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TC Res. No. 2008-05 Adopting revisions to the town's investment policyTOWN OF AVON, COLORADO RESOLUTION NO. 08-05 SERIES OF 2008. A RESOLUTION ADOPTING REVISIONS TO THE TOWN'S INVESTMENT POLICY WHEREAS, The Town adopted its current investment policy on July 12, 2005; and WHEREAS, The Town of Avon wishes, to continue to.operate a contemporaryand 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 22°a day of January, 2008 ~o~NOF AI TO ON Ronald C. Wolfe Mayor. ~OLO~k k AT ST:.. 3 C P Ke To lerk Memo To: Honorable Mayor and Town Council Thru: Larry Brooks, Town Manager From: Scott Wright, Asst. Town Manager - Finance Date: January 17, 2008 Re: Changes to Investment Policy Summary: 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. A Summary of Changes is attached to this memo. 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. Town Manager Comments: Attachments: A - Summary of Recommended Changes to the Investment Policy of the Town of Avon B - Resolution No. 08-05 Adopting Revisions to the Town's Investment Policy C - Investment Policy - Final Version D - Investment Policy- Redline Version • Page 1 Summary of Recommended Changes to the Investment Policy of the Town of Avon MBIA Asset Management Group has conducted a review of Avon's investment policy which was last. revised in July of 2005. Following our review, we have recommended a number of changes'that we present in a "redline", format. Revisions to the Authorized, Securities and Transactions section of. the policy accommodate recent changes to Colorado's govern ing investment statute, CRS 24-75- 601. Other changes bring the policy current with, respect to broker/dealer qualifications and banks, Finally, we reworded some sections for easier reading and. eliminated excess verbiage that no longer adds to.the policy's value. The revisions. which are not self-explanatory are summarized as follows: Prudence - Pages 2-3 Reworded the second paragraph to clarify that losses are not inevitable, but may occur as part of a program to improve overall return. Authorized Securities and Transactions =Pages 3-5 • • We updated the 'statute'references in the opening paragraph: • In the paragraphs dealing with-U.S. Treasury Obligations. Federal Agency Securities and Federal- Instrumentality Securities, we changed-the. maxim um'maturities, which under the revised statute now run from the date of trade settlement. • In paragraph d. dealing with Repurchase Agreements we. added language allowing repurchase counterparties that have a primary dealer within their holding company structure. For example, Merrill Lynch, one. of the Town's' approved, brokers is not a primary dealer. Merrill Lynch Government Securities Inc. is the primary dealer within the firm's holding company structure. • Commercial Paper now must be rated by at least two rating services and requires the highest rating by all services that rate the investment. • General Obligation Debt's maximum allowable maturity is now three years, and now must be.rated at least AA or the equivalent by two services.: Similarly, Revenue Obligation Debt's minimum rating was increased to AAA or the equivalent. • In Paragraphs h. and i. dealing with Local Government Investment Pools and Money Market Funds we revised the "limit assets of the fund to" reference to read "those authorized by state statute." The existing references to individual securities could require a policy amendment if a money market fund or pool,decide's to invest in, different securities. "Authorized by state statute" is all encompassing, and the requirement that money market funds and investment pools have the highest credit rating maximizes safety of the investment. Also in these paragraphs we corrected the reference to Rule 2a-7 of the Investment Company Act of 1940. • The Time Certificates of Deposit paragraph was reworded for easier reading. Town of Avon Investment Policy Summary of Recommended Changes Page 1 it ASSET MANAGEMENT- 6+ Fnm b i a ASSET MANAGEMENT" • At the end of this section we added a paragraph authorizing deviations from investment policy requirements when investing bond proceeds. For example, this provision would permit longer maturities if required to meet specific cash flow requirements. Investment Diversification - Page 6 • We reworded the paragraph for easier reading. Selection of Broker/Dealers - Page 6 • We added the holding company qualification referred to above. • We recommend deleting the requirement for broker/dealers to provide written receipt of the Town's investment policy for these reasons: When a public entity employs an SEC registered investment advisor, the responsibility for determining the suitability of investments with respect to state statutes and investment policy guidelines shifts from the brokers to the investment advisor. As beneficiaries of vast improvements in technology, brokers today are judged by their ability to execute trades quickly and economically, rather than their ability to review and understand the terms of a client's investment policy. As investment advisor, MBIA Asset Management believes our clients should look to us to understand the terms of their investment policies and to manage their • investments accordingly. We also believe our clients should expect us to provide continuing due diligence reviews of brokers to be sure only the best and the most competitive are utilized. Also like most businesses, brokers today are increasingly concerned about liability for damages, both real and perceived. When asked to sign documents acknowledging receipt, review or agreement to comply with an investment policy, most brokers require legal or compliance department review and approval. This can take weeks or even months, potentially delaying our ability to competitively place trades on our client's behalf. Competitive Transactions - Page 7 • Reworded for easier reading and deleted the unnecessary final paragraph. Selection of Financial Institutions as Depositories and as Providers of General Banking Services - Page 7 • For simplicity, we renamed this section "Selection of Banks," reworded it for easier reading and corrected the statute reference. • We recommend deletion of the last paragraph since it is procedural rather than policy. Portfolio Performance - Page 8 • "Attain a market (not market value) rate of return" means the portfolio should be invested to achieve or exceed current market rates, consistent with the limitations of • the investment policy and cash flow needs. Town of Avon Investment Policy Page 2 Summary of Recommended Changes 0 TOWN OF AVON, COLORADO • INVESTMENT POLICY January 22, 2008 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 Town Council of the Town of Avon shall act as the Town's finance committee and 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 • January 22, 2008 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. is 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. Town of Avon Investment Policy January 22, 2008 • Page 3 Accordingly, the Town recognizes that occasional measured losses may occur 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 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, Depositories; CRS 24-75- 702, Local governments - authority to pool surplus funds. 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 trade settlement. • Town of Avon Investment Policy January 22, 2008 Page 4 b. Federal Agency Securities: Debentures and mortgage-backed securities with a stated final maturity, not exceeding five years from the date of trade settlement issued by the Government National Mortgage Association (GNMA). 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 'trade. settlement. 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 Agr.eements 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, or with firms that have a Primary Dealer within their holding company structure. 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. by Standard & Poor's, P-1 by Moody's, or F1 by Fitch at the time of purchase by at least two, services that rate the commercial paper and rated not less by all services that rate it. 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 at least two services that rate the issuer and rated not less by all services that rate it. No more than5% 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 three years from the date of trade settlement issued by- any state of the United States or any political subdivision, • institution; department, agency, instrumentality, or'aiithority 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 two such services that rate the entity. n Town of Avon Investment Policy January 22, 2008 • Page 5 g. Revenue Obligation Debt with a final maturity not exceeding three years from the date of trade settlement 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 AAA by Standard & Poor's, Aaa by Moody's or AAA by Fitch at the time of purchase by at least two such services that rates the entity. h. Local Government Investment Pools organized under CRS 24-75-702 that are "no- load" (no commission or fee charged on purchases or sales of shares); have a constant net asset value of $1.00 per share; limit assets of the fund to those authorized by state statute; have a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of 1940; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAANI+ by Fitch. i. Money Market Funds registered under the Investment Company Act of 1940 that are "no-load" (no commission or fee charged on purchases or sales of shares); have a constant net asset value of $1.00 per share; limit assets of the fund to those authorized by state statute; have a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of 1940; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAAN1+ by Fitch. Time Certificates of Deposit with a maturity exceeding one year i is J y in any FDIC insured state bank, national bank, or state or federal savings bank located in Colorado that meets the credit criteria set forth in the section of this Investment Policy, "Selection of Banks." 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. The foregoing list of authorized investments shall be strictly interpreted. Any deviation from this list shall have advance approval by the Town Council in writing. The Town may from time to time issue bonds, the proceeds of which must be invested to meet specific cash flow requirements. In such circumstances and notwithstanding the paragraph immediately above, the reinvestment of debt issuance or related reserve funds may, upon the advice of Bond Counsel or financial advisors, deviate from the provisions of this Investment Policy with the written approval of the Finance Director. 11. Investment Diversification The Town shall diversify its investments 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. Town of Avon Investment Policy • January 22, 2008 Page 6 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 trade settlement. The Town shall 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 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 have a Primary Dealer within its holding company structure, 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 authorized broker/dealer 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 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 All investment transactions shall be conducted competitively 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. Town of Avon Investment Policy January 22, 2008 • Page 7 15. Selection of Banks The Finance Director shall maintain a list of FDIC insured banks approved to provide depository . and other banking services for, the Town. To be eligible, a bank shalt,,qualify as an eligible public depository as defined in CRS 11-10.5-103 and must meet the.minimum credit criteria (described below) of credit analysis provided.by_one or more 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 toTown, may be removed from the list. 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. 16. Safekeeping and Custody.. The Finance Director shall approve one or more banks 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, a bank 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 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 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." • Town of Avon Investment Policy January 22, 2008 17. Portfolio Performance Page 8 All non-book entry (physical delivery) securities shall be held by the custodianbank's correspondent bank and ,the ` custodian'. bank . shall issue a safekeeping receipt to , the Town es evidencing that the secur iti 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 n activity. - The Town's 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 portfolio shall be compared to the average yield on the U.S. Treasurysecurity 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: .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. , TOWN OF AVON, COLORADO INVESTMENT POLICY 2007 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 Town Council of the Town of Avon shall act as the Town's finance committee and 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. Deleted: July 12,2005 WE • 0 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. Town of Avon Investment Policy Page 3 Accordingly, the Town recognizes that occasional measured losses jnay occur 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 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, Depositories; CRS 24-75-,702, ,,Local governments - authority to pool surplus funds. 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 Trade settlement. b. Federal Agency Securities: Debentures and mortgage-backed securities with a stated final maturity not exceeding five years from the date of ,trade settlement issued by the Government National Mortgage Association (GNMA). Deleted: are inevitable • Deleted: a seq., Deleted: 701 and Deleted: et seq., Investment Funds - I ocal Government Poohng Deleted: purchase Deleted: purchase 0 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 Tade settlement issued by the following only: Federal Farm Credit Bank (FFCB), Deleted: P-dum 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. or with firms that have a Primary Dealer within their holding company structure. Primary Dealers approved as Repurchase Agreement counterparties shall have a short-term credit rating of at least A-I or the equivalent and a long-term credit rating of at least A or the equivalent by each service that rates the firm. 40 e. Commercial Paper with an original maturity of 270 days or less that is rated at least A-I by Standard & Poor's, P-1 by Moody's, or FI by Fitch at the time of purchase by -at least two services that rater, the commercial paper and rated not less by all services that rate it. 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 at least two services that rate, the issuer and rated not less by all services that rate it. 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 ee ears from the date of trade settlement 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 wo such services that raterthe entity. g. Revenue Obligation Debt with a final maturity not exceeding ree ears from the date of trade settlement 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 Deleted: each Deleted: s Deleted: each Deleted: s Deleted: five Deleted: one Deleted: s Deleted: five Town of Avon Investment Policy Page 5 least AAA by Standard & Poor's, Aaa by Moody's or AAA by Fitch at the time of purchase by at least wy such services that rates th e entity. h. Local Government Investment Pools organized under CRS 24-75-,702 that are .no- load" (no commission or fee charged on purchases or sales of shares); have a constant net asset value of $1.00 per share; limit assets of the fund to Shose authorized by state statute; have a maximum stated maturity and weighted average maturity in accordance with ule 2a-7 of the Investment Company Act of 1940; 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 or fee charged on purchases or sales of shares); have a constant net asset value of $1.00 per share; limit assets of the fund to $hose authorized by state statute; have a maximum stated maturity and weighted average maturity in accordance with -Rule 2a-7 of the Investment Company Act of 1940; and have a rating of AAAm by Standard & Poor's, Aaa by Moody's, or AAAN1+ by Fitch. Deleted: one Deleted: 701 and CRS 24-75- Deleted: U.S. Treasury obligations, Federal Instmmmtality securities, repurchase agreements collateralized by U.S. Treasury or Federal Instrumentality securities, and commercial paper Deleted: Federal Securities Regulation Deleted: U.S. Treasury obligations, Federal Insamnematity securities, repurchase agreements collateralized by U.S. Treasury or Federal Instrumentality securities, and commercial paper Deleted: Federal Securities Regulation Time Certificates of Deposit with a maturity not exceeding one year in any FDIC insured state bank, national bank, or state or federal savings tank located in Colorado that Deleted: and loan association jneets the credit criteria set forth in the section of this Investment Policy, "Selection of Deleted: is a member ofthe Federal Aanks." Certificates of deposit that exceed FDIC insurance limits shall be collateralized Deposit Insurance Corporation, and as required by the Public Deposit Protection Act or the Savings and Loan Association Public Deposit Protection Act. Deleted: Financial Institutions as Depositories and as Providers of General Banking Services ,The foregoing list of authorized investments shall be strictly interpreted. Any deviation from this list shall have advance approval by the Town Council in writing. The Towq may from time to time issue bonds, the proceeds of which must be invested to meet specific cash flow requirements. In such circumstances and notwithstanding the Paragraph immediately above, the reinvestment of debt issuance or related reserve funds may, upon the advice of Bond Counsel or financial advisors, deviate from the provisions of this Investment Policy with the written approval of the finance Directo 11. Investment Diversification .The Town shall diversify,zs-investments ;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 Deleted: It is the intent of the Town that the Allikk Formatted: Font: Times New Roman, 12 pt Formatted: Font: Times New Roman, 12 pt Formatted: Font: Times New Roman, 12 pt, Font color: Auto. Formatted: Font: Times New Roman, 12 pt Deleted It is the intent of the Town to Deleffid: the Deleted: within the portfolio 0 Town of Avon Investment Policy Page 6 • invest in securities maturing more than five years from the date of grade settlement. The Town shall 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 proker/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 have a Primary Dealer within its holding company structure, or b. Report voluntarily to the Federal Reserve Bank of New York, or c. Qualify 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 authorized broker/dealer,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 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. • Deleted: purchase Deleted: authorized Deleted: authorized by the Finance Direa m Deleted: 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. 0 Town of Avon Investment Policy Page 7 14. Competitive Transactions All investment transactions shall be conducted competitively with authorized broker/dealer$, At Deleted: Each least three broker/dealers shall be contacted for each transaction and their bid and offering prices Deleted: transacted shall be recorded. Deleted: Who have been authorized by the Town If the Town is offered a security for which there is no other readily available competitive offering, $he Treasurer will document quotations for comparable or alternative securities. Deleted: then Deleted: 9 When purchasing original issue arks 15. Selection Of~. instrumentality securities' no competitive offerings will be required as all dealers in the selling group offer those securities at The Finance Director shall maintain a list of EDIC insured banks approved to provide depository the same original issue price. , and other banking services for the Town. To be eligible, a bank hall qualify asN eligible ible Public g ~ . Deleted: Deleted: Financial Institutions as repositories and as Providers of depositoryjas defined in CRS j 1-10.5-103 and must meet the minimum credit criteria (described General Banking services below) of credit analysis provided by one or more commercially available bank rating services. Deleted: authorized financial Banks failing to meet the minimum criteria, or in the judgment of the Finance Director no longer msntutnons that are offering adequate safety to Town, may be removed from the list. Deleted: for authorization Deleted: most be a member of the The Town shall utilize Highline Banking Data Services to perform a credit analysis on banks Federal Deposit Insurance Corporation seeking authorization. The analysis shall include a composite rating, and individual ratings of Dom` a liquidity, asset quality, profitability and capital adequacy. To be eligible for designation to Deleted: ofpublic funds in Colorado provide depository and other banking services, a bank shall have an average Highline Banking Deleted: 2475-603 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. . Deleted: ¶ The Finance Director shall maintain a file 16. Safekeeping and Custody of the most recent credit rating reports performed for each aPprov financial institution by one of the The Finance Director shall approve one or more banks to provide safekeeping and custodial listed rating fans. Credit analyses shall be performed at least semi-annually on all services for the Town. A Town approved Safekeeping Agreement shall be executed with each approved banks. custodian bank prior to utilizing that bank's safekeeping services. To be eligible,, a yank shall Deleted; financial institutions have an average Highline Banking Data Services Rating of 20 or better on a scale of zero to 99 Meted: for designation as the Town's with 99 bein the hi hest ualit for the four most recent re ortin uarters safekeeping and custodian bank g g q y p g q . Deleted: financial institution The purchase and sale of securities and repurchase agreement transactions shall be settled on a Deleted: The Finance Director shall delivery versus payment basis. Ownership of all securities shall be perfected in the name of the file credit rating Town, and sufficient evidence to title shall be consistent with modem investment, banking and a ports p pert erf reormed for each analysis approved financial institution. I commercial practices. I 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 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). 0 Town of Avon Investment Policy Page 8 " 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 rate of returnthroughout 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. 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. Deletede value ' 0 Town of Avon Investment Policy Page 9 19. Policy Revisions This Investment Policy shall be reviewed periodically by the Finance Director and amended by the Town Council as conditions warrant. r~ ~J C7 is