RESOLUTION NO. 202640
A RESOLUTION OF THE CITY COUNC¡L OF THE CITY
OF TORRANCE, CALIFORNIA, ESTABLISHING THE
2026 STATEMENT OF INVESTMENT POLICY IN
ACCORDANCE W¡TH CERTAIN GUIDELINES
WHEREAS, the California Government Code Section 53600 (the "Code") et seq. vest the City Councilwith 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 lnvestment 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:
All monies entrusted to the City Treasurer and/or lnvestment 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;"
The objectives of the Policy shall be SAFETY, LIQUIDITY and RETURN; 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;
The authorized investments, and their maximum limits, shall be noted in the attached Statement of lnvestment Policy;
The safekeeping of securities, investment controls, discussion of policy review and indemnifícatioh of investment officials shall be included in the Policy;
7. The Policy is approved in the form attached as Exhibit A 1 3
4 5
6 |NTRODUCED, APPROVED, and ADOPTED this 19th day of May 2026. eorge Chen
APPROVED AS TO FORM
PATRICK Q. SULLIVAN, C ity Attorney ATTEST
Y. Strade f,City Attorney Poirier, M , City Clerk
Attachments:
Attachment A - lnvestment Policy
TORRANCE CITY COUNCIL RESOLUTION NO. 202640
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CITY OF TORRANCE
)
)
)
ss
l, 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 19th day of May 2026 by the following roll callvote:
AYES: COUNCILMEMBERS Gerson, Kaji, Kalani,
Mayor Chen.
None.
None.
None.
Lewis, Mattuqci, Sheikh, and
NOES:
ABSTAIN
ABSENT:
COUNCILMEMBERS
COUNCILMEMBERS
COUNCILMEMBERS
I Poirier,
City Clerk of the City of Torrance
Attachment A
CITY OF TORRANCE
STATEMENT OF
II{VESTMEI{T POLICY
2026
PREPARED BY THE CITY TREASURER'S OFFICE
Tim Goodrich
City Treasurer
I
TABLE OF CONTENTS
OVERVIEW
PAGE
1.0 Policy
2.O Scope
3.0 Prudence
4.O Objectives
3 3
3 4
INVESTMENT AUTHORITY
5.0 Delegation of Authority
6.0 Ethics and Conflicts of Interest
4 4
INVESTMENTS
7.O AuthorizedFinanciallnstitutions,Depositories,and
Broker/Dealers
8.0 Authorized and Suitable Investments
9.0 Review of Investment Portfolio
10.0 Prohibitedlnvestments
1 1.0 Investment Pools/Money Market Mutual Funds
5 6
11 11
11 PORTFOLIO MANAGEMENT
12.O Collateralization
13.0 Safekeeping and Custody
14.O Diversification
15.0 MaximumMaturities
16.0 Portfolio Re-Balancing
17.O CreditDowngrading
18.0 Bond Proceeds
19.0 Internal Controls
t2
T2
13 13
13 13
13 t4
PERFORMANCE MEASUREMENT
20.O Performance Standards
2l.O Market Yield (Benchmark)
22.O Reporting
15 15
15 LEGAL REQUIREMENTS
23.O Investment Policy Adoption
24.O Broker Agreement
25.O ContinuingEducation
15 I6
16 APPENDICES
A. List of Authorized Financial Institutions
B. Glossary
C. California Government Code Section Provision
t7
18 26
2 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 andlor 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 J
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:
Safetv: Safetv of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City_will diversiSz its investments by investing funds among a variety of securities with independent returns.
Liquiditv: 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 ofreturn 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
6.0 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 the 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.
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 7.0
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 Tonance.
Authorized Financial Institutions, Depositorieso 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:
1.0.1 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).
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:
a 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.
a Registered representatives of broker/dealers who provide coverage to other California local agencies with portfolios similar to the City of Torrance.
a Total capital andlor capital adequacy ratio of the firm. a 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 Fieure L
1 2.
;3601(b)
s3601(Ð
s3601(g)
4. 7
No. /Govt. Code
Code
Type of Investment 7o Authorized Other Restrictions
United States Treasury bills, notes,
bonds, or certificates of indebtedness, or
those for which the ful1 faith and credit
of the United States are pledged for the
payment of principal and interest.
rc}%Maximum maturity: 5 years
Federal Agency or United States
government-sponsored enterprise
("GSE") obligations, participation, or
other instruments, including those
issued by or fully guaranteed as to
principal and interest by Federal
Agencies or by GSE.
l5%Maximum maturity: 5 years
No more than3DYo of the
portfolio may be invested in
any one issuer (excluding
the Proceeds of tax-exempt
bonds).
J.
53601(c)
53601(d)
53601(e)
State Obligations: CA and Others,
CA Local Agency
r0%Maximum maturity:
Greater than 5 years as
approved by City Council
on case by case basis.
Banker's Acceptances ("84")
issued by commercial banks.
20%Rated "A-1" or higher, or
the equivalent, by a
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 5Yo of the
portfolio may be invested in
any one BA issuer.
Negotiable Certificates of Deposit
("NCD") issued by a nationally-
or state-chartered bank, a savings
association, a federal association,
or by a state-licensed branch ofa
foreign bank.
30%Above $250,000 insurance
limit,
Long-term debt with '64A"
category or its equivalent or
better by an NRSRO.
Maximum maturity: 5 years
s3601(Ð
6. 53630 et seq
Time Certificates of Deposit
("TCD")
Issued by qualified public
depositories or a certificate of
deposit placement service.
r0%
7 53601(i)
Repurchase Agreements ("IU)")
sold by authorized brokers.
r0%Maximum maturity: 30
days
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
I02% 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. s3601(hx2xc)
Commercial Paper ("CP") issued
by general corporations organized
and operating in the United States
with assets exceeding $500
million.
Is%
9 s3601(k)
Medium-Term Notes issued by
corporations organized and
operating in the United States, or
by depository institutions
30%"A" rating category or its
equivalent or better by an
NRSRO.
TCDs exceeding $250,000
must be collateralized.
TCDs must be centralized
at one location for each
bank of S&L.
Maximum maturity: I year
If TCD is uncollateralized,
then no more than $245,000
may be invested.
Rated "A-1 or higher, or the
equivalent, by an NRSRO.
Maximum matttrity:397
days.
No more than 10% of its
total investment in CP and
MTNs of any single issuer.
8 operating in the United States and
licensed by the United States or by
any state.
No more than 5o/o of the portfolio
may be invested in any one
issuer.
State of California Local Agency
Investment Fund ("LAIF") that is
Managed by the State Treasurer's
Office.
$7sM Maximum allowed by state
policy.
Mutual Funds and Money Market
Mutual Funds
No more
than20o/o
Maximum allowed by state
policy.
12. s3601(p)
Joint Powers Authority ("JPA")
that is Managed by the Local
Government Investment Pools.
No more than
30% of the
portfolio may
be invested in
any one fund.
(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
(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).
(a) The fund needs to be a stable
NAV (Net Asset Value) at
maturity.
10 t6429.1
11 53601(l) and
53601
9 A
Sources: Secttons 16340, 16429.1, 27133, 53601, S360LA
53601.8, 53630 et seq,, 53635, 53635.8, and 57603.
Municipal Utilitles Districts have the authority under the public Utilities Code Section 12871 to invest in certa¡n securities not addressed here.
Section 53601 provides that the maximum term of any
¡nvestment authorized under this sect¡on/ unless otherwise stated, is five years. Howeveç the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five year remaining maturity limit, Such approval must be issued no less than three months prior to the purchase ofany security exceeding the frve-year maturity limit.
Percentages apply to all portfolio investments regardless of source of funds. For instance, cash from a reverse repurchase dgreement would be subject to the restrictions.
No more than 30 percent of the agencyb money may be in
bankers'acceptances of any one commerctal bank.
Includes agenc¡es defined as a city, a district, or other local agency that do not pool money in deposits or investment with other local agencres, other than local agencies that have the same governing body.
Local agencies, other than count¡es or a city and county, may purchase no more than 10 percent of the outstanding
commercial paper and medium-term notes of any single
issuer.
Issutng corporation must be organrzed and operating within the U.5., have assets in excess of 9500 million, and debt other than commerclal paper must be in a rating category of ,A,'or its equivalent or hrgher by a nationally recognized statistical rating organization, or the issuing corporation must be organrzed within the U.S. as a spectal purpose corporation, trust, or LLÇ have program wide credit enhancements, and have commercial paper that is rated "A-1" or higher, or the equivalenl by a nationally recognized statistrcal rating agency.
Includes agencies defined as a county, a city and county, or other local agency that pools money in deposits or
¡nvestments with other local agencies, including local agencies that have the same governing body. Local agencies that pool exclusively with other local agencies that have the same governtng 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 negotiable ceftificates of deposit that are authorized under Section 53601(t).
Effective January 1, 2020, no more than 50 percent of the agency's money may be invested tn deposits, including
certificates of deposit, through a placement service as authorized under 53601.8 (excludes negotiable certifrcates of deposit authorized under Section 53601(i)). On January 1, 2026, the maximum percentage of the portfolio reverts back to 30 percent. Investmenß made pursuant to 53635.8 remain subject to a maximum of 30 percent of the portfolio.
L Reverse repurchase dgreements or securities lending
agreements may exceed the 92-day term if the agreement
includes a written cod¡c¡l guarantee¡ng a m¡n¡mum earning or spread for the entire period between the sale of a security ustng a reverse repurchase agreement or securittes lending agreement and the final maturity dates of the same security.
M Reverse repurchase agreemenß 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 agreemenß for at least 30 days.
N "Med¡um-term notes" are defined in Secüon 53601 as "al/ corporate and depository institution debt securities with a maximum remarnrng maturity of frve years or less, issued by corporations organized and operating within the lJnited States or by depository institutions licensed by the united States or any state and operating within the United States.'
o No more than 10 percent invested in any one mutual fund.
This limitation does not apply to money market mutual funds.
P A mutual fund must rece¡ve the highest ranking by not less than two nationally recognrzed rating agencies or the fund must retatn an investment advisor who is registered with the SEC (or exempt from registration), has assets under
management in excess of Í500 million, and has at least frve years'experience investing in instruments authorized by Sec- tions 53601 and 53635.
Q A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organrzations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than fÌve years' experience investing in money market
instruments with assets under management in excess of $500 million.
R Investments ¡n notes, bonds, or other obligations under Section 53601(n) require that collateral be placed into the custody ofa trust company or the trust department ofa bank that is not affiliated with the issuer of the secured obligation, among other speclfic collateral requirements.
s A ¡oint powers authority pool must retain an investment adv¡sor who is registered with the SEC (or exempt from
registration), has assets under management in excess of gS00 million, and has at least five years' experience invesilng in instruments authonzed by Section 53601, subdivrsions (a) to (o).
r Local entities can deposit between 9200 million and gJ? billion into the Voluntary Investment Program Fund, upon dpproval by their govern¡ng bodies. Deposits in the fund will be invested in the Pooled Money Investment Account.
u Onl)t those obligations issued or unconditionally guaranteedby the International Bank for Reconstruction and Development QBRD), International F¡nance Corporation
(IFC), and Inter-Amer¡can Development Bank (IADB), with a maximum remaining maturity of five years or less.
c
D
E
F
G
H
I
J
K
l0
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 identifi'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/lVloney 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, anda 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/tund.
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 amount 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 substifution 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 govemment 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.
t2
14.0 Diversifïcation
Investment Officers shall diversiff 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 PortfolioRe-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 thatitwill 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 CreditDowngrading
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 pracfical, 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 notiff 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 PerformanceStandards
The investment portfolio shall be designed with the objective of obtainingarate 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 teview, 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 ContinuingEducation
In accordance with California Government Code 53601 requirements, City officials responsible for financial oversight shall complete a minimum of two (2) hours of fiscal and financial training every two years. Training shall include, but not be limited to:
. Budgeting and fiscal management
. Financial reporting
. Debt issuance and management
. Investment standards and practices
. Ethical stewardship of public funds
Additionally, City Staff, such as the Deputy City Treasurer, who regularly engage in investment and management of public funds, should receive annual continuing education on all aspects of public funds management through qualified institutions and maintain relevant professional certifications in public funds management.
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Appendix A: List of Authorized tr'inancial 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 of New York Mellon
STATE POOL
State of California-Local Agency Investment Fund (LAIF) Joint Powers Authority Pools (JPA)
California Asset Management Program (CAMP)
CaITRUST
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Appendix B: Glossary
ACCRUED INTEREST. lnterest 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. (lf a bondholder receives $¿O 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 FederalAgencies 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/enterpr¡se in this glossary for additional information.
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"l. 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 L/100th of L%. (i.e. O.I% equals L0 basis points.) BlD. 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. lt 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.
BUttET BOND. Bullet Bonds are non-callable bonds, which cannot be redeemed early by the issuer.
CATIFORNIA ASSET MANAGEMENT PROGRAM (CAMP). A Joint Powers Authority to provide California public agencies with professional investment servíces.
California Debt and lnvestment Advisory Commission (CDIAC). Provides information, education, and technical assistance on debt issuance and public fund investments to local 18 agenc¡es and public finance professionals. CDIAC also serves as the State's clearinghouse for public debt issuance information.
CALIABLE 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:
Americon 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.
Europeon Option: Allows the holder to exercise the option (i.e. to buy) only on the option expiration date.
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7X: One time colloble only
6M: Calloble only after predetermined 6 month lockout period.
CALTRUST - LIQUID¡TY FUND. A local government investment pool. lt 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.
COLTATERAL. 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 FINANCIAI REPORT ("CAFR"). The official annual report for the City of Torrance. lt includes combined statements for each individual fund and account group, which are prepared in conformity with GAAP. lt 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. lt 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.
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DEAIER. 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: (L) 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.9., interest rates, foreign exchange rates, equities, or commodities).
DISCOUNT. The difference between the acquisition cost of a security and íts 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. ln 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).
FEDERAT DEPOSIT INSURANCE CORPORATION ("FDIC"). A federal agency that insures bank deposits, currently up to $ 250,000.00 per deposit.
FEDERAL FARM CREDIT BANK ("FFCB"). ln the United States, a network of federally- chartered financial institutions designed to provide credit-related servíces to the agricultural and farming sectors of the economy. ln total, this government-sponsored enterprise comprises approximately 100 financial institutions that serve all 50 states and Puerto Rico FEDERAT 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 IOAN 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.
FEDERAT HOME IOAN 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 securitízes 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 NATIONAI 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 of the Department of Housing and Urban Development (HUD). lt is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed- rate mortgages. FNMA'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 L2 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., L2 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 ¡s 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).
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lMPtlED RATING ('lMP"l. 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 lnvestment Pools to provide California public agencies with professional investment services. tlqUlDlTY. 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. tOCAt AGENCY INVESTMENT FUND ("LA!F"). Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose of investment.
TOCKOUT (BOND FEATURE). The period of time when a security may not be redeemed by the issuer.
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. lnvestors can choose from differing maturities, ranging from nine months to 30 years.
MOD¡FIED DURATION. A formula that attempts to explain a change in the price of a bond as a function of a change in coupon rates. lt 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 credít 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.
PORTFOIIO. 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 ("RP" 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.
SECURIT¡ES AND EXCHANGE COMMISSION. An agency created by Congress to administer 23 securit¡es legislation for the purpose of protecting investors in securities transactions.
SEC RULE 15c3-1. See "Uniform Net Capital Rule." SEC Rule 15c3-L requires broker-dealers to maintain the following minimum net capital requirements in order to offer sufficient protection for the firm's customers:
5250,000 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
525,000 for broker-dealers that only handle mutual fund transactions and do not hold customer funds or securities
55,000 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 L0 years.
TREASURY NOTES. Medium-term, 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. U S 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 CAPITAI RUIE. SEC requirement that member firms, as well as non-member broker-dealers in securities, maintain a maximum ratio of indebtedness to liquid capital of L5 to one. Also called net capital rule and net capital ratio. lndebtedness 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.
YlEtD. The rate of annual income return on an investment, expressed as a percentage. (a) 24 a
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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 (YIM). 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. lt assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.
Sources:
c www.investopedia.com
o www.thefreedictionorv.com
o CALIFORNIA DEBT AND TNVESTMENT ADVISORY COMMISSION (CDIAC) Californio Public Fund lnvestment Primer, December 2009
25 Appendix C: California Government Code Section Provision Government Code Section $53600.3Except as provided in subdivision (a) of Section 21000.3, all governing bodies of focal agencies or persons authorized to make investment declsions on behalf of those locaf agencies investing pub11c funds pursuant to this chapter are trustees and therefore fiduciaries sublect to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managingpubllc funds, a trustee shalf act with care, skilt, prudence, and diligence under the circumstances then prevailing, includlng, but not limited to, the generaf economic conditions and the anticipated needs of the agency, that a prudent person acting in a l1ke capacity and familiarlty with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintaln the liquidity needs of the agency. Within the limitations of this section and considering individual investments aspart of an overalÌ strategy, investments may be acquired as authorized by law.
Government Code Section $53601This sectlon shall appfy to a local agency that is a city, a district, or other locaf agency that does not poot money in deposlts or investments with other locaf agencies, other than local agencies that have t.he same governing body. However, Section 53635 shalf applyto aff local agencies that pool money in deposits or investments with other locaf agencies that have separate governing bodies. The legislative body of a focal agency having moneys in a sinking fund or moneys in its treasury not required for the immediate needs of the locaf agency may invest any portion of the moneys that it deems wiseor expedient in those investments set forth be1ow. A local agency purchasing or obtalning any securities prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shalfrequire delivery of the securities Lo the locaf agency/ including Lhose purchased for the agency by financial advisers, consuttants, or managers usinq the agency's funds, by book entry, physical delivery. or by third-party custodial agreement. The transfer of securities tothe counterparty bank's customer book entry account may be used for book entry delivery.
For purposes of this section, "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical deliveryof the security if the security is held in the name of the locaf agency. V'/here this section specifies a percentage limitation for aparticular category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify alimitation on the term or remainlng maturity at the time of the investment, no investment shalÌ be made 1n any security, other than asecurity underlying a repurchase or reverse repurchase agreement orsecurities lending agreement authorized by this section, that at thetime of the investment has a term remaining to maturity in excess offive years, unless the legisÌatlve body has granted express authorityto make that investment either specifically or as a part of an investment program approved by the legislative body no less thanthree months prior to the investment:
26 (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 locaf agency or by a department, board, agency/ or authority of the focaf agency.
(b) United States Treasury notes, bonds, bilÌs, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable so1e1y out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, aqency, or authority of the state. (d) Reglstered treasury notes or bonds of any of the other 49 states 1n 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, aqency/ or authorlty of any of the other 49 states, in addition to Cafifornia. (e) Bonds, notes, warrants, or other evidences of indebtedness of a local agency wlthin this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, aqency/ or authorlty of the local agency
(f) Federal agency or United S1-ates giovernment-sponsored enterprise obllgations, participaLions, or other instruments, including those issued by or ful1y guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises.
(S) Bankers' acceptances otherwise known as bills of exchange or time drafts that are drawn on and accepted by a commerciaf bank.
Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40 percent of the aqencyrs 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 municipaf utility disl-rict from investing moneys in its treasury in a manner authorized by the Municipal Utility District Act (Divislon 6 (commencing with Sectlon 11501) of the Public Utillties Code) .
(h) Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationaffy recognized statistical rating organization (NRSRO) . The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or (2) t
(1) The entity meets the following criteria:
(A) Ts 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 or higher by an NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the Unil-ed States as a special purpose corporation, trust, or limited liability company.
(B) Has program wide credit enhancements incfuding, but not limited
to, overcollateralization, fetters of credit, or a surety bond. (C) Has commercial paper that is rated rrA-1'r or higher, or the equivalent, by an NRSRO.
EligibÌe commercial paper shall have a maximum maturity of 210 27 days or fess. Locaf agencies, other than counties or a clty and county. may invest no more than 40 percent of their moneys in eligible commercial paper through January 1, 203L. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the outstanding conmercial paper of any single issuer. Counties or a city and county may invest in commercial paper pursuant to the concentration limits in subdivisj-on (a) of Section 53635.(i) Negotiable certlficates of deposlt issued by a nationally or state-chartered bank, a savings association or a federal associatlon (as defined by Section 5102 of the Financial Code), a state or federaf credit union, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of negot.iable certlficates of deposit shalf 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 wil-h Section 53630), except that the amount so invested shall be subject to the limitaLions of Section 53638. The legislatlve body of a locaf agency and the treasurer or other official of the focaf agency having legal custody of the moneys are prohibited from investing locaf agency funds, or funds in the custody of .bhe focaf agency/ in negotiable certlficates of deposit lssued by a state or federal credit union if a member of the legislative body of the focal agency, or a person with investment declsion making authority in the administrative office manager's office, budget office,
auditor-controffer's office, or treasurer's office of the locaf agency afso serves on the board of directors. or any committee appointed by the board of directors, or the credit commlttee or the supervisory committee of the state or federal credit union lssuing the neqotiable certificates of deposit.
(j) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending ag'reements of securities authorized by this section, as lonq as the agreements are subject to thls subdivision, including the defivery requirement.s speclfied in this secLion.
(2) fnvestments in repurchase agreements may be made, on an investment authorized in this sect.ion, when the term of the agreement does not exceed one year. The market value of securities that underfie a repurchase agreement shafl be vafued at 102 percent orgreater of the funds borrowed against those securitíes and the value shall be adjusted no less than quarterly. Since the market vaÌue ofthe underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shatl be in compÌiance if the vafue of t.he underlying securities is brought back up to 102 percent no fater than the next business day.(3) Reverse repurchase agireements or securities lendlng agreements may be utilized only when aff of the folfowing conditions are met:
(A) The security to be sold using a reverse repurchase agreement or securltles lendinq agreement has been owned and fully paid for bythe locaf agency for a minimum of 30 days prlor to safe.(B) The total of a1l reverse repurchase agreements and securities lending agreements on investments owned by the local aqency does rrot exceed 20 percent of the base va.lue of the portfolio.
(C) The agreement does not exceed a term of 92 days, unfess the agreement includes a written codicll guaranteeing a mlnimum earning or spread for the entire period between t.he sale of a security usinga reverse repurchase agreement or securities lending agreement andthe final maturity date of the same security. 28 (D) Funds obtained or funds within the pool of an equivalent amount to that obtained from seffing a security to a counterparty using a reverse repurchase agreement or securitles lending agreement shall not be used to purchase another security with a maturity longer Lhan 92 days from the initial settlemenL date of the reverse repurchase agreement or securities lending agreementf unfess 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 securlty usingi a reverse repurchase agreement or securities lending agreement and the finaf maturity date of the same security.
(4) (A) Investments in reverse repurchase ag,reements, securities lending agreements, or similar investments in which the focaf 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 nationaffy or state-chartered bank that has or has had a significant banking relationship with a focal agency.
(B) For purposes of this chapter, "signlficant banking
refaLionship" means any of the following activities of a bank:
(i) Involvement in the creation, sa1e, purchase, or retirement of a focaf agency's bonds, warrants, notes, or other evidence of indebtedness.
(ii) Financing of a foca-l agency's activities.
(ifi) Acceptance of a locaf agency's securities or funds as deposits.
(5) (A) "Repurchase agreement" means a purchase of securiLies by the 1ocal agency pursuant Lo an agreement by which the counterparty sefler 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 de11very, 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 subdivlsion, means securities of Lhe same issuer, description, lssue date, and maturity.
(C) "Reverse repurchase aqreement" means a safe of securities by the focal agency pursuant to an agreement by which the focal agency will repurchase the securlties on or before a specified date and includes other comparable agreements.
(D) "Securities lending agreement" means an aqreement under which a local agency agrees to transfer securities t.o a borrower who, in turn, agirees to provide coffateral to the focal agency. Durinq the term of the agreement, both the securities and the collateral are held by a third party. At the conc.Lusion of the agreemenL, the securities are transferred back to 1-he local agency in return for the collateral.
(tr) For purposes of this section, the base value of the focaf agency's pool portfolio shall be that dolÌar amount obtained by totaling all cash balances placed in the pool by all poot participants, excluding any amounts obtalned through selling securities by way of reverse repurchase agreements, securitíes lending agreements, or other similar borrowing mel-hods. (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnlngs obtained on the reinvestment of the funds.(k) Medium-term notes, defined as all corporate and depository 29 institutron debt securlties with a maximum remalning maturity of five years or less, lssued by corporations organized and operating wlthin the United States or by depository institutions licensed by the United States or any state and operating within the United States.
Notes eligible for invesLment under thls subdivision shalf be rated "4" or betLer by an NRSRO. Purchases of medium-term notes shall notinclude 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.
(l) (1) Shares of beneficiaf interest issued by diversified management companies that invest in the securities and obligations as authorlzed by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), j-ncfusive, and that comply wit.h the investment restrictions of this article and Article 2 (commencing wlth section 53630) . However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement or securities fending agreement 1s 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 mlnlmal risk of default, and the vafue of thesecurities underlying a repurchase agreement or securities lending agreement may be 100 percent of the safes price if the securlties are marked to market daily.
(2) Shares of beneficial interest issued by diversified management companies that are money market funds registered wlth the Securities and Exchange commission under the rnvestment company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq. ) .
(3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following crlteria:(A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs.(B) Ret.ained an investment adviser registered or exempt from registration wit.h the securities and Exchange commission with notless than five years' experience investing in the securities and obliqations authorized by subdivisions (a) to (k), inclusive, andsubdivisions (m) to (o), incfusive, and with assets under nranagementin excess of flve hundred miflion dolfars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2), the company sha11 have met either of the following criteria:
(A) Attalned the hlghest rankíng or the highest letter and numericaf rating provided by not l-ess than two NRSROs. (B) Retained an investment adviser registered or exempt fromregistration with the Securities and Exchange commission with notless than five years' experience managing money market mutual funds wit.h assets under management in excess of five hundred milliondollars ($500,000,000) . (5) The purchase price of shares of beneficlal interest purchased pursuant to this subdivision shall not incfude commission that the companies may charge and shafl not exceed 20 percent of t.he 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 1n sharesof beneficlal interest of any one mutual fund pursuant to paragraph (1).
(m) Moneys held by a Lrustee or fiscaf agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sa1e, or other agreement of a locaf agency/ or certiflcates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may beinvested in accordance with the statutory provisions governinq the issuance of those bonds, indebtedness. or lease instal-rment sa1e, or 30 other ag:reement/ or to the extenL not inconsistent therewith or if there are no speclfic statutory provisions, in accordance with the ordinance, resolution, indenture/ or agreement of the locaf agency providing for the issuance.
(n) Notes, bonds, or other obligations that are at alf times secured by a valid first priority security interest in securities of the types fisted by Seclion 53651 as eligible securities for the purpose of securing 1oca1 agency deposlts having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposlts. The securities serving as coflateral- shaff 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 wlth Lhe 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 appÌicable to the types of securities in which the securlty interest is granted.
(o) A mortgage pass through security, coffateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certlficate, consumer receivabl-e pass through certì,ficate, or consumer receivabfe-backed bond of a maximum of five yearst maturity. Securities eligible for investment under this subdivision shafl be issued by an issuer having an "4" or higher rating for the issuer's debt as provided by an NRSRO and rated in a ratinq category of "AA" or its equivalent or be1-ter by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus moneys that may be invesl-ed pursuant to this section.
(p) Shares of beneficiaf interest issued by a joint pobrers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o), inclusive. Each share shafl represent an equal proportional lnterest in the underlying pool of securities owned by the joint powers authorlty. To be eligible under this section, the joint powers authority issuing the shares sha1l have retained an investment adviser that meets all of the followlng criteria:
(1) The advlser is registered or exempt from registratlon with the Securities and Exchange Commission.
(2) The adviser has not less than five years of experience investing in the securities and obligations authorlzed in sub,divisions (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
unsubordlnated obligations issued or unconditionally guaranteed by the Internationa-l Bank for Reconstruction and Development.
Internationaf Finance Corporation, or fnter-American Development Bank, with a maximum remaining maturity of five years or fess, and ellglbÌe for purchase and sale within the United States. fnvestments under this sub,division 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 $53607The authority of the leglslative body to invest or to reinvest funds of a focal agency, or to sefl or exchange securities so purchased, may be delegated for a one-year period by the legisÌative body to the treasurer of the focal aqency/ who sha11 thereafter assume full responsiblllty for those transactions until 3I
the delegation of authority is revoked or expires, and shal-f make a monthly report of those transactions to the legisfative body. subjectto review, the legislative body may renew the delegation ofauthority pursuant to this section each year. and $53608 The legislative body of a focaf agency may deposit for safekeeping wit.h a federal or st.ate association (as defined by Section 5102 of the Flnancial Code), a trust. company or a state ornationaf bank focated within this state or with the Federaf Reserve Bank of San Franclsco or any branch thereof within thls state, orwith any Federal- Reserve bank or with any state or nat.ional bank l-ocated in any city designated as a reserve city by the Board of Governors of the Federaf Reserve System, the bonds, notes, biÌÌs, debentures, obligations, cerLificates of indebtedness. warrants, orother evidences of indebtedness in which the money of the locaf agency is invested pursuant to this articl-e or pursuant to otherlegislative authority. The loca1 agency shal-f take from suchfinancial- institution a receipt for securities so deposit.ed. Theauthority of the leglslative body to deposit for safekeeping may be delegated by the legislatlve body to the treasurer of the focaf agency; the treasurer shall not be responsible for securitiesdefivered to and receipted for by a financiat institutlon until they are withdrawn from the financlaf institution by the t.reasurer. 32