HomeMy WebLinkAboutOCSD 03-17 (REPEALED)RESOLUTION NO. OCSD-03-17
AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR
REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT
POLICY STATEMENT AND PERFORMANCE BENCHMARKS
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S
TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND
ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND
PERFORMANCE BENCHMARKS; AND REPEALING RESOLUTION NO.
OCSD 02-13
***************
WHEREAS, on July 17, 2002, the Board of Directors adopted Resolution No. 02-13,
readopting the District's Investment Policy Statement, and establishing specific performance
benchmarks and objectives, together with a schedule of frequency of investment performance
reports; and,
WHEREAS, pursuant to California Government Code Section 53607, the Board of
Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer for a
one-year period; and,
WHEREAS, pursuant to California Government Code Section 53646, the District is
required to review its Investment Policy annually and readopt its Policy at a public meeting,
which Policy will establish specific performance benchmarks and objectives, and specific
monitoring and reports.
NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District,
DOES HEREBY RESOLVE, DETERMINE AND ORDER:
Section 1: That the authority of the Board of Directors to invest or reinvest District's
surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the
funds and investments of the Districts with depositories, as provided for in California
Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for
a one-year period commencing on the date this Resolution is adopted, as authorized by
California Government Code Section 53607.
REPEALED BY
OCSD 04-21
Section 2: That the Board of Directors hereby adopt the Investment Policy
Statement of the Orange County Sanitation District, as set forth in Exhibit "A", attached hereto
and incorporated herein by reference.
Section 3: That the Board of Directors hereby adopt the following specific
performance benchmarks for their two investment funds in accordance with Section 14.0 of the
District's Investment Policy:
LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to
the three month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The
Callan Active Cash Flow Income Style Group represents a peer group of managers who
operate with a maximum maturity of one year.
LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared
to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to
the Callan Defensive Fixed Income Style Group.
Section 4: That the Board of Directors hereby adopt a performance monitoring and
reporting schedule, as required by Section 15.0 of the District's Investment Policy, which
schedule is attached hereto as Exhibit "B", and incorporated herein by reference.
Section 5: That Resolution No. OCSD 02-13 is hereby repealed.
ATTEST:
Board Seer
G:\WP.DTAIFIN\210\CRANEIFAHRIFAHR2003\JULllNVESTMENTPOLICY2003RESOLUTION.DOC
ORANGE COUNTY SANITATION
DISTRICT
INVESTMENT
POLICY
STATEMENT
Reviewed and Approved
By
Finance, Administration and Human Resources
Committee
On
July 9, 2003
Adopted
By
Board of Directors
On
July 23, 2003
Section
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
Appendix
TABLE OF CONTENTS
Topic
Policy ...................................................................................... 1
Scope ..................................................................................... 1
Standard of Prudence ............................................................. 1
Investment Objectives ............................................................ 2
Delegation of Authority ........................................................... 2
Ethics and Conflicts of Interest ............................................... 3
Authorized Financial Dealers and lnstitutions ......................... 4
Authorized and Suitable Investments ..................................... 5
Collateralization ...................................................................... 9
Safekeeping and Custody ...................................................... 9
Diversification ......................................................................... 9
Maximum Maturities ............................................................... 11
Internal Control ...................................................................... 12
Performance Objectives and Benchmarks ............................ 12
Reporting ............................................................................... 12
Investment Policy Adoption and Revision .............................. 14
A. Summary of Investment Authorization
B. Treasury Management Procedures
C. Investment Manager Certification
D. Investment Pool Questionnaire (LAIF)
E. Board Resolution No. OCSD-03-XX, Authorizing the District's Treasurer to Invest
and/or Reinvest District Funds, and Adopting Investment Policy and
Performance Benchmarks
F. Monthly & Quarterly Investment Program Monitoring Reports
G. Sections of the California Government Code Pertinent to Investing Public Funds
H. Glossary of Investment Terms
..
1.0 Policy:
ORANGE COUNTY SANITATION DISTRICT
INVESTMENT POLICY STATEMENT
It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in a
manner which ensures the safety and preservation of capital while meeting reasonably
anticipated operating expenditure needs, achieving a reasonable rate of return and
conforming to all state and local statutes governing the investment of public funds.
1.1. This Investment Policy is set forth by OCSD for the following purposes:
1.1.1. To establish a clear understanding for the Board of Directors,
OCSD management, responsible employees and third parties of the
objectives, policies and guidelines for the investment of the OCSD's idle and
surplus funds.
1.1.2. To offer guidance to investment staff and any external investment
advisors on the investment of OCSD funds (see Appendix "A").
1.1.3. To establish a basis for evaluating investment results.
1.2. OCSD establishes investment policies which meet its current investment
goals. OCSD shall review this policy annually, and may change its policies
as its investment objectives change.
2.0 Scope:
This Investment Policy applies to all financial assets of OCSD; except for the proceeds of
OCSD's capital projects financing program, which are invested in accordance with
provisiors of their specific bond indentures; and such other funds excluded by law or other
Board-approved covenant or agreement.
These funds are accounted for by OCSD as Enterprise Funds as represented in OCSD's
Comprehensive Annual Financial Report.
3.0 Standard of Prudence:
The standard of prudence to be used by OCSD internal staff, and any authorized
investment advisor(s), shall be as described in Section 53600.3 of the California
Government Code as follows: Except as provided in subdivision (a) of Section
27000.3, all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds
pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, a trustee shall act with care, skill,
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prudence, and diligence under the circumstances then prevailing, including, but not
limited to, the general economic conditions and the anticipated needs of the agency,
that a prudent person acting in a like capacity and familiarity with those matters
would use in the conduct of funds of a like character and with like aims, to
safeguard the .principal and maintain the liquidity needs of the agency. Within the
limitations of this section and considering individual investments as part of an
overall strategy, investments may be acquired as authorized by law.
4.0 Investment Objectives:
The primary objectives of OCSDs investment activities, in priority order, and as described
in Section 53600.5 of the California Government Code, shall be:
4.1 Safety: The safety and preservation of principal is the foremost objective of
the investment program of OCSD. Investments shall be selected in a
manner that seeks to ensure the preservation of capital in OCSD's overall
portfolio. This will be accomplished through a program of diversification,
more fully described in Section 11.0, and maturity limitations, more fully
described in Section 12.0, in order that potential losses on individual
securities do not exceed the income generated from the remainder of the
portfolio.
4.2 Liquidity: The investment program will be administered in a manner that will
ensure that sufficient funds are available for OCSD to meet its reasonably
anticipated operating expenditure needs.
4.3 Return on Investments: The OCSD investment portfolio will be structured
and managed with the objective of achieving a rate of return throughout
budgetary and economic cycles, commensurate with legal, safety, and
liquidity considerations.
5.0 Delegation of Authority:
5.1 Authority to manage OCSD's investment program is derived from the
California Government Code Sections 53600 et seq. and Sections 53635 et
seq. The Board of Directors hereby delegates management responsibility
for the OCSD investment program to it's Director of Finance I Treasurer, who
shall establish written procedures for the operation of the investment
program, consistent with this Policy. The Controller/Assistant Treasurer shall
be responsible for day-to-day administration, monitoring, and the
development of written administrative procedures for the operation of the
investment program, consistent with this Policy. The current treasury
management procedures are presented in Appendix "B." No person may
engage in an investment transaction except as provided under the terms of
this Policy and the procedures established by the Treasurer. The Treasurer
shall be responsible for all transactions undertaken by OCSD internal staff,
and shall establish a system of controls to regulate the activities of internal
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..
staff and external investment advisors engaged in accordance with Section
5.3.
5.2 The administrative procedures for the operation of OCSD's investment
program will provide for, but not be limited to, the following:
5.2.1 Formats for monthly and quarterly reports to the Finance,
Administration and Human Resources Committee, and the Board of
Directors.
5.2.2 Compliance with generally accepted accounting principles of the
Government Accounting Standards Board.
5.2.3 Establishment of benchmarks for performance measurement.
5.2.4 Establishment of a system of written internal controls.
5.2.5 Establishment of written procedures for competitive bids and
offerings of securities that may be purchased or sold by internal OCSD staff.
5.2.6 Establishment of a Desk Procedures Manual for treasury
operations and management.
5.3 The Board of Directors of OCSD may, in its discretion, engage the services
of one or more registered investment advisors to assist in the management
of OCSD's investment portfolio in a manner consistent with OCSD's
objectives. Such external investment advisors, which shall be selected
through a competitive process, shall be granted discretion to purchase and
sell investment securities in accordance with this Investment Policy. Such
advisors must be registered under the Investment Advisers Act of 1940, or
be exempt from such registration.
6.0 Ethics and Conflicts of Interest:
6.1 Officers and employees of OCSD involved in the investment process shall
refrain from personal business activities that could conflict with proper
execution of OCSD's investment program, or which could impair their ability
to make impartial investment decisions. Employees and investment officials
shall disclose to the General Manager any material financial interests in
financial institutions that conduct business within OCSD's boundaries, and
they shall further disclose any large personal financial/investment positions,
the performance of which could be related to the performance of positions in
OCSD's portfolio.
7.0 Authorized Financial Dealers and Institutions:
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7 .1 For investment transactions conducted by OCSD internal staff, the Treasurer
will maintain a list of financial institutions authorized to provide investment
services to OCSD, including "primary" or regional dealers that qualify under
Securities and Exchange Commission Rule 15C3-1 (Uniform Net Capital
rule), and Federal or State of California chartered banks. No public deposit
shall be made except in a qualified public depository as established by State
law.
All financial institutions which desire to become qualified bidders for
investment transactions with OCSD must supply the following for evaluation
by the Treasurer:
7.1.1. Audited financial statements for the institution's three (3) most
recent fiscal years.
7 .1.2. A statement, in the format prescribed by the Government Finance
Officers Association (GFOA), certifying that the institution has reviewed
OCSD's Investment Policy and that all securities offered to the Districts shall
comply fully and in every instance with all provisions of the California
Government Code and with this Investment Policy. The current statement is
presented in Appendix "C."
7.1.3. A statement describing the regulatory status of the dealer, and the
background and expertise of the dealer's representatives.
Selection of financial institutions, broker/dealers, and banks authorized to
engage in transactions with OCSD shall be made through a competitive
process. An annual review of the financial condition of qualified institutions
will be conducted by the Treasurer.
7.2 Selection of broker/dealers used by external investment advisors
retained by OCSD, shall be in compliance with contract provisions between
OCSD and any external investment advisors, and shall be in substantially the
following form:
Use of Securities Brokers: Neither the Investment Advisor nor any parent,
subsidiary or related firm shall act as a securities broker with respect to any
purchases or sales of securities which may be made on behalf of OCSD,
provided that this limitation shall not prevent the Investment Advisor from
utilizing the services of a securities broker which is a parent, subsidiary or
related firm, provided such broker effects transactions on a "cost only" or
"nonprofit" basis to itself and provides competitive execution. The
Investment Advisor shall provide the Districts with a list of suitable
independent brokerage firms (including names and addresses) meeting the
requirements of Government Code Section 53601.5, and, unless otherwise
directed by OCSD, the Investment Advisor may utilize the service of any of
such independent securities brokerage firms it deems appropriate to the
extent that such firms are competitive with respect to price of services and
execution.
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8.0 Authorized and Suitable Investments:
All investments shaU be made in accordance with the California Government Code
including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within this
Investment Policy. Permitted investments under this Policy shall include:
8.1 Securities, obligations, participations, or other instruments of, or
issued by, or fully guaranteed as to principal and interest by the US
Government, a federal agency, or a US Government-sponsored enterprise
pursuant to Section 53601 (e) of the California Government Code.
Investment in mortgage-backed bonds and CMOs is not governed by this
Section 8.1, even if such bonds are issued by agencies of the US
Government. See Section 8.2 for conditions of purchase of mortgage-
backed securities. See Section 8.11 for conditions of purchase of CMOs.
8.2 Mortgage-backed securities issued by an agency of the US Government,
which are backed by pools of mortgages guaranteed by the full faith and
credit of the U.S. Government, or an agency thereof. Selection of mortgage
derivatives, which include interest-only payments (IOs) and principal-only
payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage
Investment Conduits), is hereby prohibited.
8.3 Commercial paper of "prime" quality and rated "P1" by Moody's Investor
Services (Moody's), and rated "A 1" by Standard & Poor's Corporation (S&P),
and issued by a domestic corporation organized and operating in the United
States with assets in excess of $500 million and having a rating of "A" or
better on its long-term debt as provided by Moody's or S&P. Purchases of
eligible commercial paper may not exceed 270 days to maturity from the date
of purchase. Purchases of commercial paper shall not exceed 15% of the
market value of the portfolio, except that a maximum of 30% of the market
value of the portfolio may be invested in commercial paper, so long as the
average maturity of all commercial paper in the portfolio does not exceed 31
days. No more than 5% of the market value of the portfolio, or 10% of the
issuer's outstanding paper, may be invested in commercial paper issued by
any one (1) eligible corporation.
8.4 Banker's acceptances issued by institutions, the short-term obligations of
which are rated a minimum of "P1" by Moody's, or "A1" by S&P provided
that: (a) the acceptance is eligible for purchase by the Federal Reserve
System; (b) the maturity does not exceed 180 days; ( c) no more than 40% of
the total portfolio may be invested in banker's acceptances; and (d) no more
than 30% of the total portfolio may be invested in the banker's acceptances
of any one (1) commercial bank.
8.5 Medium term (or corporate) notes of a maximum of five (5) years maturity
issued by corporations organized and operating within the United States, or
issued by depository institutions licensed by the United States, or any state,
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and operating within the United States with assets in excess of $500 million,
and which is rated in a rating category of "A" or better on its long-term debt
as provided by Moody's or S&P. Notes eligible for investment under this
section shall be rated at least "A3" or better by Moody's, or "A-" or better by
S&P. If, at the time of purchase, an eligible note is rated in a rating category
of "A" or better by only one rating agency, the note shall also be rated at
least "BBB" by the other rating agency. If, after purchase, the rating of an
eligible note in a rating category of "A" or better, is downgraded to "BBB," the
external investment advisor shall notify the District of the downgrade, and
shall present an analysis and recommendations as to the disposition of the
note consistent with the investment objectives of this Investment Policy. The
above restrictions pertain to the "direct issuer" and do not extend to
the parent corporation of the direct issuer. No more than 30% of the
portfolio may be invested in eligible medium term or corporate notes.
8.6 Shares of mutual funds investing in securities permitted under this policy
and under Section 53601 (k) of the California Government Code. Such
funds must either: (1) attain the highest ranking, or the highest letter and
numerical rating, provided by not less than two of the three largest
nationally recognized rating services; or (2) have an Investment Advisor
registered with the Securities and Exchange Commission with not less
than five (5) years of experience investing in the securities and obligations
authorized under this Policy and under California Government Code
Section 53601, and with assets under management in excess of $500
million. The purchase price of shares of beneficial interest purchased
pursuant to this policy, and the California Government Code may not
include any commission that the companies may charge, and shall not
exceed 15% of the District's surplus money that may be invested pursuant
to this section. However, no more than 10% of the District's surplus funds
may be invested in shares of beneficial interest of any one (1) mutual fund
pursuant to this section.
8.7 Certificates of deposit:
8.7.1 Secured (collateralized) time deposits issued by a nationally or
state-chartered bank or state or federal savings and loan association, as
defined by Section 5102 of the California Financial Code, and having a net
operating profit in the two (2) most recently completed fiscal years. Collateral
must comply with Chapter 4, Bank Deposit Law, Section 16500 et seq., and
Chapter 4.5, Savings and Loan Association and Credit Union Deposit Law,
Section 16600 et seq., of the California Government Code.
8. 7 .2 Negotiable certificates of deposit (NCDs) issued by a nationally or
state-chartered bank or state of federal savings and loan association, as
defined by Section 5102 of the California Financial Code; and which shall
have a rating of "A" or better on its long-term debt as provided by Moody's or
S&P; or which shall have the following minimum short-term ratings by at least
two (2) rating services: "P1" for deposits by Moody's, "A1" for deposits by
S&P, or comparably rated by a nationally recognized rating agency which
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rates such securities; or as otherwise approved by the District's Board of
Directors.
8.7.3 To be eligible to receive local agency money, a bank, savings
association, federal association, or federally insured individual loan company
shall have received an overall rating of not less than "satisfactory" in its most
recent evaluation by the appropriate federal financial supervisorial agency of
its record of meeting the credit needs of California's communities, including
low and moderate income neighborhoods, pursuant to Section 2906 of Title
12 of the United States Code.
8.8 Taxable or tax-exempt municipal bonds issued by the State of California
or its subdivisions. Such securities must be rated "A3" or higher by Moody's,
or "A-" or higher by S&P; or as otherwise approved by the Districts' Board of
Directors.
8.9 The State of California Local Agency Investment Fund (LAIF). The LAIF
is an investment alternative for California's local governments and special
districts managed by the State Treasurer's Office. LAIF is more fully
described in the Glossary (See Appendix "H.") The District shall use LAIF as
a short-term cash management facility. Investment of District funds in LAIF
shall be subject to investigation and due diligence prior to investing, and on a
continual basis to a level of review pursuant to Section 3.0, Standard of
Prudence, of this Policy. See Appendix "D" for investment pool
questionnaire.
8.1 O The Orange County Treasurer's Money Market Commingled Investment
Pool (OCCIP). The OCCIP is a money market investment pool managed by
the Orange County Treasurer's Office. OCCIP is more fully described in the
Glossary. (See Appendix "H.") The District has no funds invested in OCCIP
at this time. Investment of District funds in OCCIP would be subject to
investigation and due diligence prior to investing, and on a continual basis to
a level of review pursuant to Section 3.0, Standard of Prudence, of this
Policy.
8.11 Collateralized mortgage obligations (CMOs) issued by agencies of the US
Government which are backed by pools of mortgages guaranteed by the full
faith and credit of the U.S. Government, or an agency thereof, and asset-
backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of
mortgage derivatives, which include interest-only payments (IOs) and
principal-only payments (POs); inverse floaters, and RE-REMICS (Real
Estate Mortgage Investment Conduits), is hereby prohibited. Securities
eligible for purchase under this Section 8.11 shall be issued by an issuer
having a rating on its unsecured long-term debt of "A" or higher. Combined
purchases of mortgage-backed securities, CMOs and asset-backed
securities as authorized under this Section 8.11, may not exceed 20% of the
total Long-Term Operating Monies portfolio.
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8.12 Repurchase agreements provided that:
8.12.1 All repurchase agreements shall be collateralized with securities
eligible .for purchase under this Policy. In order to anticipate market changes
and to provide a level of security for all repurchase agreement transactions,
collateralization shall be maintained at a level of at least 102% of the market
value of the repurchase agreements, and shall be adjusted no less than
weekly.
8.12.2 All repurchase agreements must be the subject of a Master
Repurchase Agreement between OCSD and the provider of the repurchase
agreement. The Master Repurchase Agreement shall be substantially in the
form developed by The Bond Market Association.
8.13 Reverse repurchase agreements provided that:
8.13.1 No more than five percent (5%) of OCSD's portfolio shall be
invested in reverse repurchase agreements, and there shall be no long-term
reverse repurchase agreements unless otherwise authorized by the Districts'
Board of Directors.
8.13.2 The maximum maturity of reverse repurchase agreements shall
be ninety (90) days.
8.13.3 Reverse repurchase agreements shall mature on the exact date
of a known cash flow which will be unconditionally available to repay the
maturing reverse repurchase agreement.
8.13.4 Proceeds of reverse repurchase agreements shall be used solely
to supplement portfolio income or to provide portfolio liquidity, and shall not
be used to speculate on market movements.
8.13.5 All reverse repurchase agreements must be the subject of a
Master Repurchase Agreement between OCSD and the provider of the
reverse repurchase agreement. The Master Repurchase Agreement shall be
substantially in the form developed by The Bond Market Association.
8.14 Sales of OCSD-owned securities in the secondary market may incur losses
in order to improve the risk or return characteristics of the portfolio, to
prevent anticipated further erosion of principal, or when trading for securities
that result in an expected net economic gain to OCSD.
8.15 If securities owned by the OCSD are downgraded by either Moody's or S&P
to a level below the quality required by this Investment Policy, it shall be
OCSD's policy to review the credit situation and make a determination as to
whether to sell or retain such securities in the portfolio. If a decision is made
to retain the downgraded securities in the portfolio, their presence in the
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portfolio will be monitored and reported monthly to the OCSD General
Manager, the Finance, Administration and Human Resources Committee
and Board of Directors.
9.0 Collateralization:
Generally, the value to secure deposits under this Policy shall comply with Section 53652
of the California Government Code. Collateralization will be required for secured time
deposits, as more fully described in Section 8. 7 .1; and repurchase agreements, as more
fully described in Section 8.12.1. Collateral will always be held by an independent third-
party, as more fully described in Section 10.1. The right of collateral substitution is
granted.
10.0 Safekeeping and Custody:
10.1 All securities transactions, including collateral for repurchase agreements,
entered into by, or on behalf of OCSD, shall be conducted on a
delivery-versus-payment (DVP) basis. Securities will be held by OCSD's
third-party custodian bank, which shall be selected through a competitive
process, or that agent's representative, or in the agent's account at the
Federal Reserve Bank, or within clearing corporations in the U.S., and
evidenced by book entry statements.
11.0 Diversification:
OCSD will diversify its investments by security type, issuer, and financial institution in
accordance with the following:
11 . 1 There is no limit on investment in securities issued by or guaranteed by the
full faith and credit of the U.S. government.
11.2 No more than 20% of the portfolio may be invested in securities of a single
agency of the U.S. government, which does not provide the full faith and
credit of the U.S. government.
11.3 No more than 5% of the portfolio may be invested in securities of any one
issuer, other than the U.S. government or its agencies. Investment in mutual
funds is not governed by this Section 11.3. See Section 11.8 for conditions
of purchase of mutual funds.
11.4 No individual holding shall constitute more than 5% of the total debt
outstanding of any issuer.
11.5 No more than 40% of the portfolio may be invested in banker's acceptances.
11.6 No more than 15% of the portfolio may be invested in commercial paper,
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except that 30% of the portfolio may be so invested so long as the average
maturity of all commercial paper in the portfolio does not exceed 31 days.
11. 7 No more than 30% of the portfolio may be invested in medium-term
(corporate) notes.
11.8 No more than 15% of the portfolio may be invested in mutual funds.
However, no more than 10% of the District's portfolio may be invested in
shares of beneficial interest of any one (1) mutual fund.
11. 9 No more than 30% of the portfolio may be invested in negotiable certificates
of deposit.
11.10 No more than 10% of the portfolio may be invested in eligible municipal
bonds.
11.11 No more than 20% of the Long Term Operating Monies portfolio may be
invested in a combination of mortgage-backed securities, CMOs and asset-
backed securities. Mortgage-backed securities, CMOs and asset-backed
securities may only be purchased by the Districts' external money managers,
Pacific Investment Management Company (PIMCO), with prior Board
approval (authorized by Board Minute Order, January 22, 1997), and may not
be purchased by the District's staff.
11.12 No more than the lesser of 15% of the portfolio or the statutory maximum
may be invested in LAIF.
11.13 No more than 15% of the portfolio may be invested in the Orange County
Investment Pool.
11.14 No more than 20% of the portfolio may be invested in repurchase
agreements.
11.15 No more than 5% of the portfolio may be invested in reverse repurchase
agreements.
12.0 Maximum Maturities:
To the extent possible, OCSD will attempt to match its investments with reasonably
anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow
forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall
designate, from time-to-time, the amounts to be allocated to the investment portfolio.
OCSD monies invested in accordance with this Policy are divided into two (2) categories:
12.1 Liquid Operating Monies. Funds needed for current operating and capital
expenditures are known as Liquid Operating Monies.
12.1.1 The maximum final stated maturity of individual securities in the
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I
.~
Liquid Operating Monies account portfolio shall be one (1) year from the date
of purchase.
12.1.2 The average duration of the Liquid Operating Monies account
portfolio shall be recommended by the Treasurer based on the Districts' cash
flow requirements, but may never exceed 180 days, and shall be reviewed
and approved by the Finance, Administration and Human Resources
Committee, and shall be updated as needed.
12.2 Long Term Operating Monies. Funds needed for longer term purposes are
known as the Long Term Operating Monies.
12.2.1 The maximum final stated maturity of individual securities in the
Long Term Operating Monies account portfolio shall be five (5) years from
the date of purchase, unless otherwise authorized by the Districts' Board of
Directors (Board Minute Order dated January 22, 1997 has authorized the
District's external money managers, PIMCO, to purchase individual securities
providing the securities are permitted under Section 8.0 of this policy, which
may have a stated maturity of more than five (5) years from the date of
purchase).
12.2.2 The duration of the Long Term Operating Monies account
portfolio shall be recommended by the Treasurer based on the Districts' five-
year cash flow forecast, shall be reviewed and approved by the Finance,
Administration and Human Resources Committee, and shall be updated as
needed.
12.2.3 The duration of the Long Term Operating Monies account portfolio
shall never exceed 120% of the duration as established in accordance with
Section 12.2.2.
12.2.4 The duration of the Long Term Operating Monies account portfolio
shall never be less than 80% of the duration as established in accordance
with Section 12.2.2
13.0 Internal Control:
13.1 The Treasurer shall establish an annual process of independent review by an
external auditor. This review will provide internal control by assuring
compliance with policies and procedures. The current treasury management
procedures are presented in Appendix "B."
14.0 Performance Objectives and Benchmarks:
14.1 Overall objective. The investment portfolio of OCSD shall be designed with
the overall objective of obtaining a rate of return throughout budgetary and
economic cycles, commensurate with investment risk constraints and
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reasonably anticipated cash flow needs.
14.2 The Liquid Operating Monies. The investment performance objective for
the Liquid Operating Monies shall be to earn a total rate of return over a
market cycle which exceeds the return on a market index approved by the
Finance, Administration and Human Resources Committee, and by the
District's Board of Directors, when the duration of the portfolio is established.
This market index is more fully described in Board Resolution
No. OCSD-00-16 (see Appendix "E").
14.3 The Long Term Operating Monies. The investment performance objective
for the Long Term Operating Monies shall be to earn a total rate of return
over a market cycle which exceeds the return on a market index selected by
the Finance, Administration and Human Resources Committee and approved
by the Districts' Board of Directors, when the duration of the portfolio is
established. This market index is more fully described in Board Resolution
No. OCSD-00-16 (See Appendix "E").
15.0 Reporting:
15.1 Monthly and quarterly investment reports shall be submitted by the Treasurer
to the Finance, Administration and Human Resources Committee which shall
forward the reports to the District's Board of Directors. The monthly reports
shall be submitted to the Finance, Administration and Human Resources
Committee within 30 days of the end of the month in accordance with
California Government Code Sections 53607, 53646, and this Investment
Policy. The quarterly reports shall provide clear and concise status
information on the District's portfolios at the end of each reporting period,
including performance measures using the benchmarks described in Section
14.0 of this Investment Policy. Sample monthly and quarterly reports are
presented in Appendix "F." These reports shall contain listings of individual
securities held at the end of each reporting period, and shall disclose, at a
minimum, the following information about the risk characteristics of OCSD's
portfolio:
15.1.1 Cost and accurate and complete market value of the portfolio.
15.1.2 Modified duration of the portfolio compared to Benchmark.
15.1.3 Dollar change in value of the portfolio for a one-percent (1 %)
change in interest rates.
15.1.4 Percent of portfolio invested in reverse repurchase agreements,
and a schedule which matches the maturity of such reverse repurchase
agreements with the cash flows which are available to repay them at
maturity.
15.1.5 For the Liquid Operating Monies account only, the percent of
Page 12of13
I , .. ,.
portfolio maturing within 90 days.
15.1.6 Average portfolio credit quality.
15.1. 7 . Percent of portfolio with credit ratings below "A" by any rating
agency, and a description of such securities.
15.1.8 State that all investments are in compliance with this policy and
the California Government Code, or provide a listing of any transactions or
holdings which do not comply with this policy or with the California
Government Code.
15.1.9 Time-weighted total rate of return for the portfolio for the prior
three months, twelve months, year to date, and since inception
compared to the Benchmark returns for the same periods.
15.1.1 O State that sufficient funds are available for OCSD to meet its
operating expenditure requirements for the next six months, or if not, state
the reasons for the shortfall.
15.2 OCSD's Treasurer shall meet quarterly with the Finance, Administration and
Human Resources Committee to review investment performance, proposed
strategies and compliance with this Investment Policy. External investment
advisors may be required to attend said meetings at the discretion of the
Chairman of the Finance, Administration and Human Resources Committee.
16.0 Investment Policy Adoption and Revision:
16.1 The Investment Policy of OCSD shall be reviewed by the Finance,
Administration and Human Resources Committee and shall be adopted by
resolution of the Board of Directors of OCSD. The Policy shall be reviewed
on an annual basis in accordance with California Government Code Section
53646, and this Investment Policy, by the Finance, Administration and
Human Resources Committee, which shall recommend revisions, as
appropriate, to the Board of Directors. Any modifications made thereto shall
be approved by the Board of Directors.
16.2 The Finance, Administration and Human Resources Committee shall serve
as the oversight committee for the District's Investment program and shall
adopt guidelines for the ongoing review of duration, quality and liquidity of the
District's portfolio.
Page 13of13
POLICY
REFERENCE
15.1.1
15.1.2
15.1.3
15.1.4
15.1.5
15.1.6
15.1.7
15.1.8
15.1.9
ADDL**
ADDL**
ADDL**
ADDL**
15.1.10
Notes
*M =Monthly
*Q = rterly
EXHIBIT 11 8 11
ORANGE COUNTY SANTIATION DISTRICT
PERFORMANCE MONITORING & REPORTING
FOR THE
DISTRICT'S INVESTMENT PROGRAM
PERFORMANCE CHARACTERISTIC
Cost and market value of the portfolio (monthly mark-to-market).
Modified duration of the portfolio compared to benchmark.
Dollar change in value of the portfolio for a 1% change in interest rate.
Percent of portfolio invested in reverse repurchase agreements, and a schedule which
matches the maturity of such reverse repurchase agreements with the cash flows which
are available to repay them at maturity.
For the Liquid Operating Monies account only, the percent of portfolio maturing within 90
days.
Average portfolio credit quality.
Percent of portfolio with credit ratings below "A" by any rating agency, and a description
of such securities.
Listing of any transaction or holdings which do not comply with this policy or with the
California Government Code.
Time-weighted total rate of return for the portfolio for the prior three months, twelve
months, year-to-date, and since inception compared to the benchmark returns for the
same periods.
Comparison of portfolio performance to market index benchmark.
Comparison of Manager's performance to peer group benchmark.
Monitoring of organizational and structural changes of investment management firm.
Audit portfolios for compliance with investment policy guidelines.
REPORTING PARTY*
PIMCO MELLON CALLAN
M,Q M,Q Q
M,Q Q
M,Q Q
M,Q
M,Q Q
M,Q Q
M,Q Q
M,Q
M,Q Q
M,Q Q
Q
Q
Q
OCSD will report if sufficient funds are available for it to meet operating expenditure requirements for the next six months, or if
not, state the reason for the shortfall.
**ADDL= itoring of Additional Peformance Characteristics G:\wp.dta\fln\220\whlte\Treasury MgmtUnvestment Policy\2002..03\M ing ~_A"ldoc ~-