HomeMy WebLinkAbout2019-052 - Approving the City's Annual Statement of Investment Policy 2019-20RESOLUTION NO. 2019-052
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SANTA ANA APPROVING THE CITY'S ANNUAL
STATEMENT OF INVESTMENT POLICY 2019-20
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS
FOLLOWS:
Section 1. The City Council of Santa Ana hereby finds, determines and
declares as follows:
A. California Government Code §53646, provides that each city may have a
written statement of investment policy to govern investment of the City's
monies.
B. Pursuant to §53646, the City Treasurer shall annually submit a statement of
investment policy for City Council consideration.
C. The City Treasurer has submitted the attached Statement of Investment Policy
2019-20 to this Council at its regular meeting of June 18, 2019, for its
consideration.
Section 2. The City Council of the City of Santa Ana has duly considered and
approves the City's statement of investment policy submitted by the City Treasurer.
Section 3. The City Treasurer shall submit quarterly reports to the City Council
stating all investments made in the preceding quarter and that such investments have
been made in conformance with the City's investment policy.
Section 4. This Resolution shall take effect immediately upon its adoption by the
City Council, and the Clerk of the Council shall attest to and certify the vote adopting this
Resolution.
ADOPTED this 18th day of June, 2019.
Resolution No. 2019-052
Page 1 of 2
APPROVED AS TO FORM:
Sonia Carvalho, City Attorney
By:
Lisa Storck
Assistant City Attorney
AYES: Councilmembers
NOES: Councilmembers
ABSTAIN: Councilmembers
NOT PRESENT: Councilmembers
* Ward 4 representative vacant.
Iglesias, Penaloza, Pulido, Sarmiento, Solorio,
Villegas (6)
None (0)
None (0)
None (0)
CERTIFICATE OF ATTESTATION AND ORIGINALITY
I, NORMA MITRE, Acting Clerk of the Council, do hereby attest to and certify the
attached Resolution No. 2019-052 to be the original resolution adopted by the City
Council of the City of Santa Ana on June 18, 2019.
Date: IM, 02/ 020/?
Resolution No. 2019-052
Page 2 of 2
Norma Mitre
Acting Clerk of the Council
City of Santa Ana
City of Santa Ana
INVESTMENT POLICY
STATEMENT
TABLEOFCONTENTS
Page
Introduction ............................................................................................................................... 1
1.0Policy .............................................................................................................................. 1
2.0Scope............................................................................................................................. 1
3.0Prudence......................................................................................................................... 2
4.0Objectives........................................................................................................................ 3
5.0Delegation of Authority .................................................................................................... 6
6.0Ethics and Conflicts of Interest ........................................................................................ 7
7.0AuthorizedFinancialInstitutionsand Qualified Broker-Dealers .......................................... 7
8.0Authorized and Suitable Investments ..................................................................... 8
9.0Prohibited Investments and Investment Practices.........................................................13
10.0Investment Pools/Mutual Funds ....................................................................................14
11.0Collateral/SecurityforDepositofPublicFunds .............................................................. 16
12.0SafekeepingandCustody .............................................................................................16
13.0Diversification ................................................................................................................ 17
14.0MaximumMaturities ...................................................................................................... 17
15.0Internal Controls ............................................................................................................18
16.0Performance Standards ................................................................................................19
17.0Reporting ......................................................................................................................19
18.0PolicyConsiderations ................................................................................................... 20
19.0Policy Review, Certification, and Adoption .................................................................... 21
20.0AppendicesandGlossaries............................................................................................ 21
Appendix I- (Table of Appendices) / California Investment Code Abstracts.................. 23
Appendix II - Local Agency Investment Guidelines / Allowable Investment Guidelines ... i
Appendix III - Glossary of Common Public Local Agency Investment Terms................. A
Appendix IV - Glossary of Common Public Local Agency Investment Terms................... I
Appendix V – Broker/Dealer Questionnaire and Certification Form................................ M
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CITY OF SANTA ANA
ANNUAL STATEMENT OF INVESTMENT POLICY
JULY 2019
INTRODUCTION: The purpose of this Statement of Investment Policyisintended to provide
specific criteria fortheprudentinvestmentofCityof Santa Ana (City) funds and to set
investment objectives, policies, establish guidelines, and define responsibilities for the
investment of idle or unexpended funds for the City.Theultimateinvestmentgoalisto
enhance the economic statusof the Citywhileprotecting funds under managementand
meetingthedailycashflowdemandsoftheCity.
1.0POLICY
The policy of the City of Santa Ana is to invest idle or unexpended funds within the scope
of this investment policy in a prudent and suitable manner that will provide, within the
parameters of this investment policy, the highest reasonable investment return relative to
the risk being assumed while maintaining maximum security and meeting all cash flow
demands. This policy is intended to comply with Federal law and the Code of California
for investment of public funds. In instances in which this policy is more restrictive than
Federal or State law, this policy shall be controlling.
This policy is fixed and general in nature; it defines authorized investments and guides the
investment decisions and security selection process. The City’s Investment policy will be
regularly reviewed and adjusted to create an investment portfolio that is suitable for the
City given current conditions.
2.0SCOPE
2.1Applicability of Investment Policy
This investment policy applies to all funds and investment transactions of the
City. These funds are accounted for in the Comprehensive Annual Financial
Report, which includes the following:
General Fund
Special Revenue Funds
Capital Projects Funds (includes restricted bond proceeds)
Enterprise Funds (includes restricted bond proceeds)
Trust and Agency Funds
Internal Service Funds
Any new fund created by the City of Santa Ana, unless specifically
exempted
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The restricted bond proceeds are invested in compliance with this investment
policy and applicable bond resolutions. Individual employee retirement
contribution funds and deferred compensation are excluded from this policy.
2.2Pooling of Funds
Except for cash in certain restricted and special funds, the City of Santa Ana will
consolidate cash balances from all funds tomaximize 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 generallyaccepted
accounting principles.
3.0PRUDENCE
3.1Standard of Care – Prudent Investor
The City investment program shall be managed in a professional and prudent manner
worthy of the public trust and review. The standard of prudence to be used by City
investment officials shall be the "prudent investor rule" standard and shall be applied in
the context of managing the overall investment portfolio.
The “prudent investor rule” provides, pursuant to California Government Code Section
53600.3, that investments shall be made with judgment and care. When investing,
reinvesting or managing public funds a trustee shall act with care, skill, prudence and
diligence under circumstances then prevailing. Investment officers acting in accordance
with written procedures and this investment policy and exercising due diligence shall be
relieved of personal responsibility for an individual security's credit risk or market price
changes, provided deviations from exceptions are reported in a timely fashion and the
liquidity and the sale of securities are carried out in accordance with the terms of this
policy.
The City is governed by the California Government Code, Sections 16429.1 and Title 5,
Division 2, Part 1, Chapter 4, entitled Financial Affairs, commencing with section 53630.
Each investment transaction and the entire portfolio must comply with California
Government Code, Sections 53600 and 53635 et seq. and this policy.
3.2Written Investment Procedures
City investment officials shall establish written investment procedures consistent with this
investment policy for the operation of the investment program. Procedures should include
but not be limited to: authorized personnel, segregation of duties, internal controls, wire
transfer agreements, daily cashflow review, basis for awarding bids, portfolio inventory,
and reporting. The procedures document is intended to provide guidance for staff and to
provide continuity in the event of an interruption of services of the Treasury and Customer
Services Manager and/or Assistant Finance Director.
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4.0OBJECTIVES
The primary objectives, in priority order, for the City of Santa Ana’s investment activities
shall be Safety,Liquidity, and Yield:
4.1Safety Of Principal
Safety of principal is the foremost objective of the City of Santa Ana, care
must be taken to ensure the preservation of capital and the protection of
principal. Each investment transaction shall be undertaken in a manner that
seeks to ensure preservationof capital in the overall portfolio. The objective
will be to mitigate credit risk and interest rate risk by following guideline listed
below.
A.Credit Risk
Credit Risk is the risk of loss due to the failure of the security issuer or
backer to redeem the outstanding debt at the stated maturity date.
Credit risk also applies to the overall market perception of the financial
strength and capacity of the issuer. The City of Santa Ana will minimize
credit risk by:
i.Limiting investments to authorized investments as set forth in
Section 10.0 of this investment policy;
ii.Pre-qualifying the financial institutions, broker/dealers,
intermediaries, and advisors with which the City will do business;
iii.Diversifying the investment portfolio so that potentiallosses on
individual securities will be minimized.
iv.Holding a minimum percentage of the total portfolio in highly
marketable short-term treasuries, checking with interest,
government pooled account, or a combination of all three. The
minimum percentage shall be set monthly by the FMSA
Investment Advisory Committee based on a rolling twenty-four
month analysis of the City’s minimum cash position requirements
adjusted for any exceptional anticipated cash out flows.
B.Market or Interest Rate Risk
Market or interest rate risk is the risk that the market value of
securities in the portfolio may fall due to changes in general interest
rates. The City of Santa Ana will minimize interest market interest
rates, by:
i.Structuring the Fund so that securities mature to meet cash
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requirements for ongoing operations, thereby avoiding the
need to sell securities on the open market prior to maturity,
and
ii.Purchasing investments with the intent to hold until maturity;
and
iii.By investing operating funds primarily in shorter-term
securities, money market mutual funds, or similar investment
pools and limiting the average maturity of the portfolio in
accordance with this policy.
4.2Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
structuring the portfolio so that securities mature concurrent with cash needs
to meet anticipated demands (static liquidity). Furthermore, since all
possible cash demands cannot be anticipated, the portfolio should consist
largely of securities with active secondary or resale markets (dynamic
liquidity). The City’s cash flow shall be updated on a daily basis and will be
considered prior to the investment of securities, which will reduce the
necessity to sell investments for liquidity purposes.
4.3.Yield
The City's investment portfolio shall be designed with the objective of
attaining a market-averagerate of return throughout budgetary and
economic cycles taking into account the investment risk constraints and
liquidity needs. The return on investments is to be accorded secondary
importance compared to the safety and liquidity objectives described above.
The core of investments will focus on relatively low risk securities with an
expectation of earning a reasonable return relative to the risk being
assumed. It is the general policy of the City to hold investments until market
value equals or exceeds amortized cost or book value of the security.
Securities shall not be sold prior to maturity with the following exceptions:
A.a declining credit security could be sold early to minimize loss of
principal;
B.a simultaneous purchase of a securityand the sale of another
(security swap) to enhance the quality, yield, or target duration in the
portfolio; or
C.a sale of a specific security prior to its maturity and a capital gain or
loss recorded in order to improve the credit quality, liquidity, or rate of
return of the portfolio in response to market conditions and/or City risk
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preferences.
D.general liquidity needs of the investment portfolio require that a
security be sold;
E.prepayment of City debt or contribution servicing obligation. In the
event the City is presented with an option for prepayment of a City
debt or contribution servicing obligation, the following analysis will be
conducted by Treasury investment staff with regards to a comparison
between the amortized savings which may be realized by exercising
such prepayment option and:
i.the current portfolio yield;
ii.the trend of the debt or contribution servicing obligation;
iii.whether variances in the trend are substantial;
iv.the City’s net cash position; and
v.the market value of investment instrument(s) recommended by
Treasury staff to be liquidated to fulfill a prepayment election.
Upon completion of said analysis, a recommendation shall be
presented to the FMSA Investment Advisory Committee for
consideration for approval or rejection.
When selling a security prior to maturity, City investment officials and/or
officers (see generally subsection 5.1 et seq. - Investment Authority and
Responsibility)must be prepared to justify the reasons and explain any
gains or losses.
Compliance with the investment policy does not measure return, but rather
manages risk. Policy compliance does not provide a benchmark to meet or
exceed, but is a model to follow. The City will benchmark its investment
portfolio performance to the appropriate “treasuries constant maturity” rate
based on portfolio maturities of the investment plan.
The City shall strive to maintain one hundred percent (100%) investment of
idle funds after consideration for a compensating balance to cover the cost
of services provided by the City’s depository bank. The funds available for
investment are determined by cash flow projections updated daily.
Investments are monitored so that legal limits on types of investments are
not exceeded.
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5.0DELGATION OF AUTHORITY
5.1Investment Authority and Responsibility
The authorityfor conducting investment transactions resides with the Executive
Director of Finance and Management Services Agency (FMSA) as chief fiscal
officer and ex officioCity Treasurer. The Executive Director for (FMSA) under
the general direction of the City Council, shall be responsible for all investment
transactions undertaken and shall establish a system of controls to regulate the
investment activities of subordinate officials.
5.2Delegation of Authority
The Executive Director for FMSA or his/her designees shall invest all funds for
the City in accordance with the City adopted investment policy. The Executive
Director for FMSA hereby delegates day-to-day responsibility for the investment
of City funds first to the FMSA Treasury and Customer Services Manager,
holding managerial and supervisory responsibility over the treasury and
investment functions of the FMSA Treasury and Customer Service Division
(Treasury), and second, in an acting oversight capacity, to the Assistant Director
of Finance, holding assistant executive management responsibilities over FMSA.
Each designee shall act in accordance with the established policies and internal
controls set forth in theinvestment policy.
5.3Assignment of Activities
Supporting and ancillary activities, including but not limited to: cash flow analysis,
municipal or corporate bond credit worthiness evaluation, investment risk
assessment, portfolio analysis, purchase andsale recommendation, safekeeping,
policy and investment procedures review recommendation, and monthly and
quarterly reporting, may be assigned to qualified persons within Treasury as
deemed appropriate by the Treasury and Customer Services Manager and/or
Assistant Finance Director.
5.4Qualified Persons
Qualified persons shall refer to: (1) persons holding either a California Municipal
Treasurers Association, California Treasury Certificate and/or Certified California
Municipal Treasurer Certificate; or an Association of Public Treasurers of the United
States and Canada, Certified Public Finance Administrator Certificate, or a National
Association of State Treasurers Certificate in Public Treasury Management; or (2)
persons who are performing investment related duties under the guidance and
direction of certificate holders.
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6.0ETHICS AND CONFLICTS OF INTEREST
6.1Investment Officials and Officers
Investment officials, officers, and employees 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 officials, officers and employees
shall disclose any material interests in financial institutions with which they
conduct business. They shall further disclose any personal financial/investment
positions that could be related to the performance of the investment portfolio.
Investment officials, officers and employees shall refrain from undertaking
personal investment transactions with the same individual with whom business is
conducted on behalf of the City of Santa Ana.
6.2Statement of Economic Interests
Investment officials and officers authorized to approve investment decisions shall
be required to submit an annual Statement of Economic Interests, also known as a
Form 700 in accordance with California Government Code, Section 1090 et seq.
The Form 700 provides transparency and ensures accountability in two ways:
1)It provides necessary information to the public about official’s/officer’s personal
financial interests to ensure that officials and officers are making decisions in
the best interest of the public and not enhancing their personal finances.
2)It serves as a reminder to the public official of potential conflicts of interest so
the official or officer can abstain from making or participating in governmental
decisions that are deemed conflicts of interest.
7.0AUTHORIZED FINANCIAL INSTITUTIONS AND QUALIFIED BROKER-DEALERS
7.1Authorized Financial Institutions
The City shall transact business only with banks, savings and loans and registered
investment securities dealers.
7.2Qualified Broker-Dealers
The purchase by the City of any investment other than those purchased directly
from the issuer, shall be purchased either from an institution licensed by the State
as a Broker-Dealer, as defined in Section 25004 of the Corporations Code and
registered withFinancial Industry Regulatory Authority (FINRA), or a member of a
Federally regulated securities exchange, a National or State-Chartered Bank, a
Federal or State Association (as defined by Section 5102 of the Financial Code), or
a brokerage firm designated as a Primary Government Dealer by the Federal
Reserve Bank, and who is registered with FINRA.
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7.3Selection Process - City of Santa Ana Broker-Dealer Questionnaire
The City’s Treasury investment staff shall investigate all institutions which wish to
do business with the City as a Qualified City of Santa Ana Broker-Dealer, in order
to determine if they are adequately capitalized, make markets in securities
appropriate to the City's needs, certify having read and understood the City of
Santa Ana Annual Statement of Investment Policy and agreeing to abide by the
conditions set forth therein. This will be done by having the Financial Institutions
complete and return the appropriate City of Santa Ana Broker-Dealer
Questionnaire, along with their most current FINRA Report and Audited Financial
Statement (available within one-hundred, twenty (120) days of the Institution's fiscal
year-end). Audited Financial Statements may be made available online. Financial
Institutions currently certified as Qualified Cityof Santa Ana Broker-Dealers shall
complete and return the appropriate City of Santa Ana Broker-Dealer Questionnaire
bi-annually, but shall be subject to the Audited Financial Statement and FINRA
annual reporting requirements annually. However, if the interaction with a currently
certified Qualified City of Santa Ana Broker-Dealer is limited to investment trades
through an electronic trading platform, then the Broker-Dealer is exempt from
completion of a questionnaire, but shall remain subject to the Audited Financial
Statement and FINRA reporting requirements annually.
7.4Selection Criteria
In selecting external Broker-Dealers, past performance, stability, financial strength,
reputation, area of expertise, and willingness and ability to provide the highest
investment return at the lowest cost to the City within the parameters of this
Investment policy and the California Government Code shall be primary
considerations. Investment staff will only conduct business with registered
representatives of broker-dealers that have a minimum of three (3) years
continuous experience working for a primary dealer or five (5) years continuous
experience working for a non-primary dealer. Investment staff will only purchase or
sell securities from registered representatives that possess an active Series 7
license, an active Series 66 license, or an active Series 63 license, and who submit
a FINRA form U4 (employment history) and a current FINRA form U5 Disclosure
Statement and have completed the City’s Broker-Dealer questionnaire.
7.5List of Approved Financial Institutions/Qualified Broker-Dealers
The Treasury and Customer Services Manager shall maintain a list of Financial
Institutions/Qualified Broker-Dealers authorized to provide investment services to
the City, along with their FINRA Report.
8.0AUTHORIZED AND SUITABLE INVESTMENTS
8.1Allowable Investment Instruments – State Law
California Government Code Section 53601 establishes allowable investment
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instruments applicable to all local agencies along with maximum maturities,
maximum specified percentages of total portfolio, and minimum quality
requirements. Section 53601.1 authorizes local agencies to invest in financial
futures or financial option contracts in any of the allowable investment categories
enumerated in section 53601.
8.2Authorized Investments
City of Santa Ana further restricts permitted investments to those listed below and
where applicable, Santa Ana may reduce maximum maturities, or maximum
specified percentages of total portfolio (concentration limits), and may increase
minimum quality requirements. Within this scope, the City diversifies its
investments by types of investments, maturity dates, concentration limits, and
quality requirements.
A.United States Treasury Bills, Notes,and Bonds, for which the full faith and credit
of the United States are pledged for payment of principal and interest.
Purchases of this category shall not exceed five years to maturity. There is no
percentage limit in this category.
B.Obligations issued by a Federal Agency or a United States Government
Sponsored Enterprise. Federal Agency Issues include, but are not limited to
GNMA (Government National Mortgage Association), FFCB (Federal Farm
Credit Bank), FHLB (Federal Home Loan Bank), FHLMC (Federal Home Loan
Mortgage Corporation), FNMA (Federal National Mortgage Association), FHA
(Federal Housing Administration), and TVA (Tennessee Valley Authority).
Although there is no percentage limitation on these issues, purchases of this
category shall not exceed five years to maturity and the “prudent investor" rule
shall apply for a single agency name as U.S. Government backing is implied
rather than guaranteed.
C.Supranational Obligations in 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 or sale within
the United States. Investments under this subdivision shall be rated “AA” or
better by an NRSRO and shall not exceed thirty (30%) percent of the cost value
of the investment portfolio.
D.Bills of exchange or time drafts drawn on and accepted by a commercial bank,
otherwise known as banker's acceptances, which are eligible for purchase by
the Federal Reserve System. Purchases of banker's acceptances may not
exceed one hundred eighty (180) days or forty percent (40%) of the cost value
of the Fund which may be invested pursuant to this section. However, no more
than thirty percent (30%) of the City's cost value of the investment portfolio may
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be invested in the banker’s acceptances of any one commercial bank pursuant
to this section.
E.Commercial paper of “prime” quality of the highest ranking or of the highest
letter and number rating as provided for by a Nationally Recognized Statistical
Rating Organization (NRSRO).The entity that issues the commercial paper
shall be organized and operating within the United States, as a general
corporation, shall have total assets in excess of five-hundred, million dollars
($500,000,000), and has debt other than commercial paper, if any, that is rated
"A" or higher by NRSRO. The entity is organized within the United States as a
special purpose corporation, trust, or limited liability company; has program wide
credit enhancements including, but not limited to: over-collateralization, letters of
credit, or a surety bond; has commercial paper that is rated “A-1” or higher, or
the equivalent, by an NRSRO Eligible commercial paper shall have a maximum
maturity of two hundred seventy (270) days or less. The City may purchase no
more than ten percent (10%) of the outstanding commercial paper of any single
corporate issue. Purchases of commercial paper may not exceed twenty-five
percent (25%) of the investment portfolio.
F.Repurchase Agreements.For purposes of this section, the term "repurchase
agreement” means a purchase of securitiesby the local agency pursuant to an
agreement by which the seller will repurchase the securities on or before a
specified date and for a specified amount and will deliver the underlying
securities to a third-party custodian. The City may invest in repurchase
agreements with primary dealers of the Federal Reserve with which the City has
entered into a Securities Industry and Financial Markets Association (SIFMA)
Master Repurchase Agreement (MRA) which specifies terms and conditions of
repurchase agreements. The market value of securities used as collateral for
repurchase agreements shall not be allowed to fall below one hundred two
percent (102%) of the value of the repurchase agreement and shall be adjusted
no less than quarterly by the tri-party custodial agent. The investments in
repurchase agreements shall be in compliance if the underlying securities are
brought back up to one hundred two percent (102%) no later than the next
business day. The underlying collateral shall be limited to United States
GovernmentTreasury Bills, Notes, and Bonds,or obligations issued by a
Federal Agency or United States Government Sponsored Enterprises
obligations. Upon the written approval of the Executive Director forFMSA,
substituted securities may be pledged for collateral but shall consist only of
investments permitted within this investment policy with a maximum maturity of
five (5) years. If there is a default of the broker, the collateral securities can be
sold. Since the securities are valued daily, it is likely that the sale proceeds will
equal or exceed the value of the repurchase agreement amount. Purchases in
this category shall not exceed one (1) yearor twenty percent (20%) of the cost
value of the investment portfolio. Retail repurchase agreements and reverse
agreements shall not be authorized for purchase.
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G.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 state-licensed branch
of a foreign bank. However, the City shall not invest in negotiable certificates of
deposit issued by a state or federal credit union if a member of the City Council
or any City personnel with investment decision making authority also serves on
the board of directors, or any committee appointed by the board of directors, or
the credit committee or the supervisory committee of the state or federal credit
union issuing the negotiable certificates of deposit. The City’s investment in
negotiable certificates of deposit may not exceed thirty percent (30%) of the cost
value of the investment portfolio. The amount so invested shall be subject to
the limitations of Government Code Section 53638 which generally provides
that the deposit shall not exceed the shareholder’s equity of any depository
bank, or the total net worth of any depository savings association or federal
association, or the total of the unimpairedcapital and surplus of an insured
industrial loan company. Purchases of this category shall not exceed five years
to maturity.
H.Local Agency Investment Fund - State Pool. The City may invest in the Local
Agency Investment Fund (LAIF) established by the State Treasurer under
California Government Code Section 16429.1 for the benefit of local agencies.
LAIF provides daily liquidity; therefore, there is no final stated maturity for this
investment category. Although there is no percentage limitation onthis fund,
the "prudent investor" rule shall apply for a single agency name. Inkeeping with
LAIF deposit limit investments, City LAIF investments shallnot exceed $65
million, unless a greater deposit limit for regular accounts is authorized by the
State Treasurer during the term of this Statement of Investment Policy, in which
case City LAIF investments may increase up to that limit.
I.City of Santa Ana Bonds. The City may invest in bondsissued by the City or
agency of the City including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the City or
agency of the City. The City shall at all times adhere to restrictions and
limitations of the bond indenture. Purchases of this category shall not exceed
five years to maturity. There is no percentage limit in this category.
J.Other State of California Local Agency Bonds. The City may invest in other
State of California Local Agency Bonds.notes, warrants or other evidence of
indebtedness of any local agency within this state, including bonds payable
solely out of the revenues from a revenue-producing property owned, controlled,
or operated by the local agency, or by a department, board, agency, or authority
of the local agency. Investments in this categoryshall be restricted to
instrumentsthat have aranking of A-1or higher, or the equivalent by not less
than two of the following nationally recognized statistical rating organizations:
Moody’s, Standard & Poor’s or Fitch.Purchases of this category shall not
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exceed five years to maturity. There is no percentage limit in this category.
K.Medium Term Corporate Notes (MTN) defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five years or
less, issued by corporations organized and operating within the United States or
by depository institutions licensed by the United States or any state and
operating within the United States. Notes eligible for investment shall be rated
in a rating category of "A" or its equivalent or better by a nationally recognized
rating service. Purchases in this category shall not exceed five (5) years to
maturity or thirty percent (30%) of the cost value of the investment portfolio.
Purchases in a single issuer in this category shall not exceed five percent (5%)
of the cost value of the investment portfolio.
L.Shares of beneficial interest otherwise known as money market shares issued
by diversified management companies that are money market funds registered
with the Securities and Exchange Commission under the Investment Company
Act of 1940. The company shall have met either of the following criteria:
1.Attain the highest ranking or the highest letter and numerical rating provided
by not less than two NRSROs, and
2.Retained an investment adviser registered or exempt from registration with
the Securities and Exchange Commission with not less than five (5) years’
experience investing inthe securities and obligations authorized by
subsection (a) to (k), inclusive, and subdivisions (m) to (o), inclusive, of
Section 53601 of the Government Code and with assets under management
in excess of five-hundred, million dollars ($500,000,000).
Thepurchase price of shares of beneficial interest, (mutual funds)
purchased pursuant to this subdivision shall not include any commission that
these companies may charge.
Investments in this category shall be restricted to money market mutual
funds that seek to maintain a Net Asset Value of $1. Money market mutual
funds provide daily liquidity; therefore, there is no final stated maturity for this
investment category. Investments in mutual funds shall be restricted to
funds that have the highest ranking or the highest letter and numerical rating
provided by not less than two of the following nationally recognized statistical
rating organizations: Moody's, Standard & Poor's or Fitch. Purchases in this
category shall not exceed 20% of the book value of the investment portfolio.
Purchases in a single mutual fund shall not exceed 10% of the book value of
the Portfolio.
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8.3 Suitability Of Investments
Suitability, not simply return, is the standard for selecting investments for the
portfolio. The Executive Director for FMSA, and all other authorized investment
officials and supporting staff shall review the following when selecting or
recommending investments for the City:
Sufficient liquidity to meet current obligations
Appropriate level of market risk
Diversified portfolio
Legal investments
Market rate of return
The Executive DirectorforFMSA and his/herdesignees are not required to invest
in all the investment options authorized in this Statement of Investment Policy.
Selection will be based on cash flow characteristics, exposure to market risk, rate of
return, the technical ability of the staff responsible for administering the program,
and the availability of time and tools for staff to engage in conservative, but
effective, management of the City’sinvestment portfolio.
9.0PROHIBITED INVESTMENTS AND INVESTMENT PRACTICES
9.1Ineligible Investments - State Law
Certain investments, however,are prohibited by California Government Code
Section 53601.6. Accordingly, the City shall not invest in any inverse floaters,
range notes, or mortgage derived, interest-only strips.In addition, the City shall not
invest any funds in any security that could result in zero interest accrual if held to
maturity. However, prohibited securities that were purchased and are currently
held in the City's portfolio, as of the date of this policy adoption, which were
previously allowed under the California Government Code, yet are now prohibited
due to changes in the Code may be held until their maturity dates.
9.2Disallowed Investments - Higher Perceived Risk
Besides investments prohibited by statute, this policy disallows investments in the
following due toa higher perceived risk:
Asset-backed securities (ABS) – securities supported by pools of installment
loans or leases or by pools of revolving lines of credit;
Derivatives – financial instruments which have a principal and/or interest
payment subject touncertainty as to timing and/or amount including financial
instruments whose return profile is linked to, or derived from, the movement
of one or more underlying index or security, and may include a leveraging
factor, or financial contracts based upon notional amounts whose value is
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derived from an underlying index or security (interest rates, foreign
exchange rates, equities or commodities);
Investment agreements – contracts regarding funds deposited by an
investor often separated into those offered by banks and those offered by
insurance companies commonly known as Guaranteed Investment
Contracts (GICs) or Guaranteed Investment Agreements (GIAs);
Mortgage-backed securities – securities created when a mortgage or
purchaser of residential real estate mortgages creates a pool of mortgages
and markets undivided interests or participation in the pool, including
principal only strips;
Reverse Repurchase agreements – agreements involving the borrowing of
cash from a financial institution for the purchase of securities in which a
financial asset is instead pledged as a collateral for a loan in which the roles
of borrower and lender are reversed.
Securities lending agreements – agreements allowing local agencies to earn
incremental income on their investment portfolio by loaning securities in their
portfolio to financial services companies for a limited time;
9.3Prohibited Investment Practices
Assets of the City shall not be invested pursuant to the following investment
practices:
Trading of securities strictly for speculation or solelyfor the realization of
short-term trading gains.
A contract providing for the compensation of an agent or fiduciary solely
based upon the performance of the invested assets.
If a fiduciary or other third party with custody of public investment
transaction records of the City fails to produce records within a reasonable
time, when requested by the City, the City shall make no new investments
with or through the fiduciary or third party and shall not renew maturing
investments with or through the fiduciary or third party.
10.0INVESTMENT POOLS/MUTUAL FUNDS
The Executive Director for FMSA or his/her designee shall be required to investigate all
local government investment pools and money market mutual funds, other than the
state Local Agency Investment Fund (LAIF), prior to investing and perform at least a
quarterly review thereafter while the City isinvested in the pool or the money market
fund.
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The City currently authorizes pooled investment fund deposits only with LAIF which is
authorized under provisions in Section 16429.1 of the California Government Code as
an allowable investment for local agencies even though some of the individual
investments of the pool are not allowed as a direct investment by a local agency such
as the City of Santa Ana.
Government sponsored investment pools (Local Agency Investment Fund (LAIF),
County Pools, Joint PowersAuthority Pools, and the State Treasury Voluntary
Investment Program Fund), are sources for short-term cash management.
Before seeking City Council approval for participation in one or more additional
investment pools/money market mutual funds, the Executive Director for FMSA or
his/her designees will conduct athorough investigation the prospective pool prior to
recommending City investment.
Before recommending investing in a prospectivepool, the followingissues must be
reviewed:
A.The pool must meet the requirements of state statue.
B.The pool must provide a written statement of policy and objectives.
C.A questionnaire developed by Treasury Investment staff and approved by the
Treasury and Customer Services Manager or Assistant Director of Finance
shalladdress the following general topics:
i.A description of eligible investment securities, and a written statement
of investment policy and objectives.
ii.A description of interest calculations and how it is distributed, and how
gains and losses are treated.
iii.A description of how the securities are safeguarded (including the
settlement processes), and how often the securities are priced and
the program audited.
iv.A description of who may invest in the program, how often, what size
minimum and maximum deposit and withdrawal are allowed.
v.A schedule for receiving statements and portfolio listings.
vi.A description of how reserves, retained earnings, etc. are utilized by
the pool.
vii.A model of the fee schedule, and when and how it is assessed.
viii.A description of eligibility and/or acceptance of bond proceeds.
ix.The pool must contain only the types of investment allowed by
California Code.
Upon approval for participation in one or more additionalinvestment pools the
Treasury investment staff shall thereafter on a regular and continuingbasis
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investigate and reconfirm the pool’s compliance with items listed aboveand shall
monitor the pool’s performance reports.
11.0COLLATERALIZATION/SECURITY FOR DEPOSIT OF PUBLIC FUNDS
Money must be deposited in state or national banks, state or federal savings associations
or state or federal credit unions in the State of California. It may be in inactive deposits,
active deposits or interest-bearing active deposits. The deposits cannot exceed the
amount of the bank's or savings and loan's paid up capital and surplus.
The bank or savings and loan must secure the active and inactive deposits with eligible
securities having a market value of one-hundred, ten percent (110%) of the total amount of
the deposits. State law also allows as an eligible security, first trust deeds having a value
of one-hundred, fifty percent (150%) of the total amount of the deposits. A third class of
collateral is letters of credit drawn on the Federal Home Loan Bank (FHLB).
The Treasurer may waive, at his discretion, security for that portion of a deposit which is
insured pursuant to federal law. Currently, the first two-hundred, fifty-thousand dollars
($250,000) of a deposit is federally insured. It is to the City's advantage to waive this
collateral requirement for the first $250,000 because we receive a higher interest rate.
12.0SAFEKEEPINGANDCUSTODY
12.1Perfected Interest and Delivery versus Payment
In accordance with California Government Code Section 53601, to protect against
potential losses caused by collapse of individual securities dealers, all securities owned by
the City except securities used as collateral for repurchase agreements, shall be kept in
safekeeping with "perfected interest"by the City’s custodial bank or a third party bank trust
department, acting as agent for the City under the terms of a custody agreement executed
by the bank and by the City. Perfected interest refers toestablishment of a superior
ownership right in and legal control over the securities assets held by the bank
custodian on the City’sbehalf and isintended to protect the City from the custodial
bank’s own creditors in the event of abank default and filing for bankruptcy.All
securities, excepting investments which are not deliverable (such as LAIF, direct time
certificates of deposit, and money market mutual funds),will be received and delivered
using standard “delivery versus payment”.Delivery versus payment refers todelivery of
securities with an exchange of money for the securitiesat the time of delivery,rather
thandelivery of securities with an exchange of a signed receipt for the securities.
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13.0DIVERSIFICATION
The purpose of diversification is to reduce overall portfolio risk while attaining market rates
of return and to enable the City to meet all anticipated cash requirements. The investment
portfolio shall consist of various types of securities approved by state statute and this
Statement of Investments Policy. Investments shall vary in issuers, asset classes,
industries and maturities to meet City’s financial obligations. Diversifying the investment
portfolio will help mitigate the loss of funds as a result of failure of any one issuer.
Investments shall further be diversified between structures and imbedded options within
the security.
The investments shall be diversified by:
Limiting investments to avoid over-concentration in securities of a specific
issuer (excluding treasury bills).
Limiting investment in securities that have higher credit risks.
Limiting certificates of deposit to the maximum federally insured amount.
Investing in securities with varying maturities.
Investing a minimum percentage of the total portfolio as established by the
FMSA Investment Advisory Committee in highly marketable short-term
treasuries, checking accounts with interest, government pooled account, or
a combination of all three (See Section 4.1 (A)(iv)).
14.0MAXIMUM MATURITIES
14.1Maximum Maturities
To the extent possible, the City of Santa Ana will attempt to match its investments with
anticipated cash flow requirementsand thus maturities shall coincide as nearly as
possible with the anticipated need. The maximum durationsfor authorized investments
pursuant to section 8. 2 subsections (A) through (F) are as follows:
United States Treasury Bills, Notes, and Bonds – five (5) years maximum
maturity
Obligations issued by a Federal Agency or a United States Government
Sponsored Enterprise – five (5) years maximum maturity
Supranational Obligations - five (5) years maximum maturity
Bills of Exchange/Banker's acceptances - one hundred eighty (180) days
maximum maturity.
Commercial Paper - two hundred seventy 270 days maximum maturity
Repurchase Agreements – one (1) year maximum maturity
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Negotiable Certificates of Deposit - five (5) years maximum maturity
Local Agency Investment Fund (LAIF) State Pool - no final stated maturity
City of Santa Ana Bonds - five (5) years maximum maturity
Other State of California Local Agency Bonds - five (5) years maximum maturity
Medium Term Corporate Notes - five (5) years maximum maturity
Shares of Beneficial Interest/Money Market Shares - no final stated maturity
(See also subsection 8.2 generally for additional information on City authorized
concentration limits and quality requirements.)
14.2 Average Maturity
In accordance with the goal of minimizing interest rate risk (see subsection 4.1(b))
the City of Santa Ana will to the extent possible attempt to aim for an average
investment portfolio maturity of 3 years.
15.0INTERNAL CONTROLS
The Executive Director for FMSA is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the entity are protected
from loss, theft or misuse. The Executive Director for FMSA has developed a system of
internal investment controls and a segregation of responsibilities of investment functions in
order to assure an adequate system of internal control over the investment function. No
investment personnel may engage in an investment transaction except as provided for
under theterms of this policy and the procedure established by the Executive Director for
FMSA.
Internal control procedures address:
•Control of collusion
•Control of fraud
•Control of misrepresentation by third parties
•Control of employee error
•Separation of transaction authority from accounting and record keeping
•Custodial safekeeping
•Delivery versus payment
•Clear delegation of authority
•Conformation of transactions for investment and wire transfers
•Written procedures for placing of investment transactions
•FMSA Investment Advisory Committee
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In addition, cash balances are reconciled daily by non-investment employees and
reconfirmed by the City's accounting staff. Accounting staff also verifies investment
activities and holdings on a regular basis as part of the FMSA Investment Advisory
Committee. The Executive Director for FMSA, at his/her discretion, shall establish a
process for annual independent reviews by an external auditor to the extent contemplated
by generally accepted auditing standards, during the course of the City’s annual audit.
16.0PERFORMANCE STANDARDS
The investment portfolio shall be managed to attain a market-average rate of return
throughout budgetary and economic cycles, taking into account the City's investment
risk constraints,cash flow, and policy towards the pre-payment of specific City debts or
contribution servicing obligations (when finically advantageous to the City).Investment
return becomes a consideration only after the basic requirements of investment safety
and liquidity have been met. Because the investment portfolio is designed to operate on
primarily a 'hold-to-maturity' premise, and because of the safety, liquidity, and yield
priorities, the performance benchmark that will be used by the Executive Director for
FMSA to determine whether market yields are being achieved shall be the average of
the monthly LAIF rate and the 12-month rolling average 2-Year Constant Maturity
Treasury (CMT) rate. However, since return on investment is the least important
objective of the Investment Portfolio, the benchmark will be used only as a reference
tool. The reporting of a benchmark does not imply that the City Treasurer will add
additional risk to the Investment Portfolio in order to attain or exceed the benchmark.
17.0REPORTING
Government Code Section 53646(b)(1) previously mandated that annual investment
policies and quarterly reports be rendered to the legislative body (for the City of Santa Ana
-the City Council). AB 2853 amended Government Code Section 53646 making these
requirements permissive rather than mandatory. Although the Annual Statement of
Investment Policy and Quarterly Reports to City Council are no longer required, we believe
it to be both prudent and in keeping with the spirit of the City’s Sunshine Policy that these
documents continue to provided. The Executive Director for FMSA shall therefore
continue to render to the City Council an annualStatement of Investment Policy and
regular reports to the City Manager and the City Council containing detailed information on
all securities, investments, and moneys of the City. The reports will be informally
submitted to the City Manager and City Council on a monthly basis and will berendered
formally to the City Council on a quarterly basis as part of a scheduled open City Council
Meeting agenda within thirty (30) days following the end of each quarter.
The report will contain the following information on the funds that are subject to this
investment policy:
1)Type of investmentand name of issuer;
2)Date of maturity;
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3)Par amount;
4)Dollar amount invested in all securities, and investments and monies held by
the City (amortized cost or book value);
5)Weighted average maturity of the investments;
6)Current market value as of the date ofreport of all funds held by the City and
under the management of any outside party that is not also a local agency or
LAIF and the source of the valuation;
7)Source of the market value information;
8)A description of the any funds, investments or programs, including loans,
under the management of contracted parties such as LAIF, investment.
pools, outside money managers, and securities lending agents);
9)A statement of compliance with the investment policy or an explanation for
non-compliance; and
10)A statement of the local agency’s ability to meet its pool’s expenditure
requirements for the next six months, as well as an explanation of why
sufficient money will not be available if that is the case.
18.0POLICY CONSIDERATIONS
18.1Exemptions
Any investment currently held that does not meet the guidelines of this policy
shall be exempted from the requirements of this policy as long as it was in
compliance with State of California law and the City’s investment policy in effect
at the time of purchase. At maturity or liquidation, such monies shall be
reinvested only as provided by this policy.
18.2Stabilization Fund
Except for cash in certain restricted and special funds, the consolidation of cash
balances from all funds and the maintenance of portfolio liquidity (both static and
dynamic) as provided for in this policy taken together with the monthly affirmation
to the City Manager and City Councilmembers of the City’s ability to meet its
pool’s expenditure requirements for the next six months shall be deemed to
functionally meet and exceed the requirements of Article VI., Sec. 610, of the City
of Santa Ana Charter as relates to the maintenance of a stabilization fund.
18.3Amendments
In the event this policy is amended priorto the end of its twelve month fiscal year
term the amended Statement of Investment Policy shall be resubmitted to City
Council for review and adoption by City Council Resolution.
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18.4 Approval
th
This Statement of Investment Policy is approved by City Council on this 18day
of June, 2019 pursuant to City Council Resolution #2019- .
19.0POLICY REVIEW, CERTIFICATION, ANDADOPTION
19.1Policy Review
This Statement of Investment Policy shall be reviewed at least annually to ensure
its consistency with the overall objectives of preservation of PRINCIPAL,
LIQUIDITY, AND YIELD, and to: 1)reflect changes in applicable California state
codes,2) maintain its relevance to current financial and economic trends, and 3)
meet the needs of the City of Santa Ana.
19.2Policy Review
Annually, thisStatement of Investment Policy will be submitted to the Association of
Public Treasurers of the United States and Canada andthe California Municipal
TreasurersAssociationfor review and certification.
19.3Adoption
The Executive Director for FMSA shall annually render this Statement of
Investment Policy to the City Council and City Manager. The City Council shall
annually review and adopt this Statement of Investment Policy by resolutionat a
public meeting.
20.0APPENDICIES& GLOSSARIES
20.1California Investment Code Abstracts - Appendix I.
20.2California Local Agency Investment Guidelines - AppendixII.
20.3Glossariesof Terms
AppendixIII. (Glossary of Referenced Terms - City of Santa Ana Investment Policy
& Related California Codes)
Appendix IV.(Glossary of Additional Common Public Local Agency Investment
Terms)
Appendix V. (Broker / Dealer Questionnaire And Certification Form)
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th
Submitted to the Santa Ana City Council for approval, this 18day of June, 2019.
__________________________________
Kathryn Downs, CPA
Executive Director& City Treasurer
Finance & Management Services Agency
RP:WH
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APPENDICIES
TABLE OF APPENDICIES......................................................................................................................Page 23
APPENDIX I.
CALIFORNIA INVESTMENT CODE ABSTRACTS
CORPORATIONSCODESECTION25004. ..........................................................................................Page 24
FINANCIALCODESECTION5102. .......................................................................................................Page 25
GOVERNMENTCODESECTION16429.1. ...........................................................................................Page 26
GOVERNMENTCODESECTION53630. ..............................................................................................Page 28
GOVERNMENTCODESECTION53635. ..............................................................................................Page 29
GOVERNMENTCODESECTION53601. ..............................................................................................Page30
GOVERNMENTCODESECTION53601.1. ...........................................................................................Page 34
GOVERNMENTCODESECTION53601.6. ...........................................................................................Page 35
GOVERNMENTCODESECTION53638. ..............................................................................................Page 35
GOVERNMENTCODESECTION53646. ..............................................................................................Page 35
APPENDIX II.
LOCAL AGENCY INVESTMENT GUIDELINES TABLES
ALLOWABLE INVESTMENTINSTRUMENTS PER
STATE GOVERNMENT CODE (AS OF JANUARY 1, 2019)
APPLICABLE TOO ALL LOCAL AGENCIES
(FIGURE 1) - LOCAL AGENCY INVESTMENT GUIDELINES..........................................................Page i
ALLOWABLE INVESTMENTINSTRUMENTS
TABLE OF NOTESFORFIGURE 1 - LOCAL AGENCY
INVESTMENT GUIDELINES ..............................................................................................................Pages ii-iii
APPENDIX III.
GLOSSARY OFREFERENCED TERMS - CITY OF SANTA ANA
INVESTMENT POLICY AND RELATED CALIFORNIA CODES............................................................. PagesA-H
APPENDIX IV.
GLOSSARY OF ADDITIONAL COMMON PUBLIC LOCAL AGENCY INVESTMENT TERMS............PagesI-L
APPENDIX V.
BROKER / DEALER QUESTIONNAIRE AND CERTIFICATION FORM........................................... Pages M-O
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CORPORATIONS CODE - CORP
TITLE 4. SECURITIES \[25000 - 31516\]
( Title 4 added by Stats. 1949, Ch. 384. )
DIVISION 1. CORPORATE SECURITIES LAW OF 1968 \[25000 - 25707\]
( Division 1 repealed and added by Stats. 1968, Ch. 88. )
PART 1. DEFINITIONS \[25000 - 25023\]
( Part 1 added by Stats. 1968, Ch. 88. )
CORPORATIONSCODE
SECTION
25004.
(a)“Broker-dealer”meansanypersonengagedinthebusinessofeffectingtransactionsinsecuritiesinthis
statefortheaccountofothersorforhisownaccount.“Broker-dealer”alsoincludes a personengagedinthe
regularbusinessofissuingorguaranteeingoptionswithregardtosecuritiesnotofhisownissue.“Broker-
dealer”doesnotincludeanyofthefollowing:
(1)Anyother issuer.
(2)Anagent,whenanemployeeof a broker-dealeror issuer.
(3)A bank,trustcompany,orsavingsandloanassociation.
(4)Anypersoninsofarashebuysorsells securities forhisown account,eitherindividuallyorinsome
fiduciarycapacity,butnotaspartof a regularbusiness.
(5)A personwhohasnoplaceofbusinessinthisstateifheeffectstransactionsinthisstateexclusivelywith
(A)the issuers ofthesecuritiesinvolvedinthetransactionsor(B)otherbroker-dealers.
(6)A brokerlicensedbytheRealEstateCommissionerofthisstatewhenengagedintransactionsin
securitiesexemptedbysubdivision(f)or(p)ofSection25100orinsecuritiestheissuanceofwhichis
subjecttoauthorizationbytheRealEstateCommissionerofthisstateorintransactionsexemptedby
subdivision(e)ofSection25102.
(7)AnexchangecertifiedbytheCommissionerofCorporationspursuanttothis section whenitisissuingor
guaranteeing options.Thecommissionermaybyordercertifyanexchangeunderthis section uponsuch
conditionsashebyruleororderdeemsappropriate,anduponnoticeandopportunitytobeheardhemay
suspendorrevoke such certification,ifhefindssuchcertification,suspension,orrevocationtobeinthe
publicinterestandnecessaryandappropriatefortheprotectionofinvestors.
(b)Forpurposesofthissection,anagentisanemployeeof a broker-dealerunderparagraph(2)of
subdivision(a)whentheagentisemployedbyorassociatedwiththebroker-dealerunderallofthefollowing
conditions:
(1)Theagentis subject tothesupervisionandcontrolofthebroker-dealer.
(2)Theagentperformsunderthename,authority,andmarketingpoliciesofthebroker-dealer.
(3)Theagentdisclosestoinvestorstheidentityofthebroker-dealer.
(4)Theagentisreportedpursuanttosubdivision(c)ofSection25210andtherulesadoptedthereunder.
(AmendedbyStats.2004,Ch.461,Sec.1.EffectiveJanuary1,2005.)
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FINANCIAL CODE - FIN
DIVISION 2. SAVINGS ASSOCIATION LAW \[5000 - 10009\]
( Division 2 repealed and added by Stats. 1983, Ch. 1091, Sec. 2. )
CHAPTER 1. Short Title, General Definitions, and General Provisions \[5000 - 5330\]
( Chapter1 added by Stats. 1983, Ch. 1091, Sec. 2. )
ARTICLE 2. General Definitions \[5100 - 5124\]
( Article 2 added by Stats. 1983, Ch. 1091, Sec. 2. )
FINANCIALCODE
SECTION
5102.
(a)“Association”or“savingsassociation”means a mutualorstocksavingsassociation,savingsandloan
associationorsavingsbank subject totheprovisionsofthisdivision,butexcluding a federalassociation.
(b)“Federalassociation”means a savingsandloanassociationorfederalsavingsbankthatischarteredby
theOfficeofThriftSupervisionunderSection 5 oftheHomeOwners’Loan Act of1933(12U.S.C.Sec.
1464),asamended.
(AmendedbyStats.1990,Ch.1118, Sec. 8.)
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GOVERNMENT CODE - GOV
TITLE 2. GOVERNMENT OF THE STATE OF CALIFORNIA \[8000 - 22980\]
( Title2 enacted by Stats. 1943, Ch. 134. )
DIVISION 4. FISCAL AFFAIRS \[16100 - 17700\]
( Division 4 added by Stats. 1945, Ch. 119. )
PART 2. STATE FUNDS \[16300 - 16649.95\]
( Part 2 added by Stats. 1945, Ch. 120. )
CHAPTER 2. Special Funds \[16346 - 16429.4\]
( Chapter 2 added by Stats. 1945, Ch. 120. )
ARTICLE 11. Local Agency Investment Fund \[16429.1 - 16429.4\]
( Article 11 added by Stats. 1976, Ch. 730. )
GOVERNMENTCODE
SECTION
16429.1.
(a)ThereisintrustinthecustodyoftheTreasurertheLocalAgencyInvestmentFund,whichfundishereby
created.TheControllershallmaintain a separateaccountforeachgovernmentalunithavingdepositsinthis
fund.
(b)Notwithstandinganyotherlaw, a localgovernmentalofficial,withtheconsentofthegoverningbodyof
thatagency,havingmoneyinitstreasurynotrequiredforimmediateneeds,mayremitthemoneytothe
TreasurerfordepositintheLocalAgencyInvestmentFundforthepurposeofinvestment.
(c)Notwithstandinganyotherlaw,anofficer ofanynonprofitcorporationwhosemembershipisconfinedto
publicagenciesorpublic officials, oranofficerof a qualifiedquasi-governmentalagency,withtheconsentof
thegoverningbodyofthatagency,havingmoneyinitstreasurynotrequired forimmediateneeds,mayremit
themoneytotheTreasurerfordepositintheLocalAgencyInvestmentFundforthepurposeofinvestment.
(d)Notwithstandinganyotherlaworprovisionofthissection, a localagency,withtheapprovalofits
governingbody,maydepositintheLocalAgencyInvestmentFundproceedsofthe issuance ofbonds,
notes,certificatesofparticipation,orotherevidencesofindebtednessoftheagencypendingexpenditureof
theproceedsfortheauthorizedpurposeoftheirissuance.Inconnectionwiththesedepositsofproceeds,
theLocalAgencyInvestmentFundisauthorizedtoreceiveanddisbursemoneys,andtoprovide
information,directlywithortoanauthorizedofficerof a trusteeorfiscalagentengagedbythelocalagency,
the LocalAgencyInvestmentFundisauthorizedtoholdinvestmentsinthenameandfortheaccountofthat
trusteeor fiscal agent,andtheControllershallmaintain a separateaccountforeachdepositofproceeds.
(e)Thelocalgovernmentalunit,thenonprofitcorporation,orthequasi-governmentalagencyhasthe
exclusivedeterminationofthelengthoftimeitsmoneywillbeondepositwiththeTreasurer.
(f)Thetrusteeor fiscal agentofthelocalgovernmentalunithastheexclusivedeterminationofthelengthof
timeproceedsfromtheissuanceofbondswillbeondepositwiththeTreasurer.
(g)TheLocalInvestmentAdvisoryBoardshalldeterminethosequasi-governmentalagencieswhichqualify
toparticipateintheLocalAgencyInvestmentFund.
(h)TheTreasurermayrefuseto accept depositsintothefundif,inthejudgmentoftheTreasurer,the
depositwouldadverselyaffectthestate’sportfolio.
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(i)TheTreasurermayinvestthemoneyofthefundinsecuritiesprescribedinSection16430.TheTreasurer
mayelecttohavethemoneyofthefundinvestedthroughtheSurplusMoneyInvestmentFundasprovided
inArticle 4 (commencingwithSection16470)ofChapter3.
(j)Moneyinthefundshallbeinvestedtoachievetheobjectiveofthefundwhichistorealize themaximum
returnconsistentwithsafeandprudenttreasurymanagement.
(k)AllinstrumentsoftitleofallinvestmentsofthefundshallremainintheTreasurer’svaultorbeheldin
safekeepingundercontroloftheTreasurerinanyfederalreservebank,oranybranchthereof,orthe
FederalHomeLoanBankofSanFrancisco,withanytrustcompany,orthetrustdepartmentofanystateor
nationalbank.
(l)Immediatelyattheconclusionofeachcalendarquarter,allinterestearnedandotherincrementderived
frominvestmentsshallbedistributedbytheControllertothecontributinggovernmentalunitsortrusteesor
fiscalagents,nonprofitcorporations,andquasi-governmentalagenciesinamountsdirectlyproportionateto
therespectiveamountsdepositedintheLocalAgencyInvestmentFundandthelengthoftimetheamounts
remainedtherein.Anamountequaltothereasonable costs incurredincarryingouttheprovisionsofthis
section, notto exceed a maximumof 5 percentoftheearningsofthisfundandnotto exceed theamount
appropriatedintheannualBudget Act forthisfunction,shallbedeductedfromtheearningspriorto
distribution.However,ifthe13-weekDailyTreasuryBillRate,aspublishedbytheUnitedStatesDepartment
oftheTreasuryonthelastdayofthestate’sfiscalyearisbelow 1 percent,thentheabove-notedreasonable
costs shallnot exceed a maximumof 8 percentoftheearningsofthisfundforthesubsequentfiscalyear,
shallnotexceedtheamountappropriatedintheannualBudget Act forthisfunction,andshallbededucted
fromtheearningspriortodistribution.Theamountofthedeductionshallbecreditedasreimbursementsto
thestateagencies,includingtheTreasurer,theController,andtheDepartmentofFinance,havingincurred
costs incarryingouttheprovisionsofthissection.
(m)TheTreasurershallpreparefordistribution a monthlyreportofinvestmentsmadeduringthepreceding
month.
(n)Asusedinthis section, “localagency,”“localgovernmentalunit,”and“localgovernmentalofficial”
includes a campusorotherunitandanofficial,respectively,oftheCaliforniaStateUniversitywhodeposits
moneysinfundsdescribedinSections89721,89722,and89725oftheEducationCode.
(AmendedbyStats.2014,Ch.28,Sec. 39.EffectiveJune20,2014.)
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GOVERNMENT CODE - GOV
TITLE 5. LOCAL AGENCIES \[50001 - 57550\]
( Title 5 added by Stats. 1949, Ch. 81. )
DIVISION 2. CITIES, COUNTIES, AND OTHER AGENCIES \[53000 - 55821\]
( Division 2 added by Stats. 1949, Ch. 81. )
PART 1. POWERS AND DUTIES COMMON TO CITIES, COUNTIES, AND OTHER AGENCIES
\[53000 - 54999.7\]
( Part 1 added by Stats. 1949, Ch. 81. )
CHAPTER 4. Financial Affairs \[53600 - 53997\]
( Chapter 4 added by Stats. 1949, Ch. 81. )
ARTICLE 2. Deposit of Funds \[53630 - 53686\]
( Article 2 added by Stats. 1949, Ch. 81. )
GOVERNMENTCODE
SECTION
53630.
Asusedinthisarticle:
(a)“Localagency”meanscounty,city, city andcounty,including a charteredcityorcounty, a community
collegedistrict,orotherpublicagencyorcorporationinthisstate.
(b)“Treasurer”meanstreasurerofthelocalagency.
(c)“Depository”means a stateornationalbank,savings association orfederalassociation, a stateorfederal
creditunion,or a federallyinsuredindustrialloancompany,inthisstateinwhichthemoneysof a local
agencyaredeposited.
(d)“Agentofdepository”means a trustcompanyortrustdepartmentof a stateornationalbanklocatedin
thisstate,includingthetrustdepartmentof a depositorywhereauthorized,andtheFederalHomeLoan
BankofSanFrancisco,whichisauthorizedto act asanagentofdepositoryforthepurposesofthisarticle
pursuanttoSection53657.
(e)“Security”meansanyoftheeligiblesecuritiesorobligationslistedin Section53651.
(f)“Pooledsecurities”meanseligible securities heldbyanagentofdepositoryfor a depositoryandsecuring
depositsofoneormorelocalagencies.
(g)“Administrator”meanstheAdministratorofLocalAgencySecurityoftheStateofCalifornia.
(h)“Savingsassociationorfederalassociation”means a savingsassociation,savingsandloanassociation,
orsavingsbankasdefinedbySection5102oftheFinancialCode.
(i)“Federallyinsuredindustrialloancompany”meansanindustrialloancompanylicensedunderDivision 7
(commencingwithSection18000)oftheFinancialCode,theinvestmentcertificatesofwhichareinsuredby
theFederalDepositInsuranceCorporation.
(j)“Corporation”includes a limitedliabilitycompany.
(AmendedbyStats.2004,Ch.118,Sec.19.7.EffectiveJanuary1,2005.)
. . .
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GOVERNMENTCODE
SECTION
53635.
(a)Thissectionshallapplyto a localagencythatis a county, a cityandcounty,orotherlocalagencythat
poolsmoneyindepositsorinvestmentswithotherlocalagencies,includinglocalagenciesthathavethe
samegoverningbody.However,Section53601shallapplytoalllocalagenciesthatpoolmoneyindeposits
orinvestmentsexclusivelywithlocalagenciesthathavethesamegoverningbody.
This section shallbeinterpretedin a mannerthatrecognizesthe distinct characteristics ofinvestmentpools
andthedistinctadministrativeburdensonmanagingandinvestingfundson a pooledbasispursuantto
Article 6 (commencingwithSection27130)ofChapter 5 ofDivision 2 ofTitle3.
A localagencythatis a county, a cityandcounty,orotherlocalagencythatpoolsmoneyindepositsor
investmentswithotheragenciesmayinvestincommercialpaperpursuanttosubdivision(h)ofSection
53601, except thatthelocalagencyshallbesubjecttothefollowingconcentrationlimits:
(1)Nomorethan40percentofthelocalagency’smoneymaybeinvestedineligiblecommercialpaper.
(2)Nomorethan10percentofthetotal assets oftheinvestmentsheldby a localagencymaybeinvestedin
anyoneissuer’scommercialpaper.
(b)NotwithstandingSection53601,theCityofLosAngelesshallbe subject totheconcentrationlimitsofthis
section forcountiesandforcitiesandcountieswithregardtotheinvestment ofmoneyineligiblecommercial
paper.
(AmendedbyStats.2008,Ch.709,Sec.10.7.EffectiveJanuary1,2009.)
. . .
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GOVERNMENTCODE
SECTION
53601.
This section shallapplyto a localagencythatis a city, a district,orotherlocalagencythatdoesnotpool
moneyindepositsorinvestmentswithotherlocalagencies,otherthanlocalagenciesthathavethesame
governingbody.However,Section53635shallapplytoalllocalagenciesthatpoolmoneyindepositsor
investmentswithotherlocalagenciesthathaveseparategoverningbodies.Thelegislativebodyof a local
agencyhavingmoneysin a sinkingfundormoneysinitstreasurynotrequiredfortheimmediateneedsof
thelocalagencymayinvestanyportionofthemoneysthatitdeemswiseorexpedientinthoseinvestments
set forthbelow. A localagencypurchasingorobtaininganysecuritiesprescribedinthissection,in a
negotiable,bearer,registered,ornonregisteredformat,shallrequiredeliveryofthesecuritiestothelocal
agency,includingthosepurchasedfortheagencybyfinancialadvisers,consultants,ormanagersusingthe
agency’sfunds,bybookentry, physical delivery,orbythird-partycustodialagreement.Thetransferof
securitiestothecounterpartybank’s customer bookentryaccountmaybeusedforbookentrydelivery.
Forpurposesofthissection,“counterparty”meanstheotherpartytothetransaction. A counterpartybank’s
trustdepartmentorseparatesafekeepingdepartmentmaybeusedforthephysicaldeliveryofthe securityif
the security isheldinthenameofthelocalagency.Wherethis section specifies a percentagelimitationfor a
particularcategoryofinvestment,thatpercentageisapplicableonlyatthedateofpurchase.Wherethis
section doesnot specify a limitationonthetermorremainingmaturityatthetimeoftheinvestment,no
investmentshallbemadeinany security, otherthan a security underlying a repurchaseorreverse
repurchaseagreementorsecuritieslendingagreementauthorizedbythis section,thatatthetimeofthe
investmenthas a termremainingtomaturityin excess offiveyears,unlessthelegislativebodyhasgranted
expressauthoritytomakethatinvestmenteither specifically oras a partofaninvestmentprogramapproved
bythelegislativebodyno less thanthreemonthspriortotheinvestment:
(a)Bondsissuedbythelocalagency,includingbondspayablesolelyoutoftherevenuesfrom a revenue-
producingpropertyowned,controlled,oroperatedbythelocalagencyorby a department,board,agency,or
authorityofthelocalagency.
(b)UnitedStatesTreasurynotes,bonds,bills,orcertificatesofindebtedness,orthoseforwhichthefaith
andcreditoftheUnitedStatesarepledgedforthepaymentofprincipalandinterest.
(c)Registeredstatewarrantsortreasurynotesorbondsofthisstate,includingbondspayablesolelyoutof
therevenuesfrom a revenue-producingpropertyowned,controlled,oroperatedbythestateorby a
department,board,agency,orauthorityofthestate.
(d)Registeredtreasurynotesorbondsofanyoftheother49statesinadditiontoCalifornia,includingbonds
payablesolelyoutoftherevenuesfrom a revenue-producingpropertyowned,controlled,oroperatedby a
stateorby a department,board,agency, orauthorityofanyoftheother49 states, inadditiontoCalifornia.
(e)Bonds,notes,warrants,orotherevidencesofindebtednessof a localagencywithinthisstate,including
bondspayablesolelyoutoftherevenuesfrom a revenue-producingproperty owned,controlled,oroperated
bythelocalagency,orby a department,board,agency,orauthorityofthelocalagency.
(f)FederalagencyorUnitedStatesgovernment-sponsoredenterpriseobligations,participations,orother
instruments,includingthose issuedbyorfullyguaranteedastoprincipalandinterestbyfederalagenciesor
UnitedStatesgovernment-sponsoredenterprises.
(g)Bankers’ acceptancesotherwiseknownasbillsofexchangeortimedraftsthataredrawnonand
acceptedby a commercialbank.Purchasesofbankers’acceptancesshallnot exceed 180days’maturityor
40percentoftheagency’smoneysthatmaybeinvestedpursuanttothissection.However,nomorethan30
percentoftheagency’smoneysmaybeinvestedinthebankers’acceptancesofanyonecommercialbank
pursuanttothissection.
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Thissubdivisiondoesnotpreclude a municipalutility district frominvestingmoneysinitstreasuryin a
mannerauthorizedbytheMunicipalUtilityDistrictAct(Division 6 (commencingwithSection11501)ofthe
PublicUtilitiesCode).
(h)Commercialpaperof“prime”qualityofthehighestrankingorofthehighestletterandnumberratingas
providedforby a nationallyrecognized statistical ratingorganization(NRSRO).Theentitythat issues the
commercialpapershallmeetallofthefollowingconditionsineitherparagraph(1)or(2):
(1)Theentitymeetsthefollowingcriteria:
(A)IsorganizedandoperatingintheUnitedStatesas a generalcorporation.
(B)Hastotalassetsinexcessoffivehundredmilliondollars($500,000,000).
(C)Hasdebtotherthancommercialpaper,ifany,thatisrated“A”orhigherbyanNRSRO.
(2)Theentitymeetsthefollowingcriteria:
(A)IsorganizedwithintheUnitedStatesas a specialpurposecorporation,trust,orlimitedliabilitycompany.
(B)Hasprogramwidecreditenhancementsincluding,butnotlimitedto,overcollateralization,lettersof
credit,or a suretybond.
(C)Hascommercialpaperthatisrated“A-1”orhigher,ortheequivalent,byanNRSRO.
Eligiblecommercialpapershallhave a maximummaturityof270daysor less. Localagencies,otherthan
countiesor a cityandcounty,mayinvestnomorethan25percentoftheirmoneysineligiblecommercial
paper.Localagencies,otherthancountiesor a cityandcounty,maypurchasenomorethan10percentof
theoutstandingcommercialpaperofanysingle issuer. Countiesor a cityandcountymayinvestin
commercialpaperpursuanttotheconcentrationlimitsinsubdivision
(a)ofSection53635.
(i)Negotiablecertificatesofdepositissuedby a nationallyorstate-charteredbank, a savings association or
a federal association (asdefinedbySection5102oftheFinancialCode), a stateorfederalcreditunion,or
by a federallylicensedorstate-licensedbranch of a foreignbank.Purchasesofnegotiablecertificatesof
depositshallnot exceed 30percentoftheagency’smoneysthatmaybeinvestedpursuanttothis section.
Forpurposesofthissection,negotiablecertificatesofdepositdonotcomewithinArticle 2 (commencingwith
Section53630),exceptthattheamount so investedshallbe subject tothelimitationsofSection53638.The
legislativebodyof a localagencyandthetreasurerorotherofficialofthelocalagencyhavinglegal custody
ofthemoneysareprohibitedfrominvestinglocalagencyfunds,orfundsinthecustodyofthelocalagency,
innegotiablecertificatesofdeposit issued by a stateorfederalcreditunionif a memberofthelegislative
bodyofthelocalagency,or a personwithinvestmentdecision-makingauthorityintheadministrativeoffice
manager’soffice,budgetoffice,auditor-controller’soffice,ortreasurer’sofficeofthelocalagency also
servesontheboardof directors, oranycommitteeappointedbytheboardofdirectors, orthecredit
committeeorthesupervisorycommitteeofthestateorfederalcreditunionissuingthenegotiablecertificates
ofdeposit.
(j)(1)Investmentsinrepurchaseagreementsorreverserepurchaseagreementsorsecuritieslending
agreementsof securitiesauthorizedbythissection,aslongastheagreementsare subject tothis
subdivision,includingthedeliveryrequirementsspecifiedinthissection.
(2)Investmentsinrepurchaseagreementsmaybemade,onaninvestmentauthorizedinthissection, when
thetermoftheagreementdoesnotexceedoneyear.Themarketvalueofsecuritiesthatunderlie a
repurchaseagreementshallbevaluedat102percentorgreaterofthefundsborrowedagainstthose
securitiesandthevalueshallbeadjustedno less thanquarterly. Since themarketvalueoftheunderlying
securitiesissubjecttodailymarketfluctuations,theinvestmentsinrepurchaseagreementsshallbein
complianceifthevalueoftheunderlyingsecuritiesisbroughtbackupto102percentnolater thanthenext
businessday.
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(3)Reverserepurchaseagreementsor securities lendingagreementsmaybeutilizedonlywhenallofthe
followingconditionsaremet:
(A)Thesecuritytobe sold using a reverserepurchaseagreementorsecuritieslendingagreementhasbeen
ownedandfullypaidforbythelocalagencyfor a minimumof30dayspriortosale.
(B)Thetotalofallreverserepurchaseagreementsandsecuritieslendingagreementsoninvestments
ownedbythelocalagencydoesnot exceed 20percentof thebasevalueoftheportfolio.
(C)Theagreementdoesnot exceed a termof92days,unlesstheagreementincludes a writtencodicil
guaranteeing a minimumearningorspreadfortheentireperiodbetweenthe sale of a security using a
reverserepurchaseagreementorsecuritieslendingagreementandthefinalmaturitydateofthesame
security.
(D)Fundsobtainedorfundswithinthepoolofanequivalentamounttothatobtainedfromselling a security
to a counterpartyusing a reverserepurchaseagreementorsecuritieslendingagreementshallnotbeused
topurchaseanother
security with a maturitylongerthan92daysfromtheinitialsettlementdateofthereverserepurchase
agreementor securities lendingagreement,unlessthereverserepurchaseagreementorsecuritieslending
agreementincludes a writtencodicilguaranteeing a minimumearningorspreadfortheentireperiod
betweenthesaleof a securityusing a reverserepurchaseagreementorsecuritieslendingagreementand
thefinalmaturitydateofthesamesecurity.
(4)(A)Investmentsinreverserepurchaseagreements,securitieslendingagreements,orsimilar
investmentsinwhichthelocalagencysells securities priortopurchasewith a simultaneousagreementto
repurchasethesecuritymaybemadeonlyuponpriorapprovalofthegoverningbodyofthelocalagency
andshallbemadeonlywithprimarydealersoftheFederalReserveBankofNewYorkorwith a nationallyor
state-charteredbankthathasorhashad a significantbankingrelationshipwith a localagency.
(B)Forpurposesofthischapter,“significantbankingrelationship”meansanyofthefollowingactivitiesof a
bank:
(i)Involvementinthecreation,sale,purchase,orretirementof a localagency’sbonds,warrants,notes,or
otherevidenceofindebtedness.
(ii)Financingof a localagency’sactivities.
(iii)Acceptanceof a localagency’s securities orfundsasdeposits.
(5)(A)“Repurchaseagreement”means a purchaseof securities bythelocalagencypursuanttoan
agreementbywhichthe counterpartysellerwillrepurchasethesecuritiesonorbefore a specifieddateand
for a specified amountandthecounterpartywilldelivertheunderlyingsecuritiestothelocalagencybybook
entry,physicaldelivery,orbythird-partycustodialagreement.Thetransferofunderlying securities tothe
counterpartybank’scustomerbook-entryaccountmaybeusedforbook-entrydelivery.
(B)“Securities,”forpurposesofrepurchaseunderthissubdivision,means securities ofthesame issuer,
description,issuedate,andmaturity.
(C)“Reverserepurchaseagreement”means a saleof securities bythelocalagencypursuanttoan
agreementbywhichthelocalagencywillrepurchasethesecuritiesonorbefore a specifieddateand
includesothercomparableagreements.
(D)“Securitieslendingagreement”meansanagreementunderwhich a localagencyagreestotransfer
securitiesto a borrowerwho,inturn,agreestoprovidecollateraltothelocalagency.Duringthetermofthe
agreement,boththesecuritiesandthecollateralareheldby a thirdparty.Attheconclusionofthe
agreement,thesecuritiesaretransferredbacktothelocalagencyinreturnforthecollateral.
(E)Forpurposesofthissection,thebasevalueofthelocalagency’spoolportfolioshallbethatdollar
amountobtainedbytotalingallcashbalancesplacedinthepoolbyallpoolparticipants,excludingany
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amountsobtainedthroughselling securities bywayofreverserepurchaseagreements, securities lending
agreements,orothersimilarborrowingmethods.
(F)Forpurposesofthissection,thespreadisthedifferencebetweenthe cost offundsobtainedusingthe
reverserepurchaseagreementandtheearningsobtainedonthereinvestmentofthefunds.
(k)Medium-termnotes,definedasallcorporate anddepositoryinstitutiondebtsecuritieswith a maximum
remainingmaturityoffiveyearsor less, issuedbycorporationsorganizedandoperatingwithintheUnited
Statesorbydepositoryinstitutions licensed bytheUnitedStatesoranystateandoperatingwithinthe
UnitedStates.Noteseligibleforinvestmentunderthissubdivisionshallberated“A”orbetterbyanNRSRO.
Purchasesofmedium-termnotesshallnotincludeotherinstrumentsauthorizedbythis section andshallnot
exceed 30percentof theagency’smoneysthatmaybeinvestedpursuanttothissection.
(l)(1)Sharesofbeneficialinterestissuedbydiversifiedmanagementcompaniesthatinvestinthe securities
andobligationsasauthorizedbysubdivisions(a)to(k),inclusive,andsubdivisions(m)to(q),inclusive,and
thatcomplywiththeinvestmentrestrictionsofthisarticleandArticle 2 (commencingwithSection53630).
However,notwithstandingthese restrictions, a counterpartyto a reverserepurchaseagreementorsecurities
lending agreementisnotrequiredtobe a primarydealeroftheFederalReserveBankofNewYorkifthe
company’sboardofdirectorsfindsthatthecounterpartypresents a minimalriskofdefault,andthevalueof
thesecuritiesunderlying a repurchaseagreementorsecuritieslendingagreementmaybe100percentof
thesalespriceifthesecuritiesaremarkedtomarketdaily.
(2)Sharesofbeneficialinterestissuedbydiversifiedmanagementcompaniesthataremoneymarketfunds
registeredwiththeSecuritiesandExchangeCommissionundertheInvestmentCompany Act of1940(15
U.S.C. Sec. 80a-1 etseq.).
(3)Ifinvestmentisinsharesissuedpursuanttoparagraph(1),thecompanyshallhavemeteitherofthe
followingcriteria:
(A)Attainedthehighestrankingorthehighestletterandnumericalratingprovidedbynot less thantwo
NRSROs.
(B)RetainedaninvestmentadviserregisteredorexemptfromregistrationwiththeSecuritiesandExchange
Commissionwithnotlessthanfiveyears’experienceinvestinginthe securitiesandobligationsauthorized
bysubdivisions(a)to(k),inclusive,andsubdivisions(m)to(q),inclusive,andwith assets under
managementin excess offivehundredmilliondollars($500,000,000).
(4)Ifinvestmentisinsharesissuedpursuanttoparagraph(2),thecompanyshallhavemeteitherofthe
followingcriteria:
(A)Attainedthehighestrankingorthehighestletterandnumericalratingprovidedbynot less thantwo
NRSROs.
(B)RetainedaninvestmentadviserregisteredorexemptfromregistrationwiththeSecuritiesandExchange
Commissionwithnotlessthanfiveyears’experiencemanagingmoneymarketmutualfundswith assets
undermanagementin excess offivehundredmilliondollars($500,000,000).
(5)Thepurchasepriceofsharesofbeneficialinterestpurchasedpursuanttothissubdivisionshallnot
includecommissionthatthecompaniesmaychargeandshallnotexceed20percentoftheagency’s
moneysthatmaybeinvestedpursuanttothis section. However,nomorethan10percentoftheagency’s
fundsmaybeinvestedinsharesofbeneficialinterestofanyonemutualfundpursuanttoparagraph(1).
(m)Moneysheldby a trusteeorfiscalagentandpledgedtothepaymentor security ofbondsorother
indebtedness,orobligationsunder a lease,installmentsale,orotheragreementof a localagency,or
certificatesofparticipationinthosebonds,indebtedness,orleaseinstallmentsale,orotheragreements,
maybeinvestedin accordance withthestatutoryprovisionsgoverningtheissuance of thosebonds,
indebtedness,orleaseinstallmentsale,orotheragreement,ortotheextentnotinconsistenttherewithorif
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therearenospecificstatutoryprovisions,inaccordancewiththeordinance,resolution,indenture,or
agreementofthelocalagency providingforthe issuance.
(n)Notes,bonds,orotherobligationsthatareatalltimessecuredby a validfirstpriority security interestin
securitiesofthetypeslistedbySection53651aseligiblesecuritiesforthepurposeofsecuringlocalagency
depositshaving a marketvalueatleastequaltothatrequiredbySection53652forthepurposeof securing
localagencydeposits.Thesecuritiesservingascollateralshallbeplacedbydeliveryorbookentryintothe
custodyof a trustcompanyorthetrustdepartmentof a bankthatisnotaffiliatedwiththeissuerofthe
secured obligation,andthe security interestshallbeperfectedinaccordancewiththerequirementsofthe
UniformCommercialCodeorfederalregulationsapplicabletothetypesofsecuritiesinwhichthesecurity
interestisgranted.
(o)A mortgagepass-throughsecurity,collateralizedmortgageobligation,mortgage-backedorotherpay-
throughbond,equipmentlease-backedcertificate,consumerreceivablepass-throughcertificate,or
consumerreceivable-backedbond.Securitieseligible forinvestmentunderthissubdivisionshallberatedin
a ratingcategoryof“AA”oritsequivalentorbetterbyanNRSROandhave a maximumremainingmaturity
offiveyearsor less. Purchaseofsecuritiesauthorizedbythissubdivisionshallnot exceed 20percentofthe
agency’ssurplusmoneysthatmaybeinvestedpursuanttothissection.
(p)Sharesofbeneficialinterestissuedby a jointpowersauthorityorganizedpursuanttoSection6509.7that
investsinthesecuritiesandobligationsauthorizedin subdivisions(a)to(q),inclusive.Eachshareshall
representanequalproportionalinterestintheunderlyingpoolofsecuritiesownedbythejointpowers
authority.Tobeeligibleunderthissection,thejointpowersauthority issuing thesharesshallhaveretained
aninvestmentadviserthatmeetsallofthefollowingcriteria:
(1)TheadviserisregisteredorexemptfromregistrationwiththeSecuritiesandExchangeCommission.
(2)Theadviserhasnotlessthanfiveyearsofexperienceinvestinginthe securitiesandobligations
authorizedinsubdivisions(a)to(q),inclusive.
(3)Theadviserhasassetsundermanagementin excess offivehundredmilliondollars($500,000,000).
(q)UnitedStatesdollardenominatedseniorunsecuredunsubordinatedobligationsissuedorunconditionally
guaranteedbytheInternationalBankfor Reconstruction andDevelopment,InternationalFinance
Corporation,orInter-AmericanDevelopmentBank,with a maximumremainingmaturityoffiveyearsor less,
andeligibleforpurchaseandsalewithintheUnitedStates.Investmentsunderthissubdivisionshallberated
“AA”orbetterbyanNRSROandshallnotexceed30percentoftheagency’smoneysthatmaybeinvested
pursuanttothissection.
(AmendedbyStats.2014,Ch.59, Sec. 1.EffectiveJanuary1,2015.)
. . .
GOVERNMENTCODE
SECTION
53601.1.
Theauthorityof a localagencytoinvestfundspursuanttoSection53601includes,inadditionthereto,
authoritytoinvestinfinancialfuturesorfinancialoptioncontractsinanyoftheinvestmentcategories
enumeratedinthat section.
(AddedbyStats.1983,Ch.534, Sec. 3.)
. . .
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GOVERNMENTCODE
SECTION
53601.6.
(a)A localagencyshallnotinvestanyfundspursuanttothisarticleorpursuanttoArticle 2 (commencing
withSection53630)ininversefloaters,rangenotes,ormortgage-derived,interest-only strips.
(b)A localagencyshallnotinvestanyfundspursuanttothisarticleorpursuanttoArticle 2 (commencing
withSection53630)inany security thatcouldresult in zerointerest accrual ifheldtomaturity.However, a
localagencymayholdprohibitedinstrumentsuntiltheirmaturitydates.Thelimitationinthissubdivisionshall
notapplytolocalagencyinvestmentsinsharesofbeneficialinterestissuedbydiversifiedmanagement
companiesregisteredundertheInvestmentCompany Act of1940(15U.S.C. Sec. 80a-1 etseq.)thatare
authorizedforinvestmentpursuanttosubdivision(l)ofSection53601.
(AmendedbyStats.2009,Ch.332,Sec.68.1.EffectiveJanuary 1, 2010.)
. . .
GOVERNMENTCODE
SECTION
53638.
(a)Thedepositshallnotexceedtheshareholder’sequityofanydepositorybank.Forthepurposesofthis
subdivision,shareholder’sequityshallbedeterminedinaccordancewithSection463oftheFinancialCode,
butshallbedeemedtoincludecapitalnotesanddebentures.
(b)Thedepositshallnotexceedthetotalofthenetworthofanydepositorysavingsassociationorfederal
association,exceptthatdepositsnotexceeding a totaloffivehundredthousanddollars($500,000)maybe
madeto a savingsassociationorfederalassociationwithoutregardtothenetworthofthatdepository,if
such depositsareinsuredor secured asrequiredbylaw.
(c)Thedeposittotheshareaccountsofanyregularlycharteredcreditunionshallnotexceedthetotalofthe
unimpairedcapitalandsurplusofthecreditunion,asdefinedbyruleoftheCommissionerofFinancial
Institutions, except thatthedeposittoanycreditunionshareaccountinanamountnotexceedingfive
hundredthousanddollars($500,000)maybemadeiftheshareaccountsofthatcreditunionareinsuredor
guaranteedpursuanttoSection14858oftheFinancialCodeoraresecuredasrequiredbylaw.
(d)Thedepositininvestmentcertificatesof a federallyinsuredindustrialloancompanyshallnotexceedthe
totaloftheunimpairedcapitalandsurplusoftheinsuredindustrialloancompany.
(AmendedbyStats.2015,Ch.190,Sec.64.EffectiveJanuary1,2016.)
. . .
GOVERNMENTCODE
SECTION
53646.
(a)(1)Inthe case ofcountygovernment,thetreasurermayannuallyrendertotheboardofsupervisorsand
anyoversightcommittee a statementofinvestmentpolicy,whichtheboardshallreviewandapproveat a
publicmeeting.Anychangeinthepolicyshallalsobereviewedandapprovedbytheboardat a public
meeting.
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(2)Inthe case ofanyotherlocalagency,thetreasurerorchieffiscalofficerofthelocalagencymayannually
rendertothelegislativebodyofthatlocalagencyandanyoversightcommitteeofthatlocalagency a
statementofinvestmentpolicy,whichthelegislativebodyofthelocalagencyshallconsiderat a public
meeting.Anychangeinthepolicyshallalsobeconsideredbythelegislativebodyofthelocalagencyat a
publicmeeting.
(b)(1)Thetreasurerorchief fiscal officermayrender a quarterlyreporttothechiefexecutiveofficer,the
internalauditor,andthelegislativebodyofthelocalagency.Thequarterlyreportshallbe so submitted
within30daysfollowingtheendofthequartercoveredbythereport. Except asprovidedinsubdivisions(e)
and(f),thisreportshallincludethetypeofinvestment, issuer, dateofmaturity,paranddollaramount
investedonall securities, investmentsandmoneysheldbythe localagency,andshalladditionallyinclude a
descriptionofanyofthelocalagency’sfunds,investments,orprograms,thatareunderthemanagementof
contractedparties,includinglendingprograms.Withrespecttoall securities heldbythelocalagency, and
undermanagementofanyoutsidepartythatisnotalso a localagencyortheStateofCaliforniaLocal
AgencyInvestmentFund,thereportshallalsoinclude a currentmarketvalueasofthedateofthereport,
andshallincludethe source ofthissame valuation.
(2)Thequarterlyreportshallstatecomplianceoftheportfoliotothestatementofinvestmentpolicy,or
mannerinwhichtheportfolioisnotincompliance.
(3)Thequarterlyreportshallinclude a statementdenotingtheabilityofthelocalagencytomeetitspool’s
expenditurerequirementsforthenext six months,orprovideanexplanationastowhysufficientmoney
shall,ormay,notbeavailable.
(4)Inthequarterlyreport, a subsidiaryledgerofinvestmentsmaybeusedin accordance with accepted
accounting practices.
(c)Pursuanttosubdivision(b),thetreasurerorchief fiscal officershallreportwhateveradditionalinformation
ordatamayberequiredbythelegislativebodyofthelocalagency.
(d)Thelegislativebodyof a localagencymayelecttorequirethereportspecifiedinsubdivision(b)tobe
madeon a monthlybasisinsteadofquarterly.
(e)ForlocalagencyinvestmentsthathavebeenplacedintheLocalAgencyInvestmentFund,createdby
Section16429.1,inNationalCreditUnionShareInsuranceFund-insuredaccountsin a creditunion,in
accountsinsuredorguaranteedpursuanttoSection14858oftheFinancialCode,orinFederalDeposit
InsuranceCorporation-insuredaccountsin a bankorsavingsandloanassociation,in a countyinvestment
pool,oranycombinationofthese,thetreasurerorchieffiscalofficermaysupplytothegoverningbody,chief
executiveofficer,andtheauditorofthelocalagencythe most recentstatementorstatementsreceivedby
thelocalagency fromtheseinstitutionsinlieuoftheinformationrequiredbyparagraph(1)ofsubdivision(b)
regardinginvestmentsintheseinstitutions.
(f)Thetreasurerorchief fiscal officershallnotberequiredtorender a quarterlyreport,asrequiredby
subdivision(b),to a legislativebodyoranyoversightcommitteeof a school district orcountyofficeof
educationfor securities, investments,ormoneysheldbytheschool district orcountyofficeofeducationin
individualaccountsthatare less thantwenty-fivethousanddollars($25,000).
(g)Inrecognitionofthestateandlocalinterestsservedbytheactionsmadeoptionalinsubdivisions(a)and
(b),theLegislatureencouragesthelocalagencyofficialstocontinuetakingtheactionsformerlymandated
bythis section. However,nothinginthissubdivisionmaybeconstruedtoimposeanyliabilityon a local
agencythatdoesnotcontinuetotaketheformerlymandatedaction.
(AmendedbyStats.2009,Ch.332,Sec.68.5.EffectiveJanuary1,2010.)
. . .
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FIGURE 1
ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE
AB
(AS OF JANUARY 1, 2019)APPLICABLE TO ALL LOCAL AGENCIES
the next pagefor footnotes related to this figure.
MAXIMUM
MAXIMUM MINIMUMGOVERNMENT
SPECIFIED
INVESTMENT
REMAINING QUALITYCODE
TYPE% OF
C
MATURITYREQUIREMENTSSECTIONS
D
PORTFOLIO
Local Agency Bonds 5 years None None 53601(a)
U.S. Treasury Obligations 5 years None None 53601(b)
State Obligations: CA and
5 years None None 53601(d)
Others
CA Local Agency Obligations 5 years None None 53601(e)
U.S. Agency Obligations 5 years None None 53601(f)
E
180 days 40% None 53601(g)
Highest letter and
25% of the
F
Commercial Paper: Non-pooled Funds 270 days or less number 53601(h)(2)(C)
G
H
rating by an NRSRO
Highest letter and
Commercial Paper: Pooled 40% of the
270 days or less number 53635(a)(1)
IG
Funds
H
rating by an NRSRO
J
Negotiable Certificates of Deposit 5 years 30% None 53601(i)
Non-negotiable Certificates of
5 years None None
53630 et seq.
Deposit
53601.8 and
K
Placement Service Deposits 5 years 30% None
53635.8
53601.8 and
K
Placement Service Certificates of Deposit 5 years 30% None
53635.8
Repurchase Agreements 1 year None None 53601(j)
Reverse Repurchase Agreements and 20% of the base
LM
92 days None 53601(j)
Securities Lending Agreements value of the portfolio
N
Medium-term Notes 5 years or less 30% its equivalent or 53601(k)
better
Mutual Funds and Money Market Mutual 53601(l) and
OP,Q
N/A 20% Multiple
Funds 53601.6(b)
53630 et seq. and
R
Collateralized Bank Deposits 5 years None None
53601(n)
Mortgage Passthrough and Asset
5 years or less 20% or its equivalent or 53601(o)
Backed Securities
better
County Pooled Investment
N/A None None 27133
Funds
S
Joint Powers Authority Pool N/A None Multiple 53601(p)
Local Agency Investment Fund (LAIF) N/A None None 16429.1
T
Voluntary Investment Program Fund N/A None None 16340
U
Supranational Obligations 5 years or less 30% or its equivalent or 53601(q)
better
LOCAL AGENCY INVESTMENT GUIDELINES
TABLE OF NOTES FOR FIGURE 1
A
B
M
C
N
D
O
E
P
F
G
Q
H
R
S
I
T
J
U
K
L
LOCAL AGENCY INVESTMENT GUIDELINES
Also, while not expressly prohibited by State law, unregistered securities, such as Rule 144A
securities, may not be purchased by local agencies because local agencies do not meet the
3
Securities and Exchange Commission definition of Qualified Institutional Buyers (QIB).
What requirements must a financial
II.B
institution satisfy before a local agency
may deposit its money init? \[Section 53635.2\]
Section 53635.2 states that all local agency money may be invested in investments set forth in
53601 or deposited for safekeeping in state or national banks, savings associations, federal
associations, credit unions, or federally insured industrial loan companies in this State. It also
specifies certain requirements that such financial institutions must satisfy to hold local
agency money.
MINIMUM LEGAL REQUIREMENT:
To be eligible to receive local agency money, a financial institution must receive an overall
meeting the criteria specified in Section 2906 of Title 12 of the U.S. Code (Community
Reinvestment Act of 1977). The Community Reinvestment Act of 1977 (Act) requires financial
institutions to demonstrate their commitment to meeting the credit needs of local
communities in which they are chartered to do business. For the purpose of the Act, the
appropriate federal supervisory agency includes:
to state chartered banks and savings
The Comptroller of the Currency
banks that are not members of the
with respect to national banks;
Federal Reserve system and the
deposits of which are insured by the
The Board of Governors of the
FDIC; and
Federal Reserve System with respect
to state chartered banks that are
The Director of Office of Thrift
members of the Federal Reserve
Supervision with respect to savings
system and bank holding
associations (the deposits of which
companies;
are insured by the FDIC) and
savings holding companies.
The Federal Deposit Insurance
Corporation (FDIC) with respect
3
CDIAC's "Issue Brief: Rule 144A Securities" provides a summary of securities in this class:
www.treasurer.ca.gov/cdiac/issuebriefs/201307.pdf.
LOCAL AGENCY INVESTMENT GUIDELINES
APPENDIX III.
GLOSSARY OF CITY OF SANTA ANA
INVESTMENT POLICY & RELATED CALIFORNIA CODE TERMS
AGENCIES: Federal agency securities and/or Government Sponsored Enterprises(GSE). \[Referenced
pages: 9, 10, 15, 17, 29\]
ASSET- BACKED SECURITES (ABS):securities supported by pools of installment loans or leases or by
pools of revolving lines of credit. \[Referenced pages: 13\]
ASSOCIATION OF PUBLIC TREASURERS OF THE UNITED STATES AND CANADA:The Association
of Public Treasurers of the United States and Canada (APTUS&C), formerly called the Municipal Treasurers
Association of the United States and Canada (MTA US & C) was founded in 1965 and represents public
treasury and finance officials in local, county, and state/provincial governments throughout North America.
The Association provides educational seminars and conferences, publications, policy and legislative
information, and technical assistance to members. \[Referenced pages: 6, 21\]
BENEFICIAL SHARES/MONEY MARKET SHARES:In US securities law, a beneficial owner (as distinct
from a "nominee owner," "registered owner," or "record holder") of a security includes any person who,
directly or indirectly, has or shares voting or investment power also known as money market shares.
\[Referenced pages: 12, 18\]
BENCHMARK: A comparative base for measuring the· performance or risk tolerance of the investment
portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of
the portfolio's investments. \[Referenced pages: 5, 19\]
BILLS OF EXCHANGE/BANKERS ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or
trust company. The accepting institution guarantees payment of the bill, as well as the issuer. These
instruments are accepted as payment by banks engaged in financing trade. For example, a U.S.
corporation planning to purchase goods from a foreign vendor will ask its bank to issue a letter of credit on
behalf of the corporation. The letter of credit will allow the foreign vendor to draw a draft on the U.S.
corporation’s bank to pay for the merchandise. Upon receipt of the letter and the draft, the foreign vendor
will ship the merchandise and present the draft at its bank, which allows the vendor to receive payment for
the merchandise sold. The vendor’s foreign bank forwards the draft to the U.S. bank, at which point the
draft is “accepted” as an obligation that the purchaser’s U.S. bank must pay at a specified maturity date.
The U.S. bank may keep the acceptance or may sell it to a third party investor. Bankers’ acceptances are
sold at a discount and are considered fairly safe investment instruments because both the purchaser’s bank
and the initiating corporation are obligated to pay the holder at maturity. \[Referenced pages: 9, 17, 29\]
BOOK VALUE: The value at which a debt security is shown on theholder's balance sheet. Book value is
acquisition cost less amortization of premium or plus accretion of discount. \[Referenced pages: 4, 12, 19\]
BOOK ENTRY:An electronic system of accountability, custody, transfer, and settlement of securities.
Book-entry systems allow rapid and accurate transfers of securities with simultaneous cash settlement.
\[Referenced pages: 29, 31, 33\]
BROKER:A broker brings buyers and sellers together for a commission. \[Referenced pages: 10, 23\]
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BROKER-DEALER: Broker-dealer is used in securities regulation parlance to describe stock and securities
brokerages, because most act as both agents and principals. A brokerage acts as a broker (or agent) when
it executes orders on behalf of clients andacts as a dealer, or principal, when it trades for its own account.
A broker-dealer is a natural person, company or other organization that engages in the business of trading
securities for its own account or on behalf of its customers. \[Referenced pages: 3, 7, 8, 23\]
CALIFORNIA MUNICIPAL TREASURERS ASSOCIATION (CMTA):Is the professional society of active
public treasurers of California counties, cities and special districts. It sets ethical standards for the treasury
profession in state and local governments in California. The Association provides educational seminars and
conferences, publications, policy and legislative information, and technical assistance to members.
\[Referenced pages: 6, 21\]
CERTIFICATE OF DEPOSIT/ NEGOTIABLE CERTIFICATE OF DEPOSIT (CD):A time deposit with a
specific maturity evidenced by a certificate. Time certificates of deposit are collateralized in accordance with
the State code. Large-denomination CD's are typically negotiable and non-collateralized. These
instruments are issued by depository institutions such as commercial banks, savings institutions and credit
unions against funds invested for a specified time period (typically between 0 to 5 years). The term “CD” by
itself generally refers to negotiable certificates of deposit that can be resold to otherparties. CDs, however,
also may be nonnegotiable. Nonnegotiable CDs cannot be actively traded on the secondary markets and
generally are held to maturity by the party that purchased them. Yields on CDs vary depending on liquidity,
credit quality; and, for nonnegotiable CDs, whether they are collateralized. \[Referenced pages: 11, 16, 17,
30\]
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.
\[Referenced pages: 10, 14, 16,30, 31, 33\]
COLLATERLIZED MORTGAGE OBLIGATION (CMO): Mortgage backed bond that separates mortgage
pools into different maturity classes called traunches. CMO’s are issued by Federal National Mortgage
Corp. and Federal National Mortgage Association and are usually backed with a government guarantee and
have an AAA bond rating. Planned Amortization Class CMOs (PAC) have stable prepayment schedules
that do not react unfavorably in wide market swings. (Referenced page: 33\]
COMMERCIAL PAPER (CP): An unsecuredobligationissued by a corporationor bankto financeits short-
termcreditneeds, such as accounts receivableand inventory.Maturitiestypically rangefrom 2 to 270 days.
\[Referenced pages: 10, 17, 28, 30\]
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report of the (entity). It
includes five combined statements for each individual fund and account group prepared in conformity with
GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related
legal and contractual provisions, extensive introductory material, and a detailed Statistical Section.
\[Referenced page: 1\]
CONSTANT MATURITY TREASURY (CMT) RATE:CMT rate is an adjustment for equivalent maturity,
used by the Federal Reserve Board to compute an index based on the average yield of various Treasury
securities maturing at different periods. \[Referenced page: 5, 19\]
CORPORATE BOND: A debt security issued by 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. \[Referenced page: 6\]
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CREDIT QUALITY: The measurement of the financial strength of a bond issuer. This measurement helps
an investor to understand an issuer’s ability to make timely interest payments and repay the loan principal
upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by
the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized
rating agencies. \[Referenced page: 4\]
CREDIT RISK: The risk to an investor that an issuer will default in the payment of interest and/or principal
on a security. \[Referenced pages: 2, 3, 17\]
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his
own account. \[Referenced pages: 3, 7, 8, 10, 16, 23, 31, 32\]
DELIVERY VERSUS PAYMENT:There are two methods of delivery of securities: delivery versus payment
and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for
the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the
securities. See Safekeeping And Custody: \[Referenced pages: 16, 18\]
DERIVATIVE: Financial instruments which have a principal and/or interest payment subject to uncertainty
as to timing and/or amount including financial instruments whose return profile is linked to, or derived from,
the movement of one or more underlying index or security, and may include a leveraging factor, or financial
contracts based upon notional amounts whose value is derived from an underlying index or security (interest
rates, foreign exchange rates, equities or commodities). \[Referenced page: 13\]
DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns.
\[Referenced page: 16\]
DURATION:Is a measure of time (term of investment) which also is a measure of the sensitivity of the price
(the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as
a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising
bond prices. \[Referenced pages: 4, 17\]
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits,
currently up to $250,000 per deposit. 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. \[Referenced
pages: 27, 35\]
FEDERAL FARM CREDIT BANK (FFCB):Notes are high credit quality, short-term debt instruments,
issued at a discount to their par amount, similar to U.S. Treasury bills. FFCB provides a steady and
continuous stream of capital for the agricultural sector in all 50 states and Puerto Rico. Presently, the Farm
Credit System funds approximately 35 percent of all U.S. farm business debt. \[Referenced page: 9\]
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 the FHLB is to liquefy the housing
related assets of its members who must purchase stock in their district Bank. \[Referenced pages: 9, 16,26,
27\]
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the
Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the
auspices of the Department of Housing and Urban Development (HUD). It 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
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second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely
accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal
and interest. \[Referenced page: 9\]
FEDERAL RESERVE SYSTEM: 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 or interest-bearing, and usually have a limited or
nonexistent secondary market. Commercial paper is usually issued by companieswith highcredit ratings,
meaning that the investmentis almost always relatively lowrisk. \[Referenced pages: 7, 9, 10, 26, 31, 32\]
FIDUCIARY:Person, company, or association holding assets in trust of a beneficiary. \[Referenced pages:
14, 23\]
FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. (FINRA): FINRA is a private corporation that
acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of
Securities Dealers, Inc. (NASD) and the member regulation, enforcement and arbitration operations of the
New York Stock Exchange. It is a non-governmental organization that regulates member brokerage firms
and exchange markets. The government agency which acts as the ultimate regulator of the securities
industry, including FINRA, is the Securities and Exchange Commission. \[Referenced page: 7\]
FUTURES CONTRACT:Agreement to buy or sell a specific amount of a commodity or financialinstrument
at a particular price on a stipulated future date. \[Referenced pages: 9, 33\]
EX OFFICIO: Ex officio describe a position someone automatically gains because of another job or position
he/she already holds. For example, the United States Vice President is the ex officio President of the
Senate. In a like fashion, in accordance with the California Government Code the Chief Fiscal Officer of a
city which does have a specified City Treasurer is “ex officio” City Treasurer. \[Referenced page: 6\]
GOVERNMENTNATIONALMORTGAGEASSOCIATION(GNMAorGinnieMae): Securities influencing
thevolumeofbankcreditguaranteedbyGNMAand issuedbymortgage bankers,commercialbanks,
savingsandloanassociations,andotherinstitutions. Securityholderisprotected byfullfaith & creditof
theU.S.Government. Ginnie MaesecuritiesarebackedbyFHA, VAorFHAmortgages.The term"pass-
throughs"isusedtodescribeGinnie Maes. \[Referenced page: 9\]
GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES):Is a collection of commonly-followed
accountingrules and standards for financial reporting. The acronym is pronounced "gap." GAAP
specifications include definitions of concepts and principles, as well as industry-specific rules. \[Referenced
page: 2\]
GUARANTEED INVESTMENT AGREEMENTS OR CONTRACTS(GIC):An agreement or contractthat
guaranteesrepayment of principal and a fixed or floating interest rate for a predetermined period of time.
\[Referenced page: 14\]
INTEREST:The amount earned while owninga debt security, generally calculated as a percentage of the
principal amount. \[Referenced pages: 9, 12, 13,14, 15, 16, 17, 26, 29, 32, 33, 34, 35\]
INVERSE FLOATER:A bond or other type of debt whose coupon rate has an inverse relationship to a
benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. (Referenced
pages: 34\]
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INVESTMENT POLICY: A concise and clear statement of the objectives and parameters formulated by an
investor or investment manager for a portfolio of investment securities. \[Referenced pages: 1, 2, 3, 5, 6, 8,
10, 11, 13, 15, 16, 18, 19, 20, 21, 22, 34, 35\]
ISSUER: A legal entity that has the power to issue and distribute securities. Issuers include corporations,
municipalities, foreign and domestic governments and their agencies, and investment trusts. \[Referenced
pages: 3, 7, 12, 16, 17, 19, 23, 28, 30,31, 33, 35\]
JOINT POWERS AUTHORITIES (JPAs):JPAs are legally created entities that allow two or more public
agencies to jointly exercise common powers. Forming such entities permits public agencies with the means
to provide services more efficiently and in a cost-effective manner such as JPA investment pools. The Joint
Exercise of Powers Act, as codified in California Government Code Section 6500, governs JPAs. Under the
Act, JPAs are restricted to use by public agencies only. However, the term public agency is defined very
broadly. A public agency can include, but is not limited to, the federal government, the state or state
departments, local agencies, mutual water companies, public districts and recognized Indian tribes.
\[Referenced pages: 15, 33\]
LIQUIDITY: Liquidity describes the degree towhich an assetor securitycan be quickly bought or sold in the
market without affecting the asset's price. \[Referenced pages: 2, 3, 4, 5, 11, 12, 13, 19, 20, 21\]
LOCAL AGENCY/PUBLIC LOCAL AGENCY:Means a county, city, city and county, including a chartered
city or county, school district, community college district, public district, county board of education, county
superintendent of schools, or any public or municipal corporation. \[Referenced pages: 10, 11, 15, 17, 20, 21,
22,25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35\]
LOCAL AGENCY INVESTMENT FUND (LAIF): A voluntary program created by statute in 1977 as an
investment alternative for California's local governments and special districts. Local agencies may
participate in the state’s portfolio, which invests hundreds of millions of dollars, using the investment
expertise of the Treasurer's Office investment staff at no additional cost to the taxpayer. LAIF is part of the
Pooled Money Investment Account (PMIA). The PMIA began in 1955 and oversight is provided by the
Pooled Money Investment Board (PMIB) and an in-house Investment Committee. The PMIB members are
the State Treasurer, Director of Finance, and State Controller. The Local Investment Advisory Board (LIAB)
provides oversight for LAIF. The Board consists of five members as designated by statute. The State
Treasurer, as Chairman, or his designated representative appoints two members qualified by training and
experience in the field of investment or finance, and two members who are treasurers, finance or fiscal
officers or business managers employed by any county, city or local district or municipal corporation of this
state. \[Referenced pages: 11, 15, 17, 21, 22, 25, 26, 34, 35)
LOCAL GOVERNMENT INVESTMENT POOL (LGIP):The aggregate of all funds from political
subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
\[Referenced page: 14\]
MARKET RISK:The risk that the value of a security will rise or decline as a result of changes in market
conditions. \[Referenced page: 13\]
MARKET VALUE:The price at which a security is trading and could presumably be purchased or sold.
\[Referenced pages:3, 4, 5, 10, 16, 20, 30, 33, 35)
MASTER REPURCHASE AGREEMENT:A written contract covering all future transactions between the
parties to repurchase or reverse repurchases a security 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. \[Referenced page: 10\]
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MATURITY:The date upon which the principal or stated value of an investment becomes due and payable.
\[Referenced pages: 3, 4, 5, 9, 10, 11, 12, 13, 17, 18, 19, 20, 29, 30, 31, 32, 33, 34, 35\]
MEDIUM TERM CORPORATE NOTES (MTN): Refers to all corporate and depository institution debt
securities witha maximum remaining maturity of five years or less, issued by corporations organized and
operating within the United States or by depository institutions licensed by the United States or any state
and operating within the United States. \[Referenced pages:12, 17\]
MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers'
acceptances, etc.) are issued and traded. A money market mutual fund is a type of fixed income mutual
fund that invests in debt securities characterized by their short maturities and minimal credit risk. Money
market securities must be highly liquid and of the highest quality, thus money market mutual funds are
among the lowest-volatility types of investments. \[Referenced pages: 4, 12, 14, 15, 16, 18, 32\]
MONEY MARKET FUNDS:Seek to limit exposure to losses due to credit, market, and liquidity risks.
Money market funds in the United States are regulated by the Securities and Exchange Commission (SEC)
under the Investment Company Act of 1940. Rule 2a-7 of the act restricts the quality, maturity and diversity
of investments by money market funds. Under this act, a money fund mainly buys the highest rated debt,
which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 60
days or less and not invest more than 5% in any one issuer, except for government securities and
repurchase agreements. Unlike most other financial instruments, money market funds seek to maintain a
stable value of $1 per share. Funds are able to pay dividends to investors. \[Referenced page: 12, 32\]
MUTUAL FUND:An investment vehicle that is made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Mutual funds are operated by money managers, who investthe fund's capital and attempt to produce capital
gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match
the investment objectives stated in its prospectus. A money market mutual fund is a type of fixed income
mutual fund that invests in debt securities characterized by their short maturities and minimal credit risk.
\[Referenced pages: 4, 12, 14, 15, 16, 32\]
MORTGAGE PASS-THROUGH SECURITY:These instruments are based on pooled home mortgages
sold by federal agencies and instrumentalities such as Ginnie Mae and Freddie Mac. The amount of
principal and interest paid to investors varies from month to month in part because homeowners may
accelerate principal payments on a mortgage. The anticipated pay down schedule of the securities will vary
from mortgage pool to mortgage pool. Mortgage pass-through securities are complex investment
instruments that do not respond to market forces like other, more standard investment instruments. In a
declining interest rate environment, mortgage pass-through investors face higher reinvestment risk and
lower returns from their investment than investors in other instruments because homeowners tend to
refinance in lower interest rate environments, accelerating the principal payments on their mortgages. Thus,
the mortgage pass-through investor receives the accelerated principal payments at par and must reinvest
these earnings in a lower interest rate environment. \[Referenced page: 33\]
NATIONAL ASSOCIATION OF STATE TREASURERS (NAST\]:Provides advocacy and support that
enables member states to pursue and administer sound financial policies and programs benefiting the
citizens of the nation.The Association provides educational seminars and conferences, publications, policy
and legislative information, and technical assistance to members. \[Referenced page: 6\]
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO\]:A NSRO is a credit
rating agency (CRA\] that issues credit ratings that the U.S. Securities and Exchange Commission (SEC\]
permits other financial firms to use for certain regulatory purposes. \[Referenced page: 30\]
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OPTION:Right to buy or sell property that is granted in exchange for an agreed upon sum. If the right is not
exercised after a specified period, the option expires and the option buyer forfeitsthe money. \[Referenced
page: 33\]
PAR AMOUNT:The face amount or value of a bond. \[Referenced page: 19, 35\]
PASS-THOUGHSECURITY:A pooloffixed incomesecuritiesbackedby a package of assets (i.e.
mortgages)wheretheholderreceivestheprincipaland interestpayments. \[Referenced pages: 33\]
PERFECTED INTEREST:Perfected interest refers to establishment of a superior ownership right in and legal
control over securities assests held by abank custodian on the purchaser's behalf and isintended to protect
the purchaserfrom the custodial bank’s own creditors in the event of a bank default and filing for bankruptcy.
\[Referenced page: 16\]
PORTFOLIO: Collection of securities held by an investor. \[Referenced pages: 1, 2, 3, 4, 5, 6, 7, 9, 10, 11,
12, 13, 14, 15, 16, 17, 18, 19, 20, 25, 31, 35\]
PRINCIPAL: The face value or par value of an investment. \[Referenced pages: 3,4, 9, 13, 14, 21, 29\]
PRUDENT INVESTOR STANDARD: A standard defined under State Government Code Section 53600.3
that states when investing, reinvesting, purchasing, acquiring, exchanging selling, or managing public funds,
a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing,
including, but not limited to, the general economic conditions and the anticipated needs of the City, that a
prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds
of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the local
agency. \[Referenced page: 2, 9, 11\]
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market
price. This may be the amortized yield to maturity on a bond the current income return. \[Referenced pages:
4, 13, 19\]
REPURCHASE AGREEMENT (RP or REPO): A holder of securities sells these securities to an investor
with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer'' ineffect lends
the "seller" money for the period of the agreement, and the terms of the agreement are structured to
compensate him for this. (E.g. - A contract in which the seller of securities, such as Treasury Bills, agrees to
buy them back at a specified time and price; also called buyback.) See also Master Repurchase
Agreement. \[Referenced pages: 10, 16, 17, 29, 30, 31, 32\]
REVERSE REPURCHASE AGREEMENT (REVERSE RP or REPO): A reverse-repurchase agreement
(reverse repo) involves an investor borrowing cash from a financial institution in exchange for securities.
The investor agrees to repurchase the securities at a specified date for the same cash value plus an agreed
upon interest rate. Although the transaction is similar to a repo, the purpose of entering into a reverse repo
is quite different. While a repo is a straightforward investment of public funds, the reverse repo is a
borrowing. \[Referenced pages: 14, 29, 30, 31, 32\]
SAFEKEEPING AND CUSTODY: In a third-party safekeeping agreement, the local government agency
arranges for a firm other than the party that sold the investment to provide for the transfer and safekeeping
of the securities. Financial firms should not serve as both government broker-dealer and custodian.
Safekeeping represents a financial institution’s obligation to act on behalf of the owner under the owner’s
control. Custody is a more clearly defined control position by the agent responding to the owner’s
requirements. Custody normally does not take place in the governmental entities depository bank.
Investments should be settled in a delivery-versus-payment (DVP) basis. In this procedure, the buyer's
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payment for securities is due at the time of delivery. Security delivery and payment occur simultaneously.
This practice ensures that no funds are at risk in an investment transaction as funds are not released until
securities are delivered, ensuring the governmental entity has either money or securities at all times during
the transaction. \[Referenced page: 16\]
SECONDARY MARKET:A market made for the purchase and sale of outstanding issues following the
initial distribution. \[Referenced page: 4\]
SECURITIES AND EXCHANGE COMMISSION: Agency created by Congress to protect investors in
securities transactions by administering securities legislation. \[Referenced pages: 12, 32, 33\]
SPECULATION: Assumption of risk in anticipation of gain but recognizing a higher than average possibility
of loss. \[Referenced page: 14\]
SWAP:Trading one asset for another. \[Referenced page: 4\]
SUPRANATIONAL OBLIGATIONS: 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 or sale within the United States.
\[Referenced pages: 9, 17\]
TREASURIES: Negotiable U.S. Government debt obligations, backed by its full faith and credit, comprising
of short-termTreasury Bills (maturity less than one year), medium-term Treasury Notes (maturity one to ten
years), and long-term Treasury bonds (maturity from 10 to 30 years). \[Referenced pages: 3, 5, 17\]
TREASURY BILLS (T-Bills):A non-interest bearing discount security issued by the US Treasury to finance
the national debt. A T-Bill is a short-term debt obligation backed by the U.S. government with a maturity of
less than one year, sold in denominations of $1,000 up to a maximum purchase of $5 million. T-bills are
sold with maturities of four, thirteen, twenty-six and fifty-two weeks. They do not pay interest, but rather are
sold a discount to their face value. Effective interest is earned at maturity. \[Referenced pages: 9, 10, 17\]
TREASURY BONDS (T-Bonds): Long-term coupon-bearing US Treasury securities issued as direct
obligations of the US Government and having initial maturities of more than 10 to 30 years. Next to treasury
bills (maturity less than one year), and treasury notes (maturity one to ten years) T-bonds are the safest
form of marketable investment. \[Referenced pages: 9, 10, 17\]
TREASURY NOTES:Medium-term coupon-bearing US Treasury securities issued as direct obligations of
the US Government and having initial maturities from one to 10 years. Treasury notes are available from
the government with either a competitive or noncompetitive bid. \[Referenced pages: 9, 10, 17, 29\]
WEIGHTED AVERAGE MATURITY (WAM): The average maturity of all the securities that comprise a
portfolio. According to SEC rule 2a-7, the WAM for SEC registered money market mutual funds may not
exceed 90 days and no one security may have a maturity that exceeds 397 days. \[Referenced page: 19\]
YIELD: The rate of annual income return on an investment, expressed as a percentage: (a) 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. \[Referenced pages: 3, 4, 5, 19, 21\]
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APPENDIX IV.
GLOSSARY OF ADDITIONAL COMMON PUBLIC LOCAL AGENCY
INVESTMENT TERMS
ACCRUED INTEREST:The accumulated interest payable on a security since the last interest payment
made by the issuer.
AMORTIZATION:The systematic reduction of the amount owed on a debt issue through periodic payments
of principal.
ASKED PRICE (OR ASK):The price at which securities are offered.
BASIS POINT:A unit of measurement used in the valuation of fixed-income securities equal to 1/100 of 1
percent of yield, e.g., “1/4” of 1 percent is equal to 25 basis points.
BID PRICE: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.)
See Offer Price.
CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION (CDIAC):This California state
commission provides information, education and technical assistance on debt issuance and public fund
investments to local public agencies and other public finance professionals. The Commission was created
in 1981 as the California Debt Advisory Commission to function as the State's clearinghouse for public debt
issuance information and is tasked to assist state and local agencies with the monitoring, issuance and
management of public debt. The Commission's name was changed to the California Debt and Investment
Advisory Commission with the passage of Chapter 833, Statutes of 1996 (AB 1197), and its mission was
expanded to cover public investments.
CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS (CSMFO):Is a professional association of
state, county, and local government finance officers in California. A statewide organization serving all
California municipal finance professionals, an affiliate of the nationwide Government Finance Officers
Association (GFOA), membership is open to anyone in the State of California actively engaged in
government finance in any city, county, or special district. CSMFO has technical and professional
committees that deal with financial issues facing government and the public.
CALLABLE SECURITIES: A security that can be redeemed by the issuer before the scheduled maturity.
CALL PRICE (OR CALL):The price at which an issuer may redeem a bond prior to maturity. The price is
usually at a slight premium to the bond’s original issue price to compensate the holder for loss of income
and ownership.
CalTRUST (INVESTMENT TRUST OF CALIFORNIA): An investment pool partnership authorized under
California state law created by the CSAC (California State Association of Counties) Finance Corporation and
the League of California Cities to provide a convenient method for local agencies to pool their assets for
investment. State statute authorizes local agencies to directly invest in joint investment pools, such as
CalTRUST. There is no requirement that a local agency become a JPA member. Local agencies have four
account options – Government Fund, Money MarketFund, Short-Term, or Medium-Term accounts. Local
agencies can select an account option which matches their investment time horizon and cash flow needs
and easily reallocate among accounts as those needs change.
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CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICE (CDARS):A program with an approved
depository that removes the need for collateral by providing full FDIC insurance for certificates of deposit.
COLLATERALIZED BANK DEPOSITS:Collateralized bank deposits can be broadly defined as notes,
bonds, andother obligations (such as nonnegotiable CDs) that are secured at all times by valid first party
interest in collateral. For California local agencies, the collateral must meet specified Government Code
requirements.
CONVEXITY:Is the measure of the curve in the relationship between a bond's price and its yield. Consider
the price and yield of Bond A on a graph, where price is marked on the vertical axis, and yield on the
horizontal. A bond's price and yield are inversely related, so as its price decreases, its yield increases.
CURRENT YIELD (CURRENT RETURN): A yield calculation determined by dividing the annual interest
received on a security by the current market price of that security.
CUSTODIAN BANK:A financial institution that holds customers' securities for safekeeping to minimize the
risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form.
CUSIP: CUSIP or CUSPIC number stands for Committee on Uniform Securities Identification Procedures.
A CUSIP number identifies most financial instruments, including: stocks of all registered U.S. and Canadian
companies, commercial paper, and U.S. government and municipal bonds. The CUSIP system (formally
known as CUSIP Global Services)—owned by the American Bankers Association and managed by
Standard & Poor’s - facilitates the clearance and settlement process of securities. CUSIP numbers consist
of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of
financial instrument. A similar system is used to identify foreign securities (CUSIP International Numbering
System or CINS). CINS employs the same nine character identifier as CUSIP, but also contains a letter in
the first position to signify the issuer's country or geographic region.
DEBENTURE:A bond secured only by the general credit of the issuer.
DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than
face value. A security selling below originaloffering price shortly after sale also is considered to be at a
discount.
DISCOUNT SECURITIES:Non-interest bearing money market instruments that are issued a discount and
redeemed at maturity for fullface value (e.g. - U.S. Treasury Bills).
FAIR VALUE:The amount at which an investment could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various
classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm
cooperatives, and exporters.
FEDERAL FUNDS RATE: The rate of interest at which Fedfunds are traded. This rate is currently pegged
by the Federal Reserve through open-market operations.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve
Board and five of the twelve 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.
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INVERTED YIELD CURVE:A chart formation that illustrates long-term securities having lower yields than
short-term securities. This configuration usually occurs during periods of high inflation coupled with low
levels of confidence in the economy and a restrictive monetary policy.
INVESTMENT-GRADE OBLIGATIONS:An investment instrument suitable for purchase by institutional
investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or
higher by a rating agency.
LADDERING: Is a bond investment strategywhereby an investor staggers the maturity of the bonds in
his/her portfolio so that the bond proceeds can be reinvested at regular intervals. Laddering avoids the risk
of reinvesting a large portion of assets in an unfavorable financial environment. Each "rung" of the ladder is
a bond of a specific maturity date and the "height" of the ladder is the difference between the shortest
maturity bond and the longest maturity bond. Benefits of utilizing a rolling inventory of bonds with “laddered”
maturities are primarily three-fold:
(1)Interest rate risk is decreased by holding both short-term and long-term bonds thereby spreading risk
along the interest rate curve. If rates are rising, as one bond matures the funds can be re-invested into
higher yield bonds.
(2)- Decrease re-investment risk because as one bond in the ladder matures, the cash is re-invested, but it
only represents a portion of the total portfolio. Even if prevailing rates at the time of re-investment are lower
than the previous bond was returning, the smaller amount of reinvestment dollars mitigates the risk of
investing a lot of cash at a low return.
(3)- Maintain steady cash flows to encourage regular saving to encourage an income-producing portfolio.
MARK-TO-MARKET:The process whereby the book value or collateral value of a security is adjusted to
reflect its current market value.
OFFER PRICE (OR OFFER): The price asked by a seller of securities. (When you are buying securities,
you ask for an offer.) See Asked Price and Bid Price.
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.
PASSBOOKSAVINGSACCOUNT:A savingsaccountinwhichdepositsandwithdrawalsare recordedin
thedepositor'spassbook.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the
payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has
segregated for the benefit of the commission eligible collateral having a value of not less than its maximum
liability and which has been approved by the Public Deposit Protection Commission to hold public deposits.
REINVESTMENT RISK: The risk that a fixed-income investor will be unable to reinvest income proceeds
from a security holding at the same rate of return currently generated by that holding.
SEC RULE 15(C)3-1 \[Uniform Net Capital Rule\]:Every broker or dealer must at all times have and
maintain net capital no less than the greater of the highest minimum requirement applicable to its ratio
requirement under paragraph (a)(1) of this section, or to any of its activities under paragraph (a)(2) of this
section, and must otherwise not be “insolvent” as that term is defined in paragraph (c)(16) of this section.
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STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.)
and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons,
derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation
of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve.
TIME DEPOSITS:These instruments are issued by depository institutions against funds deposited for a
specified length of time. For the purpose of this report, time deposits (which would include instruments such
as deposit notes) are distinct from CDs. The primary difference between the two is the method of interest
calculation. Interest payments on time deposits are calculated in a manner similar to that of corporate bonds
whereas interest payments on CDs are calculated similarly to money market instruments.
TOTAL RETURN:All money earned on a bond or bond fund from annual interest and market gain or loss, if
any, including the deduction of sales charges and/or commissions.
WHEN ISSUED (WI): A conditional transaction in which an authorized new security has not been issued.
All “when issued” transactions are settled when the actual security is issued.
YIELD CURVE:A graphic representation that depicts the relationship at a given point in time between
yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may be
alternatively referred to as a positive yield curve.
YIELD TO CALL (YTC):The rate of return you receive if you hold the bond to its call date and the security
is redeemed at its call price. YTC assumes interestpayments are reinvested at the yield-to-call date.
YIELD TO MATURITY (YTM):The overall interest rate earned by an investor who buys a bond at the
market price and holds it until maturity. Mathematically, it is the discount rate at which the sum of allfuture
cash flows (from coupons and principal repayment) equals the price of the bond.
YIELD TO WORST (YTW):The lower yield of yield-to-call and yield-to-maturity. Investors of callable bonds
should always do the comparison to determine a bond's most conservative potential return.
ZERO-COUPON SECURITIES (STRIPS):Security that is issued at a discount and makes no periodic
interest payments. The rate of return consists of a gradual accretion of the principal of the security and is
payable at par upon maturity. California state law does not allow local agencies to purchase these securities
because of the greater interest rate risk and price volatility associated with them.
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CITY OF SANTA ANA
FINANCE & MANAGEMENT SERVICES AGENCY
BROKER / DEALER QUESTIONNAIRE AND CERTIFICATION
1.Name of Firm:
2.Address: (Local)
(Headquarters)
3.Telephone No.(Toll Free)
(Direct #)
4.Primary RepresentativeManager / Partner-in-Charge
NameName
TitleTitle
Telephone No.Telephone No.
Fax No.Fax No.
EmailEmail
No. of Years in Institutional Sales:No. of Years in Institutional Sales:
SEC Licenses:SEC Licenses:
5.Are you a Primary Dealer in U.S. Government Securities?............................................( ) Yes ( ) No
6.Are you a Regional Dealer in U.S. Government Securities?..........................................( ) Yes ( ) No
7.Are you a Broker - i.e., You DO NOTown positions of securities?................................( ) Yes ( ) No
8.Are you NASD certified and licensed to sell to California municipalities?......................( ) Yes ( ) No
9.What is the net capitalization of your firm?
10.What is the date of your firm’s fiscal year end?
11.Is your firm owned by a holding company? If so, what is the name and net capitalization of the holding firm?
12.Please provide your normal custody and delivery process:
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13.Which of the following securities are offered regularly by your trading desk?
\[ \] US Treasuries (Bills, CMB, Notes) \[ \] Federal Agencies (Discount Notes, Bonds)
\[ \] Commercial Paper \[ \] Bankers Acceptances \[ \] Negotiable Cert of Deposit
\[ \] Medium Term Corporate Notes \[ \] Repurchase Agreements \[ \] MoneyMarket Funds
\[ \] Asset Backed Securities/Mortgages \[ \] Reverse Repurchase Agreements
14.Which of the above securities does your firm specialize in marketing?
15.Please identify your most directly comparable City/Local Agency clients in our geographical
area:
Entity Contact Person Title Phone No. Client Since
16.What reports, transactions, confirmations and paper trail do your local agency clients receive? (Please
include samples.)
17.Please include samples of research reports, market information, or publications that your firm regularly
provides to local agency clients.
18.What precautions are taken by your firm to protect the interest of the public when dealing with government
agencies as investors?
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19.Have you or your firm been censored or punished by a regulatory State or Federal Agency for improper or
fraudulent activities, related to the sale of securities? ( ) Yes () No
20.If answer to question # 19 is YES, please explain charge(s), date(s), action(s) taken:
21.Attach certification documentation of your capital adequacy and financial solvency. This needs to be an
audited financial statement by an independent, recognized accounting firm. The audited financial statement
must be provided annually to the City within 120 days of your firm’s fiscal year-end.
22.Attach a complete schedule of your applicable fees and charges.
23.Does your firm offer investment training to your local agency clients? ( ) Yes ( ) No
CERTIFICATION
I hereby certify that I have personally read the City of Santa Ana’s Investment Policy and the California
Government Codes pertaining to investments and deposits of the City of Santa Ana, and have implemented
reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out
of transactions conducted between our firm and the City of Santa Ana. I understand, however, that our firm is
not obligated to monitor the percentage limits on the investments as described in the City of Santa Ana’s
Investment Policy. All sales personnel will be routinely informed of the City of Santa Ana’s investment
objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise
due diligence in informing the City of Santa Ana’s Investment Officers of all foreseeable risks associated with
financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire.
NOTE: Completion of this questionnaire is only part of the City of Santa Ana’s certification process and
DOES NOT guarantee that the applicant will be approved to do business with the City of Santa Ana.
SIGNED: DATE:
COUNTERSIGNED: DATE:
(Company president or person in charge of government
securities operations)
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