SR-204-001
10
FEB 1 3 till
FI NANCE :TREASU RY: REB: F:\FI NANCE\TREASU RY\SHARE\I NVPOLO 1
Council Meeting: February 13, 2001 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Revise City Investment Policy and Continue
Delegation of Investment Authority to City Revenue Manager/Treasurer
INTRODUCTION
This report recommends City Council approve a revised City Investment Policy and
extend the delegation of investment authority to the City Revenue Manager/Treasurer
from March 1, 2001 to February 28, 2002.
BACKGROUND
State law requires that the City adopt an investment policy and that the City Council
approve any material changes in the policy 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 continued delegation to the City
Revenue Manager/Treasurer on February 9, 2000. The City's investment policy was
previously awarded the Municipal Treasurers' Association of the United States and
Canada Certification of Excellence Award and continues to adhere to these standards.
1
ID
FEB 1 3 21M
DISCUSSION
In conjunction with the annual renewal of investment authority, City staff proposes
revisions to the policy attachments. Shaded portions of the attachments indicate
proposed additions; strikeouts indicate proposed deletions. Specifically, staff proposes
the following changes:
1. Investment Authority Delegation:
Section E of the Investment Policy has been revised to include language regarding
authorization of the legislative body to delegate investment authority on an annual
basis.
2 Records and Reports:
Section G of the Investment Policy has been revised to include language regarding
new investment reporting requirements to the California Debt and Investment
Advisory Commission as a result of recently enacted legislation by the State.
3. Socially Responsible Investing:
Section J of the Investment Policy has been revised to delete the City's Burma
Policy based on the U.S. Supreme Court's affirmation of a federal appellate court
decision stating that federal law pre-empts state and local regulation of international
trade.
4. Attachment C to Investment Policy:
Maturity time limits for banker's acceptances and commercial paper have been
2
revised to reflect current State law.
5. Attachment C to Investment Policy:
The transaction 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 financial impacts resulting from this staff report.
RECOMMENDATION
Staff recommends that Council approve the attached Investment Policy, and continue
to delegate to the City Revenue Manager/Treasurer investment authority for the period
March 1,2001 through February 28,2002.
Prepared by: Mike Dennis, Director of Finance
Ralph Bursey, City Revenue Manager/Treasurer
Attachment: Revised City Investment Policy
3
01
Revised 2/00
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 guidelines do not supersede applicable State laws and
City codes.
8. SCOPE
This investment policy applies to all 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 8.
Investment income will be allocated to the various funds based on their respective participation and in
accordance with generally accepted accounting principles. Interest is allocated on a quarterly basis.
C. ADMINISTRATION
An Investment Committee shall be established 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 quarterto 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, 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 meeting, and three members shall
constitute a quorum.
5. Minutes will be published of all Investment Committee meetings.
6. The Investment Committee will meet at least annually with the City's outside auditors to review
accounting controls and to design adequate audit procedures to identify any non-compliance with
the City investment policy.
7. The City investment policy will be reviewed annually by the Investment Committee and submitted
annually to the City Council.
D. INVESTMENT OBJECTIVES
The primary objective of all City investments shall be safety. The secondary objective shall be liquidity.
The third objective shall be to achieve a return.
- 1 -
- G-
')fJOA MaN jO )fues aAlasa~ leJapa.:l aLll jO Jaleap
Alewpd e aq lsnw uOllnmSU! lepueu!j aLl1. 'luaWaaJ6e aseLl:>JndaJ JalseW paln:>axa ue sell Al!~
aLllLl:>!LlM Lll!M SUO!lnmSU! lepueu!j Lll!MAIUO apew aq lIeLls SlUaWaaJ6e aseLl:>JndaJ U! SluawlsaAul '9
'6u!SnOLl alqepJoJJe awmu!
-MOl jO uOllel!l!qeLlaJ JO luawdolaAap aLll U! luawaAIOAU! paleJlsuowap aAeLl Ll:>!LlM sUO!lnmSU!
lepueUlj aSOLll Ol uaA!6 aq lIeLlS SluaWlSaAU! 6u!palaS U! a:>uaJajaJd 'JaJnseaJlJJa6eueV\J
anuaAa~ All~ aLll jO sUOlle6!lqo AlOlnlels pue Alep!pnf aLllLlllM lualS!SUO:> as!MJaLllO S! l! aJaLlM ''\7
'luaWUJaA06 Al!~ e:>!uoV\J
elues aLll U! a:>uap!juo:> :>!Iqnd J!edw! lLl6!w leLll suo!peSUeJl Aue p!OAe lIeLls sJa:>!jJo luawlsaAU I '8
'Al!~ aLll jO jleLlaq
uo papnpuo:> S! Ssau!snq WOLlM Lll!M lenp!A1PU! awes aLllLll!M suolpesUeJllUaWlSaAu! leUOsJad
6u!)felJapun WOJj u!eJjaJ lIeLls sJa:>!JJo pue saaAoldw3 'O!IOJl.lod luaWlSaAU! aLllJo a:>uewJojJad
aLllol palelaJ aq Plno:> leLll suo!l!sod luaWlSaAU!/lepueu!j leUOsJad Aue aSOps!p JaLllJnj lIeLlS AaLl1.
'ssaulsnq pnpuo:> AaLll Ll:>!LlM Lll!M SUO!lnmSUl lepueu!j U! SlSaJalU! lepalew Aue asopslP lIeLlS
SleP!JJo luaWlSaAU! pue saaAoldw3 'SUo!spap le!lJedw! a)few Ol Al!l!qe J!aLll J!edw! Plno:> leLll JO
'weJ60Jd luawlSaAU! aLll jO luawa6euew pue uO!ln:>axa JadoJd aLllLlllM Pllluo:> Plnm leLll Al!A!pe
ssau!snq leUOsJad WOJj u!eJjaJ lIeLls ssa:>oJd luaWlSaAU! aLll ul paAloAU! saaAoldwa pue sJa:>!JJO 'G
'SluawdolaAap aSJaApe 10JlUO:> ol
Ua)fel S! uOlpe alepdoJdde pue 'UO!LlSej Alawll e U! ~ueu!.:I jO JopaJ!O aLll Ol6u!lPM U! palJodaJ aJe
SUO!lepadxa WOJj suollelAap leLll pap!AoJd 'sa6ueLl:> ~pd la)fJeW JO )fsp l!paJ:> s,Alpn:>as lenplA!pU!
ue JOj Al!l!q!suodsaJ leUOsJad jO paAa!laJ aq lIeLls a:>ua6!l!p anp 6u!spJaxa pue saJnpa:>oJd uanpM
Lll!M a:>uepJo:>:>e U! 6u!pe sJa:>!jJo luawlsaAul 'O!IOJl.lod lIeJaAo ue 6u!6euew jO lxaluo:> aLll U!
pa!ldde aq lIeLls a:>uapnJd jO pJepUelS S!Ll1. 'Al!~ aLll jO spaau Al!P!nb!l aLll U!elU!eW pue ledpupd
aLll pJen6ajes Ol 'sw!e a)fll Lll!M pue JapeJeLl:> a)f!1 e jO spunJJo pnpuo:> aLll ul asn PlnoM sJanew
asoLll Lll!M Alpe!l!Wej pue Alped~ a)f!l e U! 6u!pe a:>uapnJd jO suosJad Ll:>!LlM '6U!l!eAaJd uaLll
sa:>uelSWmJpJapun ~ua6!1!P pue '~uapnJd '1I1)fS 'aJ~ 'luaw6pnfLll!MapeW aq lIeLls sluawlsaAul
3~N3an~d '.:I
'Allenuue alqeMaUaJ 'popad JeaA-aUo e Ol AlPoLllne luaWlSaAU! ale6alap Ol ApOq aA!leIS!6al
aLll jO UO!leZpOLllne aLll Sl!W!l apo~ lUaWUJaAOE) e!uJoj!le~ jO alelS aLll jO L0989 uo!pas 'a:>ueUl.:l jO
JopaJ!O aLll ol 'sa:>uelswn:>Jp AJeu!pJOeJlXa U! 'JO JaJnSeaJ1.luelslssV' aLll ol ^lpoLllne S!Lll ale6alap Aew
JaJnseaJ1. aLl1. 'suolpesUeJllUaWlSaAU! S,All~ aLll6ulpnpuo:> JOj Al!llq!SuodsaJ <;lIQlsuodsaJ S! JaJnseaJ1.
Al!~ aLll Ol sale6alap IPuno~ All~ aLll '~ ~L UO!paS 'JalJeLl~ Al!~ e:>!uoV\J elues aLllLll!M a:>uepJo:>:>e ul
NOI1.V~313a A.l1~OH1.nV 1.N3W.lS3^NI '3
'Al!JnleW Ol PlaLl j! lenJ:>:>e lSaJalU! OJaz U! llnsaJ Plno:> leLll Al!Jn:>as Aue U!
palSaAU! aq spunj lIeLls aW!l ou lV' 'palSaAU! aldpupd aLll jO Al!l!qel!eAe pue Alajes jO saA!pafqo aLll
Lll!M aleJnSUawwm spunjAl!~ WOJj awo:>u! lSaJalU! WnW!ldo aLll UJea Ol sueaw UJnlaJ e aAa!Ll:>V'8
'sluaWaJ!nbaJ Llse:> paledp!lUe S,Al!~ aLll
Lll!M wapuel U! Llse:> OlU! palJaAuo:> aq Ol aJe JO aJnlew Ol aJe sluaWlSaAU! leLll sueaw SMOlj Llse:>
jO 6u!lnpaLl:>S 'anleA la)fJeW 6U!l!eAaJd Sll le a:>!lOU lJOLlS uo lualeAlnba LlS~ Sl! OlU! luaWlSaAU!
ue a6ueLl:> ol Al!l!qe aLll S! AllP!nb!1 'sMoll Llse:> jO 6u!lnpaLl:>s aLll pue Al!P!nb!l 'spadse oMl
sell Al!l!qel!eAV' 'sluaWaJ!nbaJ LlS~ paledp!lUeUn laaw Ol alqel!eAe lda)f aq lIeLls aAlasaJ lUapnJd
e pue SUO!le61lqo Al!~ paledp!lUe lie laaw Ol alqel!eAe apew aq lIeLls spunj leLll sueaw Al!Plnb!1 'G
'sluawlsaAU! aLll jO UO!lemp aLll JaAO JO spun! asoLll 6UllSaAU! pue 6upn~as
10 ssa:>oJd aln U! paLlS!UlW!P aq lOU lIeLlS spunj Al!~ jO anleA lIeJaAO aLllleLll sueaw ,,Alajes..
G. RECORDS AND REPORTS
1 . Records of all investment transactions will be kept, and monthly reports will be made to the
I nvestment Committee and the City Manager detailing and summarizing all transactions and stating
the present status of City investments.
2. The Revenue ManagerlTreasurer will report all investments, with certain exceptions, at fair
market value rather than original purchase price, in the Monthly Cash & Investment Report
as required by the Government Accounting Standards Board (GASB) Statement No. 31.
3. The Revenue ManaqerlTreasurerwill provide copies ofthe Monthlv Cash & Investment Report to
the California Debt and Investment Advisory Commission on a semi-annual basis the June and
December reports, as well as the City's Investment Policy.
4. a. As of the end of the fiscal year, the City Revenue ManagerlTreasurer will make a report to the
Director of Finance detailing the present status of City investments, as required by the Government
Accounting Standards Board (GASB) statement NO.3.
5. 4. The City Treasurer is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the City are protected from loss, theft or misuse. The
internal control structure shall be designed to provide reasonable assurance that these objectives
are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not
exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires
estimates and judgements by management.
H. DIVERSIFICATION
1. All City funds which are not required for immediate cash expenditures or to maintain required
compensating cash balances shall be invested in interest bearing investments or accounts.
2. To reduce overall portfolio risk while attempting to attain market rates of return consistent with the
primary 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 invested in 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:
Instruments
U.S. Federal Agencies'
Banker's Acceptances (BA)
Certificate of Deposit (CD)
Commercial Paper (CP)
Additional Citv Guidelines
331/3% 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:
- 3-
Fed!. National Mortgage Assn. (FNMA); Fed!. Home Loan Mortgage Corp. (FHLMC); Fed!. Home
Loan Bank(FHLB); Student Loan Marketing Assn. (SLMA); Tennessee Valley Authority (TV A); and
any other U.S. Federal agency or instrumentality.
b. Maturities
Maturities of individual investments shall be diversified to meet the following objectives.
No investment will be purchased which matures more than three years from the date
of purchase unless specifically recommended by a unanimous vote ofthe 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 (547 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
during 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 minus 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 portfolio management, it may be financially 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 maturity, 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 in a given month. The only exceptions are U.S. Treasury
securities, to which an alternate limit of 10% will apply.
c. Institutions
To minimize the risk 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:
City funds shall only be deposited in a financial institution whose performance has
been reliable and whose safety rating, as determined by the Investment 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 unanimously
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% ofthe City's
investible funds.
iii. No single institution shall have, in cumulative total, as deposits and investments
(other than safekept investments) more than 50% of the City's investible funds.
4-
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 Yark. The market
value (bid price plus accrued interest) 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.
Eligible collateral shall include the following
1. U.S. Treasury Obligations
2. U.S. Agency Securities
The counter party will deliver the underlying securities to the City by book entry or by third
party custodial agreement. The transfer of underlying securities to the counter party bank's
customer book-entry account may be used.
e. Certificates of Deposit (CD)
Collateralized Certificates of Deposit must be collateralized by 110% of the CD value by
other eligible securities. Eligible collateral shall include the following:
1. U.S. Treasury Obligations
2. U. S. Agency Securities
RELATIONSHIPS WITH FINANCIAL INSTITUTIONS
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 securities exchange.
2. All financial institutions 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 ManagerfTreasurer 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 securities 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 safekeeping or delivery of the securities 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 include transactions with several firms
that compete directly for public business, and to encourage competitive bidding on transactions.
Such bids shall be on file with the City Treasurer's Office and copies shall be provided to the
Director of Finance monthly.
J. SOCIALLY RESPONSIBLE INVESTING
- 5-
1. DURMA POLICY In accordance 'y"v"ith the City of Canta Monica Council Resolution No. 0966 CCC
(11/28/95), the investment of City funds are restricted as follows:
A. No investments are to be made in banker's acceptances which are connected 'vvith the
military government of Durma, it$ agencies, or private Durma corporations.
D. No investments are to be made in commercial paper or equities of United Ctates
corporations 'v'v'hich have direct imrestments in Durma or with the military gO'./ernment of
Durma.
C. rinancial transactions shall only be done with banking/financial institutions that do not make
loans to the military government of Durma or its agencies.
Z. OTIICR RESTRICTIONS - The direct investment of City funds are restricted as follows:
1. A.
Investments are to be made in entities which support clean and healthy environment,
including following safe and environmentally sound practices.
2. B.
No investments are to be made in tobacco or tobacco-related products,
3, e.
No investments are to be made to support the production of weapons, military systems, or
nuclear power.
4. a.
Investments are to be made in entities which supports equality of rights regardless of sex,
race, age, disability or sexual orientation.
5, E:-
Investments are to be made in entities which promote community economic development.
Prior to making investments, City Treasurer shall verify compliance with the guidelines either through
direct contact with company or with Investors Responsibility Research Center.
K. COMMUNITY REINVESTMENT ACT (CRA)
The City will invest funds only in those financial institutions which have a CRA rating (as determined by
the appropriate 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 principal 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 financial institution, contracted
by the City as a third party. All securities shall be acquired by the safekeeping institution on a
"delivery-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. Original copies of non-negotiable certificates of deposit and confirming copies of all other
investment transactions must be delivered to the City.
M. PERFORMANCE STANDARDS
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 risk and cash flow needs.
- 6 -
-L
'sassol O!IOwod lelol JOj JO sassolluaWlSaAU! lenp!A!pU!
Aue JOj alqe!l AlleUOsJad Pla4 aq lOU II!M 'A::)!IOd luawlsaAul ~!uoV\l elues jO AK) a4l4l!M a::)uepJo::)::)e
U! pue 'a::)uapnJd pue a::)ua6!1!p anp 4l!M AlP04lne Ja4 JO S!4 6u!spJaxa Ja::)!Jjo luaWlSaAU! AUt!
SlVI~I:I:lO J.N3WJ.S3^NI :10 NOIJ.V~I:lINW3aNI '0
'A::)!I0d luaWlSaAU! AK) Aq JO Mel Aq paJ!nbaJ slJodaJ luaWlSaAU! lie jO 'sUO!pnJlSU! 4l!M
'sa!do::) pue 'A::)!IOd luawlsaAul Al!8 a4lJo UO!ln::)axa JadoJd a4l aJnsua Ol SIOJlUOO ::)!jpads jO UOlldp::)sap
e 'SluaWlSaAU! Al!8 OllUaU!lJad sMel alelS jO Ado::) luaJJm e 'suo!peSUeJllUaWlSaAU! pnpuo::) Ol
pazp04lne S! AIlUaJJn::) Al!8 a4l4::)!4M 4l!M SUO!lnmSU! lepueu!j lie jO lS!llUaJJn::) e 'sluno::)::)e luaWlSaAU!
pue l!sodap UO!lnmSU! lepueu!j ~!uoV\l elues jO Al!8l1e jO 6UllS!llUaJJn::) e apnpu! AIlP!ldxa II!M lenuew
a4J. 'aall!Ww08lUawlsaAul a4l Aq leAOJdde pue Ma!AaJ Ol pafqns aq II!M saJnpa::)oJd lit! 'aall!Ww08
luawlsaAul a4l Aq las saP!lod luaWlSaAU! a4l pue sapo::) Al!8 'sMel alelS alqe::)!ldde 4l!M a::)uepJo::)::)e
U! aq lIe4s saJnpa::)oJd 4::)ns lit! 'spunj Al!8 6u!lSaAU! U! A.mseaJJ. a4l Aq pa::)!peJd aq Ol sa.mpa::)oJd
6u!leJado I!elap ollenueV\l saJnpa::)oJd luaWlsaAUI ue U!elU!eW pue aJedaJd II!MJaJnseaJJ. a4l'UO!pUnj
S!4l alel!lpejoJ. 'sluaWlSaAU! Al!811e uo 6u!lJodaJ pue 6u!pnpuo::) JOj alq!suodsaJ S! JaJnseaJJ. Al!8 a4J.
NOIJ.VJ.N3W31dWI 'N
'saleJ lSaJalU! jO lJodaJ AI4lUOW s,walsAS aJ\.Jasa~ leJapa~ a4l U! palJodaJ se la)jJeW Alepuo::)as
a4l uo papeJl'SIl!q AlnseaJJ. 's'n 4luow-l ~ pue 4luow-9 jO a6eJaAe 6u!lloJ a4l aq lIe4s s)jJew4::)uaq
a::)uewJoj.lad a4l 'A6aleJlS S!4l ua^!~ 'sa!l!Jn::)as Aoua6v leJapa.::l pue A.JnseaJ.L "SOn U! palsa^u! ^I!Jewpd
S! o!lowod a4l 'uo!l!Ppe UI 'sluawaAow aleJ lsaJalU! paledp!lUe pue lUaJJn::) jO a6elueApe a)jel Ol
O!IOwod a4lJo 6upnpnJlSaJ::)!popad 6u!lel!SS8::)aU 'aA!peS! 4::)eoJddelUawa6euew O!IOwod S,Al!8 a4J.
- 9 -
ONn.:J 3~1^C13S lV'CI3N38
ONn.:J lN3V\1MOON3 V\In310SmtV\l
ONn.:J 3~1^C13S lS30
ONn.:J 8NICI'v'HS ^3C1 03.:J
ONn.:J 3C1\f~ 1\fn13dCl3d ACl313V\13~
ONn.:J dV\lO~ 03C1C13.:J30
ONn.:J1SnClllV'CI3N38
ONn.:J A1IClOHln\f 8NI>lCl\fd
ONn.:J ~/M-SNI .:J13S
ONn.:J Oln\f-SNI .:J13S
ONn.:J SnS-SNI .:J13S
ONn.:J 3C1dV\lO~-SN' .:J13S
ONn.:J lN3V\13~\fld3C1 C131ndV\lO~
ONn.:J lN3V\138\fN\fV\l 31~IH3^
ONn.:J 1\fNOI1\f3C1~3C1 ON\f S>lCl\fd
ONn.:J NOI1\f1^\f 1\f1~3dS
ONn.:J SNOI1\f~INnV\lV\lO~ 31S\f~
ONn.:J X'v'l S\f8
ONn.:J A13.:J\fS ~1.:J.:JV'CI1
ONn.:J NOll \f lClOdSN\fCll
ONn.:J ACl313V\13~
ONn.:J C131\fMV\lCl01S
ONn.:J lClOdClI\f
ONn.:J V\In1Cl0110n\f
ONn.:J C131\fM31S\fM
ONn.:J C131d
ONn.:J lOCllNO~ lN3C1
ONn.:J lN3V\138\fN\fV\l 31S\fM OIlOS
ONn.:J C131\fM
ONn.:J C131S\fSI0
ONn.:J AJ.3.:J\fS ~IlSnd C10.:J NOlldO SN3Zlll~
ONn.:J 3C1nZ13S 13SS\f
ONn.:J SlNV'CI8 Sn03N\f113~SIV\I
ONn.:J lNV'CI8 >l~OlS ^30 V\IV\10~
ONn.:J >lCl\fd N\f3~O-lN3V\1d013^303C1
ACl3^O~3C1 3>l\fnOH1Cl\f3-1N3V\1d013^303C1
ONn.:J NM01NMOO-1N3V\1d013^303C1
ONn.:J 8NIsnOH 3V\10~NI 31V'CI300V\l/MOl
ONn.:J \f~C101
ONn.:J .:J3113C1 C131S\fSI0
ONn.:J A1IClOHln\f 8NIsnOH
ONn.:J NOll \f3C1~3C1 H~\f3S
ONn.:J lV'CI3N38
3V\1\fN ONn.:J
66
69
99
v9
2:9
~9
09
LL
69
99
L9
99
99
v9
€9
2:9
~9
€v
2:v
~v
L€
v€
€€
2:€
~€
O€
62:
L2:
92:
€2:
2:2:
~2:
02:
6~
9~
L~
9~
9~
v~
€~
2:~
~~
~O
C13SV\lnN
ONn.:J
:k>!I0d luawlsaAul ^l!~ alH JO S luawLI:::>en\f
U! uo!snpxa JOJ pay.!lUap! ^lIe:::>y.pads S! L1:::>!L1M spunJ aJOW JO auo JO uO!lJod JO punJ ^ue JOJ lda:::>xa sasodJnd
luawlsaAU! JOJ palood sa:::>ueleq LIse:::> J!aLll aAeLllleLls spunJ e:::>!uoV\J elues JO ^K) palS!1 6u!MOIIOJ aLll.
6u!IOOd L1se~ JOJ spun.:J e:::>!uoV\l elues JO ^l!~ :\f lN3V\1H~\fll\f
ATTACHMENT B:
City of Santa Monica Financial Assets Excluded from the Coverage of the City
Investment Policy
The following listed City of Santa Monica financial assets are specifically excluded from coverage ofthe 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.
Airport Certificates of Participation - Under the terms of the trust agreement between the City of Santa Monica
and the fiscal agent (U.S. Trust Company of California) for the City of Santa Monica Certificates of
Participation (COP's) (1995 Airport Facilities Refunding Series A and Series B), certain specific funds must
be held by the fiscal agent, to (i) 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.
Auditorium Box Office Trust - Established by City Council Resolution 4243 to hold in trust Santa Monica Civic
Auditorium box office operation receipts for each individual 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
Auditorium Fund. These funds are not invested.
Cemetery Perpetual 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.
City Employees Deferred Compensation - 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 in Fund 81, the Deferred Compensation Fund.
Downtown Redevelopment 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 (fiscal agent) certain specific funds must be held by the fiscal agent, for payment of principal and
interest and for reserve requirements. The amount of funds held by the fiscal agent varies from year to year
as the bonds mature. The funds are accounted for in the 85 Fund, the Debt Service Fund.
Earthquake Recovery Redevelopment Proiect Area Tax Allocation Bonds - Under the terms of the trust
agreement between the Redevelopment Agency of the City of Santa Monica for Tax Allocation Bonds, Series
1999, and BNY Western Trust Company, as trustee, certain specific funds must be held by the fiscal agent,
for the acquisition of certain real property, for other redevelopment purposes, for principal and interest
payments and for reserve requirements. The funds are accounted for in Fund 85, 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.
Main Library Improvements Proiect G.O. Bonds (1990) - 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 General
Obligation Bonds (Main Library Improvements Project), Series 1990, certain specific funds must be held by
First Trust of California for the acquisition 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.
Main Library Improvements Proiect G. O. Refunding Bonds (1998) - 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
General Obligation Bonds (Main Library Improvements Project), Series 1998, certain specific funds must be
held by the fiscal agent for payment of principal and interest and for reserve requirements. The funds are
accounted for in Fund 01, the General Fund and Fund 85, the Debt Service Fund.
- 9-
Mausoleum Perpetual Care Fund Investments - On July 8, 1986, the City Council amended the Municipal
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
in accordance with parameters approved by the Council. These funds are accounted for in Fund 89, the
Mausoleum Perpetual Care Fund.
Ocean Park Redevelopment Proiects - Under the terms of the trust agreement between the Redevelopment
Agency of the City of Santa Monica and the fiscal agent (First Trust of California) for the Redevelopment
Agency ofthe City of Santa Monica Ocean Park Redevelopment Projects Tax Allocation Refunding Bonds,
Series 1992, certain specific funds must be held by the fiscal agent, to (i) refund the Agency's Ocean Park
Redevelopment Projects Tax Allocation Refunding Bonds, Series 1988A, (ii) refund the Agency's Ocean Park
Redevelopment Project Tax Allocation Refinancing Bonds, Series 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 Refunding Bonds. The funds are accounted for in Fund
85, the Debt Service Fund.
Parking Authority Lease Revenue Bonds - Under the terms of the trust agreement between the Parking
Authority and the fiscal agent (First Trust of California) for the Parking Authority of the City of Santa Monica
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 in each department's financial records. These funds are not
invested.
Public Safety Facilitv Proiect - Under the terms of the trust agreement the Public Financing Authority of the
City of Santa Monica and BNY Western Trust Company, as trustee, for the Santa Monica Public Financing
Authority Lease Revenue Bonds, Series 1999, certain specific funds must be held by the fiscal agent, for (i)
the acquisition, construction and installation of certain capital improvements constituting a public safety facility
and related improvements, facilities and equipment, (ii) for principal and interest payments and (iii) for reserve
requirements. The funds are accounted for in Fund 85, the Debt Service Fund.
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 California, 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 Enterprise Revenue Bonds - Under the terms ofthe 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 (Hyperion Project), 1993 Refunding Series, certain specific funds must be held by the fiscal
agent for payment of principal and interest and for reserve requirements. The funds are accounted for in the
31 Fund, the Wastewater Enterprise Fund.
Workers' Compensation 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 accountforin Fund 59, the Self-Insurance
Workers' Compensation Fund. These funds are not invested.
The following accounts forthe City of Santa Monica appear on the books for accounting purposes, but are not
City assets and are excluded from coverage of the City Investment Policy:
- 10 -
Bail Bond Account - This is a clearing account established at Wells Fargo Bank for the operational
convenience of the courts and the Police Department in processing bail bond payments. It is administered
by the Police Department and the Finance Department.
Downtown Redevelopment 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 Proiects Tax Allocation Bonds Escrow Accounts (Refunding Bonds. Series 1988A
and Refinancing Bonds. Series 1988B) - As a result of the issuance of the Ocean Park Redevelopment
Projects Tax Allocation Refunding Bonds, Series 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 prior to the Redemption Data and, (ii) the Redemption Price for the 1988
Bonds on the Redemption Date.
Parking Authoritv 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 Authority 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 ofthese bonds was
accounted for in Fund 77, the Parking Authority Fund.
Third Street Mall Certificates of Participation Escrow Account - As a result of the issuance of the Parking
Authority Lease Revenue Bonds, Series 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 1986 Third Street Mall Certificates of
Participation coming due after the issuance of the refunding bonds.
Wastewater Enterprise Revenue Bonds Escrow Account - As a result of the issuance of the City of Santa
Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series, 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
Series A through the date that the bonds are redeemed.
- 11 -
ATTACHMENT C:
Summary of State of California Statutes Applicable to Municipal Investments
The following investments are authorized by California State Code, Title 5, Division 2, Sections 53600,53601,
53631.5 and 53635. See code sections for complete descriptions.
Legal
Authorized Investment Limit (%) Other Constraints
Local Agency Bonds
U.S. Treasury Obligations
State of California Obligations
California Local Agency
Obligations
U.S. Agencies
Bankers Acceptance
Commercial Paper
Negotiable Certificates of
Deposit
Repurchase Agreement
Reverse Repurchase
Agreements
No limit
No limit
No limit
No limit
No limit
40%
15%/30%
30%
No limit
20%*
Maximum maturity 5 years.
Maximum maturity 5 years.
Maximum maturity 5 years.
Maximum maturity 5 years.
Maximum maturity 5 years.
Eligible for purchase by the Federal Reserve
System and not to exceed 180 zre days to
maturity. No more than 30% may be in banker's
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 outstanding paper and
may not exceed 270 486 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 maturity 5 years. State and Federally
chartered banks and savings institutions, including
U.S. branches offoreign banks regulated by State
regulatory authorities ("Yankee CD").
Maximum maturity 1 year. Securities used as
collateral for repo's must be investments allowable
under Govt. Code (i.e., T -bills, Agencies, BAs, CDs,
etc.); must be collateralized at 102% of market
value or greater; securities must be safekept by
third party.
Must be made with primary dealers of the Federal
Reserve Bank of New York and the securities used
for the agreement must have been held by the local
agency for at least 30 days. The maximum maturity
is 92 days.
12 -
Authorized Investment
Securities Lending Agreements
Medium-Term Corporate Notes
Shares of beneficial interest
issued by diversified
management companies
(mutual funds)
Money Market Funds
Collateralized Certificate of
Deposit
Mortgage Securities
Local Agency
Investment Fund
(LAIF)
Legal
Limit (%)
20%*
30%
20%
20%
No limit
20%
$ 30 million
Other Constraints
Must be made with primary dealers of the Federal
Reserve Bank of New York; the securities used for
the agreement must have been held by the local
agency for at least 30 days. Securities used as
collateral must be investments allowable under
Govt. Code (i.e. U.S. Treasury obligations,
Agencies, BA's CDs, etc.); both the securities and
the collateral are to be held by a third party.
Maximum maturity 92 days.
Maximum maturity 5 years; bonds must be rated in
top three rating categories 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
(m) of Section 53601and 53635, (any of the
authorized investments for local agencies) the
investment company must be in highest ranking
provided by not less than two of the three largest
nationally recognized rating services OR must have
the investment advisor registered with the SEC with
no less than 5 yrs. experience 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
SEC 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, orexemptfrom registration, with
the SEC and has at least 5 years' experience
managing 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 unions:
deposit shall not exceed the greater of the total of
unpaired capital and surplus or $500,000. Must be
collateralized to 110% ofthe CD value by other
eligible securities.
Maximum maturity 5 years; bonds must be rated in
top two rating categories by a nationally recognized
rating service. Shall not exceed 95% of the
mortgage security's fair market value.
Monies are invested in pooled state fund managed
by State Treasurer. Maximum, 1546 transactions
per month.
- 13-
Authorized Investment
County Pooled Investment
Funds
Legal
Limit (%)
No limit
Other Constraints
*20% for reverse repurchase agreements and securities lending agreements combined.
Prohibited investments include securities not listed above, as well as inverse floaters, range notes, interest
only strips derived from a pool of mortgages (collateralized mortgage obligations). and any security that could
result in zero interest 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.
14 -
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
accepting institution guarantees payment of the bill, as well as the issuer.
BASIS POINT: A basis point equals one one-hundredth of 1% (.01%).
BID: The price offered for securities.
BOOK ENTRY SECURITIES: All U.S. Treasury and Federal Agencies are maintained on computerized
records at the Federal Reserve now known as "wireable" 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 (CAFR): 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 in conformity with GAAP. It also includes supporting schedules necessary to
demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material,
and a detailed Statistical Section.
CERTIFICATE OF DEPOSIT (CD): 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 offerings are exempt from SEC registration. The largest issuers include General Motors Acceptance
Corporation (GMAC), General Electric Capital Corporation (GECC) and other major corporations.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's
face value. (b) A certificate attached to a bond evidencing 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 delivery 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.
DISCOUNT: The difference between the cost price of a security and its value at maturity when quoted at lower
than face value. A security selling below original offering price shortly after sale also is considered to be at
a discount.
- 15 -
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 variety of securities and issuers offering independent
returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various
classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives,
and exporters.
FEDERAL FUNDS: Non-interest bearing deposits held by member banks at the Federal Reserve. Also used
to denote "immediately available" funds in the clearing 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 ofthe Federal Reserve Board
and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve
Bank is a permanent member while the other Presidents serve on a rotating basis. The Committee periodically
meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money.
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 insures 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 Thrift 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 Securities are highly liquid and widely accepted. FHLMC assumes and
guarantees that all security holders will receive timely payment of principal 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 single provider of residential
mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned
corporation. The corporations purchases include a variety of adjustable mortgages and second loans in
addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA
assumes and guarantees that all security holders will receive timely payment of principal and interest.
GOVERNMENTAL NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie 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 securities
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 into cash without a substantial loss
of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is
narrow and reasonable size can be done at those quotes.
- 16 -
LOCAL AGENCY INVESTMENT FUND (LAIF): 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 security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the
parties to repurchase reverse agreements that establishes each party's rights in the transactions. A master
agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying
securities in the event of default by the seller-borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.
MONEY MARKET: The market in which short-term debt instruments (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 FOMC, in order to influence the volume
of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth
of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most
important and most flexible monetary policy tool.
PORTFOLIO: Collection of securities held by an investor.
PRI MARY DEALER: A group of government securities dealers that submit daily reports of market activity and
positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its
informal oversight. Primary dealers include Securities and Exchange Commission (SEC) registered securities
broker-dealers, banks, anda 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 invest money only in a list of securities 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 seeking a reasonable income and preservation of capital.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price.
This may be the amortized yield to maturity on a bond or the current income return.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the
payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has
segregated for the benefit of the commission eligible collateral having a value of not less than its maximum
liability and which has been approved by the Public Deposit Protection Commission to hold public deposits.
REPURCHASE AGREEMENT (RP OR REPO): A holderof securities sells these securities to an investor with
an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the
"seller" money for the period of the agreement, and the terms of the agreement are structured to compensate
him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be
doing RP, it is lending money, that is, increasing bank reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all
types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET: A market made forthe purchase and sale of outstanding issues following the initial
distribution.
- 17 -
- 9 ~ -
pdM" ~OA:::>1l0dANI\3~VHS\SV3~.L\9:)Ueu!j\::1
'luno:::>:::>e OlU! Ua)jel aJe Awn:::>aS a4l uo ssol JO u!e6 lel!de:::> s,JOlSaAU! a4l pue SlUaWAed
lSaJalU! 4l0q Ua4M AlpnleW Ol Pla4 .\lpn:::>as lqap e Aq papla!A UJnlaJ jO aleJ a4.1 :Al.It:ln.l'v'V\J 0.1 0131A
,,'panSS! j! pue 'se 'Ua4M" '"!M,, SapeJl Alpn:::>aS a4l 'leAJalU! S!4l 6upno 'panSS! Allenpe S! l! Ua4M aW!l a4l
pue 'PIOS pue pa:::>unouue S! puoq MaU e aW!l a4l uaaMlaq Ael e S! aJa4l 'AIle:::>!dA.1 :S30'VCl.1 03nSSI-N3HM
'JallaS pue JaAnq a4l Aq OlU! paJalUa JO pale!l!U! S! UO!peSUeJl e 4:::>!4M UO alep a4.1 :3.1 VO 30Vt:I.1
'4se:::>
OlU! palJaAuo:::> AI!Sea slasse pue 4se:::> sapnpu! lel!de:::> p!nb!1 'sale:::>!pUAS 6u!l!JMJapun jO sJaqwaw 6uowe
peaJds aJe sanss! :::>!Iqnd Mau uoseaJ auo 'sa!l!Jn:::>as ase4:::>Jnd Ol SlUaWl!WWO:::> pue sueOI u!6Jew 6u!pnpu!
'WJ!j e Ol paMO Aauow lie SJaAO:::> ssaupalqapul 'O!leJ lel!de:::> lau pue alnJ lellde:::> lau palle:::> oSle : ~ Ol 9 ~
jO lel!de:::> p!nb!l ol ssaupalqapU! jO O!leJ wnwlxew e U!elU!eW sa!l!Jn:::>as U! SJaleap-Ja)joJq Jaqwawuou se lIaM
se sWJ!jJaqwaw le4llUaWaJ!nbaJ UO!SS!WW08 a6ue4:::>x3 pue sa!l!Jn:::>as :31nt:l1V.1ldV8 .13N V\Jt:lO.::l1 Nn
'puoq a4l jO Alpnlew
jO alep a4l ol ase4:::>Jnd jO alep a4l WOJj popad a4l JaAO peaJds luawlsnfpe a4l 4l!M a:::>pd ase4:::>Jnd U! Jed
WOJj luno:::>s!p Aue snld JO Jed aAoqe wn!waJd Aue snu!w Pla!A awoou! luaJJn:::> a4l S! Al.1t:ln.1 VV\J 0.1 0131A JO
0131A.13N (q) 'Alpn:::>as a4lJOj a:::>pd la)jJeW lUaJJn:::> a4lAq awo:::>u! JellOp lUaJJn:::> a4l6u!PlAIP Aq paU!elqo S!
0131A 3V\J08NI (e) 'a6elua:::>Jad e se passaJdxa 'luawlSaAU! ue uo UJnlaJ awo:::>u! lenuue jO aleJ a4.1 :0131A
'SJeaA ual Ol auo WOJj
jO sa!l!JnleW le!l!U! 6U!Ae4 Sa!lpn:::>as AJnseaJ.1's'n 6upeaq uodno:::> WJal ale!paWJalU\ :S3.10N At:lnSV3t:1.1
'SJeaA ual ue4l aJOW jO Sa!l!Jnlew lelllu! 6U!Ae4 sa!l!Jn:::>as AJnseaJ.1 's'n WJal-6u01 :ON08 At:lnSV3t:1.1
'JeaA auo JO 'S4lUOW xIs 'S4lUOW aaJ4l U! aJnlew Ol panss! aJe sll!q lSOV\J 'lqap leuO!leU
a4l a:::>ueu!j Ol AJnseaJ.1 's'n a4l Aq panss! Alpn:::>as luno:::>slP 6upeaq lSaJalU!-UOU V :Slll8 At:lnSV3t:1.1
'palda:::>:::>e Alap!M aJe pue p!nb!l AI4614
aJe sa!l!Jn:::>as s.V' Ai 'aassauua.1 all!Axou)l U! paJalJenbpea4 .\l!mn Jofew e AIlUaJJn:::> :eaJe Aalle^ aassauua.1
a4l AJ!Jpala Ol 'S,O€6 ~ a4l U! paleaJ:::> UO!leJodJ08 's'n V :(V Ai) Al.1t:lOH.1nV A311V ^ 33SS3NN3.1
'Jalel JO alep apeJl a4l se awes a4l aq Aew
alep sl4.1 'spunj lSU!e6e sa!l!Jn:::>as jO JtJaA!lap Aq paJeap sl apeJl e 4:::>!4M uo alep a4.1 :3.1 VO .1N3V\J31113S
'uO!leIS!6al sa!lpn:::>as 6upalS!U!Wpe Aq suo!peSUeJl
sa!l!Jn:::>as U! SJOlSaAU! palOJd Ol ssaJ6u08 Aq paleaJ:::> A:::>ua6v :NOISSIV\JV\J08 38NVH8X3 'b'S31.1lt:ln83S
'palda:::>:::>e Alap!M aJe pue P!nb!1 A146!4 aJe sa!l!Jn:::>as S.'v'V\J1S
'sUO!lnmSU! uO!le:::>npa Ja46!4 U! sluapnls Ol sueol JOj pala6Jel aJe spunj 'S6U!MOJJOq Sl! 46noJ4.1 'luaWUJaA06
's' n a4Ho Al!lelUaWnJlSU! pue uO!leJodJo~ 's'n V :(VV\J1S) NOI.1 VI~OSSV 8NI.l3>it:lVV\J NV01.lN30n.lS
'alnJ lel!de:::> lau WJoj!un aas : ~ -€89 ~ 31nt:l 83S