CC Resolution No. 8529
RESOLUTlœ!!D. 8529
A RESOLUTlœ OF 'mE CITY axJNCIL OF 'mE CITY OF CIJPERTJ:I!D
AOOPI'IN:; INVES'IMENT POLICY
BE IT RESOLVED by the City Council of the City of CUpertino that the
InvestIœnt Policy attached hereto and nade part hereof by reference is
hereby adopted.
PASSED AND ADOPTED at
City of CUpertino this
fOllowing vote:
a regular meeting of the city Council of the
21st day of October , 1991, by the
vote Melli:Jers of the City Council
AYES: Goldman, Rogers, Sorensen, Szabo, Koppel
NJES: None
ABSENl': None
ABSTAIN: None
ATlEST¡ APPRO\TED:
/s/ Dorothy Cornelius
City Clerk
/s/ Barb Koppel
Mayor, City of CUpertino
Cl'I'Y OF aJPERI'INO
INVESIMENl' POLICY
I. srATEMENT OF OBJECI'IVES
Tenporarily idle or surplus furns 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 Goverrnnent 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 furns;
2. Maintenance of sufficient liquidity to meet cash flow needs;
and,
3. Attainment of the maximum yield possible consistent with the
first two objectives.
'lhe achievement of these objectives shall be accanplished in the
manner des=ibed below:
1. Safety of Invested Funds
'Ihe City shall insure the safety of its invested idle furns by
limiting =edit 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 J:usiness;
3. By diversifying the investment portfolio so that the failure
of anyone issuer or backer will not place an undue
financial b.lrden on the city; and
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4. By monitoring all of the city's investments on a dailv
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 on:Joing
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-tenn securities, unless
it is anticipated that lOn:J-tenn 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 described in Section II.H.
c. The physical security or safekeeping of the City's
investments is also an i111portant element of safety.
2. Liquiditv
The City's investment portfolio must be structured in a manner
which will provide the securities mature at the same ti1ne as cash
is needed to meet anticipated derrands. Additionally, since all
possible cash derrands cannot be anticipated, the portfolio should
consist largely of securities with active secondary of resale
markets.
3. Yield
Yield on the city's investment portfolio is of secondary i111portance
compared to the safety and liquidity objectives described above.
Investments are limited to relatively low-risk securities in
anticipation of earning a fair return relative to the risk being
assumed. 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
'!he City's investment portfolio shall be structured to provide that
sufficient funds 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 instnnnents and maturities
shall be based upon an analysis of anticipated cash needs, existing
and anticipated revenues, interest rate trerrls and specific market
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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 funds for the purpose of this Policy are all City
funds which are available for investment at anyone time, including
the estimated checking account float, excepting those minilIIum
balances required by the City's banks to compensate them for the cost
of banking-services. '!his Policy also applies to the idle or surplus
funds of other entities for which the City of CUpertino persormel
provide financial management services.
II INVEmMENrS
This section of the Investment Policy identifirs the types of instnnnents in
which the city will invest its idle funds.
A. Cataqorv of Investments
The citys investments are categorized below to give an indication of the
level of risk asstmted by the entity at year-end. Catec!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.
Catec!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. Cate<torv 3, included uninsured and
unregistered investments for which the securities are held by the broker
or dealer, or by its trust department or agent, rot not in the city's
name.
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B. Eliqible Securities
No more than 10% of the total portfolio shall be invested in the issuances
of any single institution other than securities issued by the u.s.
Govermnent and its affiliated agencies. Additionally, no more than 5% of
the total portfolio shall be invested in the uninsured-uncollateralized
issuances of arr;¡ single institution.
1. Banker's Acceutances - are negotiable tilne drafts drawn to finance the
export, import or storage of goods. 'Ihey are termed "Accepted" when a
bank assumes the obligation to make payment at maturity.
ú:Jcation:
Dollar Limit:
Maturitv:
~
Top 100 U.S. Domestic Banks or top 25 World Banks.
40%
Not to exceed 270 days.
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2. Certificates of Deposit - is a non-negotiable instrument with a
depository (Bank or Savings & lDan) representing a contract 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 tilne deposit.
ú:Jcation:
Dollar Limit:
Domestic u.s. Banks
Not to exceed 10% of the portfolio in any single
Bank or Savings and lDan.
Not to exceed 24 months.
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Maturitv
~
3. Commercial 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.
ú:Jcation:
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 corporation as
distinct from one issued by a govermnent agency or a municipality.
Corporate Bonds 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 come due all at once - and are paid for out
of a sinking fund aCClD11lllated for that purpose, (4) they are traded on
major exchanges, with prices published in newspapers.
ú:Jcation:
Dollar Limit:
Maturitv:
~
Domestic U.s. Banks
30%
Not to exceed 5 years.
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5. Local AfJ.erv::;y Investment F'uJrl - is a special F'uJrl established by the
california state Treasurer enabling the City to invest tenp:>rarily idle
monies in the state I s pooled money program. Bond pr~'" may be
invested in addition to lAIF liroit.
Location:
Dollar Limit:
Maturitv:
~
california state Treasury
Not to exceed liroit set by state Treasurer.
On demand
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6. Necrotiable Certificates of Deoosit - is a negotiable instrument payable
to the bearer. '!he instrument will specify a maturity date am 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 Am"eements - is an investment transactions of very short t:i1ne
pericxi. "Repe" instruments have the backing of pledged security. Repe
transactions involve the sale of marketable U. S. Government securities
and simultaneous =mrnitment by the seller (Financial institution) to
repurchase the security.
Location:
Dollar Limit:
Maturitv
~
Banks and reporting dealers
No liroit
Not to exceed 1 year.
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8. United states Treasury and Federal AfJ.encies - would include various
instruments issued by the U. S. Treasury and agencies of the U. S.
Government. '!he agencies include the Federal Home Loan Bank, Federal
Farm er-edit Bank, Federal national Mortgage Association and others.
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'!he 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 Fi11ancial Institutions
Aside from IAIF, insured deposits, and U.S. Treasury and Goverrunent
Agercy issues, investments shall be placed only in those instruments
and institutions rated favorably by the Keefer Bruyer am Woods Bank
and Savings and Loan Rating Service of Moody's commercial Paper
Recoros. For Banker's Acceptance depositories shall be limited to
banks and savings and loans rated "B" = better, and selected major
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. F= Time Deposits
over $100,000, depositories shall be limited to area banks and savings
and loans whose =editworthiness as detennined by fi11ancial statement
analysis = other reliable rating services equal or exceeds the Keefe
Bruyette and Woods "B" rating.
The California Goverrunent 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
=rporation's own indebtedness other than commercial paper. 'Ihe city
may not hold more than 10% of an issuing =rporation' s commercial
paper .
The California Goverrunent Code restricts cities to investing in
rnedil.D1l-term =rporate notes of a rnaxi1nurn of three years maturity
issued by =rporations 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: AAA, AA, A) by two of the three largest nationally
recognized rating services (Moody's, Standard & Poor's, J)Jff and
Phelps). Medil.D1l-term =rporate notes may 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, otheJ:Wise qualified
urxier the provisions of this policy, who wishes to do h1siness with
the city shall suJ::xnit 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 SEX::, 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 COJrlition, and 2) a separate letter from its CPA firm
attesting to the fact that Rule l5c 3-1 has been complied with and the
dealer's internal systems and controls have no material inadequacies.
'Ihe city requires that an agreement for services be executed prior to
entrusting its funds to any dealer or financial institution, and that
up-to-àate financial statements be sent to the Director of Finance
upon their issuance.
E. Reauirernents 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 æoount equal to at least
lOO percent of the repurchase agreement face value. 'Ihe market
value of the transferred securities may be required to exceed the
repurchase agreement's face value by an æoount which is expected
to protect against a sudden decrease in the market value of the
transferred securities.
'!he types of securities to be accepted as transferred securities
in repurchase agreements in which the city is the royer shall be
limited to the types of eligible U.S. Treasury or Government
Agency issues.
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F. Reauirements f= Restructur:incr Transactions
1. General Definitions
'!he restructuring process involves a c:han:¡'es 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 rot rather
a result of c:han:¡'ing market corxiitions. Corxiitions that are
generally favorable to restructurings are: 1) availability of
more efficient issues, 2) c:han:¡'es in the shape of the yield
curve or 3) changes in quality or set for spreads. A
restructured portfolio must 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 investJnent
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 SIDJRITIES
A. Safekeep:incr AQreernent
'!he City shall contract with a bank or banks for the safekeeping
of securities which are owned by the City as part of its
investJnents portfolio or transferred to the City under the terms
of repurchase agreements.
B. Handl:incr of citv-owned Securities and Time Deoosit 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. '!he collateral for time deposits in savings
am loans is held by the Federal Home Loan Bank. '!he collateral
for time deposits in banks is held in the city's name in the
bank I s trust department.
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C. Handlinq of Reuurchase Aclreement Securities
The securities transferred to the City under the terms of
repurchase agreements with banks nay 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. Securitv Transfers
'!he authorization to release City securities will be telephoned
to the appropriate bank. A written confinnation outlining
details for the transaction and confirming the telephoned
insb:uctions will be sent to the bank within 5 working days.
IV. SI'RUCIURE AND RESPONSIBILITY
This section of the Investment Policy defines the overall sb:ucture of
the investment management program.
A. Responsibilities of the Finance Deœrtment
'!he city Treasurer is charged with responsibility for naintaining
custody of all public funds and securities belonging to = 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 citv 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 monthly Investment Reports.
V. REPORI'ING
The City Treasurer shall prepare a monthly Investment Report,
including a succinct management stnmI\arY that provides a clear picture
of the status of the =ent investment portfolio. '!he report will be
prepared in a manner which will allow the City Manager and city
Council to ascertain whether investment acti vi ties during the
reporting period have deviated from the City's Investment Policy.
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VI. REVIEW OF INVESIMENI' MANAGEMENl'
A. Policv Exceptions
While this Policy prescribes various maximums, minimtnns and other
relatively arbitrary m.nnerical 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 rosiness day of its discovery. Major exceptions
are to be reported .irmnediately.
SUdden large fluctuations in portfolio assets can cause technical
exceptions to the various percentage limits of the Investment 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 Investment Policy shall be reviewed armually to ensure its
consistency with respect to the overall objectives of safety,
liquidity am yield, and its relevance to cu=ent laws and financial
trends .
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