RESOLUTION NO. 2025-28
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TORRANCE, CALIFORNIA, ESTABLISHING THE 2025
STATEMENT OF INVESTMENT POLICY IN ACCORDANCE
WITH CERTAIN GUIDELINES
WHEREAS, the California Government Code Section 53600 (the "Code") et seq. vest the City Council with the authority to invest City Surplus Funds; and WHEREAS, the Government Code section 53600.3 provides the Council with the authority to delegate its investments duties to the City Treasurer; and WHEREAS, the Statement of Investment Policy (Exhibit A) is intended to establish the policies for prudent investments of the City's funds;
NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF TORRANCE HEREBY RESOLVES THE FOLLOWING:
1. All monies entrusted to the City Treasurer and/or fnvestment Officers will be pooled in a diversified portfolio, and the City Treasurer and staff will observe, review and react to changing conditions that affect the Pool;
2. The investment philosophy shall be made in the context of the "prudent investor rule;"
3. The objectives of the Policy shall be SAFETY, LIQUIDITY and RETURN;
4. The City shall have an independent advisory committee consisting of the City Manager, Finance Director, City Attorney, City Treasurer and Deputy City Treasurer or their appointed designee that meets monthly and reviews investment and strategy areas;
5. The authorized investments, and their maximum limits, shall be noted in the attached Statement of Investment Policy;
6. The safekeeping of securities, investment controls, discussion of policy review and indemnification of investment officials shall be included in the Policy;
7. The Policy is approved in the form attached as Exhibit A.
INTRODUCED, APPROVED, and ADOPTED this 3rd day of June 2025.
APPROVED AS TO FORM :
PATRICK Q. SULLIVAN, City Attorney
by ~
Tatia Y. Strader, Assistant City Attorney , M MC~ City Clerk Attachment:
Exhibit A: Investment Policy
TORRANCE CITY COUNCIL RESOLUTION NO. 2025-28
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CITY OF TORRANCE
)
)
)
ss
I, Rebecca Poirier, City Clerk of the City of Torrance, California, do hereby certify that the foregoing resolution was duly introduced, approved, and adopted by the City Council of the City of Torrance at a regular meeting of said Council held on the 3rd day of June 2025 by the following roll call vote:
AYES:
NOES:
ABSTAIN :
ABSENT:
COUNCILMEMBERS
COUNCILMEMBERS
COUNCILMEMBERS
COUNCILMEMBERS
Date: __ G_/2..:....:<'/o.....,..l _z_s ___ _ r 7
Lewis, Kaji, Kalani, Mattucci, and Mayor Chen .
None.
None.
Gerson and Sheikh .
FM Reb
City · Torrance
CITY OF TO RRA NCE
STATEM ENT OF
INVESTMEN T POLICY
2025
PREPARED BY THE CITY TREASURER'S OFFICE
Tim Goodrich
City Treasurer
1 Exhibit A
TABLE OF CONTENTS
OVERVIEW
PAGE
1.0 Policy
2.0 Scope
3.0 Prudence
4.0 Objectives
INVESTMENT AUTHORITY
5.0 Delegation of Authority
6.0 Ethics and Conflicts of Interest
INVESTMENTS
7.0 Authorized Financial Institutions, Depositories, and Broker/ Dealers
8.0 Authorized and Suitable Investments
9.0 Review of Investment Portfolio
10.0 Prohibited Investments
11.0 Investment Pools/Money Market Mutual Funds
PORTFOLIO MANAGEMENT
12.0 Collateralization
13.0 Safekeeping and Custody
14.0 Diversification
15.0 Maximum Maturities
16.0 Portfolio Re-Balancing
17.0 Credit Downgrading
18.0 Bond Proceeds
19.0 Internal Controls
PERFORMANCE MEASUREMENT
20.0 Performance Standards
21.0 Market Yield (Benchmark)
22.0 Reporting
LEGAL REQUIREMENTS
23.0 Investment Policy Adoption
24.0 Broker Agreement
25.0 Continuing Education
APPENDICES
A. List of Authorized Financial Institutions
B. Glossary
C. California Government Code Section Provision
2 3
3 3
4 4
4 5
6 11
11 11
12 12
13 13
13 13
13 14
15 15
15 15
16 16
17 18
26 1.0 Policy
It is the policy of the:
City of Torrance
(Hereafter referred to as the "City") to predicate its investment policies, procedures, and practices upon the following three principles:
(1) Compliance with all Federal, State and local laws governing the investment of monies under the control of the City Treasurer and/or Investment Officers (CITY TREASURER).
(2) Protection of the principal monies entrusted to the City. (3) Generate a market rate of return within the parameters of this Statement of Investment Policy.
For the purposes of this policy, "Investment Officers" shall be defined as the following positions:
City Treasurer
Deputy City Treasurer
City Manager or City Manager's Designee
Finance Director or Finance Director's Designee
2.0 Scope
This policy shall apply to all funds that are under the CITY TREASURER'S control including but not limited to, the general fund; special revenue funds; debt service funds; capital project funds; enterprise funds; bond proceeds; and trust and agency funds. These funds are accounted for in the City's Annual Comprehensive Financial Report. The City's Deferred Compensation Plan shall be excluded from the scope of this policy.
Except for cash in certain restricted and special funds, the City will consolidate cash and reserve balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.·
3.0 • Prudence
Pursuant to California Government Code Section 53600.3, attached hereto in Appendix C.
Investment Officers, as trustees of public monies, shall adhere to the "prudent investor" standard when managing the City's investment portfolios. They shall invest " ... with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity 3 needs of the agency."
Investment Officers who follow the provisions of this policy and who exercise due diligence shall be relieved of personal responsibility for a security's credit risk or market price risk: provided, that they report substantial deviations from expectations to the Investment Advisory Committee in a timely manner, and that they take appropriate action to control adverse developments. "Substantial deviations" shall be defined as either a decline of 10 percent or more in the market value of a security due to issuer default or a credit risk downgrade; or the sale of a security prior to maturity at 10 percent or more below its acquisition cost.
4.0 Objectives
The City's investment objectives, in order of priority, shall be:
Safety: Safety of principal is the foremost qbjective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City_ will diversify its investments by investing funds among a variety of securities with independent returns.
Liquidity: The investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements, which might be reasonably anticipated.
Yield: The investment portfolio shall have the objective of attaining a comparative performance measurement or an acceptable rate of return throughout budgetary and economic cycles . These measurements should be commensurate with the investment risk constraints identified in the Investment Policy and the cash flow characteristics of the portfolio.
5.0 Delegation of Authority
California Government Code Section §53607, hereto attached as Appendix C, authorizes the legislative body of a local agency to invest, deposit, and provide for the safekeeping of the local agency's funds and to delegate those responsibilities to th~ CITY TREASURER of the local agency.
Charter Provision Section 630 and subsequent resolution delegates the authority to invest, deposit, and provide for the safekeeping of City public monies to the CITY TREASURER. The Investment Officers shall have exclusive authority to buy and sell securities on behalf of the City. Each transaction shall require approval from two separate Investment Officers.
6.0 Ethics and Conflicts of Interest
Investment Officers involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Investment Officers shall disclose any material interest in financial institutions with which they conduct business. They shall 4 further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Investment Officers shall refrain from undertaking personal investment transactions with the same individual with which business is conducted on behalf of the City of Torrance.
7.0 Authorized Financial Institutions, Depositories, and Broker/Dealers The CITY TREASURER shall maintain a qualified list of financial institutions and depositories authorized to provide investment services. All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply and meet the following criteria as appropriate:
7.0.1 Must be licensed to operate as a broker/dealer in the State of California.
7 .0.2 Must be a firm that qualifies under the Securities and Exchange Commission Rule 15C3-1 (Uniform net capital rule).
;i
7.0.3 Must not have an active revocation action with regulatory agencies.
7.0.4 Must have a working knowledge of the State of California Government Code § 53601 that governs public funds investment.
Broker/dealers must sign the City's approved Investment Policy as an acknowledgement of receipt and comprehension.
7.0.5 Must provide audited annual financial statements evidencing the current and historical profitability of the firm.
7.0.6 Must have institutional fixed-income experience.
7 .0. 7 Must provide proof of FINRA certification, trading resolution, proof of State of California registration, certification of having read the Public Agency's investment policy and depository contracts.
Broker/dealer firms and the registered representative assigned to the City's account must be experienced in the area of institutional fixed-income.
Specific experience illustrating knowledge of the one to five year yield curve will be considered during the review process. The City may utilize approved broker/dealers where they demonstrate their most efficient and competitive executions. However, all broker/dealers must be capable of offering all eligible securities, as defined in the City's approved Investment Policy. Such offerings may include US Treasury Bills, certificate of deposits, commercial paper, bankers' acceptances, US Treasury Notes, and federal agency discount notes, and new-issue and secondary Federal agency obligations.
7.0.8 Broker/dealer firm required to be in business for at least ten years.
7.0.9 Completed broker/dealer questionnaire.
In addition to the minimum requirements stated above, the City may elect to 5 include the following additional criteria during the evaluation process.
Additional Criteria:
• Registered representatives who are employed by a broker/dealer firm whose offices are located in Southern California, and the registered representative of the broker/dealer is working at the California location.
• Registered representatives of broker/dealers who provide coverage to other California local agencies with portfolios similar to the City of Torrance.
• Total capital and/or capital adequacy ratio of the firm. • If the firm has insurance to cover any losses that may be attributable to errors that have impacted the City's investment program (i.e., unresolved delivery problems, delivery of incorrect securities).
8.0 Authorized and Suitable Investments
Investment Officers shall be authorized to invest in the following financial instruments pursuant to California Government Code Section 53601 et seq. hereto attached as Appendix C and further restricted by the table below:
The City's investment policy is more conservative than state law. 6 Figure 1
No. /Govt. Code Type of Investment % Authorized Other Restrictions Code
1. United States Treasury bills, notes, 100% Maximum maturity: 5 years bonds, or certificates of indebtedness, or
,360l(b) those for which the full faith and credit
of the United States are pledged for the
payment of principal and interest.
2. Federal Agency or United States 75% Maximum maturity: 5 years government-sponsored enterprise
No more than 30% of the 53601(f) ("GSE") obligations, participation, or other instruments, including those portfolio may be invested in issued by or fully guaranteed as to any one issuer ( excluding principal and interest by Federal the Proceeds of tax-exempt Agencies or by GSE. bonds).
3. State Obligations: CA and Others, 10%;. Maximum maturity:
53601(c) CA Local Agency Greater than 5 years as
5360l(d) approved by City Council
53601(e) on case by case basis.
4. Banker's Acceptances ("BA") 20% Rated "A-1" or higher, or issued by commercial banks. the equivalent, by a
53601(g) Nationally Recognized
Statistical Ratings
Organization (NRSRO).
NRSRO is defined as a
credit rating organization
that provides an assessment
of the creditworthiness of a
firm or financial
instrument( s) and is
registered with the
Securities and Exchange
Commission (SEC).
Maximum maturity: 180
days
No more than 5% of the
portfolio may be invested in
any one BA issuer.
5. Negotiable Certificates of Deposit 30% Above $250,000 insurance ("NCD") issued by a nationally-limit,
53601(i) or state-chartered bank, a savings Long-term debt with "AA" association, a federal association, category or its equivalent or or by a state-licensed branch of a better by an NRSRO.
foreign bank.
Maximum maturity: 5 years
7 6. Time Certificates of Deposit 10% TCDs exceeding $250,000 ("TCD") must be collateralized.
53630 et seq. Issued by qualified public
TCDs must be centralized depositories or a certificate of deposit placement service. at one location for each
bank ofS&L.
Maximum maturity: 1 year
If TCD is uncollateralized,
then no more than $245,000
may be invested.
7. Repurchase Agreements ("RP") 10% Maximum maturity: 30 sold by authorized brokers. days
53601(j)
Collateral must be United
;. States Treasury, Federal
Agency. or GSE obligation.
Zero coupon and stripped
coupon instruments are not
acceptable as collateral.
Collateral must be valued at
102% of cost and adjusted
weekly.
City's custodian must hold
collateral.
An authorized broker must
file a Public Securities
Association (PSA) Master
Repurchase Agreement
with the CITY
TREASURER.
8. Commercial Paper ("CP") issued 15% Rated "A-1 or higher, or the by general corporations organized equivalent, by an NRSRO. 53601 (h)(2)(C) :;ind operating in the United States
Maximum maturity: 270 with assets exceeding $500
million. days
No more than 10% of its
total investment in CP and
MTN s of any single issuer.
9. Medium-Term Notes issued by 30% "A" rating category or its corporations organized and equivalent or better by an
53601(k) operating in the United States, or NRSRO.
by depository institutions
8 operating in the United States and No more than 5% of the portfolio licensed by the United States or by may be invested in any one any state. issuer.
10. State of California Local Agency $75M Maximum allowed by state Investment Fund ("LAIF") that is policy.
l6429.1 Managed by the State Treasurer's
Office.
11. Mutual Funds and Money Market No more Maximum allowed by state Mutual Funds than 20% policy.
53601(l)and
53601.6(b)
12. Joint Powers Authority ("JP A") No more than (1) The adviser is registered or that is Managed by the Local 30% of the exempt from registration with the 53601(p) Government Investment Pools. portfolio may Securities and Exchange be invested in Commission.
-'
any one fund. (2) The adviser has not less than
five years of experience investing
in the securities and obligations
authorized in subdivisions (a) to
( q), inclusive California
Government Code Section 53601
attached hereto in Appendix C.
(3) The adviser has assets under
management in excess of one
billion dollars ($1,000,000,000).
( 4) The fund needs to be a stable
NAY (Net Asset Value) at
maturity.
9 A Sources: Sections 16340, 16429.1, 27133, 53601, 53601.6, 53601.8, 53630 et seq., 53635, 53635.8, and 57603.
B Municipal Utilities Districts have the au~hority u_nder th~_Public Utilities Code Section 12871 to invest m certam securities not addressed here.
L Reverse repurchase agreements or securities lending
agreements may exceed the 92-day term if the agreement
includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale ~f_ a secur!ty using a reverse repurchase agreement or secunhes lend(ng agreement and the final maturity dates of the same security. c Section 53601 provides that the maximum term of a':y M investment authorized under this section, unless otherwise stated. is five years. However, the legislative body may grant expre~ authority to make investments either specificallr or _as a part of an investment program apP_rqved by t~e l~g(slatwe body that exceeds this five year remammg maturity limit. _Such approval must be issued no less than three months pnor ~o the purchase of any security exceeding the five-year maturity N limit
D Percentages apply to all portfolio investments regardless of source of funds. For instance, cash from a reverse repurchase agreement would be subject to the restrictions.
Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency. The local agency must have held the securities used for the agreements for at least 30 days.
''Medium-term notes" are defined in Section 53601 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 w depository institutions licensed by the United States or any state and operating within the United States. "
E No more than 30 percent of the agency's money may be in bankers' acceptances of any one commercial bank. o No more than 1 O percent invested in any one mutual fund This limitation does not apply to money market mutual funds.
F Includes agencies defined as a city, a district, or other lo~al p agency that do not pool money in deposits o~ investment with other local agencies, other than local agenaes that have the same governing body.
G Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstan~ing
commercial paper and medium-term notes of any smgle
A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under
management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Sec tions 53601 and 53635.
H issuer.
Issuing corporation must be organized and operating within the U.S. have assets in excess of $500 million, and debt other than co'mmercial paper must be in a rating category of ''A" or Q A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than five years' experience investing in money market
instruments with assets under management in excess of $500 million.
its equivalent or higher by a nationally recognized statistical rating organization, or the issuing corporation must_ be organized within the U.S. as a special purpose corporation, trust, or LLC, have program wide credit enhancements, and R have commercial paper that is rated ':4-1 "or higher, or the equivalent, by a nationally recognized statistical rating 1 agency.
K
Includes agencies defined as a county, a city and county, or other local agency that pools money in deposits ~r 5 investments with other local agencies, including local agenaes that have the same governing body. Local agencies that pool exclusively with other local agencies that have the san:e governing body must adhere to the limits set forth in Section 53601(h)(2)(C).
No more than 30 percent of the agency's money may be in T negotiable certificates of deposit that are authorized under Section 53601(i).
Effective January 1, 2020, no more than 50 percent of the agency's money may be invested in deposits, inc~uding u certificates of deposit, through a placement service as authorized under 53601.8 (excludes negotiable certificates of deposit authorized under Section 53601(i)). (!n January 1, 202fi the maximum percentage of the portfolio reverts back to 30 percent Investments made pursuant to 53635._8 remain subject to a maximum of 30 percent of the portfolio.
10 Investments in notes, bonds, or other obligations under Section 53601(n) require that collateral be placed 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, among other specific collateral requirements.
A joint powers authority pool must retain an investment advisor who is registered with the SEC ( or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Section 53601, subdivisions (a) to (o).
Local entities can deposit between $200 million and $10 billion into the Voluntary Investment Program Fund, upon approval by their governing bodies. Deposits in the fund will be invested in the Pooled Money Investment Account.
Only those obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and
Development (IBRD ), International Finance Corporation
(IFC), and Inter-American Development Bank (IADB), with a maximum remaining maturity of five years or less.
9.0 Review of Investment Portfolio
The securities must be in compliance with Section 8.0 Authorized and Suitable Investments at the time of purchase. Because some securities may not comply with Section 8.0 Authorized and Suitable Investments subsequent to the date of purchase, the CITY TREASURER should at least annually review the portfolio to identify those securities that do not comply. The City Treasurer should establish procedures to report to the oversight committee major critical incidences of noncompliance identified through the review of the portfolio.
10.0 Prohibited Investments
Investment Officers shall not invest public monies in financial instruments that are not authorized under this policy.
Prohibited investments shall include, but shall not be limited to, equity securities, bond mutual funds, reverse repurchase agreements, and derivative contracts (forwards, futures, and options). Securities with high price volatility or limited marketability and common stocks and share of beneficial interest.
Investment Officers shall not engage in securities lending, short selling, or other hedging strategies.
Local Agency Investment Fund (LAIF) and Joint Powers Authority Pools (JPA) shall be exempt from the prohibitions on derivative contracts, derivative securities, reverse repurchase agreements, securities lending, short selling, and other hedging strategies.
11.0 Investment Pools/Money Market Mutual Funds
A thorough investigation of the pool/fund is required prior to investing, and on a continual basis. All State or County Personnel that manage an investment pool or Investment Advisors that offer money market mutual funds must supply the following as appropriate:
11.0.1 A description of eligible investment securities, and a written statement of investment policy and objectives.
11.0.2 A description of interest calculations and how it is distributed, and how gains and losses are treated.
11.0.3 A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited.
11.0.4 A description of who may invest in the program, how often, what size deposit and withdrawal are allowed.
11 11.0.5 A schedule for receiving statements and portfolio listings.
11.0.6 Verification on whether or not reserves or retained earnings are utilized by the pool/fund.
11.0.7 A fee schedule, and when and how it is assessed.
11.0.8 An eligibility of the pool/fund for bond proceeds and whether it will accept such proceeds .
12.0 Collateralization
Investment Officers shall ensure that all demand deposits and all non-negotiable certificates of deposit that exceed $250,000 shall be fully collateralized with securities authorized under state law and under this Investment Policy. Collateral may be waived for the first $250,000 since this will be insured by the Federal Deposit Insurance Corporation . Any amorlnt on deposit over $250,000 plus accrued interest, however, shall be collateralized with United States Treasury or federal agency securities at a constant margin ratio of 110 percent or with mortgage-backed collateral at a constant margin ratio of 150 percent.
Collateralized investments and demand deposits may require substitution of collateral. The CITY TREASURER must approve all requests from financial institutions for substitution of collateral that involve interchanging classes of security.
An independent third party with whom the City has a current custodial agreement shall always hold the collateral. The independent third party shall provide the CITY TREASURER with a safekeeping receipt that he shall retain.
13.0 Safekeeping and Custody
Investment Officers shall conduct all security transactions on a delivery-versus payment ("DVP") or on a receipt-versus-payment ("RVP") basis. A third-party bank trust department ("Custodian") that acts as an agent for the City under the terms of a custody agreement executed between both parties shall hold the securities.
The only exception to the foregoing shall be securities purchases made with :
Local government investment pools and Money Market mutual funds.
No securities broker or investment advisor shall have access to City monies, accounts, or investments. Any transfer of monies to or through a securities broker must have the CITY TREASURER'S prior written approval.
The City shall require Broker Trade Confirmations for all trades. Investment Officers shall review these confirmations immediately upon receipt, for conformity with the terms of the City's Trade Sheets.
12 14.0 Diversification
Investment Officers shall diversify the City's investment portfolios by security type and by issuer, except for bond reserve monies; bond escrow monies, and any other monies that the City Council determines.
15.0 Maximum Maturities
Investment Officers shall not invest in securities with maturities exceeding five years. The City Council, however, may approve longer maturities for the investment of bond reserve, bond escrow, and other funds if the maturities of such investments are expected to coincide with the expected use of the funds.
16.0 Portfolio Re-Balancing
If portfolio percentage constraints are violated due to a temporary imbalance in the portfolio, then Investment Officers shall hold the affected securities to maturity in order to avoid capital losses.
If no capital losses would be realized upon sale, however, then Investment Officers shall consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalance.
Portfolio percentage limits are in place in order to ensure diversification of the City investment portfolio; a small temporary imbalance will not significantly impair that strategy.
17 .0 Credit Downgrading
This policy sets forth minimum credit risk criteria for each type of security. This credit risk criteria applies to the initial purchase of a security; it does not automatically force the sale of a security if its credit risk ratings fall below policy limits.
If a security is downgraded below the minimum credit risk criteria specified in this policy, then Investment Officers shall evaluate the downgrade on a case-by case basis in order to determine whether the security should be held or sold.
The CITY TREASURER shall inform the Investment Advisory Committee at its next monthly meeting of the credit downgrade and of the Investment Officers decision to hold or sell the downgraded security. Investment Officers shall review the credit standing of all securities in the City's investment portfolio annually, at a minimum.
18.0 Bond Proceeds
The CITY TREASURER shall segregate the gross proceeds of tax-exempt bonds from the City general pool and shall keep them in a separate pool. They shall be invested pursuant to the instructions in the respective bond indentures of trust. If the bond indenture authorizes investments that conflict with this 13 policy, then such investments shall be made in accordance with the bond indenture. All securities shall be held in third-party safekeeping with the bond trustee ("Trustee") and all DVP and RVP rules shall apply. The Trustee shall be represented on the authorized list (see Appendix A).
Investment Officers shall use competitive offerings, whenever practical, for all investment transactions that involve the gross proceeds of tax-exempt bonds.
The City prefers a minimum of three competitive offers, if available. Any exceptions to this policy shall be documented and shall be reported to the Investment Advisory Committee at its next monthly meeting.
The City is required under the "U.S. Tax Reform Act of 1986" to perform annual arbitrage calculations and to rebate excess earnings to the United States Treasury from the investment of the gross proceeds of tax-exempt bonds that were sold after the effective date of that law. The CITY TREASURER may contract with qualified outside financial consultants to provide the necessary technical expertise that is required to comply with this law.
19.0 Internal Controls
The CITY TREASURER shall ensure that all investment transactions comply with the City's policy, and shall establish internal controls that are designed to prevent losses due to fraud, negligence, and third-party misrepresentation.
The City Treasurer shall aim to maintain a minimum liquidity level of approximately $40 million at all times. If the funds fall below this threshold, the CITY TREASURER shall notify the Investment Advisory Committee at its next scheduled monthly meeting.
Internal controls deemed most important shall include: avoidance of collusion; separations of duties and administrative controls; separating transaction authority from accounting and record keeping; custodial safekeeping; clear delegation of authority; management approval and review of investment transactions; specific limitations regarding securities losses and remedial action; written confirmation of telephone transactions; documentation of investment transactions and strategies; and monitoring of results.
The CITY TREASURER shall establish a process of independent review by an external audit firm of the City's investment program every three years. The external auditor shall review the program's management in terms of compliance with the most current California Debt and Investment Advisory Commission (CDIAC) "Local Agency Investment Guideline" manual and CITY's Investment Policy/Procedures.
An Investment Advisory Committee consisting of City officials shall be responsible for reviewing the City investment reports, transactions, policies, procedures, and strategies, on a monthly basis. The City Manager; City Finance Director; City Attorney; City Treasurer; and Deputy City Treasurer; or their designees shall sit on this committee.
14 20.0 Performance Standards
The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs.
21.0 Market Yield (Benchmark)
The City's investment portfolio must be passively managed with portfolio securities being held to maturity. On selected occasions, however, the City's portfolio may be actively managed for purposes of improving portfolio risk structure, liquidity, or yield in response to market conditions or to meet City requirements.
The City shall adopt a benchmark that approximates the composition and weighted-average maturity of the City portfolio, in order to measure whether or not the City's portfolio yields are matching or surpassing the market yield.
22.0 Reporting
The CITY TREASURER shall provide the Investment Advisory Committee and the City Council with a monthly investment report within 60 days of each month-end or at the next scheduled City Council meeting following an Investment Committee meeting.
Section 53607: 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 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.
The report will include a statement on compliance or noncompliance with the City's Investment Policy and a statement on whether there are or are not sufficient funds to meet the City's anticipated cash requirements for the next six months.
23.0 Investment Policy Adoption
The CITY TREASURER shall submit a Statement of Investment Policy to the Investment Advisory Committee for review and comment and the City Council annually for its review and adoption. Additionally, the CITY TREASURER shall maintain City's Investment Policy Certification in accordance with California Municipal Treasurer's Association (CMTA) Certification renewal requirements.
15 24.0 Broker Agreement
Broker is required to sign the broker agreement prior to approval.
25.0 Continuing Education
City Staff, such as the Deputy City Treasurer, who regularly engage in investment and management of public funds should be provided with continuing education on all aspects of public funds management on an annual basis through qualified institutions.
16 Appendix A: List of Authorized Financial Institutions The CITY TREASURER'S Office is authorized to transact investment and depository business with the following financial institutions. Investment and depository transactions with firms other than those appearing on this list are prohibited unless approved by City Council.
PUBLIC DEPOSITORIES
Bank of America Corporation
CUSTODIAN
U.S. Bank National Association
TRUSTEE
The Bank ofNew York Mellon
STATE POOL
State of California-Local Agency Investment Fund (LAIF) Joint Powers Authority Pools (JPA)
California Asset Management Program ( CAMP)
CalTRUST
17 Appendix B: Glossary
ACCRUED INTEREST. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)
AGENCIES. Also referred to as Federal Agencies or Fed Agencies and include such organizations or enterprises as the: Federal Home Loan Bank (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), Federal Farm Credit Banks (FFCB), and Government National Mortgage Association (GNMA). See FEDERAL AGENCIES or the specific organization/enterprise in this glossary for additional information.
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AMORTIZATION. The spreading out of capital expenses for intangible assets over a specific period of time (usually over the asset's useful life) for accounting and tax purposes.
Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources.
ASKED. The price at which securities are offered .
BANKER'S ACCEPTANCE ("BA"). A draft, bill, or exchange accepted by a bank or a trust company. Both the issuer and the accepting institution guarantee payment of the bill.
BASIS POINT. Common unit of measure used for expressing changes in interest rates; one basis point equates to 1/100th of 1%. (i.e. 0.1% equals 10 basis points.) BID. The price offered by a buyer of securities (when one sells securities, one asks for a bid).
See "Offer".
BOND. Bonds are commonly referred to as fixed-income securities and are one of the three main generic asset classes, along with stocks (equities) and cash equivalents. Many corporate and government bonds are publicly traded on exchanges, while others are traded only over the-counter (OTC).
BROKER. A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. It is also the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
BULLET BOND. Bullet Bonds are non-callable bonds, which cannot be redeemed early by the issuer.
CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP). A Joint Powers Authority to provide California public agencies with professional investment services.
California Debt and Investment Advisory Commission (CDIAC). Provides information, education, and technical assistance on debt issuance and public fund investments to local 18 agencies and public finance professionals. CDIAC also serves as the State's clearinghouse for public debt issuance information.
CALLABLE BOND. A bond that can be redeemed by the issuer earlier than the bond's maturity date. Callable bonds with specific details as to when the bond may be called back are noted.
Embedded options attached to callable bonds detail how the issuer may "call" back the security. Three forms of embedded options for callable bonds are:
• American Option: Bond may be called back by the issuer at any time after the lockout period expires. (continuously callable)
• Bermudian Option: The issuer has the right to call the bond on the predetermined interest payment dates only.
• European Option: Allows the holder to exercise the option (i.e. to buy) only on the option expiration date.
• 1X: One time callable only
• 6M: Callable only after predetermined 6 month lockout period.
CALTRUST -LIQUIDITY FUND. A local government investment pool. It is a public agency; having been formed as a Joint Powers Authority (JPA).
CERTIFICATE OF DEPOSIT ("CD"). A time deposit with a specific maturity, as evidenced by a certificate. Large-denomination CDs are typically negotiable. A certificate of deposit (CD) is a savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.
COLLATERAL. Securities, evidence of deposit, or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT ("CAFR"). The official annual report for the City of Torrance. It includes co~bined statements for each individual fund and account group, which are prepared in conformity with GAAP. It also includes supporting schedules that are necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed statistical section.
CORPORATE BOND/NOTES. A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.
COUPON. The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. It can also be a certificate attached to a bond, which evidences interest due on a payment date. The annual interest rate paid on a bond, expressed as a percentage of the face value.
19 DEALER. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
DEBENTURE. A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT. There are two methods of delivery of securities: (1) delivery versus payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange of money for the securities. DVR is delivery of securities with an exchanged of a signed receipt for the securities.
DERIVATIVES. (1) Financial instruments that are linked to, or derived from, the movement of one or more underlying indexes or securities, and may include a leveraging factor; or (2) financial contracts based upon a notional amount whose value is derived from an underlying index or security (e.g., interest rates, foreign exchange rates, equities, or commodities).
DISCOUNT. The difference between the acquisition cost of a security and its value at maturity, when quoted at lower than face value. A security that sells below original offering price shortly after sale is also considered to be at a discount. In finance, discount refers to the condition of the price of a bond that is lower than par, or face value. The discount equals the difference between the price paid for a security and the security's par value.
DISCOUNT SECURITIES. Non-interest bearing money market instruments that are issued a discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
DIVERSIFICATION. Dividing investment funds among a variety of securities that offer independent returns.
FEDERAL AGENCIES. Special government organizations set up for a specific purpose such as the management of resources, financial oversight of industries or national security issues. These organizations are typically created by legislative action, but may initially be set up by a Presidential Order as well. The directors of these agencies are typically selected by Presidential appointment. A number of these organizations issue securities such as stocks and bonds that have been historically popular with investors. Agencies of the Federal Government that were established to supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students, farmers, farm cooperative, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"). A federal agency that insures bank deposits, currently up to $ 250,000.00 per deposit.
FEDERAL FARM CREDIT BANK ("FFCB"). In the United States, a network of federally chartered financial institutions designed to provide credit-related services to the agricultural and farming sectors of the economy. In total, this government-sponsored enterprise comprises approximately 100 financial institutions that serve all 50 states and Puerto Rico FEDERAL FUNDS RATE. The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations.
FEDERAL HOME LOAN BANKS ("FHLB"). Government-sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of 20 the FHLBs is to liquefy the housing-related assets of its member, who must purchase stock in their District Bank. FHLB -An organization created by the Federal Home Loan Bank Act of 1932 to increase the amount of funds available for lending institutions who provide mortgages and similar loan agreements to individuals. This system was created in response to the depressive economic conditions of the era, which had impaired the U.S. banking system.
FEDERAL HOME LOAN MORTGAGE CORP ("Freddie Mac or FHLMC"). FHLMC is a stockholder-owned, government-sponsored enterprise {GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ('FNMA"). FNMA, like GNMA, was charted under the Federal National Mortgage Association Act of 1938. FNMA is a federal corporation working under the auspices ofthe Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage fur,ds in the United States. Fannie Mae, ,. as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assures and guarantees that all security holders will receive timely payment of principal and interest. Fannie Mae is a publicly-traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-and middle-income Americans.
FEDERAL OPEN MARKET COMMITTEE ("FOMC"). The FOMC consist of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM. Also known as "The Fed." The central bank of the United States created by Congress and consisting of a seven-member Board of Governors in Washington, D.C., 12 regional banks, and about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATIONS ("GNMA" or "Ginnie Mae").
Securities that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. The full faith and credit of the U.S. Government protect a security holder. Ginnie Mae securities are backed by the FHA, VA, or FMHM mortgages. The term "pass-through" is often used to describe Ginnie Maes.
GOVERNMENTAL ACCOUNTING STANDARDS BOARD ("GASB"). An organization whose main purpose is to improve and create accounting reporting standards or generally accepted accounting principles (GAAP). These standards make it easier for users to understand and use the financial records of both state and local governments. The Government Accounting Standards Board (GASB) is funded and monitored by the Financial Accounting Foundation (FAF).
21 IMPLIED RATING ("IMP"). Government Sponsored Enterprises ex: Federal Home Loan Bank, Federal Home Loan Mortgage Corp, Federal National Mortgage Association each carrier the rate of the US Treasury. There are GSE that are not officially rated by a credit rating agency but carry an implied rating because they are GSE. An example of this is Farmer Mac.
Joint Powers Authority ("JPA"). Managed by the Local Government Investment Pools to provide California public agencies with professional investment services.
LIQUIDITY. A Liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow, and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND ("LAIF"). Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose of investment.
LOCKOUT (BOND FEATURE). The period of time when a security may not be redeemed by the issuer.
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MARKET VALUE. The price at which a security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT. A written contract covering all future transactions between the parties to repurchase-reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer (lender) to liquidate the underlying securities in the event of default by the seller (borrower).
MATURITY. The date upon which the principal or stated value of an investment becomes due and payable.
Medium Term Notes. A corporate note continuously offered by a company to investors through a dealer. Investors can choose from differing maturities, ranging from nine months to 30 years.
MODIFIED DURATION. A formula that attempts to explain a change in the price of a bond as a function of a change in coupon rates. It is based on the assumption that rises in interest rates depress bond prices and drops in rates do the opposite.
MONEY MARKET. The market in which short-term debt instruments (e.g., bills, commercial paper, and banker's acceptances) are issued and traded.
NET VALUE ASSET ("NAV"). The net value of an investment fund's assets minus its liabilities.
NOT RATED ("NR"). Government Sponsored Enterprises (GSE) or any security that are not officially rated by a credit rating agency.
NRSRO. Nationally Recognized Statistical Ratings Organization (NRSRO). NRSRO is defined as a credit rating organization that provides an assessment of the creditworthiness of a firm or 22 financial instrument(s) and is registered with the Securities and Exchange Commission (SEC).
OFFER. The price asked by a seller of securities (when one buys securities, one asks for an offer). See ''Asked" and "Bid."
OPEN MARKET OPERATIONS. Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence the volume of money and credit in the economy.
Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool.
PORTFOLIO. A collection of securities that an investor holds.
PREMIUM. A premium is the total cost of an option. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.
PRIMARY DEALER. A group of government securities dealers that submit daily reports of market activity and positions, and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker-dealers, banks, and a few unregulated firms.
PRUDENT INVESTOR RULE. An investment standard. A fiduciary, such as a trustee, may invest in a security if it is one that would be bought by a prudent investor acting in like capacity, who is seeking reasonable income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES. A financial institution that: (1) does not claim exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of this State; (2) has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability; and (3) has been approved by the Public Deposit Protections Commission to hold public deposits.
RATE OF RETURN. The yield obtainable on a security based on its purchase price or it current market price.
REPURCHASE AGREEMENT ("~P" OR "REPO"). A holder of securities sells them to an investor with an agreement to repurchase the securities at a fixed price on a fixed date. The security "buyer" in effect, lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: when the Fed is said to be doing RP, it is lending money (increasing bank reserves).
SAFEKEEPING. A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET. A market made for the purchase and sale of outstanding issues following the initial distribution.
SECURITIES AND EXCHANGE COMMISSION. An agency created by Congress to administer 23 securities legislation for the purpose of protecting investors in securities transactions.
SEC RULE 15c3-1. See "Uniform Net Capital Rule." SEC Rule 15c3-1 requires broker-dealers to maintain the following minimum net capital requirements in order to offer sufficient protection for the firm's customers:
• $250,000 for broker-dealers who conduct general securities business and carry customer funds and securities
• $50,000 for broker-dealers who introduce accounts to another broker-dealer on a fully disclosed basis, receive but do not hold customer securities for delivery to the clearing broker-dealer and do not carry customer accounts
• $25,000 for broker-dealers that only handle mutual fund transactions and do not hold customer funds or securities
• $5,000 for broker-dealers who do not directly or indirectly receive securities from ;. customers (known as introducing brokers)
Step-Up Bond. A bond that pays an initial coupon rate for the first period, and then a higher coupon rate for the following periods. A step-up bond is one in which subsequent future coupon payments are received at a higher, predetermined amount than previous or current periods. These bonds usually have a callable component.
STRUCTURED NOTES. Notes issued by instrumentalities (e.g., FHLB, FNMA, SLMA) and by corporations, that have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) in their debt structure, The market performance of structured notes is affected by fluctuating interest rates; the volatility of imbedded options; and shifts in the yield curve.
TREASURY BILLS. A non-interest-bearing discount security that is issued by the U.S. Treasury to finance the national debt. Most T-bills are issued to mature in three months, six months, or one year.
TREASURY BONDS. Long-term, coupon-bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of more than 10 years.
TREASURY NOTES. Medium-t.erm, coupon-bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of two to 10 years. US Notes -A treasury note is a marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the U.S. government or through a bank.
UNIFORM NET CAPITAL RULE. SEC requirement that member firms, as well as non-member broker-dealers in securities, maintain a maximum ratio of indebtedness to liquid capital of 15 to one. Also called net capital rule and net capital ratio. Indebtedness covers all money that is owed to a firm, including margin loans and commitments to purchase securities (one reason that new public issues are spread among members of underwriting syndicates). Liquid capital includes cash and assets easily converted to cash.
YIELD. The rate of annual income return on an investment, expressed as a percentage. (a) 24 INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD OR YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
Yield to Maturity (YTM). The percentage rate of return paid on a bond or note if the investor buys and holds it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity, and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.
Sources:
• www.investopedia.com
• www.thefreedictionarv.com
• CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION (CD/AC) California Public Fund Investment Primer, December 2009
25 Appendix C: California Government Code Section Provision Government Code Section §53600.3
Except as provided in subdivision (a) of Section 27000.3, all governing bodies of loca l 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 inv es tor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prud ence , and diligenc e under the circumstances then prevailing, including, but not limited to, th e general economic conditions and the anticipated needs of the agen cy , 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 n ee ds of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments J11ay be acquired as autho r ized by law. ~
Government Code Section §53601
This section shall apply to a local agency that is a city, a district, or oth e r local agency that does not pool money i n deposits or investments with other local agencies, other than local agencies that have the same governing body. How ever , Section 53635 shall apply to all local ag e ncies that pool money in deposits or investments with other local agencies that have separate governing bodies. The legislative body of a local agency having moneys in a sinking fund or moneys in its treasury not required for the immediate ne eds of the local agency may invest any portion of the mon e ys that it deems wis e or expedient in those inve st me nts set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registe r ed, or nonregistered format, shall requ ire delivery of the securities to the local agency, including those purchased for the agency by financial adv i sers, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third-party custodial agreement. The transf e r of securities to the counterparty bank's customer book entry accou nt may be used for book e ntry delivery.
For purposes o f this section, "counterparty" means th e other party to the transaction. A counterparty bank's trus t 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 limitat ion for a particu lar category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify a limita tio n on the term or remaining maturity at the time of the investm en t, no investment shall be mad e in a11y 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 inv est ment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the i nvestment:
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(a) Bonds issued by the local agency, 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.
(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 int erest . (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. (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. (e) Bonds, notes, warrants, or other evidences of indebtedness of a local agency within this state, including bonds payable solely out of the revenues fro m a revenue-p roduc ing property owned, controlled, or operated by the local agency, or by a 9epartment, board, agency, or authority of the local agency.
(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 gov er nment-sponsored enterprises. •
(g) Bankers' acceptances otherwise known as bills of exchange or time drafts that are drawn on and accepted by a commercial bank.
Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40 percent of the agency's moneys that may be invested pursuant to this section. However, no more than 30 percent of the agency's moneys may be invested in the bankers' acceptances of any one commercial bank pursuant to this section.
This subdivision does not preclude a municipal utility district from investing moneys in its treasury in a manner authorized by the Municipal Utility District Act (Div ision 6 (commencing with Section 11501) of the Public Utiliti es Code).
(h) Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provid ed fo r by a nationally recognized statisti ca l rating organization (NRSRO). The entity that issues the commercial paper shall meet al l of the following conditions in either paragraph (1) or (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 an 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, overcollateralization, lett ers of credit, or a surety bond. (C) Has commercial paper that i s rated "A-1" or higher, or the equivalent, by an NRSRO.
Eligible commercial paper shall have a maximum maturi ty of 270 27 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) Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30 percent of the agency's moneys that may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposit 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 moneys 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 a 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 depos i t.
(j) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending agreements of 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 an investment authorized in this section, when the term o f the agreement does not exceed one year. The market value of securities that underlie a r epurchase 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 und e rlying 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 r e purchase 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 sal e . (B) The total of all revers e 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 b e tween the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same s e curity.
(D) Funds obtained or funds within the pool of an equivalent 28 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) (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 chapter, "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.
(iii) Acceptance of a local agency's securities or funds as deposits.
(5) (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. (k) Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five 29 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.
(1) (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 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 (15 U.S.C. Sec. B0a-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 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 managing money market mutual funds 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 commission that the companies may charge and shall not exceed 20 percent of the agency's moneys 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) .
(m) Moneys held by a trustee or fiscal agent and pledged to the payment or 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 30 there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance.
(n) 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.
(o) A 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 ~aving an "A" or higher rating for the issuer's debt as provided by an NRSRO and rated in a rating category of "AA" or its equivalent or better by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus moneys that may be invested pursuant to this section.
(p) Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o), 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 the 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 (o), inclusive.
(3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000).
(q) United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated "AA" or better by an NRSRO and shall not exceed 30 percent of the agency's moneys that may be invested pursuant to this section.
California Government Code Sections §53607
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 expires, and shall make a 31 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.
and§53608 The legislative body of a local agency may deposit for safekeeping with a federal or state association (as defined by Section 5102 of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this state, or with any Federal Reserve bank or with any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System, the bonds, notes, bills, debentures, obligations, certificates of indebtedness, warrants, or other evidences of indebtedness in which the money of the local agency is invested pursuant to this article or pursuant to other legislative authority. The local agency shall take from such financial institution a receipt for securities so deposited. The authority of the legislative body to deposit for safekeeping may be delegated by the legislative body to the treasurer of the local agency; the treasurer shall not be responsible for securities delivered to and receipted for by a financial institution -until they are withdrawn from the financial institution by the treasurer. 32