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SR-012396-6H 6H - FINANCE:CMD:REB\INVPOLCY Santa Mon~ca, Callfornia Councll Meetlng of January 23, 1996 JAN 2 3 1996 STAFF REPORT TO: Mayor and City Council FROM: Clty Staff SUBJECT: Recommendatlon to Approve Rev~sed C~ty Investment Policy and to Inform Counc~l Concerning Changes to Informatlon provlded Councll ConCernlng City Investments INTRODUCTION Th~s report ~s to recommend that the C~ty's Investment POlicy be revised, and to ~nform Council concerning various changes to lnformation perlod~cally provlded to Council about C~ty investments. These act~ons are necessary to comply with new State leg~slatlon. BACKGROUND Periodlcally, there are changes in State/City law/regulatlons or techn~cal changes whlch requlre revislons to the City's Investment Policy to brlng ~t lnto conformance wlth these changes. The last revlsion to the lnvestment POllCY was January 25, 1995 Previously, Counc~l was advised of rev~s~ons to the pollcy by an Informat~on Report. State law now requlres that a wr~tten statement of ~nvestrnent po1~cy and any mater~al changes in POllCY be consldered by Council annually at a publlC meetlng. As a result of the losses lncurred by the Orange County investment pool, Governor W,lson appo,nted a Task Force to repo;r ir-l 0 , ~ N 2 3 1996 f~ndings and recommendatlons for possible legislatlve changes In the areas of investments and investment reportlng. As a result of the Task Force's efforts, the State Legislature passed SB 564 and SB 866 which were subsequently s~gned into law by the Governor. DISCUSSION A. Investment Policy Chanqes Late last year Councll adopted Resolution No. 8966 (CCS) prohlbitlng Clty investments in companles who do business in or wlth Burma. Th~s policy l$ now reflected at Section J In the attached revised lnvestment polley. In addition, 5B 866 established lnvestment gu~delines to be followed by local agencies. The fol1owlng changes have been incorporated into the attached City lnvestment pol~cy to conform to SB 866 requirements. 1. Investment Objectives Sect~on D. of the Investment Policy has been revlsed to further clarlfy the Clty'S lnvestment prioritles (safety, llquidity and return, In this order of prlorlty) 2. Prudence Sectlon F ( 1 ) of the Investment policy has been technically reVlsed to reflect the wordlng In Sectlon 53600.3 of the Government Code. Sectlon F (4 ) of the Investment Polley has been revlsed to reflect a change ln State law which now requires that lnvestments in repurchase agreements be made only wlth financlal lnstltutions that are prlmary dealers of the Federal Reserve Bank of New York 3. Dlversiflcatlon Section H. (2d) of the Investment Policy has been revised to reflect changes In State law whlch now require (1 ) that lnvestments in repurchase agreements be made only wlth flnanclal institutlons that are prlmary dealers of the Federal Reserve Bank of New York, (2 ) collateral be valued at 102% or greater and (3 ) collateral be delivered/transferred to the Clty. 4. Performance Standards Sectlon M. of the Investment POllCY has been revlsed to lnclude approprlate performance benchmarks The benchmarks shall be the rolling average of 6 and 12 month U S. Treasury bills. 5 . Attachment B Descrlptions of Clty flnanCla1 assets specifically excluded from the coverage under the Clty'S Investment Policy have been upda ted. These assets are excluded because they are controlled by separate trustee agreements entered into as a result of lssulng bonds The reasons for the exclusion of other funds are set forth In Attachment B The shaded port1ons of the attached revised Investment Polley 1ndicate where additlons have been made, and the lined through port1ons indlcate where deletions have been made. B Addltional Report1nq Requlrements For many years, staff has prov1ded Council monthly lnformat1on concerning C1ty investments. Beglnnlng in January 1996, the monthly Cash and Investment Report wlll be expanded to lncorporate the followlng reporting requirements as outlined in 5B 564 0 Source of market valuation for investments. 0 Statement denoting the abllity of the local agency to meet its expend1ture requ1rements for the next SlX months, or prov1de an explanatlon as to why sufficient money shall or may not be available. To date, the monthly reports the Council has been rece1ving have focused on funds managed by the Clty Treasurer. Beginning 1n March 1996, on a quarterly basls, the cash and Investment Report will be expanded to 1ncorporate the followlng information on trustee-held funds, outslde managed funds and 1nvestments or programs/loans under the management of contracted partles. 0 Descrlption of funds 0 Market value as of the date of the report 0 Source of market valuatlon for lnvestments. BUDGET/FINANCIAL IMPACT There are no budget or financial lmpacts resultlng from this staff report. RECOMMENDATION Staff recommends that Councll approve the attached revlsed Clty Investment Polley. prepared by: Mlke Dennls, Director of Flnance Ralph Bursey, City Treasurer Attachment Revlsed City Investment Polley - ~ . Revised 1/96 INVESTMENT POLICY for the CITY OF SANTA MONICA A. PURPOSE The purpose of establishing a formal investment policy is to set broad gu~del~nes wlthin wh~ch the City Treasurer is to lawfully ~nvest City funds. These guidel~nes do not supersede appl~cable State laws and C~ty codes. B. SCOPE This ~nvestment policy applies to all cash and financial ~nvestments of the var~ous funds of the City of Santa Monica as identif~ed in the Clty'S Comprehensive Annual Financ~al Report, with the exception of those flnanclal assets expl~c~tly excluded from coverage by these pol~c~es for legal or operat~onal reasons. All C~ty Funds are l~sted In Attachment A and all cash and f~nancial ~nvestments wh~ch are excluded from coverage by th~s ~nvestment policy are ident~f~ed in Attachment B. '"' ADMINISTRATION ',- . 1 An Investment Comm~ttee shall be established cons~sting of the D:.recto~ of F~nance, CJ..ty Treasurer/Revenue Manager, and a representatlve from the Clty Manager's Off~ce. .2 T~'1e Investment Committee w~ll meet at least once each calendar qwa~ter to reVlew and evaluate prevlous lnvestment activlty and Yleld, to reVlew t.he current status of all funds held by the '2:..~y 1 to dlSCUSS antlclpated cash requirements and investment aC::lv~ty for the next quarter, and to recommend investment strategy to ~he City Treasurer. 3 All lnvestment pollcles and all changes to those policles must be approved by a ma]Orlty of the Investment Committee. 4 Any two members of the Commlttee may call a speclal meeting, and th~ee me~~ers shall constltute a quorum. - M:.~utes w~ll be publlshed of all Investment Committee meetings. 6 The Investment Comm~ttee wlll meet at least annually with the Clty'S outslde auditors to rev~ew accounting controls and to des~gn adequate audit procedures to ldentlfy any non-compliance wlth ~he City lnvestment pollcy 7. The Clty ~nvestment POllCY will be revl.ewed annually by the Investment Commlttee and subml.tted annually to the City Counc~l. - 1 - -- - ---- . , D. INVESTMENT OBJECTIVES .- ... ... ....::"': ll!-. : ....~ :-.:~ - . ,- .. .. . ..... ! ; ~ ...:!' III ~ n ~.:. J . :l. . :. '.J : I ... ~' .. .1.. 0 . :t1 - . .. . - - . 6 - .. .. ,....r - "II .., . ... ... I. _"I!" : =-=: :""11."":. ";r'E:':-:-:_v~" :"~r -;,:.. :"( I':t"'.":. :.. ;,.'.: ..: .. I. _ ... l.:1.i._.. :'1'" . -..... - . 0 =.:.... .:J=:..:'~.'.' .11'.-._.""'.. ..L__ ___... ___... ....__ ___ ~I I r .............. ..._.....___....____ __....1: -~ ~.~- --~----~-- -- --- ---~ ---~---------~- ------- -- :4.'" !9.1.1Q"", ., '1"'~ of"'IL_........__ ...\-,"" "...., --F~...."t,. "'......:l ~,.,.~..., ~\-ot..; 1; +--';P' ...-F .,,11 -F"......:l'" 'r.T.....; ~1-, ""''''''''YT\/'''"'l - - -- ---- ~- - ---- ---- --...,[ - --. --- ---- - - - - .... .. -- -- - -- ~ - ---- ...._.Il--.. ....\....- ""......___"t,.....__~ r- .....,.....~t""'l~~~..;,.."T"\ .........-- ----- -..... --- -- -- - ~ - ~ - - - - - - -- - :1.. #Safetyll means that the overall value of City funds shall not be d2m2nished in the process of secur2ng and invest2ng those funds or over the durat20n of the investments. 2. . .. :':"-=_ :.~_ ~ y' -.1. _ =____~_ __ _ I means that funds shall be made available . I .." .. ~ -. City obl~gations and a prudent reserve shall be kept available to meet unanticipated cash requirements. Ava~labil~ty has two aspects, liqu2dity and the scheduling of cash flows. Liquidity lS the ability to change an l.nves'tment 2nto its cash equ1.valent on short notice at its prevailing market value Schedull.ng of cash flows means that 2nvestments are to mature or are to be converted l.nto cash in tandem with the City's antlclpated cash requlrements 3. ttAchiev€ are. .. . . .. ]~ to earn the opt2mum intere~t income from C::...ty funds commensurate wl.th the objectives OJ: safetv and llouidity aval.labllltv or the orinclole invested. ., .. o -, :. ..U ~-.. . : - -. ~ .. ......... -., ~. .. . . ......... . . 1&'. - . :. ~"....: . . . , .. ... . . , .. ... . .. "'" . . ..... . .!.ntere:::": :...:.... ~~___=.1_ - -,:.. ~ - - _--"._.. "'II. -. ----.... -- . '::1.--- _'-: . E. I~~lESTW:ENT AU7HORITY DELEGATION Ir: accordance w~th the Santa Mon2ca C2ty Charter, Section 711, the C:.:. }T '::::-easurer lS responslble for conduct long the Cl.ty's investment trar~sa::tl:)ns The Treasurer may delegate thJ.s authority to the Assl.s':.a::1t ':'reasurer or 1 ~n extraordlnary circumstances, to the Dlrectcr of Flnance F PRl..1DENCE 1. Inves':.'Tle:1ts shall be made wl.th Judgment~ aRB care, ~i -C.. . . . prudencel and d.iligence under Cl.rcumstances then nreva2l.2no. w:'1:' c1: oersons of nrudence r.: . ,. .r ~. ,. ,. ~-"""~..~ ... ........ .. ('"",."'1 "".'; ,.. . .... famil I .. ~. . ... .. . ~ . '-'",,, . . ..: .. =1. II ...: t -.l. ::C':::J _::t ":' :. 1!:c!!. - .. ~ . . . ... of a ~~ ... = ...;,1 ,..: .,,-: . - w_~ t. 0 ..~I.:~ -....- - . nil : c.~J _i;A ~:: . ..... . n. . ... , . .. - . ~. prine . '. . . .. ";, I.' . . ". ...: :__c.:. -...... :...4.-~".l ':. . ....- · !lL :.i: i'. n ~ . .. .. .....::1-_...........--........,........-. _....,. ....,+-..-.11..,...".0.,.,__ _.._..............,,....0 '''"1 t..hQ TT".,....---......--- ,..,,- rnn,.... -.......---- -----....... -....-- ---------- ---- - ~---- --~- --- -- ----- -.=1-------- -- --- -~- _..-.~..... ......c.z:.... _ ......r-'" -........... ~-- ----."'1 -, t-, ".,,., r-,11+- -of.......,... ; n.I;1..QI:""+-.......l"'r.-..... __.....,...,.;r:J_.,.-...:__ _.....- ~--~-....-, --~- -~- ~::-----~--~--r -~~ --- -------.------, --..._--......._----~ ~:t-....... _......-.l-....~,_ _-.-F,.,,.....,.,. ,..,~ f-l-,_-r....... ,.,.~""'...+-~, .",.... ......~"1 1 ~~ ...\..~ ___t..,_'-1_ ..........- l:'---~--- --- --J -- ------ --r-.... --- --- ----- -- ----- r:-- ------- In==~= ~= ~= ~=rl~=~. ThlS standard of prudence shall be applied :.r. the context of managlng an overall portfolio. Investment o::E::..cers actlng In accordance with written procedures and exerC:"Slng due d21lgence shall be relieved of personal respo:1s2blllty for an lndlvldual security's credlt r2sk or market - 2 - price changes, prov1ded that dev~ations from expectations are reported 1n wr~ting to the D~rector of Finance in a t1mely fashJ.on, and appropriate action is taken to control adverse developments. 2. Investment officers shall avoJ.d any transactions that might 1mpair publ1c confidence in the Santa Monica C1ty government. 3. Where J.t J.S otherwl.se consistent with the judl.ciary and statutory oblJ.gat1ons of the C1ty Revenue Manager/Treasurer, preference 1n select1ng investments shall be g1ven to those fJ.nancial 1nst1Cut1ons wh1ch have demonstrated 1nvolvement in the development or rehabilitation of low-income affordable housing. 4. Investments 1n repurchase agreements shall be made only with fl.nancial l.nstitutions wlth which the City has an executed master : 'I . ... .: :- .lo: = ~rla :':.c ... c.. _ 1.!!...;~. :. t ..: ~ :..::. r:ia~'=~. i;c c1 r . .:- -. ~ 'I.- ::.- i. _ -: ,.. · ::~ ~,,:::-:.:: c;: i-r- i:~:"~ l"d:':'~ rl" 'l:l'AW '-:"':-1(. G. RECORDS AND REPORTS 1 Records of all l.nvestment transactions will be kept, and monthly ~epor~s w1ll be made to the Investment CommJ.ttee and the City Manager deta1ling and summar1z1ng all transactions and stating the present status of City 1nvestments. 2 As 0= the end of tile fiscal year, the City Revenue ~a~ager/Treasurer will make a report to the D1rector of Finance aetalllng the present status of C1ty investments, as required by ~~e Government Accountlng Standards Board (GASB) statement No.3. H. D=VERSI~=CATION 1 A~~ Clty funds WhlCh are not requ1red for 1mmed1ate cash ex?end~t~res or to ma1nta1n requlred compensat~ng cash balances snall be 1nvested 1n 1nterest bearlng ~nvestments or accounts. 2 ':'c ~educe overall portfollo risk while attempt~ng to attain ma~ke~ rates of return cons1stent w1th the prlmary obJectives of safety and avallabllity of funds, ~nvestments shall be d:. vers:.rled across types of investments, matur~t1es of those l:J.vestmen:.s, ana ~nstitutlons In wh1ch those 1nvestments are IT'a':J.e Generally, the portfol1o is to be lnvested in U. S. T~eas~ry and Federal Agency secur1tles wlth a modest addition of BAs and CDs. ~ Invescment Instruments :nvestments shall be made only In those 1nstruments specifically autnor~zed by Cal1fornla State laws, and to no greater an extent ~ia:: au~ho~~zed by those laws. Said laws are summar1zed J.n A~ta=hment C. Addlt10nal C~ty guidellnes are as follows. =ns:'~uments Add~t1onal City Guidel1nes - 3 - -------- U.S. Federal Agencies . 33 1/3% of portfolio, maxlmum for each agency Banker's Acceptances (BA) 10% max per issuer, 40% max. overall. Certificate of Depos~t (CD) , 10% max. per ~ssuer, 30% max. Commercial Paper (CP) all (CD) , 15% Max. overall ( Cp) . NOTES: * Fedl. National Mortgage ABsn. {FNMA} ; Fedl. Home Loan Mortgage Corp. (FHLMC); Fedl. Home Loan Bank (FHLB) i Student Loan Marketlng Assn. {SLMA) i Tennessee Valley Authority (TVA) i and any other U.S. Federal agency or instrumentality. b. Maturitles Maturities of ind~vidual ~nvestrnents shall be d~versif~ed to meet the follow~ng objectlves. ~. No lnvestment wlll be purchased wh~ch matures more than three years from the date of purchase unless specifically recommended by a unanlmous vote of the Investment Committee. No lnvestment wll1 be purchased wh~ch matures more than five years from the date of purchase without the additional approval of the City Manager and the prlor approval of the C~t.y Councll. -- ~- The average welghted maturlty of all pooled Clty lnvestments shall not exceed 18 months (547 days) . ~ll To m~nim~ze the r~sk of havlng to make unusually large lr:vestments at tlmes when interest rates are temporarily very ~OWT lnvestments wlll be scheduled to mature so that during any glven month there wlll be a comparable magnitude of funds to be re~nvested. These lnvestlble funds will be estimated based on scheduled maturitles plus antlcipated revenues minus an~lClpated expenses. lV To the maXlmum extent practlcal, monthly operational cash requlrements wlll be met by using anticipated revenues and maturlng lnvestments. However, as an aspect of actlve por~follo management, It may be flnanclally beneficlal to the Cl":Y to sell lnvestments from tlme to tlme. v. To reduce the market and lnterest rate risks which would resulc from the excess concentrat~on of assets in a speciflc ma<::urlty, a speclflc lSBue or a specific class of securlties, nc more than 5.0% of the Cl ty' s lnvestible funds may be lnvested In any slngle issue maturing in a glven month. The only exceptlons are U.S. Treasury securitles, to which an alternate limlt of 10% will apply c Inst.ltutlons - 4 - . minimize risk the overall investment To the to City's portfollo from the default by a slngle lnstitution ln WhlCh City funds are on deposlt or lnvested, the following pollcles shall be observed: 1. City funds shall only be deposited in a financlal lnstltution whose performance has been reliable and whose safety rating, as determined by the Investment Committee or a reputable independent ratlng service selected by the Investment Committee, ~s ~n the upper 60% of its peer group. These same standards apply to lnstltutions in which securities owned by the Clty are held in safekeeping. Exceptions to these standards may be made on an ind1vidual bas~s ~f they are unan~mously recommended by the Investment Commlttee. 11. The City shall not deposit, in the form of certificates of deposit, time or demand deposlts, or slmilar instruments, 1n a single lnstitut10n more than 10% of the Clty'S 1nvest1ble funds. lll. No single 1nstltutlon shall have, in cumulative total, as depos1ts and 1nvestrnents (other than safekept investments) more than 50% of the Clty'S investible funds. d Repurchase Agreements - Investments In repurchase agreements are allowable and shall be made only wlth f1nancial institutlons with which the City has an executed master repurchase aqreement. -:-.~:c-- !: ::'ri.. :-- ,;. -i, : . . . ... ., - f:. ..1 ::"".-;I.~~" :il.;:J:I'II'W'" :,.- ~ ~!_ ':'"~:ie.t"',.: ':\cs:(~!'".....[. _.. _011.. I. ....... . z 1\.- '^ ..~ ...~ . J' - . . '. : . . .. . I.. ,. . . . - - . . . . ..... "'- .. . In' . . : . ViL...U~J. iJ-- ... ,. iII_~_ ,. .,.. .. .. . .. VII ~ . - .. . :.:I~ . .. .. . ;..:'1:-. .~"".~".-:. .." '::i.:' :'".:.'. .. "._~&I . . gr- . . ~ . -.... .1...... ':III. F,".:C~:ir _ ~.: ~~; ci.::.r: thl .. . ..:-!~ .~:=:'I:"': . . -::r:lc.,;,n q'..i.arll.!.=!. yo .: :':t. ,JII. .~!..... :.;!,a .,... .. . . . n~ .. ...... COt. .. ":.,_ r: v -..:':. C:~1' I .i \'t:": .. ~1!. ~:.r..!.:H'."" _~. .:. r.c:: I"~!:!:... _.! .. 1 e!i :.f-= . 'L "':II .. ..a' C~l ( .;...i.e. ..-. ...... . . =-ll~ . ....e.:.V . ....,.. r." L J~.:..:..c! : ... -. . . .I ' :;.:'~"~J.... =....J.. ..~ ... 'tli..... :.~. CU f. ~ - - .. . ....,"111".- . - . ..: ( . : ..:L~~... \. .. ..." i.i:' .d~: ~ y .. ::g 9':!~.~': ~ t .. ":~"i ... .. . . .. . to . ~ ..~ ...::":':':..! ~::~r-=.", ..:.l:-..~ ~ f. .:';.1!': ':. ..;"~r :....t;-(';~ - ~.::. r'iP hC.C.CI!::::'" -11;;'1" ~t. USl, . . :- ....~'C. -~:-:.. ~y "~':..-.... ...f ~'}r . .. . .. .- - .. . . . . . . - -.- _~,...., .......__,......._1-.___ _____-"'_r-,r_ ---- - -~-- ---~-- -.=J- --_.-......---- - RE~A~IONSEIPS WITH FINANCIAL INSTITUTIONS -'- ~ . The C~ty may only purchase statutorily authorized lnvestments, no::. purchased d1rectly from the lssuer, from either an .:.nstlt:utlon 11censed by the state as a broker/ dealer, from a nat:.:.ona: or state chartered bankt from a federal or state savlngs l:lst.:tutlon, from a brokerage flrm designated as a prlmary government dealer by the Federal Reserve Bank, or from a member of a federally regulated securities exchange. 2 All ::lnanclal lnstltutions wlth which the Clty conducts ::..r:ves:'11'ent actlvlt1es must agree ~n wrltlng to undertake - 5 - -- -- reasonable efforts to prevent illegal and/or imprudent transact ions ~nvol v~ng City funds. Should 1. t come to the attentlon of the Clty Revenue Manager/Treasurer that C~ty funds have been involved in ~llegal and/or l.mprudent transactions, this will be reported to the City Council along wlth optlons for dealing w~th the situation. 3. Prl.mary government securit1.es dealers whl.ch report to the New York Federal Reserve are preferred for conductl.ng transactions of all ell.gible securitl.es other than non-negotl.able certificates of depos1t. Other securl.ty dealers who wish to engage 1n transactl.ons with the City must meet the City's requlrements for rell.ability and safety, and any purchases made by the Clty from such secondary sources shall require thl.rd party safekeepl.ng or dell.very of the securities to the City. 4. To ensure y~elds conSl.stent with this policy and to provide for the objective lnvestment of City funds, the City's investment procedures shall be designed to include transactions with several firms that compete directly for public business, and to encourage competitlve bl.ddlng on transactions. Such bl.ds shall be on fl.le with the Cl.ty Treasurer's Office and copies shall be provided to the Dlrector of Fl.nance monthly. J SOCIALLY RESPONS!BLE,INVESTING SaUTE AE'RICAN POLICY - 'i.'he- South African Poll.cy adopted 9/l7/85 (Cou:J.cll Resolutl.on No. 7091 CCS) was resc~nded by City Council Resolutlon No. 8672 CCS (10/12/93). .. . ... 1.1. - r .. .._...=~.:--::I' :."_".. it. t:. :-:.'. "':..: -.}' Jill: :,.Jr."u ....":.::. ....,J :'=.;.l::c-..: ~.::.:-- "; U:'l~; ~.. ,....... ...... .. .. .~..: ' .:::.... . '11r .::".P"'. :.-I"'~!.: :~' ~~: ':.. I". : ....:'".".: C:i'll"'~ =~E~~-lc~~a as I~~lows: .: .......... -..~:.-.~ ..J! ...... 1:'(. "I-J!: _!. :';I_':.rt":.~:-' ~ ".l'::~;.~. ~': -=C~l. wt., -::: ........ ~.::~ -::"; :...:.i ~:.. ~_ · :..~" :-........ i::--: g".. ...~r:1nc:r.: ~ ~ ..... .-.i.. , ~.;-: jI..: I':.: :r~..;, )~ -::: :'\.d~'!.. :"_:--.:J ...:'''!'"p;':-.=J't.1:':':'1i.:'. .. ~:.... ".. ..r.~.. I. ~:::.!J ,1 .. ':. -.c. ~..,. .. :1:':::'''1 __I Cf'--:;:-.~':-,: III -..I ~ ;;~J: ~.: :J': ,," ".: .. .,... .... :I:...:.r",,-:, ;;;.:'......~=.::.i :-""':::~::i.i-:'O:.f. ~..:l..=:. .:..\..~ =-.i::,~=-..,:, .. .. I I.: _~ :....'! .... (! tA"::": ~.n,ll r. ~~I"!'"Y :.=:..'..&......:.-.('1:'"_ ." .eurma . 3 __ ...,.11 __:... ... z........... .....:-:' :'i iF..... 'I:~-._ '" : ". .1:~-'~. 'ItI.:."":. .J1i.iT-.-<i..:J." .::..:-.:._ .:.r...._.=.:...::.....'I :::--'-u ..l~': :':....;~ I.lr...!<.t! ..~.&:.[.. =:' "::1':. ... _ ': i':i,:",,.r ~: .~",!,....~..... ':.~: ~:t.:!'~-...1. ~-::" .. - - .;":lr :.':':. t t; K. COMMUN:TY REINVESTMENT ACT (CRA) The Cl~Y w~ll ~nvest funds only in those f~nancial institutions which have a eRA ratlng (as determlned by the appropr~ate regulatory body) of "Out:st:andlng" or "SatJ.sfactory". - 6 - ----- . L~ CUSTODY AND SAFEKEEPING OF SECURITIES AND CITY FUNDS . 1- Wherever practical, all City 1nvestments shall have the C1ty of I Santa Mon1ca as its reglstered owner, and all 1nterest and pr1Dcipal payments and w11;hdrawals shall ind1cate the City of ~ Santa Mon1ca as the payee. ,/- All securities shall be safekept with the City itself or w~th a qualified financ1al institutl.on, contracted by the City as a th1rd party. All secur1t1es shall be acqul.red by the safekeep1ng l.nstitution on a 11 delivery-vs-payment 11 (DVP) basl.s. In other words, the security must be dell.vered before funds are released. The DVP basis for delivery applies also to the delivery and safekeeping of repurchase agreement collateral. 2 . Orl.ginal copl.es of non-negotiable certificates of deposit and COnfl.rmlng copies of all other investment transactions must be del1vered to the City. M. PERFORMANCE STANDARDS The lnvestment 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 g1ven the C1ty'S l.nvestment risk and cash flow needs. The Cl.ty's portfol1o management approach 1.5 active, necess1tat1ng per1od1c restructur1ng of the portfolio to take advantage of current and ant~cl.pated interest rate movements. In addl:'lOI:, the portfoll.o lS prlmarily invested l.n U.S. Treasury and Federal Agency secur1t1es Given this strategy, the performance benc!:rnarks shall be the rolll.ng average of a-month and J.2.6--month 'C ~ Treasu:::y bl.lls, traded on the secondary market as reported in ::; the pederal Reserve System's monthly report of 1nterest rates. N. IMPL3MED.~ATIOl\ The Clty Treasurer 1S responsible for conduct~ng and reporting on all Cn:y 1nvestments. To fac~11tate thls functlon, the Treasurer w111 prepa::-e and malntal.D an Investment Procedures Manual to detail operat:.lrlg procedures to be practiced by the Treasury in 1nvesting Clty funds. All such procedures shall be 1n accordance with appllcable State laws, City codes and the ~nvestment policl.es set by the Inves~ment Comm1ttee. All procedures will be subject to rev~ew and approval by the Investment Comm~ttee. The manual will explicitly l:1:: l-:..lde a current 11sting of all City of Santa Monlca financl.al lnstltutlon depos1t and l.nvestment accounts, a current l~st of all =lnanClal lnstltutlons with whl.ch the Cl.ty currently is authorized to conduct lnvestrnent transactl.ons, a current copy of State laws per~lnent tc Clty investments, a descriptl.on of specl.f1c controls to ensure t.he proper executl.on of the Cl.ty Investment Policy, and caples, Wlth lnstruct1ons, of all l.nvestment reports required by law or by Cl~y lnvestment POllCY. - 7 - O. INDEMNIFICATION OF INVESTMENT OFFICIALS Any investment offJ.cer exercising h~s or her authority wl.th due dl.ll.gence and prudence, and 1n accordance Wl. th the Cl. ty of Santa Monica Investment Policy, Wl.ll not be held personally liable for any indivl.dual investment losses or for total portfolio losses. ATTACHMENT A: City of Santa Monica Funds for Cash Pool~ng The followl.ng ll.sted Cl.ty of Santa Monlca funds shall have their cash balances pooled for l.nvestment purposes except for any fund or portion of one or more funds which is specifl.cally ldentified for exclusl.on J.n Attachment B of the Cl.ty Investment Policy: FUND }.;"TJMEER FUND NAME 01 GENERAL FUND 11 BEACH RECREATION FUND :1.2 HOUSING AUTHOR!TY F~mn ::"3 DISASTER RELIEF Fm'~ 14 TORCA FUND 15 LOW/MODERATE INCOME HOUSING FUND 16 REDEVELOPMENT-DOWNTOWN FUND 17 REDEVELOPMENT-EARTHQUAKE RECOVERY 18 REDEVELOPMENT-OCEAN PARK FUND 19 COMM DEV BLOCK GRANT F1~= 2C MISCELLANEOUS GRANTS rill~ 25 WATER FUND 27 SOLID WASTE MANAGEMENT FUND '-'0 RE!\TT CONTROL FUND L.~ ~ ~ PIER FUND .J \.... ~, WASTEWATER FUND .:,~ .5,.i AUDITORIUM FUND 33 AIRPORT FUND ~- CEMETERY FUND ."j.' ..:;1 TRANSPORTATION FUND .:::..... TRAFFIC SAFETY FUND _L. <;:3 GAS TAX FUND 5::" CABLE COMMUNICATIONS FUND 52 SPECIAL AVIATION FUND -~ PARKS AND RECREATIONAL FUND - < ~- 56 SELF INS-COMPRE FUND c::;, SELF INS-BUS FUND - ' 58 SELF INS-AUTO FUND -0 SELF INS-WjC FUND ~-' 77 PARKING AUTHORITY FUND Be GENERAL TRUST FUND 82- DEFERRED caMP FUND 82 CEMETERY PERPETUAL CARE FUND 84 FED REV SHARING FUND 85 DEBT SERVICE FUND 89 MAUSOLEUM ENDOWMENT FUND 00 GENERAL SERVICE FUND ~~ - 8 - . ATTACHMENT B: C~ty of Santa Mon1ca F~nancial Assets Excluded from the Coverage of the C1ty Investment Pol~cy The follow~ng 11sted C1ty of Santa Monica f1nanc1al assets are spec~f~cally excluded from coverage of the C1ty Investment Po11cy. This exclus10n does not exempt the adm1nistrators of these exempted assets from exercising due dil1gence and prudence ~n the management of the assets. i :-r .~.. :...:.:,..". -, I.,'":, ...-. ': ....~ . ~ i':.~.::~ j..,::-- ~:.::h.~': ~:.~.. .. ~'!.7.:. c....: .. :.::-. . 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Santa Mon1ca C~V1C Auditor1um box off1ce operation recelpts f:J::- each lndlv1dual permittee. Fund held ~n th~s trust are manage~ by t~e Aud~tor1Um through a check~ng account at Flrst Interstate Bank and are accounted for ~n Fund 32, the Auditor~um Fund. These funds are no:: :.nvesced Ceme::e::-v ?e~ne::ual Ca:::-e Fund Investments - The City Council authorized the lGVest~ent consultlng flrm of RNC Capital Management to manage these lnves::~e~::s lTI accordance w~th parameters approved by the Council. They a~~ accoun::ec for ~n Fund 82, the Cemetery Perpetual Care Fund. Cl tv E['11::~oyees Deferred Compensatlon - Establlshed by City Council Resolu::lo~ 6759 and author1zed under contract No. 5697, these funds are managec under contract by the Publlc Employees Benefit Serv1ces Corpo::-a~lc~ (PEBSCO), and are accounted for ~n Fund 81, the Deferred ComDensa~~o~ Fund. Dowr.::own Redevelopment Lease Revenue Bonds - Under the terms of the trust agreement Detween the Redevelopment Agency of the City of Santa Monica ~or Lease Revenue Bonds, 1992, and Bank of Amer~ca (f1scal agent) certa1n spec~f~c funds must be held by the f1scal agent, for payment of principal and lr.~e:::-es~ and for reserve requlrements. The amount of funds held by the flsca: agent varles from year to year as the bonds mature. The funds are accoun::ed ror lh the 85 Fund, the Debt Serv1ce Fund. Llbra::-v Book Purchase Account - Estab11shed by City Council Resolution - 9 - . 5088 to facilitate book purchases, these funds are managed by the Library through a check~ng account wi th F~rst Interstate Bank. There ~s a $100.00 l~m~t per transact~on. Funds are accounted for ~n Fund 01, the General Fund. These funds are not invested. Main Library Improvements proiect G.O. Bonds - under the terms of the trust agreement between the City of Santa Monica and the fiscal agent (First Trust of Californ~a) for the City of Santa Monica General Obligat1on Bonds (Main Library Improvements Project}, Series 1990, certa1n spec~f1c funds must be held by First Trust of California for the acqu1sition of certain real property, for construction and improvement needs, for principal 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. Mausoleum Peroetual Care Fund Investments - On July 8, 1986, the City Counc~l amended the Munic~pal Code, Section 73QO et al., to create the new Mausoleum Perpetual Care Fund. RNC Capital Management, the investment counselor for the Cemetery Perpetual Care Fund, was also des~gnated to manage these funds ~n accordance with parameters approved by the Counc1l. These funds are accounted for ~n Fund 89, the Mausoleum Perpetual Care Fund. Ocean Park Redevelopment proi ects - Under the terms of the trust agreement between the Redevelopment Agency of the City of Santa Monica and the ~~scal Agent (Bank of Amer~cal for the Redevelopment Agency of ~he Clty of Santa Mon~ca Ocean ?ark Redevelopment Projects Tax Allocation Refundlng Bonds, Ser~es 1992, certa~n specif~c funds must be held by the f~scal agent, to (l) refund the Agency's Ocean Park Redevelopment PrOlects Tax Allocat~on Refunding Bonds, Series 1988A, (ii) refund the Ageilcy's Ocean Park Redevelopment Project Tax Allocation Refinancing Bonds, Se~les 1988B, (ill) prov1de funds to repay a portion of certa~n p~or:llssory not:es of the Agency, (i vl fund a reserve account for the Re~und~r.g Bonas, and (v) pay the costs of issuance incurred with the lss~ance of the Refund~ng Bonds. The funds are accounted for in Fund 85, the Debt Serv~ce Fund. Payklnq Authorlt:y Lease Revenue Bonds - Under the terms of the trust agreement: between the Park~ng Author~ty and the fiscal agent (Bank of Amerlca': fo~ the Park~ng Author~ty of the City of Santa Monica Lease Revenue Bonds, 1992, certa~n specif~c funds must be held by the f~scal agen~, for constructlon and 1mprovement needs, for principal and ~nterest paymencs, and for reserve requ~rements. The funds are accounted for in Fund 85, the Debt Serv~ce Fund. Pe~ty Cas~ - Sect~on 1513 of the C~ty Charter provides for the establlshment of petty cash funds for use by department heads to make cash expendltures of a mlnor nature. Petty cash funds are managed by each ~ndlvldual department and are accounted for 1n each department's flnanC1al records. These funds are not 2nvested. Santa MO~lca Rehab112tatlon Loan Funds - These funds were established by Cl~y Councl~ Resolut~on to promote low cost housing by prov~ding loans to rehablll~ate homes. These funds are held In trust by the F~rst Federal Savlngs BanK of Callforn1a, and are administered by the Resource - 10 - . . Management Department and the Finance Department. The funds are accounted for ~n Fund 19, the Community Development Block Grant Fund. Wastewater Enterpr~se Revenue Bonds - Under the terms of the trust agreement between the City of Santa Mon~ca and the f~scal agent, Bank of America, for the C~ty of Santa Monica Wastewater Enterpr~se Revenue bonds (Hyperion ProJect), 1993 Refund~ng Series, certain spec~f~c funds must be held by the fiscal agent for payment of principal and ~nterest and for reserve requ~rements. The funds are accounted for in the 31 Fund, the Wastewater Enterprise Fund. Workers' Compensat1on Account - Th~s checking account was estab11shed at Flrst Interstate Bank in accordance w~th City Caunell Resolution 6692 to provl.de a means to admlnister the Cl.ty's contract with the workers' compensatl.on l.nsurance adjusters. It 1S admlnistered by the Risk Management D~vislon of the C1ty Manager's Office and Finance departments and account. for 1n Fund 59, the Self-Insurance work.ers' Compensatl.on Fund These funds are not invested. The followl.ng accounts for the C1ty of Santa Monl.ca appear on the book.s for account~ng purposes, but are not Clty assets and are excluded from coverage of the C1ty Investment Pollcy: Ball Bond Account - Th1S is a clear1ng account established at First Interstate Bank for the operat.l.onal conven~ence of the rourts and the Pollce ~epartment In process1Pg bail bond payments. It ~s administered by ~he PO~lce Department and tne-~~nance Department. Downtow~ Keaeve~oDment Lease Revenue Bonds Escrow Account - As a result of the ~ssuance of the Downtown Redevelopment Lease Revenue Bonds, Serles :992 (~ow~~owr. Redevelopment Refundlng ProJect of 1992), an escrow fund was esta~l~shed wlth Un~on Bank for purposes of payment of pr~ncipal of and, pren~~~ and lnterest payments w1th respect to the 1978 Lease Revenue Bonds, Ser~es :992 (Downtown Redevelopment Project of 1978). Ocea~ Pa~~ Redevelopment Proiects Tax Allocatlon Bonds Escrow Accounts (Refu~d~nc Banas, Serles 1988A and Ref~nanc~nq Bonds, Ser1es 1988B) - As a res~l~ of the lssuance of the Ocean Park Redevelopment Projects Tax Alloca~lcn Refundlng Bonds, Series 2992, escrow funds were established wlth Bank of Amerlca for purposes of payment of (i) the prlnc1pal of and accrued ::r:::erest on the 1988 Bonds com~ng due on and pr10r to the Redemp~::cL Data and, (ll) the Redemption Prlce for the 1988 Bonds on the RedemDtJ..oL Da::e. Parkl~c A~~~orltv Bonds Escrow Fund - As a result of the issuance of the Clty of Sar.::a Monlca Certlflcates of Part~c~pation (Thlrd Street Mall proJec:::, 1986, the Parklng Authority Revenue Bonds of 1966 were placed 1D "de:::easar:ce" wlth the flscal agent, Bank of Amerlca. The investment secur::t~es hele are sufflc~ent to provide for the balance of the revenue bond's pr~nclpal and lnterest payments. The defeasance of these bonds was accou~ted fo~ lD Fund 77, the Park1ng Authorlty Fund Thlra S~reet ~a~: Cert~f1cates of Part1c~pation Escrow Account - As a resu::':: 0: :.he ~ssuance of the Parking Author1ty Lease Revenue Bonds. Se~:Les 1992 (C::.ty of Santa Monlca Refund~ng Improvements ProJect of - 11 - . 1.992) , an escrow fund was establJ.shed with First Interstate Bank for purposes of payment of princ~pal and, premium and interest payments with respect to 1986 ThJ.rd Street Mall Certificates of PartJ.cipation coming due after the issuance of the refunding bonds. Wastewater Enterorise Revenue Bonds Escrow Account - As a result of the 1ssuance of the City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 RefundJ.ng Series, an escrow fund was established with Bank of ArnerJ.ca for purposes of payment of prJ.ncipal of and, premium and 1nterest payments with respect to the Wastewater Enterprise Revenue Bonds, 1991 Serles A through the date that the bonds are redeemed. - 12 - . . of of California Statutes Applicable to ATTACHMENT C: Summary State < Municlpal Investments . - The follow~ng ~nvestments are author~zed by Californ~a State Code, Title 5, D~vision 2, Sections 53600 et. seg. and 16429.1. Author~zed Legal Investment L~mit ( %) Other Constra~nts Collateralized No limit Banks: deposit not to exceed the Cert~f~cate of Deposit total of pald-in cap~tal surplus. S&Ls: deposit not to exceed the greater of total net worth or $500,000. State and Federal credit un~ons: 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 el~gible secur~ties. Treasury B~lls and No l~mit Federal Agencles Bankers Acceptance 40% El~gible for purchase by the Federal Reserve System and not to exceed 270 - days to maturity. Rep~rchase Ag~eement No :lrtu t Secur~ties used as collateral for repo's must be investments allowable under Govt. Code (i.e., T- bl.lls, Agenc~es, BAs, CDs, etc.) ; securlt~es must be safekept by th~rd party. Negot~ab:e Cer~~f~cates 30% State and Federally chartered of Deposl": banks and sav~ngs ~nstitutions, ~nclud~ng U.S. branches of fore~gn banks regulated by State regulatory author~tl.es ("Yankee CD") . ComP1erc:.a~ Pape!:" 15%/30% "Prlme" qual~tYi corporate assets over $500,000,000; "A" debt rat~ng; not purchase more than 10% of outstand~ng paper; not to exceed 180 days to matur~ty. The max~mum l~mit on commercl.al paper is 15%, except that an addlt~on- al 15% may be purchased as long as the dollar-welghted average maturity of t'alltl commercial paper held does not exceed 31 days. - 13 - . . Authorized Legal Investment Lim~t (% ) Other Constraints - Mortgage Securltles 25% Shall not exceed 95% of the mortgage securlty's fair market value. Medium-Term 30% Max~mum maturity, 5 yearsi bonds Corporate Notes must be rated ~n top three rating categories by two of the three largest nationally recognlzed rating serv1ces. shares of beneficlal 15% Funds are ~nvested ln securlties interest lssued by and obl1gations authorized by sub- dlversified management divisions (a) through (m) of Beetlon companles 53601-, (any of the author~zed (mutual funds) 1nvestments for local agencies) the lnvestment company must be in highest ranking provided by not less than two of the three largest nat10nally recognlzed rating serv1ces OR must have the lnvestment advlsor reglstered wlth the SEe with no less than 5 yrs. eXperlence and have assets under mgrnt. 1n excess of $500 mJ..lll0n. Loca:L Ager:cy $ 20 milllon Monles are lnvested in pooled Inves:'T'1er.~ Fu~d state fund managed by State (:..AIF \ Treasurer. Maxlrnum, 10 transactions per month. - 14 - . . GLOSSARY AGENCIES: Federal agency secur~t~es. ASKED: The price at which secur~ties are offered. BANKERS' ACCEPTANCE (BA): A draft or bill of exchange accepted by a bank or trust company. The accepting institutlon guarantees payment of the bill, as well as the ~ssuer. BASIS POINT: A basls point equals one one-hundreth of 1% (.01%). BID: The prlce offered for securit~es. BOOK ENTRY SECURITIES All U. S . Treasury and Federal Agenc~es are malntalned on computerized records at the Federal Reserve now known as ~wlreable" securitles. BROKER A broker b~ings buyers and sellers together for a comm~ssion pald by ~he lnltlator of the transactlon or by both sides; he does not pos~tion In tne money market, brokers are act~ve ~n markets in wh~ch banks buy and se~l money and In lnterdealer markets. COLWATE~ SeCu~ltles, ev~dence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to secur~t~es pledged by a bank to secure deposits of publ~c monles. COMPREE~NSIVE ~~;)AL ~INANCIAL REPORT (CAFR): The officlal annual report for the C~~y of Santa Monlca. It lncludes f~ve combined statements and basle ilnanclal statements for each lndlvldual fund and account group prepared ~r. cor.formlty wlth GAAP It also lncludes supporting schedules necessar\." to demonstrate compllance Wl th flnance- related legal and corr~ractual prOV~Slons, extens1ve introductory mater1al, and a detailed Statls~~cal Sectlon. CERTIF=CATE Or DEPOSIT (CD): A tlme depos~t with a specif~c maturity eVldence:i by a cer:"lf~cate. Large-denom~natJ.on CD's are typically negotlable CO~MER::::=lL- PAPER ICP:; An unsecured prom.1.ssory note w.1.th a fixed ma:..urlty no longer than 270 days. Pub11c offerlngs are exempt from SEe reg:::..stratloL ~he largest lssuers lnclude General Motors Acceptance Corporatlor. (GMAC), General Electrlc Capltal Corporatlon (GECC) and other maJc~ ccrporat~ons CODPOK \a: ~he annual rate of lnterest that a bond's lssuer promises to pay the bcndho~der on the bond's face value. (b) A certlficate attached to a bonG ev~denclng lnterest due on a payment date. ~EALE~ A dealer, as opposed to a broker, acts as a pr~nc1pal ln all tra~sa=~lons, b~Ylng and selllng for h~s own account. - 15 - . . DELIVERY VERSUS PAYMENT (DVP): There are two methods of del~ very of secur~tles: del~very versus payment and delivery versus rece~pt (also called free) Del~very versus payment ~s del~very of securit~es w~th an exchange of money for the secur~t~es Del~very versus rece~pt is del~very of secur~t:les with an exchange of a s~gned rece~pt for the securities. DEBENTURE: A bond secured only by the general credit of the issuer. DISCOUNT. The d~fference between the cost price of a security and ~ts value at matur~ty when quoted at lower than face value. A securlty sell~ng below or~g~nal offer~ng price shortly after sale also ~s cons~dered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued at a d~scount and redeemed at maturity for full face value (e.g., U.S. Treasury bills). DIVERSIFICATION: D~vld~ng ~nvestment funds among a var~ety of secur~ties and lssuers offer~ng ~ndependent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply cred:lt to var~ous classes of lnstitutions and ~ndividuals, e.g., S&L's, small business flrms, students, farmers, farm cooperat:lves, and exporters FEDE~ FL~~S: Non-lnterest beailng deposlts held by member banks at the Federal Reserve. Also used to denote "lmmed~ately avallable" funds in the clear:.ng sense "Fed Funds" also used to refer to these funds. FEDERAL F~~DS RATE The rate of ~nterest at wh~ch Fed funds are traded. ThlS ra~e lS currently pegged by the Federal Reserve through open-market operatlons. FEDERAL O?E~ MARKE~ COMMITTEE {FOMC): Cons~sts of seven members of the Federal Reserve Board and f~ve of the twelve Federal Reserve Bank Preslcie~~s. The presldent of the New York Federal Reserve Bank is a permanent me~er wh~le the other presldents serve on a rotating basis. The Commlc::ee perlod~cally meets to set Federal Reserve guidelines rega~dl~q purchases and sales of Government Secur~ties In the open market as a means of :.nfluenc~ng the volume of bank cred~t and money. FEDERA:... RESERVE SYSTEM. The cent-ral bank of the Un~ted States created by Congress and conslst~ng of a seven-member Board of Governors ~n Washlng~on, DC., 12 Reg:lonal Banks and about 5,700 commerclal banks that are members of the system ?EDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that lnsures flnanc~a~ ~nst~tutlons' depos~ts, currently up to $100,000 per deposlt - ~6 - . . FEDERAL HOME LOAN BANKS (FHLB) : The institut10n that formerly regulated and lent to sav~ngs and loan associat1ons. The Federal Home Loan Banks played a role analogous to that played by the Federal Reserve Banks V1S- a-v~s member commercial banks. However, those responsib11ities have been assumed by the Off1ce of Thr1ft Supervislon and the FDIC. FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) : A U.S. Corporation and instrumental1ty of the U.s. government. Through 1ts purchases of conventional mortgages, it provldes liquidity to the mortgage markets, much like FNMA. FHLMC'S Secur1ties are hlghly liquJ.d and w1dely accepted. FHLMC assumes and guarantees that all security holders w111 rece~ve timely payment of pr1nc1pal and interest. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) : FNMA, like GNMA was chartered under the Federal National Mortgage Assoc1ation Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Hous1ng & Urban Development, H.U.D. It is the largest s~ngle provlder of resJ.dent~al mortgage funds in the UnJ.ted States. Fann~e Mae I as the corporat1on ~s called, is a prJ.vate stockholder- owned corporatlon. The corporations purchases include a var1ety of adJustable mortgages and second loans in addition to f1xed-rate mortgages. FNMA's secur1t1es are also hlghly liquld and are widely accepted. FNMA assumes and guarar.tees that all secur~ty holders will recelve tlmely payment of prlnc:.pal and lnterest. GOVERNMENTAL NATIONAL MORTGAGE ASSOCIATION ( GNMA or Ginnie Mae) Secu=~~~es guaranteed by GNMA Qnd~ssued by mortgage bankers, commerc~al banks, savlngs and loan aSsoclatlons and other ~nstitutlons. Security holder -- p:cotected by full falth and cred~t of the u.S. Government. Glnnle Mae securltles are backed by FHA, VA or FMHM mortgages. The term pass-~~roug~s 18 often used to descrlbe G1nn~e Mae5. L:::QCI::J:':':::" A llqu~d asset 15 one that can be converted easily and rapldly l::tc cash Wl thout a substant~al loss of value. In the money ma~,K.e~ r a. securlty ~s sald to be llqu~d J.f the spread between bid and asked p~lces lS narrow and reasonable S1ze can be done at those quotes. LOCA:, A3EKCY INVESTMENT FUND (LAIF) : The aggregate of all funds from pO=-l~2-Ca~ SU:Cd:,v1s1ons that are placed 1n the custody of the State Treasu:cer for ~nves~ment and relnvestment. MARKE':' 'lALU~ The prlce at Wh1Ch a securlty ~s trading and could pre5umaD~Y be pu:cchased or sold MASTER R2PURCHASE AGREEMENT A wr1tten contract covering all future cransactlons between the part1es to repurchase--reverse agreements that estab~lshes each party's rlghts ~n the transact1ons. A master agreement - - - f among other th~ngs, the rJ.ght of the buyer-lender to Wl~_ o=~eL speCl y, 2.lq'..ada.te ~~e underlYlng securltJ..es ln the event of default by the se.iJ..er-borrowe!:'" MATURITY ~he date upar:. WhlCh the prlDc1pal or stated value of an ~nves~me~~ becomes due and payable. - :.7 - . . MONEY MARKET: The market in wh1ch short-term debt instruments (bills, commerclal paper, bankers' acceptances, etc.) are 1ssued and traded. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities ln the open market by the New York Federal Reserve Bank, as directed by the FaMe, 1n order to lnfluence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stlmulate growth of money and creditj sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexlble monetary policy tool. PORTFOLIO: Collection of secur1t1es held by an investor. PRIMARY DEALER: A group of government securities dealers that submit daily reports of market actlvity and positions and monthly flnancial statements to the Federal Reserve Bank of New York and are subject to its informal overs1ght. Primary dealers include Securities and Exchange Commission (SEC) registered secur1ties broker-dealers, banks, and a few unregulated f1rms. PRIME RATE: The rate at which banks lend to the1r best or II prime II cuscomers Also known as the "reference rate." PRUDENT PERSON RULE: An investment standard. In some states the law requlres that a f1duclary, such as a trustee, may 1nvest money only in a llst of secur1t:.les selected by the state (the so-called le9al list). In other s~ates, the trustee may lnvest in a security if it lS one which would be brought by a prudent person of discret10n and intell~gence who lS seeK1ng a reasonable lncome and preservatlon of capital. ~~TE 0= RETURN: The Yleld obtalnable on a securlty based on its purchase p~lce C~ ~~s cu~rent market prlce ThlS may be the amortized yield to matur~~y or- a bond or the current lncome return. QUALIF:ED PUBL:C DEPOSITORIES: A f~nanc~al ~nstitutlon which does not clal~ exemptlon from the payment of any sales or compensating use or ad valoYe~ taxes under the laws of thlS state, WhlCh has segregated for the benef~t of the commlSSlon ellgible collateral having a value of not less than lts maXlmum llablllty and which has been approved by the Public Deposlt Pro~ect~Oh Commlssion to hold pub11c deposits. REPURCP~SE AGREEMENT (RP OR REPO): A holder of secur~ties sells these seCUrl~les tc an lnvestor with an agreement to repurchase them at a fixed prlce 0:: a flxed date The securlty "buyer" in effect lends the IIseller" money for the perlod of the agreement, and the terms of the agreement are structured to compensate him for thlS. Dealers use RP extens~vely to f1nance thelr posit1ons. Except1on' When the Fed lS sald to be doing RP, It 15 lendlng money, that 1S, 1ncreasing bank reserves. SAFEKEEPING' A serVlce to customers rendered by banks for a fee whereby securltles and valuables of all types and descriptlons are held 1D the bank's vau~t5 for protectlon. SECONDARY MARKET. A market: made for the purchase and sale of outstandlng lssues follow~ng the lnitlal dlstrlbutlon. - 18 - to. ~ SEC RULE 15C3-1. See un~form net capital rule. STUDENT LOAN MARKETING ASSOCIATION (SLMA): AU. S. Corporation and ~nstrurnental~ty of the U.S. government. Through its borrow~ngs, funds are targeted for loans to students ~n higher education institutions. SLMA's secur~ties are highly liqu~d and are widely accepted. SECURITIES & EXCHANGE COMMISSION. Agency created by Congress to protect investors in secur~ties transact~ons by adminlstering securities leg~slatl.on. SETTLEMENT DATE: The date on which a trade ~s cleared by del~very of securities agal.nst funds. Th~s 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 ut~lity headquartered in Knoxv~lle Tennessee. TVA' s secur~ t~es are highly l~quid and are wl.dely accepted. TREASURY BILLS A non-interest bearing dlscount security issued by the U.S. Treasury to flnance the natlonal debt. Most bills are lssued to ma=ure lr. three months, s~x months, or one year. TREASURY BOI\TD: Long-term U. S Treasury securlt.ies having initial ma~urltles 0: more than ten years. TREASu~Y NOTES Intermed~ate term coupon bearlng U.S. Treasury securl~les hav~ng lnltial maturl~les of from one to ten years. Y:E~~ ~he ra~e of annual lncorne return on an lnvestment, expressed as a percentage _ (a} INCOME YIELD lS obtalned by dlvld1ng the current do::'lar lncome by the current market prlce for the secur~ty. (b) NET YIE~D or YIE~D TO MATURI~Y lS the current lncorne Y1eld minus any premium above par or plus any dlscount from par In purchase price with the adJus~~er.~ spread over the perlod from the date of purchase to the date of matUYlty of the bond. L~~FORM NE~ CAPITAL RULE SeCUYltles and Exchange Comm~ss~on requirement that member f}.rms as well as nonmember broker-dealers l.n securities ma~r.~aln a max~mum ratlo of lndebtedness to liquid capital of 15 to 1; also called net capltal rule and net capltal ratlo Indebtedness covers all money owed to a flrm, lnclud~ng marg~n loans and commitments to pt.:.rchase securltles, one reason new publlc lssues are spread among members of underwrltlng synd~cates Ll.quld capltal l.ncludes cash and assets eas~ly converted lnto cash TRADE DATE: The date o~ whlct a transactlon is lnltlated or entered lnto by the buyer and seller WHEN-:SSUED TRADES: Typlcally, there lS a lay between the t~me a new bond lS announced and sold, and the tlme when It 18 actually lssued. D'.lr:':1g ~:1lS lr:~erval, the securlty trades "Wl", "when, as, and ~f lssued." - 19 - # , . YIELD TO MATURITY: The rate of return yielded by a debt securlty held to matur~ty when both ~nterest payments and the investor's cap~tal gain or loss on the security are taken into account. g:\cafrtemp\~nvest.pol - 20 -