SR-204-001 (11)
FINANCE:TREASURY:DRC:F:\FINANCE\TREASURY\SHARE\INVPOL03
Council Meeting: February 25, 2003 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Revision to City Investment Policy, Continuation of Delegation of
Investment Authority to City Treasurer/Revenue Manager, and
Recommendation to adopt Resolution Authorizing the Establishment and
Use of Bank and Brokerage Accounts and Update of the List of Persons
Authorized to Conduct Transactions with the State Local Agency
Investment Fund
INTRODUCTION
This report recommends City Council approve a revised City Investment Policy, extend
the delegation of investment authority to the City Treasurer/Revenue Manager from
March 1, 2003 to February 28, 2004, and adopt the attached Resolution authorizing the
establishment and use of bank and brokerage accounts and updating the list of persons
authorized to conduct transactions with the State Local Agency Investment Fund.
BACKGROUND
State law requires that the City adopt an investment policy and that the City Council
approve changes in the policy annually at a public meeting. Section 711 of the Santa
Monica City Charter delegates to the City Treasurer/Revenue Manager 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
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period, renewable annually.
The Council last approved the Investment Policy and continued delegation to the City
Treasurer/Revenue Manager on February 12, 2002. The City‘s investment policy was
previously awarded the Municipal Treasurers Association of the United States and
Canada Certification of Excellence Award and the City continues to adhere to these
standards.
Resolution No. 7707 (CCS), approved October 25, 1988, delegates the authority to
establish bank and brokerage accounts. The recent retirement of the City
Treasurer/Revenue Manager has made it necessary to update the list of authorized
individuals.
DISCUSSION
In conjunction with the annual renewal of investment authority, City staff proposes
minor revisions to the policy attachments. Portions of the attachments in italics
indicate proposed additions; strikeouts indicate proposed deletions. The changes to
Attachment A (City of Santa Monica Funds for Cash Pooling) are all administrative in
nature relating to the update of City fund names. The changes on Attachment B
(City of Santa Monica Financial Assets Excluded from the Coverage of the City’s
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Investment Policy) are primarily the addition of trustee accounts for bonds issued
since the last policy update and the deletion of bank accounts that are no longer
used. The City has increased efficiency of its banking relationships by consolidating
most bank account into one general account.
Resolution No. 7707 (CCS) designates Charles M. Dennis, Director of Finance/City
Controller and Ralph E. Bursey, City Treasurer as individuals authorized to establish
bank deposit and investment accounts with financial institutions and investment
brokers/dealers. Due to the recent retirement of Mr. Bursey, it is necessary to
remove his authority to establish such accounts and grant the authority to the current
Acting City Treasurer, David R. Carr.
Additionally, the State Local Agency Investment Fund (LAIF) has recently notified the
City that a new policy requires a Council-approved resolution to establish authority to
conduct transactions with LAIF. The attached resolution memorializes the authority
of City employees currently authorized to make transactions with LAIF as well as
removes Mr. Bursey from the authorized list. Employees currently authorized are Mr.
Carr and Ms. Neela Patel, Supervising Fiscal Staff Assistant. Ms. Patel is authorized
to make transactions only under specific instructions from Mr. Carr.
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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, continue
to delegate to the City Treasurer/Revenue Manager investment authority for the period
March 1, 2003 through February 28, 2004, and adopt the attached resolution.
Prepared by: Mike Dennis, Director of Finance
David R. Carr, Acting City Treasurer/Revenue Manager
Attachment: Attachment 1 - Revised City Investment Policy
Resolution
Revised
2/023
ATTACHMENT 1
INVESTMENT POLICY FOR THE CITY OF SANTA MONICA
PURPOSE
A.
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.
SCOPE
B.
This investment policy applies to all cash and financial investments of the various
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funds of the City of Santa Monica as identified in the City's Comprehensive Annual
Financial Report, with the exception of those financial assets explicitly excluded
from coverage by these policies for legal or operational reasons. All City Funds
are listed in Attachment A and all cash and financial investments which are
excluded from coverage by this investment policy are identified in Attachment B.
Investment income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles.
Interest is allocated on a quarterly basis.
ADMINISTRATION
C.
1. 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 quarter to
review and evaluate previous investment activity and yield, to review the
current status of all funds held by the City, to discuss anticipated cash
requirements and investment activity for the next quarter, 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.
INVESTMENT OBJECTIVES
D.
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.
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1. "Safety" means that the overall value of City funds shall not be diminished in
the process of securing and investing those funds or over the duration of the
investments.
2. Liquidity means that funds shall be made available to meet all anticipated City
obligations and a prudent reserve shall be kept available to meet
unanticipated cash requirements. Availability has two aspects, liquidity and
the scheduling of cash flows. Liquidity is the ability to change an investment
into its cash equivalent on short notice at its prevailing market value.
Scheduling of cash flows means that investments are to mature or are to be
converted into cash in tandem with the City's anticipated cash requirements.
3. Achieve a return means to earn the optimum interest income from City funds
commensurate with the objectives of safety and availability of the principle
invested. At no time shall funds be invested in any security that could result
in zero interest accrual if held to maturity.
INVESTMENT AUTHORITY DELEGATION
E.
In accordance with the Santa Monica City Charter, Section 711, the City Council
delegates to the City Treasurer responsibility for conducting the City's investment
transactions. The Treasurer may delegate this authority to the Assistant Treasurer
or, in extraordinary circumstances, to the Director of Finance. 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.
PRUDENCE
F.
1. Investments shall be made with judgment, care, skill, prudence, and diligence
under circumstances then prevailing, which persons of prudence acting in a
like capacity and familiarity with those matters would use in the conduct of
funds of a like character and with like aims, to safeguard the principal and
maintain the liquidity needs of the City. This standard of prudence shall be
applied in the context of managing an overall portfolio. Investment officers
acting in accordance with written procedures and exercising due diligence
shall be relieved of personal responsibility for an individual security's credit
risk or market price changes, provided that deviations from expectations are
reported in writing to the Director of Finance in a timely fashion, and
appropriate action is taken to control adverse developments.
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38. Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with the proper execution and
management of the investment program, or that could impair their ability to
make impartial decisions. Employees and investment officials shall disclose
any material interests in financial institutions with which they conduct
business. They shall further disclose any personal financial/investment
positions that could be related to the performance of the investment portfolio.
Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with whom business is conducted on
behalf of the City.
39. Investment officers shall avoid any transactions that might impair public
confidence in the Santa Monica City government.
4. Where it is otherwise consistent with the judiciary and statutory obligations of
the City Treasurer/Revenue Manager/Treasurer, preference in selecting
investments shall be given to those financial institutions, which have
demonstrated involvement in the development or rehabilitation of low-income
affordable housing.
5. Investments in repurchase agreements shall be made only with financial
institutions with which the City has an executed master repurchase
agreement. The financial institution must be a primary dealer of the Federal
Reserve Bank of New York.
RECORDS AND REPORTS
G.
1. Records of all investment transactions will be kept, and monthly reports will
be made to the Investment Committee and the City Manager detailing and
summarizing all transactions and stating the present status of City
investments.
2. The City Treasurer/Revenue Manager/Treasurer 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 City Treasurer/Revenue Manager/Treasurer will provide copies of the
Monthly 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.
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4. As of the end of the fiscal year, the City Treasurer/Revenue
Manager/Treasurer 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. The City Treasurer/Revenue Manager 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 judgments by
management.
DIVERSIFICATION
H.
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 Additional City Guidelines
*
U.S. Federal Agencies 33 1/3% of portfolio, maximum for each agency.
Banker's Acceptances (BA) 10% max. per issuer, 40% max. overall.
Certificate of Deposit (CD) 10% max. per issuer, 30% max.
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Commercial Paper (CP) all (CP), 15% max. overall (CP).
NOTES:
* Fedl. National Mortgage Assn. (FNMA); Fedl. Home Loan Mortgage Corp.
(FHLMC); Fedl. Home Loan Bank (FHLB); Student Loan Marketing Assn.
(SLMA); Tennessee Valley Authority (TVA); and any other U.S. Federal
agency or instrumentality.
b. Maturities
Maturities of individual investments shall be diversified to meet the
following objectives.
i. No investment will be purchased which matures more than three
years from the date of purchase unless specifically recommended
by a unanimous vote of the Investment Committee. No investment
will be purchased which matures more than five years from the date
of purchase without the additional approval of the City Manager and
the prior approval of the City Council.
ii. The average weighted maturity of all pooled City investments shall
not exceed 18 months (547 days).
ii.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
investable funds will be estimated based on scheduled maturities
plus anticipated revenues minus anticipated expenses.
ii.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
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the City's investable 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:
i. 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% of the City's investable 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 investable funds.
d. Repurchase Agreements
Investments in repurchase agreements are allowable and shall be made
only with financial institutions with which the City has an executed
master repurchase agreement. The financial institution must be a
primary dealer of the Federal Reserve Bank of New York. The market
value (bid price plus accrued 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:
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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
I.
1. The City may only purchase statutorily authorized investments, not purchased
directly from the issuer, from either an institution licensed by the state as a
broker/dealer, from a national or state chartered bank, from a federal or state
savings institution, from a brokerage firm designated as a primary
government dealer by the Federal Reserve Bank, or from a member of a
federally regulated 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 Treasurer/Revenue Manager/Treasurer that City funds have been
involved in illegal and/or imprudent transactions, this will be reported to the
City Council along with options for dealing with the situation.
3. Primary government securities dealers, which report to the New York Federal
Reserve, are preferred for conducting transactions of all eligible 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
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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.
SOCIALLY RESPONSIBLE INVESTING
J.
RESTRICTIONS - The direct investment of City funds are restricted as follows:
1. Investments are to be made in entities, which support clean and
healthy environment, including following safe and environmentally
sound practices.
2. No investments are to be made in tobacco or tobacco-related
products.
3. No investments are to be made to support the production of weapons,
military systems, or nuclear power.
4. Investments are to be made in entities, which supports equality of
rights regardless of sex, race, age, disability or sexual orientation.
5. Investments are to be made in entities, which promote community
economic development.
Prior to making investments, City Treasurer/Revenue Manager shall verify
compliance with the guidelines either through direct contact with company or with
Investors Responsibility Research Center.
COMMUNITY REINVESTMENT ACT (CRA)
K.
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".
CUSTODY AND SAFEKEEPING OF SECURITIES AND CITY FUNDS
L.
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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.
PERFORMANCE STANDARDS
M.
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. The City's portfolio management
approach is active, necessitating periodic restructuring of the portfolio to take
advantage of current and anticipated interest rate movements. In addition, the
portfolio is primarily invested in U.S. Treasury and Federal Agency securities.
Given this strategy, the performance benchmarks shall be the rolling average of 6-
month and 12-month U.S. Treasury bills, traded on the secondary market as
reported in the Federal Reserve System's monthly report of interest rates.
IMPLEMENTATION
N.
The City Treasurer/Revenue Manager is responsible for conducting and reporting
on all City investments. To facilitate this function, the Treasurer will prepare and
maintain an Investment Procedures Manual to detail operating procedures to be
practiced by the Treasury in investing City funds. All such procedures shall be in
accordance with applicable State laws, City codes and the investment policies set
by the Investment Committee. All procedures will be subject to review and
approval by the Investment Committee. The manual will explicitly include a current
listing of all City of Santa Monica financial institution deposit and investment
accounts, a current list of all financial institutions with which the City currently is
authorized to conduct investment transactions, a current copy of State laws
pertinent to City investments, a description of specific controls to ensure the proper
execution of the City Investment Policy, and copies, with instructions, of all
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investment reports required by law or by City investment policy.
INDEMNIFICATION OF INVESTMENT OFFICIALS
O.
Any investment officer exercising his or her authority with due diligence and
prudence, and in accordance with the City of Santa Monica Investment Policy, will
not be held personally liable for any individual investment losses or for total
portfolio losses.
ATTACHMENT 1-A: City of Santa Monica Funds for Cash Pooling
The following listed City of Santa Monica funds shall have their cash balances pooled
for investment purposes except for any fund or portion of one or more funds which is
specifically identified for exclusion in Attachment B of the City Investment Policy:
FUND
NUMB
FUND NAME
ER
01 GENERAL FUND
04 SPECIAL PROJECTS REVENUE SOURCE FUND
11 BEACH RECREATION FUND
12 HOUSING AUTHORITY FUND
13 DISASTER RELIEF FUND
14 TENANT OWNERSHIP RIGHTS CHARTER AMENDMENT TORCA FUND
15 LOW/MODERATE INCOME HOUSING FUND
16 REDEVELOPMENT-DOWNTOWN PROJECT FUND
17 REDEVELOPMENT-EARTHQUAKE RECOVERY PROJECT FUND
18 REDEVELOPMENT-OCEAN PARK PROJECT FUND
19 COMMUNITY DEVELOPMENT BLOCK GRANT (CBDG) FUND
20 MISCELLANEOUS GRANTS FUND
21 ASSET SEIZURE FUND
22 CITIZENS OPTION FOR PUBLIC SAFETY FUND
23 DISASTER FUND
25 WATER FUND
27 SOLID WASTE MANAGEMENT FUND
29 RENT CONTROL FUND
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30 PIER FUND
31 WASTEWATER FUND
32 CIVIC AUDITORIUM FUND
33 AIRPORT FUND
34 STORMWATER MANAGEMENT FUND
37 CEMETERY FUND
41 BIG BLUE BUS FUND
42 TRAFFIC SAFETY FUND
43 GAS TAX FUND
44 SCAQMD AIR QUALITY MANAGEMENT DISTRICT (AQMD) AB
2766(AQMD) FUND
51 CABLE COMMUNICATIONS FUND
52 SPECIAL AVIATION FUND
53 PARKS AND RECREATIONAL FUND
54 VEHICLE MANAGEMENT FUND
55 COMPUTER EQUIPMENT REPLACEMENT FUND
56 SELF INSURANCE-COMPREHENSIVE FUND
57 SELF INSURANCE-BUS FUND
58 SELF INSURANCE-AUTO FUND
59 SELF INSURANCE WORKERS= COMPENSATION FUND
77 PARKING AUTHORITY FUND
80 GENERAL TRUST FUND
82 CEMETERY PERPETUAL CARE FUND
85 DEBT SERVICE FUND
89 MAUSOLEUM PERPETUAL CARE FUND
ATTACHMENT 1-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 of the City Investment Policy. This exclusion does not exempt the
administrators of these exempted assets from exercising due diligence and prudence in
the management of the assets.
Airport Certificates of Participation - Under the terms of the trust agreement between the
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City of Santa Monica and the fiscal agent (U.S. Trust Company of California Bank of
New York) 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 Refunding Project of 2002, and First Trust of California BNY
Western Trust Company (fiscal agent) certain specific funds must be held by the fiscal
agent, for payment of principal and interest and for reserve requirements to (i) refinance
the Agency’s Lease Revenue Bonds, Series 1992 (Downtown Redevelopment
Refunding Project of 1992), (ii) provide funds to repay a portion of a certain loan made
by the City to the Agency, which indebtedness is evidenced by a promissory note of the
Agency in favor of the City, (iii) cause the amount of money on deposit for the reserve
fund for the Bonds to be at least equal to the serve requirement established under the
indenture, and (iv) pay the costs of issuance incurred with the issuance of the
Refunding Bonds. 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 Project Area Tax Allocation Bonds - Under the
terms of the trust agreement between the Redevelopment Agency of the City of Santa
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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 Project 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 U.S. Bank Corporate Trust Services) 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 Project 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 U.S. Bank Corporate Trust Services) 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.
Library Improvements Project G.O. Bonds (2002)
Under the terms of the trust agreement between the City of Santa Monica and the fiscal
agent (BNY Western Trust Company) for the City of Santa Monica General Obligation
Bonds (Library Improvements Project), Series 2002, certain specific funds must be held
by the fiscal agent to finance acquisition and construction of improvements for the Santa
Monica Public Library. The funds are accounted for in Fund 01, the General Fund and
Fund 85, the Debt Service Fund.
Mausoleum Perpetual Care Fund Investments - On July 8, 1986, the City Council
amended the Municipal Code, Section 7300 et al., 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
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in Fund 89, the Mausoleum Perpetual Care Fund.
Ocean Park Redevelopment Projects - 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 BNY Western Trust Company) for the Redevelopment Agency of the City
of Santa Monica Ocean Park Redevelopment Projects Tax Allocation Bonds, Series
19922002), 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 refinance for the Agency’s Ocean Park Redevelopment Projects Tax Allocation
Refunding Bonds, Series 1992, (ii) refund the Agency’s Ocean Park Redevelopment
Projects Tax Allocation Refunding Bonds, Series 1988B provide funds to make certain
payments with respect to a certain loan made by the City of Santa Monica (the “City”) to
the Agency, (iii) provide funds to repay a portion of certain promissory notes of the
Agency provide funds for the purpose of aiding in increasing, improving, and preserving
low and moderate income housing in the Project Area, (iv) fund a reserve fund for the
refunding bonds, and (v) pay the costs 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 BNY
Western Trust Company) for the Parking Authority of the City of Santa Monica Lease
Revenue Refunding Bonds, 1992 2002, certain specific funds must be held by the fiscal
agent, for construction and improvement needs, for principal and interest payments, and
for reserve requirements to (i) refinance the Authority’s 1992 Lease Revenue Bonds, (ii)
cause the amount in the reserve fund to be at least equal to the reserve requirements
set forth in the indenture, and (iii) pay the costs incurred in connection with the issuance
of the bonds. 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 Facility Project - Under the terms of the trust agreements the Public
Financing Authority of the City of Santa Monica and BNY Western Trust Company, and,
as trustee, for the Santa Monica Public Financing Authority Lease Revenue Bonds,
Series 1999 and Series 2002A, 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.
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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 of the trust agreement
between the City of Santa Monica and the fiscal agent, (First Trust of California U.S.
Bank Corporate Trust Services 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 account for in Fund 59, the
Self-Insurance Workers' Compensation Fund. These funds are not invested.
The following accounts for the 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:
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 2002), an escrow fund was
established with BNY Western Trust Company for purposes of payment of principal of,
and premium and interest payments with respect to the 1992 Lease Revenue Bonds,
Series 1992 (Downtown Redevelopment Project of 1992).
Downtown Redevelopment Lease Revenue Bonds Escrow Account - As a result of the
issuance of the Downtown Redevelopment Lease Revenue Bonds, Series 2002
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(Downtown Redevelopment Refunding Project of 1992), an escrow fund was
established with Union Bank for purposes of payment of principal of, and premium and
interest payments with respect to the 1978 Lease Revenue Bonds, Series 1992
(Downtown Redevelopment Project of 1978).
Ocean Park Redevelopment Projects Tax Allocation Bonds Escrow Accounts
(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.
Ocean Park Redevelopment Projects Tax Allocation Bonds Escrow Accounts
(Refunding Bonds, Series 1992 ) - As a result of the issuance of the Ocean Park
Redevelopment Projects Tax Allocation Refunding Bonds, Series 2002, escrow funds
were established with BNY Western Trust Company for purposes of payment of (i) the
principal of and accrued interest on the 1992 Bonds coming due on and prior to the
Redemption Data and, (ii) the Redemption Price for the 1992 Bonds on the Redemption
Date.
Parking Authority 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 of
these bonds was accounted for in Fund 77, the Parking Authority Fund.
Parking Authority Bonds Escrow Fund - As a result of the issuance of the Parking
Authority of the City of Santa Monica Lease Revenue Refunding Bonds, Series 2002,
Parking Authority of the City of Santa Monica Lease Revenue Refunding Bonds, Series
1992 were placed in "defeasance" with the fiscal agent, BNY Western Trust Company.
The investment securities held are sufficient to provide for the balance of the revenue
bond's principal and interest payments.
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.
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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.
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 Other Constraints
Limit (%)
Local Agency Bonds No limit Maximum maturity 5 years.
U.S. Treasury Obligations No limit Maximum maturity 5 years.
State of California No limit Maximum maturity 5 years.
Obligations
California Local Agency No limit Maximum maturity 5 years.
Obligations
U.S. Agencies No limit Maximum maturity 5 years.
Bankers Acceptance 40% Eligible for purchase by the Federal
Reserve System and not to exceed 180
days to maturity. No more than 30% may
be in bankers acceptances of any one
commercial bank.
Commercial Paper 15%/30% "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 days to maturity. The maximum limit
on commercial paper is 25% of all
investments
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Negotiable Certificates of 30% Maximum maturity 5 years. State and
Deposit Federally chartered banks and savings
institutions, including U.S. branches of
foreign banks regulated by State regulatory
authorities ("Yankee CD").
Repurchase Agreement No limit 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.
Reverse Repurchase 20%* Must be made with primary dealers of the
Agreements 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.
Securities Lending 20%* Must be made with primary dealers of the
Agreements 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.
Medium-Term Corporate 30% Maximum maturity 5 years; bonds must be
Notes rated in top three rating categories by a
nationally recognized rating service.
22
Shares of beneficial 20% No more than 10% may be invested in any
interest issued by one mutual fund. Funds are invested in
diversified management securities and obligations authorized by
companies sub-divisions (a) through (m) of Section
(mutual funds) 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.
Money Market Funds 20% 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, or exempt from
registration, with the SEC and has at least
5 years= experience managing money
market funds in excess of $500 million.
Collateralized Certificate No limit Maximum maturity 5 years#. Banks:
of Deposit 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% of the CD value by
other eligible securities. Investments in
certificates of deposits of state or federal
credit unions if any member of the city=s
governing or managing officers (council,
city manager, fiscal officers) serves on the
credit union board or key committee
23
positions is prohibited.
Mortgage Securities 20% 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.
Local Agency $ 40 Monies are invested in pooled state fund
Investment Fund million managed by State Treasurer. Maximum,
(LAIF) 15 transactions per month.
County Pooled No limit
Investment Funds
*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
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Bond proceeds may be invested in accordance with the State Code provisions.
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.
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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.
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
26
sense. "Fed Funds" also used to refer to these funds.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate
is currently pegged by the Federal Reserve through open-market operations.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The
President of the New York Federal Reserve Bank is a permanent member while the
other Presidents serve on a rotating basis. The Committee periodically meets to set
Federal Reserve 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.
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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.
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.
PRIMARY DEALER: A group of government securities dealers that submit daily reports
of market activity and positions and monthly financial statements to the Federal Reserve
28
Bank of New York and are subject to its informal oversight. Primary dealers include
Securities and Exchange Commission (SEC) registered securities broker-dealers,
banks, and a few unregulated firms.
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 holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed price on a
fixed date. The security "buyer" 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 for the purchase and sale of outstanding
issues following the initial distribution.
SEC RULE 15C3-1: See uniform net capital rule.
STUDENT LOAN MARKETING ASSOCIATION (SLMA): A U.S. Corporation and
instrumentality of the U.S. government. Through its borrowings, funds are targeted for
loans to students in higher education institutions. SLMA's securities are highly liquid
29
and are widely accepted.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SETTLEMENT DATE: The date on which a trade is cleared by delivery of securities
against funds. This date may be the same as the trade date or later.
TENNESSEE VALLEY AUTHORITY (TVA): A U.S. Corporation created in the 1930's,
to electrify the Tennessee Valley area; currently a major utility headquartered in
Knoxville Tennessee. TVA's securities are highly liquid and are widely accepted.
TREASURY BILLS: A non-interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three months,
six months, or one year.
TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of
more than ten years.
TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury securities
having initial maturities of from one to ten years.
YIELD: The rate of annual income return on an investment, expressed as a
percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the
current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the
current income yield minus any premium above par or plus any discount from par in
purchase price with the adjustment spread over the period from the date of purchase to
the date of maturity of the bond.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement
that member firms as well as nonmember broker-dealers in securities maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule
and net capital ratio. Indebtedness covers all money owed to a firm, including margin
loans and commitments to purchase securities, one reason new public issues are
spread among members of underwriting syndicates. Liquid capital includes cash and
assets easily converted into cash.
TRADE DATE: The date on which a transaction is initiated or entered into by the buyer
and seller.
WHEN-ISSUED TRADES: Typically, there is a lay between the time a new bond is
30
announced and sold, and the time when it is actually issued. During this interval, the
security trades "wi", "when, as, and if issued."
YIELD TO MATURITY: The rate of return yielded by a debt security held to maturity
when both interest payments and the investor's capital gain or loss on the security are
taken into account.
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