TC Res. No. 2005-27 ADOPTING REVISIONS TO THE TOWN'S INVESTMENT POLICYTOWN OF AVON, COLORADO
RESOLUTION NO. 05-27
SERIES OF 2005
A RESOLUTION ADOPTING REVISIONS TO THE TOWN'S INVESTMENT POLICY
WHEREAS, The Town adopted its current investment policy on January 27, 2004; and
WHEREAS, The Town of Avon wishes to continue to operate a contemporary and
comprehensive treasury management program; and
WHEREAS, Certain administrative-type changes have been recommended by the Town's
investment advisors.
NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Town Council of the Town
of Avon, Colorado, adopts a revised Investment Policy, a copy of which is attached.
ADOPTED AND PASSED, this 12th day of July 2005
7Ej'A TOWN VON
B
Y
L Ronald C. Wolfe
Mayor
AT T:
Pa Mc
To
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:i•
Memo
To:
Honorable Mayor and Town Council
Thru:
Larry Brooks, Town Manager
From:
Scott Wright, Finance Director
Date:
June 23, 2005
Re:
Changes to Investment Policy
r~►:
Summa
The Town's investment advisors, MBIA Asset Management Group, has recommended' a few
minor "housekeeping" type changes to the Town's investment policy. There are no financial
implications to these changes. The changes are summarized below.
Selection of Broker Dealers and Financial Institutions Acting as Broker/Dealers - Page 6
e Renamed this section Selection of Broker/Dealers. (Other than Broker/Dealers, few
financial institutions act in that capacity.)
• Updated the Federal Reserve wording.
Selection of Depositories - Page 7
• Revised the bank credit criteria to accommodate MBIA's discontinuance of PMA
Financial Network bank credit services and the acquisition of Sheshuno$'s credit rating
service by Highline Data Services.
Safekeeping and Custody - Pages 7-8
Revised the bank credit criteria
Recommendation:
I recommend the Council adopt the changes as summarized above and shown on the attached
redlined, version of the Town's investment policy. A resolution approving the revised
investment policy is attached.
Page 1
Town Mtinager Comments:
j (IPO
OU
® Page 2
Council Memo 2005-015.doc
TOWN OF AVON, COLORADO
INVESTMENT POLICY
January 27, 2004
1. Policy
It is the policy of the Town of Avon to invest public funds in a manner that will provide the
highest investment return with maximum security while meeting the daily cash flow demands of
the Town and conforming to all state and local statutes governing the investment of public funds.
2. Purpose
The purpose of this investment policy is to establish the Town of Avon's investment scope,
standards 'of prudence, objectives, authority, eligible investments, safekeeping and custody
requirements, diversification, and internal controls.
3. Finance Committee
The members of the finance committee shall meet as necessary to determine general strategies
and monitor results. The finance committee shall include -in its deliberations such topics as:
economic outlook, portfolio diversification and maturity structure, potential risks to the Town's
funds, brokers and dealers, and the rate of return on the investment portfolio.
4. Scope
This investment policy applies to all investment activities of the Town of Avon. All financial
assets of other funds, including funds that may be created from time to time,- shall be
administered in accordance with- the provisions of this policy. These funds are accounted for in
the Town's Comprehensive Annual Financial Report and include:
a.
General Fund
b.
Special Revenue Funds
c'.
Debt Service Funds
d.
Capital Project Funds
e.
Internal Service Funds
f.
Enterprise Funds
g.
Trust and Agency Funds
5. Objectives
The primary objectives of the Town, of Avon's investment activities shall be:
a. Preservation of capital and protection of investment principal..
b. Maintenance of sufficient liquidity to meet anticipated cash flows.
Town of Avon
Investment Policy
Page 2
c. Diversification to avoid incurring unreasonable market risks.
d. Attainment of a market rate of return.
e. Conformance with all applicable Town policies, and State and Federal regulations.
6. Authority
The ultimate responsibility for the investment of the funds of the Town of Avon covered-by this
Investment Policy resides with the -Town Council. The Town Council has delegated to the
Finance Director responsibility for developing policy regarding the investment and custody of the
Town's funds.
The Finance Director 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 of public funds arising from fraud, employee
error, misrepresentation by third parties, or imprudent actions by employees of the7own.
The Finance Director may delegate the authority to conduct investment transactions and manage
the operation of the investment portfolio to other specifically authorized staff members. The
Finance Director 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 Town may engage the support services of outside professionals in regard to its investment
program, so long as it can be clearly demonstrated that these services produce a net financial
advantage or necessary financial protection of the Town's financial resources.
7. Prudence
The standard of prudence, as defined by the Colorado Revised Statutes (CRS); to be used for
managing the Town's assets is the "prudent investor" rule applicable to a"Uticiary, that- states
that a prudent investor "shall exercise the judgment and care, under circumstances then
prevailing, which men of prudence, discretion, and intelligence exercise in the management of
the property of another, not in regard to speculation but in regard to the permanent disposition of
funds, considering the probable income as well as the probable safety of their capital." (CRS 15-
1-304, Standard for Investments.)
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 Townrecognizes that occasional measured losses are inevitable in a diversified
portfolio and shall be considered within the context of the overall portfolio's return, provided that
A
Town of Avon
Investment Policy
Page 3
adequate diversification has been implemented and that the sale of a security is in the best long-
term interest of the Town.
The Finance Director 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. :
8. Ethics and Conflicts of Interest
Elected "officials and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or that
could impair or create the appearance of an impairment of their ability to make impartial
investment decisions. Investment officials and employees shall disclose-to the Town Manager
any material financial 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.
9. Internal Control
The Finance Director shall establish a system of internal controls to ensure the integrity of the
-investment process. The system shall be designed' to prevent loss of public funds through fraud,
error, misrepresentation by third parties, or imprudent actions by elected officials and employees
of the Town. The system of internal controls shall be reviewed periodically by the Town's
independent auditor.
10. Authorized Securities and Transactions
All investments shall be made in accordance with. Colorado Revised Statutes as follows: CRS
1.1-10.5.401, et seq., Public Deposit Protection Act; CRS 11-47-101, et seq., Savings and Loan
Association Public Deposit Protection Act; CRS 24-75-601, et seq., Funds - Legal- Investments;
CRS 24-75-603, et seq., Depositories; CRS 24-75-701 and 702, et seq., Investment Funds -
Local Government Pooling. Any revisions or extensions of these .sections of the CRS will be
assumed to be part of this Investment Policy immediately upon being enacted. Only the
following, types of securities and transactions shall be eligible for use by the Town:
a. U.S. Treasury Obligations: Treasury Bills, Treasury Notes, Treasury Bonds, and
Treasury Strips with a final maturity not exceeding five years from the date of purchase.
b. Federal Agency Securities: Debentures and mortgage-backed securities with a stated
final maturity not exceeding five years from the date of purchase issued by the
Government National Mortgage Association (GNMA).
h
Town of Avon
Investment Policy
Page 4
c. Federal Instrumentality Securities: Debentures, discount notes, callable, step-up, and
stripped principal or coupons with a final, maturity not exceeding five years from the date
of purchase issued by the following only: Federal Farm, Credit Bank (FFCB), Federal
Home Loan Bank (FHLB), Federal Home Loan Mortgage Corporation. (FHLMC), and
Federal National Mortgage Association (FNMA).
d. 'Repurchase Agreements with a termination date of 180 days or less collateralized by
U.S. Treasury securities or Federal Instrumentality securities listed above with a final
maturity not exceeding ten years. For the purpose of this section, the term collateral shall
mean purchased securities under the terms of the PSA Bond Market Trade Association
Master Repurchase Agreement as modified by the Town's Master Repurchase Agreement
Annex: The purchased securities, shall have,a minimum market value including accrued
interest of 102 percent of the dollar value of the transaction. Collateral shall be held in
the Town's .third-party custodian bank as safekeeping agent, and the market value of the
collateral securities shall be marked-to-the market daily.
Repurchase Agreements shall be entered into only with counterparties who have executed
a Master Repurchase Agreement with the Town and who are recognized as Primary
Dealers with the Federal -Reserve Bank of New York. Primary Dealers approved as
Repurchase Agreement counterparties shall have a short-term credit rating of at least A-1
or the equivalent and a long-term credit rating of at least A or the equivalent by each
service that rates the firm.
e. Commercial Paper with an original maturity of 270 days or less that is rated at least A-1
by'Standard & Poor's, P-1 by Moody's, or F1 by Fitch at the time of purchase by each
.service that rates the commercial paper. If the commercial paper issuer has senior debt
outstanding, the senior debt must be rated at least A by Standard & Poor's, A2 by
Moody's, or A by Fitch by each service that rates the issuer. No more than 5% of the
Town's total portfolio may be invested in the commercial paper of any one issuer, and the
aggregate investment in commercial paper shall not exceed 20% of the Town's total
portfolio.
f. 'General Obligation Debt with a final maturity not exceeding five years issued by any
state of the United States or any political subdivision, institution, department, agency,
instrumentality, or authority of any state that is rated at least A by Standard & Poor's, A
, "by Moody's.or A by Fitch at the time of purchase by at least one such service that rates
the entity.
g. Revenue Obligation Debt with a final maturity not exceeding five years issued by any
state of the United States or any political subdivision, institution; department, agency,
instrumentality, or authority of any state that is rated at least AA by Standard & Poor's,
Aa by Moody's or AA by. Fitch at the time of purchase by at least one such service that
rates the entity.
U
Town of Avon
Investment Policy
Page 5
h., Local Government Investment Pools organized under CRS 24-75-701 and CRS 24-75-
702 that are "no-load" (no commission fee charged on purchases or sales of shares); have
a constant net asset value of $1.00; limit assets of the fund to U.S. Treasury obligations;
Federal Instrumentality securities, repurchase agreements collateralized by U.S. Treasury
or Federal Instrumentality securities, and commercial paper; have a maximum stated
maturity and weighted average maturity in accordance with Federal Securities Regulation
2a-7; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAANl+
by Fitch.
i. Money Market Funds registered under the Investment Company Act of 1940 that are,
"no-load" (no commission fee charged on purchases or sales of shares); have a constant
net asset value of $1.00; limit assets of the fund to U.S. Treasury obligations, Federal
Instrumentality securities, repurchase agreements collateralized by U.S. Treasury or
Federal Instrumentality securities, . and - commercial paper; have a - maximum • stated
maturity-and weighted average maturity in accordance with Federal Securities Regulation
2a-7; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAAN1+
by Fitch.
j. Time Certificates of Deposit with a maturity not exceeding one year in any state bank,
national bank, or state or federal savings and loan association located in Colorado that is a
member of the Federal Deposit Insurance Corporation, -and meets the credit criteria set
forth in the section of this Investment Policy, "Selection of Financial Institutions as
Depositories and as Providers of General Banking Services." Certificates of deposit that
exceed FDIC insurance limits shall be collateralized as required by the Public Deposit
Protection Act or the Savings and Loan Association Public' Deposit Protection Act.
It is the, intent of the Town that the foregoing list of authorized investments be strictly
interpreted. Any deviation from this list shall have advance approval by the Town Council in
writing.
11. Investment Diversification
It is the intent of the Town to diversify the investments within the portfolio to avoid incurring
unreasonable risks inherent in over investing in specific instruments, individual financial
institutions or maturities. The asset allocation in the portfolio should however, be flexible
depending upon the outlook for the economy, the securities market and the Town's anticipated
cash flow needs. Diversification strategies and guidelines shall be determined and revised
periodically by the Finance Committee.
12. Investment Maturity and Liquidity
To the extent possible, investments shall be matched with anticipated cash flow requirements and
known future liabilities. Unless matched to a specific cash flow requirement, the Town will not
invest in securities maturing more than five years from the date of purchase. The Town shall
Town of Avon
Investment Policy
Page 6
maintain at least 15% of its total investment portfolio in investments, maturing in 120 days or
less. At, least 10% of the portfolio shall be invested in overnight investments or securities that
can be sold to raise cash on one day's notice. .
13. Selection of U01a'r°'- Vied, n and Rianneia instit ati-e- ,s A e ffing as Broker/Dealers
The Finance Director shall maintain a list of authorized broker/dealers
lha~ 2-approved for investment purposes, and it shall be the policy of the Town to purchase
securities only from those authorized inst4utiens firms.
To be eligible, a-firm must meet at least one of the following criteria:
a. Be recognized as a Primary Dealer by the Federal Reserve Bank of New York, or
b. Report voluntarily to the Federal Reserve Bank of New York, or
c. '
:bee et hw;;c f the pr-eviaus twelve nt ed ^ualifv under
Securities and Exchange Commission (SEC) Rule 150-1 (Uniform Net Capital Rule).
Broker/dealers will be selected by the' Finance Director on the
basis of their expertise in public cash management and their ability to provide service to the
Town's account. Each broker/dealer., ba^k ^r savings and !-A-,;: -R- AL-A authorized by the
Finance Director shall be required to submit and annually. update a Town approved
Broker/Dealer Information Request form that includes the firm's most recent financial
statements. - The Finance Director shall maintain a file of the most recent Broker/Dealer
Information forms submitted by each firm approved for investment purposes. Broker/Dealers
shall also attest in writing that they have received a copy of this 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 the Section, "Authorized
Securities and Transactions" of this Investment Policy.
14. Competitive Transactions
Each investment transaction shall be competitively transacted with broker/dealers who have been
authorized by the Town: 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, then the Treasurer will document quotations for comparable or alternative securities.
When. purchasing original issue instrumentality securities, no competitive offerings will be
required,as all dealers in the selling group offer those securities at the same original issue-price.
`b
Town of Avon
Investment Policy
Page 7
15. Selection of Financial Institutions as Depositories and as Providers, of General Banking
Services
The Finance Director shall maintain a list of authorized financial institutions that are approved to
provide depository and other banking services for the Town. To be eligible for authorization, a
bank must be a member of the Federal Deposit Insurance Comoiatiori, shall qualify as a
depository of public funds in Colorado as defined in CRS 24-75-603 and must meet the
minimum credit criteria (described below) of credit analysis provided by commercially available
bank rating services. Banks failing to meet the minimum criteria, or in the judgment of the
Finance Director no longer offering adequate safety to Town, may be removed from the list.
The Town shall utilize 4he-Eoffffner-eie4ly a3i,ailahle h;;;;]- Nr4 Af W44 F4;4Rr:A'
r~,~4-e Hi Kline Banking Data Services to-perform a credit
analysis on banks seeking authorization. The analysis shall include a composite rating, and
designation to provide 'depository and other banking services, a bank shall have an average
Highline.Banking Data Services Rating of 30 or better on a scale of zero to 99 with-99 being-the
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The Finance Director shall maintain a file of the - most recent credit rating analysis reports
performed for each approved financial institution by one of the above listed rating firms. Credit
analyses shall be performed at least semi-annually on all approved banks.
16. Safekeeping and Custody
The Finance Director. shall approve one or more financial institutions -to provide safekeeping and
custodial services for the .Town.. A. Town approved Safekeeping Agreement shall be executed
with each custodian bank -prior to,utilizing that bank's safekeeping services. To be eligible for
designation as the Town's safekeeping and custodian bank, a financial institution, shall have an
average Hiahline Banking Data-Services Rating of 20 or--better.on a scale ofzero_to 99 with 99
being the highest quality for the four most recent reporting quarters.
Town of Avon
Investment Policy
Page 8
a. a
Seale of one t'e five with el:e-beiRg the highest-giie&jfvi-+h-e- i;vg*rcwizt
The Finance Director shall maintain a file of the credit rating analysis reports performed for each
approved financial institution.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a
delivery versus payment basis. Ownership of all securities shall be, perfected in the name of the
Town, and sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities, except certi ficates of deposit, local government investment pools and
money market funds purchased by-the Town will be delivered by either book entry or physical
delivery and will be held in third-party safekeeping by the Town's approved custodian bank, its
correspondent bank or the Depository Trust Company (DTC).
All Fed wireable book entry securities owned by. the Town shall be evidenced by a safekeeping
receipt or a customer confirmation issued to the Town by the custodian bank stating that the
securities are 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 Depository Trust Company
(DTC) participant account and the custodian bank shall issue a safekeeping receipt evidencing
that the securities are held for the Town as "customer."
All non-book entry (physical delivery) securities shall be held by the custodian bank's
correspondent bank and the custodian bank shall issue a safekeeping receipt, to the Town
evidencing that the securities are held by the correspondent bank for the Town as "customer."
The "custodian bank shall furnish the Town monthly reports of security holdings and safekeeping
activity.
17. Portfolio Performance
The Town's investment portfolio shall be designed to attain a market value 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 portfolio
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, all fees involved with managing the=portfolio shall be-
included in the computation of the portfolio's rate of return net of fees.
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Town of Avon
Investment Policy
Page 9
18. Reporting
The Finance Director shall prepare quarterly an investment report listing the investments held by
the Town and the market value of those investments. The report shall include a summary of
investment earnings and performance results during the period.
19.'Policy Revisions
This Investment Policy shall be reviewed periodically by the. Finance Director and amended by
the Town Council as conditions warrant.
RESOLUTION NO. 05-27
SERIES OF 2005
A RESOLUTION ADOPTING REVISIONS TO THE TOWN'S INVESTMENT
POLICY
WHEREAS, The Town adopted its current investment policy on January 27,
2004; and
WHEREAS, The Town of Avon'wishes to continue to operate a contemporary
and comprehensive treasury management program; and
WHEREAS, Certain administrative-type changes have been recommended by the
Town's investment advisors.
NOW, THEREFORE, BE IT HEREBY RESOLVED, that, the Town Council of
the Town of Avon, Colorado, adopts a revised Investment Policy, a copy of which is
attached.
ADOPTED AND PASSED, this 12`h day of July, 2005
TOWN OF AVON
By:
Ronald C. Wolfe
Mayor
ATTEST:
Patty McKenny
Town Clerk
TOWN OF AVON, COLORADO
INVESTMENT POLICY
July 12, 2005
1. Policy
It is the policy of the Town of Avon to invest public funds - in , a manner that will provide the
highest investment return with maximum security while meeting the daily cash flow demands of
the Town and conforming to all state and local statutes governing the investment of public funds.
2. Purpose
The purpose of this investment policy is to establish the Town of Avon's investment 'scope,
standards of prudence, objectives, authority, eligible investments; safekeeping- and custody
requirements, diversification, and internal controls.
3. Finance Committee
The members of the finance committee shall meet as necessary, to determine general strategies
and monitor results. The finance committee shall include in its deliberations such topics as:
economic- outlook, portfolio diversification and maturity structure, potential risks to the Town's
funds, brokers and dealers, and the rate of return on the investment portfolio.
4. Scope
This investment policy applies to all investment activities of the Town of Avon. All financial
assets of other funds,, including funds that may be created from time to time, shall be
administered in accordance with the provisions of this policy. These funds are accounted for in
the Town's Comprehensive Annual Financial Report and include:
a.
General Fund
b.
Special Revenue Funds
c.
Debt Service Funds
d.
Capital Project Funds
e.
Internal Service Funds
f .
Enterprise Funds
g.
Trust and Agency Funds
5. Objectives
The primary objectives of the Town of Avon's investment. activities shall be:
a. Preservation of capital andprotection of investment principal.
b. Maintenance of sufficient liquidity to meet anticipated cash flows.
Town of Avon
Investment Policy
Page 2
c. Diversification to avoid incurring unreasonable market risks,
d. Attainment of a market rate of return.
e. Conformance with all applicable Town policies, and State and Federal regulations.
6. Authority
The ultimate responsibility for the investment of the funds of the Town of Avon covered by this
Investment Policy resides with the Town Council. The Town Council has delegated to the
Finance Director responsibility for developing policy regarding the investment and custody of the
Town's funds.
The Finance Director 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 of public-funds arising from fraud, employee
error, misrepresentation by third parties, or imprudent actions by employees of the Town.
The Finance Director may delegate the authority to conduct. investment transactions and manage
the operation of the investment portfolio to other specifically, authorized staff members. . The
Finance Director 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 Town may engage the support services of outside professionals in regard to its investment
program, so long as it can be clearly demonstrated that these services produce a net- financial
advantage or necessary financial protection of the Town's financial resources.
7. Prudence
The standard of prudence, as defined by the Colorado Revised Statutes (CRS), to be used for
managing the Town's" assets is the "prudent investor" rule applicable to a fiduciary, that states
that a prudent investor "shall exercise the judgment and care, - under circumstances then
prevailing, which men of prudence, discretion, and intelligence exercise in the management of
the property of another, not in regard to speculation but in regard to the permanent disposition of
funds, considering the probable income as well as the probable safety of their capital." (CRS 15-
1-304, Standard for Investments.)
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 are inevitable in a diversified
portfolio and shall be considered within the context of the overall portfolio's return, provided that
Town of Avon
Investment Policy
Page 3
adequate diversification has:been implemented and that the sale of a security is in the best long-
term interest of the Town.
The Finance Director 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.
8. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or that
could impair or create the appearance of an impairment of their ability to make impartial
investment decisions. Investment officials and employees shall disclose to the Town Manager
any material financial 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.
9. Internal Control
The Finance Director shall establish a system of internal controls to ensure the integrity of the
investment process. The system shall be designed to prevent loss of public funds through fraud,
error, misrepresentation by third parties, or imprudent actions by elected officials and employees
of the Town. The system of internal controls shall be reviewed periodically by the Town's
independent auditor.
10. Authorized Securities and Transactions
All investments shall be made in accordance with Colorado Revised Statutes as follows: CRS
11-10.5-101, et seq., Public Deposit Protection Act; CRS 11-47-101, et seq., Savings and Loan
Association Public Deposit Protection Act; CRS 24-75-601, et seq., Funds - Legal Investments;
CRS 24-75-603, et seq., Depositories; CRS 24-75-701 and 702, et seq., Investment Funds -
Local Government Pooling. Any revisions or extensions of these sections of the CRS will be
assumed to be part of this Investment Policy immediately upon being enacted. Only the
following types of securities and transactions shall be eligible for use by the Town:
a. U.S. Treasury Obligations: Treasury Bills, Treasury Notes, Treasury. Bonds, and
Treasury Strips with a final maturity not exceeding five years from the date of purchase.
b. Federal Agency Securities: Debentures and mortgage-backed securities with a stated
final maturity not exceeding five ve years from the date of purchase issued by the
Government National Mortgage Association (GNMA).
\v
Town of Avon
Investment Policy
Page 4
c. _ Federal Instrumentality Securities: Debentures, discount notes, callable, step-up, and
stripped principal or coupons with a final maturity not exceeding five years from the date
of purchase issued by the following only: Federal Farm Credit Bank (FFCB), Federal
Home Loan Bank (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA):
d. Repurchase Agreements with a termination date of 180 days or less collateralized by
U.S. Treasury securities or Federal Instrumentality securities listed above with a final
maturity not exceeding ten years. For the purpose of this section, the term collateral shall
mean purchased securities under the terms of the PSA Bond Market Trade Association
Master Repurchase Agreement as modified by the Town's Master Repurchase Agreement
Annex. '-The purchased securities shall have a minimum market value including accrued
interest of 102 percent of the dollar value of the transaction. Collateral shall be held in
the, Town's third-party custodian, bank as safekeeping agent, and the market value of the
collateral securities shall be marked-to-the market daily.
Repurchase Agreements shall be entered into only with counterparties who have executed
a Master Repurchase Agreement with the Town and who are recognized as Primary
Dealers with the Federal Reserve Bank of New York. Primary Dealers approved as
Repurchase Agreement counterparties shall have a short-term credit rating"of at least A-1
or the equivalent and a long-term credit rating of at least A or the * equivalent by each
service that rates the firm.
e. Commercial Paper with an original maturity of 270 days or less that is rated at least A-1
by Standard & Poor's, P-1 by Moody's, or F1 by Fitch at the time of purchase by each
service that rates the commercial paper. If the commercial paper issuer has senior debt
outstanding, the senior debt must be rated at least A by Standard * & Poor's, A2 by
Moody's, or A by Fitch by each service that rates the issuer. No more than 5% of the
Town's total portfolio may be invested in the commercial paper of anyone issuer, and the
aggregate investment in commercial paper shall not exceed 20% of the Town's total
portfolio.
f. General Obligation Debt with a final maturity not exceeding five years issued by any
state. of the United States or any political subdivision, institution, department, agency,
instrumentality, or authority of any state that is rated at least A by Standard & Poor's, A
by Moody's or A by Fitch at the time of purchase by at least one such service that rates
the entity.
g. Revenue Obligation Debt with a final maturity not exceeding five years issued by any
state of the United States or any political subdivision, institution, department, agency,
instrumentality, or' authority of any state that is rated at least AA by Standard & Poor's,
Aa by Moody's or AA by Fitch at the time of purchase by at least one such service that
rates the entity.
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Town of Avon
Investment Policy
Page 5
h. Local Government Investment Pools organized under CRS 24-75-701 and CRS 24-75-
702 that are "no-load" (no commission fee charged on purchases or sales of shares); have
a constant net asset value of $1.00; limit assets of the fund to U.S. Treasury obligations,
Federal Instrumentality securities, repurchase agreements collateralized by U.S. Treasury
or Federal Instrumentality securities, and commercial paper; have a maximum stated
maturity and weighted average maturity in accordance with Federal Securities Regulation
2a-7; and have a rating of AAAm by Standard & Poor's; Aaa by Moody's, or AAAN1+
by Fitch.
i. Money Market Funds registered under the Investment Company Act of 1940 that are
"no=load" (no commission fee charged on purchases or sales of shares); have a constant
net asset value of $1.00; limit assets of the fund to U.S. Treasury obligations, Federal
Instrumentality securities, repurchase agreements collateralized by U.S. Treasury or
Federal Instrumentality securities, and commercial paper; have a maximum stated
maturity and weighted average maturity in accordance with Federal Securities Regulation
2a-7; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAAN1+
by Fitch.
j. Time Certificates of,Deposit with a maturity not exceeding one.year in any state bank,
national bank, or state or federal savings and loan association located in Colorado that is a
member of the -Federal Deposit Insurance Corporation; 'and meets the credit criteria set
forth in the section of this Investment Policy, "Selection of Financial Institutions as
Depositories and as Providers of General Banking Services." Certificates of.deposit that
exceed FDIC insurance limits, shall be collateralized as required by the Public Deposit
Protection Act or the Savings and Loan Association Public Deposit Protection Act.
It is the intent of the Town that the . foregoing list of authorized investments be strictly
interpreted. Any deviation from this list shall have advance approval by the Town 'Council in
writ ing..
11. Investment Diversification
It is the intent of the Town to diversify the, investments within'the portfolio to avoid incurring
unreasonable risks inherent in over. investing in specific instruments, individual financial
institutions or- maturities. The asset allocation in the portfolio should however, be flexible
depending upon the outlook for the economy, the securities market and the Town's anticipated
cash, flow, needs. Diversification strategies and guidelines shall be determined- and revised
periodically by the Finance Committee.
12. Investment Maturity and Liquidity
To the extent possible, investments shall be matched with anticipated cash flow requirements and
known future liabilities. Unless matched to a specific cash flow requirement, the Town will not
invest in securities maturing more than five years from the date of purchase. The Town shall
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Investment Policy
Page 6
maintain at least 15%, of its total investment, portfolio in investments maturing in 120 days or
less. At least 10% of the portfolio shall be invested in overnight investments or' securities that
can be sold to raise cash on one day's notice.
13. Selection of Broker/Dealers
The Finance Director shall maintain a list of authorized 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:
a. Be recognized as a Primary Dealer by the Federal Reserve Bank of New, York, or
b. Report voluntarily to the Federal Reserve Bank of New York, or,
c. Qualify under Securities and-Exchange Commission (SEC) Rule 15c3-1 (Uniform Net
Capital -Rule).
Broker/dealers will be selected by the Finance Director on the basis of their expertise in public
cash management and their ability to provide service to the Town's account. Each broker/dealer
authorized by the Finance Director shall be required to submit "and annually update a Town
approved Broker/Dealer Information Request form that includes the firm's most recent financial
statements. The Finance Director shall maintain a file of the most recent Broker/Dealer
Information "forms submitted by each firm approved for investment purposes. Broker/Dealers
shall also attest in writing that they have received a copy of this 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 the Section, "Authorized
Securities and Transactions" of this Investment Policy.
14. Competitive Transactions
Each investment transaction shall be competitively transacted with broker/dealers who have been
authorized by the Town. At least three broker/dealers shall be contacted for each, transaction, an d
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, then the Treasurer will document quotations for comparable or alternative securities." "
When purchasing original issue instrumentality securities, no competitive offerings will be
required as all dealers in the selling group offer those securities at the same original issue price.
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Investment Policy
Page 7
15. Selection of Financial Institutions as Depositories and as Providers of General Banking
Services
The Finance Director shall maintain a list of authorized financial institutions that are approved to
provide depository and other banking services for the 'Town. To be eligible for authorization, a
bank must be a member of the Federal Deposit Insurance Corporation, shall qualify as a
depository of public funds in Colorado as defined in CRS 24-75-603 and must meet the
minimum credit criteria. (described below) of credit analysis provided by commercially available
bank rating services. Banks failing . to meet the minimum criteria, or in the judgment of the
Finance Director no longer offering adequate safety to Town, may be removed from the -list.
a. The Town shall utilize Highline Banking Data Services to perform a credit analysis
on banks seeking authorization. The analysis shall include a composite rating, and
individual ratings of liquidity, asset quality, profitability and capital' adequacy. To
be eligible for designation to provide depository and other banking services, a bank
shall have an average Highline Banking Data Services Rating of 30 or better on a
scale of zero to 99 with 99 being the highest quality for the four most recent
reporting quarters.
The Finance Director shall maintain a file of the most recent .credit rating analysis reports
performed for each approved financial, institution by one of the above listed rating f rms. Credit
analyses shall be performed at least semi-annually on all approved banks.
16. Safekeeping and Custody
a. The Finance Director shall approve one or more financial institutions to provide
safekeeping and custodial services for the Town. A Town approved Safekeeping
Agreement shall be executed with each custodian bank prior to utilizing that
bank's safekeeping services. To be eligible for designation as the Town's
safekeeping and custodian bank, a financial institution shall have an average
Highline Banking Data Services Rating of 20 or better on a scale of zero to 99
with 99 being the highest quality for the four most recent reporting quarters.
The Finance Director shall maintain a file of the credit rating analysis reports performed for each
approved financial institution.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a
delivery versus payment basis. Ownership of all securities shall be perfected in the name of the
Town, and sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities, except certificates of deposit, local government investment pools and
money market funds purchased by the Town will be delivered by either book entry or physical
Town of Avon
Investment Policy .
Page 8
delivery and will be held in third-party safekeeping by the Town's approved custodian bank, its
correspondent bank or the Depository Trust Company (DTC).
All Fed wireable book entry securities owned by the Town shall be evidenced by a safekeeping
receipt or a customer confirmation issued to the Town by the custodian bank stating that the
securities are 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 Depository Trust Company
(DTC) participant account and-the custodian bank shall issue' a safekeeping. receipt evidencing
that the securities are held for the Town as "customer."
All non-book entry (physical delivery) securities shall be held by the custodian bank's
correspondent bank and' the custodian bank shall issue a safekeeping receipt to the' Town
evidencing that the securities are held by the correspondent bank for the Town as "customer."
The custodian bank shall furnish the Town' monthly reports of security holdings and safekeeping
activity.
17. Portfolio Performance
The Town's investment portfolio shall be designed to attain a market value 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 portfolio
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, all fees involved with managing the portfolio' shall be
included in the computation of the portfolio's rate of return net of fees.
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Investment Policy
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18. Reporting
The Finance Director shall prepare quarterly an investment report listing the investments held by
the Town and the market value of those investments. The report shall include a summary of
investment earnings and performance results during the period.
19. Policy Revisions
This Investment Policy shall be reviewed periodically by the Finance Director and amended by
the Town Council as conditions warrant.
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