HomeMy WebLinkAboutMinutes - October 6, 2003 - CC (2)CONSENT ITEM
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE BOARD OF DIRECTORS OF
THE AZUSA PUBLIC FINANCING AUTHORITY
FROM: URIEL MACIAS, CITY TREASURER Gli�
DATE: OCTOBER 6, 2003
SUBJECT: INVESTMENT POLICY FOR THE CITY OF AZUSA, PUBLIC FINANCING AUTHORITY
RECOMMENDATION
The City Treasurer recommends that the Board Members approve the attached resolution re-
adopting the Investment Policy for the City of Azusa, Public Financing Authority.
BACKGROUND
State law requires that the Investment Policy for each city be re -adopted every year with changes
that may be necessary or desirable. The Board Members last adopted the policy on September
16, 2002.
FISCAL IMPACT
None
I /9r
Azusa Public Financing Authority
(APFA)
Investment Policy
1. POLICY STATEMENT
All funds of the APFA shall be invested in accordance with principles of sound treasury
management and in accordance with the provisions of the California Government Code
Sections 53600 et seq., (the Municipal Code), and guidelines established by the
California Municipal Treasurer's Association, the California Society of Municipal
Finance Officers, and this Investment Policy ("Policy"). These funds are defined and
detailed in the City's Comprehensive Annual Financial Report (CAFR) and includes any
new funds created unless specifically excluded by the Board..
Specifically excluded funds are:
Funds deposited with the State Public Employees' Retirement System and;
Bond proceeds that are subject to covenants and restrictions as defined in the
Bond's indenture or are administered under the direct control of the Bond Trustee.
2. INVESTMENT POLICY OBJECTIVES
A. Overall Risk Profile
The objectives of the APFA's Investment Program are, in order of priority:
1. Safety of principal 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.
To achieve these objectives, The APFA shall consider the following when making an
investment:
1. Safety of Principal of Invested Funds
The APFA shall mitigate the risk to the principal of invested funds by limiting
credit and interest rate risks. Credit Risk is the risk of loss due to the failure of
a security's issuer or backer. Interest Rate Risk is the risk that the market
value of the APFA's portfolio will fall due to an increase in general interest
rates.
a) Credit risk will be mitigated by:
Investment Policy — Con't
(i) Limiting investments to the safest types of securities;
(ii) By pre -qualifying the financial institutions with which it will do
business; and
(iii) By diversifying the investment portfolio so that the potential
failure of any one issue or backer will not place an undue financial
burden on the City.
b) Interest rate risk will be mitigated by:
(i) Structuring the APFA's portfolio so that securities mature to meet
the City's cash requirements for ongoing obligations, thereby
avoiding the possible need to sell securities on the open market at a
loss prior to their maturity to meet those requirements; and
(ii) Investing primarily in shorter term securities.
2. Li uidi
The APFA's investment portfolio shall be structured in a manner which
emphasizes that securities mature at the same time the cash is needed to
meet anticipated demands (Static Liquidity). Additionally, since all
possible cash demands cannot be anticipated, the portfolio should consist
of securities with active secondary markets (Dynamic Liquidity). The
maximum percentage of different investment instruments and maturities is
described in Section II of this Policy.
3. Yield
Yield on the 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 for the 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.
B. Basic Investment Strateff
The APFA's investment portfolio shall be structured to provide that sufficient funds from
investments are available each month to meet the APFA's anticipated cash needs. Subject
to the objectives stated above, the choice in investment instruments and maturities shall
be based upon an analysis of future anticipated cash needs, existing and anticipated
revenues, interest rate trends and specific market opportunities. No investment may have
a maturity of more than five (5) years from its date of purchase without receiving prior
Investment Policy — Con't
Board approval. After approval by the Board, reserve funds associated with bond issues
may have a maturity of more than five (5) years, up to the earliest date the bonds may be
redeemed or mature.
3. INVESTMENTS
This section of the Investment Policy identifies the types of investments in which the
APIA will invest its idle or surplus funds.
A. Standard of Prudence
The APIA operates its investment portfolio under the Prudent Investor Standard
(California Government Code Section 53600.3) which states, in essence, that
"when investing, reinvesting, purchasing, acquiring, exchanging, selling or
managing public funds, a trustee shall act with care, skill, prudence and diligence
under the circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated need of the City, that a prudent person in
a like capacity and familiarity with those matters would use in the conduct of
funds of a like character and with like aims, to safeguard the principal and
maintain the liquidity needs of the APFA".
This standard shall be applied in the context of managing the overall portfolio.
Investment officers, acting in accordance with written procedures and this
investment policy and exercising the above standard of diligence shall be relieved
of personal responsibility for an individual security's credit risk or market price
changes, provided deviations from expectations are reported in a timely fashion
and appropriate action is taken to control adverse developments.
B. Elieible Securities
The APIA is provided a broad spectrum of eligible investments under California
Government Code Section 53600 et seq. The City may choose to restrict its
permitted investments to a smaller list of securities that more closely fits the
City's cash flow needs and requirements for liquidity. If a type of investment is
added to California State Code 53600, it will not be added to the City's
Authorized Investment List until this policy is amended and approved by the City
Council. If a type of investment permitted by the City should be removed from
California State Code 53600, it will be deemed concurrently removed from the
APFA's Authorized Investment List.
The APFA's Authorized Investment List
• 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 the City's
investments shall not exceed One Hundred Thousand
($100,000) per institution. If the investment exceeds the
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Investment Policy — Con't
insured $100,000, 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, and securities of which the
principal and interest is guaranteed by the full faith and credit
of the U.S. Government.
• Securities issued by agencies and instrumentalities of the U.S.
Government or issued by a government sponsored enterprise.
• Commercial Paper (limited to 30% of the portfolio) rated
Al/Pl or the equivalent by 2 nationally recognized rating
agencies with maturities not to exceed 181 days.
• Medium —Term Corporate Notes (limited to 20% of the
portfolio) that are rated "AA" or better by two nationally
recognized rating agencies.
• Passbook Savings or Money Market Demand Deposits, subject
to the restrictions and limitations set forth in Government Code
Section 53638.
• Repurchase Agreements (limited to 30% of the portfolio) with
approved banks and broker-dealers who have completed and
signed a Master Repurchase Agreement with the City.
• Money Market Mutual Funds (with a stated objective of
maintaining a $1 net asset value) that has been rated AAAm by
Moody's or any two nationally recognized rating agencies.
Please see Exhibit A for a more detailed description of the
authorized investments listed above.
A thorough investigation of any pool or fund is required prior to investing and on
a continual basis. The investigation will, at a minimum, obtain the following
information:
A description of eligible investment securities, and a written
statement of investment policies and objectives.
A description of interest calculations and how it is distributed, and
how gains and losses are distributed.
A description of how securities are safeguarded (including the
settlement process) and how often the securities are marked to
market and how often an audit is conducted.
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Investment Policy — Con't
A description of who may invest in the program, how often, what
size deposits and withdrawals are permitted.
A schedule for receiving statements and portfolio listings.
Does the pool/fund maintain a reserve or retain earnings or is all
income after expenses distributed to participants?
A fee schedule which also discloses when and how fees are
assessed.
Is the pool or fund eligible for bond proceeds and/or will it accept
such proceeds?
The purpose of this investigation is to determine the suitability of a pool or fund
and evaluate the risk of placing funds with that pool or fund.
One of the purposes of this Investment Policy is to define what investments
are permitted. If a type of security is not specifically authorized by this
policy, it is not a permitted investment.
C. Qualification of Brokers. Dealers and Financial Institutions
The Authority Treasurer or their designees will establish and maintain a list of the
financial institutions and broker/dealers authorized to provide investment and
depository services to the City, will perform an annual review of the financial
condition and registrations of the qualified bidders, and require annual audited
financial statements to be on file for each approved company. The City shall
annually send a copy of the their current Investment Policy to all financial
institutions and broker/dealers approved to do business with the City. Receipt of
the Policy and Enabling Resolution, including confirmation that it has been
received and reviewed by the person(s) handling the City's account, shall be
acknowledged in writing within thirty (30) days.
All broker-dealers and financial institutions that desire to become qualified
bidders for investment transactions must submit a "Broker -Dealer Application"
and related documents relative to eligibility. This includes a current audited
financial statement, proof of state registration, proof of NASD registration and a
certification they have received and reviewed the City's Investment Policy and
agree to comply with the provisions outlined in the Investment Policy. The City
Treasurer or their designees may establish any additional criteria they deem
appropriate to evaluate and approve any financial services provider. The selection
process for broker-dealers shall be open to both "primary dealers" and
"secondary/regional dealers" that qualify under Securities and Exchange
Commission Rule 156-1 (Uniform Net Capital Rule). The provider must have an
office in California and the provider's representative must be experienced in
institutional trading practices and familiar with the California Government Code
as it relates to investments by a City.
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Investment Policy — Con't
D. Collateralization Requirements
Uninsured Time Deposits with banks and savings and loans shall be collateralized
in the manner prescribed by state law for depositories accepting municipal
investment funds.
Repurchase Agreements shall be collateralized in accordance with terms specified
in the Master Repurchase Agreement. The valuation of collateral securing a
Repurchase Agreement will be verified weekly to ensure a minimum of 102% of
the value of the transaction is held by the APFA's depository agent.
E. Diversification
The APFA will diversify its investments by security type and investment. With
the exception of bond reserve funds, bond escrow funds, and any other specific
funds approved by the Investment Committee or the Board of Directors, the City
Treasurer or their designee and the City's Investment Committee will adopt a
strategy that combines current market conditions with the City's cash needs to
maintain the maximum degree of safety of principal and liquidity throughout
market and budgetary cycles. This strategy will include diversification by
investment type and maturity allocations and will be included in the regular
quarterly reports to Council. This strategy will be reviewed quarterly and can be
changed accordingly.
F. Confirmations
Receipts for confirmation of purchases or sales of authorized securities shall
include at a minimum the following information: trade date, settlement date,
description of the security, par value, interest rate, price, yield to maturity,
APFA's name, net amount due and third party custodial information.
G. GASB 3
The Governmental Accounting Standards Board (GASB) issued GASB #3 in
April 1986, and the local entity's investments must be categorized into one of
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
or dealer or by its 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. Government Accounting
P,
Investment Policy - Con't
Standards Board #3 exempts mutual funds and LAIF investments from the
mandatory risk categorization.
4. SAFEKEEPING OF SECURITIES
A. Safekeepin¢ Agreement
The APFA shall contract with a bank or banks for the safekeeping of securities
that are owned by the APFA as a part of its investment portfolio or transferred to
the APFA under the terms of a Repurchase Agreement.
All securities owned by the APFA shall be held in safekeeping by a third party
bank trust department acting as agent for the APFA under the terms of a custody
agreement executed by the bank and the APFA. All securities will be received
and delivered using standard delivery versus payment (DVP) procedures.
The third party bank trustee agreement must comply with Section 53608 of the
California Government Code. No outside broker/dealer or advisor may have
access to City funds, accounts or investments and any transfer of funds must be
approved by the Authority Treasurer.
B. Security Transfers
The authorization to release the APFA's securities or funds will be telephoned to
the appropriate bank representative 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.
C. Verification of Securities
Securities transferred to the APFA as collateral securing time deposits or
repurchase agreements which are being held in safekeeping on behalf of the City
will be verified in writing and examined on a surprise basis during the year by the
City's independent auditors as a part of the APFA's annual independent audit
process.
5. STRUCTURE AND RESPONSIBILITIES
This section of the policy defines the overall structure and areas of responsibility within
the investment management program.
A. Responsibilities of the City Treasurer
The Authority Treasurer is charged with responsibility for maintaining custody of
all public funds and securities belonging to or under the control of the APFA, and
for the deposit and investment of those funds in accordance with principles of
sound treasury management applicable laws, ordinances and this Investment
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Inveshnent Policy - Con't
Policy. This includes establishing written procedures for the operation of the
investment program consistent with this policy. The procedures should include
reference to safekeeping, master repurchase agreements, wire transfer agreements,
banking services contracts and depository agreements. Such procedures shall also
include explicit delegation of authority to persons responsible for investment
transactions. No person may engage in an investment transaction except as
provided under the terms of this policy and the procedures established by the
Treasurer and approved by the Investment Committee. Investment decisions that
involve borrowing in the amount of $100,000 or more must be included as a
separate discussion item on the City Council's agenda. Such items can no longer
be included on the Board's consent calendar. (California Government Code
53635.7)
B. Responsibilities of the Director of Finance
The Director of Finance is responsible for keeping the Board fully advised as to
the financial condition of the APFA.
C. Responsibilities of the Board
The Board shall consider and adopt a written Investment Policy. As provided in
that policy, the Board shall receive, review and accept quarterly investment
reports.
D. Responsibilities of the Investment Committee
There shall be an Investment Committee consisting of the Director of Finance, the
City Manager, the Authority Treasurer and their designees. The Committee shall
meet quarterly to discuss cash flow requirements, the monthly investment reports,
investment strategies, investment and banking procedures and significant
investment related work projects being undertaken in each department that will
affect the cash flow management of the City Treasurer. This will require timely
reports from the department heads to the Authority Treasurer concerning
significant future cash flow requirements. The Committee's meetings will be
summarized in minutes that are distributed to the Board. The Investment
Committee, with the approval of the Board, may retain an external investment
manager on behalf of the APFA. The investment manager will be required to act
in accordance with this investment policy.
E. Ethics and Conflicts of Interest
All City officers and employees involved in the investment process shall refrain
from personal business activity that could conflict with the proper execution of
the investment program, or that could impair their ability to make impartial
investment decisions. Those employees and investment officials shall disclose to
the appropriate City executive (City Manager, City Attorney, or the Director of
Finance) any material financial interests in financial institutions that conduct
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Investment Policy — Con't
business within the City, and they shall further disclose any large personal
financial/investment positions that could be related to the performance of the
APFA's investments.
6. REPORTING
The Authority Treasurer shall prepare a quarterly 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 that will allow the Director of Finance and the City Council to
ascertain whether investment activities during the reporting period have deviated from
the City'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 gains or losses resulting from amortization or accretion of
principal versus market value changes by listing the cost and market value
of securities owned by the City.
C. A description of the current investment strategy and the assumptions upon
which it is based.
D. Dollar weighted yield to maturity of the APFA's investments.
E. Maturity schedule by type, of each of the APFA's investments.
F. Statement of compliance of the APFA's Investment Policy with California
Government Code Section 53601 et seq.
G. Statement as to ability to meet all scheduled expenditure requirements for
the next six months.
H. Market value, book value, par value and cost basis of all investments.
I. Investments "under the management of contracted parties, including
lending programs" (i.e. investments held by deferred compensation
administrators).
7. PERFORMANCE STANDARDS
The investment portfolio will be managed in accordance with the standards established
within this Investment Policy and should obtain a market rate of return throughout
budgetary and economic cycles. The Investment Committee will establish and
periodically review the APFA's portfolio benchmarks and performance. A benchmark
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Investment Policy — Con't
will be selected that compares with the portfolio composition, structure and investment
strategy at that time.
8. REVIEW OF INVESTMENT POLICY
A. Policv Review
This Investment Policy shall be reviewed annually by the 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 reviewed by the Investment Committee and City Attorney
and then be forwarded to the Board for consideration. The Investment Committee
shall annually review the Investment Policy and any proposed amendments and
forward to the Board for its consideration and adoption at a public meeting.
B. Internal Control and Review
The external auditors shall annually review the investments and general activities
associated with the investment program to ensure compliance with this
Investment Policy. This review will provide internal control by assuring
compliance with policies and procedures for the activities that are selected for
testing.
9. ADOPTION OF POLICY
This Policy was duly adopted by the Board of Directors of the APFA on Ocotber
6, 2003.
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Investment Policy— Con't
EXHIBIT A
DESCRIPTION OF INVESTMENTS
The APFA's investments may be placed in those securities as outlined below; the
allocation between the various investment instruments may change in order to give the
City the best combination of safety, liquidity and higher yield. Surplus funds of local
agencies may only be invested in certain eligible securities. The City limits its
investments to allowable securities under the State of California statutes (Government
Code Section 53601, et seq., Section 53356, et seq., and Section 53595, et seq.) and is
further limited to those listed below.
Certificates of Deposit
Certificates of deposit allow the 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, the City
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 City's advantage to waive this collateral
requirement for the first $100,000 because the City 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 Aeencv Investment Fund
The Local Agency Investment Fund (LAIF) of the State of California offers high
liquidity because deposits can be wired to the City checking account within 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 $40,000,000
for any City. It offers high liquidity because deposits can be converted to cash within
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 by adding it to the principal.
The State charges participants a small fee to cover reasonable costs associated with
operating the investment pool, not to exceed one-quarter of one percent of the earnings.
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Investment Policy — Con't
The interest rates received are fairly stable because of the pooling of the State's surplus
cash with the surplus cash deposited by local governments. This creates a well -
diversified multi -billion dollar money pool.
U.S. Treasury Securities
U.S. Treasury securities are highly liquid and considered the safest of all investments
because they are back by the full faith and credit of the United States Government.
U.S. Treasury Bills are direct obligations of the United States Government.
They are issued weekly with maturity dates up to six months. They are issued and
traded on a discount basis and the interest is figured on a 360 -day basis using the
actual number of days to maturity. They are issued in the minimum amount of
$10,000 and in multiples of $5,000 thereafter.
U.S. Treasury Notes are direct obligations of the United States Government.
They are issued throughout the year with maturities from 2 up to 30 years. Notes
are coupon securities paying a fixed amount every six months. The City will not
invest in notes having maturities longer then five years.
Federal Aeency Securities
Federal Agency securities are highly liquid and considered to be virtually without credit
risk. Federal Agency issues are guaranteed indirectly by the United States Government.
All Agency obligations that are fixed-rate and meet the maturity restrictions of the State
Code and this policy 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.
Other Federal Agency issues are Federal Home Loan Mortgage Corporation
(FHLMC), Federal Farm Credit Bank (FFCB), Small Business
Administration Notes (SBA's), Government National Mortgage Association
(GNMA's), Tennessee Valley Authority (TVA's) and the Student Loan
Marketing Association (SLMA's).
Negotiable Certificate of Deposit
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Investment Polity - Con't
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 issuing
financial institution, bank or savings and loan, bought at face value with a 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 denominations 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.
Commercial Paper
Commercial paper allows the investment of large amounts of money on a short-term
basis at rates higher than passbook savings accounts. 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. As an example,
corporations such as American Express, International Business Machines (IBM) and
General Electric issue commercial paper.
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 (Allpl or Al+/pl).
Purchases of eligible commercial paper may not exceed 180 days maturity nor exceed
30% of the City's surplus funds.
Medium -Term Corporate Notes
A City may invest in medium term corporate notes with a maximum maturity of five
years issued by a corporation organized and operating within the United States, a
depository institution licensed by the United States government or any state government
and operating within the United States. The California State Code (53601 et seq.) permits
cities to invest in corporations with a raring category of "A" or better, but the City will
limit its investments in corporate medium term notes to those issued by corporations that
have been rated "AA" or its equivalent by two nationally recognized ratings agencies.
Passbook Savines or Money Market Account
Passbook savings account allows us to transfer money from checking to savings and earn
interest on smaller amounts of money, which are not available for a longer-term
investment
The passbook savings account is similar to a CD, except not for a fixed term. The
interest rate is much lower than CD's, but the savings account provides daily liquidity and
funds can be deposited and withdrawn according to our daily needs.
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Investment Policy — Con't
Mutual Funds
Mutual funds allow the APFA to maintain liquidity and receive money market rates.
Mutual Funds are referred to in the Government Code, Section 5360LL, as "shares of
beneficial interests issued by diversified management companies". The Mutual Fund
must be restricted by its prospectus to be a "Money market" mutual fund and be limited
to the same approved investments as LAIF. These investments include U.S. Treasury and
Agency issues, Bankers Acceptances, Commercial Paper, Repurchase Agreements,
Certificates of Deposit, and Negotiable Certificates of Deposit. The quality rating and
percentage restrictions in each investment category applicable to LAIF also apply to any
Mutual Fund.
One of the stated objectives of the Mutual Fund must be to attempt to maintain a $1.00
Net Asset Value (NAV). A further restriction is that the purchase price of shares of any
mutual fund shall not include any sales commission. Investments in mutual funds shall
not exceed 15% of the City's surplus money.
Repurchase Agreements
Repurchase agreements are purchases of securities by the APFA 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 City's custodial account by book entry,
physical delivery or a third -party custodial agreement.
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RESOLUTION NO
RESOLUTION OF THE BOARD OF DIRECTORS OF THE AZUSA PUBLIC FINANCING
AUTHORITY OF THE CITY OF AZUSA ADOPTING THE
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 Authority; 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 Investor Standards"; 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
Azusa Public Financing Authority of the City of Azusa does hereby adopt its
Investment Policy attached hereto marked 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 Azusa Public Financing Authority.
ADOPTED AND APPROVED this 6`h day of October, 2003
CHAIRMAN
1 HEREBY CERTIFY that the foregoing resolution was duly adopted by the
Board of Directors of the Azusa Public Financing Authority of the City of Azusa at a
regular meeting thereof on the 6th day of October, 2003 by the following vote of
Directors:
AYES: BOARD DIRECTORS:
NOES: BOARD DIRECTORS:
ATHECITY '! OF AZC a
Finance Department • 213 E. Foothill Blvd. • P.O. Box 1395 • Azusa, CA 91702-1395
(818)334-5125
TO: CHAIRMAN AND DIRECTORS OF THE
AZUSA PUBLIC FINANCING AUTHORITY
FROM: ROBERT E. TALLEY, AUTHORITY R
VIA: HENRY GARCIA, EXECUTIVE DIRECTOR
DATE: JULY 5, 1994
SUBJECT: AZUSA PUBLIC FINANCING AUTHORITY INVESTMENT POLICY
State law requires that the investment policy for each Authority be re -adopted every year, with
changes that may be necessary or desirable. The APF Board of Directors last re -adopted its
Investment Policy on July 5, 1993. No changes are recommended in APF's Investment Policy
this year.practices.
Staff recommends that the Board of Directors adopt the attached draft Resolution re -adopting the
Investment Policy of the Azusa Public Financing Authority.
Attachment:
GJC:pap
on
RESOLUTION NO
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 day of JULY, 1994.
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 day of JULY, 1994 by the following vote of Directors:
AYES: BOARD DIRECTORS:
NOES: BOARD DIRECTORS:
ABSENT: BOARD DIRECTORS:
CITY OF AZUSA
AZUSA PUBLIC FINANCING AUTHORI'T'Y
INVESTMENT POLICY
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 first 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. Liquidit
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. Yiel
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.'
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.
UREELCOM
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 SAEEKEEPINQ OF SECURMES
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.
B. d Tim
Handling of _d -a
Depgsit 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.
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.
MOMEMMMMURM, InIT4rM7.Wf7.MM
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.
�,• irVaurck4ml
The Executive Director is responsible for keeping the Executive Board fully
advised as to the financial condition of APFA.
E'HIAIT 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 or 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
321)
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 ail 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 otter 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; Stals.1967, c. 688, p.
2064, § 1; Stats.1967, c. 1706, p. 4265, 5 1; Stats.1968, c. 161, p. 385, § 1;
Stats.1969, c. 259, p. 611, 5 1; Stats.1984, c. 1372, § 1.)
Historical Note
The section, as originally enacted in 1872,
authorized to acquire every kind of proper -
provided:
ty, reul, personal or mixed, and every kind
"A trustee must invest money received
of investment, specifically Including, but
not by way of limitation, corporate obliga-
by him under the trust, as fat as he trot-
clone of every kind, and stocks, preferred or
lecls a sufficient amount, in such manner as
common, which men of prudence, d'ue
to afford reasonable security and interest
ac -
and intelligence acquire for Weir ownn ac-
for the same."
count.
The 1943 amendment rewrote the section
"(2) In the absence of express provisions
to read:
to the contrary in line trust instrument, a
"(1) In investing, reinvesting, purchasing,
trustee may continue to hold property re-
acquiring, exchanging, selling and mining-
ceived into a trust at its inception or subse-
ing property for the benefit of another, a
quenlly added to it or aolu;red pursuant to
trustee Shull exercise the judgment and
proper authority if and as long as that trus-
care, tinder the circumstances then prevnil-
ing, which men of prudence, discretion and
tee, in the exercise of good faiW and of
reasonable prudence, discretion and intelli.
intelligence exercise in We management of
gene, may consider that retention is in the
their own affairs, not in regard to specula-
best interests of the trust.
limn, hot it, regard to the permanent dispesi-
"(3) In the absence of express provisions
lion of their funds, considering the probable
to the contrary in lite trust instrument, a
income, as well as the probable safely of
deposit of trust funds at interest in any
their capital. Within the limitations of lite
savings bank or the savings deportment of
foregoing standard, and subject to any ex.
any bank (including the savings deportment
press proyWons or limitations contained in
of the trustee, if a bouk) shall be a qualified
any particular trust instrument, a trustee is
inveslmcul to Lite extent that such deposit
321
§ 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 aection
shall be construed as limiting the right of
trustees in proper cases In make deposits of
trust moneys in banks, subject, in the ense
of intere9t bearing deposits, to such notice
or other conditicam respecting withdrawal
as mny be prescribed by Inw or governmen.
tal regulation affecting such deposits.
"(4) Nothing in this section shall nbro-
gnle or restrict the power of the nppropri-
ale court in proper cases to direct or permit
the trustee to devinte from the terms of the
trust regarding the making or retention of
investments.
"(5) The provisions of this section shall
apply to a0 trusts now existing or hereafter
created. Where, in trusts now existing or
hereafter created, the term 'investments
permissible by law for investment of trust
funds; or 'authorized by Inw for investment
of trust funds; 'legal investments; or 'au.
thorized investments,' or other words of
similar import are used in defining the pow-
ers of the trustee relative to investments,
such langunge, 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 (U of this section."
TRUSTS FOR THIRD PERSONS
Div. 3
income, as well as the probable snfety of
their capital. Within the limitations of the
foregoing standard, and suhject to any ex-
press provisions or limitations contained in
any particular trust instrument, a trustee is
authorized to acquire every kind of proper.
ly, real, personal or mixed, sod 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.
celved Into A trust at its inception or subse-
quently added to it or naluired purstmnt to
proper authority if and as long as the trus.
tee, in the exercise of good faith and of
rensonnble prudence, discretion and intelli-
gence, may consider that retention is In the
best interests of the truat Such property
may include stock in the trustee, it 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
in the contrary in the trust instrument, a
deposit of trust funds atinterest in any
bank (including (lie trustee, if a bank) shall
be aqualified investment to the extent that
such epmxit is insured under tiny present or
The 19137 amendment by c. 1100 added the future law of the United Slntes, or to such
concluding sentence to solid. (2), (inter greater extent as a court of competent jury
amended, see 191,0 amendment$ and delet. indiction may authorize. Nothing in this
ed references to savings books and to the section shall be construed as limiting the
savings department of banks from solid. (3), right of trustees in proper cases to make
Effect of nmendmenl of section b two or deposits of trust moneys in banks, subject,
7 in lite case of interest-bearing deposits, to
more act% at the same session of the legisla. such notice or other conditions reelecting
ture. see Government Code 9 9005. wilhdrawnl an may be. prescribed by law or
The 1968 Amendment added solid. (0), governmental regulation affecting such de -
The 1909 Amendment added the words posits.
"and stock in any corporation controlling, '(4) Nothing in this section shall abro.
controlled by, or under common control gate or restrict the power of the appropri-
with such trustee" to the end of solid. (2). ate court in proper cases to direct or permit
The 1984 nmendmentrewrote the section the trustee to deviate from the terms of the
which as amended in 1909 had read: true[ nu. the making or retention of
investments.
"(N In investing, reinvesting, purchasing, "(.5) The provisions of thio section Anil
acquiring, exchanging, selling and manag- apply to all trusts now existing or hereafter
ing property for the benefit of another, a created. Where, in trusts now existing or
trustee shall exercise the judgment and hereafter crentcd, the term 'investments
care, under the tircano [antes then prevnil- permissible by law ror invealmrnt of trust
ing, which men of prudence, discretion still funds,' or'anthorized by law for investment
intelligence exercise in the mnnagement of of trust (units.' 1egnl investments; or 'nu -
their own Affairs, not in regnrd to specula- thorixed investments,' or other words of
lion, but in regard to the permanent disirosi- similar impart are used in defining the pow -
lion of their funds, considering the probnble ers of the trustee relntive to investments,
322
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 authnriz-
ing any investment permitted by the terms
of subdivision (1) of this section.
See West's California Code Forms, Civil.
§ 2261
'Y6) The term 'properly' as used in this
section includes life insurance, endowment,
and annuity contracts issued by legal re-
serve companies authorized to do business
in this stale."
Forms
Cron References
Common trust funds of trust companies, sae Financial Code 1 1564.
Common trusts, estsbllehment for investment of funds of Department of Mental Health
held as trustee, see Welfare slid Institutions Code 1 7280.
Corporate shares, liability of fiduciary for subscription price, see CorporsUona Code 1 418.
Deposit of trust company funds awaiting investment, see Financial Code 4 1562.
Investments authorized, provisions not altering degree of care required, see 1 2269.1.
Investments of trust company bust funds. see Financial Cale 4 1561.
Mortgage participation certificates and securities guaranteed by mortgage policies 4e legal
investments, see Insurance Cale 1 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 Cale 1 7000.
Trustee to manage proceeds of sale of properly subject to life estate upon partition, see
Code of Civil Procedure § 873.840.
Low Review Commentaries
Application of SEC Rule X-100-5 to pre-
vent nondisclosure in sale of corporate secu-
rities. (1951) 39 C.L.R. 429.
Beneficiary's other resources as affecting
necessity of invasion of trust curpus.
(1953) 1 U.C.L.A.Law Rev. 119.
Common stuck as it Prudent trust invest-
ment. (1951) 39 C.L.R. 360.
Construction said application
form Principal and Income Act.
C.L.R. 34.
of the Uni-
(1939) 28
Delay causing es(oppel to Object to par
chase in breach of fiduciary duty. (1941) 1
SO.Cal.L.R. 355.
History of supervision of charitable
trusts will corporations in California. Wal
puce Howland (19611) 18 U.C.L.A. Luw Rev.
102'J.
Liability of trustee for improper invest
meats. (1951) :19 C.L.R. 380.
Planning for incompetency. Louis M
Brown (1904). 39 S. Bar J. 298.
Planning for incompulency and practice
under the conservatorship pow. George E
Zillgilt 119641 37 So.Cal.I.R. 181.
Prudence, informution and trust Invest-
ment low. John A. Humbach and Stephen
P. Drusch 1197111 fit A.B.AJ. 131pJ.
Prudent mail investment of trust funds
during inflation. (1951) 39 C.L.R. 380.
Prudent must investment rule in the law
relating to trusts. (1943) IS S.Bar J. 283.
Representation of adverse parties in trust
administration. (19117) 55 C.L.R. 948.
Revolution in trust investment low.
(1976) 62 A.U.A.J. 887.
Trust participation in partnership ven-
tures. (19611 3 Ston.L.R. 4617.
4 Trustee's lower. power to sell as includ-
ing lower to option. Michael H. Deszenl
11970) 7 Sun Diego LRev. 2.2.
Trusts—Corporate executor/trustee.
(1975)'2 West SLALL.Rev. 295.
Liability of the trustee for appreciation
of properly (1957) 4 U.C.LA. Law
Rev. 314.
Violation of duty by corporate trustee by
M. investing in its own stock. 11949):17 C.L.R.
539, 552.
Practices War conditions as presenting new prob-
Isms for investment of funds by trustees.
(194.2) 17 S.Raar J. 36.
323
§ 2261
TRUSTS FOR THIRD PERSONS
Div. 3
Library References
Trusts o=216 to 217.5. Probate Court Practice, Goddard,
U.S. Trusts 44 320, 322, 324 to 329, 33). 111 182.1, 1825, 2207, 2208.
Notes of Decisions
Iiorroa9ng funds 7
Charges against trust for beneficiary 8
Collecting Judgments, not". rents, els.
10
Conslruction rend application 1
Corporate trustees 9
Court orders for deviation from trust 23
Declaration of rust 9
Deposit of funds It
Illecretion of trustee 4
Interest charges nguiml trustee 20
Investing properly 12. 13
In general t2
Prudent investor standard 13
Liability of trustee 24
Lonning properly 14
Morlienges 26
Possession of property 10
Preserving property t9
Prudent investor slondurd. Investing prep.
erty 13
Record of trust funds 22
Retention of properly 17
Selling properly IS
Speculating with properly 19
Sliendnrd of care 5
Surrendering properly 20
Trull funds 2
Use of funds In general 3
Value of use and occupation by trustee
21
1. Construction rend application
Thin section does not supersede trustee's
were given inndequnle directions for Con.
trolling trust properly. Estate of Berges
01177) 142 Cai.ltplr. 6351, 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 monev on hand and amount deemed nec-
essary to meet Possible contingencies or
emergencies in light of rule that trustee, in
Investing %ed managing property far bene-
fit of another, should exercise such core
under eircumstnncen an prudent man would
exercise in management of his own affairs.
Lynch v. John M. Redfield Foundation
(1970) 88 Cal.Rptr. 86. 9 C.A.3d 293, 51
A.L.R.3d 1794.
Provision of former solid. 15) of this sec-
tion, that where term "investments permis.
settle M• law for investment of trust funds,"
or other words of similar import are used In
defining (rowers of trustee relative to in.
vestments, such language, in absence of
other controlling or modifying provision of
trust instrument, shalt he construed an au-
thorizing any investment permitted by for.
mer suhd. I of this section, establishing the
Prudent Mau Rule of investment, is only
relgdicable where testator limits investments
to statutory approved investments, and lean
no tipplicatinn where settlor himself speci.
Ren particular investments that are prohib-
ited. Stanton v. Wells Fargo flank h paint
Trust Co. (1957) 310 P.2d 1010, 150 C.A.2d
763.
general duly to maximize trust assets con-
sislent with safety and other relevant con-
2. Trust funds
sideration,; a statutorily authorized invest-
Land ucquirrd by irrigation district be -
men( may or may not be the prudent course
muse of delinquencies in assessments is
of conduct for the trnstre to pursue. Mab
trust property. held for the uses and pur-
ter of Pelton 11882) 183 Cal.Rplr. 188, 132
Poses of Gen.laws 1931, Act 3854, govern-
C.A.3d 4913,
ing Irrigntinn districts, find prncerds of
Where testntnr's will after making a spe-
tense lherrof leave the ,time character.
cifir bequest of cash and any automobile to
Provident Lend Carp. v. Zumwalt 11939) 85
designated individual, bequeathed to loin
P.2d 118, 12 C.2d 366-
brollner and sister an trustees the sum of
;600 for each of their respective children
3. Use of funds in general
with provision (lint inch trust terminates
Probate court', factual findings were in -
when the child nitrites I8 years of size,
adequole.t permit enter( of apprnt to dete.r.
trusts wrre valid over contention of teem•fi.
mine whrt.her I nnk/comervotor brenched
ciary that the porpoises or terns of trust
its fidurian• duly by keeping approximately
could not bo aserrinined anti that trustees
$204,Im11 in estate's rootlets in bank's 611479
324
OBLIGATIONS OF TRUSTEES
Pt. 4
execution of a )ower vested in several per-
sons, and 4 ''4269 renpuiring all co-truatees to
unite in any act to bind trust property, avid
hence one trustee could appeal from deci-
sion allowing deviation from bust require.
ments as to investments, though other trus-
tee did not wish to appeal. Stanton v. Preis
(1956)'291 P.2d 118, 1:18 C.A.2d 63.
Under will and decree of distribution giv-
ing testamentary trustees right to invest in
socks 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 socks 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
338.
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 on Illiuuis really was
not improper investment, as against conten-
tion that, under Illinois Inw, mortgage was
not negotiable security, where negotiability
of note was not affected antler Illinois Law
by the mortgage, mal 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 fouls of
trust, still advisability of diversifying in-
vestments in order to insure against ad-
verse conditions in any particular field.
Buy v. First Trust S Savings Bank of Pasa-
dena (941) 118 P.2d 51, 47 C.A.2d 470.
Whether trustee has acted properly In
making imvoatnmenl depends on circunstanc.
as at time investment is mode alul net non
subsequent events. Id.
A financial institution with broad general Although California does not limit trus-
knowledge of community needs mud trends, tee .8 authority to a list of authorized invest -
of character and worth of citizens with nems, relying instead on prudent lovextor
whoun institution has Beall, and specific rule, that rude nevertheless encompasses
knowledge of properly valines in comment.- certain guidelines that most he fullmved by
ly, call consider such positive general trustee. Id.
knowledge in investing trust funks, and is Provision in trust instrument to purchase
not restricted to letter upon letter and line every kind of pruperty and make every kind
upon line conformity with prescribed ritual of investment "irrespectve of whdher said
ill estimating value of prapnsed investment imveslnnculs are in accordance wits the paws
327
§ 2261
Note 13
in order to avoid charge of negligently man-
aging such funds. W.
In determining whether golf club mort-
gages were proper investments for trust
funds, appraised value of realty and chortle.
ter, financial standing, and past perform-
ance of officers and members of clubs could
be consklured. 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.
Ormeral v. Security -First Nal. Bank of l.os
Angeles (1937) 60 P.2d 469, 21 C.A.2d 362.
In on action against trustees to have de-
clared void a purchase made by them, evi-
dence that one of them understood the pro-
priely of the purchase was first to be sub-
mitted to the beneficiary is admissible. Red
Jacket Tribe No. 28 Y. Gibson (1886) l2 P.
127, 70 C. 128.
A California domiciled stale or national
bank hawing a trust department which is
the trustee under an instrument which di-
rects the investment of the corpus in United
Soles government obligations, may not in-
vest such corpus in u mutual fund, the
portfolio of which is limited to shun -term
United States treasury obligations. 67 Ops.
Atly.Cen. 212, 6-23-84.
Where only the interest on the corpus of
(ankh given in trust to the director of edu-
cation is o 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
mull apply the interest as specified by the
tasor. I Ops.Alty.Gen. W.
13. — Prudent Investor standard, In-
vesting property
Prudent investor standard does net apply
where settlor himself aim-cifies trustee is
not limited by what law prorides ore proper
iuveslnumis. Matter of Collins' Ealnte
(1977) 139 Cal.ltptr. 04.1, 72 C.A.3d 663.
§ 2261
Note 7J
then enforced in the Stele of California
pertaining to the investment of trust funds
y corporate trustees" did not authorize
trustees to mnke improper investments in
violation of prudent investor standard. Id.
Different types of investinents are not
authorized for "corpornLe trustees" as dis-
tinguished from amateurs; difference, rath-
er, is tarot corlrornle trustees Pre held to a
grenter standard of cnre lensed on their
presumed expertise. Id.
Defendant trustees fnned to follow "pru-
dent investor" standard with respect to ad-
ministration of testamentary trust of which
pinintiffs were beneficiaries where they in-
vented two thirds of trust principal in a
single investment, Invested in real property
secured only by n second deed of trust, and
made that investment without ndequnte in-
vestigntion of either borrowers or collater-
al. Id.
Investment by nonprofit cemetery cor)w-
ration of nearly 811% of its endowment fund
in note and first deed of trust on one parcel
of reap property cattle] be found to be a
violation of prudent investors rule with re-
spect to investment of trust funds And cem-
etery Award, department of prnfessionnl anti
vocaLionnl standards, was authorized to or-
der Unnt sum lent be reinvested. Mnndel v,
Cemetery Dd., Dept of Professional and
Vocational Stnndnrds WMO) 8 Cnl.Rptr. 342,
185 C.A.2d 583.
Thin Faction broadens list of legal invest-
ments for trustees of endowment care
funds, but also places trustees under ante-
date of prudent investors ode in regard to
all of their financial transactions. Id.
An essential part of prudent investors
rule with respect to investment of trust
funds in the requirement that investments
be diversified. ld.
Under provision Af this section embody-
ing "prudent conn rule" in setting forth
duty of trustee in connection with invest.
ment of trust hods, and under general low
npplicnide to lrustcnK, armee, even witrre
given broad discretionary (rower of invest.
ment, intent exercise it., inddKndent dinere-
linn mill judgment in refercuce It, invest-
ment of trust funds. In re'railrnt's Estate
11956) 290 P.2d 848, 141 C.A.2d 309, 58
A.L.R.2d 65R.
A trustee is neither exlevOrd to bury his Iene(icinry without Advising her of the risk
talents nor to exercise inlnlliitle judgment in to which he was subjecting her funds nor of
investment of foods. hilt he latest exercise his mingling the funds with his Awn indis-
skill and judgment of reasnnably prudent criminately he was Iinble for the. loss result.
business main in preserving "Late And At beg therefrom need his account as special
328
TRUSTS FOR THIRD PERSONS
Div. 3
ale enmv tune make the alntr productive.
Uny v. Pint Trust A So vings Dnnk of Pnso-
dena (1941) 118 P.2d 51, 47 C.A.2d 470.
A trustee must use due enre and skill and
the caution of n prudent man in making
Investments, and, in Absence of provision in
trust or nlntute. Ire cnn mnke those invest-
ments which a prudent man would make in
investing in properly outside of ordinary
busine.,n rink., and with a view to safely of
principal and to securing of an income ren.
sonable in amount and pnyable with regu-
larity. Id. warranted arranted denial of liability of
trustee for deprecintion 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. ill.
The liability of A director of educniton
acting ns official trustee for bequests of
funds to be used for educational purposes is Punks,toPunks, such investmentsas a prudent man
would make of his own properly, having
primarily in view the preservation of the
estate and the regularity Peteramount of
income. I Ops. A tty.Cen. 90.
I.I. Lonning properly
Evidence that the land mor(Rnged to se.
cure n Inns made ley n trustee was and
land, which it wns prnclicnlly impossible to
irrignte, mill that the trustee mnde the loon
upon the statements of one man, whom she
knew, and A written report by three strong -
erg, two of whom were the former owners
of the land who lend conveyed it to a dummy
for Lite purpose of securing the loan there-
on, suslnined the trial court's finding that
the trustee wns negligent In making the
loan, and was therefore board to make
good the loss. hr re Hnmon's Estate 11923)
212 P. 399, 60 C.A. 154.
Where nee agent or trustee in instructed
to "Ivan out" funds held by him, it means
that he in to invest them for his principaret
nevount, And to make in accounting to the
priuripnl of such investment and he In not
nnthorixed to borrow the funds for his own
purposes. In re Armstrong's Estate (1883)
1 Co(. 157, affirmed I6 P. 375, lig C. 296.
Where trustee loaned out the (undo of
OBLIGATIONS OF TRUSTEES
§ 2261
Note 13
Pt4
administrator for the beneficiary should be
Ta[lot's Estate (19511) 2% P.2d 848, 141
charged with the loss sustained. Id.
C.A.2d :109, 58 A.I.R:Ld 668.
Where trustee has a brand power of sale,
15. Possession of properly
right of income beneficiury is simply to
In for declaratory relief with re-
insist that trustee shall exercise its indepen-
action
spect to the scope of joint will by which
into
dent Judgment, mild income beneficiary hue
no legal right to compel retention of any
husband and wife converted property
hull brand plow-
stocks and is not legally hurt by reason of
community properly, court
era and could, prior to distribution, interpret
the trustee's failure to keep certain stocks.
will on question of whether widow upon
id.
distribution, would be entitled as against
Where trustee who owned as trustee all
trustees to possession of any of property
the stock of corporation, which by die sale
involved. Close Y. Leiter 11950) 215 11.2d
of its rcul estate supplied assets for dwtri-
756, 96 C.A.2d 439.
bution to trustee i1, trust, dissolved the cor.
poration, trustee had title to real estate and
16. Preserving prnperty
had lower and duty to carry out purimse of
Executor serves in fiduciary capacity and
trustor by selling lands slid receiving pro -
Stubbs V.
has powers mud obligations similar to Crus-
ceeds from allies into the trust.
Jones 1195:1) 263 P.2d 100, 121 C.A.2d 218.
tee, except that primary duty is to preserve
estate until distribution, rather than Invest
A testamentary trustee, using diligence
funds. In re Slingsby's Estate (1931) 297 P.
and discretion in selling foreign government
931, 112 C.A. 767; In re Urenlarl's Estate
hoods included in bast assets and receiving
(19:11) 297 P. 931, 112 C.A. 766; In re
highest prices obtainable therefor, wool
Smith's Estate (1931) 297 P. 9'27, 112 C.A.
properly allowed creslil on accounting for
680,
loss sustained in sale thereof for less than
their value as fixed by court in settlement
17. Retention of properly
of previous accounts, ill absence of evidence
Usually trust is created to preserve prop-
of negligence in making sale or showing
that life beneficiaries of income, in *latest.
erty, intact and to earn !memo for benefi-
trustee is directed to
ing previous account, sought to charge trus-
ciary. and ordinarily
fes with value of bonds its cosh on land
administer funds in order to substitute mull-
superior judgment of trustee for
owing to estate because of his neglect to
pnsedly
that of benera:iary. Uay v. Pint Trust &
sell bmlds. hl re nothwell's Estate (19441
151 P.2d 2118, 66 C.A.2d W.M. rehearing lie -
Savings Rank of Pasadena (1941) 118 1'.211
nie(] 151 1'.'td 8118, W5 C.A.2d 5198.
51, 47 C.A.2d 470.
honest trustee Is not liable to make
Assessmrnl of damages against trustee
An
for nogliglsare in failing to sell trust really
glad the Mss sustained by retaining an
security in u falling market, if he
as directed by trust instrument, thereby
income,
ulhorired
nll so hmmxtly mod truthfully, in the belie(
depriving life beneficiaries of
not Le resorle(] to, by them when
that it was Lest course to lake ill interest of
shuldd
mother upprgsriale rc1,ledy, such as appnr-
all p:u4ics. I(].
lionnnelst of proceeds al subsequent sale
thereof beLwe'Ln principal and income, is
1a. Selling property
available. Id.
Where trustee hall broad plower of sale
In actiabb against trustee for accollallllg
LII(, instead of exercising Inlle'lminde'llt lung'
to of Cmminnll stocks, retied on
Yelper Contract audwrlxing trustee to mall-
mepnl as sale
one beneficiary's unfulfilled assurance mill
,age mod sell parcels u( realty on such lenua
hie
latter wait[(] secure from other beneficiaries
and at such lime's as trustee, within
discretion, should deterniaw. ev Weilce did
written consents to the lode, and trustee
sold stocks which thereafter doubled in vol-
not nhnw that lnmLLe, in re(uai1,g atter to
subsequeully
lie, trustee was flable for reduction in value
I purchase properly at price
shown la be ide, did not exercise :m
of objecting beneficiary's share of corpus,
ens, anal his estate was, lhrre-
holiest judgment,:
i.e., reduction consisting of capital gains
fore, not liable for damages for such refus-
taxes .11,11 expense of stock sales and bond
al. Neel v. Barnard 119141 150 V2d 177, 24
purclesxes, and far interest ml umnuul of
C.2,1 41111.
such reduction, but trustee was not liable
for appreciation in value of stocks after sale
In action against trustee by beneficiaries
or for puss of ineoule on stocks. In re
of trust for accounting and for dauulges,
329
§ 2261
Note 18
finding that trustee hall no opportunity to
sell property involved at such prices as
would have liquidated plaintiffsindebted-
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 properly hal not elapsed. Id.
Even if offer was made. to trustee for
purchase of realty which trustee held for
sale for benefit of beneficiaries of trust, it
would be presumed that trustee exercised
his judgment upoo it and deemed price of-
fered Lou low, and court could lint any 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 late is forbidden in specific
words by terms of trust or it appears from
terms of trust timt properly was to be
retained in specie lin trust. Church v.
Church 119101 10.5 P.24 640, 40 C.A.2d 696.
Where father of minor children look out
shares of stock in a family enrporation in
his name Is trustee for children, and the
father had never executed any document in
writing or declaration of trust restricting
his power, u 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 dint not appear that any re-
striction on power of %ale was contained in
cerlifirntes, it could not he %nid as matter of
law (fiat the father did not hove the right,
as trustee, to transfer shares whenever, in
exercise of his discretimp, it appeared to him
proper or necessary to do so. Id.
Where money is bequeathed to a lruntee
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 centui que trust to order the
trustee to sell the land subject to confirms -
tion by the court, nor nn application by an
intervener in such a suit to confirm all
alleged contract of sale to him by the trus-
tee, and to direct the execution of convey-
ance. Murphy v. Union Trust Co. of San
Francisco (1907) P9 P. 988, 5 C.A. 146.
TRUSTS FOR THIRD PERSONS
Div. 3
in value of storks in the account. Weiner v.
Mullaney 11942) 140 P.2d 704, 69 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 nn inquiry would have dischsed. Id.
Where lruntee failed to make full disclo-
sure of facts surrounding use of benefi-
ciary's share, in stock transactions contrary
to instructinns, 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'$
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
bull,]% on speculation and the fluctuations In
market value after purchnne 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 remnbndermen for
funds from the trust estate invented in In-
come-benring properly. In re Cartenloub's
Eslnte (1921) 198 P. 209, l86 C. 648. 16
A.L.R. 521).
20. Surrendering property
Evidence was sufficient to supl,ort find -
Ing as to market value of bonds in action by
beneficiary against trustee for value of
bunds deposited with trustee which trustee
without authority surrendered to boa dhold-
era' prolective committee. Martin T. Bank
of America Trust k Snvings Asan (19361 41
P.2d 21)11, 4 C.A.2d 431.
21. Value of use and occupntlon by (run -
ter
A purchaser of land with notice of the
filets entilling :mother to tile. delivery to
him or a decd previously made out in his
favor, who obtains posse%,ion by force from
the cestui title !runt, must account. to him
19. Speculating with properly for tine value of the use Ind occupation. and
A beneficiary who learned that trustee the cestui sue hunt must pay the purdase
lint] dt,nheyed instructions not to sprculnle price into court for (lie benefit of (lie trus-
in stocks won required to net within a ren- lee. adding interest from the dale of the
suitable time thereafter still could nut wail lender of the price, unless lin chooses to
mail hold trustee for subsequent decreases regard the interest all liquidating the value
330
OBLIGATIONS OF TRUSTEES
Pt. 4
of the use. Cannon v. Handley (1887) 13 P.
315, 72 C. 133.
22. Record of trust funds
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 Y. State Bar of California (194 1) 117
P.2d 327, 18 C.2d 667.
23. Court orders for deviation from trust
Equity court order to sell really, contrary
to terms of express testamentary trust, and
reinvest proceeds, was unauthorised, in ub-
eence of present market value thereof mid
abowing of character or security of proper-
ly in which he proposed to reinvest pro-
ceeds. Security -First Nat. Bonk Y. Easter
(19341 21) P.2d 422, 136 C.A. 1191.
24. Liability of trustee
If money Imid for trust is lost or de-
stroyed without fault of trustee -payee, lrua-
lee-payee is not liable therefor and loss is
borne by payor, trustor -beneficiary. Peth-
erbridge v. Prudential Say. & Loan Ass'n
(1978) 145 Cal.Rptr. 87, 79 C.A.3d 509.
Defendant trustees were subject to being
surcharged for imprudent investment of
monies from testamentary trust in which
plaintiffs were beneficiaries, not because
they lacked prescience of what well ( hup-
peu, but because they both lacked and ig-
nored information about what was happen-
ing at time. Muller of Collins' Estate
(1977) 139 Call.Rplr. 644, 72 C.A.3d 663.
Trustee who negligently breaches his
trust by failing to invest income within rea-
sonable time is liable pursuant to statute
for simple iulerest at rale of TA per amaan.
Lynch v. John M. Redfield Foundation
(11170) 88 Cal.Rptr. 86, 9 C.A.3d 293, 51
A.L.R.3d 1284.
One who engages services of trustee, cor-
porate or otherwise, contracts for exercise
of trustee's best judgment and for perform-
ance of duties outlined in this section; olid
he has no right to receive any more than
that and no right to complain if those ser-
vices are rendered in good faith and with
reasonable prudence, discretion and intelli- Where will created trust of specific lega-
gence. In re Rissinger's Estate (19113) 28 cy. with amount thereof and accumulations
Cal.Rptr. 217, 213 C.A.2d 9:11. to be paid to beneficiary when she reached
Generally, lruslee'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. more oversight or forgetfulness, is himself as trustee or to invest same as
breach of trust, and trustee may be charged required by this meclion, and estate was not
so.r Cal Cas. -12 331
§ 2261
Note 25
wills rents, profits and income which he
never received, but might and should have
received by exercise of due and reasonable
care and diligence. While v. Citizens Not.
Trust & Savings Bask of Los Angeles
(t941) 116 P.21 117, 46 C.A.2d 418.
The nominal title holder of realty, incum-
bered by a trust deed, who upon taking title
to really assumed obligations of trustee for
benefit of obligees whose claims were se-
cured by trust deed, differed from a mort.
gagor in possessko and was liable for all
rents and profits received while in posaes-
siun of the really even prior to sale thereof
under power of mule contained in trust deed.
Buumuun v. Harrison (1941) 115 P.2d 630,
46 C.A.2d 84.
25. Interest charges against lruslee
Failure of directors of charitable, non-
profit corporation to invest dividend income
deposited in corporation's checking account
over five-year period was breach of their
duty to invest funds us would a reasonable
muss so that funds would be productive of
income and were liable for interest on small
lost in consequence of such failure, notwith-
standing facts that bank had refused to
honor drafts drawn on corporation's ac-
count due to dispute among directors, that
directors served without compensation,
that, during period of inaction, corpus
gained apgraxinunlely 10076 in value, and
that costly lawsuit would he necessary to
Settle directors' dispute unit remove "bluck-
ing" from bunk account. Lynch v. John M.
Redfield Foundation 119701 88 Cal.Rptr. 86,
9 C.A.3d 293, 51 A.L.R.3d 1284.
In action by beneficiary under two ex-
press trusts for an accounting by Use re-
spective lrmxles, where trustees had
waived delinquent interest on notes shoe the
trust, had not collected note from deceased
maker, unit had made loans which were
disapproved by the court, trial court's
charge of 6'F. interest on amount thus sur-
charged, except for the unauthorized loin
concerning which current savings bank in-
terest rales compounded semiannually were
charged, did not constitute an abuse of dis.
cretion. Douglas v. Westfull (1952) 248
P.2d 68. 113 C.A.2d 107.
§ 2261
Note 25
distributer) 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 (1962) 244 JON
697, Ill C.A.2d 464.
Where will created trust of specific lega-
cy, with amount thereof with accumulations
to be paid to beneficiary when she reached
age of 26, duties of trustee who wen nine
executor commenced "Iron death of tesla•
tor, and failure of executor to transfer fund
to himself an tnrslce could not almolve him
of hin dulira and responsibilities an trustee
including dnt-v to invest, and could not limit
liability for interest to 4 per cent rate appll-
cable to executors. Id.
26. Mortgages
Equity will sanction an investment se-
cured by a second mortgage Int a rare case
but only when security is adequate and
unusual circumstances justify trustee In
TRUSTS FOR THIRD PERSONS
Div. 7
making such an investment. Matter of Col.
lins' Eslnte (1977) 189 Cal.Rplr. 644, 72
C.A.3d 667.
In buying a mortgage for trust invest-
ment, trustee should give careful attention
to valuation of properly 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 iu properly and changes in
price levels and must Investigate status of
prtgwrty and of mortgage as well as Pimm.
coni siltation of mortgagor. Id.
Pmvtdon of testamentary trust that "all
discretions conferred upon the trustee shall
be absolute" did not authorize the trustees
to invest in a junior enwmbrance without
ability to protect against the foreclosure of
a senior lien or to refrain from making a
holiness like investigation of the credit
worth of the borrower or insisting on an
appraisal or the security given by the bar.
rower. Id.
§ 2262. Interest on failure to invest
INTEREST. SIMPLE OR COMPOI11,111. ON 06II.451(IN TO INVEST TRUST ItIONF.YS. If a
trustee oinits 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 C -ode Forms, Civil.
Library References
Probate Court Practice, Goddard.
H 1590, 1827.
Nolen of Ilecidnna
In general i
Circumstances of the case 7
Compound Interest 9
Construction with "liner laws 2
Duration of investment inncil•Ily 6
Duration of liability for Interest 6
Good faith 4
Fruitless investments 7
Role of Interest 8
Liability of trustee's eslnte 10
3:32
1. In general
Main elmrocler6tics of trust relationship
are that payor retains beneficial Interest in
money paid, truster. payee may not use
money for own purposes, in absence of
agreement to contrary, trustee keels men.
ev separate fmmn his own funds, trustee has
duly to invest money and make it praduc.
tive anti is entitled la reimbursement for nil
exim."nes properly incurred in performance
If trust, and if money pnid is lost without
CIVIL CODE
Lan Revision Commission Comment
1986 Repeal
Forever Section 2233 h superseded by Probate Cork
Sailmns 11642(6) (grounds for crmmal of trmtvs. 16002
(duly N ICYe11Y), end 16004 (duty to avoid conflict at
Intense). lis Cal.LR.v.Comm. Reports 501 (1916)1.
Forma Section 2234 Is superseded by Probate Code
Section 16400 (violation of duty Is breach of Iw). The
Babillty for brach is /oremd by statute. Sec Prob.Code
ll 16440 (measure of liability fee breech of Iluat). 16441
(measure of liability for Interests). IIS Cal.L.Rev.Comm
Reports 501. 1790 (1916)1.
Former Section 2235 k superseded by Probate Code
Section 16102 (duty of totally) and 16001 (duty to avoid
captain of interest). ill CALRrv.Comm. Reports S0l
(1916)1.
Forma Section 2236 is superseded by Probate Code
Sections 16009 (duty to keep Intel propen9 xpseate) and
16440 (measure of liability for breach of trust). Sm also
Prob.Code t 16420(.)(1) (redress of breach by payment of
moory). Ill C.I.L.R.e.C'arnm. Reports 501 (1916)1.
Former Sarson 2237 it superseded by Probate Cods
Satlom 16140(.) (..sure of liability for breach of trust)
and 16441 (measure of labi0ty for aterat). See also
Prob.Code 116420(.x3) Iredren of breach by payment of
morel) [it C.I.L.Rev.Comm. Reports 501 (1986)1.
Subdivision (a) of former Section 2231 is superseded by
Probate Code Section 16440 (measure of liability fon breach
of tsml). Subdivision (b) is related in Probate Code
Section 16462(.) (nonliability for following inon,& ant an -
der nameable trust) without substantive change. Sec aim
Prob.Cade t 16410(a)(3) (redress of breech by payment of
money). ill CaLLRev.Comm. Reports 501 (1916)1.
Forma Section 2239 is entered in Probate Code Section
16401 (trustee's liability an beneRehp for acts of Colman)
With several changes. See the Cornmenl to Ptob.Codr
11640L [It CaLLRev.Comm. Reports 501 (1956)].
Pens of former Section 2240 are superseded by Probate
Code Sections 15620 (actions by colmstea) and 16200
(powers subject to limitations in trust). The sulhorily m
make deposits is continued in Probate Code Section 16139
(power to deposit securities in depository) without substan.
live change. Ill CGI.LRev.Comen. Reports 501 (1986)).
Former Section 2241 is superseded by Probate Code
Sa11on IS 100 (prolalion of third person dealing with trust.
n). See also Prob.Code 5 15003 reconstructive ad resetting
trusts unalfected). ire Cd.LRev.Comm. Reports 501
(1986) ].
Former Section 2244 is superseded by Probale Code
Section 18101 (application of property delivered to Instn
by third person). (18 C.I.L.Rev.Comm. Reports 501
(1916)1.
Former S=itars 2250 is superseded by Probate Code
Section 52 ("trust" defend). The provision relating to the
voting of title In the trustee is nor continued. See the
Comment to former Section 163. its C.I.L.Res.Comm.
Reports 501 (1986)1.
Former Section 2251 is superseded by Probate Code
Sections 15200-13207 (creation Of Irm), 15600 (an.ptaace
of treat by trust=). and 16420(a)(1) (beneficiary may com-
pel Iruatca to perform duties). ill C.I.LRev.Comm. Re.
Pons 501 (1966)1.
Former Section 2252 is entitled or unmcakery. III
CeLLRev.Comm. Repons 501 (1916)).
Former Section 2151 is superseded generally by Probate
Code Sections 15200 (method. of creating trust). 15201
(Intention to crate treat), and 16000 (duly to addnister
trw). ill Cd L.Rev.Comm. Report. 501 (1986)).
Addltlone or changes Indicated by
¢§ 2228 to 2290.9
Repealed
Forma Socelon 2154, which staked a special sppllatlon of
the Perot evldeam rule. harmed because Ibis question he
governed by Ike 6m1e1 Perot evldwme role. he Cade
Civ.Proc. t 1536, an also Prob.Cde 1 13207 (proof of
terms of reel truss of personal property). (It Cal.L.Rev.
Comm. Rep" 501 (1966)1.
The pan of iubdivision (a) of former Section 2255 relatkt
to control of the lrwln i duties by the trust Instrument Is
restated in Probate Code Section 16000 (duty to administer
trust according to trust instrument) without substantive
change. but the characterization of the duty of the truss n a
Chat of an employee is omitted The pan of subdivklon (a)
relating m modifieation h superseded by Probate Cade
Section 15404 (mdl0atiao by senior and IN beneadada).
The Mt santena of subdivision (b) Is Continued In
Probate Code Section 16001 (duty of irestn of revocable
Ntsl) without substantive change. The second untrnee k
restated In Probate Code Section 16462 (muslabONF for
following instructions under revocable army without sub.
stmilve choose. The refererree to • person having •rated
CC contingent Interest is the trust Is replaced by the tefer.
wee in Probate Code Section 16462 Io the benefic;ary. Sea
Prob.Code t 24 ("benelkkry" defined). The last pan of
the around sentence relating to fiduciary obligations of the
directing party is onilted u Connote". See dso Fruit.
Code t 10 (singular Include plural). jig Cal.L.Rev.Comrn.
Reports 501 (1916)1.
The part of farmer Section I259 relating to the effect of
compematkn on the standard of care is ranted in Probate
Code Section 16041 without substantive change. The "orell.
nary care and dilitern:e" standard or former Section 2239 k
superseded by Probate Code Seniors 16010 (Imatces Nan.
dared of are in odminimeriag irtst). (IS Ca1.LRev.Comm.
Reports 501 (1916)1.
Former Section 2260 is superuded by Probate Code
Sections 15641 (liability of scattering Irmtee). 15660 (sp-
poinammt of In stn to nil vacancy). 16000 (duty to admin -
later tmsy. and 17200(6)(10) (petition ear appointment of
bust"). Ill Cal.L.Rev.Comm. Reports 501 (1986)1.
The standard Of are governing Investments and manage.
mew of latest property provided by subdivision (a)(i) of
former S"Chne 2261 is related in Probate Code Section
16040(b) without mb leadve change. The authority to
acquire "every kind of propend' Is entered 1n Probate Code
Sections 16221 (power to Invest) and 16226 (power to
=quire property). See also Prob.Code 11 62 ("propnly"
defined). 16209 (general powers of trustee include powers of
prudent person). Subdivision (a)(2) of former Section 2261
Is rotald in Probate Code Section 16040(4) without Was -
standee change. See also Pro6.Codr t 16000 (general
duties of Iruslee subject to control by truest Instroormt).
The standard of cue provided in the last half of The that
sentence of subdivision (b) a Superseded by Probate Code
Sections 16040 (Imuce s standard of ate in administering
trust) and 16200 (maclse of powers subject to limitations In
Intal). See dso Ptah Code t 16220 (power to collect and
hold property). The authority to retain property in Intel at
its Inception or later sequird pursuant to proper authority
is ratatd In Section 1600t(b) as an ea.eptlan so the {meal
duly to dlepeve of improper Investments. The second an-
lence of suodidslon (b) k lope..dd by Probate Code
Section 16220 (power to hold properly to Which trustee h
Interested). Star dm Prob.Code t 62 ("property" defined).
Subdivision (e) Is superseded by Probate Code Sections
16200 (Cureless of powers subject to limitations In true) and
16225 (power to make deposits). See elm Pmb.Code
t 16201 (power of coon to relieve trustee from restrictions).
underline; deletions by asterisks
7
EXHIBIT B
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.
1
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 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.
F1
EXHIBIT B
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 %.
Kcal 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.
1
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 LAIR But in times
of low interest rates, LAIF yields are higher.
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 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 emit 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.
E
Repurchase Agreements
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 94-P7
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 5th day of JULY, 1994.
J .
CHAIRMAN
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 5th day of JULY, 1994 by the following vote of Directors:
AYES: BOARD DIRECTORS: HARDISON, MADRID, NARANJO, BEEBE
NOES: BOARD DIRECTORS: ALEXANDER
ABSENT: BOARD DIRECTORS: NONE
OTHECITY lk7. OF AZCISA sk
Finance Dept * 213 E Foothill Blvd * Box 1395 * Azusa 91702-1395
(818) 334-5125
AGENDA ITEM
TO: CHAIRMAN AND DIRECTORS OF THE AZUSA PUBLIC
FINANCING AUTHORITY
FROM: ROBERT E. TALLEY, AUTHORITY TRE
VIA: EXECUTIVE DIRECTOR,
1,4
DATE: FEBRUARY 6, 1991
SUBJECT: AZUSA PUBLIC FINANCING AUTHORITY INVESTMENT POLICY
Background
California State law requires each City Authority to adopt a
formal investment policy. Transmitted herewith is the Investment
Policy for your review.
Findings
The policy seeks to maximize the safety and yield of the
investments while maintaining sufficient liquidity to meet cash
flow needs.
The policy is identical to that adopted by the City of Azusa.
Recommendation
It is recommended that the Executive Board adopt the attached
Investment Policy.
GJC:pap
RESOLUTION NO.
RESOLUTION OF THE EXECUTIVE BOARD OF THE AZUSA PUBLIC
FINANCING AUTHORITY ADOPTING ITS INVESTMENT POLICY
WHEREAS the Azusa Public Financing Authority 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 APFA; and
WHEREAS the balance of these funds fluctuates between
$3,000,000 and $10,000,000 or more; and
WHEREAS the APFA Treasurer is charged with the respon-
sibility 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 Executive Board
of the Azusa Public Financing Authority does hereby approve its
Investment Policy attached hereto as Exhibit A and instructs 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 day of 1991.
I HEREBY CERTIFY that the foregoing resolution was duly
adopted by the Azusa Public Financing Authority at a regular
meeting thereof on the day of 1991 by the following
vote of the Board:
AYES: BOARD DIRECTORS:
NOES: BOARD DIRECTORS:
ABSENT: BOARD DIRECTORS:
CITY CLERK
X.
CITY OF AZUSA
AZUSA PUBLIC FINANCING AUTHORITY
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 Azusa Public
Financing Authority ("APFA") 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 first 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
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
1
2.
(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 APFA's
securities mature
requirements for
thereby avoiding
securities on the
portfolio so that
to meet APFA's cash
ongoing operations,
the need to sell
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.
Liquidity
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 secon-
dary 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 specu-
lating on the future direction of interest rates.
Specifically, "when" and "if issued" trading and
open-ended portfolio restructuring transactions
are prohibited.
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 antici-
pated 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 banking services. This policy also applies to
the idle or surplus funds of other entities for which
the Azusa Public Financing Authority personnel provide
financial management services.
II INVESTMENTS
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 invest-
ments under the Prudent Man Rule - l/ (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 allow-
able under current legislation of the State of
California (Government Code Section 53600, et. seq).
(See Exhibit B for definition of investments.)
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 ......"
B.
C.
* 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 APFA's investments
shall not exceed One Hundred Thousand
Dollars ($100,000.00) per institution. If the
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.
4
D.
EE
F
G.
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 confir-
mation that the transfer is authorized.
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 the Azusa
Public Financing Authority 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.
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
are held
department
C) securities
are held by
department
that are uninsured and unregistered and
by the broker's or dealer's trust
or agent in the unit's name;
that are uninsured and unregistered and
the broker or dealer, or by its trust
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
M=P
APFA shall contract with a bank or banks for the safe-
keeping 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.
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 APFA'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. SecuritV 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 tele-
phoned 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 APFA's annual independent audit.
IV. STRUCTURE AND RESPONSIBILITY
This section of the Policy defines the overall structure of
the investment management program.
N
V.
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.
The Executive Director is responsible for keeping the
Executive Board fully advised as to the financial
condition of APFA.
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
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 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.
7
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 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 Azusa Public Financing Authority on the
day of , 1991.
invpolcy.apf
8
ZX1!:a:T A '
PRUDENT :;AY RULE
`,,%,_ ;i =� — ---•--: ... .._ . .. CIVIL COD'..
c.
,t Y :.:: 2:5 rD.aitnent of tlmdsj , ' •'`..
In Lavesdng, reinvesting, purcLasmg, acquiring, exchanging, seIling
canaginy grope ty for the benr_t of another, a truster shall
+2 ` exe:-; ser the judgment and care. tLrder *.I,- rrcntnsunces then prevail-
ing. which mea of prudence, discration rad intel!lgene.: exercise in the
:� �• • =-2-agement of their own affairs, not regard to speauiatioa, but in :
regard to the peranent dispositiea of :heir funds, conside.�ir; the
probable Lncome, as Weil as the probable safety of theta capital.
o : With:= the limita;icns of the feregcir; s-..andard, and subject to any
exrrtsz provisions or limitaticrs is any particular truce
ins: --m-, a mute-_ isau:.`.o:,c-a :c icc_i:e every lend of propenf,
r='. personal,y or mire_', and eve -^ k:: d of investment, sP=Acxlly
incld:n;, but not by way of limiaticn, : ,rporate obligations of every
kind and stocks, Frdcwa or .-cr-�. which then of prudett�,
disc:e:L^
ioa and .te1119enCt ac.;uire ; : chrs ora s=unL
M1 :. (2) In the absence of expres.1 p:evisicas to the contrary in the tr=
ins.,—,men., t=,,ee may continue to hold property r=ived into A
tr st at its incr;tien or rut seque�..tly adder to it or acquired pursuant
to prcce: authority if and as icn: as t»e truster» in the exe:rse of
`good faith and of rtssonable pr d^ -c : discretion and intellibena,
may c .^.cider that re
t=,4cn is in oue' st interests of the trust Such
propdry may include stock in the tris: if a corporation, and stock
to any corporation een=lli-.& eo:,:::ilea by, or under common
"•:i cont cl with such t.^tsta
c::,;.., •. I (3) In the abwta e! express p crsic�s to the contnty in the trot
ire:r •e^.� a dexsus
it of trt fu .dS :t interest in any bank Cmcludin3
the stet, if a bask) shall be aq_a '_'ed investment to the extent
th.•t such deposit is insured under arty prtsatt or future law of the
L'ni ed States or zo such ;rtes ez:ent as a court of eampeteat
- �ttris.:i: on may autherize. Not',` 3 in t`is SO== shall be constrd
as L--iang the right of tr strs in Yrcper casa to snake demits of
trocar =neys in barks. subject., L: -he east of intens%-bcxriny depcsin.
to such notice or other condltic: s..=pin; withdrawal as may tx
presanted by Law or Love-nmenal : egulation affectin; such depostts-
(4) Nothing in this sec: -ion shall ab c;ate or restrict the power of the
apprcpriata cour. in proper cases to dir=t or permit the trustee to
BESUMT OF THIRZ 'E.iS.:hS S S:S3
d:date f:oma :l : terms Cf the 1611*, regarding Lie making or ret=ties
or �nves,-Cztz.
provisions ol'ti s section sh"I apply to AU trusts now existing
or hereafter crested. K13ere, in trusts now existing or hereafter
the tern "investments per-?ss;31e by law for investment of
funds," or "Authorzed by law for investment of trust funds,"
"1eb41 i.^,vatme—ts•" or "authorized invest-en•.s," or other words of
r • Si...:.ar ^port sire used in dcFning the po :errs of the trustee relative
to investments - such language, in the absW.-- of Other controlling or
"modif}ink p;o.isions of the trust instrume:lt, sE&U be t orstrued As
autherizin;. any investment permitted by t`e te-=s of aubdivisioa (1)
of : iS $=110= •+.-r—
(6) The ter^"preYerty" as used is this se tion includes life insus-
ancc, erdc MV—, and annuity contractsits ed by legal reserve
ec.^..panics autLe:iz:d to do business in this stats,
Lnac1 d 1172; Amended Sau 1717 LS 111 1 1 9:(+^'. S rs '941, 115 631; 1 p::St, e� 17%
( 1 : 4:65, Sus 1961 eb 161 } 1 > 345, Suu 1969 Lb :19 13 p 61L
Prior ism. Field•& D*LA %N CC 111".
_ Ate+n lalaelr , ..
19+3 A cAdmttc mer to 1943 t%t &W%iae res": 'A tri=er v11ra (avec Mt•y
tw-cl ed b) btm under t!a tvsL u fa11 ere be mlrs s *,.Stmt ae ou,,t, s ttata
Janne is to af-d rtau:�nAb1t wurtry end iA,ren rar ;Dl 6UsAt-
1913 Ancdmt-1 LB, 64d Ly Latt,Go to ttad u At NCC.=% tsczp ler tbt fo:oW*
1967 Amendneee (1) Added L1fr sac--nd witexx ce tQbd (:} (2) dllad-aviuts
L-ank of t.4e savints dtwun=l d Ly)r Leter ^: ;r. es: _ Loy- ia wbd C3k Aad
til dueled •`•bt Yr'ln tt de}a.I=eft aC• Lrta "� � i rubel O}
1954 Amtnimtat: Added rubel (0
1169 AmvA.-nttu kd:w1 LM tleei y AAy c0r>cnt;ee a Lro 1i.,t• convVi•,td yr.
a undo cacxrnon eootrot *ttb such trues*' At L.t ex d Sabel Qj
Cnct RtfaeraC
UMIly at 1fe." i6 'm� laid 6sa9 d this• C 1 6.11
Inv tmml of trvu funds r2 wed kry vva acmpaay: Fa C i 1`.61.
.^,txvt of trust erenpany funds sa77Stet ievtatrnrat of d s:nbutioe: Fin C 1 1x2
xtJntralua d p^4 %CM i UVAI i• aux ti sec.,, X d vest eCmpu>r_ 7s C
y 15"
Common trust *melt Fra C {
Shsra ce sarinos ud Sias eftanution s Ictal in".ur.Cy Fm C j wt.
laveumest cars. tra ima d br tannp Lad Soda ni—auoas u kj Al ii-esunsp -
Fts C 14907. .
Fl :tial u,atri Lad Stas bcwc*A ;eft: Fy C of 11'=7.
NetkMAJ morttett hlo toe OW11succa. Fac C i1 := et wl4
Fars ioess >nms• Ger C 1646¢
Tension crest !odds- Cw C 15121 a1 l
Invntrrat of tea+anWd ketsiea rex,++ d Lik ixatr. Lis C; 1:333.
Mortrrlr POTI c action eriuiuees And ucu.•tjies tuaranet
td by teortttlt poGost a
Sohl u.ntmclts lot Writ rwf4l: las C 1 125=
Cantaute etd U3AJcn of Nun Of terse Wa Fain Le16 ►y dduearia: t}Ct:
1 6aQ.
Lubinhrnent Jeemsros trvm %y twoan_xvt Of Mta:al Heaps. W d 1 C 17"
Mun,upal *6191 destna bond+. 116•61 tlneod Aa M7.
EXHIBIT B
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. APFA invests only in those allow-
able securities under the State of California statutes
(Government Code Section 53601), et sea).
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's advantage to waive this
collateral requirement for the first $100,000 because APFA may
receive a higher interest rate. If funds are to be collater-
alized, 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.
3
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. APFA 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.
071
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.
3
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 APFA 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
APFA 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.
E
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