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Home My WebLink AboutOCSD 98-40 (REPEALED)RESOLUTION NO. OCSD 98-40 AUTHORIZING THE DISTRICTS TREASURER TO INVEST ·AND/OR REINVEST DISTRICTS FUNDS. AND ADOPTING DISTRICTS INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICTS TREASURER TO INVEST AND/OR REINVEST DISTRICTS FUNDS, AND ADOPTING DISTRICTS INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS *************** WHEREAS, on September 24, 1997, the Board of Directors adopted Resolution No. 97-32, readopting the District's Investment Policy Statement, and establishing specific performance benchmarks and objectives, together with a schedule of frequency of investment performance reports; and, WHEREAS, pursuant to California Government Code Section 53607, the Board of Directors may delegate authority to invest and/or reinvest Districf s funds to the Treasurer for a one-year period; and, WHEREAS, pursuant to California Government Code Section 53646, the District is required to review its Investment Policy annually and readopt its Policy at a public meeting, which Policy will establish specific performance benchmarks and objectives, and specific monitoring and reports. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That the authority of the Board of Directors to invest or reinvest District's surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the funds and investments of the Districts with depositories, as provided for in California Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for a one-year period commencing on the date this Resolution is adopted, as authorized by California Government Code Section 53607. REPEALED BY OCSD 99-14 ·' Section 2: That the Board of Directors hereby adopt the Investment Policy Statement of the Orange County Sanitation District, as set forth in Exhibit "A," attached hereto and incorporated herein by reference. Section 3: That the Board of Directors hereby adopt the following specific performance benchmarks for their two investment funds in accordance with Section 14.0 of the District's Investment Policy: LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to the three month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The Callan Active Cash Flow Income Style Group represents a peer group of managers who operate with a maximum maturity of one year. LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to the Callan Defensive Fixed Income Style Group. Section 4: That the Board of Directors hereby adopt a performance monitoring and reporting schedule, as required by Section 15.0 of the District's Investment Policy, which schedule is attached hereto as Exhibit "B," and incorporated herein by reference. PASSED AND ADOPTED at regular meeting held July 29, 1998. ~~~ Chair ~ ATTEST: ~~ H:\WP .DTA\AOMIN\BS\RESOLUTIONS\1998\0CS098-40.DOC I I I I I I I I I I I I I I llYESTMEllT POLICY STATEMENT Fiscal Year 1998-99 Orange County Sanitation District, California • • ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT Reviewed and Approved by Finance, Administration and Human Resources Committee on July 15, 1998 Adopted by Board of Directors on July 29, 1998 • @ 00 MUNICIPAL TREASURERS' ASSOCIATION UNITED STATE.$ & CANADA December 10, 1996 Gary G. Streed Director of Finance /Treasurer County Sanitation Districts of Orange County, California P.O. Box 8127 Fountain Valley, CA 92728-8127 Dear Mr. Streed: The Municipal Treasurers' Association is pleased to present the County Sanitation Districts of Orange County, California with the Association's Investment Policy Certification. Members of the Association's Investment Policy Certification Committee congratulate the County Sanitation Districts of Orange County, California for its success in developing a comprehensive written investment policy which meets the criteria set forth by the Association's Investment Policy Certification Program. Our review of your investment policy is limited to the doc:.une!ltation submitted. The Certification is not a guarantee against loss due tu economic and market conditions or human behavior. The Association's Investment Policy Certification Committee Chairman, Rod Rich, will be presenting the Investment Policy Certification plaque to all recipients at the Association's 1997 Annual Conference in Sacramento, California. The County Sanitation Districts will be recognized during the Awards Luncheon on Wednesday, August 20. We hope that you will be able to attend this luncheon, however, if your schedule does not permit you to attend, please call me at (202) 833-1017. The County Sanitation Districts of Orange County, California is to be commended for enhancing its fiscal responsibility in the management of fiscal funds. Sincerely, ·~ ~'f.lrr~ 1229 Nineteenth Street. N. W_ Washington, DC 20036 PHONE 202-833-1017 FAX 202-833-0375 TABLE OF CONTENTS • l Section 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 Appendix A. B. C. D. TABLE OF CONTENTS Topic ~ Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Scope ........................................ 1 Standard of Prudence . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Ethics and Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . 4 Authorized Financial Dealers and Institutions . . . . . . . . . 4 Authorized and Suitable Investments . . . . . . . . . . . . . . . . 5 Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Safekeeping and Custody . . . . . . . . . . . . . . . . . . . . . . . . 9 Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Maximum Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Internal Controls ................................ 11 Performance Objectives and Benchmarks . . . . . . . . . . . . 11 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Investment Policy Adoption and Revision . . . . . . . . . . . . 13 Summary of Investment Authorization Board Resolution No. OCSD-98-XX, Authorizing the District's Treasurer to Invest and/or Reinvest District Funds, and Adopting Investment Policy and Performance Benchmarks Sections of the California Government Code Pertinent to Investing Public Funds Glossary of Investment Terms INVESTMENT POLICY STATEMENT I p ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT 1.0 Policy: It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. 1.1. This Investment Policy is set forth by OCSD for the following purposes: 1.1.1. To establish a clear understanding for the Board of Directors, OCSD management, responsible employees and third parties of the objectives, policies and guidelines for the investment of the OCSD's idle and surplus funds. 1.1.2. To offer guidance to investment staff and any external investment advisors on the investment of OCSD funds (see Appendix "A"). 1.1.3. To establish a basis for evaluating investment results. 1.2. OCSD establishes investment policies which meet its current investment goals. OCSD shall review this policy annually, and may change its policies as its investment objectives change. 2.0 Scope: This Investment Policy applies to all financial assets of OCSD, except for the funds of the Deferred Compensation Plan, which are managed externally; proceeds of OCSD's capital projects financing program, which are invested in accordance with provisions of their specific bond indentures; and such funds excluded by law or other Board-approved covenant or agreement. These funds are accounted for by OCSD as represented in OCSD's Comprehensive Annual Financial Report and include: • • • • • • • General Fund Special Reserve Funds Debt Service Funds (unless prohibited by bond indentures) Capital Project Funds Enterprise Funds Internal Service Funds Trust and Agency Funds Any new Fund established by the Board of Directors (unless exempted by the Board) Page 1 of 13 l p 3.0 Standard of Prudence: 3.1 The standard of prudence to be used by OCSD internal staff shall be the "prudent investor" standard defined -below in Section 3.1.1, and shall be applied in the context of managing an overall portfolio. Investment staff acting in accordance with written procedures and the investment policy and exercising due 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. 3.1.1 The Prudent Investor Standard: Investments shall be made with judgment and care-under circumstances then prevailing- which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. 4.0 Investment Objectives: The primary objectives, in priority order, of OCSD's investment activities shall be: 4.1 Safety: The safety and preservation of principal is the foremost objective of the investment program of OCSD. Investments shall be selected in a manner that seeks to ensure the preservation of capital in OCSD's overall portfolio. This will be accomplished through a program of diversification, more fully described in Section 11.0, and maturity limitations, more fully described in Section 12.0, in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 4.2 Liquidity: The investment program will be administered in a manner that will ensure that sufficient funds are available for OCSD to meet its reasonably anticipated operating expenditure needs. 4.3 Return on Investments: The OCSD investment portfolio will be structured and managed with the objective of achieving a rate of return throughout budgetary and economic cycles, commensurate with legal, safety, and liquidity considerations. Page 2of13 l • 5.0 pelegation of Authority: 5.1 Authority to manage OCSD's investment program is derived from the California Government Code Sections 53600 et seq. and Sections 53635 et seq. The Board of Directors hereby delegates management responsibility for the OCSD investment program to it's Director of Finance I Treasurer, who shall establish written procedures for the operation of the investment program, consistent with this Policy. The Financial Manager/Assistant Treasurer shall be responsible for day-to-day administration, monitoring, and the development of written administrative procedures for the operation of the investment program, consistent with this Policy. No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by OCSD internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisors engaged in accordance with Section 5.3. 5.2 The administrative procedures for the operation of OCSD's investment program will provide for, butriot be limited to, the following: 5.2.1 Formats for monthly and quarterly reports to the Finance, Administration and Human Resources Committee, and the Board of Directors. 5.2.2 Compliance with generally accepted accounting principles of the Government Accounting Standards Board. 5.2.3 Establishment of benchmarks for performance measurement. 5.2.4 Establishment of a system of written internal controls. 5.2.5 Establishment of written procedures for competitive bids and offerings of securities that may be purchased or sold by internal OCSD staff. 5.2.6 Establishment of a Desk Procedures Manual for treasury operations and management. 5.3 The Board of Directors of OCSD may, in its discretion, engage the services of one or more registered investment advisors to assist in the management of OCSD's investment portfolio in a manner consistent with OCSD's objectives. Such external investment advisors, which shall be selected through a competitive process, shall be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such advisors must be registered under the Investment Advisers Act of 1940, or be exempt from such registration . Page 3of13 l p 6.0 Ethics and Conflicts of Interest: 6.1 Officers and employees of OCSD involved in the investment process shall refrain from personal business activities that could conflict with proper execution of OCSD's investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions that conduct business within OCSD's boundaries, and they shall further disclose any large personal financial/investment positions, the performance of which could be related to the performance of positions in OCSD's portfolio. 7.0 Authorized Financial Dealers and Institutions: 7.1 For investment transactions conducted by OCSD internal staff, the Treasurer will maintain a list of financial institutions authorized to provide investment services to OCSD, including "primary'' or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule), and Federal or State of California chartered banks. No public deposit shall be made except in a qualified public depository as established by State law. All financial institutions which desire to become qualified bidders for investment transactions with OCSD must supply the following for evaluation by the Treasurer: 7.1.1. Audited financial statements for the institution's three (3) most recent fiscal years. 7 .1.2. A statement, in the format prescribed by the Government Finance Officers Association (GFOA), certifying that the institution has reviewed OCSD's Investment Policy and that all securities offered to the Districts shall comply fully and in every instance with all provisions of the California Government Code and with this Investment Policy. 7.1.3. A statement describing the regulatory status of the dealer, and the background and expertise of the dealer's representatives. Selection of financial institutions, broker/dealers, and banks authorized to engage in transactions with OCSD shall be made through a competitive process. An annual review of the financial condition of qualified institutions will be conducted by the Treasurer. Page 4of13 I p 7 .2 Selection of broker/dealers used by external investment advisors retained by OCSD, shall be in compliance with contract provisions between OCSD and any external investment advisors, and shall be in substantially the following form: Use of Securities Brokers: Neither the Investment Advisor nor any parent, subsidiary or related firm shall act as a securities broker with respect to any purchases or sales of securities which may be made on behalf of OCSD, provided that this limitation shall not prevent the Investment Advisor from utilizing the services of a securities broker which is a parent, subsidiary or related firm, provided such broker effects transactions on a "cost only" or "nonprofit" basis to itself and provides competitive execution. The Investment Advisor shall provide the Districts with a list of suitable independent brokerage firms (including names and addresses) meeting the requirements of Government Code Section 53601.5, and, unless otherwise directed by OCSD, the Investment Advisor may utilize the service of any of such independent securities brokerage firms it deems appropriate to the extent that such firms are competitive with respect to price of services and execution. 8.0 Authorized and Suitable Investments: All investments shall be made in accordance with the California Government Code including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within this Investment Policy. Permitted investments under this Policy shall include: 8.1 Securities issued by the US Government or an agency of the US Government and fully guaranteed as to payment by the US Government or agency of the US Government. Investment in mortgage-backed bonds and CMOs is not governed by this Section 8.1, even if such bonds are issued by agencies of the US Government. See Section 8.2 for conditions of purchase of mortgage-backed securities. See Section 8.11 for conditions of purchase of CMOs. 8.2 Mortgage-backed securities issued by an agency of the US Government, which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage deriva·tives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage Investment Conduits), is hereby prohibited. 8.3 Commercial paper of "prime" quality and rated "P1" by Moody's Investor Services (Moody's), atJJJ. rated "A1" by Standard & Poor's Corporation (S&P), and issued by a domestic corporation organized and operating in the United States with assets in excess of $500 million and having a rating of "A" or better on its long-term debt as provided by Moody's or S&P. Purchases of eligible commercial paper may not exceed 180 days to maturity from the Page 5of13 • date of purchase. Purchases of commercial paper shall not exceed 15% of the market value of the portfolio, except that a maximum of 30% of the market value of the portfolio may be invested in commercial paper, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. No more than 5% of the market value of the portfolio, or 10% of the issuer's outstanding paper, may be invested in commercial paper issued by any one (1) eligible corporation. 8.4 Banker's acceptances issued by institutions, the short-term obligations of which are rated a minimum of "P1" by Moody's, or "A1" by S&P provided that: (a) the acceptance is eligible for purchase by the Federal Reserve System; (b) the maturity does not exceed 270 days; (c) no more than 40% of the total portfolio may be invested in banker's acceptances; and (d) no more than 30% of the total portfolio may be invested in the banker's acceptances of any one ( 1 ) commercial bank. 8.5 Medium term (or corporate) notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States, the long-term obligations of which are rated at least "A3" by Moody's, or "A-" by S&P. No more than 30% of the portfolio may be invested in eligible medium term or corporate notes. 8.6 Shares of mutual funds investing in securities permitted under this policy and under California Government Code Section 53601. Such funds must either: ( 1) attain the highest ranking, or the highest letter and numerical rating, provided by not less than two of the three largest nationally recognized rating services; or (2) have an investment Advisor registered with the Securities and Exchange Commission with not less than five (5) years of experience investing in the securities and obligations authorized under this Policy and under California Government Code Section 53601, and with assets under management in excess of $500 million. The purchase price of such shares may not include any commissions. Investment in mutual funds may not exceed 15% of the total portfolio. 8.7 Certificates of deposit: 8.7.1 Secured (collateralized) ti~e deposits issued by a nationally or state-chartered bank or state or federal savings and loan association, as defined by Section 5102 of the California Financial Code, aIKi. having a net operating profit in the two (2) most recently completed fiscal years. Collateral must comply with Chapter 4, Bank Deposit Law, Section 16500 et seq., and Chapter 4.5, Savings and Loan Association and Credit Union Deposit Law, Section 16600 et seq., of the California Government Code. 8.7.2 Negotiable certificates of deposit (NCDs) issued by a nationally or state-chartered bank or state of federal savings and loan Page 6of13 l p association, as defined by Section 5102 of the California Financial Code; am:J.. which shall have a rating of "A" or better on its long-term debt as provided by Moody's or S&P; or which shall have the following minimum short-term ratings by at least two (2) rating services: "P1" for deposits by Moody's, "A1" for deposits by S&P, or comparably rated by a nationally recognized rating agency which rates such securities; or as otherwise approved by the District's Board of Directors. 8.8 Taxable or tax-exempt municipal bonds issued by the State of California or its subdivisions. Such securities must be rated "A3" or higher by Moody's, or "A-" or higher by S&P; or as otherwise approved by the Districts' Board of Directors. 8.9 The State of California Local Agency Investment Fund (LAIF). 8.10 The Orange County Investment Pool. 8.11 Collateralized mortgage obligations (CMOs) issued by agencies of the US Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset- backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-REMICS {Real Estate Mortgage Investment Conduits}, is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of" A" or higher. Combined purchases of mortgage-backed securities, CMOs and asset-backed securities as authorized under this Section 8.11, may not exceed 20% of the total Long-Term Operating Monies portfolio. 8.12 Repurchase agreements provided that: 8.12.1 All repurchase agreements shall be collateralized with securities eligible for purchase under this Policy, and are maintained at a level of at least 102% of the market value of the repurchase agreements. Collateral securities shall be delivered to a third-party safekeeping agent or to OCSD 's custodian bank. 8.12.2 All repurchase agreements shall be collateralized with securities eligible for purchase under this Policy. In order to anticipate market changes and to provide a level of security for all repurchase agreement transactions, collateralization shall be maintained at a level of at least 102% of market value of the principal and accrued interest, and shall be adjusted no less than weekly. Page 7of13 l 8.13 Reverse repurchase agreements provided that: 8.13.1 No more than five percent (5%) of OCSD's portfolio shall be invested in reverse repurchase agreements, and there shall be no long-term reverse repurchase agreements unless otherwise authorized by the Districts' Board of Directors. 8.13.2 The maximum maturity of reverse repurchase agreements shall be ninety (90) days. 8.13.3 Reverse repurchase agreements shall mature on the exact date of a known cash flow which will be unconditionally available to repay the maturing reverse repurchase. 8.13.4 Proceeds of reverse repurchase agreements shall be used solely to supplement portfolio income or to provide portfolio liquidity, and shall not be used to speculate on market movements. 8.13.5 All reverse repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the reverse repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by the Public Securities Association. 8.14 Sales of OCSD-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio, to prevent anticipated further erosion of principal, or when trading for securities that result in an expected net economic gain to OCSD. 8.15 If securities owned by the OCSD are downgraded by either Moody's or S&P to a level below the quality required by this Investment Policy, it shall be OCSD's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a decision is made to retain the downgraded securities in the portfolio, their presence in the portfolio will be monitored and reported monthly to the OCSD General Manager, the Finance, Administration and Human Resources Committee and Board of Directors. 9.0 Collateralization: Generally, the value to secure deposits under this Policy shall comply with Section 53652 of the California Government Code. Collateralization will be required for secured time deposits, as more fully described in Section 8. 7. 1 ; and repurchase agreements, as more fully described in Section 8.12.1. Collateral will always be held by an independent third- party, as more fully described in Section 10.1. The right of collateral substitution is granted. Page 8of13 p 10.0 Safekeeping and Custody: 10.1 All securities transactions, including collateral for repurchase agreements, entered into by, or on behalf of OCSD, shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by OCSD's third-party custodian bank, which shall be selected through a competitive process, or that agent's representative, or in the agent's account at the Federal Reserve Bank, and evidenced by safekeeping receipts. 11.0 Diversification: OCSD will diversify its investments by security type, issuer, and financial institution in accordance with the following: 11.1 There is no limit on investment in securities issued by or guaranteed by the full faith and credit of the U.S. government. 11.2 No more than 20% of the portfolio may be invested in securities of a single agency of the U.S. government, which does not provide the full faith and credit of the U.S. government. 11.3 No more than 5% of the portfolio may be invested in securities of any one issuer, other than the U.S. government or its agencies. 11.4 No individual holding shall constitute more than 5% of the total debt outstanding of any issuer. 11. 5 No more than 40% of the portfolio may be invested in banker's acceptances. 11.6 No more than 15% of the portfolio may be invested in commercial paper, except that 30% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. 11. 7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes. 11.8 No more than 15% of the portfolio may be invested in mutual funds. 11.9 No more than 30% of the portfolio may be invested in negotiable certificates of deposit. 11.10 No more than 10% of the portfolio may be invested in eligible municipal bonds. Page 9of13 l ,. 11.11 No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs and asset- backed securities. Mortgage-backed securities, CMOs and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the District's staff. 11.12 No more than the lesser of 15% of the portfolio or the statutory maximum may be invested in LAIF. 11.13 No more than 15% of the portfolio may be invested in the Orange County Investment Pool. 11.14 No more than 20% of the portfolio may be invested in repurchase agreements. 11.15 No more than 5% of the portfolio may be invested in reverse repurchase agreements. 12.0 Maximum Maturities: To the extent possible, OCSD will attempt to match its investments with reasonably anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall designate, from time-to-time, the amounts to be allocated to the investment portfolio. OCSD monies invested in accordance with this Policy are divided into two (2) categories: 12.1 Liquid Operating Monies. Funds needed for current operating and capital expenditures are known as Liquid Operating Monies. 12. 1.1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account portfolio shall be one (1) year from the date of purchase. 12.1.2 The average duration of the Liquid Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts' cash flow requirements, but may never exceed 180 days, and shall be reviewed and approved by the Finance, Administration and Human Resources Committee, and shall be updated as needed. 12.2 Long Term Operating Monies. Funds needed for longer term purposes are known as the Long Term Operating Monies. 12.2.1 The maximum final stated maturity of individual securities in the Long Term Operating Monies account portfolio shall be five (5) years from the date of purchase, unless otherwise authorized by the Districts' Board of Directors. Page 10of12 l p 12.2.2 The duration of the Long Term Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts' five- year cash flow forecast, shall be reviewed and approved by the Finance, Administration and Human Services Committee, and shall be updated as needed. 12.2.3 The duration of the Long Term Operating Monies account portfolio shall never exceed 120% of the duration as established in accordance with Section 12.2.2. 12.2.4 The duration of the Long Term Operating Monies account portfolio shall never be less than 80% of the duration as established in accordance with Section 12.2.2 13.0 Internal Controls: 13.1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. 14.0 Performance Objectives and Benchmarks: 14.1 Overall objective. The investment portfolio of OCSD shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and reasonably anticipated cash flow needs. 14.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index approved by the Finance, Administration and Human Resources Committee, and by the District's Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-98-XX (see Appendix "B"). 14.3 The Long Tenn Operating Monies. The investment performance objective for the Long Term Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index selected by the Finance, Administration and Human Resources Committee and approved by the Districts' Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-98-XX (See Appendix "B"). Page 11 of 12 I • 15.0 Reporting: 15.1 Monthly and quarterly investment reports shall be submitted by the Treasurer to the Finance, Administration and Human Resources Committee which shall forward the reports to the District's Board of Directors. The monthly reports shall be submitted to the Finance, Administration and Human Resources Committee within 30 days of the end of the month. These reports shall disclose, at a minimum, the following information about the risk characteristics of OCSD's portfolio: 15.1.1 Cost and accurate and complete market value of the portfolio. 15.1.2 Modified duration of the portfolio compared to Benchmark. 15.1.3 Dollar change in value of the portfolio for a one-percent (1 %) change in interest rates. 15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. 15.1.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. 15.1.6 Average portfolio credit quality. 15.1. 7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. 15.1.8 State that all investments are in compliance with this policy and the California Government Code, or provide a listing of any transactions or holdings which do not comply with this policy or with the California Government Code. 15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared to the Benchmark returns for the same periods. 15.1.10 State that sufficient funds are available for OCSD to meet its operating expenditure requirements for the next six months, or if not, state the reasons for the shortfall. Page 12of13 l p 15.2 OCSD's Treasurer shall meet quarterly with the Finance, Administration and Human Resources Committee to review investment performance, proposed strategies and compliance with this investment policy. External investment advisors may be required to attend said meetings at the discretion of the Chairman of the Finance, Administration and Human Resources Committee. 16.0 Investment Policy Adoption and Revision: 16.1 The Investment Policy of OCSD shall be reviewed by the Finance, Administration and Human Resources Committee and shall be adopted by resolution of the Board of Directors of OCSD. The Policy shall be reviewed on an annual basis by the Finance, Administration and Human Resources Committee, which shall recommend revisions, as appropriate, to the Board of Directors. Any modifications made thereto shall be approved by the Board of Directors. 16.2 The Finance, Administration and Human Resources Committee shall serve ( as the oversight committee for the District's Investment program and shall adopt guidelines for the ongoing review of duration, quality and liquidity of the District's portfolio. Page 13of13 APPENDICES • [ ................. ··········································································································································································------················································································································································· --············-····--··············1 -r.mr-1 !r.1 • 1LJ U! I APPENDIX "A" I I I i ~ I Ii] I L_ ___ _ ----·--·------J I • APPENDIX "A" SUMMARY OF INVESTMENT AUTHORIZATION INTERNAL AND EXTERNAL MANAGERS SHORT TERM OPERA TING FUND INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO NO Commercial paper OK OK Banker's Accept. OK OK Medium Term Notes Fixed coupon, fixed mat.* OK Mutual Funds Money Market Only-Money Market Only Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* NO LAIF OK NO OCIP OK NO CM Os NO NO Asset-backed NO NO Repurchase Agree. OK OK Reverse Repos OK* OK LONG TERM OPERA TING PORTFOLIO INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO OK Mutual Funds Money Market Only-OK Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* OK LAIF. OK NO OCIP OK NO CM Os NO With Board Approval Asset-backed NO With Board Approval Repurchase Agree. OK OK Reverse Repos OK* OK *with prior approval of the Finance, Administration and Human Resources Committee. **using financial institutions approved by the Finance, Administration and Human Resources Committee. H:\WP.OTA\FIN\210\CRANEllNVEST.PL Y\981NVEST.PL Y I ..................... -................... _... .. .................................. ·-····-·-·· ......................................................................... . . ................................................................................................................................................................................................................... .. ...... ! I l .. ~.J l~J ' I APPENDIX "B" [ • I I [•1 .. ~I .. _.. .._...... . . . ,_ .. _J • I • RESOLUTION NO. OCSD-98-XX AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS *************** WHEREAS, on September 24, 1997, the Board of Directors adopted Resolution No. 97-32, readopting the District's Investment Policy Statement, and establishing specific performance benchmarks and objectives, together with a schedule of frequency of investment performance reports; and, WHEREAS, pursuant to California Government Code Section 53607, the Board of Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer for a one-year period; and, WHEREAS, pursuant to California Government Code Section 53646, the District is required to review its Investment Policy annually and readopt its Policy at a public meeting, which Policy will establish specific performance benchmarks and objectives, and specific monitoring and reports. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That the authority of the Board of Directors to invest or reinvest District's surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the funds and investments of the Districts with depositories, as provided for in California Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for a one-year period commencing on the date this Resolution is adopted, as authorized by California Government Code Section 53607 . I • Section 2: That the Board of Directors hereby adopt the Investment Policy Statement of the Orange County Sanitation District, as set forth in Exhibit "A," attached hereto and incorporated herein by reference. Section 3: That the Board of Directors hereby adopt the following specific performance benchmarks for their two investment funds in accordance with Section 14.0 of the District's Investment Policy: LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to the three month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The Callan Active Cash Flow Income Style Group represents a peer group of managers who operate with a maximum maturity of one year. LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to the Callan Defensive Fixed Income Style Group. Section 4: That the Board of Directors hereby adopt a performance monitoring and reporting schedule, as required by Section 15.0 of the District's Investment Policy, which schedule is attached hereto as Exhibit "8," and incorporated herein by reference. PASSED AND ADOPTED at regular meeting held July 29, 1998. H:\WP.DTA\FIN\21 O\CRANE\INVEST.PL Y\INVESTPOUCYRESO.DOC POLICY REFERENCE 15.1.1 15.1.2 15.1.3 15.1.4 15.1.5 ·15.1.e 15.1.7 15.1.8 15.1.9 ADDL** ADDL** ADDL** ADDL** EXHIBIT "B" COUNTY SANITATION DISTRICTS OF ORANGE COUNTY PERFORMANCE MONITORING & REPORTING FOR THE DISTRICTS' INVESTMENT PROGRAM PERFORMANCE CHARACTERISTIC Cost and market value of the portfolio (monthly mark-to-market). Mocfdied duration of the portfolio compared to benchmark. Dollar change In value of the portfolio for a 1% change In Interest rate. Percent of portfolio Invested In reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. Average portfolio crecftt quality. Percent of portfolio with credit ratings below •An by any rating agency, and a description of such securities. Listing of any transactions or holdings which do not comply with this policy or with the California Government Code. Time-weighted total rate of retum for the portfolio for the prior three months, twelve months, year- to-date, and since Inception compared to the benchmark returns for the same periods. Comparison of portfolio performance to market Index benchmark. Comparison of Manager's performance to peer group benchmark. Monitoring of organizational and structural changes of Investment management firm. Audit portfolios for compliance with investment policy guidelines. T REPORTING PARTY* PIMCO MELLON . CALLAN M,Q M,Q Q M,Q Q M,Q Q M,Q M,Q Q M,Q Q M,Q Q M,Q M,Q Q M,Q Q q Q Q 15.1.10 CS DOC will report if sufficient funds are available for It to meet operating expenditure requirements for the next six months, or If not, state the reasons for the shortfall. Notes *M =Monthly a = Quarterly -ADDL = Monitoring of Additional Performance Characteristics H:\WP.OTA\FIN\2210\CRANE\INVEST.PLY\MONITOR.CHT ! -·-. l.~J ·············-·············-·-··········-···-······-································································································································································································1 [~: . APPENDIX "C" [ I I [•I Iii] I L--·-------··---···--·--·----···---·--------····--··-·-···-·--···--·····-·-···-·-············-······-·---····-·······-···-·-··--······-·····--·-·--·-·-·····-···--·-___] I p Introduction Appendix "C" Sections of the California Government Code• Pertinent to Investing Public Funds A requirement of Section 8, Authorized and Suitable Investments, of the Districts' Investment Policy Statement, is that all investments shall be made in accordance with the California Government Code, including Sections 16429.1 et seq., and 53600 et seq., and 53684. This appendix presents a copy of these sections for the reader's reference. § 16429.1. Creation of fund; investments; proceeds of bonds, etc.; distributions; report of investments. There is in the State Treasury the Local Agency Investment Fund, which fund is hereby created. Notwithstanding Section 13340, all money in the fund is hereby appropriated without regard to fiscal years to carry out the purpose of this section. The Controller shall maintain a separate account for each governmental unit having deposits in this fund. Notwithstanding any other provisions of law, a local governmental official, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. Notwithstanding any other provisions of law, an officer of any nonprofit corporation whose membership is confined to public agencies or public officials, or an officer of a qualified quasi governmental agency, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. Notwithstanding any other provision of law or of this section, a local agency, with the approval of its governing body, may deposit in the Local Agency Investment Fund proceeds of the issuance of bonds, notes, certificates of participation, or other evidences of indebtedness of the agency pending expenditure of the proceeds for the authorized purpose of their issuance. In connection with these deposits of proceeds, the Local Agency Investment Fund is authorized to receive and disburse moneys, and to provide information, directly with or to an authorized officer of a trustee or fiscal agent engaged by the local agency, the Local Agency Investment Fund is authorized to hold investments in the name and for the account of that trustee or fiscal agent, and the Controller shall maintain a separate account for each deposit of proceeds. The local governmental unit, the nonprofit corporation, or the quasi-governmental agency has the exclusive determination of the length of time its money will be on deposit with the Treasurer. The trustee or fiscal agent of the local governmental unit has the exclusive determination of the length ohime proceeds from the issuance of bonds will be on deposit with the Treasurer. Page 1 of40 The Local Investment Advisory Board shall determine those quasi-governmental agencies which qualify to participate in the Local Agency Investment Fund. The Treasurer may refuse to accept deposits into the fund if, in the judgment of the Treasurer, the deposit would adversely affect the state's portfolio. The Treasurer may invest the money of the fund in securities prescribed in Section 16430. The Treasurer may elect to have the money of the fund invested through the Surplus Money Investment Fund as provided in Article 4 (commencing with Section 164 70) of Chapter 3 of Part 2 of Division 4 of Title 2. Money in the fund shall be invested to achieve the objective of the fund which is to realize the maximum return consistent with safe and prudent treasury management. All instruments of title of all investments of the fund shall remain in the Treasurer's vault or be held in safekeeping under control of the Treasurer in any federal reserve bank, or any branch thereof, or the Federal Home Loan Bank of San Francisco, with any trust company, or the trust department of any state or national bank. Immediately at the conclusion of each calendar quarter, all interest earned and other increment derived from investments shall be distributed by the Controller to the contributing governmental units or trustees or fiscal agents, nonprofit corporations, and quasi governmental agencies in amounts directly proportionate to the respective amounts deposited in the Local Agency Investment Fund and the length of time the amounts remained therein. An amount equal to the reasonable costs incurred in carrying out the provisions of this section, not to exceed a maximum of one half of 1 percent of the earnings of this ~d, shall be deducted from the earnings prior to distribution. The amount of this deduction shall be credited as reimbursements to the state agencies having incurred costs in carrying out the provisions of this section. The Treasurer shall prepare for distribution a monthly report of investments made during the preceding month. As used in this section, "local agency," "local governmental unit," and "local governmental official" includes a campus or other unit and an official, respectively, of the California State University who deposits moneys in funds described in Sections 89721, 89722, and 89725 of the Education Code. § 16429.2. Local investment advisory board There is created the Local Investment Advisory Board consisting of five members. The chairman shall be the State Treasurer or his or her designated representative. Two members who are qualified by training and experience in the field of investment or finance, shall be appointed by the State Treasurer. Two members who are treasurers, finance or fiscal officers or business managers, employed by any county, city or local district or-municipal corporation of this state, shall be appointed by the Treasurer. · Page2 of40 ] 1 [ p The term of office of each appointed member of the board is two years, but each appointed member serves at the pleasure of the appointing authority. A vacancy in the appointed membership, occurring other than by expiration of term, shall be filled in the same manner as the original appointment, but for the unexpired term only. Members of the board who are not state officers or employees shall not receive a salary, but shall be entitled to a per diem allowance of fifty dollars ($50) for each day's attendance at a meeting of the board, not to exceed three hundred dollars ($300) in any month. All members shall be entitled to reimbursement for expenses incurred in the performance of their duties under this part, including travel and other necessary expenses. The board's primary purpose shall be to advise and assist the State Treasurer in formulating the investment and reinvestment of moneys in the Local Agency Investment Fund, and the acquisition, retention, management, and disposition of investments of the fund. The board, from time to time, shall review those policies and advise therein as it considers necessary or desirable. The board shall advise the State Treasurer in the management of the fund and consult the State Treasurer on any matter relating to the investment and reinvestment of moneys in the fund. § 16429.3: Deposits; prohibited transfers and loans; impoundment or seizure Moneys placed with the Treasurer for deposit in the Local Agency Investment Fund by cities, counties, special districts, nonprofit corporations, or qualified quasi governmental agencies shall not be subject to either of the following: (a) Transfer or loan pursuant to Sections 16310, 16312, or 16313. (b) Impoundment or seizure by any state official or state agency. § 53600. Local agency As used in this article, "local agency" means county, city, city and county, including a chartered city or county, school district, community college district, public district, county board of education, county superintendent of schools, or any public or municipal corporation. § 53600.3. Prudent investor standard; investments on behalf oflocal agencies Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. 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 needs of the agency, that a prudent person acting in a like capacity and familiarity with those .matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. Page 3 of40 § 53600.5. Objectives; managing public funds When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the primary objective of a trustee shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its control. § 53600.6. Legislative findings and declarations; solvency and creditworthiness The Legislature hereby finds that the solvency and creditworthiness of each individual local agency can impact the solvency and creditworthiness of the state and other local agencies within the state. Therefore, to protect the solvency and creditworthiness of the state and all of its political subdivisions, the Legislature hereby declares that the deposit and investment of public funds by local officials and local agencies is an issue of statewide concern. § 53601. Authorized investments; circumstances The legislative body of a local agency having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the local agency may invest any portion of the money that it deems wise or expedient in those investments set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial advisors, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this section "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment: (a) Bonds issued by the local agency, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes o:r bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. Page 4of40 J 1 [ p ( d) Bonds, notes, warrants, or other evidences of indebtedness of arty local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. ( e) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise. (f) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 30 percent of the agency's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any surplus money in its treasury in any manner authorized by the Municipal Utility District Act (Division 6 (commencing with Section 11501) of the Public Utilities Code). (g) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the agency's surplus money that may be invested pursuant to this section. An additional 15 percent, or a total of 30 percent of the agency's surplus money, may be invested pursuant to this subdivision. The additional 15 percent may be so invested only if the dollar-weighted average maturity of the entire amount does not exceed 31 days. "Dollar-weighted average maturity" means the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. (h) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102 of the Financial Code) or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. (i)(l) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, as long as the agreements are subject to this subdivision, including, the delivery requirements specified in this section. Page 5 of40 (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. (3) Reverse repurchase agreements may be utilized only when either of the following conditions are met: (A) The security was owned or specifically committed to purchase, by the local agency, prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments owned by the local agency not purchased or committed to purchase, prior to December 31, 1994, does not exceed 20 percent of the base value of the portfolio; and the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. ( 4) After December 31, 1994, a reverse repurchase agreement may not be entered into with securities not sold on a reverse repurchase agreement and purchased, or committed to purchase, prior to that date, as a means of financing or paying for the security sold on a reverse repurchase agreement, but may only be entered into with securities owned and previously paid for a minimum of 30 days prior to the settlement of the reverse repurchase agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a local agency obligation. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement, on securities originally purchased subsequent to December 31, 1994, shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement, unless the reverse repurchase agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Reverse repurchase agreements specified in subparagraph (B) of paragraph (3) may not be entered into unless the percentage restrictions specified in that subparagraph are met, including the total of any reverse repurchase agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the governing body of the local agency and shall only be made with primary dealers of the Federal Reserve Bank of New York. (6)(A) "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry • account may be used for book-entry delivery. Page 6 of40 .. p (B) "Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. (D) For purposes of this section, the base value of the local agency's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. (E) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. G) Medium-term notes of a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. (k)(l) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (j), inclusive, or subdivisions (m) or (n) and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement may be 100 percent of the sales price ifthe securities are marked to market daily. (2) Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subdivisions (a) to G), inclusive, or subdivisions (m) or (n) and with assets under management in excess of five hundred million dollars ($500,000,000). ( 4) If investment is in shares issued pursuant to paragraph (2), the company shall have met either of the following criteria: Page 7 of40 -(A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (5) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 10 percent of the agency's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). (l) Notwithstanding anything to the contrary contained in this section, Section 53635, or any other provision of law, moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. (m) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (n) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. § 53601.1. Investment in financial futures or financial option contracts The authority of a local agency to invest funds pursuant to Section 53601 includes, in addition thereto, authority to invest in financial futures or financial option contracts in any of the investment categories enumerated in that section. Page 8 of40 1 r § 53601.5. Investments; qualified purchase agent The purchase by a local agency of any investment authorized pursuant to Section 53601 or 53601.1, not purchased directly from the issuer, shall be purchased either from an institution licensed by the state as a broker-dealer, as defined in Section 25004 of the Corporations Code, or from a member of a feqerally regulated securities exchange, from a national or state-chartered bank, from a federal or state association (as defined by Section 5102 of the Financial Code) or from a brokerage firm designated as a primary government dealer by the Federal Reserve bank. § 53601.6. Prohibited investments (a) A local agency shall not invest any funds pursuant to this article in inverse floaters, range notes, or mortgage derived interest-only strips. (b) A local agency shall not invest any funds pursuant to this article in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subdivision (k) of Section 53601. § 53602. Investment in legal investments for savings banks; securities of public districts The legislative body shall invest only in notes, bonds, bills, certificates of indebtedness, warrants, or registered warrants which are legal investments for savings banks in the State, provided, that the board of supervisors of a county may, by a four-fifths vote thereof, invest in notes, warrants or other evidences of indebtedness of public districts wholly or partly within the county, whether or not such notes, warrants, or other evidences of indebtedness are legal investments for savings banks. § 53603. Direct purchase of securities The legislative body may make the investment by direct purchase of any issue of eligible securities at their original sale or after they have been issued. § 53604. Sale or exchange of securities; reinvestment of proceeds § 53605. Sale of securities; application of proceeds to original purposes From time to time, the legislative body shall sell the securities so that the proceeds may be applied to the purposes for which the original purchase money was placed in the sinking fund or the treasury of the local agency. § 53606. Cancellation of bonds issued by purchaser; resale The bonds purchased, which were issued by the purchaser, may be canceled either in satisfaction of sinking fund obligations or otherwise. When canceled, they are no longer outstanding, unless in its discretion, the legislative body holds them uncanceled. While held uncanceled, the bonds may be resold. Page 9 of40 § 53607. Delegation of duties to treasurer; monthly report The authority of the legislative body to invest or to reinvest funds of a local agency, or to sell or exchange securities so purchased, may be delegated for a one-year period by the legislative body to the treasurer of the local agency, who shall thereafter assume full responsibility for those transactions until the delegation of authority is revoked or expires, an.d shall make a monthly report of those transactions to the legislative body. Subject to review, the legislative body may renew the delegation of authority pursuant to this section each year. § 53608. Deposit of securities; receipt; delegation of authority The legislative body of a local agency may deposit for safekeeping with a federal or state association (as defined by Section 5102 of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this state, or with any Federal Reserve bank or with any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System, the bonds, notes, bills, debentures, obligations, certificates of indebtedness, warrants, or other evidences of indebtedness in which the money of the local agency is invested pursuant to this article or pursuant to other legislative authority. The local agency shall take from such financial institution a receipt for securities so deposited. The authority of the legislative body to deposit for safekeeping may be delegated by the legislative body to the treasurer of the local agency; the treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the treasurer. § 53609. Eligible securities for investment of funds held by local agency pursuant to deferred compensation plans Notwithstanding the provisions of this chapter or any other provisions of this code, funds held by a local agency pursuant to a written agreement between the agency and employees of the agency to defer a portion of the compensation otherwise receivable by the agency's employees and pursuant to a plan for such deferral as adopted by the governing body of the agency, may be invested in the types of investments set forth in Sections 53601 and 53602 of this code, and may additionally be invested in corporate stocks, bonds, and securities, mutual funds, savings and loan accounts, credit union accounts, life insurance policies, annuities, mortgages, deeds of trust, or other security interests in real or personal property. Nothing herein shall be construed to permit any type of investment prohibited by the Constitution. Deferred compensation funds are public pension or retirement funds for the purposes of Section 17 of Article XVI of the Constitution. § 53630. Definitions As used in this article: (a) "Local agency" means county, city, city and county, including a chartered city or county, a community college district, or other· public agency or corporation in this state. (b) "Treasurer" means treasurer of the local agency. Page IO of40 1 r .. ( c) "Depository" means a state or national bank, savings association or federal association, a state or federal credit union, or a federally insured industrial loan company, in this state in which the moneys of a local agency are deposited. (d) "Agent of depository" means a trust company or trust department of a state or national bank located in this state, including the trust department of a depository where authorized, and the Federal Home Loan Bank of San Francisco, which is authorized to act as an agent of depository for the purposes of this article pursuant to Section 53657. ( e) "Security" means any of the eligible securities or obligations listed in Section 53651. (f) "Pooled securities" means eligible securities held by an agent of depository for a depository and securing deposits of one or more local agencies. (g) "Administrator" means the Administrator of Local Agency Security of the State of California. (h) "Savings association or federal association" means a savings association, savings and loan association, or savings bank as defined by Section 5102 of the Financial Code. (i) "Federally insured industrial loan company" means an industrial loan company licensed under Division 7 (commencing with Section 18000) of the Financial Code, the investment certificates of which are insured by the Federal Deposit Insurance Corporation. § 53630.1. Legislative findings and declarations; solvency and creditworthiness The Legislature hereby finds that the solvency and creditworthiness of each individual local agency can impact the solvency and creditworthiness of the state and other local agencies within the state. Therefore, to protect the solvency and creditworthiness of the state and all of its political subdivisions, the Legislature hereby declares that the deposit and investment of public funds by local officials and local agencies is an issue of statewide concern. § 53630.5. Additional definitions (a) The definitions in Section 1700 of, and Chapter 1 (commencing with Section 99) of Division 1 of, the Financial Code apply to this section. (b) In this article, for purposes of being a depository of moneys belonging to or being in the custody of a local agency, the phrases "state or national bank located in this state," "state or national bank," "state or national bank in this state," and "state or national banks in the state" include, without limitation, any of the following: (1) Any California branch office of a foreign (other state) state bank that the bank is authorized to maintain under the law of its domicile and federal law. (2) Any California branch office of a foreign (other state) national bank that the bank is authorized to maintain under federal law. (3) Any California branch office of a foreign (other nation) bank that the bank is licensed to maintain under Article 3 (commencing with Section 1750) of Chapter 13.5 of Division 1 of the Financial Code. Page 11of40 (4) Any California federal branch of a foreign (other nation) bank that the bank is authorized to maintain under federal law. § 53631. Deposits to pay principal and interest of bonds Under such conditions as the treasurer of a local agency fixes with the approval of the legislative body, he may deposit money necessary to pay the principal and interest of bonds in a bank within or without the State at the place where they are payable. This article does not apply to deposits for such purposes. § 53631.5. Prohibited investments (a) A local agency shall not invest any funds pursuant to ·this article in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages. (b) A local agency shall not invest any funds pursuant to this article in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-l, and following) that are authorized for investment pursuant to subdivision (k) of Section 53601. § 53632. Classes of deposits There are three classes of deposits: (a) Inactive deposits. (b) Active deposits. ( c) Interest-bearing active deposits. § 53632.5. Classes of security for deposits There are three classes of security for deposits: (a) Securities described in subdivision (m) of Section 53651. (b) Securities described in subdivision (p) of Section 53651. (c) Securities enumerated in Section 53651, except for those described in subdivisions (m) and (p) of that section. § 53633. Determination of amounts to be deposited in each class The treasurer shall determine the amounts of money to be deposited as inactive, active, and interest-bearing active deposits, except as otherwise provided in Section 53679. Page 12 of 40 1 r § 53634. Transfers from inactive to active deposits The treasurer may call in money from inactive deposits and place it in active deposits as current demands require. When there is money in his possession for which there is no demand as inactive deposits, he may place it as active deposits. § 53635. Funds oflocal agency; deposit or investment As far as possible, all money belonging to, or in the custody of, a local agency, including money paid to the treasurer or other official to pay the principal, interest, or penalties of bonds, shall be deposited for safekeeping in state or national banks, savings associations or federal associations, credit unions, or federally insured industrial loan companies in this state selected by the treasurer or other official having the legal custody of the money; or, unless otherwise directed by the legislative body pursuant to Section 53601, may be invested in the investments set forth below. A local agency purchasing or obtaining any securities described in this section, in a negotiable, bearer, registered, or nonregistered format, shall require delivery of all the securities to the local agency, including those purchased for the agency by financial advisors, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third-party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book-entry delivery. For purposes of this section, "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. (a) Bonds issued by the local agency, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. ( c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. ( d) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. ( e) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise. (f) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the agency's surplus funds which may be invested pursuant to this Page 13 of40 section. However, no more than 30 percent of the agency's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any surplus money in its treasury in any manner authorized by the Municipal Utility District Act, Division 6 (commencing with Section 11501) of the Public Utilities Code. (g) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the agency's surplus money which may be invested pursuant to this section. An additional 15 percent, or a total of 30 percent of the agency's money or money in its custody, may be invested pursuant to this subdivision. The additional 15 percent may be so invested only if the dollar-weighted average maturity of the entire amount does not exceed 31 days. "Dollar-weighted average maturity" means the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. (h) Negotiable certificates of deposit issued by a nationally or state-chartered bank or a savings association or federal association or a state or federal credit union or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposit do not come within Article 2 (commencing with Section 53630) of Chapter 4 of Part 1 of Division 2 of Title 5, except that the amount so invested shall be subject to the limitations of Section 53638. For purposes of this section, the legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money are prohibited from depositing or investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or an employee of the administrative officer, manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. (i)(l) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, so long as the agreements are subject to this subdivision, including the delivery requirements specified in this section. (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. (3) Reverse repurchase agreements may be utilized only when either of the following conditions are met: Page 14 of 40 r p (A) The security was owned or specifically committed to purchase, by the local agency, prior to repurchase agreement on December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale, the total of all reverse repurchase agreements on investments owned by the local agency not purchased or committed to purchase, prior to December 31, 1994, does not exceed 20 percent of the base value of the portfolio, and the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement may not be entered into with securities not sold on a reverse repurchase agreement and purchased, or committed to purchase, prior to that date, as a means of financing or paying for the security sold on a reverse repurchase agreement, but may only be entered into with securities owned and previously paid for, for a minimum of 30 days prior to the settlement of the reverse repurchase agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a local agency obligation. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement, on securities originally purchased subsequent to December 31, 1994, shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement, unless the reverse repurchase agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Reverse repurchase agreements specified in subparagraph (B) of paragraph (3) may not be entered into unless the percentage restrictions specified in that subparagraph are met, including the total of any reverse repurchase agreements specified in subparagraph (A) of paragraph (3). ( 5) Investments in reverse repurchase agreements or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the governing body of the local agency and shall only be made with primary dealers of the Federal Reserve Bank of New York. (6)(A) "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. (B) "Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date, and includes other comparable agreements. Page 15 of 40 (D) For purposes of this section, the base value of the local agency's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. (E) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. (j) Medium-term notes of a maximum of five years' maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. (k)(l) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (j), inclusive, or subdivision (1) or (m) and that comply with the investment restrictions of this article and Article 1 (commencing with Section 53600). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement may be 100 percent of the sales price if the securities are marked to market daily. (2) Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-l et seq.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subdivisions (a) to (j), inclusive, or subdivision (1) or (m) and with assets under management in excess of five hundred million dollars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual • funds with assets under management in excess of five hundred million dollars ($500,000,000). . Page 16 of 40 p (5) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 10 percent of the agency's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). (1) Notes, bonds, or other obligations which are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (m) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. § 53635.5. Investments; qualified purchase agent The purchase by a local agency of any investment authorized pursuant to Section 53635, not purchased directly from the issuer, shall be purchased either from an institution licensed by the state as a broker-dealer, as defined in Section 25004 of the Corporations Code, or from a member of a federally regulated securities exchange, from a national or state-chartered bank, from a savings association or a federal association, or from a brokerage firm designated as a primary government dealer by the Federal Reserve bank. § 53635.7. Borrowing funds; meetings; separate consideration In making any decision that involves borrowing in the amount of one hundred thousand dollars ($100,000) or more, the legislative body of the local agency shall discuss, consider, and deliberate each decision as a separate item of business on the agenda of its meeting as prescribed in Chapter 9 (commencing with Section 54950). § 53636. Deposited money as in treasury of local agency Money so deposited is deemed to be in the treasury of the local agency. § 53637. Selection of depositary; interest The money shall be deposited in any bank, savings association or federal association, state or federal credit union, or federally insured industrial loan company with the objective of realizing maximum return, consistent with prudent financial management, except that money shall not be Page 17 of40 - deposited in any state or federal credit union if a member of the legislative body of a local agency, or an employee of the administrative office, manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency, also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or supervisory committee, of the state or federal credit union. § 53638. Maximum deposits (a) The deposit shall not exceed the shareholder's equity of any depository bank. For the purposes of this subdivision, shareholder's equity shall be determined in accordance with Section 118 of the Financial Code, but shall be deemed to include capital notes and debentures. (b) The deposit shall not exceed the total of the net worth of any depository savings association or federal association, except that deposits not exceeding a total of five hundred thousand dollars ($500,000) may be made to a savings association or federal association without regard to the net worth of that depository, if such deposits are insured or secured as required by law. ( c) The deposit to the share accounts of any regularly chartered credit union shall not exceed the total of the unimpaired capital and surplus of the credit union, as defined by rule of the Commissioner of Corporations, except that the deposit to any credit union share account in an amount not exceeding five hundred thousand dollars ($500,000) may be made if the share accounts of that credit union are insured or guaranteed pursuant to Section 14858 of the Financial Code or are secured as required by law. ( d) The deposit in investment certificates of a federally insured industrial loan company shall not exceed the total of the unimpaired capital and surplus of the insured industrial loan company. § 53638. Maximum deposits (a) The deposit shall not exceed the shareholder's equity of any depository bank. For the purposes of this subdivision, shareholder's equity shall be determined in accordance with Section 118 of the Financial Code, but shall be deemed to include capital notes and debentures. (b) The deposit shall not exceed the total of the net worth of any depository savings association or federal association, except that deposits not exceeding a total of five hundred thousand dollars ($500,000) may be made to a savings association or federal association without regard to the net worth of that depository, if such deposits are insured or secured as required by law. ( c) The deposit to the share accounts of any regularly chartered credit union shall not exceed the total of the unimpaired capital and surplus of the credit union, as defined by rule of the Commissioner of Financial Institutions, except that the deposit to any credit union share account in an amount not exceeding five hundred thousand dollars ($500,000) may be made if the share accounts of that credit union are insured or guaranteed pursuant to Section 14858 of the Financial Code or are secured as required by law. ( d) The deposit in investment certificates of a federally insured industrial loan company shall not exceed the total of the unimpaired capital and surplus of the insured industrial loan company. Page 18 of 40 1 r - § 53639. Expense of transporting money Except as otherwise provided in Section 53682, the depository shall bear the expenses of transportation of money to and from the depository. § 53640. Checks, drafts, and other exchange Except as otherwise provided in Section 53682, the depository shall handle, collect, and pay all checks, drafts, and other exchange without cost to the local agency. § 53641. Receipt or other evidence of deposit When money is deposited in a depository, the treasurer or other authorized official shall take and preserve a receipt, certificate of deposit, or other evidence of the deposit as he or she requires. § 53642. Withdrawals; check or order The money deposited may be drawn out by check or order of the treasurer or other official authorized to make such deposit. § 53643. Deposit by treasurer The treasurer may deposit any part of the money as agreed upon between the treasurer and the depository. § 53644. Withdrawals on demand; penalties; notice If an agreement is not made: (a) Active deposits and interest thereon are subject to withdrawal upon the demand of the treasurer or other authorized official, subject to any penalties which may be prescribed by federal law or regulation. (b) Inactive deposits are subject to notice of at least thirty days before withdrawal. § 53645. Interest; computation; payment Interest shall be computed and paid by the depository, as follows: (a) For active deposits upon which interest is payable, interest shall be computed on the average daily balance for the calendar quarter, and shall be paid quarterly. (b) For inactive deposits, interest shall be computed on a 360-day basis, and shall be paid quarterly. § 53646. Investment policy statement; review and approval; legislative body or· oversight committee; reports' Page 19 of 40 (a)(l) In the case of county government, the treasurer shall annually render to the board of supervisors and any oversight committee a statement of investment policy, which the board shall review and approve at a public meeting. Any change in the policy shall also be reviewed and approved by the board at a public meeting. (2) In the case of any other local agency, the treasurer or chief fiscal officer of the local agency shall annually render to the legislative body of that local agency and any oversight committee of that local agency a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a public meeting. (b)(l) The treasurer or chief fiscal officer shall render a quarterly report to the chief executive officer, the internal auditor, and the legislative body of the local agency. The quarterly report shall be so submitted within 30 days following the end of the quarter covered by the report. Except as provided in subdivision ( e ), this report shall include the type of investment, issuer, date of maturity par and dollar amount invested on all securities, investments and moneys held by the local agency, and shall additionally include a description of any of the local agency's funds, investments, or programs, that are under the management of contracted parties, including lending programs .. With respect to all securities held by the local agency, and under management of any outside party that is not also a local.agency or the State of California Local Agency Investment Fund, the report shall also include a current market value as of the date of the report, and shall include the source of this same valuation. (2) The quarterly report shall state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance. (3) The quarterly report shall include a statement denoting the ability of the local agency to meet its pool's expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available. (4) In the quarterly report, a subsidiary ledger of investments may be used in accordance with accepted accounting practices. ( c) Pursuant to subdivision (b ), the treasurer or chief fiscal officer shall report whatever additional information or data may be required by the legislative body of the local agency. (d) The legislative body of a local agency may elect to require the report specified in subdivision (b) to be made on a monthly basis instead of quarterly. (e) For local agency investments that have been placed in the Local Agency Investment Fund, created by Section 16429.1, in Federal Deposit Insurance Corporation-insured accounts in a bank or savings and loan association, in a county investment pool, or any combination of these, the treasurer or chief fiscal officer may supply to the governing body, chief executive officer, and the auditor of the local agency the most recent statement or statements received by the local agency from these institutions in lieu of the information required by paragraph (1) of subdivision (b) regarding investments in these institutions. Page20 of40 1 r p § 53647. Interest; payment into fund (a) Interest on all money deposited belongs to, and shall be paid quarterly into the general fund of, the local agency represented by the officer making the deposit, unless otherwise directed by law. (b) Notwithstanding the provisions of subdivision (a), and except as otherwise directed by law, if the governing body of the local agency represented by the officer making the deposit so directs, such interest shall be paid to the fund which contains the principal on which the interest accrued. § 53647.5. Interest on bail money on deposit Notwithstanding any other provision of law, interest earned on any bail money deposited in a bank account pursuant to Section 1463.1 of the Penal Code and Section 53679 of this code shall, if the board of supervisors so directs, be allocated for the support of the courts in that county. § 53648. Deposits and contracts pursuant to federal law or rule Notwithstanding this article, the treasurer may deposit moneys in, and enter into contracts with, a state or national bank, savings association or federal association, federal or state credit union, or federally insured industrial loan company, pursuant to a federal law or a rule of a federal department or agency adopted pursuant to the law if the law or rule conflicts with this article in regulating the payment of interest on deposits of public moneys by any of the following: (a) Banks which are Federal Reserve System members or whose deposits are insured by the Federal Deposit Insurance Corporation. (b) Savings associations or federal associations which are federal home loan bank members or whose deposits are insured by the Federal Savings and Loan Insurance Corporation. (c) State or federal credit unions whose accounts are insured by the National Credit Union Share Insurance Fund or guaranteed by the California Credit Union Share Guaranty Corporation or insured or guaranteed pursuant to Section 14858 of the Financial Code, unless a member of the legislative body of a local agency, or an employee of the administrative office, manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency, also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or supervisory committee, of the state or federal credit union. (d) A federally insured industrial loan company. § 53648.5. Termination of agreement with depository Upon the removal by federal law of the conflicting federal law or rule the agreement between the treasurer or other authorized official and a depository may be terminated by either party. § 53649. Contracts with depositories; contents; filing The treasurer is responsible for the safekeeping of money in his or her custody and shall enter into any contract with a depository relating to any deposit which in his or her judgment is to the public advantage. The depository, and the agent of depository to the extent the agent of depository has been notified of deposits and the amount thereof, are responsible for securing Page 21of40 moneys deposited pursuant to such a contract in accordance with Section 53652. One copy of each contract shall be filed with the auditor, controller, secretary, or corresponding officer of the local agency. The contract shall: (a) Fix the duration of deposits, if appropriate. (b) Fix the interest rate, if any. ( c) Prov~de conditions for withdrawal and repayment. ( d) Provide for placement of pooled securities in a named agent of depository in accordance with Section 53656. ( e) Grant authority for agent of depository to place securities for safekeeping in accordance with Section 53659. (f) Set forth in accordance with Section 53665 the conditions upon which the administrator shall order pooled securities converted into money for the benefit of the local agency, and the procedure therefor. (g) Provide for compliance in all respects with the provisions of this article and other applicable provisions of law. (h) Provide, upon notice to the treasurer from the administrator, that a treasurer may withdraw deposits in the event a depository fails to pay the assessments, fines, or penalties assessed by the administrator or may withdraw authorization for the placement of pooled securities in an agent of depository in the event that the agent of depository fails to pay the fines or penalties assessed by the administrator. § 53651. Eligible securities Eligible securities are any of the following: (a) United States Treasury notes, bonds, bills or certificates of indebtedness, or obligations for which the faith and credit of the United States are pledged for the payment of principal and interest, including the guaranteed portions of small business administration loans, so long as the loans are obligations for which the faith and credit of the United States are pledged for the payment of principal and interest. (b) Notes or bonds or any obligations of a local public agency (as defined in the United States Housing Act of 1949) or any obligations of a public housing agency (as defined in the United States Housing Act of 1937) [FNl] for which the faith and credit of the United States are pledged for the payment of principal and interest. ( c) Bonds of this state or of any local agency or district of the State of California having the power, without limit as to rate or amount, to levy taxes or assessments to pay the principal and interest of the bonds upon all property within its boundaries subject to taxation or assessment by the ·local agency or ·district, and in addition, limited obligation bonds pursuant to Article 4 .-i (commencing with Section 50665) of Chapter 3 of Division 1, senior obligation bonds pursuant .... to Article 5 (commencing with Section 53387) of Chapter 2.7, and revenue bonds and other Page22 of40 r p obligations payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the state, local agency or district or by a department, board, agency or authority thereof. (d) Bonds of any public housing agency (as defined in the United States Housing Act of 1937, as amended) [FN2] as are secured by a pledge of annual contributions under an annual contribution contract between the public housing agency and the Public Housing Administration if such contract shall contain the covenant by the Public Housing Administration which is authorized by subsection (b) of Section 22 of the United States Housing Act of 193 7, as amended, and if the maximum sum and the maximum period specified in the contract pursuant to that subsection 22(b) shall not be less than the annual amount and the period for payment which are requisite to. provide for the payment when due of all installments of principal and interest on the obligations. ( e) Registered warrants of this state. (f) Bonds, consolidated bonds, collateral trust debentures, consolidated debentures, or other obligations issued by the United States Postal Service, federal land banks [FN3] or federal intermediate credit banks [FN4] established under the Federal Farm Loan Act, as amended, [FN5] debentures and consolidated debentures issued by the Central Bank for Cooperatives [FN6] and banks for cooperatives established under the Farm Credit Act of 1933, [FN7] as amended, consolidated obligations of the federal home loan banks established under the Federal Home Loan Bank Act, [FN8] bonds, debentures and other obligations of the Federal National Mortgage Association [FN9] or of the Government National Mortgage Association [FNlO] established under the National Housing Act, as amended, [FNl 1] bonds of any federal home loan bank established under that act, bonds, debentures and other obligations of the Federal Home Loan Mortgage Corporation established under the Emergency Home Finance Act of 1970, [FN12] and obligations of the Tennessee Valley Authority. [FN13] (g) Notes, tax anticipation warrants or other evidence of indebtedness issued pursuant to Article 7 (commencing with Section 53820), Article 7.5 (commencing with Section 53840) or Article 7.6 (commencing with Section 53850) of this Chapter 4. (h) State of California notes. (i) Bonds, notes, certificates of indebtedness, warrants or other obligations issued by: (1) any state of the United States (except this state), or the Commonwealth of Puerto Rico, or any local agency thereof having the power to levy taxes, without limit as to rate or amount, to pay the principal and interest of such obligations, or (2) any state of the United States (except this state), or the Commonwealth of Puerto Rico, or a department, board, agency or authority thereof except bonds which provide for or are issued pursuant to a law which may contemplate a subsequent legislative appropriation as an assurance of the continued operation and solvency of the department, board, agency or authority but which does not constitute a valid and binding obligation for which the full faith and credit of such state or the Commonwealth of Puerto Rico are pledged, which are payable solely out of the revenues from a revenue-producing source owned, controlled or operated thereby; provided the obligations issued by an entity described in (1), above, are rated in one of the three highest grades, and such obligations issued by an entity described in (2), above, are rated in one of the two highest grades by a nationally recognized investment service organization that has been engaged regularly in rating state and municipal issues for a period of not less than five years. Page 23 of 40 (j) Obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development, Inter-American Development Bank, the Government Development Bank of Puerto Rico, the Asian Development Bank, the International Finance Corporation, or the African Development Bank. (k) Participation certificates of the Export-Import Bank of the United States. (I) Bonds and notes of the California Housing Finance Agency issued pursuant to Chapter 7 (commencing with Section 51350) of Part 3 of Division 31 of the Health and Safety Code. (m) Promissory notes secured by first mortgages and first trust deeds which comply with Section 53651.2. (n) Any bonds, notes, warrants, or other evidences of indebtedness of a nonprofit corporation issued to finance the construction of a school building or school buildings pursuant to a lease or agreement with a school district entered into in compliance with the provisions of Section 39315 or 81345 of the Education Code, and also any bonds, notes, warrants or other evidences of indebtedness issued to refinance those bonds, notes, warrants, or other evidences of indebtedness as specified in Section 39317 of the Education Code. (o) Any municipal securities, as defined by Section 3(a)(29) of the Securities Exchange Act of June 6, 1934, (15 U.S.C. Sec. 78, as amended), which are issued by this state or any local agency thereof. (p) With the consent of the treasurer, letters of credit issued by the Federal Home Loan Bank of San Francisco which comply with Section 53651.6. § 53651.2. Eligible security; promissory note (a) To be an eligible security under subdivision (m) of Section 53651, a promissory note placed in a securities pool on or after January 1, 1987, shall comply with all of the following provisions: (1) Each promissory note shall be secured by a first mortgage or first trust deed on improved 1 to 4 unit residential real property located in California, shall be fully amortized over the term of the note, and shall have a term of no more than 30 years. Any first mortgage or first trust deed which secures a promissory note providing for negative amortization shall be removed from the securities pool and replaced with an eligible security under subdivision (m) of Section 53651 if the loan to value ratio exceeds 85 percent of the original appraised value of the security property as a consequence of negative amortization. (2) Each promissory note shall be eligible for sale to the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation; provided, however, that up to 25 percent of the total dollar amount of any promiss9ry note securities pool established pursuant to Section 53658 may consist of promissory notes with loan amounts which exceed the maximum amounts eligible for purchase by the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation, but which do not exceed: (i) five hundred thousand dollars ($500,000) in the case of a single family dwelling; (ii) one million dollars ($1,000,000) in 1 the case of a 2, 3, or 4 unit dwelling. Page24 of40 r (b) The following shall not constitute eligible securities under subdivision (m) of Section 53651: ( 1) Any promissory note on which any payment is more than 60 days past due. (2) Any promissory note secured by a mortgage or deed of trust as to which there is a lien prior to the mortgage or deed of trust. For the purposes of this paragraph, no lien specified in Section 766 of the Financial Code shall be considered a prior encumbrance unless any installment or payment thereunder (other than a rental or royalty under a lease) is due and delinquent. (3) Any promissory note secured by a mortgage or deed of trust as to which a notice of default has been recorded pursuant to Section 2924 of the Civil Code or an action has been commenced pursuant to Section 725a of the Code of Civil Procedure. ( c) The depository may exercise, enforce, or waive any right granted to it by the promissory note, mortgage, or deed of trust. (d) For purposes of this article, the market value of a promissory note which is an eligible security under subdivision (m) of Section 53651, shall be determined in accordance with the regulations adopted by the Treasurer under paragraph (2) of subdivision (m) of Section 53651, as the regulations and statute were in. effect on December 31, 1986. However, if and when regulations on the subject are adopted by the administrator, the market value shall be determined in accordance with those regulations of the administrator. § 53651.4. Report of independent certified public accountant~ depository usmg eligible securities; state bank; national bank; fee (a) A depository which uses eligible securities of the class described in subdivision (m) of Section 53651 shall, within 90 days after the close of each calendar year or within a longer period as the administrator may specify, file with the administrator a report of an independent certified public accountant regarding compliance with this article and with regulations and orders issued by the administrator under this article with respect to eligible securities of that class. The report shall be based upon the audit, shall contain the information, and shall be in the form the administrator may prescribe. The depository shall provide a copy of the report to the treasurer on request. (b) If a depository which is a state bank files with the administrator, not less than 90 days before the beginning of the calendar year, a notice that it elects to be examined by the administrator instead of filing a report of an independent certified public accountant under subdivision (a) for that calendar year, the depository shall be exempt from subdivision (a) for that calendar year and shall for that calendar year be subject to examination by the administrator regarding compliance with this article and with regulations and orders under this article with respect to eligible securities of the class described in subdivision (m) of Section 53651. The administrator shall provide a report to a treasurer with deposits in the examined state bank upon request of the treasurer. ( c) A national bank may apply to the administrator to be examined, and the administrator, in his or her discretion, may examine a national bank for the purposes of satisfying the requirements of subdivision (a). The administrator shall provide a report to a treasurer with deposits in the examined national bank upon request of the treasurer. Page 25 of40 ( d) Whenever the administrator examines a depository pursuant to subdivision (b) or ( c ), the depository shall pay, within 30 days after receipt of a statement from the administrator, a fee of two hundred dollars ($200) per day for each examiner engaged in the examination. § 53651.6. Letter of credit; terms (a) To be an eligible security under subdivision (p) of Section 53651, a letter of credit shall be in such form and shall contain such provisions as the administrator may prescribe, and shall include all of the following terms: ( 1) The administrator shall be the beneficiary of the letter of credit. (2) The letter of credit shall be clean and irrevocable and shall provide that the administrator may draw upon it up to the total amount in the event of the failure of the depository savings association or federal association or if the depository savings association or federal association refuses to permit the withdrawal of funds by a treasurer. § 53652. Value required to secure active or inactive deposits; market value To secure active or inactive deposits a depository shall at all times maintain with the agent of depository eligible securities in securities pools, pursuant to Sections 53656 and 53658, in the amounts specified in this section. Uncollected funds shall be excluded from the amount deposited in the depository when determining the security requirements for the deposits. (a) Eligible securities, except eligible securities of the classes described in subdivisions (m) and (p) of Section 53651, shall have a market value of at least 10 percent in excess of the total amount of all deposits of a depository secured by the eligible securities. (b) Eligible securities of the class described in subdivision (m) of Section 53651 shall have a market value at least 50 percent in excess of the total amount of all deposits of a depository secured by those eligible securities. ( c) Eligible securities of the class described in subdivision (p) of Section 53651 shall have a market value of at least 5 percent in excess of the total amount of all deposits of a depository secured by those eligible securities. For purposes of this article, the market value of a letter of credit which is an eligible security under subdivision (p) of Section 53651 shall be the amount of credit stated in the letter of credit. § 53653. Waiver of security; federally insured deposits; interest When in his or her discretion local conditions so warrant, the treasurer may waive security for the portion of any deposits as is insured pursuant to federal law, notwithstanding this article. For deposits equivalent to and not less than the maximum amount insured pursuant to federal law for which a treasurer has waived security under this section, a treasurer at his or her discretion may also waive security for the interest accrued on the deposits which, when added to the deposits, would cause the sum of the interest and deposits to exceed . the maximum amount insured pursuant to federal law, provided that the interest is computed by the depository on the average daily balance of the deposits, paid monthly and computed on a 360-day basis. Page 26 of40 1 r § 53654. Addition or substitution of securities; withdrawal or release of securities (a) The depository may add securities to the pool or substitute securities of equal value for those in the pool at any time, but shall not interchange classes of security, as defined in Section 53632.5, without prior approval of the treasurer. (b) Withdrawal of securities from the pool without replacement at equal value may be ordered only by two duly authorized officers or employees of the depository who satisfy the requirements as may be set by the administrator. ( c) The agent of depository is responsible for the safekeeping and disbursement of securities placed in its custody by a depository. It shall release securities only upon presentation by the depository of the most reasonably current statement of the total deposits subject to this article held by the depository, such statement to be verified and countersigned by two duly authorized officers, other than those who ordered the withdrawal of securities. A copy of this statement shall be forwarded to the administrator concurrently by the agent of depository. § 53655. Perfection of security interest in favor oflocal agencies A placement of securities by a depository with an agent of depository pursuant to this article shall have the effect of perfecting a security interest in those securities in the local agencies having deposits in that depository notwithstanding provisions of the Uniform Commercial Code to the contrary and notwithstanding that the agent of depository may be the trust department of the depository. § 53656. Authorization for holding of security by agent of depository; agents of depository; securities subject to order of depository; exception (a) At the time the treasurer enters into a contract with the depository pursuant to Section 53649, he or she shall authorize the agent of depository designated by the depository, but including the trust department of the depository only when acceptable to both the treasurer and the depository, to hold securities of the depository in accordance with this article to secure the deposit of the local agency. (b) Only those trust companies and trust departments, or the Federal Home Loan Bank of San Francisco, which have been authorized by the administrator pursuant to Section 53657 shall be authorized by treasurers to act as agents of depository. (c) The securities are subject to order of the depository in accordance with Section 53654 except when the provisions of subdivision (i) of Section 53661 and Section 53665 are in effect. § 53657. Authorization to act as agent of depository; application; form; fee; approval or denial (a) No person shall act as an agent of depository unless that person is a trust company located in this state, the trust department of a bank located in this state, or the Federal Home Loan Bank of San Fr~cisco, and is authorized by the administrator to act as an agent of depository. (b)(l) An application for authorization shall be in such form, shail contain such information, shall be signed in such manner, and shall (if the administrator so requires) be verified in such manner, as the administrator may prescribe. Page 27 of 40 . (2) The fee for filing an application for authorization with the administrator shall be five hundred dollars ($500). (3) If the administrator finds, with respect to an application for authorization, that the applicant is competent to act as an agent of depository and that it is reasonable to believe the applicant will comply with all applicable provisions of this article and of any regulation or order issued under this article, the administrator shall approve the application. If the administrator finds otherwise, the administrator shall deny the application. (4) When an application for authorization has been approved, the applicant shall file with the administrator an agreement to comply with all applicable provisions of this article and of any regulation or order issued under this article. The agreement shall be in such form, shall contain such provisions, and shall be signed in such manner as the administrator may prescribe. (5) When an application for authorization has been approved, the applicant has complied with paragraph ( 4 ), and all conditions precedent to authorizing the applicant to act as agent of depository have been fulfilled, the administrator shall authorize the applicant to act as agent of depository. § 53658. Maintenance of separate pool for each depository; security interest of local agency An agent of a depository may hold and pool securities to secure deposits for one or more depositories pursuant to Section 53656, but shall maintain a separate pool for each said depository. Each local agency shall have an undivided security interest in the pooled securities in the proportion that the amount of its deposits bears to the total amount of deposits secured by the pooled securities. § 53659. Placement of securities with federal reserve or other approved bank; authority by contract Whenever an agent of depository accepts securities pursuant to Section 53656 it may, with the authorization of the depository, place such securities for safekeeping with a Federal Reserve Bank or branch thereof or with any bank located in a city designated as a reserve city by the Board of Governors of the Federal Reserve System or with the Federal Home Loan Bank of San Francisco or with a trust company located in this state. Authority for such placement together with the names of the banks or, including the Federal Home Loan Bank of San Francisco, trust companies to be so used, shall be contained in the contract between the treasurer and the depository required in Section 53649. § 53660. Certification and report by agent of depository When deposits of a local agency are secured by pooled securities pursuant to Section 53656, the agent of depository shall make available to the treasurer for review at a mutually agreed upon time and location all of the following information which may be in the form of a copy of the report required in subdivision ( e) of Section 53661: l (a) A certification that there are securities in the pool in the amounts required by Section 53652 1 to secure deposits. Page28 of40 p - (b) A certified report of the individual securities then on deposit in the pool with the location and total market value thereof. ( c) The total amount of deposits then reported by the depository to be secured by the pool. § 53661. Administrator (a) The Superintendent of Banks shall act as Administrator of Local Agency Security and shall be responsible for the administration of Sections 53638, 53651, 53651.2, 53651.4, 53651.6, 53652,53654,53655,53656,53657,53658,53659,53660,53661,53663,53664,53665, 53666, and 53667. (b) The administrator shall have the powers necessary or convenient to administer and enforce the sections specified in subdivision (a). (c)(l) The administrator shall issue regulations consistent with law as the administrator may deem necessary or advisable in executing the powers, duties, and responsibilities assigned by this article. The regulations may include regulations prescribing standards for the valuation, marketability, and liquidity of the eligible securities of the class described in subdivision (m) of Section 53651, regulations prescribing procedures and documentation for adding, withdrawing, substituting, and holding pooled securities, and regulations prescribing the form, content, and execution of any application, report, or other document called for in any of the sections specified in subdivision (a) or in any regulation or order issued under any of those sections. (2) The administrator, for good cause, may waive any provision of any regulation adopted pursuant to paragraph (1) or any order issued under this article, where the provision is not necessary in the public interest. (d) The administrator may enter into any contracts or agreements as may be necessary, including joint underwriting agreements, to sell or liquidate eligible securities securing local agency deposits in the event of the failure of the depository or if the depository fails to pay all or part of the deposits of a local agency. ( e) The administrator shall require from every depository a report certified by the agent of depository listing all securities, and the market value thereof, which are securing local agency deposits together with the total deposits then secured by the pool, to determine whether there is compliance with Section 53652. These reports may be required whenever deemed necessary by the administrator, but shall be required at least four times each year at the times designated by the Comptroller of the Currency for reports from national banking associations. These reports shall be filed in the office of the administrator by the depository within 20 business days of the date the administrator calls for the report. (f) The administrator may have access to reports of examination made by the Comptroller of the Currency insofar as the reports relate to national banking association trust department activities which are subject to this article. (g)(l) The administrator shall require the immediate substitution of an eligible security, where the substitution is necessary for compliance with Section 53652, if (i) the administrator determines that a security listed in Section 53651 is not qualified to secure public deposits, or (ii) a treasurer, who has deposits secured by the securities pool, provides written notice to the Page29 of40 administrator and the administrator confirms that a security in the pool is not qualified to secure public deposits. (2) The failure of a depository to:substitute securities, where the administrator has required the substitution, spall be reported by the administrator promptly to those treasurers having money on deposit in that depository and, in addition, shall be reported as follows: (A) When that depository is a national bank, to the Comptroller of the Currency of the United States. (B) When that depository is a state bank, to the Superintendent of Banks. (C) When that depository is a federal association, to the Federal Home Loan Bank Board. (D) When that depository is a savings association, to the Savings and Loan Commissioner. (E) When that depository is a federal credit union, to the National Credit Union Administration. (F) When that depository is a state credit union or a federally insured industrial loan company, to the Commissioner of Corporations. · (h) The administrator may require from each treasurer a registration report and at appropriate times a report stating the amount and location of each deposit together with other information deemed necessary by the administrator for effective operation of this article. The facts recited in any report from a treasurer to the administrator are conclusively presumed to be true for the single purpose of the administrator fulfilling responsibilities assigned to him or her by this article and for no other purpose. (i)(l) If, after notice and opportunity for hearing, the administrator finds that any depository or agent of depository has violated or is violating, or that there is reasonable cause to believe that any depository or agent of depository is about to violate, any of the sections specified in subdivision (a) or any regulation or order issued under any of those sections, the administrator may order the depository or agent of depository to cease and desist from the violation or may by order suspend or revoke the authorization of the agent of depository. The order may require the depository or agent of depository to take affirmative action to correct any condition resulting from the violation. (2)(A) If the administrator makes any of the findings set forth in paragraph (1) with respect to any depository or agent of depository and, in addition, finds that the violation or the continuation of the violation is likely to seriously prejudice the interests of treasurers, the administrator may order the depository or agent of depository to cease and desist from the violation or may suspend or revoke the authorization of the agent of depository. The order may require the depository or agent of depository to take affirmative action to correct any condition resulting from the violation. (B) Within five business days after an order is issued under subparagraph (A), the depository or agent of depository may file with the administrator an application for a hearing on the order. The 1 administrator shall schedule a hearing at least 30 days, but not more than 40 days, after receipt of 1 an application for a hearing or within a shorter or longer period of time agreed to by a depository or an agent of depository. If the administrator fails to schedule the hearing within the specified Page 30 of40 r or agreed to time period, the order shall be deemed rescinded. Within 30 days after the hearing, the administrator shall affirm, modify, or rescind the order; otherwise, the order shall be deemed rescinded. The right of a depository or agent of depository to which an order is issued under subparagraph (A) to petition for judicial review of the order shall not be affected by the failure of the depository or agent of depository to apply to the administrator for a hearing on the order pursuant to this subparagraph. (3) Whenever the administrator issues a cease and desist order under paragraph (1) or (2), the administrator may in the order restrict the right of the depository to withdraw securities from a security pool; and, in that event, both the depository to which the order is directed and the agent of depository which holds the security pool shall comply with the restriction. (4) In case the administrator issues an order under paragraph (1) or (2) suspending or revoking the authorization of an agent of depository, the administrator may order the agent of depository at its own expense to transfer all pooled securities held by it to such agent of depository as the administrator may designate in the order. The agent of depository designated in the order shall accept and hold the pooled securities in accordance with this article and regulations and orders issued under this article. G) In the discretion of the administrator, whenever it appears to the administrator that any person has violated or is violating, or that there is reasonable cause to believe that any person is about to violate, any of the sections specified in subdivision (a) or any regulation or order issued thereunder, the administrator may bring an action in the name of the people of the State of California in the superior court to enjoin the violation or to enforce compliance with those sections or any regulation or order issued thereunder. Upon a proper showing a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted, and the court may not require the administrator to post a bond. (k) In addition to other remedies, the administrator shall have the power and authority to impose the following sanctions for noncompliance with the sections specified in subdivision (a) after a hearing if requested by the party deemed in noncompliance. Any fine assessed pursuant to this subdivision shall be paid within 30 days after receipt of the assessment. (1) Assess against and collect from a depository a fine not to exceed two hundred fifty dollars ($250) for each day the depository fails to maintain with the agent of depository securities as required by Section 53652. (2) Assess against and collect from a depository a fine not to exceed one hundred dollars ($100) for each day beyond the time period specified in subdivision (b) of Section 53663 the depository negligently or willfully fails to file in the office of the administrator a written report required by that section. (3) Assess against and collect from a depository a fine not to exceed one hundred dollars ($100) for each day beyond the time period specified in subdivision ( e) that .a depository negligently or willfully fails to file m the office of the administrator a written report required by that subdivision. (4) Assess and collect from an agent of depository a fme not to exceed one hundred ·dollars ($100) for each day the agent of depository fails to comply with any of the applicable sections specified in subdivision (a) or any applicable regulation or order issued thereunder. Page 31of40 I \ (1 )(1) In the event that a depository or agent of depository fails to pay a fine assessed by the administrator pursuant to subdivision (k) within 30 days of receipt of the assessment, the administrator may assess and collect an additional penalty of 5 percent of the fine for each month or part thereof that the payment is delinquent. (2) If a depository fails to pay the fines or penalties assessed by the administrator, the administrator may notify local agency treasurers with deposits in the depository. (3) If an agent of depository fails to pay the fines or penalties assessed by the administrator, the administrator may notify local agency treasurers who have authorized the agent of depository as provided in Sections 53649 and 53656, and may by order revoke the authorization of the agent of depository as provided in subdivision (i). § 53661. Administrator (a) The Commissioner of Financial Institutions shall act as Administrator of Local Agency Security and shall be responsible for the administration of Sections 53638, 53651, 53651.2, 53651.4, 53651.6, 53652, 53654, 53655, 53656, 53657, 53658, 53659, 53660, 53661, 53663, 53664, 53665, 53666, and 53667. (b) The administrator shall have the powers necessary or convenient to administer and enforce the sections specified in subdivision (a). ( c )( 1) The administrator shall issue regulations consistent with law as the administrator may deem necessary or advisable in executing the powers, duties, and responsibilities assigned by this article. The regulations may include regulations prescribing standards for the valuation, marketability, and liquidity of the eligible securities of the class described in subdivision (m) of Section 53651, regulations prescribing procedures and documentation for adding, withdrawing, substituting, and holding pooled securities, and regulations prescribing the form, content, and execution of any application, report, or other document called for in any of the sections specified in subdivision (a) or in any regulation or order issued under any of those sections. (2) The administrator, for good cause, may waive any provision of any regulation adopted pursuant to paragraph (1) or any order issued under this article, where the provision is not necessary in the public interest. (d) The administrator may enter into any contracts or agreements as may be necessary, including joint underwriting agreements, to sell or liquidate eligible securities securing local agency deposits in the event of the failure of the depository or if the depository fails to pay all or part of the deposits of a local agency. ( e) The administrator shall require from every depository a report certified by the agent of depository listing all securities, and the market value thereof, which are securing local agency deposits together with the total deposits then secured by the pool, to determine whether there is compliance with Section 53652. These reports may be required whenever deemed necessary by the administrator, but shall be required at least four times each year at the times designated by the Comptroller of the Currency for reports from national banking associations. These reports shall be filed in the office of the administrator by the depository within 20 business days of the date the administrator calls for the report. Page 32 of40 - 1 r .. (f) The administrator may have access to reports of examination made by the Comptroller of the Currency insofar as the reports relate to national banking association trust department activities which are subject to this article. (g)(l) The administrator shall require the immediate substitution of an eligible security, where the substitution is necessary for compliance with Section 53652, if (i) the administrator determines that a security listed in Section 53651 is not qualified to secure public deposits, or (ii) a treasurer, who has deposits secured by the securities pool, provides written notice to the administrator and the administrator confirms that a security in the pool is not qualified to secure public deposits. (2) The failure of a depository to substitute securities, where the administrator has required the substitution, shall be reported by the administrator promptly to those treasurers having money on deposit in that depository and, in addition, shall be reported as follows: (A) When that depository is a national bank, to the Comptroller of the Currency of the United States. (B) When that depository is a state bank, to the Commissioner of Financial Institutions. (C) When that depository is a federal association, to the Office of Thrift Supervision. (D) When that depository is a savings association, to the Commissioner of Financial Institutions. (E) When that depository is a federal credit union, to the National Credit Union Administration. (F) When that depository is a state credit union or a federally insured industrial loan company, to the Commissioner of Financial Institutions. (h) The administrator may require from each treasurer a registration report and at appropriate times a report stating the amount and location of each deposit together with other information deemed necessary by the administrator for effective operation of this article. The facts recited in any report from a treasurer to the administrator are conclusively presumed to be true for the single purpose of the administrator fulfilling responsibilities assigned to him or her by this article and for no other purpose. (i)(l) If, after notice and opportunity for hearing, the administrator finds that any depository or agent of depository has violated or is violating, or that there is reasonable cause to believe that any depository or agent of depository is about to violate, any of the sections specified in subdivision (a) or any regulation or order issued under any of those sections, the administrator may order the depository or agent of depository to cease and desist from the violation or may by order suspend or revoke the authorization of the agent of depository. The order may require the depository or agent of depository to take affirmative action to correct any condition resulting from the violation . Page 33 of40 (2)(A) If the administrator makes any of the findings set forth in paragraph (1) with respect to any depository or agent of depository and, in addition, finds that the violation or the continuation of the violation is likely to seriously prejudice the interests of treasurers, the administrator may order the depository or agent of depository to cease and desist from the violation or may suspend or revoke the authorization of the agent of depository. The order may require the depository or agent of depository to take affirmative action to correct any condition resulting from the violation. (B) Within five business days after an order is issued under subparagraph (A), the depository or agent of depository may file with the administrator an application for a hearing on the order. The administrator shall schedule a hearing at least 30 days, but not more than 40 days, after receipt of an application for a hearing or within a shorter or longer period of time agreed to by a depository or an agent of depository. If the administrator fails to schedule the hearing within the specified or agreed to time period, the order shall be deemed rescinded. Within 30 days after the hearing, the administrator shall affirm, modify, or rescind the order; otherwise, the order shall be deemed rescinded. The right of a depository or agent of depository to which an order is issued under subparagraph (A) to petition for judicial review of the order shall not be affected by the failure of the depository or agent of depository to apply to the administrator for a hearing on the order pursuant to this subparagraph. (3) Whenever the administrator issues a cease and desist order under paragraph (1) or (2), the administrator may in the order restrict the right of the depository to withdraw securities from a security pool; and, in that event, both the depository to which the order is directed and the agent of depository which holds the security pool shall comply with the restriction. (4) In case the administrator issues an order under paragraph (1) or (2) suspending or revoking the authorization of an agent of depository, the administrator may order the agent of depository at its own expense to transfer all pooled securities held by it to such agent of depository as the administrator may designate in the order. The agent of depository designated in the order shall accept and hold the pooled securities in accordance with this article and regulations and orders issued under this article. G) In the discretion of the administrator, whenever it appears to the administrator that any person has violated or is violating, or that there is reasonable cause to believe that any person is about to violate, any of the sections specified in subdivision (a) or any regulation or order issued thereunder, the administrator may bring an action in the name of the people of the State of California in the superior court to enjoin the violation or to enforce compliance with those sections or any regulation or order issued thereunder. Upon a proper showing a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted, and the court may not require the administrator to post a bond. (k) In addition to other remedies, the administrator shall have the power and authority to impose the following sanctions for noncompliance with the sections specified in subdivision (a) after a hearing if requested by the party deemed in noncompliance. Any fine assessed pursuant to this subdivision shall be paid within 30 days after receipt of the assessment. (1) Assess against and collect from a depository a fine not to exceed two hundred fifty dollars ($250) for each day the depository fails to maintain with the agent of depository securities as • required by Section 53652. Page 34 of40 r .. (2) Assess against and collect from a depository a fine not to exceed one hundred dollars ($100) for each day beyond the time period specified in subdivision (b) of Section 53663 the depository negligently or willfully fails to file in the office of the administrator a written report required by that section. (3) Assess against and collect from a depository a fine not to exceed one hundred dollars ($100) for each day beyond the time period specified in subdivision ( e) that a depository negligently or willfully fails to file in the office of the administrator a written report required by that subdivision. (4) Assess and collect from an agent of depository a fine not to exceed one hundred dollars ($100) for each day the agent of depository fails to comply with any of the applicable sections specified in subdivision (a) or any applicable regulation or order issued thereunder. (1)(1) In the event that a depository or agent of depository fails to pay a fine assessed by the administrator pursuant to subdivision (k) within 30 days of receipt of the assessment, the administrator may assess and collect an additional penalty of 5 percent of the fine for each month or part thereof that the payment is delinquent. (2) If a depository fails to pay the fines or penalties assessed by the administrator, the administrator may notify local agency treasurers with deposits in the depository. (3) If an agent of depository fails to pay the fines or penalties assessed by the administrator, the administrator may notify local agency treasurers who have authorized the agent of depository as provided in Sections 53649 and 53656, and may by order revoke the authorization of the agent of depository as provided in subdivision (i). § 53663. Determination of amounts to be deposited as inactive and active deposits (a) Each agent of depository shall report in writing to the administrator within two business days after any withdrawal, substitution or addition of pooled securities and shall state the name and market value of the securities withdrawn, substituted or added together with the total deposits then secured by the pool. This information shall be available from the administrator to the treasurer upon request. (b) Each depository shall report in writing to the administrator weekly, giving the total amount of all deposits held by such depository pursuant to this article. Such report shall be as of close of business on Wednesday of each week and shall be delivered to the office of the administrator or deposited in the United States mail, postage prepaid, addressed to the office of the administrator, within five business days. Where there has occurred no change in the deposits required to be held by the depository pursuant to this article, the report required by this subdivision need only state that fact. § 53664. Individual reports; privileged status The individual reports specified in Sections 53654, 53660, 53661, and 53663 are not public documents and are not open to inspection by the public . § 53665. Default by depository; payment by agent of depository; excess funds; drawing on letter of credit Page 35of40 If a depository fails to pay all or part of the deposits of a local agency secured by pooled securities in accordance with the contract provided for in Section 53649, and on demand of its treasurer or other authorized official and the treasurer files a report with the administrator, or if the depository fails: (a) In case the pooled securities consist of securities other than securities of the class described in subdivision (p) of Section 53651, the administrator shall order the agent of depository holding the pooled securities to convert into money that portion of the pooled securities necessary to produce an amount equal to the sum of (i) the deposits of the local agency, (ii) any accrued interest due on the deposits, and (iii) the reasonable expenses of the agent of depository in complying with the order of the administrator and to pay the sum of items (i) and (ii) to the treasurer in satisfaction of the deposits. The agent of depository shall be reimbursed out of the proceeds of the conversion for its reasonable expenses in complying with the order of the administrator, as approved by the administrator. Any excess moneys resulting from the conversion shall be retained by the agent of depository as part of the secl:trities pool until the depository substitutes for the excess moneys securities having a market value sufficient to bring the total of pooled securities up to the amount required by Section 53652. (b) In case the pooled securities consist of a security of the class described in subdivision (p) of Section 53651, the administrator shall draw on the letter of credit an amount equal to the sum of (i) the deposits of the local agency, (ii) any accrued interest on the deposits, and (iii) the reasonable expenses of the administrator in paying the deposits and pay the sum of items (i) and (ii) to the treasurer in satisfaction of the deposits. § 53666. Liability of administrator The only liability that shall attach to the administrator as the result of the operation of this article is that which would attach as a result of other laws of this state. § 53667. Expenses of administrator; levy of assessment on depositories; payments; penalty (a) Expenses incurred by the administrator in carrying out the duties and responsibilities assigned to the administrator by the sections specified in subdivision (a) of Section 53661, shall be borne by the Local Agency Deposit Security Fund, which is hereby created and continuously appropriated to the administrator for the administration of the sections specified in subdivision (a) of Section 53661. This fund shall consist of fines levied pursuant to Section 53661, fees collected pursuant to the sections specified in subdivision (a) of Section 53661, and assessments levied pursuant to this section. (b) Each fiscal year the administrator shall levy an assessment on a pro rata basis on those depositories which at any time during the preceding fiscal year held local agency deposits. The total assessment levied on all of those depositories shall be in an amount which, when added to the amount of fines and fees that the administrator estimates will be collected during the fiscal year when the assessment is levied, is sufficient in the judgment of the administrator to meet the expenses of the administrator in administering the sections specified in subdivision (a) of Section 53661 and to provide a reasonable reserve for contingencies. The basis of the apportionment of the assessment among the depositories assessed shall be the proportion that the average amount 1 of local agency deposits held by each of those depositories bears to the average total amount of 1 local agency deposits held by all of those depositories as shown by the reports of depositories to the administrator for the preceding fiscal year, as required in subdivision ( e) of Section 53661; Page 36of40 r provided, however, that the amount of the assessment levied on each of those depositories shall be not less than twenty-five dollars ($25). · ( c) The administrator shall notify each depository by mail of the amount levied against it. The depository shall pay the amount levied within 20 days after such notice into the Local Agency Deposit Security Fund for the administration of the sections specified in subdivision (a) of Section 53661. If payment is not made to the administrator within such time, the administrator shall assess and collect, in addition to the annual assessment, a penalty of 5 percent of the assessment for each month or part thereof that the payment is delinquent. If a depository fails to pay the assessment or penalties assessed by the administrator, the administrator may notify local agency treasurers with deposits in the depository. § 53669. Responsibility for money on deposit The treasurer or other authorized official is not responsible for money while it is deposited pursuant to this article. § 53676. Treasurer's responsibility for securities The treasurer is not responsible for securities delivered to and receipted for by any bank, savings and loan association, credit union, federally insured industrial loan company, or trust company. § 53678. Charges for handling and safekeeping of securities The charges for the handling and safekeeping of any such securities are not a charge against the treasurer but shall be paid by the depository owning the securities. § 53679. Money under control or coming into possession of officers and employees other than treasurer So far as possible all money belonging to a local agency under the control of any of its officers or employees other than the treasurer or a judge or officer of a justice or municipal court shall, and all money coming into the possession of a judge or officer of a justice or municipal court may, be deposited as active deposits in the state or national bank, inactive deposits in the state or national bank or state or federal association, federal or state credit union, or federally insured industrial loan company in this state selected by the officer, employee, or judge of the court. For purposes of this section, an officer or employee of a local agency and a judge or officer of a justice or municipal court are prohibited from depositing local agency funds or money coming into their possession into a state or federal credit union if an officer or employee of the local agency, or a judge or officer of a justice or municipal court, also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or supervisory committee, of the particular state or federal credit union. Such money is subject to this article except: (a) Deposits in an amount less than that insured pursuant to federal law are not subject to this article. · For deposits in excess of the amount insured under any federal law a contract in accordance with Section 53649 is required and the provisions of this article shall apply. Page 37 of 40 (b) Interest is not required on money deposited in an active deposit by a judge or officer of a justice or municipal court. ( c) Interest is not required on money deposited in an active deposit by an officer having control of a revolving fund created pursuant to Chapter 2 (commencing with Section 29300) of Division 3 of Title 3. ( d) Interest is not required on money deposited in an active deposit by an officer having control of a special fund established pursuant to Articles 5 (commencing with Section 29400) or 6 (commencing with Section 29430) of Chapter 2 of Division 3 of Title 3. § 53679.1. Accounting practices; declaration of existing law Notwithstanding any other provision of law, the accounting practices of each county utilized prior to the effective date of this section relating to interest on trust funds shall be deemed appropriate and to have been made under the direction of the board of supervisors of that county. This section is declaratory of the law in existence prior to the enactment of this section. § 53680. Money under control of tax collectors A tax collector of a local agency shall immediately deposit with the treasurer all money under his control, unless he deposits the money in a depositary pursuant to this article under permission and instructions of the treasurer having authority to make such deposit. § 53681. Deposit in other than prescribed manner; forfeiture of office An officer or employee of a local agency who deposits money belonging to, or in the custody of, 1 the local agency in any other manner than that prescribed in this article is subject to forfeiture of his office or employment. § 53682. Contracts for services by depository; requirements Notwithstanding any other provision in this article except Section 53652, the treasurer may deposit moneys in and enter into contracts with any depository, as defined in subdivision ( c) of Section 53630, for services to be rendered by that depository that in the treasurer's judgment are to the public advantage. One copy of each contract entered into under this section shall be filed with the auditor or corresponding officer of the local agency. The contract shall: (a) Fix the duration of compensating deposits, if any. (b) Fix the interest rate of that compensating deposit, if any. (c) Specify the services to be rendered by the depository. ( d) Indicate whether the depository shall bear the expenses of transportation of the money to and from the depository. ( e) Fix the consideration payable by the agency for such services. Page 38 of40 r (f) Specify who may deposit moneys into the treasurer's active account and how those persons are to make those deposits. § 53683. Consideration as costs applied pro rata against earned interest Notwithstanding any other provision in this article, the consideration payable by the agency as specified in subdivision (e) of Section 53682 shall be paid by the treasurer by applying such consideration as costs applied on a pro rata basis against the interest earned by all the agencies for which the treasurer invests. § 53684. Local agencies; excess funds; investment by county treasurer (a) Unless otherwise provided by law, if the treasurer of any local agency, or other official responsible for the funds of the local agency, determines that the local agency has excess funds which are not required for immediate use, the treasurer or other official may, upon the adoption of a resolution by the legislative or governing body of the local agency authorizing the investment of funds pursuant to this section and with the consent of the county treasurer, deposit the excess funds in the county treasury for the purpose of investment by the county treasurer pursuant to Section 53601 or 53635. (b) The county treasurer shall, quarterly, apportion any interest or other increment derived from the investment of funds pursuant to this section in an amount proportionate to the average daily balance of the amounts deposited by the local agency and district. Prior to distributing that interest or increment, the county treasurer may deduct the actual costs incurred by the county in administering this section in proportion to the average daily balance of the amounts deposited by the local agency. ( c) The treasurer or other official responsible for the funds of the local agency may withdraw the funds of the local agency at any time but shall give the county treasurer 30 days' written notice of his or her intent to withdraw the funds. ( d) Any moneys deposited in the county treasury for investment pursuant to this section are not subject to impoundment or seizure by any county official or agency while the funds are so deposited. (e) This section is not operative in any county until the board of supervisors of the county, by majority vote, adopts a resolution making this section operative in the county. (f) It is the intent of the Legislature in enacting this section to provide an alternative procedure to Section 51301 for local agencies to deposit money in the county treasury for investment purposes. Nothing in this section shall, therefore, be construed as a limitation on the authority of a county and a city to contract for the county treasurer to perform treasury functions for a city pursuant to Section 51301. Page 39 of40 § 53686. Local agency fund audit reports (a) Any audit conducted relating to the investment of local agency funds and other funds by the county treasurer in the county fund maintained pursuant to Section 53684 shall be rendered to the depositary, the auditor, the controller, the secretary, or the corresponding officer of the local agency, the treasurer or other official responsible for the funds of any local agency that has funds on deposit in the county treasury, and the presiding judge of any superior court that has ordered, pursuant to Section 3412, Section 3413, or Section 3611 of the Probate Code, that assets of an estate be deposited with the county treasurer for deposit or investment. (b) Any report rendered pursuant to Section 53646 shall be provided to the treasurer or other official responsible for the funds of any local agency that has funds on deposit in the county treasury. •Source: West's Annotated California Codes, 1998 H:\wp.dta\fin\210\kozak\GOALS\GOVCODE3A.DOC Page40of40 .... 1 r ............................................ I l~I I r APPENDIX "D" ··············································-···-·-······-·-···· ··················-··-··-····· ............................... , I :mi I "·-··-··' I I [_ • APPENDIX "D" GLOSSARY OF INVESTMENT TERMS ACCRUED INTEREST. The amount of interest that is earned but unpaid since the last interest payment date. ADJUSTABLE RATE NOTE. (See Floating Rate Note) AMORTIZED COST. Measure of the cost of a security whereby the cost value will change over time as the discount or premium paid for the security is gradually incorporated into the principal value as interest payments are received. ASKED PRICE. The price at which a seller offers to sell a security. ASSET-BACKED SECURITIES. Securities collateralized with consumer receivables, such as automobile loans, credit card receivables, or home equity loans, which are owned by the issuer, but placed with a trustee for the benefit of the investor. AVERAGE LIFE. In mortgage-related investments, including CMOs, the average time to expected receipt of principal payments, weighted by the amount of principal expected. BANKER'S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It is highly liquid and safe because the risk of the trade transaction is transferred to the bank which "accepts" the obligation to pay the investor. BASIS POINT. When a yield is expressed as 7 .32%, the digits to the right of the decimal point are known as basis points. One basis point equals 1/100 of one percent. Basis points are used more often to describe changes in yields on bonds, notes and other fixed-income securities. BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index which reflects the mix of securities allowed under a specific investment policy. BID PRICE. The price at which a buyer offers to buy a security. BOOK ENTRY. The system, maintained by the Federal Reserve, by which most money market securities are "delivered" to an investor's custodian bank. The Federal Reserve maintains a computerized record of the ownership of these securities, and records any changes in ownership corresponding to payments made over the Federal Reserve wire (delivery versus payment). These securities do not receive physical certificates . Page 1of9 BOOK VALUE. The original cost of the investment, plus accrued interest and amortization of any premium or discount. BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A broker does not sell securities from his own position. BULLET STRUCTURE. A portfolio strategy in which a manager overweights both the short and long end of the yield curve, and underweights the middle part of the curve. CALLABLE BONDS. Bonds which may be redeemed by the issuing company prior to the maturity date. CAPITAL GAIN/LOSS. The profit or loss realized from the sale of a capital asset. CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. Large denomination CDs may be marketable. COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also, securities pledged by a financial institution to secure deposits of public moneys. COLLA TERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds which redistribute the cash flows of mortgage securities (and whole loans) to create securities which have different levels of prepayment risk, as compared to the underlying mortgage securities COMMERCIAL PAPER. The short-term unsecured debt of corporations. CONDITIONAL PREPAYMENT RA TE (CPR). A measure of mortgage prepayment activity. It assumes that a constant fraction of the principal prepays each month and is based on the previous month's remaining balance. The rate is expressed as an annualized percentage. For instance, a CPR of 6% indicates that each month 6% of the remaining principal balance prepays on an annualized basis. CONSUMER RECEIVABLE-BACKED BONDS. (See Receivable-Backed Securities). CONVEXITY. The rate of change in a bond's price as duration changes. It is a particularly important component of price change for longer term bonds, or for large changes in interest rates. COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not give effect to premiums and discounts which may have been included in the purchase cost, it is an incomplete measure of return. Page 2 of 9 4 r COUPON. The rate at which a bond pays interest. CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer. CURRENT YIELD. The annual income from an investment divided by the current market value. Since the mathematical calculation relies on the current market value rather than the investor's cost, current yield is unrelated to the actual return the investor will earn if the security is held to maturity. CUSTODIAN. A bank or other financial institution that keeps custody of stock certificates and other assets. DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position. DEBENTURE. A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT (DVP). Delivery of securities with a simultaneous exchange of money for the securities. DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of another security which has been separated from other components ("Stripped" coupons and principal). A derivative is also defined as a financial instrument the value of which is totally or partially derived from the value of another instrument, interest rate or index. DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some short-term securities, such as Tbills and banker's acceptances, are known as discount securities. They sell at a discount from par, and return the par value to the investor at maturity without additional interest. Other securities, which have fixed coupons trade at a discount when the coupon rate is lower than the current market rate for securities of that maturity and/or quality. DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to any one source of risk. DOLLAR-WEIGHTED AVERAGE MATURITY. A calculation that expresses the "average maturity" of an investment portfolio using each investment's maturity weighted by the size of that investment Page 3of9 DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration and effective duration). EFFECTIVE DURATION. Measures the price volatility of a fixed income security that contains embedded options. A more accurate measure of price volatility when the cash flow characteristics of the bond change when interest rates shift. FEDERAL FUNDS RA TE. The rate of interest charged by banks for short term loans to other banks. It is established by the Federal Reserve Bank through open- market operations. FEDERAL OPEN MARKET COMMITTEE (FOMC). A committee of the Federal Reserve Board which establishes monetary policy and executes it through temporary and permanent changes to the supply of bank reserves. FEDERAL RESERVE SYSTEM. A U.S. centralized banking system which has supervisory powers over the 12 Federal Reserve banks and about 6,000 member banks. FIXED-INCOME SECURITIES. Securities which return a fixed income over a specified period. FLOATING RA TE NOTE. A debt security whose interest rate is reset periodically (monthly, quarterly, annually) and is based on a market index (e.g. Treasury bills, LIBOR, etc.). INTEREST. The amount earned while owning a debt security, generally calculated as a percentage of the principal amount. LADDER STRUCTURE. A portfolio strategy in which a manager attempts to weight securities equally across the yield curve. LEVERAGE. Borrowing funds in order to invest in securities which have the potential to pay earnings at a rate higher than the cost of borrowing. LIQUIDITY. The speed and ease with which an asset can be converted to cash. LOCAL AGENCY. County, city, city and county, including a chartered city or county, school district, community college district, public district, county board of education, county superintendent of schools, or any public or municipal corporation~ · MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest rates. Page 4 of 9 - .... • MARK-TO-MARKET. The market valuation for every security in a portfolio used in determining Net Asset Valee (NAV). MARKET VALUE. The price at which a security can be traded. MATURITY. The final date upon which the principal of a security becomes due and ~ payable. I MEDIUM TERM NOTES (MTN). Debt securities issued by a corporation or depository institution with a maturity ranging from nine months to five years. The term "medium-term notes" refers to the time it takes for an obligation to mature, and includes other corporate debt securities originally issued for maturities longer than five years, but which have now fallen within the five year maturity range. MTNs issued by banks are also called "bank notes." MODIFIED DURATION. Measures the percentage price volatility of a fixed income security or portfolio. Modified duration approximates the change in price for small changes in interest rates, assuming that the cash flow characteristics do not change when the yield curve shifts. MONEY MARKET. The market in which short term debt instruments (Tbills, discount notes, commercial paper and banker's acceptances) are issued and traded. MORTGAGE PASS THROUGH SECURITIES. Securities collateralized with residential mortgage loans, the principal and interest payments of which are distributed, or "passed-through" to the investor. Many of these securities are issued by agencies of the federal government, including GNMA and FHLMC. MONEY MARKET MUTUAL FUNDS. An investment company that pools money from investors and invest in a variety of short-term money market instruments. The Net Asset Value (NAV) of these funds should remain at $1.00; however, it is not guaranteed. MOODY'S INVESTORS SERVICE, INC. (See Nationally Recognized Rating Services) MUNICIPAL DEBT. Issued by public entities to meet capital needs. NATIONALLY RECOGNIZED RA TING SERVICES. Firms that review the creditworthiness of the issuers of debt securities, and express their opinion in the form of letter ratings (e.g. AAA, AA, A, BBB, etc.) The primary rating agencies include Standard & Poor's Corporation; Moody's Investor Services, Inc.; Fitch Investors Service; Duff & Phelps Investment Service; Thompson, BankWatch and International Bank Credit Analyst. Page 5of9 NEGATIVE CONVEXITY. A phenomenon associated with bonds which have embedded call options, it measures the rate at which duration of a callable bond gets smaller as interest rates fall. Negative convexity is an undesirable characteristics in bonds. NEGOTIABLE CD. (See Certificates of Deposit) NET ASSET VALUE (NAV). A per-share valuation of a mutual fund based on total assets minus total liabilities. NON-CALLABLE. Bond that is exempt from any kind of redemption for a stated time period. OFFER PRICE. The price asked by a seller of securities. OPTION ADJUSTED SPREAD. A measure of the value of a bond relative to a benchmark security, which takes into fiCCount the value of the embedded option inherent in any bond that has uncertain cash flows (i.e., callable bonds). PAR VALUE. The amount of principal which must be paid at maturity. Also referred to as the face amount of a bond, normally quoted in $1,000 increments per bond. PHYSICAL DELIVERY. The delivery of an investment to a custodian bank in the form of a certificate and/or supporting documents evidencing the investment (as opposed to "book entry" delivery). PORTFOLIO. A group of securities held by an investor. PREMIUM. The difference between the par value of a bond and the market value of the bond, when the market value is above par. PRICE RISK. The risk that the price of a bond sold prior to maturity will be less than the price at which the bond was originally purchased. PRIMARY DEALER. A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. PREMIUM. The difference between the par value of a bond and the market value of the bond, when the market value is above par. PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities. PREPAYMENT WINDOW. The time period over which principal repayments will be received on mortgage securities at a specified prepayment speed. Page 6of9 f / \. - • I PRUDENT INVESTOR RULE. A standard of responsibility which applies to fiduciaries. In California, the rule is stated as "Investments shall be managed with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of like character and with like aims to accomplish similar purposes." PRIME RATE. The interest rate banks charge the biggest borrowers with the best credit ratings. PRINCIPAL. The face value or par value of an investment. PSA MASTER REPURCHASE AGREEMENT. A written contract covering all future transactions between the parties to repurchase agreements that establishes each party's rights in the transactions. PSA STANDARD PREPAYMENT MODEL (PSA). A measure of mortgage prepayment activity. The model is expressed as a monthly series of annual prepayment rates. The series begins at .2% per year in the first month, and increases by .2% per year in each successive month until month 30, where it levels out at 6% per year until maturity. This series is labeled 100 PSA. 200 PSA doubles this series, and 50 PSA would cut the series in half. REALIZED RETURN. The change in value of the portfolio due to interest received and interest earned and realized gains and losses. It does not give effect to changes in market value on securities which have not been sold from the portfolio. RECEIVABLE-BACKED SECURITIES. Securities collateralized with consumer receivables, such as automobile loans, credit card receivables, or home equity loans, which are owned by the issuer, but placed with a trustee for the benefit of the investor. RECEIVABLE PASS-THROUGH CERTIFICATE. A debt obligation that is backed by a portfolio of receivables, normally issued by a bank of financial institution. The interest and principal of the obligation is paid out of the cash flow generated by the receivables portfolio. REGISTERED STATE WARRANT. A short-term obligation of a state governmental body issued in anticipation of revenue. REINVESTMENT RISK. The risk that coupon payments (or other payments received) cannot be reinvested at the same rate as the initial investment. Page 7of9 REPURCHASE AGREEMENT (RP OR REPO). The purchase of securities, on a temporary basis, with the seller's simultaneous agreement to repurchase the securities at a later date at a specified price that includes interest for the buyer's holding period. In essence, this is a collateralized investment whereby the security "buyer" lends the "seller'' money for the period of the agreement. REVERSE REPURCHASE AGREEMENT (REVERSE REPO). A short-term transaction in which an investor (seller) sells a government security it owns to a bank or dealer (buyer) under an agreement in which the buyer agrees to sell the security back to the investor on a specified date, at an agreed-upon interest rate. RULE G-37 OF THE MUNICIPAL SECURITIES RULEMAKING BOARD. Federal regulations to sever any connectior:t between the making of political contributions and the awarding of municipal securities business. SAFEKEEPING. A service to bank customers whereby securities are held by the bank In the customer's name. SCENARIO ANALYSIS. A portfolio management technique that measures the performance of the portfolio under varying scenarios including, but not limited to, interest rate movements, spread changes and nonparallel yield curve shifts. SECURITIES & EXCHANGE COMMISSION (SEC). The federal agency responsible for supervising and regulating the securities industry. STANDARD & POOR'S CORPORATION. (See Nationally Recognized Rating Services) STRUCTURED NOTE. A complex, fixed income instrument which pays interest based on a formula tied to other interest rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase when other interest rates are falling, and which fall when other interest rates are rising, and "dual index floaters," which pay interest based on the relationship between two other interest rates -for example, the yield on the ten-year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap agreements. THIRD-PARTY CUSTODIAL AGREEMENT. (See Custodian) TOTAL RATE OF RETURN. A measure of a portfolio' performance over time. It is the internal rate of return which equates the beginning value of the portfolio with the ending value, and includes interest earnings and realized and unrealized gains and losses on the portfolio. TRADE DATE. The date and time corresponding to an investor's commitment to buy or sell a security. Page 8 of 9 U.S. GOVERNMENT AGENCY SECURITIES. Debt securities issued by U.S. Government sponsored enterprises and federally related institutions. These government agencies include: Federal Home Loan Banks (FHLB); Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac"); Federal National Mortgage Association (FNMA, or "Fannie Mae"); Federal Farm Credit Banks (FFCB); Resolution Trust Corporation (RTC); and Tennessee Valley Authority (TVA). U.S. TREASURY SECURITIES. Securities issued by the U.S. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk, and are the benchmark for interest rates on all other securities in the U.S. and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds. Treasury Bills. Non-interest-bearing discount securities with maturities under one year issued by the U. S. Treasury to finance the national debt. Treasury Notes. Interest-bearing obligations of the U. S. Treasury with maturities ranging from two to ten years from date of issue. Treasury Bonds. Interest-bearing obligations issued by the U. S. Treasury with maturities that range from ten to thirty years from date of issue. I , VARIABLE RATE NOTE. (See Floating Rate Note) .. \ VOLATILITY. The rate at which security prices change with changes in general economic conditions or the general level of interest rates. YIELD TO MATURITY (YTM). The annualized internal rate of return on an investment which equates the expected cash flows from the investment to its cost. Yield to maturity (at market). The discount rate that equates the present value of the promised cash flow (interest payments and redemption value)to the market price, assuming that all cash flows are invested at the YTM rate. Yield to maturity (at purchase cost). The YTM that equates to the purchase price of the security. YIELD. The annual rate of return on a debt investment computed as though held to maturity expressed in %. ZERO-COUPON BONDS/U.S. TREASURY STRIPS. A bond which represents ownership of a single coupon or principal payment due on a U.S. Treasury bond. "Zeros" or "strips" mature at face value at a specified date in the future and make no payments until that date. They always sell at a discount from face value. Page 9 of 9 Orange County Sanitation District (714) 962-2411 mailing address: P.O. Box 8127 Fountain Valley, California 92728-8127 street address: 10844 Ellis Avenue Fountain Valley, California 92708-7018 OCSD 7 n.9/98 \ '1