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Resolution No. 77081 RE5QLQJ10N NQ 7708 2 A RESOLUTION OF THE CITY COUNCIL OF 3 THE CITY OF VERNON AMENDING RESOLUTION NO. 7475 WHICH APPROVED 4 THE ANNUAL STATEMENT OF INVESTMENT POLICY OF THE CITY AND DELEGATED 51 INVESTMENT AUTHORITY TO THE CITY TREASURER 6 7 WHEREAS, pursuant to California Government Code 8 Section 53646(a)(2), the City Treasurer shall annually render to 9 the City Council an Annual Statement of Investment Policy which 10 the City Council shall consider at a public meeting; and 11 WHEREAS, pursuant to Resolution No.7475, the City 12 Council approved the Annual Statement of Investment Policy which 13 delegates investment authority to the City Treasurer, and grants 14 the City Treasurer express authority to make investments of City 15 funds in securities with a term, or term remaining to maturity at 16 the time of investment, in excess of five years, as part of an 17 investment program; and 18 WHEREAS, the City Council desires to approve and amend 19 the Annual Statement of Investment Policy as required by 20 California law so that the Investment Policy conforms with recent 21 changes in the California Government Code concerning the types of 22 investments in which the City may invest its funds for deposit, 23 the form of the statements which report the investment of City 24 funds, and the filing of the Investment Policy and investment 25 reports with the appropriate state agency. 26 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF 27 THE CITY OF VERNON AS FOLLOWS: 28 SECTION 1 The City Council of the City of Vernon does -1_ 1 hereby find and determine that the recitals contained hereinabove 2 are true and correct. 3 SECTION 2: The City Council of the City of Vernon 4 hereby adopts the Annual Statement of Investment Policy, (the 5 "Investment Policy"), for the calendar year 2001, a copy of which 6 is attached hereto as Exhibit "A" and made a part hereof. 7 SECTION 3: The City Council of the City of Vernon 8 hereby delegates to the City Treasurer, his deputy or to his 9 authorized designee,the authority to implement the Investment 10 Policy and select the instruments for the City's investment 11 portfolio in accordance with the Investment Policy. 12 SECTION 4: The City Council of the City of Vernon 13 hereby grants, as part of the City's investment program, to the 14 City Treasurer, his deputy and to his authorized designee, 15 express authority to invest in securities with a term, or term 16 remaining to maturity, at the time of investment, in excess of 17 five years, and this authority shall become effective no less 18 than three months from the effective date of this Resolution. 19 SECTION 5: The City Council of the City of Vernon 20 hereby directs the City Clerk, his deputy or his authorized 21 designee, to transmit a copy of this Resolution, the Investment 22 Policy, and a copy of the Report of Cash and Investments for the 23 Quarters ended June 30, 2001 and December 31, 2001, when such 24 become due and are prepared by the Treasurer's Office, according 25 to the California Government code, to the following state agency: 26 California Debt and Investment Advisory Commission Attention: Local Agency Investment Reports 27 at 915 Capitol Mall, Roam 400 28 Sacramento, CA 95814 _2- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16II', 17' 18 19 20I 21 22 23 24 25 26 27 28.1 or P.O. Box 942809 Sacramento, CA 94209-0001 SECTION 6: If any section or part of this Resolution is found to be unenforceable by operation of law, the remaining sections or parts of this Resolution shall be in full force and effect. SECTION 7: This Resolution shall become effective immediately. SECTION 8: This Resolution replaces City Council Resolution No. 7475 in its entirety. SECTION 9: The City Clerk of the City of Vernon shall certify to the passage of this Resolution and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this 21st day of February, 2001. t �MIS"C. MAL G, Major ATTEST: y BRUCE V. MALKENHORST, City Clerk -3- 1 2 3 4 5 6 7 8 9 10 11 12 13Ii 14 15' 161 17 18 191 20 21 22 23I 24' 25 26 27' 28 STATE OF CALIFORNIA COUNTY OF LOS ANGELES I, BRUCE V. MALKENHORST, City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 7708, was duly adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Wednesday, February 21, 2001, and thereafter was duly signed by the Mayor of the City of Vernon. (SEAL) BRUCE V. MALKENHORST, City Clerk -4- SUPPORTING DOCUMENTS CITY COUNCIL LEONIS C. MALBURG Mayor THOMAS A. YBARRA Mayor Pro-Tem WM. 'BILL" DAVIS Councilman H. "LARRY" GONZALES Councilman W. MICHAEL MCCORMICK Councilman BRUCE V. MALKENHORST City Administrator / City Clerk FAX (323) 581-7924 Finance Committee City of Vernon Honorable Members: CITY HALL 4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058 TELEPHONE (323) 583-8811 January 24, 2001 EDUARDO OLIVO City Attorney FAX: (562) 927-8722 KEVIN WILSON Director of Community Services & Water FAX: (323) 588-2761 KENNETH J. DeDARIO Director of Municipal Utilities FAX: (323) 583-1983 DAVE TELFORD Fire Chief FAX: (323) 581-1385 BRUCE W. OLSON Police Chief FAX: (323) 583-5236 Due to recent changes on the investment and reporting of the investment of public funds made by the legislative body of the State of California, a revision of the City's Annual Statement of Investment Policy for the year 2001 was completed. This new policy includes all the amendments that were made to the various sections of the California Government Code concerning instruments authorized for investment and the implementation of delegation of investment authority to the City Treasurer. This has been reviewed by our Special Counsel and it is hereby recommended that the revised Annual Statement of Investment Policy be approved and adopted and that authorization be granted to the City Treasurer to make investments of City funds as deemed prudent in securities with a term or term remaining to maturity in excess of 5 years. Very truly yours, Bruce V. Malkenhorst Director of Finance BVM/ng CITY COUNCIL LEONIS C. MALBURG Mayor THOMAS A. YBARRA Mayor Pro-Tem WM. 'BILL" DAVIS Councilman H. "LARRY" GONZALES Councilman W. MICHAEL MCCORMICK Councilman BRUCE V. MALKENHORST City Administrator/City Clerk FAX (323) 826-1438 CITY HALL 4305 SANTA FE AVENUE, VERNON, CALMORNIA 90058 TELEPHONE (323) 583-8811 March 6, 2002 California Debt and Investment Advisory Commission Attn: Local Agency Investment Reports At 915 Capitol Mall, Room 400 Sacramento, CA 95814 Re: Report of Cash and Investments Quarter Ending December 31, 2001 To Whom It May Concern: EDUARDO OLIVO City Attorney FAX: (562) 869-1883 KEVIN WILSON Director of Community Services & Water FAX: (323) 826-1435 KENNETH J. DeDARIO Director of Municipal Utilities FAX: (323) 826-1425 STEVEN E. PARKER Fire Chief FAX: (323) 826-1407 BRUCE W. OLSON Police Chief FAX: (323) 826-1481 Pursuant to City of Vernon Resolution No. 7708, transmitted herewith is a copy of the above referenced report. If you need anything else, please call meat 323/583-8811 ext. 266. A y, . Chief Dep)61 :ng cc: Resolution No. 7708 Eric Fresch sco City Clerk CITY COUNCIL LEONIS C. MALBURG Mayor THOMAS A. YBARRA Mayor Pro-Tem WM. "BILL" DAVIS Councilman H. "LARRY" GONZALES Councilman W. MICHAEL MCCORMICK Councilman BRUCE V. MALKENHORST City Administrator / City Clerk FAX (323) 581-7924 CITY HALL 4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058 TELEPHONE (323) 583-8811 April 10, 2001 California Debt and Investment Advisory Commission Attn: Local Agency Investment Reports 915 Capitol Mall, Room 400 Sacramento, CA 95814 EDUARDO OLIVO City Attorney FAX: (562) 927-8722 KEVIN WILSON Director of Community Services & Water FAX: (323) 588-2761 KENNETH J. DeDARIO Director of Municipal Utilities FAX: (323) 583-1983 STEVEN E. PARKER Fire Chief FAX: (323) 581-1385 BRUCE W. OLSON Police Chief FAX: (323) 583-5236 Re: City of Vernon's Annual Statement of Investment and Delegated Investment Authority to the City Treasurer To Whom It May Concern: Transmitted herewith is a copy of Resolution No. 7708 and the Annual Statement of Investment Policy for the City of Vernon approved by the Vernon's City Council at their meeting held February 21, 2001. If there are any questions regarding this matter, please call Bruce V. Malkenhorst at 323/583-8811 ext. 266. Very truly yours, ei4� Gloria J. Orosco Chief Deputy City Clerk GJO:ng cc: Eric Fresch / Resolution No. 766V/ Investment Policy File l� CITY OF VERNON ANNUAL STATEMENT OF INVESTMENT POLICY Bruce V. Malkenhorst Treasurer FEBRUARY 2001 Approved by the City Council February 7, 2001 0.0 PREFACE This Annual Statement of Investment Policy (the "Investment Policy") sets forth the course of action necessary to guide the decision -making of the City Treasurer and all persons authorized to make investment decisions on behalf of the City in the administration of the City's investment portfolio. This Investment Policy has been researched, prepared and written by an outside consultant under the direction of the City Treasurer and the Treasurer's Department. While some portions of this Investment Policy are a restatement of the laws of the State of California, it is viewed that these restatements are integral to the purpose and flow of this Investment Policy. In most instances the use of future tense throughout this Investment Policy is intended to mean a continued practice or a practice which shall be continued with the aid of automation. The following statements are intended to ensure the achievement of the purpose, the goals and objectives in an orderly and accurate manner. However, there is no guarantee that problems, errors or losses will not arise in the course of administering the investment of idle or surplus funds. Among the obstacles and deterrents in achieving the goals and objectives of the portfolio are: unforeseen national or international events or crises, deviation of actual cash flow from forecasted cash flow, unforeseen demands on cash flow, policies made with regard to investment in local depositories, errors in data or advice used to make decisions, as well as any other inconceivable aberration or event that may have an effect on local, national or international financial markets, economies or politics which in turn has a decided effect upon the portfolio. This Investment Policy is designed to achieve, keeping in mind the obstacles and deterrents in pursuing portfolio goals and objective, a reasonable rate of return over an economic cycle, consistent with limited risk and prudent investment practices. 1.0 SCOPE This Investment Policy governs the deposit, safekeeping and investment of the idle or surplus funds of the Treasury, as well as all related transactions and investment activities. The investment of bond proceeds will be governed by the provisions of the relevant bond documents. 2.0 PURPOSE The purpose of the Investment Policy is to facilitate accomplishment of the goals and objectives of the Treasurer with regard to the investment of idle or surplus funds, to provide a framework within which to carry out the business of administering and investing the idle or surplus funds of the Treasury, and to improve communications at all levels between those -1- involved and those interested in the process of investing and administering the idle or surplus funds of the Treasury. 3.0 OBJECTIVE 3.1 Leeal Compliance All investments shall be made in accordance with this Investment Policy, California Government Code Section 53600 et seq., and any forthcoming amendments or additions to the California Government Code in relation to the investment of local agency idle or surplus funds. 3 2 Prudence The administration of idle or surplus funds of the City Treasurer, as a fiduciary trustee, shall be performed in accordance with the prudent investor standard pursuant to California Government Code Section 53600.3. The City Treasurer and all persons authorized to make investment decisions on behalf of the City are "trustees" and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee of the City 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 City, 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 City. Within the limitations of this Investment Policy and Section 53600.3 of the California Government Code and considering individual investments as part to an overall strategy, the City Treasurer is authorized to acquire investments as authorized by law. As prudence shall be applied in the context of portfolio management, investment officers and their advisors, acting in accordance with written procedures and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that deviations from expectation are reported to the Treasurer in a timely fashion and appropriate action is taken to control adverse developments. 3.3 Investment Criteria Goals The Treasurer's primary goals for the investment of idle or surplus funds (in the City's Treasury or monies in a sinking fund) are, in order of priority pursuant to California Government Code Section 53600.5: 3.3.1 Safety -- Safety of capital shall mean the safeguarding of capital through the selection of investments and investing procedures to best protect against loss arising from default, fraud, or error. PAI 3.3.2 Liguidi -- The City's portfolio shall be invested so as to always have the ability to convert sufficient securities in the portfolio to cash, with little or no loss in value, to cover cash flow needs of the City to meet contingency needs. 3.3.3 JigW -- Yield refers to earning a reasonable rate of return and shall take into consideration current market conditions, the present phase of the market cycle, both present and future cash flow needs, and the other primary goals of Safety and Liquidity. 3.4 Performance Measurement The investment portfolio will be managed in accordance with the parameters specified within this Investment Policy. The methods of measuring investment performance and performance benchmarks shall be articulated in the internal policies of the City Treasurer's Department. 3,5 •Maintenance of Public Trust As the Treasurer has been entrusted with the safekeeping of public monies received from public sources, the Treasurer in managing the investment portfolio shall exercise a high degree of professionalism to ensure and sustain public confidence, remembering that both the investment instruments and the methods of transacting investment business are subject to public review and scrutiny. 4.0 DELEGATION OF AUTHORITY The management responsibility for the City's investment program is hereby delegated to the City Treasurer in accordance with California Government Code Section 53607. Pursuant to California Government Code Sections 53601 and 53635, the City Treasurer shall be responsible for the investment of the City's funds (including the purchase, sale, or exchange of securities), the monitoring and reviewing of all investments for consistency under this Investment Policy, and the establishment of a system of controls to regulate the activities of subordinate officials. The Treasurer shall have the responsibility to execute investment transactions on a day to day basis. When circumstances warrant, the responsibility to execute investment transactions may be delegated to the Deputy City Treasurer � theTreasurer's action must be approved by the City ee of the Finance Department. However, each and every � Treasurer. Any persons authorized to make investment decisions on behalf of the City, shall be subject to daily oversight and monitoring by the City Treasurer, the Treasurer's Department or the Finance Department in order to insure full and complete compliance with this Investment Policy and the Government Code of the State of California, relating to the deposit and investment of funds and local agency finances. NO PERSON MAY ENGAGE IN AN INVESTMENT TRANSACTION EXCEPT AS PROVIDED UNDER THE LIMITS OF THIS POLICY. -3- 5.0 INVESTMENT PROGRAM 5.1 Investmen in Long Term Securities The investment program of the City shall require the City Treasurer, the Treasurer's Department and the Finance Department to actively manage the City's portfolio of investments in order to take advantage of changing economic conditions and to insure that the liquidity needs of the City are satisfied. As part of the City's investment program, the City Treasurer has the express authority to make investments in securities that have a term, or a term remaining to maturity, at the time of investment, in excess of five years, as long as such investments, taken in the aggregate in relation to the City's entire investment portfolio, do not adversely impact the liquidity needs of the City and its funds and enterprises. 5.2 Active Portfolio Management The City Treasurer has the express authority to sell, as he deems prudent, any securities in the City's portfolio of investments prior to the maturity date of the particular security. The City Treasurer has the express authority to invest in, as he deems prudent, any security authorized by this Investment Policy with the objective of selling that same security prior to its maturity date. The City Treasurer's authority to buy and sell securities for investment on behalf of the City includes the authorization to buy and sell the same security on the same trading day. 6.0 INSTRUMENTS AUTHORIZED FOR INVESTMENT The City, having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the City may invest any portion of the money that it deems wise or expedient in those investments set forth below. If the City purchases or obtains any securities prescribed in this Section 6.0, in a negotiable, bearer, registered, or nonregistered format, the City shall require delivery of the securities to the City, including those purchased for the City by financial advisors, consultants, or managers using the City'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 6.0 "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 City. Investments may be made in any security authorized by this Section 6.0, including a security underlying a repurchase or reverse repurchase agreement authorized by Section 53601 of the California Government Code, that at the time of investment has a term or a term remaining to maturity in excess of five years as long as such investment comports with the policies and objectives of this Investment Policy. The following section titles are for reference only. permitted investment description. 6.1 Bonds Issued WhLICAY n11 Refer to the complete section text for the Bonds issued by the City, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. 632 United States Treasury Bonds 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. 6,3 Bonds of the State of California 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. 6.4 Bonds of State of California Local Agencies 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. 6.5 Obligations Issued by United StAtPs Government - Snonsored Entarurises 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. 6.6 Bills of Exchange 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 180 days maturity or 40 percent of the City's surplus money that may be invested pursuant to this Section 6.6. However, no more than 30 percent of the City�s funds section.may be invested in the bankers acceptances of any one - commercial bank pursuant 7 Commercial Pum Commercial paper of "prime" quality of the hInvestors Service, Incthe or Standard and Poor's numerical rating as provided for by Moo y 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 Sim 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 270 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 40 percent of the City's surplus money that may be invested pursuant to this Section 6.7. No more than 10 percent d i ercentn the outstanding surpluse City's money that may be invested pursuant to this Section 6.7 may be paper of any single issuing corporation. 6.8 Negotiable Certificates of Deposit 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 California 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 City's surplus money which may be invested pursuant to this Section 6.8. For purposes of this Section 6.8, negotiable certificates of deposits do not come within Article 2 of the California Government Code (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of California Government Code Section 53638 concerning maximum deposits. 6,9 Repurchase. Reverse Repurchase and Securities Lending A¢reements 6.9.1 Investments in repurchase agreements or reverse repurchase agreements or securities lending agreements of any securities authorized by this Section 6.9, as long as the agreements are subject to this Section 6.9, including, the delivery requirements specified in this Section 6.9. 6.9.2 Investments in repurchase agreements may be made, on any investment authorized in Section 6.0, when the term of the agreement does not exceed one year. The market valueof securities that funds borrowed againstderlay a repurchase �tho agreement shall be valued at 102 percent or greater of quarterly. Since the securities and the value shall be adjusted no less than q ya market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. 6.9.3 Reverse repurchase agreements or securities lending agreements may be utilized only when either of the following conditions are met: 6.9.3.1 The security was owned or specifically committed sold using awe by the City prior to December 31, 1994, and reverse repurchase agreement on December 31, 1994. 6.9.3.2 The security to be sold on reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the City for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements or securities lending agreement 52 on investments owned by the City 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 or securities lending agreement and the final maturity date of the same security. 6.9.4 After December 31, 1994, a reverse repurchase agreement or securities lending agreement may not be entered into with securities not sold on a reverse repurchase agreement or securities lending agreement and purchased, or m for committed to purchase, prior to that date, as a means of financing or paying the security sold on a reverse repurchase agreement or securities lending 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 or securities lending agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a City obligation. Funds obtained or funds within the pool equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement or securities lending 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities lending agreement, and the final maturity date of the same security. Reverse repurchase agreements or securities lending agreement specified in Section 6.9.3.2 may not be entered into unless the percentage restrictions specified in that Section 6.9.3.2 are met, including the total of any reverse repurchase agreements or securities lending agreements specified in Section 6.9.3.1 6.9.5 Investments in reverse repurchase agreements, securities lending agreements or similar investments in which the City sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the City Council and shall only be made with primary dealers of the Federal Reserve Bank of New York. -7- 6.9.6 Definitions 6.9.6.1 "Repurchase agreement" means a purchase of securities by the City 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 City 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. 6.9.6.2 "Securities," for purpose of repurchase under this Section 6.9, means securities of the same issuer, description, issue date, and maturity. 6.9.6.3 "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. 6.9.6.4 "Securities Lending Agreement" means an agreement under which the City agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the City. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the City in return for the collateral. 6.9.6.5 For purposes of this Section 6.9, the base value of the City'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. 6.9.6.6 For purposes of this Section 6.9, 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. 6,10 Medium -Term Notes Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, 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 Section 6.10 shall be rated A or better by a nationally recognized rating service. Purchases of medium -term notes shall not include other instruments authorized by Section 6.0 and may -8- not exceed 30 percent of the City's surplus money which may be invested pursuant to this section. 6 11 Diversified Management Comm) Shares 6.11.1 Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by Sections 6.1 to 6.10, inclusive, or Sections 6.13 or 6.14 and that comply with the investment restrictions of Article 1 (commencing with Section 53600 of the California Government Code) and Article 2 (commencing with Section 53630 of the California Government Code). 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. 6.11.2 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.). 6.11.3 If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: 6.11.3.1 Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. 6.11.3.2 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 Sections 6.1 to 6.10, inclusive, or Sections 6.13 or 6.14 and with assets under management in excess of five hundred million dollars ($500,000,000). 6.11.4 If investment is in shares issued pursuant to Section 6.11.2, the company shall have met either of the following criteria: 6.11.4.1 Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. 6.11.4.2 Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money 91 market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). 6.11.5 The purchase price of shares of beneficial interest purchased pursuant to this Section 6.11 shall not include any commission that the companies may charge and shall not exceed 20 percent of the City's surplus money that may be invested pursuant to this Section 6.11. However, no more than 10 percent of the City's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to Section 6.11.1. 6.12 Moneys Pledged to Payment or Secuft of Bond Imu by the City Notwithstanding anything to the contrary contained in Section 6.0, Section 53601 and Section 53635 of the California Government Code, 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 the City, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provision 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 City providing for the issuance. 6.13 Bonds Secured by Government Code Section 53651 Eligible Securities 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 of the California Government Code as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 of the California Government Code 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. 6.14 Mortgage Pass -Through Security 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 subsection 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 Section 6.14 may not exceed 20 percent of the City's surplus money that may be invested pursuant to Section 6.0. 7.0 INELIGIBLE SECURITIES -10- The City shall not invest any funds pursuant to this Section 7.0 in inverse floaters, range notes, or interest -only strips that are derived from a pool of mortgages. The City shall not invest any funds pursuant to this Section 7.0 in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this Section 7.0 shall not apply to City 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 Section 6.11. 8.0 STATEMENTS OF INVESTMENT ACTIVITIES 8.1 Annual Statement of Investment Policy The City Treasurer shall annually render to the City Council and the Finance Committee of the City a statement of investment policy, which the City shall consider at a public meeting. Any changes in the investment policy shall also be considered by the City Council of the City at a public meeting. 6=t. � . ,�, , 1 0-0 • I The. City Treasurer shall render a quarterly report to the Finance Committee of the City and City Council. The quarterly report shall be so submitted within 30 days following the end of the quarter covered by the report. 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 City and shall additionally include a description of any of the City's funds, investments, or programs, that are under the management of contracted parties, including lending programs. With respect to all securities held by the City 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. For local agency investments that have been placed in the Local Agency Investment Fund, in National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 14858 of the California Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, in a California County investment pool, or any combination of these, the City Treasurer and the Treasurer's Department may supply to the City Council and Finance Committee the most recent statements received by the City from these institutions. 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. The quarterly report shall include a statement denoting the ability of the City to meet its budgeted expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available. In the quarterly report, a subsidiary ledger of investments may be used in accordance with accepted accounting practices. -11- The City shall submit copies of its second and fourth quarter reports to the California Debt and Investment Advisory Commission within 60 days after the close of the second and fourth quarters of each calendar year. The City shall not be required to submit a quarterly report to the Commission if, during the entire reporting period, the City has maintained 100% of its investment portfolio in (1) the treasury of Los Angeles County, (2) the Local Agency Investment Fund of the State of California, (3) National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 16429.1 of the Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, or (3) in any combination of these. If the City is not required to submit a report to the Commission, then the City shall file with the Commission a certification within 60 days of the end of the second and fourth quarters of the calendar year stating the distribution and amount of its investment portfolio and that it is therefore not subject to the reporting requirement. 8.3 Monthly Investment Transaction Reuort The authority of the City Council to invest or to reinvest funds of the City, or to sell or exchange securities so purchased has been delegated for a one-year period by the City Council to the City Treasurer, who shall thereafter assume full responsibility for those transactions and shall make a timely monthly report of those transactions to the City Council. 9.0 CONFLICT OF INTEREST No City employee shall, outside of regular working hours, engage in any professions, trade, business or occupation which is incompatible or involves a conflict of interest with his/her duties as a City Officer or employee, or which may reflect unfavorably on the City or on fellow employees. 10.0 PUBLIC INQUIRY The City Treasurer's portfolio and related transactions are a matter of public record. Any member of the public may receive a copy surerthe maorcharge a olio or fee�for the opy tment Policy allowed by by requesting a copy at the Treasurer's Office. The Treasurer Y law. -12- 11.0 ANALYSIS OF PROSPECTIVE INVESTMENTS Due to the complexity of the various investment instruments available and uncertainty of market conditions the Treasurer may seek professional advice in making investment decisions in order to optimize investment selections. 12.0 SAFEKEEPING As required by California Government Code Section 53601 and Section 53635 all investment instruments in a negotiable, bearer, registered, or nonregistered format, shall be delivered to the City's custodial bank by using book entry or physical delivery. The "delivery vs. payment" purchase procedure shall be used. Notwithstanding the above requirement for the delivery and safekeeping of investment instruments to the City's custodial bank, the City shall maintain an investment instruments custodial account with First Union Securities Inc. and use the wire transfer of funds purchase procedure for securities bought from that firm. 13.0 BROKER/DEALER AND DEPOSITORY INSTITUTION RELATIONSHIPS 13.1 Approved List of Broker/Dealer Institutions The City Treasurer shall approve and maintain a list of broker/dealers and depository institutions authorized to provide investment and other services to the City. All investments must be made with institutions that have been approved by the City Treasurer prior to investing. 13.2 Broker/DeWer Commissions and Fees Chargeable to the City All broker/dealers who transact with the City and buy and sell securities on the City's behalf shall earn a commission or charge a fee not to exceed an amount deemed prudent and reasonable by the National Association of Securities Dealers (the "NASD") and what is customary in the industry for the types of securities being purchased by the City, including Treasury Bonds, Treasury Strip Bonds and Zero -Coupon Bonds. 13.3 Deposit and Investment of Funds of the Citv All depository institutions that do business with the City shall be in compliance with the requirements of Section 53635 of the Government Code of the State of California, including the overall rating requirements of that section. EMinvest-p.01 -13- LAW OFFICES OF ERIC T. FRESCH CITICORP CENTER, ONE SANSOME STREET TWENTY-FIRST FLOOR SAN FRANCISCO, CALIFORNIA 94104 TELEPHONE (415) 951-1035 FAX (41S) 9S1-4660 January 16, 2001 Mr. Bruce V. Malkenhorst City Administrator City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 Re: Annual Statement of Investment Policy; State Policies and Legislation Affecting the Financial Affairs of Local Agencies Dear Bruce: I have revised the City's Annual Statement of Investment Policy for the Year 2001. I recommend the City Council and Finance Committee of the City approve and adopt the new policy. I also recommend the City Council authorize you, as City Treasurer, to make investments of City funds as you deem prudent in securities with a term or a term remaining to maturity in excess of 5 years. I recommend the City Council grant you the express authority to make such investments throughout the year no less than 3 months prior to the investment. Therefore, in order to accomplish this the City Council must authorize you to purchase securities with terms in excess of 5 years every 90 days to cover the next 90-day investment period. I have incorporated the necessary language in the resolution which approves the Investment Policy. This year's Investment Policy includes all the amendments that were made to the various sections of the California Government Code concerning instruments authorized for investment. The Investment Policy also implements the delegation of investment authority to the City Treasurer, the required statements of investment activity and appropriate amounts of commissions or fees chargeable to the City by its investment advisors and securities brokers. The Investment Policy sets forth independent sections on the following matters: (1) Scope; (2) Purpose; Mr. Bruce V. Malkenhorst January 16, 2001 Page 2 (3) Objectives: - Legal Compliance - Prudence - Investment Criteria Goals; (4) Delegation of Authority to the City Treasurer; (5) Investment Program to expressly authorize the City Treasurer to invest in longer term (greater than 5 years) securities; (6) Instruments Authorized for Investment; (7) Ineligible Securities; (8) Statements of Investment Activity; (9) Conflict of Interest; (10) Public Inquiry; (11) Analysis of Prospective Investments; (12) Safekeeping; and (13) Broker/Dealer and Depository Institution Relationships. The following is a brief outline of the legal requirements for prudent practices for City investment policy and reporting requirements which directly impact the City Treasurer and Finance Department. 1. The City Treasurer shall annually render to the City Council and Finance Committee a statement of investment policy, which the City Council shall consider at a public meeting. Any change in the investment policy shall also be considered by the City Council at a public meeting. 2. The City Council may annually, after appropriate review, renew the delegation of authority to the City Treasurer to carry out the investment policy and make investments of the City's funds. 3. The City Treasurer shall render a quarterly report of City investments to the City Administrator, the internal City auditors, the Finance Committee, and members of the City Council. The quarterly 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 City. The quarterly report shall also include a current market value of all securities held as of the date of the report. The quarterly report shall include a statement reciting the compliance of the City's portfolio of investments to the City's Annual Statement of Investment Policy and a statement denoting the ability of the City to meet its expenditure Mr. Bruce V. Malkenhorst January 16, 2001 Page 3 requirements for the next six months. The report shall be submitted within 30 days following the end of the quarter covered by the report. The City shall submit copies of its quarterly report for the second and fourth quarters of each calendar year, in addition to the City's Statement of Investment Policy, to the California Debt and Investment Advisory Commission (the "Commission"). These reports shall be filed with the Commission within 60 days after the close of the specified quarterly period. The City is excused from filing its reports with the Commission if the City maintains 100% of its investment portfolio in all or a combination of the following funds: the treasury of Los Angeles County, the state's Local Agency Investment Fund, a National Credit Union Share Insurance Fund of a credit unit or an FDIC - insured account in a bank or savings and loan association. 4. The City Council shall grant, as part of the City's investment program, to the City Treasurer, express authority to make investments, no less than 3 months prior to the acquisition of the investments, in securities that have, at the time of investment, a term, or a term remaining to maturity, in excess of 5 years. Procedurally, the City Council shall grant express authority to the City Treasurer to invest in securities with maturities longer than 5 years on the occasion of the submission of the Quarterly Report of Investments to the City Council by the City Treasurer. This grant of investment authority to the City Treasurer will authorize the investment of City funds in longer than 5-year term investments in the subsequent quarterly period following the current quarter in which the approval is granted. 5. Monthly, the City Treasurer shall make a report of all investment transactions involving City funds. The report shall be submitted by memorandum to the City Council within 10 days following the end of the month covered by the report. The law authorizes the City Council to delegate its authority to invest the City's funds to the City Treasurer. This authority to delegate is limited to a one-year period, which the City Council may renew each year after the Council has reviewed the transactions undertaken by the City Treasurer. Government Code Section 53600.3 concerns the application of the prudent investor standard to the City Council and City Treasurer for the investment of City funds. It states that all governing bodies of the City or persons authorized to make investment Mr. Bruce V. Malkenhorst January 16, 2001 Page 4 decisions or give investment advice of behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When undertaking this investment function, a trustee shall act with care, skill and prudence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the City. The State of California has recently amended various sections of the Government Code concerning local government finance, including provisions which specify the securities which are permitted for investment of surplus funds. Some of these amendments concern Sections 53601 and 53635 of the Government Code. This memorandum is meant to serve as an overview of the requirements of the Government Code and prudent investment practices and reporting requirements for the financial affairs of the City. I look forward to discussing this matter with you at your earliest convenience. Sincerely, z V'-� Eric Fresch EF:wg:L cc: Sharon L. Johnson EF5:1-161tr.bvm s LAW OFFICES OF EPIC T. FPESCH CITICORP CENTER, ONE SANSOME STREET TWENTY-FIRST FLOOR SAN FRANCISCO, CALIFORNIA 94104 TELEPHONE (415) 23S-9312 FAX (415) 435-6385 January 19, 2001 Mr. Bruce V. Malkenhorst City Administrator City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 Re: Legislation Affecting the Financial Affairs of Local Agencies Dear Bruce: This letter highlights the most important changes made to California law on the investment of public funds and the reporting of the investment of public funds. The current law requires the City Treasurer to prepare a quarterly report of City investments to the City Council and the City Administrator within 30 days following the end of the quarter covered by the report. The new law requires the City to submit this report for the second and fourth quarter, as well as the City's Statement of Investment Policy, to the nine -member California Debt and Investment Advisory Commission, a state agency. The City would make its submissions to the state Commission within 60 days after the close of the second and fourth quarters of each calendar year. The legislation also has provisions to reimburse the City for certain costs mandated by the state. In addition, sections of the law on investments changed the investment terms permitted for bankers acceptances and commercial paper to 180 and 270 days, respectively, I will discuss the requirements of this new legislation at your earliest convenience. Sincerely, Eric Fresch EF:wg cc: Sharon Johnson J Assembly Bill No. 943 CHAPTER 687 An act to amend Sections 8855 and 53646 of the Government Code, relating to the California Debt and Investment Advisory Commission. [Approved by Governor September 25, 2000. Filed with Secretary of State September 27, 2000.1 LEGISLATIVE COUNSEL'S DIGEST AB 943, Dutra. California Debt and Investment Advisory Commission. (1) Existing law establishes a 9-member California Debt and Investment Advisory Commission and prescribes the duties of that commission, including the requirement that the commission collect, maintain, and provide comprehensive information on all state and all local debt authorization, sold and outstanding. It requires the commission to prepare an annual report compiling and detailing the total amount of outstanding state and local public debt and examining recent trends in the composition of that debt. Existing law requires the treasurer or chief fiscal officer of a local agency to render annually a statement of investment policy to the legislative body of the local agency, as well as to any oversight committee. This officer is also required to render quarterly reports regarding the financial assets of the local agency to the legislative body, the chief executive officer, and the internal auditor. This bill would additionally require each city, county, or city and county to submit copies of its 2nd and 4th quarterly reports, as well as the statement of investment policy, to the California Debt and Investment Advisory Commission. The bill would exempt a city from the reporting requirement if it has maintained 100% of its investment portfolio in the county treasury, the Local Agency Investment Fund, other specified investments, or a combination thereof, and would exempt a county or city and county that maintained 100% of its investment portfolio in the Local Agency Investment Fund, other specified investments, or a combination thereof. Any city, county, or city and county not required to submit a report would be required to file with the commission a certification that it is not subject to the reporting requirement. These reporting requirements would impose new duties on local agencies and therefore would impose a state -mandated local program. This bill would require the commission to collect, maintain, and provide information on local agency investments of public funds and to receive local government investor portfolio information. It would 91 a At s Ch. 687 —2— also require the commission to report to the Legislature by May 1, 2006, its activities since the inception of the local agency investment reporting program. (2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement, including the creation of a State Mandates Claims Fund to pay the costs of mandates that do not exceed $1,000,000 statewide and other procedures for claims whose statewide costs exceed $1,000,000. This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions. The people of the State of California do enact as follows: SECTION 1. Section 8855 of the Government Code is amended to read: 8855. (a) There is created the California Debt and Investment Advisory Commission, consisting of nine members, selected as follows: (1) The Treasurer, or his or her designee. (2) The Governor or the Director of Finance. (3) The Controller, or his or her designee. (4) Two local government finance officers appointed by the Treasurer, one each from among persons employed by a county and by a city or a city and county of this state, experienced in the issuance and sale of municipal bonds and nominated by associations affiliated with these agencies. (5) Two Members of the Assembly appointed by the Speaker of the Assembly. (6) Two Members of the Senate appointed by the Senate Committee on Rules. (b) (1) The term of office of an appointed member is four years, but appointed members serve at the pleasure of the appointing power. In case of a vacancy for any cause, the appointing power shall make an appointment to become effective immediately for the unexpired term. (2) Any legislators appointed to the commission shall meet with and participate in the activities of the commission to the extent that the participation is not incompatible with their respective positions as Members of the Legislature. For purposes of this chapter, the Members of the Legislature shall constitute a joint interim legislative committee on the subject of this chapter. (c) The Treasurer shall serve as chairperson of the commission and shall preside at meetings of the commission. The commission, on 91 FE- — 3 — Ch. 687 or after January 1, 1982, and annually thereafter, shall elect from its members a vice chairperson and a secretary who shall hold office until the next ensuing December 31 and shall continue to serve until their respective successors are elected. (d) Appointed members of the commission 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 commission not to exceed three hundred dollars ($300) in any month, and reimbursement for expenses incurred in the performance of their duties under this chapter, including travel and other necessary expenses. (e) The commission shall do all of the following: (1) Assist all state financing authorities and commissions in carrying out their responsibilities as prescribed by law, including assistance with respect to federal legislation pending in Congress. (2) Upon request of any state or local government units, to assist them in the planning, preparation, marketing, and sale of new debt issues to reduce cost and to assist in protecting the issuer's credit. (3) Collect, maintain, and provide comprehensive information on all state and all local debt authorization, sold and outstanding, and serve as a statistical clearinghouse for all state and local debt issues. This information shall be readily available upon request by any public official or any member of the public. (4) Maintain contact with state and municipal bond issuers, underwriters, credit rating agencies, investors, and others to improve the market for state and local government debt issues. (5) Undertake or commission studies on methods to reduce the costs and improve credit ratings of state and local issues. (6) Recommend changes in state laws and local practices to improve the sale and servicing of state and local debts. (7) Establish a continuing education program for local officials having direct or supervisory responsibility over municipal investments, and undertake other activities conducive to the disclosure of investment practices and strategies for oversight purposes. (8) Collect, maintain, and provide information on local agency investments of public funds for local agency investment. (f) The city, county, or city and county investor of any public funds, no later than 60 days after the close of the second and fourth quarters of each calendar year, shall provide the quarterly reports required pursuant to Section 53646 and, no later than 60 days after the close of the quarter of each calendar year and 60 days after the subsequent amendment thereto, provide the statement of investment policy required pursuant to Section 53646, to the commission by mail, postage prepaid, or by any other method approved by the commission. The commission shall collect these reports to further its educational responsibilities as described under 91 a 4. A Ch. 687 — 4 — subdivision (e). Nothing in this section shall be construed to create additional oversight responsibility for the commission or any of its members. Sole responsibility for control, oversight, and accountability of local investment decisions shall remain with local officials. The commission shall not be considered to have any fiduciary duty with respect to any local agency income report received under this subdivision. In addition, the commission shall not have any legal liability with respect to these investments. (g) The commission may adopt bylaws for the regulation of its affairs and the conduct of its business. (h) The issuer of any proposed new debt issue of state or local government shall, no later than 30 days prior to the sale of any debt issue at public or private sale, give written notice of the proposed sale to the commission, by mail, postage prepaid. This subdivision shall also apply to any nonprofit public benefit corporation incorporated for the purpose of acquiring student loans. (i) The notice shall include the proposed sale date, the name of the issuer, the type of debt issue, and the estimated principal amount thereof. Failure to give this notice shall not affect the validity of the sale. 6) The issuer of any new debt issue of state or local government, not later than 45 days after the signing of the bond purchase contract in a negotiated or private financing, or after the acceptance of a bid in a competitive offering, shall submit a report of final sale to the commission by mail, postage prepaid, or by any other method approved by the commission. A copy of the final official statement for the issue shall accompany the report of final sale. The commission may require information to be submitted in the report of final sale that it considers appropriate. (k) The commission shall publish a monthly newsletter describing and evaluating the operations of the commission during the preceding month. (n The commission shall meet on the call of the chairperson, or at the request of a majority of the members, or at the request of the Governor. A majority of all nonlegislative members of the commission constitutes a quorum for the transaction of business. (m) All administrative and clerical assistance required by the commission shall be furnished by the office of the Treasurer. (n) The commission, no later than May 1, 2006, shall report to the Legislature describing its activities since the inception of the local agency investment reporting program regarding the collection and maintenance of information on local agency investment practices and how the commission uses that information to fulfill its statutory goals. SEC. 2. Section 53646 of the Government Code is amended to read: 91 — 5 — Ch. 687 53646. (a) (1) 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) (1) 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 subdivisions (e) and (f), 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 National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 91 a F Ch. 687 — 6 — 14858 of the Financial Code, or 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. (f) The treasurer or chief fiscal officer shall not be required to render a quarterly report, as required by subdivision (b), to a legislative body or any oversight committee of a school district or county office of education for securities, investments, or moneys held by the school district or county office of education in individual accounts that are less than twenty-five thousand dollars ($25,000). (g) Except as provided in subdivisions (h) and (i), each city, county, or city and county shall submit copies of its second and fourth quarter reports to the California Debt and Investment Advisory Commission within 60 days after the close of the second and fourth quarters of each calendar year. Any city, county, or city and county not required to submit a report pursuant to subdivision (h) or (i) shall file with the commission a certification within 60 days of the end of the second and fourth quarters of the calendar year stating the distribution and amount of its investment portfolio and that it is therefore not subject to this reporting requirement. This subdivision shall become inoperative on January 1, 2007. (h) A city shall not be required to submit a quarterly report to the commission if, during the entire reporting period, the city has maintained 100 percent of its investment portfolio in (1) the treasury of the county in which it is located for investment by the county treasurer pursuant to Section 53684, (2) the Local Agency Investment Fund created by Section 16429.1, (3) National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 14858 of the Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, or (4) in any combination of these. (i) A county or city and county shall not be required to submit a quarterly report to the commission if, during the entire reporting period, the county has maintained 100 percent of its investment portfolio in (1) the Local Agency Investment Fund created by Section 16429.1, (2) National Credit Union Share Insurance Fund -insured accounts in a credit union, in accounts insured or guaranteed pursuant to Section 14858 of the Financial Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and loan association, or (3) in any combination of these. SEC. 3. Notwithstanding Section 17610 of the Government Code, if the Commission on State Mandates determines that this act 91 2 — 7 — Ch. 687 contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code. If the statewide cost of the claim for reimbursement does not exceed one million dollars ($1,000,000), reimbursement shall be made from the State Mandates Claims Fund. W 91 a Assembly Bill No. 2220 CHAPTER 339 An act to amend Sections 53601, 53601.2, 53635, and 53635.2 of the Government Code, relating to local agency investments. [Approved by Governor September 6, 2000. Filed with Secretary of State September 8, 2000] LEGISLATIVE COUNSEL'S DIGEST AB 2220, Battin. Local agency investments. Under existing law, funds that belong to, or are in the custody of, a local agency or local agency moneys that are not required for the immediate necessity of the local agency may be invested in any of several specified investments. Existing law pen -nits limited purchases of bankers acceptances that do not exceed 270 days maturity. The purchase of prime quality commercial paper for those instruments is also permitted if the eligible commercial paper does not exceed 180 days maturity. This bill would revise the maximum maturity periods for those investments to 180 days for bankers acceptances and 270 days for prime quality commercial paper. The people of the State of California do enact as follows: SECTION 1. Section 53601 of the Government Code is amended to read: 53601. 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 m 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 advisers, 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 specifies a percentage limitation for a particular category of investment, that percentage is applicable only 96 Ch. 339 — 2 — at the date of purchase. 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 or securities lending 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 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 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 180 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). 96 — 3 — Ch. 339 (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 270 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) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending 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. (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. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. 96 Ch. 339 — 4 (3) Reverse repurchase agreements or securities lending 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 or securities lending agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement or securities lending 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 and securities lending 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 or securities lending agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement or securities lending agreement may not be entered into with securities not sold on a reverse repurchase agreement or securities lending 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 or securities lending 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 or securities lending 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 or securities lending 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities lending agreement and the final maturity date of the same security. Reverse repurchase agreements or securities lending 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 or M. F — 5 — Ch. 339 securities lending agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements, securities lending 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. (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. (E) 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, securities lending agreements, or other similar borrowing methods. (F) 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. 0) Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, 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 "A" or better by a nationally recognized rating service. Purchases of medium -term notes shall not include other instruments authorized 96 'r Ch. 339 — 6 — by this section and may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 0), 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 or securities lending agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors fords that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement or securities lending 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-1 and following). (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 0), 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: (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). 96 — 7 — Ch. 339 (1) 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 passthrough security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable passthrough 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 raring 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. SEC. 2. Section 53601.2 of the Government Code is amended to read: 53601.2. Notwithstanding subdivision (g) of Section 53601, the board of supervisors of a county may invest in 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 have total assets in excess of five hundred million dollars ($500,000,000) and an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's 96 Ch. 339 — S — Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 270 days' maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 40 percent of the agency's surplus money that may be invested pursuant to this section. No more than 10 percent of the agency's surplus money that may be invested pursuant to this section may be invested in the outstanding paper of any single issuing corporation. SEC. 3. Section 53635 of the Government Code is amended to read: 53635. 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 advisers, 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 specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. (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 96 i — 9 — Ch. 339 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 180 days maturity or 40 percent of the agency's surplus funds which 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 270 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 96 a Ch. 339 —10 — 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) (1) Investments in repurchase agreements or reverse repurchase agreements, or securities lending 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 or securities lending 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. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. ` (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 repurchase agreement on December 31, 1994, and was sold using a reverse repurchase agreement or securities lending agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement or securities lending 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 and securities lending agreements on investments owned by the local agency not purchased or committed to purchase, prior to December 31, 1994, does not 96 F -11— Ch. 339 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 or securities lending agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement or securities lending agreement may not be entered into with securities not sold on a reverse repurchase agreement or securities lending 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 or securities lending 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 or securities lending 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 or securities lending 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities lending agreement and the final maturity date of the same security. Reverse repurchase agreements or securities lending 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 or securities lending agreements specified in subparagraph (A) of paragraph (3)• (5) Investments in reverse repurchase agreements, securities lending 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 96 IN Ch. 339 —12 — 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. (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. (E) 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. (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement or securities lending agreement and the earnings obtained on the reinvestment of the funds. 0) Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, 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 "A" or better by a nationally recognized rating service. Purchases of medium -term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 0), inclusive, or subdivision (n 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 or securities lending agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors fords that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement or securities lending agreement may be 100 percent of the sales price if the securities are marked to market daily. M -13 — Ch. 339 (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-I and following). (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 0), inclusive, or subdivision (n 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). (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). (I) 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 passthrough security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable passthrough 96 Ch. 334 —14 — 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. SEC. 4. Section 53635.2 of the Government Code is amended to read: 53635.2. Notwithstanding subdivision (g) of Section 53635, the board of supervisors of a county may invest in 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 have total assets in excess of five hundred million dollars ($500,000,000) and 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 270 days' maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 40 percent of the agency's surplus money that may be invested pursuant to this section. No more than 10 percent of the agency's surplus money that may be invested pursuant to this section may be invested in the outstanding paper of any single issuing corporation. 01 96 F Assembly Bill No. 2539 CHAPTER 135 An act to amend Sections 651, 680, 4112, 4982, 4998, 4998.2, 4998.5, 4998.6, 6086.65, and 17537.11 of the Business and Professions Code, to amend Sections 1102.2, 1103, and 2924c of the Civil Code, to amend Sections 131.4, 703.140, and 704.115 of the Code of Civil Procedure, amend Sections 1201, 2210, 2502, 9528, and 9706 of the Commercial Code, to amend Sections 5222, 7236, 14000, 14030, 14030.1, 14035, 14036, and 25207 of the Corporations Code, to amend Sections 1209, 17210, 17284.5, 17620, 23812, 24255, 35012, 35160.5, 37252, 44225.6, 44227, 44259, 44275.3, 44424, 47611.5, 47612.5, 51871.5, 54685.2, 54685.3, 60200.2, 60855, 66293, and 81149 of, to amend and renumber Section 39006 of, and to amend and renumber the heading of Chapter 8 (commencing with Section 60850) of Part 33 of Division 4 of Title 2 of, the Education Code, to amend Section 8040 of the Elections Code, to amend Sections 243, 2040, 3021, 4065, and 5002 of the Family Code, to amend Section 18210 of the Financial Code, to amend Section 55702 of the Food and Agricultural Code, to amend Sections 3540.1, 7222, 15346.9, 18935, 19827.3, 20395, 20397, 20677, 21070.5, 21071, 21073.7, 21370, 21572, 22825.01, 22875, 31469.5, 51298, 53601, 53635, 54985, 69915, 72114.2, and 91007 of the Government Code, to amend Sections 1357.50, 1368, 1368.04, 1370.4, 1374.32, 1386, 1507.3, 1596.7927, 25390.4, 32121.7, 33333.6, 33334.17, 44287, 51451, 104550, 104556, 104557, 112040, 115813, and 128375 of, and to amend and renumber Section 13933 of, the Health and Safety Code, to amend Sections 384, 791.02, 1035, 1765.1, 1874.81, 10123.68, 10145.3, 10169, 10169.2, 10176.61, 11629.92, and 12967 of, and to amend and renumber Sections 1785.89, 10140, 10141, and 12698 of, the Insurance Code, to amend Sections 1174.5, 1777.5, 1777.7, 3762, 6394.5, 6429, 6434, and 6650 of the Labor Code, to amend Sections 273.84, 296.1, 487c, 666, 830.32, 1463, 2962, 6129, 11166.3, 11170.6, 12000, and 13510 of the Penal Code, to amend Section 2357 of the Probate Code, to amend Section 12102 of the Public Contract Code, to amend Sections 2715.5, 31164, and 42923 of the Public Resources Code, to amend Sections 237, 2512, 2613, 6471, and 6472 of the Revenue and Taxation Code, to amend Sections 426, 1666, 5204, 9980, 12808, 12815, 13377, 16020.1, 21051, 22511.56, 34505.9, and 35790.1 of the Vehicle Code, to amend Sections 361.5, 727.3, 727.31, 827, 1788, 1789.5, 9564, 14105.26, and 25002 of the Welfare and Institutions Code, and to amend Section 1 of Chapter 868 of the Statutes of 1998, and Section 7 of Chapter 84 of the Statutes of 1999, relating to maintenance of the codes. [Approved by Governor July 19, 2000. Filed with Secretary of State July 19, 2000.] 97 F Ch. 135 — 2 — LEGISLATIVE COUNSEL'S DIGEST AB 2539, Committee on Judiciary. Maintenance of the codes. Existing law directs the Legislative Counsel to advise the Legislature from time to time as to legislation necessary to maintain the codes. This bill would restate existing provisions of law to effectuate the recommendations made by the Legislative Counsel to the Legislature for consideration during 2000, and would not make any substantive change in the law. The people of the State of California do enact as follows: SECTION 1. Section 651 of the Business and Professions Code is amended to read: 651. (a) It is unlawful for any person licensed under this division or under any initiative act referred to in this division to disseminate or cause to be disseminated any form of public communication containing a false, fraudulent, misleading, or deceptive statement, claim, or image for the purpose of or likely to induce, directly or indirectly, the rendering of professional services or furnishing of products in connection with the professional practice or business for which he or she is licensed. A "public communication" as used in this section includes, but is not limited to, communication by means of mail, television, radio, motion picture, newspaper, book, list or directory of healing arts practitioners, Internet, or other electronic communication. (b) A false, fraudulent, misleading, or deceptive statement, claim, or image includes a statement or claim that does any of the following: (1) Contains a misrepresentation of fact. (2) Is likely to mislead or deceive because of a failure to disclose material facts. (3) (A) Is intended or is likely to create false or unjustified expectations of favorable results, including the use of any photograph or other image that does not accurately depict the results of the procedure being advertised or that has been altered in any manner from the image of the actual subject depicted in the photograph or image. (B) Use of any photograph or other image of a model without clearly stating in a prominent location in easily readable type the fact that the photograph or image is of a model is a violation of subdivision (a). For purposes of this paragraph, a model is anyone other than an actual patient, who has undergone the procedure being advertised, of the licensee who is advertising for his or her services. (C) Use of any photograph or other image of an actual patient that depicts or purports to depict the results of any procedure, or presents "before" and "after" views of a patient, without specifying in a prominent location in easily readable type size what procedures 97 — 93 — Ch. 135 remaining in the community services agreement, but not to exceed 10 years, and less any capital investment incentive amounts previously recaptured. (B) If the proponent fails to operate the qualified manufacturing facility as required by the community services agreement, the county, city and county, or city may, upon a finding that good cause exists, waive any portion of the recapture of any capital investment incentive amount due under this subdivision. For the purpose of this subdivision, good cause includes, but is not limited to, the following: (i) The proponent has sold or leased the property to a person who has entered into an agreement with the county, city and county, or city to assume all of the responsibilities of the proponent under the community services agreement. (ii) The qualified manufacturing facility has been rendered inoperable and beyond repair as a result of an act of God. (C) For purposes of this subdivision, failure to operate a qualified manufacturing facility as required by the community services agreement includes, but is not limited to, failure to establish the number of jobs specified in the jobs creation plan created pursuant to paragraph (5). (e) (1) Each county, city and county, or city that elects to establish a capital investment incentive program shall notify the Trade and Commerce Agency of its election to do so no later than June 30th of the fiscal year in which the election was made. (2) In addition to the information required to be reported pursuant to paragraph (1), each county, city and county, or city that has elected to establish a capital investment incentive program shall notify the Trade and Commerce Agency each fiscal year no later than June 30th of the amount of any capital investment incentive payments made and the proponent of the qualified manufacturing facility to whom the payments were made during that fiscal year. (3) The Trade and Commerce Agency shall compile the information submitted by each county, city and county, and city pursuant to paragraphs (1) and (2) and submit a report to the Legislature containing this information no later than October 1, every two years commencing October 1, 2000. SEC. 80. Section 53601 of the Government Code is amended to read: 53601. 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 advisers, consultants, or managers using the agency's funds, by book 97 Ch. 135 — 94 — 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 specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. 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 or securities lending 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 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 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 97 — 95 — Ch. 135 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 Iimited 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 that 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) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending 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. (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 97 Ch. 135 — 96 — or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements or securities lending 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 or securities lending agreement on December 31, 1994. (B) The security to be sold on a reverse repurchase agreement or a securities lending 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 and securities lending 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 or securities lending agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement or securities lending agreement may not be entered into with securities not sold on a reverse repurchase agreement or securities lending 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 or securities lending 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 or securities lending 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 or securities lending 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities 97 — 97 — Ch. 135 lending agreement and the final maturity date of the same security. Reverse repurchase agreements or securities lending 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 or securities lending agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements, securities lending 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. (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. (E) For purposes of this section, the base value of the local agency's pool portfolio shalt 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, securities lending agreements, or other similar borrowing methods. (F) 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. 0) Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating 97 Ch. 135 — 98 — 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 "A" or better by a nationally recognized rating service. Purchases of medium -term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's surplus money that may be invested pursuant to this section. (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 0), 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 or securities lending 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 or securities lending 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-1 and following). (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 0), 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: (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 97 — 99 — Ch. 135 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) 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 passthrough security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable passthrough 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. SEC. 81. Section 53635 of the Government Code is amended to read: 53635. 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 97 a Ch. 135 —100 — 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 advisers, 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 specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. (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 97 F -101— Ch. 135 or 40 percent of the agency's surplus funds which 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 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 that 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 97 a Ch. 135 —102— 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) (1) Investments in repurchase agreements or reverse repurchase agreements, or securities lending 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 or securities lending 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. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (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 repurchase agreement on December 31, 1994, and was sold using a reverse repurchase agreement or securities lending agreement on December 31, 1994. (B) The security to be sold on a reverse repurchase agreement or a securities lending 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 and securities lending 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 or securities lending agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement or securities lending agreement may not be entered into with securities not sold on a reverse repurchase agreement or securities lending 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 or securities lending 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 or securities lending agreement, in order to supplement the yield on securities owned and previously paid for or 97 a 103 — Ch. 135 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 or securities lending 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities lending agreement and the final maturity date of the same security. Reverse repurchase agreements or securities lending 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 or securities lending agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements, securities lending 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. (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. 97 Ch. 135 —104 — (E) 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. (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement or securities lending agreement and the earnings obtained on the reinvestment of the funds. 0) Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, 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 "A" or better by a nationally recognized rating service. Purchases of medium -term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's surplus money that may be invested pursuant to this section. (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 6), inclusive, or subdivision (n 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 or securities lending 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 or securities lending 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-1 and following). (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 0), inclusive, or subdivision (0 or (m) and with assets under management in excess of five hundred million dollars ($500,000,000). 97 -105 — Ch. 135 (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). (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). (0 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 passthrough security, collateralized mortgage obligation, mortgage -backed or other pay -through bond, equipment lease -backed certificate, consumer receivable passthrough 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. SEC. 82. Section 54985 of the Government Code is amended to read: 54985. (a) Notwithstanding any other provision of law that prescribes an amount or otherwise limits the amount of a fee or charge that may be levied by a county, a county service area, or a county waterworks district governed by a county board of 97 Ch. 135 —106 — supervisors, a county board of supervisors shall have the authority to increase or decrease the fee or charge, that is otherwise authorized to be levied by another provision of law, in the amount reasonably necessary to recover the cost of providing any product or service or the cost of enforcing any regulation for which the fee or charge is levied. The fee or charge may reflect the average cost of providing any product or service or enforcing any regulation. Indirect costs that may be reflected in the cost of providing any product or service or the cost of enforcing any regulation shall be limited to those items that are included in the federal Office of Management and Budget Circular A-87 on January 1, 1984. (b) If any person disputes whether a fee or charge levied pursuant to subdivision (a) is reasonable, the board of supervisors may request the county auditor to conduct a study and to determine whether the fee or charge is reasonable. Nothing in this subdivision shall be construed to mean that the county shall not continue to be subject to fee review procedures required by Article XIII B of the California Constitution. (c) This chapter shall not apply to any of the following: (1) Any fee charged or collected by a court clerk pursuant to Section 26820.4, 26823, 26824, 26826, 26827, 26827.4, 26830, 72054, 72055, 72056, 72059, 72060, or 72061 of the Government Code or Section 103470 of the Health and Safety Code, and any other fee or charge that may be assessed, charged, collected, or levied pursuant to law for filing judicial documents or for other judicial functions. (2) Any fees charged or collected pursuant to Chapter 2 (commencing with Section 6100) of Division 7 of Title 1. (3) Any standby or availability assessment or charge. (4) Any fee charged or collected by a county agricultural commissioner. (5) Any fee charged or collected pursuant to Article 2.1 (commencing with Section 12240) of Chapter 2 of Division 5 of the Business and Professions Code. (6) Any fee charged or collected by a county recorder or local registrar for filing, recording, or indexing any document, performing any service, issuing any certificate, or providing a copy of any document pursuant to Section 2103 of the Code of Civil Procedure, Section 27361, 27361.1, 27361.2, 27361.3, 27361.4, 27361.8, 27364, 27365, or 27366 of the Government Code, Section 103625 of the Health and Safety Code, or Section 9525 of the Commercial Code. (7) Any fee charged or collected pursuant to Article 7 (commencing with Section 26720) of Chapter 2 of Part 3 of Division 2 of Title 3 of the Government Code. SEC. 83. Section 69915 of the Government Code is amended to read: 69915. (a) Notwithstanding any other provision of law, and except as provided in subdivision 0), the Board of Supervisors of each 97 r REPORT OF CASH AND INVESTMENTS QUARTER ENDED DECEMBER 31, 2001 Date Submitted: January 31, 2002 Table of Contents I. Report of Cash and Investments for Quarter Ended December 31, 2001 11. State of California Report of Pooled Money Investment Account Ill. Statement of Compliance of City of Vernon Quarterly Investment Report to City Investment Policy r 0 � N CD z �= W M N w w m z—() > Q ou)z vw vpw Q w Cy �O U. i- cm Loco Nrtpp(� oogoo$8g, coop o 88 8888 8 ci N� n J rWNtn�� asasoottpOOO mtWOn�WOOm OO po Nap o sotOaf �c�O(M� ix a.7a�^�Nn W iA WC�W W.V� tmq O �M aMOatflN+_ (aCNDOW pO V' OWOOfN !�H} NN33 NNN CNNV e- mr MM EFi f� Em9 Vi Nl ifl t(W) fH N tp a} et r1/3 O f9 fJl fN r11 iA 6 NfA Q. 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Amortized Cost Fair Value Accrued Interest United States Treasury: Bills $ 1,138,075,722.39 $ 1,142,970,729.26 $ 1,144,122, 500.00 NA Notes $ 4,318,603,694.27 $ 4,317,850,975.48 $ 4,399,497,250.00 $ 64,881,050.50 Federal Agency: SBA $ 264,505,629.34 $ 264,505,629.34 $ 263,984,645.25 $ 1,576,449.67 MBS $ 698,079,442.09 $ 698,079,442.09 $ 701,163,186.71 $ 3,605,331.70 Bonds $ 4,242,953,871.84 $ 4,242,268,976.01 $ 4,286,070,714.80 $ 57,732,513.78 Floaters $ _ ' $ _ $ _ $ _ Discount Notes $ 10,929,043,768.36 11,065,396,065.60 11,096,090,229.3$ NA FHLMC PC $ 8,620,709.82 $ 8,620,709.82 $ 9,348,175.20 $ 138,601.70 GNMA $ 858,833.75 $ 858,833.75 $ 989,249.21 $ 8,503.83 Bankers Acceptances $ 17,877,221.82 $ 17 881,030.68 $ 17,885,350.72 NA Bank Notes $ 1,115,008,664.83 $1,115,008,664.83 $ 1,118,500,239.55 $ 14,780,287.16 CDs $ 5,240,047,588.05 $ 5,240,047,588.05 $ 5,243,868,828.60 $ 20,793,138.88 Commercial Paper $ 11,511,436,136.36 11,548,460,782.6$ 11,554,908,922.1$ NA Corporate: Floaters $ 1,246,949,677.63 $ 1,246,791,506.79 $ 1,240,379,079.10 $ 4,230,804.06 Bonds $ 1,264,735,633.69 $1,263,385,126.14 $ 1,284,445,955.88 $ 19,936,017.20 Repurchase Agreements $ _ $ _ $ _ NA Reverse Repurchase $ (300,375,000.00) $ (300,375,000.00) $ (300,375,000.00) $ (475,593,75 Time Deposits $ 5,078,795,000.00 $ 5,078,795,000.00 $ 5,078,795,000.00 NA AB 55 & GF Loans $ 2,989,262,546.90 $ 2,989,262,546.90 $ 2,989,262,546.90 NA TOTAL $ 49,764,479,141.14 49,939,808,607.40 $ 50,128,936,873.41 $ 187,207,104.73 Fair Value Including Accrued Interest $ 50, 316,143, 978.14 Repurchase Agreements, Time Deposits, AB 55 & General Fund loans, and Reverse Repurchase