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2000-147-Authorizing The Town Council To Accept The Existing Investment Policy Dated December 15, 1997RESOLUTION 2000 -147 RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS Ai7THORIZIlvG THE TOWN COUNCIL TO ACCEPT THE EXISTING INVESTMENT POLICY DATED DECEMBER 1.5,1997 WHEREAS: A. The Investment Policy of the'Town must be annually adopted by the legislative body of local .governments in a public meeting. B. The Town's existing Investment:Policy was redrafted in December 1997 by the Town Treasurer and is attached here as Exhibit A. C. The Town Council did review and approve this investment policy on December 15, 1997 and no additional changes to this policy are recommended and accepted and approved the existing Investment Policy on December 15„ 1997. D. The Town Council .reviewed and approved the exising Investment Policy on December 21, 1998, and on 'December 7, 1999. RESOLVED: The Town Council has reviewed and approves the existing Investment .Policy dated December 15, 1997. PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California held on the lSt" day of December, 2000 by the following vote: COUNCIL MEMBERS: AYES: Randy Attaway, Steven Blanton, Sandy Decker, Steve Glickman, Mayor Joe Pirzynslci. NAYS: None ABSENT: None ABSTAIN: None ~ . SIGNED MAYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: CLERK OF THE 'TOWN OF LOS GATOS LOS G:ATOS, CALIFORNIA ~~ ` Invdtmeat Policy for the 'Town of Los Gatos Revised December l S, 199'7 I. Scope This investment .policy applies to all of the Town's short-term operating .funds. These funds are described in the Town's annual financial report and .include, but are not limited to: • creneral Fund • Special Revenue Funds • Capital Project Funds • Debt Service Funds .. Enterprise Fund • Internal Service Funds • Fiduciary Funds Specifically excluded from this policy are amounts which are held by a trustee or fiscal agent and pledged as payment or security for bonds or other indebtedness, obligations under a lease, or obligations under certificates of participation Such funds are invested in accordance with statutory ..provisions, ordinance, resolution, or indenture governing the .issuance of the obligations.. In addition, this .investment policy is not applicable to Town's Defamed Compensation Plana These investments are directed by the each employee participant in accordance with the rules of the Deferred Compensation_Plaa II.Investmeat Objectives The primary~investment objectives, in prioritized order, shall be safety, liquidity, and yidd: 1. Safety. Safety of principal is the foremost objective of the investment .program. Investments shall be made in a meaner that seeks to ensure the preservation of capital is the overall portfolio. To attain this objective the Town will endeavor to mitigate cr~it t~isk,nd iater~t rate risk. A. Credit Risk. The Town will miai~mize credit risk, the risk of doss due to the failure ,~f the security issuer or backer, by; • Limiting investments to the safest types of securities Pre-qualifying the financial institutions and brokor/dealers with which the Town. will do busineu • Diversifying the investment' portfolio among security types and issuers, so that potential losses on nay particular security are limited .page 1 of 7 ExHisir a B. Interest Rate Risk. The Town will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, bye • Limiting the maturity of allowable investments to 5 years from the date purchased. • Limiting the Weighted .overage Maturity of the portfolio to 500 days. • .Investing primarily in shorter-term securities, money market mutual funds, or similaz investment pools such as the Local agency Investment Fund which :have limited exposure to interest rate fluctuations. • Targeting the maturity profile of the portfolio as follows: ^ Less than one year - 60% ^ One to two years - 20% ^ Two to fiva years - 20% • C,addering securities with .longer .maturities to prevent undue concentration in say gives maturity. 2. Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating .requirements that may be reasoaabiy anticipated. However, since all possible cash demands cannot be anticipated, the portfolio should consist lazgely of securitid with :active secondary or resale markets. In addition, a portion of the .portfolio also should be placed is money market mutual funds or the Local Agency .Investment .Fund. winch :offer same day liquidity.. 3. Yield. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary sad economic cycles, asking into account the investment .risk constraints sad .liquidity needs. Return on investment is of sewn importance compared to she saf~;ty and .liquidity objectives described above. The investments are limited to .relatively .low risk securities is anticipation of earning a .fair return ..relative oo the risk being assumed. The Town shall pursue a passive "buy sad hold" investment strategy rather than a more aggressive active management strategy. Ia general, securities shall not be sold prior to maturity with the following-exceptions; • A security with declining creditmay be sold early to minimuze loss of principal • Liquidity needs of the portfolio require that the security be sold. tII. Standards of Care page 2 of 7 ~ t ,~' 1, Prudence. The standazd of care to be used by:investment officials shall be the "prudent person" staadazd and shall be applied in the context of managing an overall portfolio. Investment officer acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of .personal responsibility for an individual security's credit risk or market price changes, provided. deviations from expectations are reported in a timely fashion and .the liquidity and the sale of securities are carried out in accordance with the terms of this policy. Investmenu shall be made with judgment .and care, under circumstances rhea p~evailiag, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for .investment, considering the probable safety of prinicipal as well as the probable income to be derived. 2. Ethics and Conflicts of Interest. Officers .and employees ir<volved in the investment process shall refrain from personal business activity that could conflict with the proper execution"and management of the investment program, or that could impair their ability to make impartiah decisions. Employees and investment officials shall disclose any .material .interests in financial. institutions with which they conduct business. They shall further disclose nay personal financial relationships or personal investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking ,personal investment transactions with the same individual with whom business is conducted on behalf of the Town. 3. Delegation of Authority. Undee Los Gatos Town Code Section 2.30.025(c) the Town Council is responsible for the delegation of authority for management of the Town's investment program. This authority is hereby delegated to the Town Treasurer, who shall :develop and .act in accordance with established written procedures .and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, delivery vs. payment, investment accounting, wire transfer agreements, and collateral/depository agreements.. No .person. may engage is an investment transaction except as provided under the terms of this policy and the procedures established by the Town Treasurer. The Town Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of nay subordinate officials. IV. Safekeeping and Ctwtody t. Authorized Finanda! Dealers and Institutions. A. Bcokeir/Dealer~. In order to do business with the Town, a securities dealer must be primary dealer reporting to the Nevi+ York Federal Reserve and have assets of at least $ billion.. All financial institutions and broker/dealers v~o desire to become qualified for investment transactions must also supply the following • Audited financial .statements (submitted annually) page 3 of 7 • Proof of National Association of Securities Dealers registration • Proof of stau registration • Certification of having read the Town's investment policy, including a statement that the dealer shall make a good faith effort to conform to this policy. B. Financial Institutions. The Town shall maintain demand deposits and time deposits only with commercial banks and savings banks which meet exceptionally high stanndards far safety anti soundness. Specifically, all. banks which accept deposits from the Town shall meet standards with regard to capital strength, assets ,earnings, and liquidity which allows them to earn the highest ranking (bluelthree stars) from the bank rating company veribane, lnc, In addition, the institution must have as office in California and that office must perform all transactions with. the Town. 2. Internal Controls. The Town Treasurer,. in coajuncuon with the Town's. Finance Director, strall establish .and maintain an internal control structure designed to ensure .that the invested assets of the Town are protected from loss, theft or misuse. The internal control structure shall be designed to .provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) .the cost of a control should .not acceed the benefits likely to be derived :and (2) the valuation of costs and benefits requires estimates and judgmeab by management. Accordingly, the Town Treasurer shall facilitau an annual independent review by an external auditor to assure compliance with policies :and ,procedures. The :internal controls shall address the following points: • Control of collusion • .Separation of transaction authority from accounting anti record keeping • Custodial safekeeping • Avoidance of physical delivery of securities • Clear delegation of authority to subordinate staff members • Written confirmatiot: of transactions for iavestmeab and arise transfers 3. Delivery vs. Payment. All securitid trades where applicable Grill be eacecvted by delivery vs. payment (DYP) to ensure that sec~irities are delivered into safekeeping with the Town's third party cuswdian prior to the release of funds. The Town's third•party custodian will be independent from the broker/dealer .handling the security transaction to ensure proper, timely delivery and .payment. page 4 of 7 ~' 4. Coilateraiization. Collauralization is required on all Certificates of Deposits cad deposits in excess of FDIC insurance .limits. 'In order to anticipate market changes, the resittired collateralization level is 1:10% of market value of principal and accrued interest for government securities pledged as collateral, or l50% for .first deeds of trust pledged as collateral. Such collateral wi'11 be held by an indepeadect third party custodian. V. Suitable and ~-uthorized Investments ., 1. investment 'Typo. California Government Code Sections 53601, 53631.5 and 53535 place limitations on allowable investments by local governments. This investment..policy futxlter restricts allowable investments. The following investments will be permitted by this policy: Muimum Mazimnm % Quality ._ Investment Tvtx Maturi of Portfolio Reauiremenb US Treasury Obligations 5 yeah None N/A US Agency Obligations 5 yew None Active Mazket ~ Backers Acceptances 270 days 15% Multiple= Medium Term Corporate Notes 3 years/5 years 15% AA rating/AAA Money Mazket Funds N/A 15% Multiple.; Collateralized CD's 5 Yew 15' o Multiple •~ CA Local Agency Investment Fund N/A 55•/. N/A Commercial Paper 180 days 15% A1/P`1 rating' ~ Limited to US Agenry tJbligstians with ligaid matltets and reality determinable fair market value including obligations issued by the Fcdetal Farm Credit Hack (FFCB) the Federal Hotns Loan Banlc(F~'FII.H), the Federal National Mortgage Assodation (FNMA), the Federal :Home Loan Mortgage Association (Freddie Mac), the Federal Land Hack, anti the Tentusaee V~llay Authority (TVA), Bankers Acceptances mmt bep-tset asxep<ances issaed by one of the top IS U3 money cestter acceptance banks. Limited to 51,000,000 withany-single astittrtion. ~ Money market tlmds mast havve a weighted mange of 9o days ~,1era, consist aalY of dollar denominated sec~aities, be regtilated by the Securities attd Exchange Commission, possess the highest rating by 2 of the 3 largest nationally recognized tatting services, cad maintainlhmd asst; of at least 5300 million. ~ Veribaac, Inc. highest rating (blue/tht+ee slats). Limited to Slmillism per iasdtunton S Issuers satist be US corporations; with assts of at leastt SS00 milliaQ. Pta~chases snay not tepresmt sti~ore than 10°/. of the otttstatsding commercial paper of the issuer. 2. Prohibited Invdtmenb. Prohibited investments are any investments not. specifically __ identified above, including but not limited to: page 5 of 7 ~ ~. • Derivatives of he above instruments '.` :' • ~. Repurchase agreements • Reverse repurchase agreements '`~~ ~•:•~ ~tYegotiable certificates of deposit ~• Inverse floaters Range .notes :Interest only strips ray security which could result in zero interest accrual if held to maturity VI. Reporting 1. 1~Iethods. The Town Treasurer shall prepare a monthly investment report, including a management summary that provides an analysis of the status of the current investment; portfolio. This management summary will be prepared in a manner which will allow the Town to ascertain. whether :investment activities during the reporting period have conformed to the investment policy. The report should'be submitted to the Town Cleric within 30 days after the end of each month for inclusion as an agenda item at the next scheduled Town Council meeting. The .report shall include the following: • Detailed listing of individual securities held at the and of the reporting period includirsg, issuer, purchase date, maturity date, and yield to .maturity.. • Realized-.and unrealized gains or losses resulting from appreciation or depreciation by listing the amortized cast. and market value of each security. • Average weighted yield to maturity of the portfolio as compared to the average weighted yield of :the Local Agency Investment Fund •' Weighted Average `Maturity of the portfolio and percentage breakdown of the total portfolio by maturity (e.g., % less than 1 year, l - Z years, 3 - 5 years) • Summary of .interest income for the month and fiscal year to date. • A aw~emeat of campliance with the Investment Policy. • A statement regarding the adequacy of cash flows for the nett six months. Z. Marking to 1Visrkeet: When "marking the portfolio to markef' (i.e., calculating the market value of the portfolio), the Treasurer shall obtain irldepeadent valuation of the portfolio from the Town's safekeeping or custody service. Investments in LAS shall be valued as shown ~~ the month-end statements received from the California State Treasurer. Due to a lack of reL ::~ le market value data, investments in Certificates of Deposit shall be shown at cost .provided chat the r, page 6 of 7 s ,, • eg - ~~ ~' fair market value of the Certificates of Deposit are not significantly affected by the impairment of the credit standing of the issuer. VII. Policy Considerations 1. Ezemption. tiny investment currently held that does not meet the guidelines of this policy shall be exempted From the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this :policy. 2. Adoption. The Town's investment policy shall be adopted by resolution of the Town Council at a public .meeting. 3. Amendments. This .policy shall be reviewed oa as .annual ba3is. Any changes must be approved by tha Town Treasurer and the Town Council page 7 of 7