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HomeMy WebLinkAboutResolution No. 92-P40 0 RESOLUTION NO 92—P4 RESOLUTION OF THE BOARD OF DIRECTORS OF THE AZUSA PUBLIC FINANCING AUTHORITY RE -ADOPTING ITS INVESTMENT POLICY WHEREAS the Public Financing Authority 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 APFA Treasurer is charged with the duties of handling and maintaining the cash that is taken in or otherwise received by the APFA; and WHEREAS the balance of these funds fluctuates between $3,000,000 and $20,000,000 or more; and WHEREAS the APFA 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 Authority to adopt an investment policy for its jurisdiction. NOW THEREFORE BE IT RESOLVED that the Board of Directors of the Public Financing Authority of the City of Azusa does hereby re -adopt its Investment Policy attached hereto as Exhibit A and instsructs the APFA Treasurer to be guided by it in carrying out the duties of his office for the benefit of the Azusa Public Financing Authority. ADOPTED AND APPROVED this 7th day of July , 1992. I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Board of Directors of the Public Financing Authority of the City of Azusa at a regular meeting thereof on the 7th day of July 1992 by the following vote of Directors: AYES: BOARD DIRECTORS: DANGLEIS, MADRID, NARANJO, ALEXANDER, MOSES NOES: BOARD DIRECTORS: NONE ABSENT: BOARD DIRECTORS: NONE 0 CITY OF AZUSA AZUSA PUBLIC FINANCING AUTHORI'T'Y INVESTMENT POLICY I. STATEMENT OF OBJECTIVES Temporarily idle or surplus funds of the Azusa Public Financing Authority ("APFA") shall 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 APFA'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 fust two objectives. The achievement of these objectives shall be accomplished in the manner described below: 1. Safety of Invested Funds APFA shall ensure the safety of its invested idle fund 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 (iii) by diversifying the investment portfolio so that the failure of any one issue or backer will not place an undue financial burden on APFA. b) Interest rate risk will be mitigated by: (i) structuring APFAs portfolio so that securities mature to meet APFA'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 APFA's investments is also an important element of safety. Detailed safekeeping requirements are defined in Section III of this policy. 2. Li uidi APFA'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. 3. Yield Yield on APFA'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 APFA 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.' 0 0 B. Time Frame for Investment Decisions APFA'S investment portfolio shall be structured to provide that sufficient funds from investments are available every month to meet APFA'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 APFA funds which are available for investment at any one time, including the estimated checking account float, excepting those minimum balances required by APFA's banks to compensate them for the cost of banldng services. This policy also applies to the idle or surplus funds of other entities for which the APFA personnel provided financial management services. This section of the Investment Policy identifies the types of instruments in which APFA will invest its idle funds. A. Eligible Securities APFA operates its temporary pooled idle cash investments under the Prudent Man Rule - `/ (Civil Code Section 2261, et seq). See Exhibit A. This affords APFA 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 Certificates of Deposit (CD's) of California banks and/or savings and loan associations, and/or savings banks which mature in five years or less, provided that APFA's investments shall not exceed One Hundred Thousand Dollars ($100,000) per institution. If the investment exceeds the insured $100,000, the funds are to be collateralized at 110% of the deposit in government securities or 150% in mortgages. V 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 ...." * 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) B. Oualification 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 Q. 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. D. Pre -formatted Wire Transfers Wherever possible, APFA 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. E. Notice of Dealers APFA shall annually send a copy of the current edition of the Policy and its enabling Resolution to all institutions which are approved to handle APFA investments. Receipt of the Policy and Resolution, including confirmation that it has been received by persons handling APFA's account, shall be acknowledged in writing within thirty (30) days. F. Diversification The portfolio should consist of a mix of various types of securities, issues and maturities. G. 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, third 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. III SAFEKEEPING OF SECURITIES A. Safekeeping Agreement APFA shall contract with a bank or banks for the safekeeping of securities which are owned by APFA as a part of its investment portfolio or transferred to APFA under the terms of any repurchase agreements. IV 0 0 B. Handling of Agency -Owned Securities and Time Deposit Collateral All securities owned by APFA 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 APFAs 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 APFA'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 telephoned instructions will be sent to the bank within five (5) working days. D. Verification of Security Securities transferred to APFA as collateral securing time deposits which are being held in safekeeping for APFA will be verified in writing and examined on a surprise basis during the year by APFA's independent auditors as part of APFAs annual independent audit. This section of the Policy defines the overall structure of the investment management program. A. Responsibilities of the APFA Treasurer The APFA Treasurer is charged with responsibility for maintaining custody of all public funds and securities belonging to or under the control of APFA, and for the deposit and investment of those funds in accordance with principles of sound treasury management and in accordance with applicable laws and ordinances. B. Responsibilities of the Executive Director The Executive Director is responsible for keeping the Executive Board fully advised as to the financial condition of APFA. V 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 investment reports. D. Res=nsibilities of the Investment Committee There shall be an Investment Committee consisting of the Executive Director, the Director of Finance and APFA Treasurer. The Committee shall meet quarterly to discuss cash flow requirements, the monthly investment 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 APFA Treasurer. This will require timely reports from the department heads to the APFA Treasurer concerning significant future cash flow requirements. The Committee's meetings will be summarized in minutes that are distributed to the Executive Board. The APFA 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 APFA'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. D. Average rate of return on APFA's investments. E. Maturity aging by type of investments. VI REVIEW OF M"ESTMENT 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 Azusa Public Financing Authority the 19th day of February, 1991. February 4, 1992 EvHI13IT A PRUDENT "AN RULE § 2261 TRUSTS FOR THIRD PERSONS Div. 3 § 2261. Investments (a) Degree of care, skill, prudence and diligence. (1) Subject to paragraph (2), when investing, reinvesting, purchasing, acquiring, ex- changing, selling and managing property for the benefit of another, a trustee shall act with the care, skill, prudence, and diligence under the circumstances then prevailing, specifically including, but not by way of limitation, the general economic conditions and the anticipated needs of the trust and its beneficiaries, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, to attain the goals of the trustor as determined from the trust instrument. Within the limita- tions of the foregoing and considering individual investments as part of an overall investment strategy, a trustee is authorized to acquire every kind of property, real, personal or mixed, and every kind of investment. (2) The trustor may expand or restrict the standards set forth in paragraph (1) by express provisions in a trust instrument. Any trustee acting for the benefit of another under that instrument shall not be liable to anyone whose interests arise from that trust for the trustee's good faith reliance on those express provisions. (b) Retention of property. In the absence of express provisions to the contrary in any trust instrument, a trustee may without liability continue to hold property received into a trust at its inception or subsequently added to it or acquired pursuant to proper authority if and as long as the trustee, in the exercise of good faith and of reasonable prudence, discretion and intelligence, may consider that retention is in the best interests of the trust or in furtherance of the goals of the trustor as determined from any trust instrument. Such property may include stock in the trustee, if a corporation, and stock in any corporation controlling, controlled by, or under common control with such trustee. (c) Deposit of funds. In the absence of express provisions to the contrary in any trust instrument, a deposit of trust funds at interest in any bank (including the trustee, if a bank) shall be a qualified investment to the extent that such deposit is insured under any present or future law of the United States, is collateralized pursuant to any present or future law of this state or the United States, or to such greater extent as a court of competent jurisdiction may authorize. Nothing in this section shall be construed as limiting the right of trustees in proper cases to make deposits of trust moneys in banks, subject, in the case of interest- bearing deposits, to such notice or other conditions respecting withdraw- al as may be prescribed by law or governmental regulation affecting such deposits. (d) Deviations from terms of trust: court order. Nothing in this section shall abrogate or restrict the power of the appropriate court in 320 OBLIGATIONS OF TRUSTEES § 2261 Pt. 4 proper cases to direct or permit the trustee to deviate from the terms of the trust regarding the making or retention of investments. (e) Application of section; construction of investment authoriza- tions. The provisions of this section shall apply to all trusts now existing or hereafter created. The terms "investments permissible by law for investment of trust funds," "authorized by law for investment of trust funds," "legal investments," "authorized investments," ..invest- ments acquired using the judgment and care which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of their capital," and other words of similar import used in defining the powers of the trustee relative to investments, in the absence of other controlling or modifying provisions of the trust instru- ment, shall be construed as authorizing any investment permitted, and imposing the standard of prudence required, by the terms of subdivision (a) of this section. (f) Property defined. The term "property" as used in this section includes life insurance, endowment, and annuity contracts issued by legal reserve companies authorized to do business in this state. (Enacted 1872. Amended by Stats.1943, c. 811, p. 2602, § 1; Stats.1967, c. 688, p. 2054, § 1; Stats.1967, c. 1706, p. 4265, § 1; Stats.1968, c. 161, p. 385, § 1; Stats.1969, c. 259, p. 611, § 1; Stats.1984, c. 1372, § 1.) Historical Note The section, as originally enacted in 1672, provided: "A trustee must invest money received by him under the trust, as fast as Ile col- lects a sufficient amount, in such manner as to afford reasonable security and interest for the same." The 1949 amendment rewrote the section to read: '(l) In investing, reinvesting, purchasing, acquiring, exchanging, selling and manag- ing property for the benefit of another, a trustee shall exercise the judgment and care, under the circumstances then prevail- ing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to specula- tion, but in regard to the permanent disposi- tion of their funds, considering the probable income, as well as the probable safety of their capital. Within the limitations or the foregoing standard, and subject to tiny ex- press provisions or limitations contained in any imrticular trust instrument, a trustee is authorized to acquire every kind of proper- ly, real, personal or mixed, and every kind of investment, specifically including, but not by way of limitation, corporate obliga- tions of every kind, and stocks, preferred or common, which men of prudence, discretion and intelligence acquire for their own ac- count - "(2) In the absence of express provisions to the contrary in the trust instrument, a trustee may continue to hold property re- ceived into a trust at its inception or subse- quently added to it or acquired pursuant to proper authority if and as long as the trus- tee, in the exercise of good faith and of reasonable prudence, discretion and intelli- gence, may consider that retention is in the best interests of the trust. "(3) In the absence of express provisions to the contrary in the trust instrument, a deposit of trust funds at interest in any savings bank or the savings department of any bank (including the savings department of the trustee, if a bank) shall be a qualified investment to the extent that such deposit 321 0 § 2261 is insured under any present or future law of the United States, or to such greater extent as a court of competent jurisdiction may authorize. Nothing in this section shall be construed as limiting the right of trustees in proper cases to make deposits of trust moneys in banks, subject, in the case of interest-bearing deposit%, to such notice or other conditions respecting withdrawal as may be prescribed by law or governmen- tal regulation affecting such deposits. "(4) Nothing in this section shall abro- gate or restrict the power of the appropri- ate court in proper cases to direct or permit the trustee to deviate from the terms of the trust regarding the making or retention of investments. "(5) The provisions of this section shall apply to all trusts now existing or hereafter created. Where, in trust; now existing or hereafter created, the term 'investments permissible by law for investment of trust funds; or 'authorized by law for investment of trust funds,' 'legal investments; or 'au- thorized investment;; or other words of similar import are used in defining the pow- ers of the trustee relative to investments, such language, in the absence of other con- trolling or modifying provisions of the trust instrument, shall be construed ns authoriz. ing any investment permitted by the terms of subdivision (1) of this section." The 1967 amendment by c. 1706 added the concluding sentence to subd. (2), (later amended, see 1969 amendment): and delet- ed references to savings banks and to the savings department of banks from subd. (3). Effect of amendment of section by two or more acts at the same session of the legisla- ture, see Government Code § 9605. The 1968 Amendment added subd. (6). The 1969 Amendment added the words "and stock in any corporation controlling, controlled by, or under common control with such trustee" to the end of subd. (2). The 1984 amendment rewrote the section which as amended in 1969 had read: Li TRUSTS FOR THIRD PERSONS Div. 3 income, as well as the probable safety of their capital. Within the limitations of the foregoing standard, and subject to any ex- press provisions or limitations contained in any particular trust instrument, a trustee is authorized to acquire every kind of proper- ty, real, personal or mixed, and every kind of investment, specifically including, but not by way of limitation, corporate obliga- tions of every kind, and stocks, preferred or common, which men of prudence, discretion and intelligence acquire for their own ac- count '(2) In the absence of express provisions to the contrary in the trust instrument. a trustee may continue to hold property re- ceived into a trust at its inception or subse- quently added to it or acquired pursuant to proper authority if and as long as the trus- tee, in the exercise of good faith and of reasonable prudence, discretion and intelli. gence, may consider that retention is in the best interests of the trust Such property may include stock in the trustee, if a corpo- ration, and stock in any corporation control. ling, controlled by, or under common con- trol with such trustee. "(3) In the absence of express provisions to the contrary in the trust instrument, a deposit of trust funds at interest in any bank (including the trustee, if a bank) shall be a qualified investment to the extent that such deposit is insured under any present or future law of the United States, or to such grenter extent as a court of competent jur- isdiction may authorize. Nothing in this section shall be construed as limiting the right of trustees in proper cases to make deposits of trust moneys in banks, subject, in the case of interest-bearing deposits, to such notice or other conditions respecting withdrawal as may be prescribed by law or governmental regulation affecting such de- posits. "(4) Nothing in this section shall abro- gnte or restrict the power of the appropri- ate court in proper cases to direct or permit the trustee to deviate from the terms of the trust regarding the making or retention of investments. "(1) In investing, reinvesting, purchasing, "(.5) The provisions of this section shall acquiring, exchanging, selling and manag- apply to all trust; now existing or hereafter ing property for the benefit of another, a ;rented. Where, in trusts now existing or trustee shall exercise the judgment and hereafter created, the term 'investments care, under the circumstances then prevail- permissible by law for investment of trust ing, which men of prudence, discretion and funds; or 'authorized by law for investment intelligence exercise in the management of of trust funds; 'legal investments,' or 'au - their own affairs, not in regard to speculn. thorized investment;; or other words of tion, but in regard to the permanent disposi- similar import are used in defining the pow - tion of their funds, considering the probable en of the trustee relative to investments, 322 0 OBLIGATIONS OF TRUSTEES Pt. 4 such language, in the absence of other con- trolling or modifying provisions of the trust instrument, shall be construed as authoriz- ing any investment permitted by the terms of subdivision (1) of this section. See West's California Code Forms, Civil. 0 § 2261 "(6) The term 'property' as used in this section includes life insurance, endowment, and annuity contracts issued by legal m - serve companies authorized to do business in this stale." Forms Cross References Common trust funds of trust companies, see Financial Code § 1564. Common trusts, establishment for investment of funds of Department of Mental Health held as trustee, see Welfare and Institutions Code § 7286. - Corporate shares, liability of fiduciary for subscription price, see Corporations Code § 413. -- Deposit of trust company funds awaiting investment, see Financial Code § 1562. Investments authorized, provisions not altering degree of care required, see § 2269.1. Investments of trust company trust funds, see Financial Code § 1561. Mortgage participation certificates and securities guaranteed by mortgage policies as legal investments, see Insurance Code § 12528. Registration of stock held in trust in name of nominee of trust company, see Financial Code § 1563. Savings accounts of savings associations as legal investments for funds of trustees, see Financial Code § 7000. Trustee to manage proceeds of sale of property subject to life estate upon partition, see Code of Civil Procedure § 873.840. Law Review Commentaries Application of SEC Rule X -10B-5 to pre- Prudence, information and trust invest - vent nondisclosure in sale of corporate secu- ment low. John A. Humbach and Stephen rities. (1951) 39 C.L.R. 429. P. Dresch (1:176) fit A.B.AJ. 1309. Beneficiary's other resources as affecting Prudent man investment of trust funds necessity of invasion of trust corpus. during inflation. 11951) 39 C.L.R. 380. (1953) 1 U.C.L.A.Law Rev. 119. Prudent man investment rule in the law Common stock as a prudent trust invest- relating to trusts. (1043) 18 S.Bar J. 283. ment. (1951) 39 C.L.R.:180. Representation of adverse parties in treat administration. (19117) 55 C.L.R. 948. Construction and application of the Uni- Revolution in trust investment law. form Principal and Income Act. (1939) 28 (1976) lit A.B.A.J. 887. C.L.R. 34. Trust participation in partnership ven. Delay causing estoppel to object to pur- tures. (1951) 3 Stan.L.R. 467. chase in breach of fiduciary duty. (1941) 14 Trustee's power: )ower to sell as includ- So.Cal.L.R. 355. in- power to option. Michael H. Dessent (1970) 7 San Diego L.Rev. 22. Tresis—Corporate executorttrustee. (1975) 2 West SL11.L.Rev. 295. Liability of the trustee for appreciation of property (1957) 4 U.C.L.A. Law Rev. 314. Violation of duty by corporate trustee by investing in its own stock. (1949) 37 C.L.R. 539, 551. a War conditions as presenting new prob- lems for investment of funds by trustees. (1:14'1) 17 S.Rxr J. 36. 323 History of supervision of charitable trusts and corporations in California. Wal- lace Howland (1966) 13 U.C.L.A. Law Rev 10'19. Liability of trustee for improper invest- ments. (1951) 39 C.L.R. 380. Planning for incompetency. Louis M Brown (1964). 31) S. Bar J. 266. Planning for incompetency and practice. under the conservatorship law. George E Ziligitt 11:164) 37 So.Cal.L.R. 181. § 2261 TRUSTS FOR THIRD PERSONS Div. 3 Library References Trusts x}216 to 217.5. Probate Court Practice, Goddard, U.S. Trusts §§ 320, 322, 324 to 329, 331. H 1823, 1825, 2207, 2208. Notes of Decisions Borrowing funds 7 Charges against trust for beneficiary 8 Collecting Judgments, notes. rents, etc. 10 Construction and application I Corpornle trustees 6 Court orders for deviation from trust 23 Ileclnrallon of trust 9 Deposit of funds 11 Dlscretion of trustee 4 Interest charges against trustee 25 Investing property 12. 13 In general 12 Prudent investor standard 13 Liability of trustee 24 Loaning properly 14 Mortgages 26 Possession of property 15 Preserving property 16 Prudent investor standard, investing prop- erty 13 Record of trust funds 22 Retention of property 17 Selling property 19 Speculnting with properly 19 Standard of care 5 Surrendering property 20 Trust funds 2 Use of funds in general 3 Value of use and occupation by trustee 21 1. Construction and application This section does not supersede trustee's were given inadequate directions for con- trolling trust property. Estate of Berges (1977) 142 Cal.Rptr. 63.5, 76 C.A.3d 106. In determining date of breach of trust by .trustee who negligently failed to invest in- come within reasonable time, factors to be considered include purpose of trust, amount of munev on hand and amount deemed nec- essary to meet possible contingencies or emergencies in light of rule that trustee, in investing and managing property for bene- fit of another, should exercise such care under circumstances as prudent man would exercise in management of his own affairs. Lynch Y. John M. Redfield Foundation (1970) 88 Cal.Rptr. 86, 9 C.A.3d 293, 51 A.L.R.3d 1284. Provision of former subd. (5) of this sec- tion, that where term "investments permis- sible by law for investment of trust funds," or other words of similar import are used in defining powers of trustee relative to in- vestments, such language, in absence of other controlling or mortifying provisions of trust instrument, shnll he construed as au- thorizing any investment permitted by for- mer subd, t of this section, establishing the Prudent Man Rule of investment, is only applicable where testator limits investments to statutory approved investments, and has no application where settlor himself speci- fies particular investments that are prohib- ited. Stanton v. Wells Fargo Bank Br. Union Trust Co. (1957) 310 P.2d 1010, 150 C.A.2d 763. general duty to mnximize Gust assets can- sistent with safety and other relevant con- 2. Trust funds siderations: a statutorily authorized invest- Land acquired by irrigation district Be- ment may or may not be the prudent course cause of delinquencies in assessments is of conduct for the trustee to pursue. Mat- trust property, held for the uses and pur- ter of Pelton (1982) 183 Cal.Rptr. 188, 132 imses of Gen.laws 1931, Act 3854, govern- C.A.3d 496. ing irrigation districts, and proceeds of Where testator's will after making a spe. lease thereof have the same character. cifir bequest of cash and any automobile to Provident land Corp, v. Zumwalt (1939) 85 designated individual. bequeathed to his P.2d 116, 12 C.2d 365. brother and sister as trustees the sum of $000 for each of their respective children 3. Use of funds In general with provision that each trust terminates Probate court's factual findings were in - when the child attains 18 years of age, adequate10 permit court of appeal to deter- ments were valid over contention of benefi- mine whether bank/conservator breached ciary that the purposes or terms of trust its fiduciary duty by keeping approximately could not be ascertained and that trustees $204,000 in estate's assets in bank's 574% 324 OBLIGATIONS OF TRUSTEES Pt. 4 passbook account for 17 months, during which substitution of conservators was be- ing arranged, at a time when amounts in excess of $100,000 were earning 9'/e% inter. est in 30 -day accounts at various banks; a remand for further proceedings was re- quired. Mutter of Pelton (1982) 183 Cal. Rptr. 188, 132 C.A.3d 496. Trustee, who is directed by terms of trust to pay income to beneficiary during desig. nated period and on expiration of that peri- od to pay principal to another beneficiary, owes duty to former beneficiary to take care not merely to preserve trust property but to make it productive so that reasonable income will be available for him, and trus- tee is under duty to latter beneficiary to take care to preserve trust property for him. In re Bissinger's Estate (1963) 28 Cal.Rptr. 217, 212 C.A.2d 8:31. Manner in which charter city effectuates purposes of tidelands trust, including man- ner in which it conducts negotiations for leasing of lands, is municipal affair. Silver v. City of Los Angeles (1912) 17 Cal.ltptr. 379, 366 P.2d 651, 57 C.2d 39, certiorari denied 82 S.CL 1143, 369 U.S. 873, 8 L.Ed.2d 270. Under trust principles and applicable pro- visions of the Health and Safety Code, it is not legally proper to use endowment care funds of private cemeteries to purchuse in- terment plots located in the cemetery, for which the fund was established, or to loan such funds to the cemetery, its subsidiary, or affiliate, on the security of a trust deed on such interment plots, or to invest such funds in the stock of such cemetery, its subsidiary, or affiliate. 28 Ops.Atty.Gen. 321. 4. Discretion of trustee A trustee occupies a fiduciary position With duly to exercise its independent judg- ment land may not automatically accede to demands of trust beneficiary. Morse v. Crocker Nal. Rank (1118:1) 190 Cal.Rplr. 8:19, I42 0..1.31 228. Under this section, though trustees are An absolute discretion dues not permit a not ordinarily liable for interest on moneys trustee to neglect his trust or abdicate his coming into their hands unless they have judgment. Matter of Collins' Estate (1977) improperly failed to invest them, they are 139 CaLRptr. 644, 72 C.A.3d ti63. not justified in borrowing more money than Absolute discretion given defendant trus- they need, and charging trust with interest toes of tesnuneuLary trust of which plain. on sums borrowed, and, where they have tiffs were beneficiaries was specifically lila- idic money on hand, it is their duly to upply ited by requirement in trust instrument thut it so as to stop unnecessary interest trustees be subject always to discharge of charges. Purdy v. Johnson (1917) 163 P. their fiduciary obligations. Id. 8131 174 C. 521. 325 0 § 2261 Note 7 Provision of testamentary trust that "all discretions conferred upon the Trustee shall be absolute," viewed as an exculpatory clause, was subject to rule of strict con- struction. Id. Absolute discretion conferred by provi- sion of testamentary trust that "all discre- tions conferred upon the Trustee shall be absolute" was specifically limited by re- quirement that trustee by "subject always to the discharge of its fiduciary obliga- tions." Id. 5. Standard or care Standard imposed upon trustees is that they exercise that judgment and care which men of prudence, discretion and intelligence would exercise in management of their own affairs. Matter of Collins' Estate (1977) 109 Cul.11ptr. 644, 72 C.A.3d 663. Trustee is under a duty to beneficiary to distribute risk of loss by reasonable diversi- fication of investments unless under circum- stances it is prudent not to do so. Id. A trustee with absolute discretion may not neglect its trust or abdicate its judg- ment. Id. Record contained no evidence that de- fendant trustees satisfied even the lesser standard of care for which they contended in claiming that trust instrument conferred on them an "absolute discretion" so as to require them to refrain to act arbitrarily and to use their best judgment. Id. 6. Corporate trustees Different types of investments for "cor- porate corporate trustees" and for "amateur trus- tees" are not authorized under prudent in- vestor standard; difference. rather, is that corporate trustee is held to a greater stan- dard of care based on his presumed exper- tise. Matter of Collins' Estate (11177) 139 CaLitplr. 644, 72 C.A.3d 663. 7. Borrowing funds 0 § 2261 Note 8 8. Charges against trust for beneficiary Fact that testamentary trustee had violat- ed her duties :is such by commingling trust funds with her own, omitting to invest them, and negligently failing to keep any records which would enable her to render a true account had a bearing, in absence of vouchers or receipts, on question of wheth- er charges against trust estate for board, clothes, laundry, etc., for beneficiary for 15 years were established by snUsfactury evi- dence. In re McCabe's Estate (1948) 220 P.2d 614, 98 C.A.2d 503. 9. Declaration of trust Even if trust instrument permitted a type of investment generally frowned on under prudent -investor rule, it did not authorize defendant trustees to make that investment blindly. Matter of Collins' Estate (1977) 139 Cal.Rptr. 644, 72 C.A.3d 663. While the declaration of trust may have possibly enlarged the prudent -investor stan- dard as far as the type of instrument was concerned, it could nut be construed as per- - - mitting deviations from that standard in investigating the soundness of a specific investment Id. to. Collecting judgments, notes. rents, etc. One holding judgment as trustee for cor- poration and another was required as such trustee and as secretary of the corporation to use his best efforts to collect the judg- ment in full by execution sale of stock owned by judgment debtor. Darden v. Reese (1949) 200 P.2d 81, 88 C.A.2d 904. Where trust instrument provided that trustor and son should occupy a dwelling on land constituting the corpus of the trust during trustor's lifetime and that the land should be sold on truster's death and pro- ceeds of the sale distributed in a specified manner, and on trustor's death trustee re- covered, but did tint collect, judgment in ejectment against the son, trustee was properly charged with the stipulated value of the property on dale trust was to be terminated, the rental of the house former- ly occupied by the son, and the judgment rendered in the ejectment action. Johns v. Peterson 11942) 120 P.2d 903, 52 C.A.2d 720. is TRUSTS FOR THIRD PERSONS Div. 3 fault Purdy v. Johnson (1917) 163 P. 893, 174 C. 521. Where testamentary trustees rented land of trust. but their accounts in beneficiary's action against them showed that only part of rent was collected. trustees were bound to account for balance, unless they could show some good reason for failure to col- lect Id. IL Deposit of funds Generally fiduciary is personally liable for money deposited by him in bank which becomes insolvent, unless evidence shows that he was not negligent in so doing, and, in absence of order of court, deposit of trust funds in bank is not warranted as an investment Allen v. Rainey (1935) 41 P.2d 374, 4 C.A.2d 558. 12. Investing properly—In general Rule that trustee has duty to invest, al- though generally pertaining to investment of principal, applies likewise to investment of accumulated income. Lynch V. John M. Redfield Foundation (1970) 88 Cal.Rptr. 86, 9 C.A.3d 293, 51 A.L.R.3d 1284. Objections of trust beneficiary that trus- tee, which had been given absolute dlscre- tdon in managing trust property, had negli- gently and carelessly failed to properly ad. minister or manage trust and that as a proximate result beneficiary had been de- prived of reasonable return and had sus- tained loss of some $50.000 from sale of assets were sufficient to raise issues of abuse of discretion and failure to exercise judgment which trustee should be required to meet Coberly v. Superior Court for Los Angeles Comity (19651 42 Cal.Rptr. 64, 231 C.A.Zd 685. Rule that it is duly of a trustee to invest trust funds so that they will be productive of income is designed for trusts intended to be productive of income or other gain, but the rate is not applicable in the case of a trust not designed for income purposes but for other purposes, such as holding and preservation of property for use by others. Higgins v. City of Santa Monica (1964) 41 Cal.Rptr. 9, 396 P.2d 41, 62 C.2d 24. The capacity of co -trustees to seek court's instructions as to interpretation of trust It was duty of testamenL•ry trustees to instrument, and to obtain permission to de - collect promissory notes distributed to viate from terms thereof regarding making them, and they were liable to beneficiary. or retention of investments, did not ennsti. for amount of nates, with interest, unless tate exercise of a "power" within cunlem- their failure to collect was not due to their plation of 5 860 requiring that all unite in 326 OBLIGATIONS OF TRUSTEES Pt 4 execution of a power vested in several per- sons, and § 2268 requiring all co -trustees to unite in any act to bind trust property, and hence one trustee could appeal from deci- sion allowing deviation from trust require- ments as to investments, though other trus- tee did not wish to appeal. Stanton v. Preis (1956) 291 P.2d 118, 138 C.A.2d 63. Under will and decree of distribution giv- ing testamentary trustees right to invest in stocks of corporations of which testatrix was a stockholder on her death if trustees obtained written consent of beneficiaries, trustees were not required to obtain such consent to purchase stocks of corporations of which testatrix was not a stockholder. In re Fowler's Estate (1943) 132 P.2d 535, 56 C.A.2d 451. That trustees held an investment in stock of bank which thereafter failed did not show mismanagement of trust. In re Knox' Estate (1942) 126 P.2d 108, 52 C.A.2d 358. Under will directing testamentary trus- tees to accumulate in cash or negotiable securities the sum of $15,000 and to pay income therefrom to beneficiary, a note se- cured by mortgage ml Illinois realty was not improper investment, as against conten- tion that, under Illinois law, mortgage was not negotiable security, where negotiability of note was not affected under Illinois law by the mortgage, and word "negotiable" in will was employed to keep trust funds in comparatively liquid state. Id. In investing trust funds, trustee should consider aggregate value of trust estate, nature of other investments of funds of trust, and advisability of diversifying in- vestments in order to insure against ad- verse conditions in any particular field. Day v. First Trust 8t Savings ]lank of Pasa- dena (1941) 118 Ptd 51, 47 C.A.2d 470. § 2261 Note 13 in order to avoid charge of negligently man- aging such funds. Id. In determining whether golf club mort- gages were proper investments for trust fundsappraised value of realty and charac- ter, financial standing, and past perform- ance of officers and members of clubs could be considered. Id. The fact that mortgage participation cer- tificates purchased by trustee depreciates in value standing alone does not warrant equi- ty court in opening, surcharging, or falsify- ing trustee's accounts, approved by court. Ormerod v. Security -First Nat. Bank of Los Angeles (1937) 69 P.2d 469, 21 C.A.2d 362. In an action against trustees to have de- clared void a purchase made by them, evi- dence that one of them understood the pro- priety of the purchase was first to be sub- mitted to the beneficiary is admissible. Red Jacket Tribe No. 28 v. Gibson (1886) 12 P. 127, 70 C. 128. A California domiciled state or national bank having a trust department which is the trustee under an instrument which di- rects the investment of the corpus in United States government obligations, may not in- vest such corpus in a mutual fund, the portfolio of which is limited to short-term United States treasury obligations. 67 Ops. ALLy.Gen. 212, 5-23-84. Where only the interest on the corpus of funds given in trust to the director of edu- cation is to be used for educational pur- poses the director of education on behalf of estate and in his official capacity should invest the trust funds, collect the interest unit apply the interest its specified by the trustor. 1 Ops.A LLy.Gen. 90. Whether trustee has acted properly in making investment depends on circuntst nc. es at time investment is made and not oil subsequent events. Id. A financial institution with broad general knowledge of community needs and trends, of character and worth of citizens with whom institution has dealt, and specific knowledge of property values in communi- ty, can consider such positive general knowledge in investing trust funds, and is not restricted to letter upon letter and line upon line conformity with prescribed ritual in estimating value of proposed investment 3'211 13. — Prudent investor standard. In- vesting property Prudent investor standard does not apply where settlor himself specifies trustee is not limited by what law provides are proper investments. Matter of Collins' Estate (19771 131) Cal.ltplr. 644. 72 C.A.3d 663. Although California does not limit trus- tee's authority to a list of authorized invest- ments, relying instead on prudent investor role, that rule nevertheless encompasses cerlaiu guidelines that must be followed by trustee. Id. provision in trust instrument to purchase every kind of property and make every kind of investment "irrespective of whether said investments are in accordmtce with the laws 0 § 2261 Ntle 13 then enforce.) in the Stale of California pertaining to the investment of trust funds by corporate trustees" did not authorize trustees to make improlmr investments in violation of prudent investor standard. Id. Different types of investments are not authorized for "corporate trustees" as dis- tinguished from amateurs; difference, rath- er, is that corporate trustees are held to a greater standard of care based on their presumed expertise. Id. . Defendant trustees failed to follow "pru, dent investor" standard with respect to ad- ministration of testamentary trust of which plaintiffs were beneficiaries where they in- vested two thirds of trust principal in a single investment, invested in real property secured only by a second deed of trust, and made that investment without adequate in- vestigation of either borrowers or collater- al. Id. Investment by nonprofit cemetery corpo- ration of nearly 807 of its endowment fund in note and first deed of trust on one parcel of real property could be found to be a violation of prudent investors rule with re- spect to investment of trust funds and cem- etery board, department of professional and vocational standards, was authorized to or- der that sum lent be reinvested. Mandel v. Cemetery Bd., Dept. of Professional and Vocational Standards (19(30) 8 Cal.Rptr. 342, 185 C.A.2d 583. This section broadens list of legal invest- ments for trustees of endowment care funds, but also places trustees under mnn- date of prudent investors rule in regard to all of their financial transactions. Id. An essential part of prudent investors rule with respect to investment of trust funds is the requirement that investments be diversified. Id. Under provisions of this section embody- ing "prudent man rule" in selling forth duty of trustee in connection with invest- ment of trust funds, anti under general law applicable to trustees, trustee, even where given broad discretionary power of invest- ment, must exercise its independent discre- tion and judgment in reference to invest- ment of trust funds. In re Talbot's Estate (1956) 296 P.2d 848, 141 C.A.2d 309, 58 A.L.R.2d 658. A trustee is neither expected to bury his talent% nor to exercise infallible judgment in investment of funds, but he must exercise skill and judgment of reasonably prudent business man in preserving estate and at TRUSTS FOR THIRD PERSONS Div. 3 the same time make the estate productive. Day v. First Trust k Savings Bank of Pasa- dena (1941) 118 P.2d 51, 47 C.A.2d 470. A trustee must use due care and skill and the caution of a prudent man in making investments, and, in absence of provision in trust or statute, he can make those invest- ments which a prudent man would make in investing in property outside of ordinary business risks and with a view to safety of principal and to securing of an income rea- sonable in amount and payable with regu- larity. Id. Evidence warranted denial of liability of trustee for depreciation of trust assets dur- ing economic depression, on ground that trustee was not negligent in investment of funds, but exercised care of ordinarily pru- dent person. Id. The liability of a director of education acting as official trustee for bequests of funds to be used for educational purposes is to make such investments as a prudent man would make of his own property, having primarily in view the preservation of the estate and the regularity and amount of income. 1 Ops.A tty. Gen. 90. 14. Loaning properly Evidence that the land mortgaged to se- cure a loan made by a trustee was and land, which it was practically impossible to irrigate, and that the trustee made the loan upon the statements of one man, whom she knew, and a written report by three strang- ers, two of whom were the former owners of the land who had conveyed it to a dummy for the purpose of securing the loan there- on, sustained the trial court's finding that the trustee was negligent in making the loan, and was therefore bound to make good the loss. In re Hamon's Estate (1923) 212 P. 299, 60 C.A. 154. Where an agent or trustee is instructed to "loan out" funds held by him, it means that he 1s to invest them for his principal's account, and to make an accounting to the principal of such investment and he is not authorized to borrow the funds for his own purposes. In re Armstrong's Estate (1883) 1 Cor. 157, affirmed 10 P. 335, 69 C. 239. Where trustee loaned out the funds of beneficinry without advising her of the risk to which Ire wns subjecting her funds nor of his mingling the funds with his own indis- criminately he was liable for the loss result- ing therefrom and his account as special 328 C OBLIGATIONS OF TRUSTEES Pt. 4 administrator for the beneficiary should be charged with the loss sustained. Id. 15. Possession of properly In action for declaratory relief with re- spect to the scope of joint will by which husband and wife converted property into community property, court had broad pow- ers and could, prior to distribution, interpret will on question of whether widow upon distribution, would be entitled as against. trustees to possession of any of property involved. Chase v. Leiter (1950) 215 Ptd 756, 96 C.A.2d 439. 16. Preserving properly - Executor serves in fiduciary capacity and has powers and obligations similar to trus- tee, except that primary duty is to preserve estate until distribution, rather than invest funds. In re Slingsby's Estate (1931) 297 P. 931, 112 C.A. 767; In re Brenhart's Estate (1931) 297 P. 931, 112 C.A. 706; In re Smith's Estate (1931) 297 P. 927, 112 C.A. 680. 17. Retention of properly Usually trust is created to preserve prop. erty intact and to earn income for benefi- ciary, and ordinarily trustee is directed to administer funds in order to substitute sup- posedly superior judgment of trustee for that of beneficiary. Day v. First Trust & Savings Bank of Pasadena (1941) 118 Ptd 51, 47 C.A.2d 470. An honest trustee is not liable to make good the loss sustained by retaining an authorized security in a falling market, if he did so honestly still truthfully, in the belief that it was best course to take in interest of all parties. Id. 18. Selling property Where trustee had broad power of sale but, instead of exercising independent judg- ment as to sale of common stocks, relied oil one beneficiary's unfulfilled assurance that batter would secure from other beneficiaries written consents to the sale, and trustee sold stocks which thereafter doubled in val- ue, trustee was liable for reduction in value of objecting beneficiary's share of corpus, i.e., reduction consisting of capital gains taxes and expense of stock sales and bond purchases, and for interest on amount of such reduction, but trustee was not liable for appreciation in value of stocks after s or for loss of income on stocks. In § 2261 Note 18 Talbot's Estate (1956) 296 P.2d 848, 141 C.A.2d ;109, 58 A.L.R.'2d 658. Where trustee has a broad power of sale, right of income beneficiary is simply to insist that trustee shall exercise its indepen- dent judgment, and income beneficiary has no legal right to compel retention of any stocks and is not legally hurt by reason of the trustee's failure to keep certain stocks. Id. Where trustee who owned as trustee all the stack of corporation, which by the sale of its real estate supplied assets for distri- bution to trustee in trust, dissolved the cor- poration, trustee had title to real estate and had power and duty to carry out purpose of truster by selling Inds and receiving pro- ceeds from sales into the trust Stubbs V. Jones (1953) 263 P.2d 100, 121 C.A.2d 218. A testamentary trustee, using diligence and discretion in selling foreign government bonds included in trust assets and receiving highest prices obtainable therefor, was properly allowed credit on accounting for loss sustained in sale thereof for less than their value as fixed by court in settlement of previous accounts, in absence of evidence of negligence in making sale or showing that life beneficiaries of income, in contest- ing previous account, sought to charge trus- tee with value of bonds as cash on hand owing Lo estate because of his neglect to sell bonds. In re Bothwell's Estate 11944) 151 Ptd '298, lis C.A.2d 598, rehearing de- nied 151 P.2d 868, 65 C.A.2d 508. Assessment of damages against trustee for negligence in failing to sell trust realty as directed by trust instrument, thereby depriving life beneficiaries of income, should not be resorted to by them when another appropriate remedy, such as appor- lionment of proceeds of subsequent sale thereof between principal and income, is available. Id. In actio: against trustee for accounting under contract authorizing trustee to man. age and sell parcels of really on such terms and at such limes as trustee, within his discretion, should determine, evidence did not show that trustee, in refusing offer to purchase property at price subsequently shown to be adequate, did not exercise an honest judgment, and his estate was, there- fore, not liable for dmimges for such refus- al. Neel v. Barnard 11944) 150 P.2d 177, 24 C2d 406. ole In action against trustee by beneficiaries M of trust for accounting and for damages, 329 § 2261 Note 10 finding that trustee had no apportunity to sell property involved at such prices as would have liquidated plaintiffs' indebted- ness as provided by contract creating trust or on such terms as trustee properly fixed, determined in effect that a reasonable time for sale of property had not elapsed. Id. Even if offer was male to trustee for purchase of realty which trustee held for sale for benefit of beneficiaries of trust, it would be presumed tient trustee exercised his judgment upon it and deemed price of- fered too low, and court could not say that he acted fraudulently or in bad faith in declining to sell. Id. A trustee can properly sell trust property if such sale is necessary or appropriate to enable trustee to carry out purposes of trust, unless sale is forbidden in specific words by terms of trust or it appears from terms of trust that property was to be retained in specie in trust. Church v. Church (1940) 10.5 P.2d 640, 40 C.A.2d 696. Where father of minor children took out shares of stock in a family corporation in his name as trustee for children, and the father had never executed any document in writing or declaration of trust restricting his power, as trustee, to transfer shares, and evidence warranted finding that aside from trustee's certificates, there was no such agreement entered into concerning shares, and it did not appear that any re- striction on power of sale was contained in certificates, it could not be said as matter of law that the father did not have the right, as trustee, to transfer shares whenever, in exercise of his discretion, it appeared to him proper or necessary to do so. Id. Where money is bequeathed to a trustee to invest in land, with liberty to change the investment at his discretion, the superior court is without jurisdiction to entertain a suit by the cestui que trust to order the trustee to sell the land subject to confirma- tion by the court, nor an application by an intervener in such a suit to confirm an 0 TRUSTS FOR THIRD PERSONS Div. 3 in value of stocks in the account. Weiner v. Mullaney (1943) 140 P.2d 704, 59 C.A.2d 620. Where beneficiary learned from broker in January, 1938, that instructions to trustee not to deal in stocks had been violated, beneficiary was put upon inquiry at that time and was charged with "notice" of all that an inquiry would have disclosed. Id. Where trustee failed to make full disclo- sure of facts surrounding use of benefi- ciary's shares in stock transactions contrary to instructions, that it was no longer within beneficiary's power to rescind. transaction when she finally learned the true situation and her only recourse was to salvage what stocks were left such action on her part did not amount to a "ratification" of trustee's conduct Id. Where trustee was expressly instructed not to sell or deal in stocks for beneficiary, his action in dealing in stock was a "breach of trust" for which he was liable. Id. A trustee is not permitted to buy and sell bonds on speculation and the fluctuations in market value after purchase by the trustee are merely changes in the value of the assets of the trust estate, which are to be wholly disregarded in any accounting be- tween life tenant and remaindermen for funds from the trust estate invested in in- come-benring property. In re Gartenlaub's Estate (1921) 198 P. 209, 185 C. 648. 16 A.LR. 520. 20. Surrendering property Evidence was sufficient to support find- ing as to market value of bonds in action by beneficiary against trustee for value of bonds deposited with trustee which trustee without authority surrendered to bondhold- ers' protective committee. Martin v. Bank of America Trust k Savings Ass'n (1935) 41 P.2d 200, 4 C.A.2d 431. 21. Value of use and occupation by trus. tee alleged contract of sale to him by the trus- A purchaser of land with notice of the tee, and to direct the execution of convey- facts entitling another to the delivery to ance. Murphy v. Union Trust Co. of San him of a deed previously mnde out in his Francisco (1907) 89 P. 988, 5 C.A. 146. favnr, who obtains possession by force from the cestui que trust must account to him 19. Speculating with properly for the value of the use and occupation, and A beneficiary who learned (lint trustee the cestui que trust must pay the purchase had disoheyed Instructions not to speculate price into court for the benefit of the trus- in stocks was required to act within a rea- tee, adding interest from the date of the satiable time thereafter and could not wait lender of the price, unless he chooses to and hold trustee for subsequent decreases regard the interest as liquidating the value 330 OBLIGATIONS OF TRUSTEES PL 4 of the use. Cannon Y. Handley (1887) 13 P. 315, 72 C. 133. 22. Record of trust fonds A trustee or attorney handling funds of a client cannot escape responsibility for trust fund by failing to keep any record or data from which an accounting might be made. Bruns v. State Bar of California (1941) 117 P.2d 327, 18 C.2d 667. 23. Court orders for deviation from trust Equity court order to sell realty, contrary to terms of express testamentary trust, and reinvest proceeds, was unauthorized, in ah. sence-of present market value thereof and showing of character or security of proper- ty in which he proposed to reinvest pro- ceeds. Security -First Nat. Bank v. Easter (1934) 29 P.2d 422, 136 C.A. 6UI. is § 2261 Note 25 with rents, profits and income which he never received, but might and should have received by exercise of due and reasonable care and diligence. White Y. Citizens Not Trust & Savings Bank of Los Angeles (1941) 116 P.2d 117, 46 C.A.2d 418. The nominal title holder of realty, incum. bered by a trust deed, who upon taking title to realty assumed obligations of trustee for benefit of obligees whose claims were se- cured by trust deed, differed from a mort- gagor in possession and was liable for all rents and profits received while in posses- sion of the realty even prior to sale thereof under power of sale contained in trust deed. Baumann v. Harrison (1941) 115 P.2d 530, 46 C.A.2d 84. 25. Interest charges against trustee Failure of directors of charitable, non. profit corporation to invest dividend income 24. Liability of trustee deposited in corporation's checking account If money paid for trust is lost or de- over rive -year period was breach of their strayed without fault of trustee -payee, Crus- duty to invest funds as would a reasonable tee -payee is not liable therefor and loss is man so that funds would be productive of borne by payor, trustor -beneficiary. Penh- income and were liable for interest on stuns erbridge v. Prudential Say. & Loan Ass'n last in consequence of such failure, notwith- (1978) 145 Cal.Rptr. 87, 79 C.A.3d 509. standing facts that bank had refused to Defendant trustees were subject to being honor drafts drawn on corporation's ac. surcharged for imprudent investment of count due to dispute among directors, that monies from testamentarytrust in which directors served without compensation, that, during of inaction, corpus plaintiffs were beneficiaries, not because period gained approximately in value, and they lacked prescience of what would hap- tl"rt costly lawsuit would be necessary to pen, but because they both lacked and ig. directors' dispute n dispute remove nored information about what was happen- ingsettle L from bank account Lynch John ohn M. Ing at time. Matter of Collins' Estate 1. Red Redfield Foundation 1197111 88 Cal.Rptr. 86, 6, 11977) 139 Cal.Rptr. 644, 72 C.A.3d 663. 9 C.A.3d 293, 51 A. L.R.3d 1284. Trustee who negligently breaches his In action by beneficiary under two ex - trust by falling to invest income within tell. press trusts for an accounting by the re - satiable time is liable pursuant to statute spective trustees, where trustees had for simple interest at rate of 7X• per annum. waive) delinquent interest on notes due the Lynch v. Jahn M. Redfield Foundation trust, had not collected note from deceased (1970) 88 Cal.Rptr. 86, 9 C.A.3d 293, 51 maker, and had made loans which were A.L.R.3d 1284. disapproved by the court, trial court's One who engages services of trustee, car- charge of 6% interest on amount thus sur- porate or otherwise, contracts for exercise charged, except for the unauthorized loan of trustee's best judgment and for perform- concerning which current savings bank in - once of duties outlined in this section; and terest rates compounded semiannually were he has no right to receive any more than charged, did not constitute an abuse of dis- that and no right to complain if those ser- cretion. Douglas v. Westfall (1952) 248 vices are rendered in good faith and with P.2d 68, 113 C.A.2d 107. reasonable prudence, discretion and intelli. Where will created trust of specific lega- gence. In re Rissinger's Estate (1963) 28 cy, with amount thereof and accumulations Cal.Rptr. 217, 213 C.A.2d 831. to be paid to beneficiary when she reached Generally, trustee's violation of equitable age of 26, when executor who was also duty, whether fraudulently or through neg- trustee had failed to transfer corpus to ligence, mere oversight or forgetfulness, is himself as trustee or to invest same as breach of trust, and trustee may be charged required by this section, and estate was not ton CM.CO 12 331 11 § 2261 Note 25 distributed prior to time for distribution to beneficiary of trust, 7 per cent interest due upon corpus for failure to invest would be allotted 4 per cent against estate and the remaining 3 per cent against trustee as such. In re Prior's Estate (1952) 244 P.2d 697, 111 C.A.2d 464. Where will created trust of specific lega- cy, with amount thereof with accumulations to be pnid to beneficiary when she reached age of 26, duties of trustee who was also executor commenced upon death of testa- tor, and failure of executor to transfer fund to himself as trustee could not absolve him of his duties and resimnsibilitics as trustee including duty to invest, and could not limit liability for interest to 4 per cent rate appli- cable to executors. Id. 26. Mortgages Equity will sanction an investment se- cured by a second mortgage in a rare arse but only when security is adequate and unusual circumstances justify trustee in C TRUSTS FOR THIRD PERSONS Div. 3 ranking such an investment. Matter of Col- lins' Estate (1977) 139 Cal.Rptr. 644, 72 C.A.3d 663. In buying a mortgage for trust invest- ment, trustee should give careful attention to valuation of property in order to make certain that margin of security is adequate; he must use every reasonable endeavor to provide protection which will cover risks of depreciation in property and changes in price levels and must investigate status of property and of mortgage as well as finan- cial situation of mortgagor. Id. Provision of testamentary trust that "all discretions conferred upon the trustee shall be absolute" did not authorize the trustees to invest in a junior encumbrance without ability to protect against the foreclosure of a senior lien or to refrain from making a business like investigation of the credit worth of the borrower or insisting on an appraisal of the security given by the bor- rower. Id. § 2262. Interest on failure to invest INTF.RE.ST. SIMPLE. OR COMPOUND. ON OMISSION TO INVEST TRUST MONEYS. If a trustee omits to invest the trust moneys according to the last section, he must pay simple interest thereon, if such omission is negligent merely, and compound interest if it is willful. (Enacted 1872.) Forms See West's California Code Forms, Civil. Library References Probate Court Practice, Goddard, M 1590, 1823. Notes of Decisions In general 1 Circumstances of the case 7 Compound Interest 9 Construction with other laws 2 Duration or investment inactivity 6 Duration of liability for Interest 5 Good faith 4 Fruitless Investments 7 Rale or interest 8 Liability of trustee'q "tale 111 1. In general Main characteristics of trust relationship nre that payor retains beneficial interest in money paid, trustee payee ranv not use money for own purposes, in absence of agreement to contrary, trustee keeps mon• ey separate from his own ruods, trustee has duty to invest money and make it produc- tive and is entitled to reimbursement for all expenses properly incurred in performance of trust, and if money paid is lost without '4M CIVIL CODE Law Revision Commission Comment 1968 Repeal Former Section 2233 Is superseded by Probate Code Semlers 15642(b) (ground, for removal of trustee), 16002 (duty of loyally), and 16004 (duty to avoid connlct of interest). [18 Cal.LR".Comm. Reports 501 (1986)1. Former Section 2234 is superseded by Probate Code Section 16400 (violation of duly i, breach of trust). The liability for breach is governed by statute. See Prob.Code §§ 16440 (measure of liability for breach of trust), 16441 (measure of liability for Interest). 118 CaLLRev.Comm. Reports 501, 1790 (1986)1. Former Section 2235 is superseded by Probate Code Section 16002 (duly of loyalty) and 16004 (duty to avoid connlet of interest). [I8 CaLl-Rev.Comm. Reports 501 (1986) ). Former Section 2236 is superseded by Probate Cod Sections 16009 (duty to kap treat property separate) an 16440 (measure of liability for breach of trust). See al Prob.Code § 16420(a)(3) (redress of breach by payment o money). 118 Ce1.LRev.Comm. Reports 501 (1986)). Former Section 2237 b superseded by Probate Cod Sections 16440(,) (measure of liability for breach of treat ec and 16441 (..sum of liability for interest). Sal Prob.Code § 16420(a)(3) (redress or breach by payment o money). 118 Cal.LR".Comm. Reports 50l (1986)1. Subdivision (a) of former Section 2238 is superseded b Probate Code Section 16440 immune of liability for bra of trust). Subdivision (b) is restated in Probate Cod Section 16462(,) (nimilability far following instructions on des revocable treat) without substantive change. See al Prob.Code § 16420(ax3) (redress of breech by payment o slower). (18 Cal.Lit".Comm. Reports 501 (1986)1. Forma Section 2239 h rotated in Probate Code Section 16402 (trustee's liability m beneficiary far ams of ectrusme with severs! changes Sea the Comment to Prob.Code § 16402. [I8 Cal.LRev.Comm. Reports 501 (1986)1. Parts of former Section 2240 are superseded by Probst Code Sections 15620 (actions by cotruatces) and 16200 (Power subject to limitations in weal). The authority t make deposits is continued in Probate Code Section 1623 (power to deposit securities in depository) without subnan live change. [18 Cal.L.Rev.Comm. Reports 501 (1986)] Forma Section 2243 u superseded by Probate Cod Section IS WO (protection of third person dealing with trust a). Sec atm Pmb.Code § 15003 (constructive and resulting trate unaffected). ((g Cal.LRer.Comm. Reports, 50 (1986)). Forma Section 2244 u superseded by Probate Cod Section 18101 (application of property delivered to trust by third person). [18 CsI.LRev.Comm. Reports 50 (1986)1. Former Section 2250 is superseded by Probate Cod Section 82 ("trust" defined). The provision relating to the voting of title in the mutes is not continued. Sec the Comment m forma Section 863. 1I8 CaLLRev.Comm Reports 501 (1986)[. Former Section 2251 is superseded by Probate Cod Sections 15200-15207 (creation of trust), 15600 (seaplane Of trust by trustee), and 16410(4)(1) (beneficiary may tom pd trustee to perform duties). [Ig CaLLRev.Comm. pons 301 (1986)1. Former Section 2252 Is omitted as unnecessary. [I CaLLm Rev.Com. Reports 501 Forma Section 2253 to superseded generally by Probate Code Sections 13200 (methods of emitting [rest), 15201 (Intention to crate trust), and 16000 (duty to administer trust). jig CsI.LRev.0 ram. Reports 501 (1986)1. Additions or changes Indicated by §§ 2228 to 2290.9 Repealed Former Section 2254, which slated a special application of the parol evidence rule, is omitted because this quesdon la governed by the {metal parol evidence rule. See Cade C4v.Prm § 1856; see aim Prob.Code § 15207 (proof of terms of oral trust of personal property). [Ie CaLl-Rev. Comm. Rcpom 501 (1986)1. The part of subdivision (a) of former Section 2258 relating to control of the trustee's duties by the tout Instrument Is restated In Probate Code Section 16000 (duty to administer trust according to trust instrument) without substantive change. but the characterization of the duly of the trustee m that of en employee is omitted. The pan of subdivision (a) relating to modification is superseded by Probate Code Section 15404 (modification by settlor and all bene0atarim). e The flat sentence of subdivision (b) u continued in d Probate Code Section 16001 (duty of trustee of revisable m trust) without substantive change. The second sentence u f restated in Probate Code Section 16462 (nonliability, for following imenction, under revocable trust) without sub• e stantive change. The reference to a person having a vested or contingent lateral in the trust is replaced by the refer. m once in Probate Code Section 16462 to the beneficiary. Sea f Prob.Code § 24 ("bencriciary" defined). The last pan of the second sentence relating to fiduciary obligations of the directing party u omitted as unnecessary. Sec also Prob. y Code § 10 (singular includes plural). [18 Cal.LRev.Comm. e eh Reports 501 (1986)1. The pan [Rem of former Section 2239 relating to the [Reof ,tp compensation on the standard of care is rotated In Probate f Code Section 16041 without substantive change. The "ordi• nary are and diligence' standard of former Section 2259 13 superseded by Probate Code Section 16040 (Wta stec's ,n. derd of are in administering treat). [is CaLLRev.Comm. Reports 501 (1986)1. Former Sermon 2260 u superseded by Probate Code e Sections 15641 (liability of resigning tesla), 15660 (ap- poiniment of trustee to 011 vacancy). 16000 (duty to admin. o ister trust), and 17200(b)(10) (petition for appointment of 9 trustee). IS fal.L.Re,.Ca.m. Reports 501 (1986)1. The standard of arc governing investments and manage• meet of trust property provided by subdivision (a)(1) of Code former Section 2261 u. rotated nn Probate Code Section 16040(b) without substantive change. The authority to acquire "every kind of property' Is restated in Probate Code 1 Sections 16223 (power to invest) and 16226 (power to ro acquire property). See also Prob.Code §§ 62 C*pperty" defined), 16200 (general powers of tritium include powers of Code prudent person). Subdivision (a)(2) of forma Section 2261 a is restated in Probate Code Section 16040(c) without sub• stantive change. Sec also Prob.Codc 1 16000 (gmersl duties of trust" subject to control by trust instrument). Code The standard of care provided in the last half of the Ont sentence of subdivision (b) u superseded by Probate Code Sections 16040 (trusts i standard of arc in administering trust) and 16200 (exercise of powers subject to limitations In m brant). See aim Prob.Code § 15220 (power to coIteand Code hold property). The authority to retain property in !real at e its inception rr later acquired pursuant to proper authority Is restated in Section 16008(b) as an ex.eption to the general Re' duty to dispose of improper investments. The second sen- tence of subdivision (b) Is superseded by Probate Code 8 Section 16220 (power to hold property in which trusts is Interested). See alto Prob.Code § 62 ("property" defined). Subdivision (e) b superseded by Probate Code Sections 16200 (exercise of powers subject to limitation, In trust) and 16225 (power to make deposits). See also PmIsCode § 16201 (power of court to relieve trustee from restrictions). underline: deletions by asterisks 7 0 0 DESCRIPTION OF INVESTMENTS The Azusa Public Financing Authority ("APFA") investments are placed in those securities as outlined below; the balance between the various investment instruments may change in order to give APFA the best combination of safety, liquidity and high yield. Surplus funds of local agencies may only be invested in certain eligible securities. The APFA invests only in those allowable securities under the State of California statutes (Government Code Section 53601, et seq)- Certificates of Deposit Certificates of deposit allow APFA 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, APFA 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 APFA advantage to waive this collateral requirement for the first _ $100,000 because APFA 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/APFA 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. 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, 6, 10 years. Notes are coupon securities paying interest every six months. The Agency will not invest in notes having maturities longer then five years. Federal Aeencv 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. 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. 2 0 0 Negotiable Certificate 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 Pang 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. 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. 3 r 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 reasonable administrative costs of the pool. The Los Angeles County Treasurer has started 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 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. 4 0 Repurchase Agreements E Another authorized investment for cities is repurchase agreements. 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 APFA by book entry, physical delivery or a third -party custodial agreement. Transfer of the underlying securities to the counter -party 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 Truct 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 ChicagoGoldman, 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 RESOLUTION NO. 92-P3 A JOINT RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AND THE AZUSA PUBLIC FINANCING AUTHORITY TO RECESS TO CLOSED SESSION ON , JUNE 8, 1992 THE CITY COUNCIL OF THE CITY OF AZUSA, THE BOARD OF DIRECTORS OF THE AZUSA REDEVELOPMENT AGENCY AND THE AZUSA PUBLIC FINANCING AUTHORITY DO HEREBY RESOLVE AS FOLLOWS: SECTION 1. Closed Sessions of the City Council and Board are permitted for various purposes pursuant to Government Code Section 54957 for the purposes of discussions with the City or Agency Attorney of matters within the attorney-client privilege relating to litigation and potential litigation, discusssion of matters with the City's or Agency's authorized labor representative, discussion of personnel matters relating to the appointment, evaluation, dismissal, or charges against an employee, or to give instructions to the City's or Agency's negotiator regarding the purchase, sale, exchange or lease of certain property, among others. It is the policy of the City Council and the Board of Directors to strictly adhere to the requirements of the Brown Act (the California Public Meeting Act) and to only recess to Closed Session when absolutely necessary. SECTION 2. The City Council and Board of Directors shall recess to CLOSED SESSION to confer with its attorneys with respect to confidential matters within the attorney-client privilege pursuant to Government Code Section 54956 (b) in order to discuss 2 matters of potential litigation and is hereby of the opinion that a substantial esposure to litigation exists with respect to such items. SECTION 3. In connection with the litigation matters discussed above, the City Council and Board of Directors specifically find that: A. Discussion of the litigation matters described above in open session would be prejudicial to the interests of the City and the Agency in that matters within the attorney-client privilege will be discussed and disclosure of such discussions would violate and waive the attorney-client privilege and would give an unfair advantage to the City's and Agency's adversaries and allow them to negotiate a settlement of the matters adverse to the City and Agency; and SECTION 4. The City Clerk and Secretary shall certify the adoption of this resolution. PASSED, APPROVED AND ADOPTED, this, 8thh day of June, 1992. 0 46 I HEREBY CERTIFY that the foregoing resolution was duly adopted by the City Council of the City of Azusa, the Board of Directors of the Azusa Redevelopment Agency, and the Azusa Public Financing Authority at a regular meeting thereof, held on the 20th day of, July 1992, by the following vote of the Council/Agency: AYES: COUNCILMEMBERS/BOARDMEMBERS: DANGLEIS,MADRID, NARANJO, ALEXANDER, MOSES, NOES: COUNCILMEMBERS/BOARDMEMBERS: NONE ABSENT: COUNCILMEMBERS/BOARDMEMBERS: NONE