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CALIFORNIA GOVERNMENT CODE INVESTMENT SECTION 
53601.  This section shall apply to a local agency that is a city, a
district, or other local agency that does not pool money in deposits
or investments with other local agencies, other than local agencies
that have the same governing body.  However, Section 53635 shall
apply to all local agencies that pool money in deposits or
investments with other local agencies that have separate governing
bodies.  The legislative body of a local agency having money in a
sinking fund or 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 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) Federal agency or United States government-sponsored
enterprise obligations, participations, or other instruments,
including those issued by or fully guaranteed as to principal and
interest by federal agencies or United States government-sponsored
enterprises.
   (f) Bankers acceptances otherwise known as bills of exchange or
time drafts that are drawn on and accepted by a commercial bank.
Purchases of bankers acceptances may not exceed 180 days maturity or
40 percent of the agency's money that may be invested pursuant to
this section.  However, no more than 30 percent of the agency's money
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 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 number rating as provided for by Moody's
Investors Service, Inc. (Moody's), Standard and Poor's (S&P), or
Fitch Financial Services, Inc. (Fitch).  The corporation that issues
the commercial paper shall be organized and operating within the
United States, shall have total assets in excess of five hundred
million dollars ($500,000,000), and shall issue debt, other than
commercial paper, if any, that is rated "A" or higher by Moody's,
S&P, or Fitch.  Eligible commercial paper shall have a maximum
maturity of 270 days or less.  Local agencies, other than counties or
a city and county, may invest no more than 25 percent of their money
in eligible commercial paper.  Local agencies, other than counties
or a city and county, may purchase no more than 10 percent of the
outstanding commercial paper of any single corporate issue.  Counties
or a city and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635.
   (h) Negotiable certificates of deposit issued by a nationally or
state-chartered bank, a savings association or a federal association
(as defined by Section 5102 of the Financial Code), 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 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), except that the amount so invested shall be subject to the
limitations of Section 53638.  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 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 any person
with investment decision making authority in the administrative
office manager's office, budget office, auditor-controller's office,
or treasurer's office of the local agency also serves on the board of
directors, or any committee appointed by the board of directors, or
the credit committee or the 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, 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.
   (3) Reverse repurchase agreements or securities lending agreements
may be utilized only when all of the following conditions are met:
   (A) 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.
   (B) The total of all reverse repurchase agreements and securities
lending agreements on investments owned by the local agency does not
exceed 20 percent of the base value of the portfolio.
   (C) 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.
   (D) 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, 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.
   (4) (A) 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 or with a
nationally or state-chartered bank that has or has had a significant
banking relationship with a local agency.
   (B) For purposes of this chapter, "significant banking
relationship" means any of the following activities of a bank:
   (i) Involvement in the creation, sale, purchase, or retirement of
a local agency's bonds, warrants, notes, or other evidence of
indebtedness.
   (ii) Financing of a local agency's activities.
   (iii) Acceptance of a local agency's securities or funds as
deposits.
   (5) (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.

   (j) 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 (j), inclusive, or subdivisions
(m) or (n) and that comply with the investment restrictions of this
article and Article 2 (commencing with Section 53630).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement 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 et seq.).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
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).
   (l) 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.


For additional information:
http://codes.lp.findlaw.com/cacode/GOV/1/5/d2/1/4/1/s53601
RCM Robinson Capital Management LLC, Securities America, Inc, 27 Reed Boulevard, Mill Valley, CA 94941

(phone) 415-771-9421       (fax) 415-762-1980