* Investments held by the District on March 24, 1999 which had, at the time of purchase over five (5) years to maturity and the purchase of which was approved by Resolution 93-12.

It is intended that this policy cover the investment of all District funds as defined in §53601 of the California Government Code.

Investments shall be made with care, skill, prudence, and diligence under the circumstances then prevailing including, but not limited to, the general economic conditions and the anticipated needs of the District, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, not for speculation, but for investment considering the probable safety of the capital, the District’s liquidity, as well as the probable income to be derived.

It is the District’s intention to hold investment until maturity to ensure the return of all invested principal dollars. However, it is realized that market prices will vary depending on economic and interest rate conditions that measured losses are inevitable due to economic, bond market or individual credit analysis.

1. The primary objectives, in priority order, of the investment activities of the District shall be:

a) Safety

Safety of principal is the foremost objective of the District. Each investment transaction shall seek to preserve the principal of the portfolio, whether from institutional default, broker dealer default or erosion of market value of the securities. Investments shall be undertaken in a manner, which first seeks to insure the preservation of principal. The District shall evaluate or cause to have evaluated each potential investment seeking both quality in the issuer and in the underlying security or collateral and it shall diversify the portfolio to reduce exposure to loss.

1. Credit Risk: Credit Risk, defined as the risk of loss due to failure of an issuer of a security, shall be mitigated by investing only in U.S. Treasury Obligations, Federal Agency securities and in other high quality investments and by diversifying the fund as set forth in this policy so that the failure of any issuer would not unduly harm the District’s cash flow. The District will diversify its investments by security type and institution. With the exception of U.S. Treasury Securities and authorized investment pools, no more than fifty percent (50%) of the District’s total investment portfolio will be invested in a single security type or with a single financial institution.
2. Market Risk: The risk of market value fluctuations due to overall changes in the general level interest rates shall be mitigated by limiting the maturity of investments in accordance with Government Code Sections 53601 a-n and 53636 a-m. Any investment that at the time of purchase has over five years to maturity must be authorized by the Board of Directors not less than three months prior to the investment.

b) Liquidity

Liquidity is the second most important objective. Investments shall be made whose maturity date is compatible with cash flow requirements and which can easily and rapidly converted into cash without substantial loss of value. To assure liquidity the District shall maintain, in addition to its investment in the State of California, Local Agency Investment Fund, one (1) liquid investment account. The balance in that account shall be maintained, at all times, in an amount sufficient to cover at least two (2) current months District expenses.

c) Return on Investment

Investments shall be undertaken to produce an acceptable rate of return after first considering safety of principal and liquidity.

d) Minimize Investment Expenses

The investment portfolio shall be structured and sales and purchases executed in a manner that minimizes expenses.

The Board Directors retains authority to make investment with the exception of investment in LAIF and the "Sweep" account at the District’s third party custody and safe keeping institution.

Oversight responsibilities for the District’s investment program is assigned to the Board Investment Committee. The Investment Committee shall review the investment program and shall be responsible for review of the Quarterly Investment Reports submitted by the District Manager, see Section IX Reporting Requirements. The Committee shall submit a written report to the Board within thirty (30) days following the end of each quarter stating the Committee’s findings:

1. That the investment portfolio is in compliance with the District’s Investment Policy, or the specific manner in which it is not in compliance;
2. That the District, including its separate Funds (Fund 1, Zone 3, Zone 6), has the ability to meet expenditures requirements for the next six (6) months or provide an explanation as to why sufficient money shall, or may, not be available.

The District Manager shall have responsibility for investments in the State of California Local Agency Investment Fund and the "Sweep Account" of the financial institution providing District custodial and safe keeping services. The District Manager responsibility include the provisions of third party custodial and safe keeping services as set forth in Section

Officers and employees involved in the investment process shall refrain from personal business activities that could conflict with proper execution of the investment program, or which could impair their ability to make impartial decisions. Officers, employees and investment managers are subject to the financial disclosure requirement of Government Code §87100 et. Seq.

The District shall invest only in the following:

1. Government obligations for which the full faith and credit of the United States are pledged for the payment of principal and interest. (U.S. Treasury Obligations).
2. Obligations issued by Banks for Cooperatives, Federal Land Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Bank Board, the Federal Home Loan Mortgage Corporation, the Resolution Funding Corporation, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise, or such agencies or enterprises which may be created. (Federal Agency securities).
3. Obligations of the State of California or any local agency within the state, including bonds payable solely out of revenues from a revenue producing property owned, controlled or operated by the state or any local agency or by a department, board, agency, or authority of the state or any local agency, provided that the obligations are rated in one of the two highest categories by a nationally recognized rating service.
4. Commercial paper rated in the highest short-term rating category, as provided by Moody’s Investors’ Service, Inc. or Standard & Poor’s Corporation; provided that the issuing corporation is organized and operation within the United States, has total assets in excess of $500 million and has an "A" or higher rating for its long-term debt, if any, as provided by Moody’s or Standard & Poor’s.

Purchase of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation.

Purchases of eligible commercial paper may not exceed 15 percent of the District’s investment portfolio. An additional 15 percent, or a total of 30 percent of the District’s investment portfolio may be invested only if the dollar-weighted average of the entire amount does not exceed 31 days.

5. Medium-term corporate notes issued by corporations organized and operating within the United States or by depository institutions licensed by the U.S. or any state and operating within the U.S. medium-term corporate notes shall be rated in a rating category "A" or its equivalent or better by a nationally recognized rating service.

Purchase of medium-term corporate notes may not exceed 30 percent of the District’s investment portfolio. No more than 10 percent of the District’s investment portfolio may be invested in a medium-term note of any one corporation.

6. FDIC insured or fully collateralized time certificates of deposit in financial institutions located in California.
7. Negotiable certificates of deposit or deposit notes issued by a nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank; provided that the senior debt obligations of the issuing institution are rated "AA" or better by Moody’s or Standard & Poor’s.

Purchase of negotiable certificates of deposit may not exceed 30 percent of the District’s investment portfolio.

8. State of California’s Local Agency Investment Funds.
9. 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 (15 U.S.C. Sec 80a-1, et seq.). To be eligible for investment pursuant to this subdivision these companies shall either: (1) have attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations or (2) have an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five year’s experience managing money market mutual funds and with assets under management in excess of $500,000,000.

The purchase price of shares of beneficial interest purchased shall not include any commission that the companies may charge and shall not exceed 20 percent of the District’s investment portfolio. Further, no more than 10 percent of the District’s investment portfolio may be invested in shares of beneficial interest of any one money market fund.

Credit criteria listed in this section refers to the credit of the issuing organization at the time the security is purchased. Percentage limitations refer to the percentage at the time the security is purchased.

 

Investment maturities shall be based on a review of cash flow forecasts. Maturities will be scheduled so as to permit the District to meet all projected obligations.

The maximum maturity will be no more than five years from purchase date to maturity date; however, upon recommendation from the Investment Committee, the Board of Directors may approve of an investment that at the time of purchase has over five years to maturity, which approval must be given at least three months prior to the investment.

The District shall establish a procedure for the approval of brokers, dealers, banks and other financial institutions for transaction execution. The District shall maintain a list of eligible brokers and dealers and only execute trades with institutions that have been approved by the Board.

For each security that is bought or sold, the District will call a minimum of three brokers or dealers to obtain price quotes. Price quotations will be documented.

Quarterly investment reports shall be submitted by the Manager to the Investment Committee and the Board. The reports shall include, at a minimum, the following information for each individual investment:

• Description of investment instrument
• Issuer name
• Yield on cost
• Purchase date
• Maturity date
• Purchase price
• Par Value
• Current market value and the source of the valuation
• Portfolio performance as compared to the performance benchmarks
• Weighted average maturity of the portfolio excluding LAIF and Money Market Funds.
• Distribution of the portfolio by type of security compared to the percentage limits authorized by the District’s policy
• Maturity distribution (maturities under 90 days; 90 days to 1 year; 1-2 years; 2-3 years; 3-4 years; and 4-5 years)
• Credit quality distribution (AAA, AA, A, unrated)

The quarterly report shall also (i) compare and declare compliance of the portfolio to the statement of investment policy, or the manner in which the portfolio is not in compliance, (ii) include a description of any of the District’s funds, investments or programs that are under the management of contracted parties, including lending programs, and (iii) include a statement denoting the ability of the District to meet its expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may not, be available.

This quarterly report shall be submitted within fifteen (15) days following the end of the quarter.

The LAIF portfolio should be reviewed at least annually. A thorough investigation of the pool/fund as required will answer the following general questions:

• Composition of the portfolio
• Maturity distribution
• Diversification by issuer
• Credit quality of securities
• Portfolio return
• Change in size of the pool
• Policy changes that occurred during the year (e.g., changes to their investment policy, custody arrangements, reporting.)

The District Investment Program, Program performance and the Investment Policy shall be reviewed at least annually by an independent Investment Advisor. The Investment Advisor’s Report shall be reviewed by the Investment Committee and submitted to the Board of Directors with the Investment Committee’s written report on the Investment Policy.

The Investment Committee shall review the Investment Policy on an annual basis in accordance with §53646(a) of the Government Code and shall submit a written report to Board of Directors. The Board of Directors will review the Investment Committee Report and will further review the Investment Policy on an annual basis in accordance with §53646(a) and within the first quarter of the calendar year.

The Investment Policy may be modified only upon action of the Board of Directors of the District.

The assets of the District shall be secured through the third-party custody and safekeeping procedures conforming to Category 1 of the Governmental Accounting Standards Board guidelines. Bearer instruments shall be held only through third-party institutions.