SR-6-O (36)
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FINANCE TREASURY REB C \WPWINOLD\INVPOL99
Council Meeting February 23, 1999
FEB 2 3 1999
Santa MOnica, California
TO Mayor and City Council
FROM City Staff
SUBJECT Recommendation to Revise City Investment Policy and Continue
Delegation of Investment Authonty to CIty Revenue ManagerlTreasurer
INTRODUCTION
This report recommends City Council approve a revised CIty Investment Policy and
contmue to delegate Investment authority to the City Revenue Manager/Treasurer from
March 1, 1999 to February 29, 2000
BACKGROUND
State law requires that a City's Investment policy and any material changes In the polley
be approved by Council annually at a public meeting Section 711 of the Santa Monica
City Charter delegates to the Revenue Manager/Treasurer authOrity for investing City
funds Section 53607 of the State of CalifornIa Government Code limits the
authOrization of the legIslative body to delegate Investment authOrity to a one-year
period, renewable annually.
The Council last approved the Investment Policy and contmued delegation to the CIty
Revenue ManagerlTreasurer on February 24, 1998 The City's Investment policy has
been awarded the Municipal Treasurers' ASSOCiatIon of the UnIted States and Canada
Certification of Excellence Award and continues to adhere to these standards
1
(00
FE8 2 3 1999
The shaded portions of the Investment Policy and Its attachments indIcate where
additions have been made, and the lined through portions Identify deletions
DISCUSSION
The follOWing changes have been mcorporated Into the attached Investment PolICY
1 Scope
SectIon B of the Investment Policy has been revised to Include information relating
to the allocation of Investment mcome, as recommended by recent Government
FInance OffIcers ASSOCIation policy gUidelines
2 Prudence
Section F of the Investment Policy has been revised to Include additional language
regarding ethical behaVior and conflicts of Interest, per recent Government Finance
Officers ASSOCIation policy gUldelmes
3 Records and Reports
Section G of the Investment PoliCY has been revised to Include language regarding
the Treasurer's responsibility for establishing and maintaining Internal control of City
assets, per recent Government Finance Officers ASSOCiation policy gUidelines
4 DiverSification
SectIon H (2d) of the Investment PolICY has been revIsed to Include a lIstmg of
eligible collateral for Investments In repurchase agreements, to minimiZe the risk on
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the City's portfolio If such Investments are made
5 Socially Responsible Investing
For some tIme staff has also been following "Informal" socially responSible
investing gUidelines Section J (2) ofthe Investment Policy has been added to
formalIze the gUIdelines
6 Attachment A to Investment Polley
The listIng of CIty of Santa MonJca Funds has been updated to Include the DIsaster
Fund which IS used to track disaster-related revenues and expenditures other than
those associated With the 1994 earthquake
7 Attachment B to Investment Policy
The listing of City of Santa MOnica finanCial assets speCifically excluded from
coverage of the City Investment PoliCY has been updated to Include the Main Library
Improvements Project GO Refunding Bonds Issued In 1998
8 Attachment C to Investment Polley
The Investment limit on the Local Agency Investment Fund (LAIF) Investments has
been reVised to reflect current State law
BUDGET/FINANCIAL IMPACT
There are no budget or flnancrallmpacts resulting from thIS staff report
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RECOMMENDA TION
Staff recommends that CouncIl approve the attached Investment Polley, and delegate
to the City Revenue ManagerlTreasurer Investment authority for March 1, 1999 through
February 29, 2000
Prepared by Mike Dennis, Director of Finance
Ralph Bursey, City Revenue ManagerlTreasurer
Attachment Revised CIty Investment Policy
4
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Revised 2/99
INVESTMENT POLICY FOR THE CITY OF SANTA MONICA
A. PURPOSE
The purpose of establishing a formal Investment policy IS to set broad gUidelines within which
the City Treasurer IS to lawfully Invest City funds These gUldehnes do not supersede apphcable
State laws and City codes
B. SCOPE
This Investment policy applies to aU cash and financial Investments of the various funds of the
City of Santa MOnica as Identified In the City's ComprehenSive Annual Financial Report, with the
exception of those financial assets explicitly excluded from coverage by these poliCies for legal
or operational reasons All City Funds are listed In Attachment A and all cash and financial
Investments which are excluded from coverage by thIS Investment poliCY are Identified In
Attachment B
Investment Income WIll be allocated to the various funds based on their respective partiCIpation
flr:i 1r1 accordance with generally accepted accountIng prinCiples. Interest IS allocHted on a
quarterly bdSIS
C ADMINISTRATION
1 An Investment Committee shall be establrshed consistIng of the Director of Finance, City
Treasurer/Revenue Manager, and a representative from the City Manager's Office
2 The Investment Committee WIll meet at least once each calendar quarter to review and
evaluate prevIous Investment activity and Yield, to review the current status of all funds
held by the CIty, to diSCUSS anticipated cash requirements and Investment actiVity for the
next quarter r and to recommend Investment strategy to the City Treasurer.
3 All Investment poliCies and all changes to those poliCies must be approved by a majority
of the Investment Committee
4 Any two members of the Committee may call a speCial meetmg, and three members shall
constitute a quorum
5 Minutes Will be published of all Investment Committee meetmgs.
6 The Investment Committee Will meet at least annually With the Clty's outsIde audItors to
review accounting controls and to deSign adequate audit procedures to Identify any non-
compliance With the City Investment polley
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7. The City rnvestment policy Will be reviewed annually by the Investment Committee and
submitted annually to the City CouncIl.
o INVESTMENT OBJECTIVES
The pnmary objective of all City mvestments shall be safety The secondary objective shall be
liqUIdity The third objective shall be to achieve a return.
1. "Safety" means that the overall value of City funds shall not be diminished m the process
of securing and Investrng those funds or over the duration of the rnvestments.
2 LiqUidity means that funds shall be made available to meet all anticipated City obligatIOns
and a prudent reserve shall be kept avaIlable to meet unanticipated cash requirements.
Avallabllrty has two aspects, liqUidity and the scheduling of cash flows. LiqUidity IS the
ability to change an Investment mto Its cash eqUivalent on short notice at Its prevailing
market value. Schedulrng of cash flows means that Investments are to mature or are to
be converted Into cash In tandem With the City's anticipated cash reqUirements.
3. Achieve a return means to earn the optimum Interest Income from City funds
commensurate With the objectives of safety and availability of the pnnclple Invested. At
no time shall funds be Invested rn any secunty that could result In zero mterest accrual If
held to matunty
E. INVESTMENT AUTHORITY DELEGATION
In accordance With the Santa Monica City Charter, Section 711, the City Treasurer IS responsible
for conducting the City's Investment transactions. The Treasurer may delegate thiS authonty
to the ASSistant Treasurer or, In extraordinary Circumstances, to the Director of Finance.
F P~UDENCE
1 Investments shall be made With Judgment, care, SkIll, prudence, and diligence under
circumstances then prevallmg, which persons of prudence actrng In a like capacity and
famlllanty With those matters would use In the conduct of funds of a like character and
With Irke alms, to safeguard the prinCipal and maintain the liqUidIty needs of the City. ThiS
standard of prudence shall be applied In the context of managmg an overall portfolio.
Investment officers acting In accordance With written procedures and exerClsmg due
dlhgence shall be reheved of personal responslblhty for an IndiVidual security's credit nsk
or market pnce changes, proVided that deVIations from expectatIons are reported In wntmg
to the Director of Fmance In a timely fashion, and appropnate action IS taken to control
adverse developments.
2". Officers and employees Involved In the IIlvestmenl process shall retrain from personal
bUSiness activity that could conflict With the proper execution and management' of the
Invc~tm(mt progrtlm, or that could rmpCllr their ability to mak.e nnpartlal deCISions
Employees and IOvestrmmt offiCials shall disclose any matenal Interests In financial
lr'stlhJtlons With whIch they l.unduct busmess They shall further disclose any personal
fllldnclal.lnvestment poslllons that could be related to the performal"ce of the Investment
portfolio Employees and otflcers shall refram from undertaking personal Investment
tf~~ctlons With the same indiVidual With whom bUSiness IS conducted on behalf of the
~ilW
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-2-:- 3. Investment officers shall avoid any transactions that might impaIr public confidence JO the
Santa MOnica City government.
3- 4. Where It IS otherwise consistent with the Judiciary and statutory obligatIOns of the City
Revenue Manager/Treasurer, preference In selecting Investments shall be given to those
financial Institutions which have demonstrated Involvement In the development or
rehabIlitation of lOW-income affordable hOUSing.
~ 5. Investments In repurchase agreements shall be made only with fmanclal institutions wIth
whIch the City has an executed master repurchase agreement. The financial institution
must be a pnmary dealer of the Federal Reserve Bank of New York.
G RECORDS AND REPORTS
1 Records of all Investment transactions will be kept, and monthly reports wrll be made to
the Investment Committee and the City Manager detailing and summanzlng all transactions
and stating the present status of CIty Investments.
2 The Revenue ManagerlTreasurer Will report all Investments, with certam exceptions, at fair
market value rather than orlgmal purchase pnce, In the Monthly Cash & Investment Report
as required by the Government Accounting Standards Board (GASB) Statement No. 31.
3. As of the end of the fiscal year, the City Revenue Manager/Treasurer Will make a report
to the Director of Finance detalhng the present status of City Investments, as reqUIred by
the Government Accounting Standards Board (GASB) statement No 3
4. I he City Trm:lsurer IS raspom.lble fm estabhshlng and mamtalnlng an Internal control
structure dnslgned to ensure that tht" assets of the City are protected trom 105S, theft or
misuse. The II1ternal contral structure shdll be deSIgned to prOVide reasonable iiSSlIrance
that these objectives are met. The concept of reasonable assurance recognizes tha: (1 J
the c.ost of a control should nol exceed the benefits hkelv to be derived and (2) the
vdlLmtlon of (:05r5 ilnd benefits reqUires E'stlrnatE'S and Judgements by mimagE'mpnt.
H DIVERSIFICATION
1 All CIty funds which are not required for Immediate cash expenditures or to maintain
reqUired compensatmg cash balances shall be Invested In Interest beanng Investments or
accounts.
2. To reduce overall portfoliO risk while attempting to attain market rates of return consistent
With the pnmary objectives of safety and availability of funds, Investments shall be
diversified across types of Investments, matUrities of those Investments, and InstitutIOns
In which those Investments are made Generally, the portfoliO IS to be mvested 10 U.S.
Treasury and Federal Agency securities With a modest addition of BAs and CDs
a. Investment Instruments
Investments shall be made only In those Instruments speCifically authOrized by
California State laws, and to no greater an extent than authOrized by those laws.
Said laws are summarized In Attachment C. Additional City gUidelines are as follows
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I nstrull1ents
Additional CltV GUldehnes
U S Federal Agencies.
Banker's Acceptances (SA)
Certificate of Deposit lCD)
Commercial Paper lCP)
33 1/3% of portfolio, maximum for each agency.
10% max. per Issuer, 40% max overall.
10% max. per Issuer, 30% max.
all (CP), 15% max overall (CP).
NOTES:
..
Fedl National Mortgage Assn. (FNMA); Fedl Home Loan Mortgage Corp. (FHLMC), Fedl.
Home Loan Bank(FHLB); Student Loan Marketing Assn. (SLMA); Tennessee Valley
Authority lTVAI, and any other U.S Federal agency or instrumentality.
b Maturities
MatUrities of IndIvidual Investments shall be diversified to meet the followmg
obJectives.
I. No Investment Will be purchased whIch matures more than three years from the
date of purchase unless speCifically recommended by a unanimous vote of the
Investment Committee No Investment Will be purchased whIch matures more
than five years from the date of purchase Without the addItional approval of the
City Manager and the prior approval of the City Council
II. The average weighted maturity of all pooled City Investments shall not exceed
18 months 1547 days)
III To minimIZe the risk of haVing to make unusually large Investments at times
when Interest rates are temporarily very low, Investments Will be scheduled to
mature so that durmg any given month there Will be a comparable magnitude of
funds to be reinvested. These investible funds Will be estImated based on
scheduled maturities plus antIcIpated revenues mmus anticipated expenses.
IV. To the maximum extent practical, monthly operatIOnal cash reqUirements Will
be met by uSing anticipated revenues and maturing Investments. However, as
an aspect of active portfoho management, It may be fmanclally beneficial to the
City to sell Investments from time to time
v. To reduce the market and Interest rate risks which would result from the excess
concentration of assets In a speCific maturrty, a speCIfic Issue or a speCific class
of SeCUrities, no more than 5.0% of the City'S Investible funds may be Invested
In any single Issue maturing 10 a gIven month. The only exceptions are U S.
Treasury secUrities, to whIch an alternate limit of 10% Will apply.
c Institutions
To mmlmlze the nsk to the CIty's overall Investment portfolio from the default by a
Single institution In which CIty funds are on depOSit or Invested, the follOWing poliCies
shall be observed.
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City funds shall only be deposited In a flnancml InstitutIon whose
performance has been reliable and whose safety rating, as determined by the
Irwestment CommIttee or a reputable Independent rating service selected by
the Investment Committee, IS In the upper 60% of ItS peer group. These
same standards apply to institutions In which seCUrities owned by the CIty
are held In safekeeping. Exceptions to these standards may be made on an
IndivIdual basIs If they are unammously recommended by the Investment
Committee.
II. The City shall not deposit, In the form of certificates of deposit, tIme or
demand deposits, or Similar Instruments, In a Single institution more than
10% of the City's investIble funds.
III No Single InstitutIOn shall have, In cumulative total, as depOSits and
Investments (other than safekept Investmentsl more than 50% of the CIty's
Investible funds
d Repurchase Agreements
Investments In repurchase agreements are allowable and shall be made only with
financial institutions with which the City has an executed master repurchase
agreement. The financial Institution must be a primary dealer of the Federal Reserve
Bank of New York The market value (bid price plus accrued Interestl of the collateral
shall be valued at 102% or greater of the funds borrowed against those seCUrities and
the value shall be adjusted no less than quarterly
EI glble collateral shall Include tho follOWing:
1 U.S. TrcasUlY Obligations
2. U.S. Agency Securities
The counter party Will deliver the underlYing seCUrities to the City by book entry,
phYSical delr~cr'f, or by third party custodIal agreement. The transfer of underlymg
secuntles to the counter party bank's customer book-entry account may be used for
book cRtr">, dell'v'c;ry.
e. Certificates of DepOSit (CO,
ColI.itt:rallzed Cm11flcates of DepOSit must be collateralized by 110% of the CD vallie
by other eligIble secur rtJes Ellgrble (;ullateral shall Include the follo'll\llng;
, . U.S. Treasury Obligations
~:'~;.'U. S. Agency Sec4t~
I. RELATIONSHIPS WITH FINANCIAL INSTITUTIONS
1 The City may only purchase statutorily authOrized Investments, not purchased directly from
the Issuer, from either an institution licensed by the state as a broker/dealer, from a
national or state chartered bank, from a federal or state savings institutIOn, from a
brokerage firm deSIgnated as a primary government dealer by the Federal Reserve Bank,
or from a member of a federally regulated secuntles exchange.
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2. All fmanClallnstltutlons with which the City conducts Investment activities must agree In
writing to undertake reasonable efforts to prevent Illegal and/or Imprudent transactions
involving City funds Should It come to the attention of the City Revenue
Manager/Treasurer that City funds have been Involved In Illegal and/or Imprudent
transactions, thiS will be reported to the City Council along with options for dealing with
the Situation
3 Primary government seCUrities dealers which report to the New York Federal Reserve are
preferred for conductIng transactIons of all eligible secuntles other than non-negotIable
certificates of depOSit. Other security dealers who wish to engage In transactions with the
City must meet the City'S reqUirements for reliability and safety, and any purchases made
by the City from such secondary sources shall reqUire third party safekeepmg or delivery
of the secuntles to the City.
4 To ensure Yields consistent With thIS policy and to provide for the objective Investment of
City funds, the City's Investment procedures shall be deSigned to mclude transactions With
several firms that compete directly for publIC bus mess, and to encourage competitive
blddmg on transactions. Such bids shall be on file With the City Treasurer's Office and
copies shall be provided to the Director of Fmance monthly
J SaCIAll Y RESPONSIBLE INVESTING
1, BURMA POLICY - In accordance With the City of Santa Monica Council Resolution No.
8966 CCS (11/28/95). the .nvestment of City funds are restricted as follows
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A~
No Investments are to be made m banker's acceptances whIch are connected With
the military government of Burma, ItS agencies, or private Burma corporations
~
B:
No mvestments are to be made In commercial paper or eqUities of Umted States
corporations which have direct Investments In Burma or With the military government
of Burma
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C~
FinanCial transactions shall only be done With banklng/fmanclal institutIOns that do
not make loans to the military government of Burma or Its agencIes.
2. orHER .RE..S:IRICTIONS - The direct Investment of City funds arc restricted as follows'
Ai;. Irlvestrnents are to be made In entities which !lupoort clean and healthy envlwnment.
includ1l1g followlI'Ig safe and erlWObl'tlentally sOlmd practices.
~ No mVl'stments arc to be made 111 tobdCCO o~ tobacco related products.
C~ No. Investments are to be madn to SlJppOr1 the production of weapons, military
systems. or nuclear powpr
D. Investment& ore to be IT1dde In (mtltles which supports equality of rights regardless
oi sex, race. a~Je. dlsab IIty or saxual onentatlon.
E. Investments are to be made In entities which promote community economic
development.
Prior to making I'lVestrncnts, CIty Treasurer shdll verlfv com:>lIanr.rl \'\rlth the gUidelines either
through d'rect contact \'II th company or WIth Investors ResponSibility Research Center.
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K COMMUNITY REINVESTMENT ACT (eRA)
The City WIll Invest funds only In those financIal InstitutIOns whIch have a CRA rating (as
determmed by the appropnate regulatory body) of "Outstanding" or "SatIsfactory"
L. CUSTODY AND SAFEKEEPING OF SECURITIES AND CITY FUNDS
1 Wherever practical, all City Investments shall have the City of Santa MOnica as the
registered owner, and all Interest and prmclpal payments and withdrawals shall Indicate the
City of Santa MOnica as the payee.
All securitIes shall be safekept wIth the CIty Itself or wIth a qualIfIed fmanclal instItutIon,
contracted by the City as a third party All secuntles shall be acquired by the safekeepmg
institutIOn on a "dellvery-vs-payment" (DVP) basIs. In other words, the security must be
delivered before funds are released. The DVP basIs for delIvery applies also to the delivery
and safekeeping of repurchase agreement collateral.
2 Onglnal caples of non-negotiable certificates of deposit and confirming caples of all other
Investment transactIons must be delivered to the City.
M PERFORMANCE 5T ANDARDS
The Investment portfolio will be designed to obtain at least a market level rate of return, given
budgetary and economIc cycles (3 or more years) cycles and given the City'S Investment nsk
and cash flow needs. The City's portfolio management approach IS active, necessitating penodlc
restructunng of the portfolIo to take advantage of current and anticipated Interest rate
movements. In addition, the portfolio IS prlmanly Invested In U S Treasury and Federal Agency
secuntles GIven thiS strategy, the performance benchmarks shall be the roiling average of 6-
month and 12-month U S. Treasury bills, traded on the secondary market as reported In the
Federal Reserve System's monthly report of Interest rates.
N IMPLEMENTATION
The CIty Treasurer IS responsible for conducting and reportIng on all CIty Investments. To
faCIlitate thIS functIon, the Treasurer will prepare and marntaln an Investment Procedures Manual
to detail operating procedures to be practiced by the Treasury In Investmg City funds. All such
procedures shall be rn accordance With applicable State laws, City codes and the Investment
poliCies set by the Investment Committee. All procedures WIll be subject to revIew and approval
by the Investment Committee. The manual Will expliCitly mclude a current IIstmg of all City of
Santa MOnica financIal instItutIon depOSIt and Investment accounts, a current list of all financIal
InstItutions With which the City currently IS authOrized to conduct Investment transactions, a
current copy of State laws pertinent to City mvestments, a deSCription of speCifiC controls to
ensure the proper execution of the City Investment Policy, and copies, with Instructions, of all
Investment reports required by law or by City Investment policy.
O. INDEMNIFICATIOl\l OF INVESTMENT OFFICIAI,.S
Any Investment officer exercIsing hiS or her authonty With due diligence and prudence, and In
accordance With the CIty of Santa MOnica Investment Policy, Will not be held personally liable
for any indiVidual Investment losses or for total portfolio losses
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ATTACHMENT A City of Santa MOnica Funds for Cash Pooling
The following lIsted City of Santa MOnica funds shall have their cash balances pooled for
Investment purposes except for any fund or portion of one or more funds which IS specifically
Identified for exclusion In Attachment B of the CIty Investment Pohcy'
FUND
NUMBER
01
11
12
13
14
15
16
17
18
19
20
21
22
~t3
25
27
29
30
31
32
33
34
37
41
42
43
51
52
53
54
55
56
57
58
59
77
80
81
82
84
85
89
99
FUND NAME
GENERAL FUND
BEACH RECREATION FUND
HOUSING AUTHORITY FUND
DISASTER RELIEF FUND
TORCA FUND
LOW !MODERA TE INCOME HOUSING FUND
REDEVELOPMENT-DOWNTOWN FUND
REDEVELOPMENT-EARTHQUAKE RECOVERY
REDEVELOPMENT-OCEAN PARK FUND
COMM DEV BLOCK GRANT FUND
MISCELLANEOUS GRANTS FUND
ASSET SEIZURE FUND
CITIZENS OPTION FOR PUBLIC SAFETY FUND
DISASTER FUND
WATER FUND
SOLID WASTE MANAGEMENT FUND
RENT CONTROL FUND
PIER FUND
WASTEWATER FUND
AUDITORIUM FUND
AIRPORT FUND
STORMWATER FUND
CEMETERY FUND
TRANSPORTATION FUND
TRAFFIC SAFETY FUND
GAS TAX FUND
CABLE COMMUNICATIONS FUND
SPECIAL AVIATION FUND
PARKS AND RECREATIONAL FUND
VEHICLE MANAGEMENT FUND
COMPUTER REPLACEMENT FUND
SELF INS-COMPRE FUND
SELF INS-BUS FUND
SELF INS-AUTO FUND
SELF INS-W/C FUND
PARKING AUTHORITY FUND
GENERAL TRUST FUND
DEFERRED COMP FUND
CEMETERY PERPETUAL CARE FUND
FED REV SHARING FUND
DEBT SERVICE FUND
MAUSOLEUM ENDOWMENT FUND
GENERAL SERVICE FUND
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A TT ACHMENT B:
City of Santa MOnica Financial Assets Excluded from the Coverage of the
City Investment Polley
The following listed City of Santa Monica financial assets are specifically excluded from coverage of
the City Investment Policy. This exclusion does not exempt the administrators of these exempted
assets from exercIsing due diligence and prudence In the management of the assets.
Alroort Certificates of Participation - Under the terms of the trust agreement between the City of
Santa MOnica and the fiscal agent IU S Trust Company of California) for the City of Santa MOnica
Certificates of Participation ICOP's) 11995 Airport FacIlities Refundmg Series A and Series B), certain
specific funds must be held by the fiscal agent, to II) refund the City of Santa MOnica Certificate of
ParticIpatIOn (AIrport FacIlities) (the "Prior CertIfIcates"), (II) fund a reserve fund for the CertifIcates,
and (III) pay the costs Incurred In connection with the execution and delivery of the Certificates.
Audltorrum Box OffIce Trust - EstablIshed by CIty CouncIl ResolutIon 4243 to hold In trust Santa
MOnica CIVIC AuditOrium box office operation receipts for each mdlvldual permittee. Funds held In thiS
trust are managed by the AuditOrium through a checking account at Wells Fargo Bank and are
accounted for In Fund 32, the Audrtorlum Fund These funds are not Invested
Cemeterv Peroetual Care Fund Investments - The City CounCil authorized the Investment consulting
firm of RNC Capital Management to manage these Investments In accordance with parameters
approved by the CouncIl. They are accounted for In Fund 82, the Cemetery Perpetual Care Fund.
Cltv Emolovees Deferred ComDensatlon - Established by City CounCil Resolution 6759 and authorized
under contract No 5697, these funds are managed under contract by the Public Employees BenefIt
Services Corporation (PEBSCO), and are accounted for m Fund 81. the Deferred Compensation Fund.
Downtown Redevelooment Lease Revenue Bonds - Under the terms of the trust agreement between
the Redevelopment Agency of the City of Santa MOnica for Lease Revenue Bonds, 1992, and First
Trust of California Iflscal agent) certain speCifiC funds must be held by the fiscal agent, for payment
of pnnclpal and Interest and for reserve reqUirements The amount of funds held by the fiscal agent
vanes from year to year as the bonds mature. The funds are accounted for In the 85 Fund, the Debt
Service Fund.
LIbrary Book Purchase Account ~ Established by CIty CounCIl ResolutIon 5088 to facilItate book
purchases, these funds are managed by the Library through a checking account With Wells Fargo
Bank There IS a $100.00 limit per transaction Funds are accounted for In Fund 01, the General
Fund. These funds are not Invested.
MaIO Llbrarv Imorovements Pro~ect G.O. Bonds~~ttS99~ - Under the terms of the trust agreement
between the CIty of Santa MOnica and the fiscal agent (FIrst Trust of Calrfornla) for the City of Santa
MOnica General Obligation Bonds (MaIO Library Improvements ProJect), Series 1990, certam speCifiC
funds must be held by First Trust of California for the acquIsition of certam real property, for
constructIon and Improvement needs, for prmclpal and Interest payments, and for reserve
reqUirements. The funds are accounted for In Fund 01, the General Fund and Fund 85, the Debt
Service Fund.
M9Iln l br~uy lrogrovem~nts Pro~ccr G.O. R~tundma 60nds ( 1 a9..S) Under the terms of tile trust
agrccmC'nt between the C,ty of Santa Momea and the fiscal agent {First 1 rust of Callfornlal for the
City of Santa MOf1lCd General ObhgdLlon Bonds (Main Library Improvements ProJectl. Serreo; 1998,
certam r.;p(~clfIC funds must be held by thp hsedl agent for payrnE"nt of pnnclpf.ll and Interest and fOl
reserve reQUirements The funds ore dccountec:l tor 10 Fund 01, the General rund and Fund 85, the
l::)ei)t.S$t,Vicfj...F:\jOti(
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Mausoleum Peroetual Care Fund Investments - On July 8, 1986, the City Council amended the
Mumclpal Code, Section 7300 et aI, to create the new Mausoleum Perpetual Care Fund RNC Capital
Management, the Investment counselor for the Cemetery Perpetual Care Fund, was also deSIgnated
to manage these funds m accordance with parameters approved by the Council These funds are
accounted for In Fund 89, the Mausoleum Perpetual Care Fund
Ocean Park Redevelooment Profects - Under the terms of the trust agreement between the
Redevelopment Agency of the City of Santa Momca and the fiscal agent (First Trust of Callforma) for
the Redevelopment Agency of the CIty of Santa MOnica Ocean Park Redevelopment Projects Tax
Allocation Refunding Bonds, Senes 1992, certain speCific funds must be held by the fIscal agent, to
(I) refund the Agency's Ocean Park Redevelopment Projects Tax Allocation Refundmg Bonds, Senes
1988A, (II) refund the Agency's Ocean Park Redevelopment Project Tax Allocation Reflnancmg Bonds,
Senes 1988B, (III) prOVide funds to repay a portion of certain promissory notes of the Agency, (iv)
fund a reserve account for the Refunding Bonds, and (v) pay the costs of Issuance Incurred With the
Issuance of the Refundmg Bonds. The funds are accounted for m Fund 85, the Debt Service Fund.
Parklna Authontv Lease Revenue Bonds - Under the terms of the trust agreement between the Parking
Authority and the fiscal agent (First Trust of Cahforma) for the Parking Authonty of the City of Santa
Momca Lease Revenue Bonds, 1992, certain speCifiC funds must be held by the fiscal agent, for
constructIOn and Improvement needs, for principal and Interest payments, and for reserve
reqUirements The funds are accounted for In Fund 85, the Debt ServIce Fund.
Petty Cash - Section 1513 of the City Charter prOVIdes for the establishment of petty cash funds for
use by department heads to make cash expenditures of a minor nature. Petty cash funds are
managed by each IndiVidual department and are accounted for m each department's finanCial records
These funds are not Invested.
Santa MOnica Rehabilitation Loan Funds - These funds were established by City Council Resolution
to promote low cost hOUSing by proVIding loans to rehabilitate homes. These funds are held In trust
by the First Federal Savings Bank of Callforma, and are administered by the Resource Management
Department and the Finance Department. The funds are accounted for In Fund 19, the Community
Development Block Grant Fund.
Wastewater Entemnse Revenue Bonds - Under the terms of the trust agreement between the CIty of
Santa Monica and the fiscal agent, (First Trust of California), for the City of Santa MOnica Wastewater
Enterprise Revenue bonds (Hypenon Project), 1993 Refunding Senes, certam speCifiC funds must be
held by the fiscal agent for payment of pnnclpal and Interest and for reserve reqUirements The funds
are accounted for In the 31 Fund, the Wastewater Enterpnse Fund
Workers' Comoensatlon Account - ThIS checking account was established at First Interstate Bank
(now Wells Fargo Bank) In accordance With City CounCil Resolution 6692 to prOVide a means to
administer the City's contract With the workers' compensation Insurance adjusters. It IS administered
by the Risk Management DIVISIon of the City Manager's Office and Finance departments and account
for In Fund 59, the Self-Insurance Workers' Compensation Fund. These funds are not Invested
The followmg accounts for the City of Santa MOnica appear on the books for accountmg purposes,
but are not City assets and are excluded from coverage of the City Investment Polley:
Ball Bond Account - ThiS IS a cleanng account established at Wells Fargo Bank for the operational
convenience of the courts and the Police Department In processmg ball bond payments. It IS
administered by the Police Department and the FInance Department.
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Downtown Redevelooment Lease Revenue Bonds Escrow Account - As a result of the Issuance of the
Downtown Redevelopment Lease Revenue Bonds, Series 1992 (Downtown Redevelopment Refunding
Project of 1992), an escrow fund was established With Union Bank for purposes of payment of
principal of, and premium and Interest payments With respect to the 1978 Lease Revenue Bonds,
Series 1992 (Downtown Redevelopment Project of 1978)
Ocean Park Redevelopment Projects Tax Allocation Bonds Escrow Accounts (Refundlna Bonds. Series
1988A and Refmancma Bonds. Senes 1 988B) - As a result of the Issuance of the Ocean Park
Redevelopment Projects Tax Allocation Refundmg Bonds, Senes 1992, escrow funds were established
With Bank of America (now With First Trust of California) for purposes of payment of (I) the principal
of and accrued Interest on the 1988 Bonds coming due on and pnor to the Redemption Data and, (II)
the RedemptIon Prrce for the 1988 Bonds on the RedemptIon Date.
Parkma Authorltv Bonds Escrow Fund - As a result of the Issuance of the City of Santa MOnica
Certificates of PartiCIpation (ThIrd Street Mall ProJect), 1986, the Parking Authonty Revenue Bonds
of 1966 were placed In "defeasance" With the fiscal agent, Bank of America The Investment
seCUrities held are suffiCient to prOVide for the balance of the revenue bond's prinCipal and Interest
payments. The defeasance of these bonds was accounted for In Fund 77, the Parking AuthOrity Fund.
Third Street Mall Certificates of Partlcloatlon Escrow Account - As a result of the Issuance of the
Parking Authonty Lease Revenue Bonds, Senes 1992 (City of Santa MOnica Refunding Improvements
Project of 1992), an escrow fund was established With FIrst Interstate Bank (now Wells Fargo Bank)
for purposes of payment of prinCIpal and premIum and Interest payments With respect to 1 986 Third
Street Mall Certificates of PartiCipatIOn coming due after the Issuance of the refunding bonds.
Wastewater Enteronse Revenue Bonds Escrow Account - As a result of the Issuance of the City of
Santa MOnica Wastewater Enterpnse Revenue Bonds IHypenon ProJect), 1993 Refunding Senes, an
escrow fund was established With Bank of America (now With FIrst Trust of California) for purposes
of payment of prinCipal of and premium and Interest payments With respect to the Wastewater
Enterprise Revenue Bonds, 1991 Senes A through the date that the bonds are redeemed
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ATTACHMENT C. Summary of State of California Statutes Applicable to MUnicipal Investments
The followmg Investments are authorized by California State Code, Title 5, DIvIsIon 2, Sections
53600, 53601, 53631 5 and 53635.
AuthorIZed Investment
Legal
Limit t%)
Local Agency Bonds
U S. Treasury Obligations
No limit
No limit
State of California
Obligations
No limit
CalifornIa Local Agency
Obligations
U S. AgenCIes
No limit
No limit
Bankers Acceptance
40%
Commercial Paper
15%/30%
Negotiable Certificates of
DepOSit
30%
Repurchase Agreement
No limit
Reverse Repurchase
Agreements
20%
Other Constramts
MaXimum matunty 5 years.
MaXimum maturity 5 years
MaXImum maturity 5 years
MaXimum matunty 5 years
MaXimum maturity 5 years.
ElIgible for purchase by the Federal Reserve
System and not to exceed 270 days to
maturity. No more than 30% may be In
bankers acceptances of anyone commercial
bank.
"Prime" quality; U S. corporate assets over
$500,000,000; "A" debt rating, purchases may
not represent more than 10% of outstandmg
paper and may not exceed 180 days to
maturity The maximum limit on commercial
paper IS 15%, except that an additIonal 15%
may be purchased as long as the dollar-
weighted average maturity of "all" commerCial
paper held does not exceed 31 days
MaXimum matunty 5 years. State and Federally
chartered banks and savmgs institutIOns,
Includmg U S. branches of foreIgn banks
regulated by State regulatory authontles
("Yankee CD").
MaXimum maturity 1 year Secuntles used as
collateral for repo's must be Investments
allowable under Govt. Code (I.e., T-blllS,
AgenCIes, BAs, CDs, etc.); secuntles must be
safekept by third party.
Must be made With pnmary dealers of the
Federal Reserve Bank of New York and the
seCUrities used for the agreement must have
been held by the Issuer for at least 30 days.
The maximum matunty IS 92 days
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AuthorIZed Investment
Medium-Term Corporate
Notes
Shares of beneficial Interest
Issued by diversified
management companies
(mutual funds)
Money Market Funds
Collateralized Certificate of
Deposit
Mortgage Secuntles
Local Agency
Investment Fund
(LAIF)
County Pooled Investment
Funds
Legal
Limit 1%)
30%
20%
20%
No limit
20%
$~~
mIllion
No limit
Other Constramts
Maximum maturity 5 years; bonds must be
rated In top three ratIng categones by a
nationally recognized rating service.
No more than 10% may be Invested In anyone
mutual fund. Funds are Invested In securities
and obligatIOns authOrized by sub-diVIsions (a)
through 1m) of Section 53601 and 53635, (any
of the authOrized Investments for local
agencies) the Investment company must be In
highest rankmg prOVided by not less than two
of the three largest natIonally recogmzed ratIng
services OR must have the Investment advisor
registered With the SEe With no less than 5
yrs. expenence and have assets under mgmt. In
excess of $500 million.
The money market funds must have an average
weighted maturity of 90 days or less and abide
by SEe regulations, funds must receive the
hIghest ranking by 2 of the 3 largest natIonally
recognized rating agencies OR retain an
Investment advIsor who IS registered, or
exempt from regIstratIon, WIth the SEe and has
at least 5 years' experience managmg money
market funds In excess of $500 million
MaXimum maturity 5 years. Banks. depOSit not
to exceed the total of paid-In capital surplus.
S&Ls depOSIt not to exceed the greater of
total net worth or $500,000. State and
Federal credit umons: depOSit shall not exceed
the greater of the total of unpaIred capItal and
surplus or $ 500,000 Must be collateralized to
110% of the CD value by other eligible
seCUrities.
MaXimum maturity 5 years; bonds must be
rated In top two ratmg categories by a
natIonally recognized rating serVIce Shall not
exceed 95 % of the mortgage securlty's fair
market value
Monies are Invested In pooled state fund
managed by State Treasurer. MaXImum, 10
transactions per month
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Prohibited Investments Include seCUrities not hsted above, as well as Inverse floaters, range notes,
Interest only stripS derived from a pool of mortgages (collaterahzed mortgage obhgatlons), and any
security that could result m zero mterest accrual If held to maturity, as specified In section 53601.6.
Bond Proceeds
Bond proceeds may be Invested In accordance wIth the State Code provIsions.
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GLOSSARY
AGENCIES: Federal agency seCUrities.
ASKED The price at which seCUrities are offered.
BANKERS' ACCEPTANCE {BA). A draft or bIll of exchange accepted by a bank or trust company.
The acceptmg mStltutlon guarantees payment of the bill, as well as the Issuer.
BASIS POINT: A baSIS pomt equals one one-hundredth of 1 % (.01 %1.
BID The prtce offered for seCUrities.
BOOK ENTRY SECURITIES. All US. Treasury and Federal AgenCies are mamtamed on computerized
recards at the Federal Reserve now known as "wlreable" seCUrities
BROKER A broker brings buyers and sellers together for a commiSSion paid by the Initiator of the
transaction or by both Sides, he does not position In the money market, brokers are active In markets
In whIch banks buy and sell money and In interdealer markets
COLLATERAL SeCUritIes, eVidence of depOSit or other property which a borrower pledges to secure
repayment of a loan Also refers to seCUrities pledged by a bank to secure depOSIts of public mOnies
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFRI The offiCial annual report for the City of
Santa MOnica. It Includes fIve combIned statements and baSIC financial statements for each Individual
fund and account group prepared 10 conformity with GAAP It also Includes supportmg schedules
necessary to demonstrate compliance with fmance- related legal and contractual provISions, extensive
Introductory material, and a detailed Statistical Section.
CERTIFICATE OF DEPOSIT ICD); A tIme depOSit With a specifIc maturity eVIdenced by a certifIcate.
Large-denomination CD's are tYPically negotiable.
COMMERCIAL PAPER (CP): An unsecured promissory note With a fixed maturity no longer than 270
days PublIC offermgs are exempt from SEC regIstratIon The largest fssuers Include General Motors
Acceptance Corporation (GMAC), General ElectriC Capital Corporation (GECC) and other major
corporatIOns
COUPON- (at The annual rate of mterest that a bond's Issuer promIses to pay the bondholder on the
bond's face value (b) A certificate attached to a bond eVldencmg Interest due on a payment date.
DEALER' A dealer, as opposed to a broker, acts as a principal In all transactions, bUYing and selling
for his own account
DELIVERY VERSUS PAYMENT (DVP)' There are two methods of delivery of seCUrities: delivery
versus payment and dehvery versus receipt (also called free). 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
DEBENTURE A bond secured only by the general credit of the Issuer.
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DISCOUNT: The difference between the cost pnce of a secunty and Its value at matunty when
quoted at lower than face value. A security selling below anginal offering pnce shortly after sale also
IS conSidered to be at a discoUnt,
DISCOUNT SECURITIES. Non-Interest bearing money market Instruments that are Issued at a
discount and redeemed at maturity for full face value (e.g., U.S. Treasury bills)
DIVERSIFICATION: DIViding Investment funds among a vanety of seCUrities and Issuers offenng
Independent returns.
FEDERAL CREDIT AGENCIES' Agencies of the Federal government set up to supply credit to various
classes of Institutions and mdlvlduals, e 9 , S&L's, small busmess firms, students, farmers, farm
cooperatives, and exporters.
FEDERAL FUNDS Non-rnterest bearing deposits held by member banks at the Federal Reserve. Also
used to denote "Immediately available" funds In the c1eanng sense. "Fed Funds" also used to refer
to these funds
FEDERAL FUNDS RATE' The rate of Interest at whIch Fed funds are traded. ThiS rate IS currently
pegged by the Federal Reserve through open-market operations
FEDERAL 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 gUldelmes regarding purchases and sales of
Government Secuntles In the open market as a means of Influencmg the volume of bank credit and
money.
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.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that msures financial
instItutIOns' depOSits, currently up to $100,000 per depOSit.
FEDERAL HOME LOAN BANKS (FHLB) The institution that formerly regulated and lent to savings and
loan aSSOciatIOns The Federal Home Loan Banks played a role analogous to that played by the
Federal Reserve Banks Vis-a-VIS member commercial banks However, those responsIbilities have been
assumed by the OffIce of Thnft SupervIsion and the FDIC
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) A U S Corporation and Instrumentality
of the U.S government. Through ItS purchases of conventional mortgages, It prOVides liqUidity to the
mortgage markets, much like FNMA FHLMC'S Securrtles are highly liqUid and Widely accepted.
FHLMC assumes and guarantees that all security holders WIll receive timely payment of pnnclpal and
Interest
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 & Urban Development, H U.D. It IS the largest smgle
prOVider of reSidential mortgage funds In the Umted States Fannie Mae, as the corporation IS called,
IS a private stockholder- owned corporation. The corporations purchases Include a vanety of
adjustable mortgages and second loans In additIOn to fIxed-rate mortgages FNMA's secuntles are
- 16 -
also highly liqUId and are widely accepted. FNMA assumes and guarantees that all security holders
WIll receIve tImely payment of principal and Interest.
GOVERNMENTAL NATIONAL MORTGAGE ASSOCIATION (GNMA or Gmnle Mae): Securities
guaranteed by GNMA and Issued by mortgage bankers, commerCIal banks, savings and loan
aSsocIations and other institutIOns Security holder IS protected by full faith and credit of. the U.S
Government. Ginnie Mae secuntles are backed by FHA, VA or FMHM mortgages The term pass-
throughs IS often used to describe Ginnie Maes.
LIQUIDITY. A liqUid asset IS one that can be converted eaSily and rapidly mto cash without a
substantial loss of value. In the money market, a security IS said to be liqUId If the spread between
bid and asked prices IS narrow and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND ILAIF): The aggregate of all funds from political subdiVIsions
that are placed In the custody of the State Treasurer for Investment and reinvestment.
MARKET VALUE The price at whIch a secunty IS trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A wntten contract covering all future transactIOns between
the parties to repurchase--reverse agreements that establishes each party's rights In the transactions.
A master agreement will often specify, among other things, the right of the buyer-lender to liquidate
the underlymg seCUrities In the event of default by the seller-borrower
MATURITY: The date upon which the prmclpal or stated value of an Investment becomes due and
payable
MONEY MARKET. The market In which short-term debt mstruments (bills, commercial paper,
bankers' acceptances, etc.) are Issued and traded.
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 FOMe, In order to mfluence
the volume of money and credit In the economy. Purchases Inject reserves Into the bank system and
stimulate growth of money and credIt; sales have the opposite effect. Open market operations are
the Federal Reserve's most Important and most fleXible monetary poliCY tool.
PORTFOLIO- Collection of secuntles held by an Investor.
PRIMARY DEALER. A group of government secuntles dealers that submIt dally reports of market
activity and POSitions and monthly finanCial statements to the Federal Reserve Bank of New York and
are subject to Its Informal overSight Pnmary dealers Include Securities and Exchange CommiSSion
(SEC) registered seCUrities broker-dealers, banks, and a few unregulated firms
PRIME RATE: The rate at which banks lend to their best or "prime" customers Also known as the
"reference rate,"
PRUDENT PERSON RULE: An Investment standard. In some states the law reqUires that a fidUCiary,
such as a trustee, may mvest money only In a list of secuntles selected by the state (the so-called
legal list) In other states, the trustee may Invest In a security If It IS one which would be brought by
a prudent person of discretion and intelligence who IS seekmg a reasonable Income and preservation
of capital.
RA TE OF RETURN. The Yield obtainable on a security based on ItS purchase pnce or Its current
market pnce. ThiS may be the amortized Yield to maturity on a bond or the current Income return.
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QUALIFIED PUBLIC DEPOSITORIES. A financial Institution which does not claim exemption from the
payment of any sales or compensatmg 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.
REPURCHASE AGREEMENT (RP OR REPO). A holder of seCUrities sells these securities to an Investor
With an agreement to repurchase them at a fixed pnce on a fixed date The security "buyer" In effect
lends the "seller" money for the period of the agreement, and the terms of the agreement are
structured to compensate him for thiS Dealers use RP extensively to finance their posItions.
Exception When the Fed IS said to be dOing RP, It IS lending money, that IS, Increasing bank reserves.
SAFEKEEPING A service to customers rendered by banks for a fee whereby seCUrities and valuables
of all types and descnptlons are held In the bank's vaults for protection.
SECONDARY MARKET. A market made for the purchase and sale of outstanding Issues follOWing the
mltlal distribution.
SEC RULE 15C3-1 See unrform net capital rule.
STUDENT LOAN MARKETING ASSOCIATION ISLMAI AU S. Corporation and Instrumentality of the
U.S. government. Through Its borrOWings. funds are targeted for loans to students In higher
education InstitutIOns. SLMA's securities are highly liqUid and are Widely accepted
SECURITIES & EXCHANGE COMMISSION Agency created by Congress to protect Investors In
seCUrities transactions by admlnlsterrng securrtles legislatIOn.
SETTLEMENT DATE: The date on which a trade IS cleared by delivery of securrtles agaInst funds.
ThiS date may be the same as the trade date or later
TENNESSEE VALLEY AUTHORITY (TVA) A U S Corporation created In the 1930's, to electrify the
Tennessee Valley area; currently a major utility headquartered In KnOXVille Tennessee. TVA's
seCUrities are highly liqUid and are Widely accepted
TREASURY BILLS: A non-Interest beanng discount security Issued by the U S. Treasury to finance
the national debt Most bills are Issued to mature In three months, SIX months, or one year
TREASURY BOND Long-term U S. Treasury seCUrities haVing mltlal maturrtles of more than ten
years.
TREASURY NOTES Intermediate term coupon bearing U S Treasury securities haVing initial
maturrtles of from one to ten years
YIELD The rate of annual Income return on an Investment, expressed as a percentage. (a) INCOME
YIELD IS obtamed by diVIding the current dollar Income by the current market prrce for the security
(bl NET YIELD or YIELD TO MATURITY IS the current Income Yield minus any premIum above par or
plus any discount from par In purchase prrce With the adjustment spread over the penod from the date
of purchase to the date of maturity of the bond
UNIFORM NET CAPITAL RULE: Secuflttes and Exchange CommiSSion reqUirement that member firms
as well as nonmember broker-dealers In securities maintain a maximum ratIo of mdebtedness to liqUid
capital of 15 to 1, also called net capital rule and net capital ratio. Indebtedness covers all money
owed to a firm, including margin loans and commitments to purchase SeCUrities, one reason new
- 18 -
public Issues are spread among members of underwrltmg syndicates. LiquId capital Includes cash and
assets easily converted into cash.
TRADE DATE The date on which a transaction IS imtlated or entered mto by the buyer and seller
WHEN-ISSUED TRADES: TYPically, there IS a lay between the time a new bond IS announced and
sold, and the tIme when It IS actually Issued. Dunng this Interval, the secunty trades "WI", "when,
as, and If Issued."
YIELD TO MATURITY: The rate of return Yielded by a debt security held to matunty when both
Interest payments and the Investor's capital gain or loss on the security are taken Into account.
F \FlNANCE\TREAS\SHARE\INVEST WPD
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