CC Resolution No. 8542
RESOWl'ICN 00. 8542
A REßJJTICN OF THE CITY CXXJNCIL OF THE CITY OF CUPERl'nÐ
REVISII!C CITY'S INVES'lMENT POLICY
BE IT RESOLVED by the City Council of the City of CUpertino that the
revised Inw...u,...ntPOlicy attached hereto and made part hereof by
reference is hereby aà:Jpt:ed.
PASSED AND AJ.œ.l1SIJ at
City of CUpertino this
following vote:
~ MBIDers of the Citv Council
a regular meeting of the city Council of the
4th day of November , 1991, by the
AYES: Goldman, Rogers, Sorensen, Szabo
NOES: None
ABSENT: Koppel
ABSTAIN: None
ATIEST: APPROVED:
¡"sf Dorothy Cornelius
City Clerk
/ S / Nick Szabo-
Mayor, City of CUpertino
Pro Tempore
CITY OF CUPERI'INO
INVESIMENJ' POLICY
I. srATEMENI' OF 0BJæI'IVES
Temporarily idle or surplus funds of the City of CUpertino shall be
invested in a=rdance with principles of sound treasury management
and in a=rdance with the provisions of California Government Code
Sections 53600 et seq., the City of CUpertino Municipal Code, and this
Investment Policy.
A. overall Risk Profile
'Ihe basic objective of the City of CUpertino's investment program are,
in order of priority:
1. Safety of invested funds;
2. Maintenance of sufficient liquidity to meet cash flow needs;
and,
3. Attainment of the maximum yield possible consistent with the
first two objectives.
'Ihe achievement of these objectives shall be aCCOl'lplished in the
manner described below:
l. Safety of Invested Funds
'Ihe city shall insure the safety of its invested idle funds by
limiting credit and interest rate risks. Credit risk is the
risk of loss due to the failure of the security issuer or
backer. Interest rate risk is the risk that the market value
of portfolio securities will fall due to an increase in general
interest rates.
a. Credit risk will be mitigated by:
1. Limiting investments to the safest types of securities;
2. By pre-qualifying the financial institutions with which it
will do I::usiness;
3. By diversifying the investment portfolio so that the failure
of anyone issuer or backer will not place an undue
financial burden on the city; and
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4. By monitoring all of the City's investJnents on a daily
basis to anticipate and respond appropriately to a
significant reduction of =editworthiness of any of the
depositories.
b. Interest rate risk will be mitigated by:
1. structuring the City's portfolio so that securities
mature to meet the city's cash requirements for ongoing
operations, thereby avoiding the need to sell securities on
the open market prior to their maturation to meet those
specific needs and;
2. Investing primarily in shorter-term securities, unless
it is anticipated that long-term securities can be held to
maturity without jeopardizing liquidity requirements.
3. Occasionally restructuring the portfolio to minimize the
loss of market value and/or maximize cash flows subject to
the constraints des=ibed in Section II.H.
c. The physical security or safekeeping of the City's
investJnents is also an :iJnportant element of safety.
2. Liauidity
'The City's investJnent portfolio must be structured in a manner
which will provide the securities mature at the same time as cash
is needed to meet anticipated demands. Additionally, since all
possible cash demands cannot be anticipated, the portfolio should
consist largely of securities with actiye secondary of resale
markets.
3. Yield
Yield on the city's inyestJnent portfolio is of secondary :iJnportance
compared to the safety and liquidity objectives des=ibed above.
Investments are limited to relatively low-risk securities in
anticipation of earning a fair return relative to the risk being
as5\.nlled. While it may occasionally be necessary or strategically
prudent for the City to sell a security prior to maturity to either
meet unanticipated cash needs or to restructure the portfolio, this
Policy specifically prohibits trading securities for the sole
purpose of speculating or taking an unhedged position the future
direction of interest rates.
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B. Time Frame for Investment Decisions
The city's investment portfolio shall be structured to provide that
sufficient furrls from investments are available every month to meet
the city's anticipated cash needs. Subject to the safety provisions
outlined above, the choice of investment instruments and maturities
shall be based upon an analysis of anticipated cash needs, existing
and anticipated revenues, interest rate trends and specific market
opportunities.
No investment shall have a maturity of more than ten years from it's
date of purchase. No more than 25% of the portfolio may be invested
with a maturity greater than five years without specific Council
authorization. For purposes of control, the percentage limit shall
be measured against the portfolio value when a specific investment is
purchased.
c. Definition of Idle or SurPlus Funds
Idle or surplus furrls for the purpose of this Policy are all City
furrls which are available for investment at anyone time, including
the estimated checking account float, excepting those minimum
balances required by the city's banks to coropensate them for the cost
of banking-services. This Policy also applies to the idle or surplus
furrls of other entities for which the City of CUpertino personnel
provide financial management services.
II INVESIMENI'S
This section of the Investment Policy identifirs the types of instruments in
which the city will invest its idle furrls.
A. Cataqorv of Investments
The citys investments are categorized below to give an indication of the
level of risk assumed by the entity at year-end. CateQ'orv l, includes
investments that are insured or registered or for which the securities
are held by the city or its safekeeping agent in the city's name.
CateQ'orv 2, includes uninsured and unregistered investments for which the
securities are held by the broker's or dealer's trust department or
agents in the city's name. Cateqorv 3, included uninsured and
unregistered investments for which the securities are held by the broker
or dealer, or by its trust department or agent, but not in the city's
name.
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B. Eliqible Securities
No m:>re than 10% of the total portfolio shall be invested in the issuances
of any single institution other than securities issued by the u.s.
Government am its affiliated agencies. Additionally, no m:>re than 5% of
the total portfolio shall be invested in the uninsured-un=llateralized
issuances of any single institution.
1. Banker I s Acceptances - are negotiable time drafts drawn to finance the
export, :il!1port or storage of goods. 'Ihey are termed "A=epted" when a
bank a.sstnnes the obligation to make payment at maturity.
lDcation:
Dollar Limit:
Maturitv:
~
Top 100 u.s. Domestic Banks = top 25 World Banks.
40%
Not to exceed 270 days.
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2. certificates of Deoosit - is a non-negotiable instrument with a
depository (Bank or Savings & Loan) representing a =ntract specifying
(1) a fixed rate of interest to be paid and 2) a fixed date on which
the principal may be withdrawn (maturity date). A "C.D." is commonly
referred to as a time deposit.
lDcation:
Dollar Limit:
Domestic u.s. Banks
Not to exceed 10% of the portfolio in arr;¡ single
Bank or Savings and Loan.
Not to exceed 24 m:>nths.
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Maturitv
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3. Conunercial Paper - is a short term, negotiable, unsecured promissory
note with maturities of 270 days or less. cities may purchase
commercial paper issued by companies organized and operating within
the u. S. and having total assets in excess of $500 million.
lDcation:
Dollar Limit:
Maturitv:
~
Domestic u.s. Banks
30%
Not to exceed 180 days.
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4. Corporate Bond - debt instrument issued by a private =rporation as
distinct from one issued by a government agency or a municipality.
Corporate Boms typically have four distinguishing features (1) they
are taxable, (2) they have a par value of $1,000, (3) they have a term
maturity which means they =me due all at once - and are paid for out
of a sinking fund accumulated for that purpose, (4) they are traded on
maj= exchanges, with prices published in newspapers.
lDcation:
Dollar Limit:
Maturitv:
~
Domestic u.s. Banks
30%
Not to exceed 5 years.
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5. Local Aaerv:;v Investment Fund - is a special Fund established by the
California state Treasurer enabling the city to invest tenporarily idle
monies in the state I s pooled money program. Bond proceeds may be
invested in addition to IAIF limit.
Location:
Dollar Limit:
Maturitv:
~
California state Treasury
Not to exceed limit set by state Treasurer.
On demand
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6. Neqotiable Certificates of Deposit - is a negotiable instrument payable
to the bearer. 'Ihe instrument will specify a maturity date and interest
rate am can be sold in a secondary market.
Location:
Dollar Limit:
Maturitv:
~
Domestic u.s. Banks
30%
Not to exceed 24 months.
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7. RePUrChase Ac!reements - is an investment transactions of very short time
period. "Repo" instruments have the backing of pledged security. Repo
transactions involve the sale of marketable U. S. Government securities
and simultaneous commitment by the seller (Financial institution) to
repurchase the security.
Location:
Dollar Limit:
Maturitv
~
Banks and reporting dealers
No limit
Not to exceed 1 year.
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8. United states Treasurv and Federal Aqencies - would include various
instruments issued by the U. S. Treasury and agencies of the U. S.
Government. The agencies include the Federal Home Loan Bank, Federal
Fann Credit Bank, Federal national Mortgage Association and others.
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The instruments would include notes and other evidences of indebtedness
of the respective agency. These instruments generally are longer term
issues initially offered at a fixed price and actively traded in the
secondary market.
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C. Qualification of Brokers. Dealers and Financial Institutions
Aside from lAIF, insured deposits, and U.S. Treasury and Goverrnnent
Agency issues, investments shall be placed only in those instruments
and institutions rated favorably by the Keefer Bruyer and Woods Bank
and Savings and lDan Rating Service of Moody's Cormnercial Paper
Recoros. For Banker's Acceptance depositories shall be limited to
banks and savings and loans rated "B" or better, and selected najor
California banks rated "C" or better. For Negotiable Certificates of
Deposit, depositories shall be limited to banks and savings and loans
rated "A/B" or better by Keefe, Bruyette and Woods. For Time Deposits
over $100,000, depositories shall be limited to area banks and savings
and loans whose =editworthiness as determined by financial statement
analysis or other reliable rating services equal or exceeds the Keefe
Bruyette and Woods "B" rating.
The California Goverrnnent Code restricts cities to investing in
commercial paper of the highest ranking provided for by Moody's
Investment Service or standards and Poor's. Issuing corporations must
be organized and operating within the United states and have total
assets in excess of $500,000,000, and an "A" or higher rating for the
corporation's own indebtedness other than camrnercial paper. The City
nay not hold more than lO% of an issuing corporation's camrnercial
paper .
The California Goverrnnent Code restricts cities to investing in
medium-term corporate notes of a maximum of three years naturity
issued by corporations operating within the United states. Securities
eligible for investment must be rated in the top three note rating
categories (Moody's designations: Aaa, As, Ai standard & Poor's
designations: AlIA, AA, A) by two of the three largest nationally
recognized rating services (Moody's, standard & Poor's, Duff and
Phelps). Medium-term corporate notes nay not exceed 15% of the City's
portfolio.
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D. Reauirement for Financial statements
Each bank, savings and loan and security dealer, otheIWise qualified
under the provisions of this policy, who wishes to do business with
the city shall sul::init a copy of its latest financial statement to the
City including a balance sheet and profit and loss statement. If the
security dealer is a private partnership registered with the SEC, the
following shall be required in lieu of a profit and loss statement:
1) disclosure of its excess net capital in the notes to the statement
of financial condition, and 2) a separate letter from its CPA firm
attesting to the fact that Rule 15c 3-1 has been complied with and the
dealer I s internal systems and controls have no material inadequacies.
The city requires that an agreement for services be executed prior to
entrusting its funds to any dealer or financial institution, and that
up-to-date financial statements be sent to the Director of Finance
upon their issuance.
E. Recruirements for RePUrchase Aqreements
A repurchase agreement is a transaction in which a counter party
agrees to transfer to the City securities or financial
instruments in exchange for funds with a simultaneous agreement
by the City to resell the securities to the counter party at a
date certain. In such cases, the transferred securities shall be
U.S. Treasury or Government Agency issues who market value at the
time of transfer is equal to at least lOO percent of the
repurchase agreement's face value. For other than overnight
investments, the securities transferred shall be marked to market
on a daily basis and maintained at an amount equal to at least
100 percent of the repurchase agreement face value. The market
value of the transferred securities may be required to exceed the
repurchase agreement's face value by an amount which is expected
to protect against a sudden decrease in the market value of the
transferred securities.
The types of securities to be accepted as transferred securities
in repurchase agreements in which the city is the J:uyer shall be
limited to the types of eligible U.S. Treasury or Government
Agency issues.
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F. Reauirements for Restructurine¡ Transactions
1. General Definitions
'!he restructuring process involves a changes in the composition
of the portfolio such that the aggregate portfolio after all
transactions are executed meets original goals and constraints of
the Investment Policy and performance has been improved.
Restructuring opportunities are not a function of time but rather
a result of changing market conditions. Conditions that are
generally favorable to restructurings are: 1) availability of
more efficient issues, 2) changes in the shape of the yield
curve or 3) changes in quality or set for spreads. A
restructured portfolio nnlSt continue to generate sufficient cash
flow to meet the City's cash requirements without inpairing the
overall quality diversification constraints of the portfolio.
2. Specific Reauirements
b. Prior conceptual approval shall be obtained in writing from
the City Manager.
d. A brief description of the executed restructuring
transactions shall be included in the monthly investment
report.
e. Net sales gains or losses shall not be in=ed to the point
of radically altering the =ent month's earned interest
yield.
III. SAFEKEEPING OF SECURITIES
A. safekeepine¡ Aqreement
'!he City shall contract with a bank or banks for the safekeeping
of securities which are owned by the City as part of its
investments portfolio or transfe:rred to the City under the te.nns
of repurchase agreements.
B. Handline¡ of citv-owned Securities and Time Deposit Collateral
All securities owned by the city shall be held by its safekeeping
agent, except the collateral for time deposits in banks and
savings and loans. The collateral for time deposits in savings
and loans is held by the Federal Horne lDan Bank. The collateral
for time deposits in banks is held in the City's name in the
bank's trust department.
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c. Handlin:¡ of Repurchase Aclreement Securities
The securities transferred to the city under the terms of
repurchase agreements with banks may be held in the issuing
bank's trust deparbnent provided that a master trust agreement
has been executed insuring fiduciary separation of these terms of
repurchase agreements with dealers must be delivered to a
third-party custodian with which the city has established a
safekeeping agreement.
D. Security Transfers
'Ihe authorization to release city securities will be telephoned
to the appropriate bank. A written confirmation outlining
details for the transaction and confirming the telephoned
instructions will be sent to the bank within 5 working days.
IV. SI'RUCIURE AND RESroNSIBILITY
This section of the Investment Policy defines the overall structure of
the investment management program.
A. Responsibilities of the Finance Deœrtment
The City Treasurer is charged with responsibility for maintaining
custody of all public funds and securities belonging to or under the
control of the city, and for the deposit and investment of those funds
in accordance with principles of sound treasury management and in
accordance with applicable laws and ordinances.
B. Responsibilities of the city Manaqer
The city Manager is responsible for directing and supervising the City
Treasurer. He or she is responsible further to keep the City council
fully advised as to the financial condition of the city.
c. Responsibilities of the citv Council
The City council shall consider and adopt a written Investment
Policy. As provided in that Policy, the Council shall receive,
review, and accept I1\Onthly Investment Reports.
V. REPORI'ING
The city Treasurer shall prepare a monthly Investment Report,
including a succinct management summary that provides a clear picture
of the status of the =ent investment portfolio. The report will be
prepared in a manner which will c::arrpare yield performance to lAIF, and
allow the city Manager and city council to ascertain whether
investment activities during the reporting period are in conpliance
with Section I B, and Section II of this policy.
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VI. REVIEW OF INVESIMENJ' MANAGEMENT
A. Policv Exceptions
While this Policy prescribes various maximums, Inll11.I!II.ImS and other
relatively arbitrary numerical limits, it is intended primarily to be
a management tool. Whenever an exception or violation of this Policy
is made that fact shall be reported to the city Manager and the City
Council within one J:usiness day of its discovery. Major exceptions
are to be reported ilmnediately.
SUdden large fluctuations in portfolio assets can cause technical
exceptions to the various percentage limits of the Inves'bnent Policy
which should not be interpreted as "reportable exceptions". SUch
tenporary percentage exceptions need not be reported as violations or
exceptions to this Policy.
B. Policv Review
This Inves'bnent Policy shall be reviewed armually to ensure its
consistency with respect to the overall objectives of safety,
liquidity and yield, and its relevance to =ent laws and financial
trends .
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