to
repurchase the securities at the same price on a certain future date. The interest rate on a RP is that
which the dealer pays the investor for the use of his funds. Reverse repurchase agreements are the
mirror image of the RPs when the bank or dealer purchases securities from the investor under an
agreement to sell them back to the investor.
REVERSE REPURCHASE AGREEMENT (REVERSE REPO) An agreement of one party to sell securities at a
specified price to a second party and a simultaneous agreement of the first party to repurchase the
securities at a specified price or at a specified later date.
RULE 2A‐7 OF THE INVESTMENT COMPANY ACT Applies to all money market mutual funds and
mandates such funds to maintain certain standards, including a 13‐month maturity limit and a 90‐day
average maturity on investments, to help maintain a constant net asset value of one dollar ($1.00).
SAFEKEEPING Holding of assets (e.g., securities) by a financial institution.
SECURITIES LENDING A transaction wherein the Treasurer’s Pool transfers its securities to a
broker/dealer or other entities for collateral which may be cash or securities and simultaneously agrees
to return the collateral for the same securities in the future.
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SERIAL BOND A bond issue, usually of a municipality, with various maturity dates scheduled at regular
intervals until the entire issue is retired.
SETTLEMENT DATE The date used in price and interest computations, usually the date of delivery.
SINKING FUND Money accumulated on a regular basis in a separate custodial account that is used to
redeem debt securities or preferred stock issues.
SLUGS An acronym for State and Local Government Series. SLUGS are special United States Government
securities sold by the Secretary of the Treasury to states, municipalities and other local government
bodies through individual subscription agreements. The interest rates and maturities of SLUGS are
arranged to comply with arbitrage restrictions imposed under Section 103 of the Internal Revenue Code.
SLUGS are most commonly used for deposit in escrow in connection with the issuance of refunding
bonds.
STRIPS US Treasury acronym for “separate trading of registered interest and principal of securities."
Certain registered Treasury securities can be divided into separate interest and principal components,
which may then be traded as separate entities.
SWAP Generally refers to an exchange of securities, with essentially the same par value, but may vary in
coupon rate, type of instrument, name of issuer and number of days to maturity. The purpose of the
SWAP may be to enhance yield, to shorten the maturity or any benefit deemed by the contracting
parties.
TERM BONDS Bonds comprising a large part or all of a particular issue which come due in a single
maturity. The issuer usually agrees to make periodic payments into a sinking fund for mandatory
redemption of term bonds before maturity.
TOTAL RETURN The sum of all investment income plus changes in the capital value of the portfolio. For
mutual funds, return on an investment is composed of share price appreciation plus any realized
dividends or capital gains. This is calculated by taking the following components during a certain time
period: (Price Appreciation) + (Dividends paid) + (Capital gains) = Total Return
TREASURY SECURITIES Debt obligations of the United States Government sold by the Treasury
Department in the form of bills, notes and bonds:
1. Bills Short‐term obligations that mature in one year or less and are sold at a discount in lieu of
paying periodic interest.
2. Notes Interest‐bearing obligations that mature between one year and 10 years.
3. Bonds Interest‐bearing long‐term obligations that generally mature in 10 years or more.
UNIFORM NET CAPITAL RULE SEC Rule 15C3‐1 outlining capital requirements for broker/dealers.
U.S. AGENCY OBLIGATIONS Federal agency or United States government‐sponsored enterprise
obligations, participants, or other instruments. The obligations are issued by or fully guaranteed as to
principal and interest by federal agencies or United States government‐sponsored enterprises.
U.S. TREASURY OBLIGATIONS 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
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2014‐2015 Page 35
interest rates on all other securities in the U.S. and overseas. The Treasury issues both discounted
securities and fixed coupon notes and bonds.
VOLATILITY A degree of fluctuation in the price and valuation of securities.
“VOLATILITY RISK” RATING A rating system to clearly indicate the level of volatility and other non‐credit
risks associated with securities and certain bond funds. The ratings for bond funds range from those
that have extremely low sensitivity to changing market conditions and offer the greatest stability of the
returns (“S1+” by S&P) to those that are highly sensitive with currently identifiable market volatility risk
(“S6” by S&P).
WEIGHTED AVERAGE MATURITY (WAM) The average maturity of all the securities that comprise a
portfolio. According to SEC rule 2a‐7, the WAM for SEC registered money market mutual funds may not
exceed 90 days and no one security may have a maturity that exceeds 397 days.
WHEN ISSUED (WI) A conditional transaction in which an authorized new security has not been issued.
All “when issued” transactions are settled when the actual security is issued.
YIELD The current rate of return on an investment security generally expressed as a percentage of the
security’s current price.
YIELD‐TO‐CALL (YTC) The rate of return an investor earns from a bond assuming the bond is redeemed
(called) prior to its nominal maturity date.
YIELD CURVE A graphic representation that depicts the relationship at a given point in time between
yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may
be alternatively referred to as a positive yield curve.
YIELD‐TO‐MATURITY The rate of return yielded by a debt security held to maturity when both interest
payments and the investor’s potential capital gain or loss are included in the calculation of return.
ZERO‐COUPON SECURITY A security that makes no periodic interest payments but instead is sold at a
discount from its face value.