HomeMy WebLinkAboutResolution No. 91-R19 0
RESOLUTION NO. 91-R1
RESOLUTION OF THE EXECUTIVE BOARD OF THE REDEVELOPMENT
AGENCY OF THE CITY OF AZUSA ADOPTING ITS INVESTMENT POLICY
WHEREAS the Redevelopment Agency of the City of Azusa
receives taxes and other revenues from a variety of sources and
uses the funds to pay its bills on a regular basis; and
WHEREAS the Agency Treasurer is charged with the duties
of handling and maintaining the cash that is taken in or
otherwise received by the Agency; and
WHEREAS the balance of these funds fluctuates between
$3,000,000 and $10,000,000 or more; and
WHEREAS the Agency Treasurer is charged with the
responsibility of investing idle public funds, doing so on the
basis of protecting the safety of the funds, ensuring the
liquidity of the investments, and maximizing earnings in that
order of importance and based on the "Prudent Man Rule"; and
WHEREAS the State of California requires each Agency to
adopt an investment policy for its jurisdiction.
NOW, THEREFORE, BE IT RESOLVED that the Executive Board
of the Redevelopment Agency of the City of Azusa does hereby
approve its Investment Policy attached hereto as Exhibit A and
instructs the Agency Treasurer to be guided by it in carrying out
the duties of his office for the benefit of the Redevelopment
Agency.
ADOPTED AND APPROVED this 19th day of February, 1991.
I HEREBY CERTIFY that the foregoing resolution was duly
adopted by the Redevelopment Agency of the City of Azusa at a
regular meeting thereof on the 19th day ofFebruary,1991 by the
following vote of the Board:
AYES: AGENCY DIRECTORS: DANGLEIS, STEMRICH, NARANJO, ALEXANDER, MOSES
NOES: AGENCY DIRECTORS: NONE
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THE REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
I N V E S T M E N T P O L I C Y
I. STATEMENT OF OBJECTIVES
Temporarily idle or surplus funds of The Redevelopment
Agency of the City of Azusa (the "Agency") be invested in
accordance with principles of sound treasury management and
in accordance with the provisions of California Government
Code Sections 53600, et seq., the Municipal Code, guidelines
established by the California Municipal Treasurer's
Association and the California Society of Municipal Finance
Officers, and this Investment Policy ("Policy").
A. Overall Risk Profile
The basic objectives of the Agency's Investment Program
are, in order of priority:
1. Safety of invested funds;
2. Maintenance of sufficient liquidity to meet cash
flow needs; and
3. Attainment of the maximum yield possible
consistent with the first two objectives.
The achievement of these objectives shall be
accomplished in the manner described below:
1. Safety of Invested Funds
The Agency shall ensure the safety of its invested
idle funds by limiting credit and interest rate
risks. Credit risk is the risk of loss due to the
failure of the security issuer or backer. .
Interest rate risk is the risk that the market
value portfolio securities will fall due to an
increase in general interest rates.
a) Credit risk will be mitigated by:
(i) limiting investments to the safest types
of securities;
(ii) by prequalifying the financial
institutions with which it will do
business; and
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(iii) by diversifying the investment portfolio
so that the failure of any one issue or
backer will not place an undue financial
burden on the Agency.
b) Interest rate risk will be mitigated by:
(i) structuring the Agency's portfolio so
that securities mature to meet the
Agency's cash requirements for ongoing
operations, thereby avoiding the need to
sell securities on the open market prior
to their maturation to meet those
specific needs; and
(ii) investing primarily in shorter term
securities.
C) The physical security or safekeeping of the
Agency's investments is also an important
element of safety. Detailed safekeeping
requirements are defined in Section III of
this policy.
Liquidity
The Agency's investment portfolio shall be
structured in a manner which strives to achieve
that securities mature at the same time as cash is
needed to meet anticipated demands (Static
Liquidity). Additionally, since all possible cash
demands cannot be anticipated, the portfolio
should consist largely of securities with active
secondary or resale markets (Dynamic Liquidity).
The specific percentage mix of different
investment instruments and maturities is described
in Section II of this Policy.
Yield
Yield on the Agency's investment portfolio is of
secondary importance compared to the safety and
liquidity objectives described above. Investments
are limited to relatively low risk securities in
anticipation of earning a fair return relative to
the risk being assumed. while it may occasionally
be necessary or strategically prudent of the
Agency to sell a security prior to maturity to
either meet unanticipated cash needs or to
restructure the portfolio, this policy
specifically prohibits trading securities for the
sole purpose of speculating on the future
direction of interest rates. Specifically, "when"
and "if issued" trading and open-ended portfolio
restructuring transactions are prohibited.
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B. Time Frame for Investment Decisions
The Agency's investment portfolio shall be structured
to provide that sufficient funds from investments are
available every month to meet the Agency's anticipated
cash needs. Subject to the safety provisions outlined
above, the choice in investment instruments and
maturities shall be based upon an analysis of
anticipated cash needs, existing and anticipated
revenues, interest rate trends and specific market
opportunities. No investment should have a maturity of
more than five (5) years from its date of purchase
without receiving prior Executive Board approval.
C. Definition of Idle or Surplus Funds
Idle or surplus funds for the purpose of this policy
are all Agency funds which are available for investment
at any one time, including the estimated checking
account float, excepting those minimum balances
required by the Agency's banks to compensate them for
the cost of banking services. This policy also applies
to the idle or surplus funds of other entities for
which the Redevelopment Agency personnel provide
financial management services.
II INVESTMENTS
This section of the Investment Policy identifies the types
of instruments in which the Agency will invest its idle
funds.
A. Eligible Securities
The Agency operates its temporary pooled idle cash
investments under the Prudent Man Rule - l/ (Civil Code
Section 2261, et seq). See Exhibit A. This affords
the Agency a broad spectrum of investment opportunities
as long as the investment is deemed prudent and is
allowable under current legislation of the State of
California (Government Code Section 53600, et. seq).
(See Exhibit B for definition of investments.)
* Insured Certifications of Deposit (CD's) of
California banks and/or savings and loan
associations, and/or savings banks which mature in
5 years or less, provided that the Agency's
investments shall not exceed One Hundred Thousand
Dollars ($100,000.00) per institution. If the
l/ The Prudent Man Rule states, in essence, that "in investing
exercise the judgment and care, under the circumstances then
prevailing, which men of prudence, discretion and intelligence
exercise in the management of their own affairs ......"
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B.
C.
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investment exceeds the insured $100,000.00, the
funds are to be collateralized at 110% of the
deposit in government securities or 150% in
mortgages.
* Local Agency Investment Fund (State Pool) Demand
Deposits
* Securities of the U.S. Government, or its agencies
* Negotiable Certificates of Deposit placed with
Federal and State savings and loan associations
and Federal and State chartered banks with an
office in the State of California (limited to 30%
of portfolio)
* Bankers Acceptance (limited to 40% of portfolio)
(Not collateralized; emergency use only)
* Commercial Paper (limited to 30% of portfolio)
(Not collateralized; emergency use only)
* Passbook Savings or Money Market Demand Deposits
* Repurchase Agreements (limited to 30% of
portfolio)
* Los Angeles County Treasurer's Investment Pool
* Money Market Mutual Fund (with $1 net asset value)
Qualification of Brokers. Dealers and
Financial Institutions
United States Treasury issue transactions will be
conducted only with primary dealers from the list of
Government Security dealers reporting to the Markets
Reports Division of the Federal Reserve Bank of New
York (Exhibit C).
Collateralization Requirements
Uninsured Time Deposits with banks and savings and
loans shall be collateralized in the manner prescribed
by law for depositories accepting municipal investment
funds.
Pre -formatted Wire Transfers
Wherever possible, the Agency will use pre -formatted
wire transfers to restrict the transfer of funds to
pre -authorized accounts only. When transferring funds
to an account not previously approved, the bank is
required to call back a second employee for
confirmation that the transfer is authorized.
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E.
F
G
Notice of Dealers
The Agency shall annually send a copy of the current
edition of the Policy and its enabling Resolution to
all institutions which are approved to handle City of
Azusa Redevelopment Agency investments. Receipt of the
Policy and Resolution, including confirmation that it
has been received by persons handling the Agency's
account, shall be acknowledged in writing within thirty
(30) days.
Diversification
The portfolio should consist of a mix of various types
of securities, issues and maturities.
Confirmation
Receipts for confirmation of purchase of authorized
securities should include the following information:
trade date, par value, rate, price, yield, settlement
date, description of securities purchase, agency's
name, net amount due, 3rd party custodial information.
These are minimum information requirements.
H. GASB 3
The Governmental Accounting Standards Board issued GASB
3 in April 1986, and the local entity's investments
must be categorized into three levels of credit risk as
follows:
a) securities that are insured or registered, or for
which the securities are held by public units or
its agent in the units;
b) securities that are uninsured and unregistered and
are held by the broker's or dealer's trust
department or agent in the unit's name;
C) securities that are uninsured and unregistered and
are held by the broker or dealer, or by its trust
department or agent, but not in the unit's name.
The carrying amount and market value of all types of
investments must be disclosed in total and for each
type of investment.
Governmental Accounting Standards Board 3 exempts
mutual funds and LAIF investments from the mandatory
risk categorization.
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III SAFEKEEPING OF SECURITIES
A. Safekeeping Agreement
B.
The Agency shall contract with a bank or banks for the
safekeeping of securities which are owned by the Agency
as a part of its investment portfolio or transferred to
the Agency under the terms of any repurchase
agreements.
All securities owned by the Agency shall be held by its
safekeeping agent, except the collateral for time
deposits in banks, savings banks, and savings and loans
is held by the Federal Home Loan Bank. The collateral
for time deposits in banks is held in the Agency's name
in the bank's trust department, (if a safekeeping
agreement has been executed) or, alternatively, in the
San Francisco Federal Reserve Bank.
C. Security Transfers
The authorization to release the Agency's securities
will be telephoned to the appropriate bank by a finance
department member other than the person who initiated
the transaction. A written confirmation outlining
details for the transaction and confirming the tele-
phoned instructions will be sent to the bank within
five (5) working days.
D. Verification of Security
Securities transferred to the Agency as collateral
securing time deposits which are being held in safe-
keeping for the Agency will be verified in writing and
examined on a surprise basis during the year by the
Agency's independent auditors as part of the Agency's
annual independent audit.
IV. STRUCTURE AND RESPONSIBILITY
This section of the Policy defines the overall structure of
the investment management program.
A. Responsibilities of the Agency Treasurer
The Agency Treasurer is charged with responsibility for
maintaining custody of all public funds and securities
belonging to or under the control of the Agency, and
for the deposit and investment of those funds in
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accordance with principles of sound treasury management
and in accordance with applicable laws and ordinances.
The Executive Director is responsible for keeping the
Executive Board fully advised as to the financial
condition of the Agency.
C. Responsibilities of the Executive Board
The Executive Board shall consider and adopt a written
investment policy. As provided in that policy, the
Board shall receive, review and accept monthly invest-
ment reports.
D. Responsibilities of the Investment Committee
There shall be an Investment Committee consisting of
the Executive Diretor, the Director of Finance and the
Agency Treasurer. The Committee shall meet quarterly
to discuss cash flow requirements, the monthly invest-
ment reports, investment strategy, investment and
banking procedures and significant investment related
work projects being undertaken in each department which
will affect the cash flow management of the Agency
Treasurer. This will require timely reports from the
department heads to the Agency Treasurer concerning
significant future cash flow requirements. The
Committee's meetings will be summarized in minutes that
are distributed to the Executive Board.
The Agency Treasurer shall prepare a monthly investment
report, including a succinct management summary that
provides a clear picture of the status of the current
investment portfolio and transactions made over the past
month. This management summary shall be prepared in a
manner which will allow the Executive Director and the
Executive Board to ascertain whether investment activities
during the reporting period have deviated from the Agency's
Investment Policy.
The monthly report shall include the following:
A. A list of individual securities held at the end of the
reporting month.
B. Unrealized gain or loss resulting from appreciation or
depreciation by listing the cost and market value of
securities over one year in duration.
C. A description of the current investment strategy and
the assumptions upon which it is based.
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D. Average rate of return on Agency's investments.
E. Maturity aging by type of investments.
VI. REVIEW OF INVESTMENT MANAGEMENT
Policy Review
This investment policy shall be reviewed annually by the
Executive Board in accordance with State law to ensure its
consistency with respect to the overall objectives of
safety, liquidity and yield. Proposed amendments to the
policy shall be prepared by the Treasurer and after review
by the Investment Committee and City Attorney be forwarded
to the Executive Board for consideration.
VII. AUTHORITY
This policy was duly adopted by authority of the Executive
Board of the Redevelopment Agency of the City of Azusa on
the day of , 1991.
invpolcy.cra
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PRUDENT MAN RULE
CIQLL CCDM
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225 1.{inrestment of tundsJ
investing, reinvesting, purchasing, acquiring, exchanging, seting
;- and ctanaging property for the bt.^root of another. a tnutet shall
exercise the judgment and care, undo L`.e eirenmsanees then prevai�-
;:''; •.. ':,{ in F, which mea of prudence. dice:iron and intelligence exercise to the
Managementof their own affairs, not L't regard to speculation. but in
regard to �! : pe^anent disposition of their funds eonside in; the
probable incama ?s well u the probable saf:ry of their capitaL
Within the lir^itat•.ens of the fere=i.^.g sundz-td. and subject to any
ex : ess provisiccs or limitations c:,auL^e i is any p lc'
ir.s _... •t a trutr_ is to ac_: y-e every kind of prpe^y,
Q. pe:soral or mixed, and every kir d of investment, spe=incally
including. but not by way of lirnution, crponte obligations of crtrf
kind, and stocks, preferred or carns'en. which mea of prudenm
;; discrc::ea and intelligence acquire for their ower a=UZL
(2) In the absence of express' provisicas to the contrary in the tto a
irstramen , a truster clay continue to hold property ra:ived Tato a
taut at its inception or subsequently adder to it or acquired pursuant
to proper author ry if Rad as Ions ss tic trastee. in the exercise Of
good faith and of reasonable prsdr..c . disc et ca and intelligrn=
In
ay c nsida that reteatic t is to the best irt::esu oocrp-oration and stock
;roper-:y may in stork iz
the t;: st.� if a y,
to Ray corporation controlling. car..oiled by, or under cocc ea
cont;cl with such ttustea.
(;) In the abxnce cj express prt;visiors to the contrary in the trzt
ins:rur..ent, a deposit of trust fu.•tds at interest is any bank (including
the t.^:-sten, if a bsak) shall be a q iii 5cd iavestca�tt to the extent
that such deposit is insured under any prrseat .or future law of the
United Suter or so such grester ezuat as a court of competent
jurisdic:icn may authorize, Nothin3 in this section shall be construct
as liwiting the right of t=tees in prepa ash to make deposits of
tntst moneys in banks, subject. in the case of intemt•besring d rt"=M
to such notice err other conditions respecting withdrawal as may be
prescribed by law or gove.-nmental regulation a,Kzcting such dtp=u'
(4) Nothing in this section shall abrC;ate or restrict the power of the
appropriate court in proper cases to direct or pertait the trustee to
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3F-NU7T OF TH1RD
&%isle from the ter -is of the Lrusl regarding the making o;
ret�tiea
(c) The provisicas of th;s section shag apply to all trusts now existing
.' .: Cr hercafter truth Wbere, in trust non• existing or hcreaftc
.;.; . crate:, the term "investments perr.•?ss131e by fix• for inveYtnent of
i
tr-st funds," or "authorized b)• Ina for investment of trt:st funds,"
::y•
investme.7rts," of "authorized roves men;s," or other words of
`' .. sir..:lat import are used in defining the posers of the imstee reladve
to investments -such language, in the sbs .-- of other controlling of
"modif3in� pro.isions of the trust instrim.mt, s;iall be construed as
autherizins an}• invesime: t permitted by t*e te. Ws of subdirsioa (l)
Of U*is wtica
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(6) The te;:7s "property" as used is this sez on includes life inst=-
ance, endew•ment, and annuity contracs issued by legal reserve
eo^7panies AU t' to do business in this sratr.
In,nd I U;: Amenecll Stas 1911 LS v I 1 p .6c":Sun 1137 cb Uf 1 p : Sed, e! Sxt
1 1 p 4:63, Suu 1963 C!,161 11 D 333, Sula 1969 a !s f t p 61L
?rice Lr F416'S DrLh AY CC } 11".
3!t} kmtacLntmc Drier to 1941 Lc ssetioe resd: 'A Erse intra tavtst �at7
reea.es.' b) Alm undC t!y L -4M is [AU It he mica a t+:.Sciatt Laoust, a Lm[a
• Mamma U to a!ord rmuctub1! WUR1)and talrrcn for LSA "M,
.
1911 Am=dmtl ke coded LSE mr6ca-to ran•', U at Dlesol UUr kr LSc rc:oft"
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Amr•dmeats
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1967 Amendntet: (1) Added L% -t ssrand Santex: of subd {3} f2J delud -u nxp
— bank R Litt tatintt et( L1)� Lritr .11tr est Lay, ie sex Sed (]k sad
(3) deleted "':.he mvtnrs de;4mmm of Leta -(x:tt _.3- w lubd (]}
1953 Amtn(ntat: Added n:bd (61
1969 AmendmitL' .t.ddtd '•. L -.d s:oet is ary eory.'•,Lke e=ottm.1 nt. txetrorAd
or undo eoatr:)on matrol aitA SutS trvau" at t:1 cad d wbd Gj
Crag RAfcrastt c
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Ulbilllg ri iw.m i6 Ftsi,.3ka will 6sm d LWQ: C j 311
lnve•stmL�t of trvn funds rtv"W b)• Uvo cxmF+ay: c -pt C 1 1561.
rtmut of truer company funds a•w", id memeat or dntr.-buboes: Fin C 11x2.
7ttJltilaliC, er sect Sa36 is trim it aa.'7e d tu=nes d L -US: =?..Dna)- Fs C
Common trust WL F'm C ; I`.bl i.:.t t. •
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Shares o( uvinp Lad kaa stteeislioas Ed 1ett1 ie.e•Urxa Fm C 16609.
1a.wrmeu CmAtAtas kwow tT sdnArs sad loan sssoraUcm u kra! 41emmaa -
Fta C i 6tOL
FL&crL) La ars sad ria oclociatioet: 7:d C i 11�J7.
Nslioeal momptr 611ocs6m owilmugm. Fra C it :"^.. a
Fare foot ta=@s• Cow C 163611
Der+t;m Erns feeds• Gw C I 512161 -.'..-_.•
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In.estreat d uatarnsd aressiv le'Wf" d tyke ixrrr. tK C; 12112
Nortrert rartic petite caruiutn tried u U-1'0 1 tuuutltrd by matrare Whom a
Itrtl Utrestmentt rot trues funth: let C 1127.5.
Ccnihuta sed ttsnalets el Nun at utao saettritin ketd lly adu6arkm: t3Ct:
I aat22.
Lrubli,xmcm Senome+na trvm by brVU.Mml ce Mrsul HWLIL W A t C Ir..e
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Mun,uptl rata dntrtct Cortdt. 11'41 Unccd Art 647.
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EXHIBIT B
DESCRIPTION OF INVESTMENTS
The Redevelopment Agency of the City of Azusa's (the Agency)
investments are placed in those securities as outlined below;
the balance between the various investment instruments may change
in order to give the Agency the best combination of safety,
liquidity and high yield. Surplus funds of local agencies may
only be invested in certain eligible securities. The Agency
invests only in those allowable securities under the State of
California statutes (Government Code Section 53601), et sea).
CERTIFICATES OF DEPOSIT
Certificates of deposit allow the Agency to select the exact
amount and day of maturity as well as the exact depository.
Certificates of deposit are issued in any amount for periods of
time as short as fourteen days and as long as several years. At
any given time, the Agency may have certificates of deposit in
numerous financial institutions in the future.
The Treasurer may at his discretion waive security for that
portion of a deposit which is insured pursuant to federal law.
Currently, the first $100,000 of a deposit is federally insured
by FSLIC or FDIC. It may be to the Agency's advantage to waive
this collateral requirement for the first $100,000 because the
Agency may receive a higher interest rate. If funds are to be
collateralized, the collateral will be 110% of the deposit in
government securities or mortgages of 150%. At purchase,
institutions must not show an operating loss. Banks must have an
equity to asset ratio of at least 6%. Savings and loan
associations and savings banks must have an equity to asset ratio
of at least 3%.
LOCAL AGENCY INVESTMENT FUND
Local Agency Investment Fund of the State of California offers
high liquidity because deposits can be wired to the City/Agency
checking account in twenty-four hours. Interest is computed on a
daily basis.
This is a special fund in the State Treasury which local agencies
may use to deposit funds for investment. There is no minimum
investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum of $10,000,000 for
any agency. It offers high liquidity because deposits can be
converted to cash in twenty-four hours and no interest is lost.
All interest is distributed to those agencies participating on a
proportionate share determined by the amounts deposited and the
length of time they are deposited. Interest is paid quarterly
via a check or warrant.
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The State keeps an amount for reasonable costs of making the
investments, not to exceed one-quarter of one percent of the
earnings.
The interest rates are fairly high because of the pooling of the
State surplus cash with the surplus cash deposited by local
governments. This creates a multi -billion dollar money pool and
allows diversified investments. In a high interest rate market,
we do better than LAIF. But in times of low interest rates, LAIF
yields are higher.
U.S. TREASURY SECURITIES
U.S. Treasury securities are highly liquid in addition to being
considered the safest of all investments.
U.S. TREASURY BILLS are direct obligations of the United
States Government. They are issued weekly with maturity
dates up to one year. They are issued and traded on a
discount basis and the interest is figured on a 360 day
basis, actual number of days. They are issued in amounts of
$10,000 and up, in multiples of $5,000. They are highly
liquid security.
U.S. TREASURY NOTES are direct obligations of the United
States Government. They are issued throughout the year with
maturities of 2, 3, 4, 5, 7, 10 years. Notes are coupon
securities paying interest every six months. The Agency will
not invest in notes having maturities longer than five
years.
FEDERAL AGENCY SECURITIES
Federal Agency securities are highly liquid and considered
riskless.
Federal Agency issues are guaranteed directly or indirectly by
the United States Government. All agency obligations qualify as
legal investments and are acceptable as security for public
deposits. They usually provide higher yields than regular
Treasury issues with all of the same advantages. Examples are:
FNMA's (Federal National Mortgage Association) are used to
assist the home mortgage market by purchasing mortgages
insured by the Federal Housing Administration and the
Farmers Home Administration, as well as those guaranteed by
the Veterans Administration.
FHLB's (Federal Home Loan Bank Notes and Bonds) are issued
by the Federal Home Loan Bank System to help finance the
housing industry. The notes and bonds provide liquidity and
home mortgage credit to savings and loan associations,
mutual savings banks, cooperative banks, insurance companies
and mortgage -lending institutions.
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Some other federal agency issues are Federal Intermediate
Credit Banks Debentures (FICB), Federal Farm Credit Bank
(FFCB), Federal Land Bank Bonds (FLB), Small Business
Administration notes (SBA's), Government National Mortgage
Association notes (GNMA's), Tennessee Valley Authority notes
(TVA's), and Student Loan Association notes (SALLIE MAE's).
These investments will occasionally be used.
NEGOTIABLE CERTIFICATES OF DEPOSIT
Negotiable certificates of deposit are high grade instruments,
paying a higher interest rate than regular certificates of
deposit. They are liquid because they can be traded in the
secondary market.
Negotiable Certificates of Deposit (NCD's) are unsecured
obligations of the financial institution, bank or savings and
loan, bought at par value with promise to pay face value plus
accrued interest at maturity. The primary market issuance is in
multiples of $1 million, the secondary market usually trades in
denominations of $500,000 although smaller lots are occasionally
available. Local agencies may not invest more than 30% of their
surplus money in negotiable certificates of deposit. NCD's will
only be placed with the largest and most financially sound
institutions.
BANKERS ACCEPTANCES
Bankers Acceptances are frequently the highest in yield, are safe
investments and are highly liquid.
Bankers acceptances are a short-term credit arrangement to enable
businesses to obtain funds to finance commercial transactions.
They are time drafts drawn on a bank by an exporter or importer
to obtain funds to pay for specific merchandise. By its
acceptance, the bank becomes primarily liable for the payment of
the draft at its maturity. An acceptance is a high grade
negotiable instrument.
Acceptances are purchases in various denominations for 30, 60 or
90 days but no longer than 270 days. The interest is calculated
on a 360 day discount basis similar to Treasury Bills. Local
agencies may not invest more than forty -percent of their surplus
money in bankers acceptances.
COMMERCIAL PAPER
Commercial paper allows the investment of large amounts of money
for one to seven days at rates higher than we can earn from our
savings account. Commercial paper is a short-term unsecured
promissory note issued by a corporation to raise working capital.
These negotiable instruments are purchased at a discount to par
value. Commercial paper is issued by corporations such as
Shearson -American Express, International Business Machines (IBM)
and Pacific Gas and Electric Company, etc.
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Local agencies are permitted by state law to invest in commercial
paper of "prime" quality of the highest ranking or of the highest
letter and numerical rating as provided by Moody's Investor's
Service, Inc. or Standard and Poor's Corporation. Purchases of
eligible commercial paper may not exceed 180 days maturity nor
exceed thirty percent of the local agency's surplus funds.
PASSBOOK SAVINGS OR MONEY MARKET ACCOUNT
Passbook savings account allows us to transfer money from
checking to savings and earn short-term on odd amounts of money
which are not available for longer investment.
The savings account is similar to an inactive deposit except not
for a fixed term. The interest rate is much lower than CD's, but
the savings account allows flexibility. Funds can be deposited
and withdrawn according to daily needs.
LOS ANGELES COUNTY POOLED FUND
Los Angeles County Pooled Fund is similar to the State of
California Local Agency Investment Funds. The County fund
provides protection, liquidity and higher than market rates for
short-term securities.
The County Pooled Fund is similar to the State of California
Local Agency Investment Fund (LAIF). Los Angeles County has an
existing pooled fund with current assets of $3.5 billion serving
school districts and other special districts. This pooled fund
is managed by the County Treasurer and interest is competitive to
money market rates. There are no restrictions to number of
transactions or dollar amount of deposits. The funds deposited
by a local agency in the County Pooled Fund cannot be attached by
the County.
All interest is distributed to those agencies participating on a
proportionate share determined by the amounts deposited and the
length of time they are deposited. Interest is credited to the
account and reinvested. The County keeps an amount for reason-
able administrative costs of the pool. The Los Angeles County
Treasurer has stated the range of administrative costs is 14 to
18 basis points (approximately 0.14% to 0.18% of the pool fund
average daily balance).
MUTUAL FUND
Mutual fund is another authorized investment allowing the Agency
to maintain liquidity and receive money market rates.
Mutual Funds are referred to in the Government Code, Section
53601,L, as "shares of beneficial interests issued by diversified
management companies". The Mutual Fund must be restricted by its
by-laws to the same investments as the local agency. These
investments are Treasury issues, Agency issues, Bankers
4
Acceptance, Commercial Paper, Certificates of Deposit, and
Negotiable Certificates of Deposit. The quality rating and
percentage restrictions in each investment category applicable to
the local agency also applies to the Mutual Fund.
A further restriction is that the purchase price of shares of the
mutual funds shall not include any sales commission. Investments
in mutual funds shall not exceed fifteen percent of the local
agency's surplus money.
REPURCHASE AGREEMENTS
Another authorized investment for cities is repurchase agree-
ments. Repurchase agreements are purchases of securities by the
Agency under an agreement with a term of one (1) year or less
whereby the seller will "repurchase" the same securities on or
before a specified date or on demand of either party and for a
specified amount. The underlying securities must be delivered to
the Agency by book entry, physical delivery or a third -party
custodial agreement. Transfer of the underlying securities to
the counterparty may be used for book entry delivery.
5
EXHIBIT C
LIST OF THE PRIMARY GOVERNMENT SECURITIES DEALERS
REPORTING TO THE MARKET REPORTS DIVISION OF THE
FEDERAL RESERVE BANK OF NEW YORK
Bank of America NT & SA
Bankers Trust Company
Bear, Stearns & Co., Inc.
Carroll McEntee & McGinley Incorporated
Chase Manhattan Government Securities, Inc.
Chemical Bank
Citibank, N.A.
Continental Illinois National Bank and Trust Company of
Chicago
Daiwa Securities America Inc.
Dean Witter Reynolds Inc.
Discount Corporation.of New York
Donaldson, Lufxin & Jenrette Securities Corporation
Drexel Burnham Lambert Government Securities Inc.
The First Boston Corporation
First Interstate Capital Markets, Inc.
First National Bank of Chicago
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
Harris Trust and Savings Bank
E.F. Hutton & Company, Inc.
Irving Securities, Inc.
Kidder, Peabody & Co., Incorporated
Kleinwort Benson Government Securities, Inc.
Aubrey G. Lanston & Co., Inc.
Manufacturers Hanover Trust Company
Merrill Lynch Government Securities Inc.
Midland -Montagu Government Securities, Inc.
J.P. Morgan Securities, Inc.
Morgan Stanley & Co., Incorporated
Nomura Securities International, Inc.
Paine Webber Incorporated
Wm. E. Pollock Government Securities, Inc.
Prudential-Bache Securities, Inc.
Refco Partners
L.A. Rothschild, Unterberg, Towbin, Inc.
Salomon Brothers Inc.
Security Pacific National Bank
NOTE: This list has been compiled and made available for
statistical purposes only and has no significance with respect to
other relationships between dealers and the Federal Reserve Bank
of New York. Qualification for the reporting list is based on
the achievement and maintenance of reasonable standards of
activity.
Market Reports Division
Federal Reserve Bank of New York
December 11, 1986