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CC Resolution 13211 - Approving the Annual Update to the Investment Policy for (FY) 2024-25 RESOLUTION NO. 13211 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CAMPBELL APPROVING THE ANNUAL UPDATE TO THE INVESTMENT POLICY FOR FISCAL YEAR (FY) 2024-25 WHEREAS, Government Code Section 53646(a)(2) recommends that a statement of Investment Policy be submitted to the City's legislative body annually for its consideration at a public meeting; and WHEREAS, there has been submitted to the City Council a statement of the City's Investment Policy; and WHEREAS, the Policy and any changes recommended by staff and the Finance Sub- Committee have been reviewed by the City Council and it has been determined that the Fiscal Year (FY) 2024-25 Investment Policy as recommended is acceptable. NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of Campbell that the FY 2024-25 Investment Policy is hereby approved as submitted. PASSED AND ADOPTED this 17th day of September 2024, by the following roll call vote: AYES: Councilmembers: Bybee, Furtado, Scozzola, Lopez, Landry NOES: Councilmembers: None ABSENT: Councilmembers: None APPROVED: Susan M. an , Mayor ATTEST: ande Andrea San s, City Clerk 41 City of Campbell, California ° .,/ ' Afl� Investment Policy Date: September 617, 20243 �RCI I. PURPOSE It is the policy of the City of Campbell to invest public funds in a prudent manner which conforms to all statutes governing the investment of public funds while providing security and meeting the daily cash flow needs of the City. The purpose of this document is to identify the policies guiding prudent investment of the City's temporarily idle funds and to establish guidelines and objectives for suitable investments including delegation of authority, prudence, monitoring and reporting, policy review, diversification, eligible securities, safekeeping, collateralization, selection of financial institutions and broker/dealers, glossary of terms, and forms utilized. II. SCOPE A. This investment policy shall apply to all financial assets, investment activities, and debt issues (excluding those debt issues subject to governing documents) of the City of Campbell including the following fund types: 1. General Fund 2. Special Revenue Funds 3. Debt Service Funds 4. Capital Projects Funds 5. Internal Service Funds 6. Trust and Agency Funds B. The policy does not cover funds held by the Public Employees Retirement System nor funds of the Deferred Compensation program. III. OBJECTIVES A. It is the objective of this policy to provide a system which will monitor and forecast revenues and expenditures so that the City can invest temporarily idle funds to the fullest extent possible. The temporarily idle funds shall be invested in accordance with provisions of California Government Code Section 53600 et. seq. B. The City adheres to conservative investment philosophies including investment of all idle cash, preservation of principal at the risk of yield, maintenance of adequate liquidity to meet anticipated cash flow needs and diversification to avoid the risks inherent in over investing in any one asset class. C. This policy specifically prohibits trading securities for the sole purpose of speculating on the future direction of interest rates. It further prohibits reverse repurchase agreements, use of derivative products, and/or leveraging of the portfolio. D. The City shall ensure the safety of invested funds by limiting credit and interest rate risks. The three primary objectives of the City's Investment Policy in order of priority are: 1 4 °V City of Campbell, California ••°RCHA49 `$. Investment Policy Date:. September 517, 20243 1. Safety: Safety of principal is the foremost objective of the City of Campbell. Safety and the minimizing of risk associated with investing refer to attempts to reduce the potential for loss of principal, interest or a combination of the two. The City ensures safety of its invested idle funds and limits credit and interest rate risks by following these guidelines (all of which are detailed within the body of the Investment Policy): a. Investing only in those instruments that are generally accepted as safe investment vehicles for local government as authorized by this Policy, b. Carefully reviewing the qualifications and financial strength of financial institutions and broker/dealers prior to conducting business with them, c. Diversifying the investment portfolio as prescribed within this Policy, d. Structuring the portfolio such that securities mature to meet the City's cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to their maturation, e. Limiting the final maturity of purchased securities to five years; limiting the weighted average maturity of the portfolio to three years, and f. Ensuring the physical security or safekeeping of the City's investments. 2. Liquidity: Liquidity is the second most important objective of the City's Policy. Liquidity refers to the ability to convert an investment to cash promptly without loss of principal and minimal loss of interest. For example, this is accomplished by maintaining sufficient balances in liquid investment products, such as the Local Agency Investment Fund (LAIF) or other local government investment pools which offer same day availability, or by investing in securities with active secondary or resale markets. 3. Return: Return on the City's portfolio is last in rank among investment objectives. Investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. IV. STRUCTURE AND RESPONSIBILITY A. DELEGATION OF AUTHORITY: 1. The City Council assumes direction over the City's investments, and assigns management responsibility for the investment program to the Finance Director, who shall serve as Chief Fiscal Officer, and have legal custody of funds. The Finance Director may provide for delegation of his/her responsibilities to other persons under his/her control responsible for investment transactions, including 2 0V'°44 'A� City of Campbell, California O y .,T,,.,,.Nrr O °RCRARO Investment Policy Date: September 517, 20243 the delegation of certain portions of the investment portfolio to one or more external and qualified investment advisers or such other designee approved by the Finance Sub-Committee. External investment advisors who are engaged b by the City shall be registered under the Investment Advisers Act of 1940 and shall assist in the management of the City's investment portfolio in a manner consistent with the City's objectives. External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy. B. POLICY REVIEW: 1. This Investment Policy shall be reviewed and approved annually as recommended by California Government Code Section 53600 et. seq. C. RESPONSIBILITIES: 1. Responsibilities of the City Council: The City Council consists of a Mayor and four Council members and is the policy setting board for the City of Campbell. The City Council has considered and adopted a written Investment Policy for the City of Campbell. Pursuant to the City's Financial Policies, the City Council shall on an annual basis, approve necessary changes to the Investment Policy as recommended by the Finance Sub-Committee. On a quarterly basis, the City Council shall receive, review and accept the Quarterly Investment Report submitted by the Finance Department. 2. Responsibilities of the Finance Sub-Committee: The Finance Sub- Committee consists of two Council members, the City Manager, the Finance Director, and the Assistant Finance Director. On an annual basis, this Sub- Committee shall review necessary revisions to the established Investment Policy of the City of Campbell and make a recommendation to the City Council accordingly. No less than once per fiscal year, the City's investment strategy will be reviewed by the Finance Sub-Committee. A summary of the investment strategy will be shared with the City Council at that time. Should market activity encourage revisions in the City's strategy, the Finance Sub-Committee shall be advised accordingly. 3. Responsibilities of the City Manager: The City Manager is responsible for directing and supervising the Finance Director. He/she has the responsibility of keeping the City Council fully advised as to the financial condition of the City. a. Wire Transfer Authority: The City Manager has unlimited wire transfer authority for a single transaction. Such a transaction requires joint review, approval and verification in advance by the City Manager and Finance Director. The transaction shall be highlighted in the Quarterly Investment Report to Council. 4. Responsibilities of the Finance Director: The Finance Director is appointed by the City Manager and serves as Chief Fiscal Officer. He/she is subject to the direction and supervision of the City Manager. The Finance Director is charged with the responsibility for the conduct of all Finance Department functions including the custody and investment of City funds, and investment of those funds in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Refer to "Delegation of Authority" for additional information pertaining to delegation of investment responsibilities. 3 0V'°A4 '4b 4 City of Campbell, California °RCNA40 Investment Policy Date: September 617, 20243 a. Wire Transfer Authority: The Finance Director has wire transfer authority not to exceed $5,000,000 for a single transaction. Such a transaction shall be reviewed, approved and verified in advance by the City Manager. The transaction shall be highlighted in the Quarterly Investment Report to Council. 5. Responsibilities of the Assistant Finance Director: The Assistant Finance Director is appointed by the Finance Director and serves as the Investment Manager for the City pursuant to specific delegation authority provided by this Investment Policy. He/she is subject to the direction and supervision of the Finance Director and is charged with the responsibility and conduct of the day- to-day accounting and cash management functions of the City. This includes the custody and investment of City funds, and investment of those funds in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Refer to"Delegation of Authority"for additional information pertaining to delegation of investment responsibilities. Implementation and maintenance of the Investment Policy are the responsibility of this individual. On an annual basis, the Assistant Finance Director shall present to the Finance Sub-Committee, recommended changes to the City's Investment Policy. On a quarterly basis, the Assistant Finance Director shall present to the City Council, via the City Manager, a Quarterly Investment Report. Refer to "Monitoring and Reporting"for additional information. a. Wire Transfer Authority: The.Assistant Finance Director has wire transfer authority not to exceed $3,000,000 for a single investment transaction. Such a transaction shall be reviewed, approved and verified in advance by the Finance Director, and shall be reported in the Quarterly Investment Report to Council. 6. Responsibilities of the Accountant: The Accountant is appointed by the Finance Director and is subject to the direction and supervision of the Assistant Finance Director. The Accountant carries out the specific instructions provided by the Assistant Finance Director regarding the purchase and sale of securities in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Accounting for the various investment transactions is the responsibility of the Accountant. ' a. Wire Transfer Authority: The Accountant has wire transfer authority not to exceed $2,100,000 for a single investment transaction. The standard operating procedure is that all cash and investment wire transfers made by the Accountant and Senior Accountant are reviewed, approved and verified in advance by the Assistant Finance Director, and are reported in the Quarterly Investment Report to Council. D. Prudence: 1. Pursuant to California Government Code, Section 53600.3, all persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the Prudent Investor Standard. This means that all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to 4 y4"'A� City of Campbell, California .-• •°RCMAO• Investment Policy Date: September 517, 20243 this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. 2. The City's overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that no investment is totally riskless and that the investment activities of the City are a matter of public record. Accordingly, while the intent of the City is to hold purchased securities to maturity, the City recognizes that occasional measured losses may be advisable in a diversified portfolio and shall be considered within the context of the overall portfolio's return, provided that (a) adequate diversification has been implemented and (b) the sale of a security is in the best long-term interest of the City. E. 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 City's investment program or could impair or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any business interests they have in financial institutions that conduct business with the City, and they shall subordinate their personal investment transactions to those of the City. In addition, the City Manager, the Finance Director and others with delegated investment authority shall file a Statement of Economic Interests each year pursuant to California Government Code Section 87203 and regulations of the Fair Political Practices Commission. All participants in the investment process are required to comply with terms of the Political Reform Act, Fair Political Practices Commission Regulations promulgated thereunder (2 C.C.R. 5§ 18110 through 18998), the City's Conflict of Interest Policy, including, without limitation, filing of Form 700, notification and recusal obligations, and Government Code section 1090 prohibitions. Conflict with State Statutes or Regulations 1. In the instance of any conflict between the City of Campbell Investment Policy and Government Code Section 53600 et seq, the more stringent requirement shall apply. V. AUTHORIZED SECURITIES AND TRANSACTIONS All investments and deposits of the City shall be made in accordance with California Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant to California Government Code Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of the bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of these code sections will be assumed 5 °F °4 4 4. 4 City of Campbell, California •GRCHAAs3•`' Investment Policy Date: September 617, 20243 to be part of this Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Policy and past City investment practices, the City may delay adherence to the new requirements when it is deemed in the best interest of the City to do so. Percentage holdings limits listed in this section apply at the time the security is purchased. The City has further restricted the eligible types of securities and transactions to the following: 1. United States Treasury bills, notes, bonds, or strips with a final maturity not exceeding five years from the date of purchase. 2. Federal Agency debentures and mortgage-backed securities with a final maturity not exceeding five years from the date of purchase issued by the Government National Mortgage Association (GNMA). The aggregate investment in Federal Agency obligations shall not exceed 75% of the City's total portfolio. No more than 30% of the total portfolio may be invested in any single Agency issuer. No more than 20% of the total portfolio may be invested in callable agency securities. 3. Federal Instrumentality (government sponsored enterprise(GSE)) debentures, discount notes, callable and step-up securities,with a final maturity not exceeding five years from the date of purchase, issued by the following only: Federal Home Loan Banks (FHLB), Federal National Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB) and Federal Home Loan Mortgage Corporation (FHLMC). The aggregate investment in Federal Instrumentality obligations shall not exceed 75% of the City's total portfolio. No more than 30% of the total portfolio may be invested in any single Agency/GSE issuer. No more than 20% of the total portfolio may be invested in callable agency securities. 4. Repurchase Agreements with a final termination date not exceeding one year collateralized by U.S. Treasury obligations, Federal Agency securities, or Federal Instrumentality securities listed in items 1, 2 and 3 above with the maturity of the collateral not exceeding five years. For the purpose of this section, the term collateral shall mean purchased securities under the terms of the City's approved Master Repurchase Agreement. The purchased securities shall have a minimum market value including accrued interest of 102% of the dollar value of the transaction. Collateral shall be held in the City's custodian bank, as safekeeping agent, and the market value of the collateral securities shall be marked-to-the-market daily. The aggregate investment in repurchase agreements shall not exceed 10% of the City's total portfolio. Repurchase Agreements shall be entered into only with broker/dealers that have executed a City approved Master Repurchase Agreement with the City. Repurchase counterparties shall be recognized as Primary Dealers with the Federal Reserve Bank of New York, or shall have a primary dealer within their holding company structure. Broker/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. The Finance Director shall maintain a copy of the City's approved Master Repurchase Agreement along with a list of the broker/dealers that have executed a Master Repurchase Agreement with the City. 5. Prime Commercial Paper with a maturity not exceeding 270 days from the date of purchase with the highest ranking or of the highest letter and number rating as provided for by a Nationally Recognized Statistical Ratings Organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either sub-paragraph a. 6 • 4°F C A "/A tt- City of Campbell, California U j- r •CRCHAO Investment Policy Date: September 517, 20243 or sub-paragraph b. below: a. The entity shall (1) be organized and operating in the United States as a general corporation, (2) have total assets in excess of five hundred million dollars ($500,000,000) and (3) have debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b. The entity shall (1) be organized within the United States as a special purpose corporation, trust, or limited liability company, (2) have program wide credit enhancements, including, but not limited to, over collateralization, letters of credit or surety bond and (3) have commercial paper that is rated "A-I" or higher, or the equivalent, by a NRSRO. No more than 5% of the City's total portfolio may be invested in the commercial paper and medium-term notes of any single issuer, and the aggregate investment in commercial paper shall not exceed 25% of the City's total portfolio. 6. Eligible Bankers Acceptances provided that no more than 5% of the City's total portfolio may be invested in banker's acceptances of any one issuer, and the aggregate investment in banker's acceptances shall not exceed 30% of the City's total portfolio. The maximum maturity does not exceed 180 days. 7. Medium Term Notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States, with a final maturity not exceeding five years from the date of purchase, and are rated in a rating category of"A" or its equivalent or better by at least one NRSRO. No more than 5% of the City's total portfolio may be invested in medium term notes of any one issuer and the aggregate investment in medium term notes shall not exceed 30% of the City's total portfolio. 8. Non-negotiable Time Certificates of Deposit and savings deposits with a maturity not exceeding five years, in state or nationally chartered banks or savings and loans with a California branch office that are insured by the FDIC. Time Certificates of Deposit exceeding the FDIC insured amount must be secured pursuant to California Government Code Section 53652. No more than $1 million may be invested in non-negotiable time certificates of deposit of any one issuer and the aggregate amount invested in non- negotiable time certificates of deposit shall not exceed 2.520% of the City's total portfolio. 9. Certificates of Deposit at commercial bank, savings bank, or savings and loan association that uses a private sector entity (Certificate of Deposit Account Registry Service) that assists in the placement of certificates of deposit, provided that the purchase of certificates of deposit do not, in total, exceed 30% of the City's funds that may be invested for this purpose. The City shall choose a nationally or state chartered commercial bank in California as the "selected" depository institution to invest the funds. The selected depository institution may submit the funds to a CDARS for the benefit of the City's account. The full amount of the principal and interest that may be accrued during the maximum term of each certificate shall be insured by the FDIC. The maximum maturity does not exceed 5 years 9,10. Negotiable Certificates of Deposit(NCDs) issued by a nationally or state-chartered bank, a savings association or a federal association, a state or federal credit union, or by a federally licensed or state-licensed branch of a foreign bank, provided that the purchase of 7 ° '� A e City of Campbell, California O '^13 O y�•O4CII0,9• Investment Policy Date: September 617, 20243 certificates of deposit do not, in total, exceed 30% of the City's funds that may be invested for this purpose. The amount of the NCD insured up to the FDIC limit does not require any credit ratings. Any amount above the FDIC insured limit must be issued by institutions which have short-term debt obligations rated "A-1"or its equivalent or better by at least one NRSRO; or long-term obligations rated in a rating category of"A" or its equivalent or better by at least one NRSRO. The maximum maturity does not exceed 5 years and no more than 5% of the total portfolio may be invested in any single issuer. 4&11. State of California's Local Agency Investment Fund (LAIF), pursuant to California Government Code Section 16429.1. 44,12. Mutual Funds registered under the Investment Company Act of 1940 that (1) are "no- load" (meaning no commission or fee shall be charged on purchases or sales of shares); (2) invest only in the securities and obligations authorized in this policy and (3) have a rating of AAA by Standard and Poor's, Aaa by Moody's or AAA/V1+ by Fitch. No more than 10% of the City's total portfolio may be invested in mutual funds of any one issuer, and the aggregate investment in mutual funds shall not exceed -510% of the City's total portfolio. The combined aggregate investment in mutual funds and money market funds shall not exceed 20% of the total portfolio. 13. Money Market Mutual Funds registered under the Investment Company Act of 1940 that (1) are "no-load" (meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a constant daily net asset value per share of$1.00; (3) invest only in the securities and obligations authorized in this policy and (4) have a rating of at least two of the following: AAA by Standard and Poor's, Aaa by Moody's or AAA/V1+ by Fitch. No more than 4-020% of the City's total portfolio may be invested in the shares of any on money market funds of any one issuer, and the combined aggregate investment in mutual funds and money market funds shall not exceed 1-520% of the total portfolio. 114. Municipal and State Obligations with a minimum long-term rating of A/A-1 or higher by Standard and Poor's and not exceeding 1-030% of the portfolio and the maximum maturity does not exceed 5 years: (a) Bonds Issued by the Local Agency (City of Campbell) including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated b y the local agency or by a department, board, agency, or authority of the local agency.) (b) State Obligations including registered treasury notes or bonds of this State and any of the other 49 states in addition to California, including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of the any of the other 49 United States, in addition to California. (c) California Local Agency obligations including bonds, notes, warrants, or other evidence of indebtedness of any local agency within this state, including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the any of the local agency. (d) No more than 5% of the portfolio may be invested in any single issuer. 4415.Asset-Backed, Mortgage-Backed, Mortgage Pass-Through Securities, and Collateralized Mortgage Obligations from Issuers Not Defined -in sections 1, 2 and 3 of the Authorized Securities and Transactions Elsewhere in the Authorized Investments 8 4.0V ° 'da4 City of Campbell, California • `'4. °ecxnao Investment Policy Date: September517, 20243 � Section of This Policy, provided that: (a) The securities are rated in a rating category of"AA" or its equivalent or better by a NRSRO. (b) No more than 20% of the total portfolio may be invested in these securities. (c) No more than 5% of the portfolio may be invested in any single Asset-Backed security issuer. (d) The maximum legal final maturity does not exceed five (5) years. 4-5,16. Supranationals, provided that: (a) Issues are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. (b) The securities are rated in a rating category of"AA" or its equivalent or better by a NRSRO. (c) No more than 30% of the total portfolio may be invested in these securities. (d) No more than 10% of the portfolio may be invested in any single issuer. (e) The maximum maturity does not exceed five (5) years. Funds is 20% of the portfolio. It is the intent of the City that the foregoing list of authorized securities and transactions is strictly interpreted. Any deviation from this list must be preapproved by the City Council writing. 46:17. Shares of Beneficial Interest Issued by a Joint Powers Authority (JPA) organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority and be rated AAA or equivalent. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (a) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (b) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (q), inclusive. (c) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 18. Prohibited Investment Vehicles and Practices a. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options. b. In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest-only strips is prohibited. c. Investment in any security that could result in a zero interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government that could result in a zero- or negative-interest accrual if held to maturity are permitted. d. Purchasing or selling securities on margin is prohibited. e. The purchase of foreign currency denominated securities is prohibited. 9 440*:° 'A4 City of Campbell, California =ter ;YS. O jar.. O •OROHABO• Investment Policy Date: September 517, 20243 f_Agencies that are not Qualified Institutional Buyers (QIB) as defined by the Securities and Exchange Commission are prohibited from purchasing Private Placement Securities. The SEC defines a QIB as having at least$100,000,000 in securities owned and invested. ftp. The purchase of a security with a forward settlement date exceeding 45 days from the time of investment is prohibited. VI. PORTFOLIO MATURITIES AND LIQUIDITY To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. The City will not invest in securities maturing more than five years from the date of settlement, unless the City Council has granted authority to make such an investment at least three months prior to the date of investment.-The duration of the portfolio will generally be approximately equal to the duration (typically, plus or minus 20%) of a Market Benchmark, an index selected by the City based on the City's investment objectives, constraints and risk tolerances.The weighted average final mat„rity of the City's portfolio shall at no time exceed 3 years. VII. MONITORING AND REPORTING A. The Finance Director shall routinely monitor the contents of the portfolio and shall file with the City Council the Assistant Finance Director's Investment Report at the first regularly scheduled City Council meeting after 45 days from the end of the quarter. The reports shall be prepared and submitted in accordance with California Government Code Section 53646 and shall include the following on all invested monies: > Type of Investment and Issuer > Beginning Balances > Purchases During Quarter > Monthly transactions including all Maturities andef Sales During the Quarter > Ending Balances ➢ Maturity Date > Weighted Average Final Maturity > Call Provisions (if any) > Interest Rate > Weighted Average Yield > Face Value or Purchase Cost > Market Value including source > Interest Earned During Quarter > Interest Earned to Maturity > Cash Flow Projection for the Following Quarter > Summary of Cash Invested to Total Cash Balances > Comparative Statistics by Fiscal Year > Reconciliation of Cash & Investments to General Ledger Balances > Investments under the Management of Contracted Parties > Statement of Compliance with the Investment Policy ➢ Statement of Ability to Meet.Obligations of Next Six Months submitted-by-the-Pp' -anse-Difester-te-G-Ity-Geunsi-l-within-46-days-ef-the-en-el-ef-the-reperfing 10 4.0V °A"'A City of Campbell, California o r '.•°RCflA40 Investment Policy Date: September 617, 20243 VIII. SELECTION OF BROKER/DEALERS The City shall transact business with securities broker/dealers after careful review of their qualifications and creditworthiness. In selecting broker /dealers, the Finance Director or designated staff member shall select broker/dealers representing primary dealers in government securities that have established offices and order desks within the State of California, or with such firms that have a primary dealer within their holding company structure. Exceptions to this rule will be made only upon the joint written authorization of the Finance Director and City Manager. Staff shall investigate broker/dealers wishing to do business with the City to determine if they are adequately capitalized, are reputable, have pending legal action against the firm or the individual broker, have established offices and order desks within the State of California, and make markets in the securities appropriate to the City's needs. Before accepting funds or engaging in investment transactions with the City, the supervising officer at each authorized broker/dealer shall submit and annually update a City approved Broker/Dealer Information Request form that includes the firm's most recent audited financial statement. The Finance Director, or his or her designee, shall maintain a list of approved broker/dealers. Broker/dealers shall attest in writing that they have received and reviewed a copy of this Investment Policy, and that they will comply with it and disclose potential conflicts or risks to public funds that might arise out of business transactions between the firm and the City of Campbell. If the City has engaged the services of an outside professional investment advisor, the investment advisor may use its own list of authorized broker-dealers to conduct transactions on behalf of the City. IX. DELIVERY, SAFEKEEPING AND COLLATERALIZATION A. Delivery: 1. All investment transactions shall be conducted on a delivery-versus-payment (DVP) basis. B. Safekeeping: 1. The City shall contract with a bank or banks for the safekeeping of securities which are owned by the City as a part of the investment portfolio. Staff shall periodically review the performance and pricing of the third-party, safekeeping agent services. 2. All investment securities(except the collateral for certificates of deposit in banks, and/or savings and loans) purchased by the City shall be held in third-party safekeeping by an institution designated as primary agent. The primary agent shall issue a safekeeping receipt to the City listing the specific instrument, rate, maturity and other pertinent information, and shall provide monthly reports of activity and ending balances for all securities held on behalf of the City. C. Collateralization: 1. Deposit type Certificates of Deposit (CDs). The Agency shall require any commercial bank or savings and loan association to deposit eligible securities with an agency of a depository approved by the State Banking Department to secure any uninsured portion of a Non-Negotiable Certificate of Deposit. The value of eligible securities as defined pursuant to California Government Code, Section 53651, pledged against a Certificate of Deposit shall be equal to 150% of the face value of the CD if the securities are classified as mortgages and 110% of the face value of the CD for all other classes of security.cccuritics (i.e. certificates of deposit) shall be collateralized through the State of California 11 °v'°9A'�8� City of Campbell, California •CRCnA4'o Investment Policy Date: September 517, 20243 Gel-lateral—peal—Feeuirements for any amount exceeding FDTDIC—vvv 14 accordance with California Government Code Section 53652 and/or 53651(m) {1). Collateral for certificates of deposit shall be held in a trust company located in California the tri Est department of a bank located in California nr the Federal Home I oan Bank of San Francisco 2. Other Collateralization of Bank Deposits. This is the process by which a bank or financial institution pledges securities, or other deposits for the purpose of securing repayment of deposited funds. The Agency shall require any bank or financial institution to comply with the collateralization criteria defined in California Government Code, Section 53651.securities shall be collateralized by the actual security held in third party safekeeping by the primary agent 3. Repurchase Agreements. The Agency requires that Repurchase Agreements be collateralized only by securities authorized in accordance with California Government Code: a. The securities which collateralize the repurchase agreement shall be priced at Market Value, including any Accrued Interest plus a margin. The Market Value of the securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities. b. Financial institutions shall mark the value of the collateral to market at least monthly and increase or decrease the collateral to satisfy the ratio requirement described above a:c. The Agency shall receive monthly statements of collateral. X. DIVERSIFICATION AND ELIGIBLE SECURITIES The City will diversify investment instruments to avoid incurring unreasonable risks in overinvesting in specific instruments, individual financial institutions or maturities. The following portfolio maximums shall apply: If the credit ratings of any security owned by the City are downgraded to a level below the quality required by this investment policy, it will be the City's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a security is downgraded, the Finance Director will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors. If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported quarterly to the City Council. 12 4°F'°` �4 City of Campbell, California t. ; oRCHAKQ. Investment Policy Date: September 617, 20243 A¢e ri'ed SecuritiesMaxirree¢wa DortFolio r4c:e- c Ica w¢T ro c¢ vrcrvre® CA. Gov't. Authorized Investment Maximum Authorized Credit Rating Limit Code Maturity Investment Limits Section %of Portfolio 53601 (a) City of Campbell Local Agency 5 years None/10%Per A/A 1 or Higher Bonds Issuer $3601-(c) State Obligations 5 y ars None/ 0uer Per NA 1 or Higher Issuer 53601 (e) _aliferni_ I o__l egenoie 5 years None/10% Per A/A 1 or Higher Issuer 53601(b) United States Treasuries 5 years Nacre Nene 53601(e) Federal Agency Securities 5 years 50 None 53601-(e) Federal Instrumentality 5 years 7594 Nene 53691(i) Repurchase Agreements 1-year 10% A-;-IA 25% 53601(g) Prime Commercial Paper 270 days A/A 1 or higher 5% Per Issuer 53601(f) Eligible Bankers Acceptances 180 days 5%per issuer/30°1° A 1/P 1/F 1 Aggregate 53601(j) Medium Term Notes 5 years 30%/5%per A/A 1 or Higher +s.,ucr 53601 n Non negotiable Certificates of 5 years - ( } Deposit $1 million per Issuer 30%Aggregate 53601.8 Certificates of Deposit through 5 ears Maximum Up to _ (a)-(h) Account Registry Services y the FDIC Insured Limit Per Issuer 16'129.1 State of California I AIF NIA None 53601(k) *Mutual Funds Nene 15% AAAm/Aaa/AAAV14- 53601(k) *Money Market Mutual Funds Nave 45% AAAm/Aaa/AAAV1+ Asset Backed, Mortgage Backed, 53601(o) Mortgage Pates Through 5 years 20°!°/5% per ic•suer AA or higher Securities, and Collateralized 53601(q) Supranatienals 5 years 30% AA or higher 53601(p) Shares of a joint powers authority NIA Nacre AAA or higher 13 • 4°VFC "94 #� City of Campbell, California °RCHARO Investment Policy Date: September 517, 20243 • • CA. Gov't. Authorized Investment Maximum Authorized Credit Rating Limit Code Maturity Investment Limits Section %of Portfolio *OW in" ,cif 14 46f° "/,4 City of Campbell, California o `1- o •0Rc.s9• Investment Policy Date: September 617, 20243 EXHIBIT A GLOSSARY Asset Backed Securities. - Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset-backed securities are structured as trusts in order to perfect a security interest in the underlying assets. Banker's Acceptance. This is a negotiable time draft (bill of exchange) with a maturity of six months or less drawn on and accepted by a commercial bank. Banker's Acceptances are usually created to finance the import and export of goods, the shipment of goods within the United States and storage of readily marketable commodities. Per State Law, cities may not invest more than 30% of idle cash in Banker's Acceptances. Certificate of Deposit (CD's). - is a receipt for funds deposited in a bank or savings and loan association for a specified period of time at a specified rate of interest. The first $250,000 of a certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC). CD's with a face value in excess of $250,000 can be collateralized by Treasury Department Securities, which must be at least 110% of the face value of the CD's, in excess of the first$250,000, or by first mortgage loans which must be at least 150% of the face value of the CD balance in excess of the first$250,000. Commercial Paper. - Notes are unsecured promissory notes of industrial corporations, utilities and bank holding companies. State law limits a city to investments in United States corporations having assets in excess of five hundred million dollars with an "A" or higher rating. Per State law, cities with less than $100 million in assets under management may not invest more than 25% of idle cash in commercial paper. Delivery Versus Payment(DVP).- Delivery versus payment(DVP) is a securities industry settlement method that guarantees the transfer of securities only happens after payment has been made. DVP stipulates that the buyer's cash payment for securities must be made prior to or at the same time as the delivery of the security. Local Agency Investment Fund (L.A.I.F.). - The L.A.I.F. was established by the state of California to enable treasurers to place funds in a pool for investments. There currently is a limitation of $75 million per agency subject to a maximum of 15 total transactions per month. The City of Campbell uses this fund when interest rates are declining as well as for short-term investments and liquidity. Medium Term Notes. - are corporate or depository institution debt securities meeting certain minimum quality standards (as specified in the California Government Code) with a remaining maturity of five years or less. Money Market Mutual Fund. - Mutual funds that invest solely in money market instruments (short- term debt instruments, such as Treasury bills, commercial paper, bankers' acceptances, repos and federal funds). Mortgage Backed Securities. - Mortgage-backed securities (MBS) are created when a mortgagee or a purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interests or participations in the pool. MBS owners receive a prorata share of the interest and principal cash flows (net of fees) that are "passed through" from the pool of mortgages. MBS are complex securities whose cash flow is determined by the characteristics of the mortgages that are pooled together. Investors in MBS face prepayment risk associated with the option of the underlying mortgagors to pre-pay or payoff their mortgage. Most MBS are issued and/or guaranteed by federal 15 'Cu/ City of Campbell, California o ?T G '* o •°ac„nRo Investment Policy Date: September 517, 20243 agencies and instrumentalities (e.g., Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC)). Mortgage Pass-Through Obligations. - Securities that are created when residential mortgages (or other mortgages) are pooled together and undivided interests or participations in the stream of revenues associated with the mortgages are sold. Mutual Fund. - An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the Investment Company Act of 1940 and must abide by strict Securities and Exchange Commission (SEC) disclosure guidelines. Nationally Recognized Statistical Ratings Organization. -A nationally recognized statistical ratings organization (NRSRO) is a credit rating agency that provides an assessment of the creditworthiness of a firm or financial instrument(s) that is registered and approved by the Securities and Exchange Commission (SEC). Not all credit rating organizations are NRSROs Repurchase Agreements (REPOS). - is a contractual arrangement between a financial institution, or dealer, and an investor. This agreement normally can run for one or more days. The investor puts up his funds for a certain number of days at a stated yield. In return, he takes a given block of securities as collateral. At maturity, the securities are repurchased and the funds repaid plus interest. Supranationals. - International institutions formed by two or more governments that transcend boundaries to pursue mutually beneficial economic or social goals. There are three supranational institutions that issue obligations that are eligible investments for California local agencies: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and InterAmerican Development Bank (IADB). U.S.Treasury Bills. Commonly referred to as T-Bills, these are short-term marketable securities sold as obligations of the U.S. Government. T-Bills do not accrue interest but are sold at a discount to pay face value at maturity. U.S. Treasury Notes. These are marketable, interest-bearing securities sold as obligations of the U.S. Government with original maturities of one to ten years. Interest is paid semi-annually. U.S. Treasury Bonds. These are the same as U.S. Treasury Notes except they have original maturities of ten years or longer. U.S. Government Agency Issues. Are securities that are unconditionally backed by the full faith and credit of the United States, including: Government National Mortgage Association (GNMA), Farmers Home Administration (FmHA),Small Business Administration (SBA), General Services Administration (GSA), Federal Housing Administration (FHA) and Housing and Urban Development (HUD). U.S. Government Instrumentality Issues. Are government sponsored enterprises that are backed by the creditworthiness of the issuing agency, not the full faith and credit of the U.S. government. They do carry an implied guarantee of government assistance to the organization should it encounter financial difficulties. Issuers include: Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB), Federal Farm Credit Banks (FFCB) and Federal Home Loan Mortgage Corporation (FHLMC). 16 '° '1'4 City of Campbell, California •°ReHAIM Investment Policy Date: September 17, 2024 PURPOSE It is the policy of the City of Campbell to invest public funds in a prudent manner which conforms to all statutes governing the investment of public funds while providing security and meeting the daily cash flow needs of the City. The purpose of this document is to identify the policies guiding prudent investment of the City's temporarily idle funds and to establish guidelines and objectives for suitable investments including delegation of authority, prudence, monitoring and reporting, policy review, diversification, eligible securities, safekeeping, collateralization, selection of financial institutions and broker/dealers, glossary of terms, and forms utilized. II. SCOPE A. This investment policy shall apply to all financial assets, investment activities, and debt issues (excluding those debt issues subject to governing documents) of the City of Campbell including the following fund types: 1. General Fund 2. Special Revenue Funds 3. Debt Service Funds 4. Capital Projects Funds 5. Internal Service Funds 6. Trust and Agency Funds B. The policy does not cover funds held by the Public Employees Retirement System nor funds of the Deferred Compensation program. III. OBJECTIVES A. It is the objective of this policy to provide a system which will monitor and forecast revenues and expenditures so that the City can invest temporarily idle funds to the fullest extent possible. The temporarily idle funds shall be invested in accordance with provisions of California Government Code Section 53600 et. seq. B. The City adheres to conservative investment philosophies including investment of all idle cash, preservation of principal at the risk of yield, maintenance of adequate liquidity to meet anticipated cash flow needs and diversification to avoid the risks inherent in over investing in any one asset class. C. This policy specifically prohibits trading securities for the sole purpose of speculating on the future direction of interest rates. It further prohibits reverse repurchase agreements, use of derivative products, and/or leveraging of the portfolio. D. The City shall ensure the safety of invested funds by limiting credit and interest rate risks. The three primary objectives of the City's Investment Policy in order of priority are: 1 A °44 'A4, City of Campbell, California o •°RCHARu Investment Policy Date: September 17, 2024 1. Safety: Safety of principal is the foremost objective of the City of Campbell. Safety and the minimizing of risk associated with investing refer to attempts to reduce the potential for loss of principal, interest or a combination of the two. The City ensures safety of its invested idle funds and limits credit and interest rate risks by following these guidelines (all of which are detailed within the body of the Investment Policy): a. Investing only in those instruments that are generally accepted as safe investment vehicles for local government as authorized by this Policy, b. Carefully reviewing the qualifications and financial strength of financial institutions and broker/dealers prior to conducting business with them, c. Diversifying the investment portfolio as prescribed within this Policy, d. Structuring the portfolio such that securities mature to meet the City's cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to their maturation, e. Limiting the final maturity of purchased securities to five years; limiting the weighted average maturity of the portfolio to three years, and f. Ensuring the physical security or safekeeping of the City's investments. 2. Liquidity: Liquidity is the second most important objective of the City's Policy. Liquidity refers to the ability to convert an investment to cash promptly without loss of principal and minimal loss of interest. For example, this is accomplished by maintaining sufficient balances in liquid investment products, such as the Local Agency Investment Fund (LAIF) or other local government investment pools which offer same day availability, or by investing in securities with active secondary or resale markets. 3. Return: Return on the City's portfolio is last in rank among investment objectives. Investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. IV. STRUCTURE AND RESPONSIBILITY A. DELEGATION OF AUTHORITY: 1. The City Council assumes direction over the City's investments, and assigns management responsibility for the investment program to the Finance Director, who shall serve as Chief Fiscal Officer, and have legal custody of funds. The Finance Director may provide for delegation of his/her responsibilities to other persons under his/her control responsible for investment transactions, including 2 °V ° 'A City of Campbell, California o yTy C 0RCNAR� Investment Policy Date: September 17, 2024 � the delegation of certain portions of the investment portfolio to one or more external and qualified investment advisers or such other designee approved by the Finance Sub-Committee. External investment advisors who are engaged b by the City shall be registered under the Investment Advisers Act of 1940 and shall assist in the management of the City's investment portfolio in a manner consistent with the City's objectives. External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy. B. POLICY REVIEW: 1. This Investment Policy shall be reviewed and approved annually as recommended by California Government Code Section 53600 et. seq. C. RESPONSIBILITIES: 1. Responsibilities of the City Council: The City Council consists of a Mayor and four Council members and is the policy setting board for the City of Campbell. The City Council has considered and adopted a written Investment Policy for the City of Campbell. Pursuant to the City's Financial Policies, the City Council shall on an annual basis, approve necessary changes to the Investment Policy as recommended by the Finance Sub-Committee. On a quarterly basis, the City Council shall receive, review and accept the Quarterly Investment Report submitted by the Finance Department. 2. Responsibilities of the Finance Sub-Committee: The Finance Sub- Committee consists of two Council members, the City Manager, the Finance Director, and the Assistant Finance Director. On an annual basis, this Sub- Committee shall review necessary revisions to the established Investment Policy of the City of Campbell and make a recommendation to the City Council accordingly. No less than once per fiscal year, the City's investment strategy will be reviewed by the Finance Sub-Committee. A summary of the investment strategy will be shared with the City Council at that time. Should market activity encourage revisions in the City's strategy, the Finance Sub-Committee shall be advised accordingly. 3. Responsibilities of the City Manager: The City Manager is responsible for directing and supervising the Finance Director. He/she has the responsibility of keeping the City Council fully advised as to the financial condition of the City. a. Wire Transfer Authority: The City Manager has unlimited wire transfer authority for a single transaction. Such a transaction requires joint review, approval and verification in advance by the City Manager and Finance Director. The transaction shall be highlighted in the Quarterly Investment Report to Council. 4. Responsibilities of the Finance Director: The Finance Director is appointed by the City Manager and serves as Chief Fiscal Officer. He/she is subject to the direction and supervision of the City Manager. The Finance Director is charged with the responsibility for the conduct of all Finance Department functions including the custody and investment of City funds, and investment of those funds in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Refer to "Delegation of Authority" for additional information pertaining to delegation of investment responsibilities. 3 '°`gyp44 City of Campbell, California • •CaCNA40• investment Policy Date: September 17, 2024 a. Wire Transfer Authority: The Finance Director has wire transfer authority not to exceed $5,000,000 for a single transaction. Such a transaction shall be reviewed, approved and verified in advance by the City Manager. The transaction shall be highlighted in the Quarterly Investment Report to Council. 5. Responsibilities of the Assistant Finance Director: The Assistant Finance Director is appointed by the Finance Director and serves as the Investment Manager for the City pursuant to specific delegation authority provided by this Investment Policy. He/she is subject to the direction and supervision of the Finance Director and is charged with the responsibility and conduct of the day- to-day accounting and cash management functions of the City. This includes the custody and investment of City funds, and investment of those funds in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Refer to"Delegation of Authority"for additional information pertaining to delegation of investment responsibilities. Implementation and maintenance of the Investment Policy are the responsibility of this individual. On an annual basis, the Assistant Finance Director shall present to the Finance Sub-Committee, recommended changes to the City's Investment Policy. On a quarterly basis, the Assistant Finance Director shall present to the City Council, via the City Manager, a Quarterly Investment Report. Refer to "Monitoring and Reporting"for additional information. a. Wire Transfer Authority: The Assistant Finance Director has wire transfer authority not to exceed $3,000,000 for a single investment transaction. Such a transaction shall be reviewed, approved and verified in advance by the Finance Director, and shall be reported in the Quarterly Investment Report to Council. 6. Responsibilities of the Accountant: The Accountant is appointed by the Finance Director and is subject to the direction and supervision of the Assistant Finance Director. The Accountant carries out the specific instructions provided by the Assistant Finance Director regarding the purchase and sale of securities in accordance with principles of sound treasury management and in accordance with applicable laws and policies. Accounting for the various investment transactions is the responsibility of the Accountant. a. Wire Transfer Authority: The Accountant has wire transfer authority not to exceed $2,100,000 for a single investment transaction. The standard operating procedure is that all cash and investment wire transfers made by the Accountant and Senior Accountant are reviewed, approved and verified in advance by the Assistant Finance Director, and are reported in the Quarterly Investment Report to Council. D. Prudence: 1. Pursuant to California Government Code, Section 53600.3, all persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the Prudent Investor Standard. This means that all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to 4 '40V•C A4 City of Campbell, California U °iroanav Investment Policy Date: September 17, 2024 this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. 2. The City's overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that no investment is totally riskless and that the investment activities of the City are a matter of public record. Accordingly, while the intent of the City is to hold purchased securities to maturity, the City recognizes that occasional measured losses may be advisable in a diversified portfolio and shall be considered within the context of the overall portfolio's return, provided that (a) adequate diversification has been implemented and (b) the sale of a security is in the best long-term interest of the City. E. 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 City's investment program or could impair or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any business interests they have in financial institutions that conduct business with the City, and they shall subordinate their personal investment transactions to those of the City. In addition, the City Manager, the Finance Director and others with delegated investment authority shall file a Statement of Economic Interests each year pursuant to California Government Code Section 87203 and regulations of the Fair.Political,Practices Commission. All participants in the investment process are required to comply with terms of the Political Reform Act, Fair Political Practices Commission Regulations promulgated thereunder (2 C.C.R. §§ 18110 through 18998), the City's Conflict of Interest Policy, including, without limitation, filing of Form 700, notification and recusal obligations, and Government Code section 1090 prohibitions. Conflict with State Statutes or Regulations 1. In the instance of any conflict between the City of Campbell Investment Policy and Government Code Section 53600 et seq, the more stringent requirement shall apply. V. AUTHORIZED SECURITIES AND TRANSACTIONS All investments and deposits of the City shall be made in accordance with California Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant to California Government Code Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of the bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of these code sections will be assumed 5 40V'O4 4 'n4 City of Campbell, California yam. 1.1 o Investment Policy Date: September 17, 2024 to be part of this Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Policy and past City investment practices, the City may delay adherence to the new requirements when it is deemed in the best interest of the City to do so. Percentage holdings limits listed in this section apply at the time the security is purchased. The City has further restricted the eligible types of securities and transactions to the following: 1. United States Treasury bills, notes, bonds, or strips with a final maturity not exceeding five years from the date of purchase. 2. Federal Agency debentures and mortgage-backed securities with a final maturity not exceeding five years from the date of purchase issued by the Government National Mortgage Association (GNMA). The aggregate investment in Federal Agency obligations shall not exceed 75% of the City's total portfolio. No more than 30% of the total portfolio may be invested in any single Agency issuer. No more than 20% of the total portfolio may be invested in callable agency securities. 3. Federal Instrumentality (government sponsored enterprise (GSE)) debentures, discount notes, callable and step-up securities,with a final maturity not exceeding five years from the date of purchase, issued by the following only: Federal Home Loan Banks (FHLB), Federal National Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB) and Federal Home Loan Mortgage Corporation (FHLMC). The aggregate investment in Federal Instrumentality obligations shall not exceed 75% of the City's total portfolio. No more than 30% of the total portfolio may be invested in any single Agency/GSE issuer. No more than 20% of the total portfolio may be invested in callable agency securities. 4. Repurchase Agreements with a final termination date not exceeding one year collateralized by U.S. Treasury obligations, Federal Agency securities, or Federal Instrumentality securities listed in items 1, 2 and 3 above with the maturity of the collateral not exceeding five years. For the purpose of this section, the term collateral shall mean purchased securities under the terms of the City's approved Master Repurchase Agreement. The purchased securities shall have a minimum market value including accrued interest of 102% of the dollar value of the transaction. Collateral shall be held in the City's custodian bank, as safekeeping agent, and the market value of the collateral securities shall be marked-to-the-market daily. The aggregate investment in repurchase agreements shall not exceed 10% of the City's total portfolio. Repurchase Agreements shall be entered into only with broker/dealers that have executed a City approved Master Repurchase Agreement with the City. Repurchase counterparties shall be recognized as Primary Dealers with the Federal Reserve Bank of New York, or shall have a primary dealer within their holding company structure. Broker/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. The Finance Director shall maintain a copy of the City's approved Master Repurchase Agreement along with a list of the broker/dealers that have executed a Master Repurchase Agreement with the City. 5. Prime Commercial Paper with a maturity not exceeding 270 days from the date of purchase with the highest ranking or of the highest letter and number rating as provided for by a Nationally Recognized Statistical Ratings Organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either sub-paragraph a. 6 4°V ° 'A�� City of Campbell, California v • C ' .± C yR•�RCNAB�. Investment Policy Date: September 17, 2024 or sub-paragraph b. below: a. The entity shall (1) be organized and operating in the United States as a general corporation, (2) have total assets in excess of five hundred million dollars ($500,000,000) and (3) have debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b. The entity shall (1) be organized within the United States as a special purpose corporation, trust, or limited liability company, (2) have program wide credit enhancements, including, but not limited to, over collateralization, letters of credit or surety bond and (3) have commercial paper that is rated "A-1" or higher, or the equivalent, by a NRSRO. No more than 5% of the City's total portfolio may be invested in the commercial paper and medium-term notes of any single issuer, and the aggregate investment in commercial paper shall not exceed 25% of the City's total portfolio. 6. Eligible Bankers Acceptances provided that no more than 5% of the City's total portfolio may be invested in banker's acceptances of any one issuer, and the aggregate investment in banker's acceptances shall not exceed 30% of the City's total portfolio. The maximum maturity does not exceed 180 days. 7. Medium Term Notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States, with a final maturity not exceeding five years from the date of purchase, and are rated in a rating category of"A"or its equivalent or better by at least one NRSRO. No more than 5% of the City's total portfolio may be invested in medium term notes of any one issuer and the aggregate investment in medium term notes shall not exceed 30% of the City's total portfolio. 8. Non-negotiable Time Certificates of Deposit and savings deposits with a maturity not exceeding five years, in state or nationally chartered banks or savings and loans with a California branch office that are insured by the FDIC. Time Certificates of Deposit exceeding the FDIC insured amount must be secured pursuant to California Government Code Section 53652. No more than $1 million may be invested in non-negotiable time certificates of deposit of any one issuer and the aggregate amount invested in non- negotiable time certificates of deposit shall not exceed 20% of the City's total portfolio. 9. Certificates of Deposit at commercial bank, savings bank, or savings and loan association that uses a private sector entity (Certificate of Deposit Account Registry Service) that assists in the placement of certificates of deposit, provided that the purchase of certificates of deposit do not, in total, exceed 30% of the City's funds that may be invested for this purpose. The City shall choose a nationally or state chartered commercial bank in California as the "selected" depository institution to invest the funds. The selected depository institution may submit the funds to a CDARS for the benefit of the City's account. The full amount of the principal and interest that may be accrued during the maximum term of each certificate shall be insured by the FDIC. The maximum maturity does not exceed 5 years 10. Negotiable Certificates of Deposit (NCDs) issued by a nationally or state-chartered bank, a savings association or a federal association, a state or federal credit union, or by a federally licensed or state-licensed branch of a foreign bank, provided that the purchase of 7 4•0 'O44 A4 City of Campbell, California U '/ r o =,j" o •°RCNARo• Investment Policy Date: September 17, 2024 certificates of deposit do not, in total, exceed 30% of the City's funds that may be invested for this purpose. The amount of the NCD insured up to the FDIC limit does not require any credit ratings. Any amount above the FDIC insured limit must be issued by institutions which have short-term debt obligations rated "A-1"or its equivalent or better by at least one NRSRO; or long-term obligations rated in a rating category of"A" or its equivalent or better by at least one NRSRO. The maximum maturity does not exceed 5 years and no more than 5% of the total portfolio may be invested in any single issuer. 11. State of California's Local Agency Investment Fund (LAIF), pursuant to California Government Code Section 16429.1. 12. Mutual Funds registered under the Investment Company Act of 1940 that (1) are "no-load" (meaning no commission or fee shall be charged on purchases or sales of shares); (2) invest only in the securities and obligations authorized in this policy and (3) have a rating of AAA by Standard and Poor's, Aaa by Moody's or AAA/V1+ by Fitch. No more than 10% of the City's total portfolio may be invested in mutual funds of any one issuer, and the aggregate investment in mutual funds shall not exceed 10% of the City's total portfolio. The combined aggregate investment in mutual funds and money market funds shall not exceed 20% of the total portfolio. 13. Money Market Mutual Funds registered under the Investment Company Mt of 1940 that (1) are "no-load" (meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a constant daily net asset value per share of$1.00; (3) invest only in the securities and obligations authorized in this policy and (4) have a rating of at least two of the following: AAA by Standard and Poor's, Aaa by Moody's or AAA/V1+ by Fitch. No more than 20% of the City's total portfolio may be invested in the shares of any on money market fund, and the combined aggregate investment in mutual funds and money market funds shall not exceed 20% of the total portfolio. 14. Municipal and State Obligations with a minimum long-term rating 'of A/A-1 or higher by Standard and Poor's and not exceeding 30% of the portfolio and the maximum maturity does not exceed 5 years: (a) Bonds Issued by the Local Agency (City of Campbell) including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency.) (b) State Obligations including registered treasury notes or bonds of this State and any of the other 49 states in addition to California, including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of the any of the other 49 United States, in addition to California. (c) California Local Agency obligations including bonds, notes, warrants, or other evidence of indebtedness of any local agency within this state, including bonds payable solely out of the revenue from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the any of the local agency. (d) No more than 5% of the portfolio may be invested in any single issuer. 15. Asset-Backed, Mortgage-Backed, Mortgage Pass-Through Securities, and Collateralized Mortgage Obligations from Issuers Not Defined in sections 1, 2 and 3 of the Authorized Securities and Transactions Section of This Policy, provided that: 8 0 4 "'',� City of Campbell, California • °RCNAR .G,F Investment Policy Date: September 17, 2024 (a) The securities are rated in a rating category of"AA" or its equivalent or better by a NRSRO. (b) No more than 20% of the total portfolio may be invested in these securities. (c) No more than 5% of the portfolio may be invested in any single Asset-Backed security issuer. (d) The maximum legal final maturity does not exceed five (5) years. 16. Supranationals, provided that: (a) Issues are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. (b) The securities are rated in a rating category of"AA" or its equivalent or better by a NRSRO. (c) No more than 30% of the total portfolio may be invested in these securities. (d) No more than 10% of the portfolio may be invested in any single issuer. (e) The maximum maturity does not exceed five (5) years. It is the intent of the City that the foregoing list of authorized securities and transactions is strictly interpreted. Any deviation from this list must be preapproved by the City Council writing. 17. Shares of Beneficial Interest Issued by a Joint Powers Authority (JPA) organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority and be rated AAA or equivalent. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (a) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (b) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (q), inclusive. (c) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 18. Prohibited Investment Vehicles and Practices a. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options. b. In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest-only strips is prohibited. c. Investment in any security that could result in a zero interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government that could result in a zero- or negative-interest accrual if held to maturity are permitted. d. Purchasing or selling securities on margin is prohibited. e. The purchase of foreign currency denominated securities is prohibited. f. Agencies that are not Qualified Institutional Buyers (QIB) as defined by the Securities and Exchange Commission are prohibited from purchasing Private Placement Securities. The SEC defines a QIB as having at least$100,000,000 in securities owned and invested. g. The purchase of a security with a forward settlement date exceeding 45 days from the time of investment is prohibited. 9 `40V'OA`'"4 City of Campbell, California o :� o -.•°RCryARv Investment Policy Date: September 17, 2024 VI. PORTFOLIO MATURITIES AND LIQUIDITY To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. The City will not invest in securities maturing more than five years from the date of settlement, unless the City Council has granted authority to make such an investment at least three months prior to the date of investment. The duration of the portfolio will generally be approximately equal to the duration (typically, plus or minus 20%) of a Market Benchmark, an index selected by the City based on the City's investment objectives, constraints and risk tolerances. VII. MONITORING AND REPORTING A. The Finance Director shall routinely monitor the contents of the portfolio and shall file with the City Council the Assistant Finance Director's Investment Report at the first regularly scheduled City Council meeting after 45 days from the end of the quarter. The reports shall be prepared and submitted in accordance with California Government Code Section 53646 and shall include the following on all invested monies: ➢ Type of Investment and Issuer ➢ Beginning Balances > Purchases During Quarter > Monthly transactions including all Maturities and Sales During the Quarter ➢ Ending Balances > Maturity Date ➢ Weighted Average Final Maturity > Call Provisions (if any) > Interest Rate ➢ Weighted Average Yield > Face Value or Purchase Cost > Market Value including source ➢ Interest Earned During Quarter > Interest Earned to Maturity > Cash Flow Projection for the Following Quarter > Summary of Cash Invested to Total Cash Balances ➢ Comparative Statistics by Fiscal Year > Reconciliation of Cash & Investments to General Ledger Balances > Investments under the Management of Contracted Parties ➢ Statement of Compliance with the Investment Policy ➢ Statement of Ability to Meet Obligations of Next Six Months VIII. SELECTION OF BROKER/DEALERS The City shall transact business with securities broker/dealers after careful review of their qualifications and creditworthiness. In selecting broker /dealers, the Finance Director or designated staff member shall select broker/dealers representing primary dealers in government securities that have established offices and order desks within the State of California, or with such firms that have a primary dealer within their holding company structure. Exceptions to this rule will be made only upon the joint written authorization of the Finance Director and City Manager. Staff shall investigate broker/dealers wishing to do business with the City to determine if they are adequately capitalized, are reputable, have pending legal action against the firm or the individual broker, have established offices and order desks within the State of California, and make markets in the securities appropriate to the City's needs. 10 4.0V City of Campbell, California •°RCNAR9. Investment Policy Date: September 17, 2024 Before accepting funds or engaging in investment transactions with the City, the supervising officer at each authorized broker/dealer shall submit and annually update a City approved Broker/Dealer Information Request form that includes the firm's most recent audited financial statement. The Finance Director, or his or her designee, shall maintain a list of approved broker/dealers. Broker/dealers shall attest in writing that they have received and reviewed a copy of this Investment Policy, and that they will comply with it and disclose potential conflicts or risks to public funds that might arise out of business transactions between the firm and the City of Campbell. If the City has engaged the services of an outside professional investment advisor, the investment advisor may use its own list of authorized broker-dealers to conduct transactions on behalf of the City. IX. DELIVERY, SAFEKEEPING AND COLLATERALIZATION A. Delivery: 1. All investment transactions shall be conducted on a delivery-versus-payment (DVP) basis. B. Safekeeping: 1. The City shall contract with a bank or banks for the safekeeping of securities which are owned by the City as a part of the investment portfolio. Staff shall periodically review the performance and pricing of the third-party, safekeeping agent services. 2. All investment securities(except the collateral for certificates of deposit in banks, and/or savings and loans) purchased by the City shall be held in third-party safekeeping by an institution designated as primary agent. The primary agent shall issue.a safekeeping receipt to the City listing the specific instrument, rate, maturity and other pertinent information, and shall provide monthly reports of activity and ending balances for all securities held on behalf of the City. C. Collateralization: 1. Certificates of Deposit (CDs). The Agency shall require any commercial bank or savings and loan association to deposit eligible securities with an agency of a depository approved by the State Banking Department to secure any uninsured portion of a Non-Negotiable Certificate of Deposit.The value of eligible securities as defined pursuant to California Government Code, Section 53651, pledged against a Certificate of Deposit shall be equal to 150% of the face value of the CD if the securities are classified as mortgages and 110% of the face value of the CD for all other classes of security. 2. Collateralization of Bank Deposits. This is the process by which a bank or financial institution pledges securities, or other deposits for the purpose of securing repayment of deposited funds. The Agency shall require any bank or financial institution to comply with the collateralization criteria defined in California Government Code, Section 53651. 3. Repurchase Agreements. The Agency requires that Repurchase Agreements be collateralized only by securities authorized in accordance with California Government Code: a. The securities which collateralize the repurchase agreement shall be priced at Market Value, including any Accrued Interest plus a margin. The Market 11 oV.0 A 4 4 City of Campbell, California o o Investment Policy Date: September 17, 2024 •�RCIIAR� Value of the securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities. b. Financial institutions shall mark the value of the collateral to market at least monthly and increase or decrease the collateral to satisfy the ratio requirement described above c. The Agency shall receive monthly statements of collateral. X. DIVERSIFICATION AND ELIGIBLE SECURITIES The City will diversify investment instruments to avoid incurring unreasonable risks in overinvesting in specific instruments, individual financial institutions or maturities. The following portfolio maximums shall apply: If the credit ratings of any security owned by the City are downgraded to a level below the quality required by this investment policy, it will be the City's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a security is downgraded, the Finance Director will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors. If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported quarterly to the City Council. 12 40 F•°A"'p4 City of Campbell, California 64. Investment Policy Date: September 17, 2024 EXHIBIT A GLOSSARY Asset Backed Securities. - Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset-backed securities are structured as trusts in order to perfect a security interest in the underlying assets. Banker's Acceptance. This is a negotiable time draft (bill of exchange) with a maturity of six months or less drawn on and accepted by a commercial bank. Banker's Acceptances are usually created to finance the import and export of goods, the shipment of goods within the United States and storage of readily marketable commodities. Per State Law, cities may not invest more than 30% of idle cash in Banker's Acceptances. Certificate of Deposit (CD's). - is a receipt for funds deposited in a bank or savings and loan association for a specified period of time at a specified rate of interest. The first $250,000 of a certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC). CD's with a face value in excess of $250,000 can be collateralized by Treasury Department Securities, which must be at least 110% of the face value of the CD's, in excess of the first$250,000, or by first mortgage loans which must be at least 150% of the face value of the CD balance in excess of the first$250,000. Commercial Paper. - Notes are unsecured promissory notes of industrial corporations, utilities and bank holding companies. State law limits a city to investments in United States corporations having assets in excess of five hundred million dollars with an"A" or higher rating. Per State law, cities with less than $100 million in assets under management may not invest more than 25% of idle cash in commercial paper. Delivery Versus Payment(DVP). - Delivery versus payment(DVP) is a securities industry settlement method that guarantees the transfer of securities only happens after payment has been made. DVP stipulates that the buyer's cash payment for securities must be made prior to or at the same time as the delivery of the security. Local Agency Investment Fund (L.A.I.F.). - The L.A.I.F. was established by the state of California to enable treasurers to place funds in a pool for investments. There currently is a limitation of $75 million per agency subject to a maximum of 15 total transactions per month. The City of Campbell uses this fund when interest rates are declining as well as for short-term investments and liquidity. Medium Term Notes. - are corporate or depository institution debt securities meeting certain minimum quality standards (as specified in the California Government Code) with a remaining maturity of five years or less. Money Market Mutual Fund. - Mutual funds that invest solely in money market instruments (short- term debt instruments, such as Treasury bills, commercial paper, bankers' acceptances, repos and federal funds). Mortgage Backed Securities. - Mortgage-backed securities (MBS) are created when a mortgagee or a purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interests or participations in the pool. MBS owners receive a prorata share of the interest and principal cash flows (net of fees) that are "passed through" from the pool of mortgages. MBS are complex securities whose cash flow is determined by the characteristics of the mortgages that are pooled together. Investors in MBS face prepayment risk associated with the option of the underlying mortgagors to pre-pay or payoff their mortgage. Most MBS are issued and/or guaranteed by federal 13 0F'°441A City of Campbell, California 64". oRcxpno. Investment Policy Date: September 17, 2024 agencies and instrumentalities (e.g., Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC)). Mortgage Pass-Through Obligations. - Securities that are created when residential mortgages (or other mortgages) are pooled together and undivided interests or participations in the stream of revenues associated with the mortgages are sold. Mutual Fund. - An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the Investment Company Act of 1940 and must abide by strict Securities and Exchange Commission (SEC) disclosure guidelines. Nationally Recognized Statistical Ratings Organization. -A nationally recognized statistical ratings organization (NRSRO) is a credit rating agency that provides an assessment of the creditworthiness of a firm or financial instrument(s) that is registered and approved by the Securities and Exchange Commission (SEC). Not all credit rating organizations are NRSROs Repurchase Agreements (REPOS). - is a contractual arrangement between a financial institution, or dealer, and an investor. This agreement normally can run for one or more days. The investor puts up his funds for a certain number of days at a stated yield. In return, he takes a given block of securities as collateral. At maturity, the securities are repurchased and the funds repaid plus interest. Supranationals. - International institutions formed by two or more governments that transcend boundaries to pursue mutually beneficial economic or social goals. There are three supranational institutions that issue obligations that are eligible investments for California local agencies: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and InterAmerican Development Bank (IADB). U.S.Treasury Bills. Commonly referred to as T-Bills, these are short-term marketable securities sold as obligations of the U.S. Government. T-Bills do not accrue interest but are sold at a discount to pay face value at maturity. U.S. Treasury Notes. These are marketable, interest-bearing securities sold as obligations of the U.S. Government with original maturities of one to ten years. Interest is paid semi-annually. U.S. Treasury Bonds. These are the same as U.S. Treasury Notes except they have original maturities of ten years or longer. U.S. Government Agency Issues. Are securities that are unconditionally backed by the full faith and credit of the United States, including: Government National Mortgage Association (GNMA), Farmers Home Administration (FmHA), Small Business Administration (SBA), General Services Administration (GSA), Federal Housing Administration (FHA) and Housing and Urban Development (HUD). U.S. Government Instrumentality Issues. Are government sponsored enterprises that are backed by the creditworthiness of the issuing agency, not the full faith and credit of the U.S. government. They do carry an implied guarantee of government assistance to the organization should it encounter financial difficulties. Issuers include: Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB), Federal Farm Credit Banks (FFCB) and Federal Home Loan Mortgage Corporation (FHLMC). 14