Town's Investment Policyt °wN F MEETING DATE: 11/04/14
ITEM NO: H
tos sAtoe COUNCIL AGENDA REPORT 1
DATE: OCTOBER 21, 2014
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER , z
SUBJECT: ADOPT RESOLUTION APPROVING THE TOWN'S INVESTMENT POLICY
RECOMMENDATION:
Adopt a resolution approving the Town's Investment Policy.
DISCUSSION:
The Town's Investment Policy was last updated with material revisions in May 2008. Cutwater Asset
Management, the Town's investment advisors, has been working with staff to revise and update the
Town's Investment Policy. ,
The main revisions to the policy are:
• To treat the Town's total portfolio, including funds held at LAIF, as the "total portfolio" when
calculating the percentage of the portfolio invested in different types of investments,
• To add municipal bonds to the allowed investment list, as is allowed under California code, and
To clarify language for holding periods to begin on the "trade settlement date."
The revisions do not make any other material changes to the current policy, but are more in the nature of
clarifications to the current policy.
FISCAL IMPACT:
WITI =
Attachments:
1. Resolution adopting the Town's Investment Policy
2. Proposed Town Investment Policy
3. Current Town Investment Policy highlighting proposed changes
PREPARED BY: ST W Y
Finan e & Admini ative Services Director/ Town Treasurer
Reviewed by: 11,4114 Assistant Town Manager
Attorney
NAFINANCE \COUNCH, \Comcil Staff ReportsUnvestment ReportsUnvestment Polley Comcil Report 11.04.14.doe
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RESOLUTION NO. 2014 -
RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS
ADOPTING THE TOWN OF LOS GATOS INVESTMENT POLICY
WHEREAS, the Town of Los Gatos Investment Policy is required to be rendered to
and then considered by the legislative body of the local government in a public meeting; and
WHEREAS, the Town's existing Investment Policy was adopted in May 2008; and
WHEREAS, the new policy updates the existing policy to make it current with
California Code and with best municipal investment practices, as suggested by Cutwater Asset
Management, who is a consultant to the Town for investment advice.
NOW, THEREFORE, BE IT RESOLVED, THE TOWN COUNCIL OF THE
TOWN OF LOS GATOS has reviewed and accepted the revised Town Investment Policy.
PASSED AND ADOPTED at a meeting of the Town Council held on
the by the following vote:
COUNCIL MEMBERS:
AYES:
NAYS:
ABSENT:
ABSTAIN:
SIGNED:
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTACHMENT
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Town of Los Gatos
Investment Policy
The Town of Los Gatos (the "Town "), incorporated in 1887, is located approximately 60
miles south of San Francisco, in the southwestern portion of Santa Clara County. The
Town operates under the Council /Manager form of government. The Town Council is the
legislative body for the Town. It has five members elected to serve staggered four year
terms. The Town Manager is appointed by the Town Council.
The Town Council has adopted this Investment Policy in order to establish the investment
scope, objectives, delegation of authority, standards of prudence, reporting requirements,
internal controls, eligible investments and transactions, diversification requirements, risk
tolerance, and safekeeping and custodial procedures for the investment of the funds of the
Town. All Town funds will be invested in accordance with this Investment Policy and with
applicable sections of the California Government Code.
This Investment Policy was originally adopted by the Town Council of the Town of Los
Gatos on June 16, 2014. It replaces any previous investment policy or investment
procedures of the Town.
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:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Debt Service Funds
• Enterprise Fund
• Internal Service Funds
• Fiduciary Funds
Specifically excluded from this Investment 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 the Town's Deferred Compensation Plan. These investments are directed by
each employee participant in accordance with the rules of the Deferred Compensation Plan.
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Town of Los Gatos
Investment Policy
November 4, 2014
OBJECTIVES
The Town's funds shall be invested in accordance with all applicable Town policies and
codes, State statutes, and Federal regulations, and in a manner designed to accomplish the
following objectives, which are listed in priority order:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market value rate of return.
4. Diversification to avoid incurring unreasonable market risks.
DELEGATION OF AUTHORITY
Management responsibility for the Town's investment program is delegated annually by the
Town Council to the Town Treasurer (the "Treasurer") pursuant to California Government
Code Section 53607. The Treasurer may delegate the authority to conduct investment
transactions and to manage the operation of the investment portfolio to other specifically
authorized staff members. The Treasurer shall maintain a list of persons authorized to
transact securities business for the Town. No person may engage in an investment
transaction except as expressly provided under the terms of this Investment Policy.
The Treasurer shall develop written administrative procedures and internal controls,
consistent with this Investment Policy, for the operation of the Town's investment program.
Such procedures shall be designed to prevent losses arising from fraud, employee error,
misrepresentation by third parties, or imprudent actions by employees.
The Town may engage the support services of outside investment advisors in regard to its
investment program, so long as it can be demonstrated that these services produce a net
financial advantage or necessary financial protection of the Town's financial resources.
PRUDENCE
The standard of prudence to be used for managing the Town's investments shall be
California Government Code Section 53600.3, the prudent investor standard which states,
"When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic conditions
and the anticipated needs of the agency, that a prudent person acting in a like capacity and
familiarity with those matters would use in the conduct of funds of a like character and with
like aims, to safeguard the principal and maintain the liquidity needs of the agency."
The Town's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The Town recognizes that no investment
is totally without risk and that the investment activities of the Town are a matter of public
record. Accordingly, the Town recognizes that occasional measured losses may occur in a
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Town of Los Gatos
Investment Policy
November 4, 2014
diversified portfolio and shall be considered within the context of the overall portfolio's
return, provided that adequate diversification has been implemented and that the sale of a
security is in the best long -term interest of the Town.
The Treasurer and authorized investment personnel 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 the deviations from
expectations are reported in a timely fashion to the Town Council and appropriate action is
taken to control adverse developments.
ETHICS AND CONFLICTS OF INTEREST
Elected officials and Town employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
program or could impair or create the appearance of an impairment of their ability to make
impartial investment decisions. Elected officials and Town employees shall disclose to the
Town Council any business interests they have in financial institutions that conduct business
with the Town and they shall subordinate their personal investment transactions to those of
the Town. In addition, the Town Manager and the Treasurer shall file a Statement of
Economic Interests each year pursuant to California Government Code Section 87203 and
regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the Town shall be made in accordance with California
Government Code Sections 16429.1, 53600 -53609 and 53630- 53686, except that pursuant
to California Government Code Section 5903(e), proceeds of bonds and any moneys set
aside or pledged to secure payment of the bonds may be invested in securities or
obligations described in the ordinance, resolution, indenture, agreement, or other instrument
providing for the issuance of the bonds. Any revisions or extensions of these code sections
will be assumed to be part of this Investment Policy immediately upon being enacted.
However, in the event that amendments to these sections conflict with this Investment
Policy and past Town investment practices, the Town may delay adherence to the new
requirements when it is deemed in the best interest of the Town to do so. In such
instances, after consultation with the Town's attorney, the Treasurer will present a
recommended course of action to the Town Council for approval.
The Town has further restricted the eligible types of securities and transactions as follows:
1. United States Treasury bills, notes, bonds, or certificates with a final maturity not
exceeding five years from the date of trade settlement.
2. Federal Agency Obligations for which the faith and credit of the United States are
pledged for the payment of principal and interest and which have a final maturity not
exceeding five years from the date of trade settlement. There is no limit on the
percentage of the portfolio that can be invested in this category, however, no more than
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Town of Los Gatos
Investment Policy
November 4, 2014
20% of the town's total portfolio shall be invested in the combination of Government
National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA)
and Federal Home Loan Mortgage Corporation (FHLMC) mortgage- backed securities.
3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable securities, step -up securities, and mortgage- backed securities (including FNMA
and FHLMC) with a final maturity not exceeding five years from the date of trade
settlement.. There is no limit on the percentage of the portfolio that can be invested in
this category, however, no more than 20% of the town's total portfolio shall be invested
in the combination of GNMA, FNMA, and FHLMC mortgage- backed securities.
4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade
settlement with the highest ranking or of the highest letter and number rating as
provided for by a nationally recognized statistical- rating organization ( NRSRO). The
entity that issues the commercial paper shall meet all of the following conditions in either
sub - paragraph A. or sub - paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of five hundred million
dollars ($500,000,000) and (3) Have debt other than commercial paper, if
any, that is rated "A" or higher by a NRSRO.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program wide
credit enhancements, including, but not limited to, over collateralization,
letters of credit or surety bond and (3) have commercial paper that is rated
"A -1" or higher, or the equivalent, by a NRSRO.
Purchases of eligible commercial paper shall not exceed:
• 10% of the outstanding commercial paper of any single corporate issuer,
• 5% of the Town's total portfolio in the commercial paper of any one issuer, and
25% of the Town's total portfolio.
5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of
trade settlement, issued by a state or national bank with combined capital and surplus of
at least $250 million, whose deposits are insured by the FDIC, and whose senior long-
term debt is rated at least A or the equivalent by a NRSRO at the time of purchase. No
more than 5% of the Town's total portfolio shall be invested in banker's acceptances of
any one issuer, and the aggregate investment in banker's acceptances shall not exceed
30% of the Town's total portfolio.
6. Medium Term Notes issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state and
operating within the United States, with a final maturity not exceeding five years from the
date of trade settlement, and rated at least A or the equivalent by a NRSRO. No more
than 5% of the Town's total portfolio shall be invested in the medium -term notes of any
one issuer and the aggregate investment in medium term notes shall not exceed 30% of
the Town's total portfolio.
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Town of Los Gatos
Investment Policy
November 4, 2014
7. Municipal & State Obligations:
A. Municipal bonds including registered notes or bonds of any of the 50 states,
including bonds payable solely out of the revenues from a revenue - producing
property owned, controlled, or operated by a state or by a department, board,
agency, or authority of any of the 50 states.
B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any local
agency in California, including bonds payable solely out of the revenues from a
revenue - producing property owned, controlled, operated by the local agency, or by a
department, board, agency, or authority of the local agency.
Municipal bonds must be rated at least "A" or the equivalent by a NRSRO with maturities
not exceeding five years from the date of the trade settlement. No more than 5% of the
Town's total portfolio shall be invested in "A" rated bonds or in the bonds of any one
municipality. In addition, the aggregate investment in municipal bonds may not exceed 30%
of the total portfolio.
8. Certificates of Deposit with a final maturity not exceeding five years from the date of
trade settlement. The aggregate investment in certificates of deposit shall not exceed
30% of the Town's portfolio, and no more than 5% of the portfolio shall be held in any
one deposit or allocated to any one issuer. Certificates of Deposit shall be issued by a
nationally or state - chartered bank or a state or federal savings and loan association or
by a state - licensed branch of a foreign bank or by a federally licensed branch of a
foreign bank provided that the senior debt obligations of the issuing institution are rated
at least "A" or the equivalent by a NRSRO.
teaeraiiv licensed or state - licensed branch of a foreign bank Purchases of negotiable
certificates of deposits are subject to the limitations of Section 53601(i), shall be fully
insured by the FDIC with a corresponding FDIC certification number, and shall be
delivered through the Depository Trust Company.
Non - Negotiable certificates of deposit issued by a nationally or state - chartered bank or
by a federally licensed or state - licensed branch of a foreign bank Purchases of non-
negotiable certificates of deposit are subject to the limitations of Sections 53601(n) and
53638 and shall be fully insured by the FDIC with a corresponding FDIC certification
number.
Private sector entities may be used to place certificates of deposit subject to the
limitations of Section 53601.8.
9. State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1. The aggregate amount invested in LAW shall not
exceed the maximum allowed by the fund.
10. Money Market Funds registered under the Investment Company Act of 1940 that (1) are
"no -load" (meaning no commission or fee shall be charged on purchases or sales of
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Town of Los Gatos
Investment Policy
November 4, 2014
shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the
securities and obligations authorized by applicable California Statute and (4) have a
rating of at least AAA or the equivalent by at least two NRSROs. No more than 10% of
the Town's total portfolio shall be invested in money market funds of any one issuer, and
the aggregate investment in money market funds shall not exceed 20% of the Town's
total portfolio.
Securities that have been downgraded to a level that is below the minimum ratings
described herein may be sold or held at the Town's discretion. The portfolio will be brought
back into compliance with Investment Policy guidelines as soon as is practical.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any
deviation from it must be preapproved by resolution of the Town Council.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The Town will not invest in securities maturing
more than five years from the date of trade settlement, unless the Town Council has by
resolution granted authority to make such an investment at least three months prior to the
date of investment.
SELECTION OF BROKER/DEALERS
The Treasurer shall maintain a list of broker /dealers approved for investment purposes, and
it shall be the policy of the Town to purchase securities only from those authorized firms.
To be eligible, a firm must meet at least one of the following criteria:
• Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a
primary dealer within their holding company structure; or
• Report voluntarily to the Federal Reserve Bank of New York; or
• Qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1 (Uniform Net
Capital Rule).
In addition, authorized broker /dealers must be licensed by the State of California as a
broker /dealer as defined in Section 25004 of the California Corporations Code.
Each authorized broker /dealer shall be required to submit and annually update a Town
approved Broker /Dealer Information Request form which includes the firm's most recent
financial statements.
In the event that an external investment advisor is not used in the process of recommending
a particular transaction in the Town's portfolio, authorized broker /dealers shall attest in
writing that they have received and reviewed a copy of the this Investment Policy.
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Town of Los Gatos
Investment Policy
November 4, 2014
The Town may purchase commercial paper from direct issuers even though they are not on
the approved broker /dealer list as long as they meet the criteria outlined in Item 4 of the
Authorized Securities and Transactions section of this Investment Policy.
COMPETITIVE TRANSACTIONS
Each investment transaction shall be
broker /dealers. At least three broker /dealers
their bid and offering prices shall be recorded.
competitively transacted with authorized
shall be contacted for each transaction and
If the Town is offered a security for which there is no other readily available competitive
offering, the Treasurer will document quotations for comparable or alternative securities.
SELECTION OF BANKS
The Treasurer shall maintain a list of banks and savings banks approved to provide banking
services for the Town. To be eligible, a bank must be a member of the Federal Deposit
Insurance Corporation, must qualify as a depository of public funds in the State of California
as defined in California Government Code Section 53630.5 and shall secure deposits in
excess of FDIC coverage in accordance with California Government Code Section 53652.
Authorized banks that accept deposits from the Town shall meet high standards with regard
to liquidity, asset quality, profitability and capital adequacy. The Treasurer shall utilize a
commercial bank rating service to perform credit analysis on banks seeking authorization.
Banks that in the judgment of the Treasurer no longer offer adequate safety to the Town
shall be removed from the Town's list of authorized banks.
SAFEKEEPING AND CUSTODY
The Treasurer shall select one or more financial institutions to provide safekeeping and
custodial services for the Town. A Safekeeping Agreement shall be executed with each
custodian bank prior to utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the
Town's account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled
on a delivery versus payment basis. All securities shall be perfected in the name of the
Town. Sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities, purchased by the Town will be delivered by book entry and will be
held in third -party safekeeping by a Town approved custodian bank, its correspondent bank
or its Depository Trust Company (DTC) participant account.
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Town of Los Gatos
Investment Policy
November 4, 2014
All Fed wireable book entry securities owned by the Town shall be held in the Federal
Reserve System in a customer account for the custodian bank which will name the Town as
"customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and
the custodian bank shall provide evidence that the securities are held for the Town as
"customer."
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout
budgetary and economic cycles, taking into account prevailing market conditions, risk
constraints for eligible securities, and cash flow requirements. The performance of the
Town's investments shall be compared to the average yield on the U.S. Treasury security
that most closely corresponds to the portfolio's weighted average effective maturity. When
comparing the performance of the Town's portfolio, its rate of return will be computed net of
all fees and expenses.
REPORTING
No less than quarterly, the Treasurer shall prepare a report of the investment earnings and
performance results of the Town's investment portfolio. The report shall be submitted to the
Town Clerk within 45 days after the end of each quarter for inclusion as an agenda item at
the next. scheduled Town Council meeting. The report shall include the following
information:
1. Investment type, issuer, date of maturity, par value and' dollar amount invested in all
securities, and investments and monies held by the Town;
2. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
3. Realized and unrealized gains or losses calculated by amortized cost and by fair value.
4. The weighted average maturity of the portfolio and a percentage breakdown of the total
portfolio by maturity.
5. A description of the funds, investments and programs that are under the management of
contracted parties;
6. A statement of compliance with this Investment Policy or an explanation for non-
compliance; and
7. A statement of the ability to meet expenditure requirements for the next six months, and
an explanation of why money will not be available if that is the case.
POLICY REVIEW
This Investment Policy shall be adopted by resolution of the Town Council. Annually the
Treasurer shall present this Investment Policy to the Town Council for review to ensure its
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Town of Los Gatos
Investment Policy
November 4, 2014
consistency with the Town's investment objectives, current law and economic trends. Any
amendments to this Investment Policy shall be approved by the Town Council.
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Town of Los Gatos
Investment Policy
The Town of Los Gatos (the "Town "), incorporated in 1887, is located approximately 60
miles south of San Francisco, in the southwestern portion of Santa Clara County, The
Town operates under the Council /Manager form of government. The Town Council is the
legislative body for the Town. It has five members elected to serve staggered four (4}year
terms. The Town Manager is appointed by the Town Council.
The Town Council has adopted this Investment Policy in order to establish the investment
scope, objectives, delegation of authority, standards of prudence, reporting requirements,
internal controls, eligible investments and transactions, diversification requirements, risk
tolerance, and safekeeping and custodial procedures for the investment of the funds of the
Town. All Town funds will be invested in accordance with this Investment Policy and with
applicable sections of the California Government Code.
This Investment Policy was originally adopted by the Town Council of the Town of Los
Gatos on June 16, 2014. It replaces any previous investment policy or
investment procedures of the Town.
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:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Debt Service Funds
• Enterprise Fund
• Internal Service Funds
• Fiduciary Funds
Specifically excluded from this Investment 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 the Town's Deferred Compensation Plan. These investments are directed by
each employee participant in accordance with the rules of the Deferred Compensation Plan.
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ATTACHMENT 3
Town of Los Gatos
Investment Policy
May 1, 2008
OBJECTIVES
The Town's funds shall be invested in accordance with all applicable Town policies and
codes, State statutes, and Federal regulations, and in a manner designed to accomplish the
following objectives, which are listed , in
erder of priority areorder:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market value rate of return.
4. Diversification to avoid incurring unreasonable market risks.
DELEGATION OF AUTHORITY
Management responsibility for the Town's investment program is delegated annually by the
Town Council to the Town Treasurer (the "Treasurer ") pursuant to California Government
Code Section 53607. The Treasurer may delegate the authority to conduct investment
transactions and to manage the operation of the investment portfolio to other specifically
authorized staff members. The Treasurer shall maintain a list of persons authorized to
transact securities business for the Town. No person may engage in an investment
transaction except as expressly provided under the terms of this Investment Policy.
The Treasurer shall develop written administrative procedures and internal controls,
consistent with this Investment Policy, for the operation of the Town's investment program.
Such procedures shall be designed to prevent losses arising from fraud, employee error,
misrepresentation by third parties, or imprudent actions by employees.
The Town may engage the support services of outside investment advisors in regard to its
investment program, so long as it can be demonstrated that these services produce a net
financial advantage or necessary financial protection of the Town's financial resources.
PRUDENCE
The standard of prudence to be used for managing the Town's investments shall be
California Government Code Section 53600.3, the prudent investor standard which states,
"When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic conditions
and the anticipated needs of the agency, that a prudent person acting in a like capacity and
familiarity with those matters would use in the conduct of funds of a like character and with
like aims, to safeguard the principal and maintain the liquidity needs of the agency."
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Town of Los Gatos
Investment Policy
May 1, 2008
The Town's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The Town recognizes that no investment
is totally without risk fiskless -and that the investment activities of the Town are a matter of
public record. Accordingly, the Town recognizes that occasional measured losses may
occur be desirable in a diversified portfolio and shall be considered within the context of the
overall portfolio's return, provided that adequate diversification has been implemented and
that the sale of a security is in the best long -term interest of the Town.
The Treasurer and authorized investment personnel 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 the deviations from
expectations are reported in a timely fashion to the Town Council and appropriate action is
taken to control adverse developments.
ETHICS AND CONFLICTS OF INTEREST
Elected officials and Town employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
program or could impair or create the appearance of an impairment of their ability to make
impartial investment decisions. Elected officials and Town employees shall disclose to the
Town Council any business interests they have in financial institutions that conduct business
with the Town and they shall subordinate their personal investment transactions to those of
the Town. In addition, the Town Manager and the Treasurer shall file a Statement of
Economic Interests each year pursuant to California Government Code Section 87203 and
regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the Town shall be made in accordance with California
Government Code Sections 16429.1, 53600 -53609 and 53630- 53686, except that pursuant
to California Government Code Section 5903(e), proceeds of bonds and any moneys set
aside or pledged to secure payment of the bonds may be invested in securities or
obligations described in the ordinance, resolution, indenture, agreement, or other instrument
providing for the issuance of the bonds. Any revisions or extensions of these code sections
will be assumed to be part of this Investment Policy immediately upon being enacted.
However, in the event that amendments to these sections conflict with this Investment
Policy and past Town investment practices, the Town may delay adherence to the new
requirements when it is deemed in the best interest of the Town to do so. In such
instances, after consultation with the Town's attorney, the Treasurer will present a
recommended course of action to the Town Council for approval.
The Town has further restricted the eligible types of securities and transactions as follows:
1) United States Treasury bills, aad -notes bonds, or certificates with a final maturity not
exceeding five years from the date of settlementpurstaase.
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Town of Los Gatos
Investment Policy
May 1, 2008
2) Federal Agency Obligations for which the faith and credit of the United States are
pledged for the payment of principal and interest and which have d°I9°area ARR
a final maturity not exceeding five years from the date
of trade settlement
(GNMA). There is no limit on the percentage of the portfolio that can be invested in this
category, however, no more than 20% of the Town's total portfolio shall be invested in
(FHLMC) mortgage- backed securities.
3) Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable securities, arA—step -up securities, and mortgage- backed securities (including
FNMA and FHLMC) with a final maturity not exceeding five years from the date of trade
settlement. There is no limit on the percentage of the portfolio that can be invested in
this category, however, no more than 20% of the Town's total portfolio shall be invested
in a combination of FNMA, FNMA, and FHLMC mortgage- backed securitiespurshase;
4) Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade
settlmentparshase with the highest ranking or of the highest letter and number rating as
provided for by a nationally recognized statistical- rating organization ( NRSRO). The
entity that issues the commercial paper shall meet all of the following conditions in either
sub - paragraph A. or sub - paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of five hundred million
dollars ($500,000,000) and (3) Have debt other than commercial paper, if
any, that is rated "A" or higher by a NRSRO.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program wide
credit enhancements, including, but not limited to, over collateralization,
letters of credit or surety bond and (3) have commercial paper that is rated
"A -1" or higher, or the equivalent, by a NRSRO.
Purchases of eligible commercial paper shall not exceed:
• 10% of the outstanding commercial paper of any single corporate issuer,
• a05% of the Town's total portfolio in the commercial paper of any one issuer,
and
• 4525% of the Town's total portfolio.
5) Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of
purchase, issued by a state or national bank with combined capital and surplus of at
least $250 million, whose deposits are insured by the FDIC, and whose senior long -term
debt is rated at least A or the equivalent by a NRSRO at the time of purchase. No more
than 4,05% of the Town's total portfolio shall be invested in banker's acceptances of any
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Investment Policy
May 1, 2008
one issuer, and the aggregate investment in banker's acceptances shall not exceed
4530% of the Town's total portfolio.
6) Medium Term Notes issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state and
operating within the United States, with a final maturity not exceeding five years from the
date of purchasetrade settlment, and rated at least A or the equivalent by a NRSRO.
No more than 5% of the Town's total portfolio shall be invested in the medium -term
notes of any one issuer and Tthe aggregate investment in medium term notes shall not
exceed 4530% of the Town's total portfolio.
7) Municipal & State Obligations:
A. Municipal Bonds including registered notes or bonds of any of the 50 states,
B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any
local agency in California including bonds payable solely out of the revenues from a
revenue - producing property owned, controlled, operated by the local agency, or by a
department board agency, or authority of the local agency.
Municipal bonds must be rated at least "A" or the equivalent by a NRSRO with maturities
Town's total potfolio shall be invested in "A" rated bonds or in the bonds of any one
municipality. In addition the aggregate investment in municipal bonds may not exceed
30% of the total potfolio.
8) Alen- neaeiiable- Certificates of Deposit with a final maturity not exceeding five years from
the date of trade settlement. ,
a
Banns." The aggregate investment in RMAURt Pion negotiable cGertificates
of dBeposit shall not exceed 3045% of the Town's total portfolio, and no more than 5%
of the portfolio shall be held in any one deposit or allocated to any one issuer.
Certificate of Deposit shall be issued by a nationally or state - charted bank or a state or
federal savings and loan association or by a state - licensed branch of a foreign bank of
Neaotiable certificates of deposit issued by a nationally or state - charted bank, or by a
federally licensed or state - licensed branch of a foreign bank. Purchases of negotiable
certificates of deposits are subject to the limitations of Section 53601(1). shall be fully
insured by the FDIC with a corresponding FDIC certification number, and shall be
delivered through the Depository Trust Company.
Non - Negotiable certificates of deposit issued by a nationally or state - charted bank, or by
a federally licensed or state - licensed branch of a foreign bank. Purchases of non-
negotiable certificates of deposit are subject to the limitations of Sections 53601(n) and
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Town of Los Gatos
Investment Policy
May 1, 2008
53638 and shall be fully insured by the FDIC with a corresponding FDIC certification
number.
Private sector entities may be used to place certificates of deposit subject to the
limitations of Section 53601.8.
:�)09) State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1. The aggregate amount invested in LAIF shall not
exceed the maximum allowed by the fund Ge, Whichever
is less.
8)10) Money Market Funds registered under the Investment Company Act of 1940 that (1)
are "no -load" (meaning no commission or fee shall be charged on purchases or sales of
shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the
securities and obligations authorized by applicable California Statute
P-olisy and (4) have a rating of at least AAA or the equivalent by at least two NRSROs.
No more than 10% of the Town's total portfolio shall be invested in money market funds
of any one issuer, and the aggregate investment in money market funds shall not
exceed 4520% of the Town's total portfolio.
Securities that have been downgraded to a level that is below the minimum ratings
described herin may be sold or held at the Town's discretion. The portfolio will be brought
back into compliance with Investment Policy guidelines as soon as is practical.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any
deviation from it must be preapproved by resolution of the Town Council.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The Town will not invest in securities maturing
more than five years from the date of purshasetrade settlment, unless the Town Council has
by resolution granted authority to make such an investment at least three months prior to
the date of investment.
SELECTION OF BROKER/DEALERS
The Treasurer shall maintain a list of broker /dealers approved for investment purposes, and
it shall be the policy of the Town to purchase securities only from those authorized firms.
To be eligible, a firm must meet at least one of the following criteria:
• Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a
primary dealer within their holding company structure; or
• Report voluntarily to the Federal Reserve Bank of New York; or
• Qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1 (Uniform Net
Capital Rule).
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Investment Policy
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In addition, authorized broker /dealers must be licensed by the State of California as a
broker /dealer as defined in Section 25004 of the California Corporations Code.
Each authorized broker /dealer shall be required to submit and annually update a Town
approved Broker /Dealer Information Request form which includes the firm's most recent
financial statements.
In the event that an external investment advisor is not used in the process of recommending
a particular transaction in the Town's portfolio, authorized Bbroker /dDealers shall attest in
writing that they have received and reviewed a copy of this Investment Policy.
The Town may purchase commercial paper from direct issuers even though they are not on
the approved broker /dealer list as long as they meet the criteria outlined in Item 4 of the
Authorized Securities and Transactions section of this Investment Policy.
COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with authorized
broker /dealers. At least three broker /dealers shall be contacted for each transaction and
their bid and offering prices shall be recorded.
If the Town is offered a security for which there is no other readily available competitive
offering, the Treasurer will document quotations for comparable or alternative securities.
SELECTION OF BANKS
The Treasurer shall maintain a list of banks and savings banks approved to provide banking
services for the Town. To be eligible, a bank must be a member of the Federal Deposit
Insurance Corporation, must qualify as a depository of public funds in the State of California
as defined in California Government Code Section 53630.5 and shall secure deposits in
excess of FDIC coverage in accordance with California Government Code Section 53652.
Authorized banks that accept deposits from the Town shall meet high standards with regard
to liquidity, asset quality, profitability and capital adequacy. The Treasurer shall utilize a
commercial bank rating service to perform credit analysis on banks seeking authorization.
Banks that in the judgment of the Treasurer no longer offer adequate safety to the Town
shall be removed from the Town's list of authorized banks.
SAFEKEEPING AND CUSTODY
The Treasurer shall select one or more financial institutions to provide safekeeping and
custodial services for the Town. A Safekeeping Agreement shall be executed with each
custodian bank prior to utilizing that bank's safekeeping services.
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Town of Los Gatos
Investment Policy
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Custodian banks will be selected on the basis of their ability to provide services for the
Town's account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled
on a delivery versus payment basis. All securities shall be perfected in the name of the
Town. Sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities,
FU„ds a;dzAI , purchased by the Town will be delivered by either book entry eF physical
delivery and will be held in third -party safekeeping by a Town approved custodian bank, ifs
serrespendent -bank or its Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the Town shall be held in the Federal
Reserve System in a customer account for the custodian bank which will name the Town as
"customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and
the custodian bank shall provide evidence that the securities are held for the Town as
"customer."
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout
budgetary and economic cycles, taking into account prevailing market conditions, risk
constraints for eligible securities, and cash flow requirements. The performance of the
Town's investments shall be compared to the average yield on the U.S. Treasury security
that most closely corresponds to the portfolio's actual weighted average effective maturity.
When comparing the performance of the Town's portfolio, its rate of return will be computed
net of all fees and expenses.
REPORTING
No less than quarterly, the Treasurer shall prepare a report of the investment earnings and
performance results of the Town's investment portfolio. The report shall be submitted to the
Town Clerk within 45 days after the end of each quarter for inclusion as an agenda item at
the next scheduled Town Council meeting. The report shall include the following
information:
1. Investment type, issuer, date of maturity, par value and dollar amount invested in all
securities, and investments and monies held by the Town;
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Town of Los Gatos
Investment Policy
May 1, 2008
2. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
3. Realized and unrealized gains or losses calculated by amortized cost and by fair value.
4. The weighted average maturity of the portfolio and a percentage breakdown of the total
portfolio by maturity.
5. A description of the funds, investments and programs that are under the management of
contracted parties;
6. A statement of compliance with this Investment Policy or an explanation for non-
compliance; and
7. A statement of the ability to meet expenditure requirements for the next six months, and
an explanation of why money will not be available if that is the case.
POLICY REVIEW
This Investment Policy shall be adopted by resolution of the Town Council. Annually the
Treasurer shall present this Investment Policy to the Town Council for review to ensure its
consistency with the Town's investment objectives, current law and economic trends. Any
amendments to this Investment Policy shall be approved by the Town Council.
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