corporation of the moved by: seconded by: investment ...€¦ · the corporation of the town of...

CORPORATION OF THE

TOWN OF ARNPRIOR

DATE:

MOVED BY:

SECONDED BY:

AND RESOLVED THAT By-law No. 4902-2000 being a -law to establish and adopt an "Investment Policy" for the Corporation of the Town of n rior, be and it is hereby enacted

1997- 2000 COUNCIL

MAYOR Leonard Shean Councillor M. Willmer Councillor N.F. Black Councillor A Hamilton Councillor R. Hughes Councillor K. Deluca Councillor W.J. Lammert

FOR AGAINST

LOSTBY: -/ CARRIED BY: _c/'_

RESOLUTION NO . .33/-;2rJ d ()

THE CORPORATION OF THE TOWN OF ARNPRIOR

BY -LAW NO. 4902-2000

BEING A BY-LAW TO ESTABLISH AND ADOPT AN "INVESTMENT POLICY" FOR THE CORPORATION OF THE TOWN OF ARNPRIOR.

WHEREAS pursuant to Paragraph 7 of Ontario Regulation 7 4/97 in accordance with section 167 of the Municipal Act, Chapter M. 45, as amended by Bill 86, a municipality is required to adopt a statement of the municipality 's investment policies and objectives before investing in a security prescribed under the said Regulation;

AND WHEREAS section 167(2) of the Municipal Act states that "if a municipality has money that it does not require immediately, it may, subject to the prescribed rules, invest the money in prescribed securities",

AND WHEREAS Ontario Regulation 74/97 made under the Municipal Act prescribes the securities that a municipality may invest in;

AND WHEREAS the Council of the Corporation of the Town of Arnprior deems it wise and prudent to invest funds not immediately required by the municipality;

NOW THEREFORE THE COUNCIL OF THE CORPORATION OF THE TOWN OF ARNPRIOR ENACTS AS FOLLOWS:

1. THAT the Corporation of the Town of Arnprior hereby establishes and adopts the Investment Policy attached hereto as Appendix A and forming part of this by-law.

2. THAT this by-law shall come into force and effect on the passing thereof.

ENACTED and PASSED in OPEN COUNCIL, this 61h day ofNovember, 2000.

1. POLICY STATEMENT

PURPOSE AND BACKGROUND

From time to time, the Town may have cash on hand which is surplus to its short-term operations. In order to ensure that these surplus fi.mds are invested appropriately. the Town believes that it is necessary to set an Investment Policy that wiU provide a framework for making investments.

The Town ·s Investment Policy should therefore act as an essential means of communication between the Town's Council and staff. It should also be useful as a directive to an Investment Manager who may be asked to make investments on behalf of the Town. Finally. the Investment Policy should outline the objectives of the Town's investment strategy and should encompass all possible situations that are likely to arise in the management of an investment portfolio.

OBJECTIVES

Any lnveszmenr Policy must consider the following objectives: Asset class preferences: Risk tolerance: Time horizon: and Expected or desired rate of return.

The Town's objective is to earn a reasonable rate of return on its investments, while raking only modest risk, and ensuring that its investments are legal, creditworthy and liquid. These issues are considered in Section 3.

2. SCOPE

This Investment Policy will govern the investment of surplus funds from operating, capital. reserve fund. development charge reserve fund and trust fund sources.

Under this Investment Policy. surplus funds are defined to exclude any surplus funds expected to be held for less than 45 days. For example school board tGL"Xes may be collected from municipal ta'<.payers prior to the date that they are due to the school board.

3. PROCEDURE

INTERNAL INVESTMENT S

The Town may periodically require cash now for short-term working capital purposes. In these instances, it may be financially prudent to borrow these funds internally from reserve or trust fund sources.

((required, internal inter-fund inl'esunenls shall be made ttl em interesl ra1e comparable to the current rate etl'ailable to the Toll'n on short-lerm imestments. and shall be e1·idenced by a signed promissory note. In no case shall any fund im·esr more than 25% of irs assets in an infernal investment.

INVESTMENT GUIDELINES

After taking into consideration the general Investment Policy objecti\·es. and the Town· s specific objective. the Town has established the following guidelines.

Asset Class Preferences

Legislati\'e aurhority '-\'ith respect to in\'estment portfolios of municipal governments is outlined in Sections 163 and 167 of the lvfun icipal Act R.S. 0 1990 and Ontario Regulation -13819- and -/97 made under the .'vfunicipal Ac1 as well as Sections 26 and 27 of the Trustee .rl.cl. Schedule 1. auached. presents these legislati\e extracts.

Section 163 is app licable for investment of reserve fund assets and generally looks to legislative guidelines within the Trustee Acl. For other surplus funds. section I 67 provides more restrictive investment regulation. Note also that the regulations prescribe the adoption of an lnvestment Policy by-Jaw. Consequently. the lnves/Jnem Policy and all investments made thereunder must conform to these Acts.

Where the Town acts as trustee for the Town's Trust Funds. the TniSiee Act allows in,·estment in additional securities. Included are preferred shares. common shares. and bonds and debentures of corporations. Nonetheless, it is genera ll y considered prudent for a municipality to invest trust funds under the same guidelines as other municipal funds. and it is the Town's intention that these funds will be subject to this Jm·es/Jnenl Polic.y

A whori:ed investmenLs shall include bond and money marke1 instrwnenrs. and bank deposi1s. Issuers shall be restricted to the following public sector entities · Canada. Onwrio. other Canadian pro\'inces. Onwrio municipalities. other Canadian municipalities. and ONE Funds. Issuers may also include !he (ollowingjinancial institutions: Canadian Schedule I and Schedule 11 hank\-

Ris k Tolerance

The investment categories authorized by the Town include many mstitutions of high credit quality. Nonetheless. there are also many entities whose credit may not be acceptable to the Town. The Town must have a process to ensure that it is not takmg undue risk in making in\'estments in specific entities.

In Canada. credit ratings for manv marketable investments can be obtained from Dominion Bond Rating Service Limited (DBRS) and Canadian Bond Rating Service (CBRS). Credit rating information provides a sound basis for informed decisions, which minimizes risk and maximizes returns consistent with an acceptable degree of risk and liquidity requirements. Credit ratings are available for short-term ('v1oney Market) and long-term (Bond) investments. For information purposes. Schedule 2 presents definitions of DBRS and CBRS Money Market credit ratings. while Schedule 3 presems definitions for Bond credit ratings. Regulations prescribe minimum acceptable credit ratings for bonds.

With the exception oft he Town 's internal investments. all investments shall have a minimum DBRS (or equivalem; ra11ng of "Rl (IOH1"for money market, and "AA( low; "for bonds. Where a rating i~· nor available. rhe investmem shall not be purchased unless the investmem vehicle (e.g ONE Funds) invests solely in authori::ed instruments H ith acceptable ratmgs.

Time Hor izon

While the Town will plan for its utilization of surplus funds, it is possible that funds may be required on short not1ce. \'lost instruments authorized under this policy have a ready market and would be able to be liquidated with less than one-week's notice.

The Town shall invest in financial insrrumenrs rhea have st!fficient liquidiry that the Town would be able to draw on its fund'> with a one-week norice period ·

For mutual funds. the rate of return is subject to fund performance. For other investments, where the Town holds a financial instrument to maturity. then irs rate of return is locked in for the entire period of the invesunent. However. should the Town wish to sell that instrument prior to its maturity date. then the Town is subject to fluctuations in market interest rates which could either inflate or deflate the carrying value of the instrument. Accordingly. the Town should implement term limitations on its investments in order to ensure tha1 it does not carry an inappropriate level of marker risk.

The maximum term for Canada and Omario bonds shall be 10 years. The maximum term.for Schedule I Bank investments shall be 5 years. For all other appro,•ed securities. the maximum term shall be 3 years

Rate ofReturn

The Town's objective is to earn a reasonable rate of return on its investments. For a fixed income portfolio of money market instruments and bonds. the Town can influence its rate ofretum in two ways- by varying either the term or the quality of its investments.

The variability in term is retlected by the yield cun·e. A similar investment in the same entity wil l carry a ditTcrent rate of return based upon the time to maturity . For example. consider a Canadian uo,ernment bond. The market rate for a 1-vear bond mav differ from a 30-year bond.-despite the fact that they are issued by the same entity. .

The variability in quality is rellected by the credit rating. For example. the marker rate of return on a Canada bond is typical ly considered the "nsk free" rate of return. as the Government of Canada has the highest credit quality of any public or private sector entity in Canada. A risk premium is added to this figure to reflect the increased risk of other entities. For example. on a given date. a 5-year Newfoundland bond would have a higher

market rate of return than a 5-year Ontario bond. which in turn would have a higher market rate of return than a 5-vear Canada bond. The CBRS and DBRS ratmgs allow third parties to assess the required risk prem1um for vanous investments. ~

According!). the rate of return earned by the Town w1ll be affected b) the proportion of mvestmems made at the ''AA(Iowr· or ''R-1 (low)'" rating. versus the proportion of Ill\ estments made m im cstmems \\ ith higher raungs. The rate of return" 111 also be affected b] the a\erage term of its investments. The risk "'ersus rate of return issue is typically managed on a portfolio basis.

The Town shall disrribute its resources among l'CJrious c:redlfworrhv mwsrment.\ Tlnfi mix ofim·estments shall be mainuuned such that the portfolio d1sfribw ion in Schedule -1 will be achieved for each of: (I) trust fimd'i, and (2) all other municipal fimds This mix should be considered on a cost be/Sis, at the time that each investment is made.

Being a public sector entity. the Town needs to demonstrate that it is taking steps to ensure that mvestments being purchased are realizing a competitive rate of rerum. ~onetheless. in manv cases. the Town will be able to verifv that it is earning a competitive rate \\ithout asking for competitive quotations~ -

The Town shall ensure that each m\'estment 1hat 11 makes \1 Ill earn a competlflve rate ofreturn. Where the To·wn does not ask for compe111ive quotariom it shall obrain some evrdence, \'erbal or H rlflen thar the rale of return agreed IS jarr and reasonable. Sote that this gwdeline does not app~v to 0 \'£Funds or to bank account balances

REPORTT 'G ST A~DARD

In setung reportmg standards. the regulations of the ,\flmrclpal Act must be cons1dered. These regulations must be supplemented by principles of timeliness. relevance. and materiality\\ 1th due consideration to available time and resources

The Treasurer shall prepare a report for Town Council. on a semi-annual has1s, or more frequenrly as specified by Council. This report shall contam the .following iJ?formcaion:

A detculed listing o./ investments. showmg (where available) cost. issuer, expected rate of return. credit rating. market \'alue, and marurity date An ind1carion of each investment 's percentage of the en11re portfolio. A swnmarJ of the portfolio pe1jormance for that period. including rhe m·eralf rme of rewrn: A fisling of all imernal invesrmenrs: A staTemenr hJ rhe Treasurer as to ·whether or not. in hn or her opimon. all im·estment.\ \rere made in accordance with tim lnve.wmem Polley and Such other mformatwn that rhe Council ma_l reqwrc or that, m rhe optmon of the Treasurer. \'lwuld he included

4. RESPONSIBILITY

INVESTMENT MA~AGER

-The Town believes that is appropriate to engage outside expen1se to appropriately manage the purchase. sale. settlement and custody of the ,·arious instruments that may be purchased pursuant to this lm·e.wmenr Policy.

The Town shall enter into an agreement with an Investment Alanager to assist H'ith the management of the Tou n 's mvestment portfolio. The Investment Manager shall be provided with a copy of this lnvestrnent Policy. The Investment ."..anager shall be authori:ed to maintain custody of the security instruments. Unles!J authori:ed otherw1se, the Investment lvfanager shall be the investment arm oft he To·wn 's banker

TO'-'VN PERSONNEL

The Investment Policy must delegate responsibilities to authorized To'An staff members. and must establish appropnate checks and procedures over this authorization

The Treasurer \hall ensure thai each propo'ied new inve.Hmem i!J in accordance \\lith this lnvesrmenr Policy, including Schedule -1

The Treasurer shall make recommendations to rhe Chief Adminisrrative Officer (CA 0) on issuer, amount and rerm of invesrments

The Treasurer shall make recommendations to the CAO on cmv ear/v d1sposuion of an investment. · ·

Wirh the pnnr approwtl ofrhe CAO the Treasurer shall comact the lnvesnnem Manager and purchase or sell the appropnate m\'estments.

In rhe absence of the Treasurer the CAO may make recommendarions and execure trades. Where this occurs. rhe Treasurer's approval shall be soughr H irhin 1 .J days a(rer the compleuon of the trade.

In rhe absence of rhe CA 0, rhe Treasurer may execure 1rades. Where this occurs. the CAO ·\. approml shall be sough! within 1-1 days after the completion of the trade.

Schedul e 1 Page 1 of 9

TOWN OF ARNPRIOR - I VESTME T POLICY

EXTRACTS FR0~1 LEGISLATIO~

lfunicipa/ Act- Section 163

163 (I) Deft muons 163 (I) In rhzs secrzon,

"local board" means a local board as defined in the Munzcipal Affairs Acr, ("conseii local") ''municipality" means a county, city. town, village or townsh1p; ("mumc1palite'') "other entity" means a board, commission, body or local authority established or exerc1sing any power or authority wJth respect to mumcipal affatrs under any general or special Act in an unorganized township or 10 unsurveyed terntory ("autre entite")

163 (:!)Reserve fund 163.(2) Every mun1c1paliry, local board and other enuty may 10 each year provtde m lts esumates for the establishment or mamtenance of a reserve fund for any purpose for wh1ch n has aurhonty to expend funds.

163 (2.1 )Approval of council I 63 .(2 1) If the approval of a counctlts required by Ia\\ for a capnal expenditure or the 1ssue of debentures by or on behalf of a local board, the local board must obtam the approval of the counctl before provtdmg for a reserve fund for those purposes m Jts estimates.

163.(2.2)ln\'estment 163.(2.2) The money raised for a reserve fund shall be pa1d mto a spec1al accollnt, and may be mvested only in the following secunties·

163.(2 3)Same

I In the case of a mumc1paltt) or local board, the securiues m wh1ch the municipality is permitted ro mvest under section I 67. 2. In the case of any other enury. the securities or classes of secunties that are prescnbed.

163 (2.3) The eammgs derived from investment ofthe reserve fund form pan of it. 1996, c. 32, s. 33 ( I).

163 (3 )Consolidated account 163.(3 l The counctl may by by-Ia'" provide that, mstead of a separate account bemg kept for each reserve fund. a consolidated account may be kept m wh1ch there may be deposned the money ra1sed for all reserve funds established under thiS secuon but wh1ch consoli~unt shall be so ke.pt that 1t will be poss1ble to determmc therefrom the tru~t<Jte of each reserve fund

163.(4)Expendlrure of reserve fund money 163 (4) The council may by by-la" prov1de that the money ra1sed for a reserve fund established under subsection (I) may be spent, pledged or applied ro a

SchcduJe 1 Page 2 of 9

TOW OF ARNPRIOR- INVESTME T POLICY

EXTRL\.CTS FROM LEGISLATI0:\1

purpose other than lhat for wh1ch the fund was established R S 0 1990, c MAS. s. 163 (3, 4)

163 .(5)Audnor to repon on reserve funds 163 .(5 l The auditor m the annual report shall report on the acuvllles and position of each resene fund established under subsecuon (2). R.S 0 1990, c. M.45. s. 163 (5); 1996. c. 32. s. 33 (5).

163.( 6)Regulauons 163 .( 6) The Lieutenant Governor in Counci l may make regulations prescribing sccunues or classes of secunues for the purposes of para!,'Taph 2 of subsectiOn (2.2).

163 .(7)Same 163 {7) A regulation made under subsection (6) may be general or panicular in its apphcauon 1996, c. 32, s 33 ( 6).

Municipal Act - Section 167

16 7 (I) Definition 167 (I) ln th1s sect1on.

"mumctpality" mcludes a metropolitan, reg10nal or dtstnct mumc1pahty and the County of Oxford.

16 7 .(2)lnvestment, advance to capital account 167 (2) If a municipality bas mone) that 1t does not require immediately. H rna~.

(a) subject to the prescribed rules, mvest the money m prescribed sec uri ues; or (b) advance the money to its capital account as interim financing of capttal undenakings of the mumc1pahty.

167.(3)Repayment w1th interest 167.(3) An mvestment or advance under subsecuon (2) shall be made repayable on or before the day on which the munic1pality requ1res the money; any interest earned shall be credited to the fund from wh1ch the money \\as mvested or advanced.

167 .( 4 )Combmed mvestments 16- ( 4) A mumc1pahry may comb me money held m the general fund. the capital fund and rhe resen'e fund and deal w1th the money m accordance wnh subsecuon (2).

167 .(5 )A I location 16'"' (51 Eammgs from the combmed mvestments shall be crcdlled to each separate fund m proport1on to the amount mvested from that fund.

167 (6)Regulauons 167 (6) The Lteutenant Governor m Council may make regulatiOns,

Schedule I Page 3 of 9

TOWN OF AR.!WRIOR - I rvESTME T POLICY

EXTRACTS FROM LEGISLATION

(a) prescribmg rules for the purposes of clause (2) {a): (b) prescribing secunues or classes of them for the purposes of clause (2) (a): (c) providmg that a municipahty does not have power to invest under this section m spectfied secunues or classes of secunues, and specifying the securities and classes.

167 (7)Same 167(7) A regulation made under subsection (6) may be general or particular in its appl icati on. 1996. c. 32, s. 35.

16 7 . I Loan of securities

167.2.

ill.l_A municipality may lend any securities held by ll if the loan is fully secured by cash or by other securities descnbed m clause 167 (2) (a) 1992, c. 15. s. 11; 1996,c 32.s.36

16.., _2 Repealed· 1996. c 32. s. 3-16 7 3 (I) Agents

16"'3.( I) A power g1ven to a muruc1pah ty to mvest mone} mcludes the power to mvest the money through an agent of the mumctpaht)

167.3 (2)Llmltauon 16.., 3 (2) Subsection ( 1) does not apply to mone) mvested for the purpose of paymg the princ1pal and rnteresr of sml{lng fund debenrures 1992, c. 15. s. I I

16 7.4 (I) Defim tions 167.4 ( I) ln this section,

"college" means a board of governors of a college of apphed arts and technology established under section 5 of the MiniStl") of Colleges and Univewnes Act; ("college") "hospital" has the same meaning as "board" m section I of the Public Hospitals Ace: ("hopital") "municipality" mcludes a metropolitan. reg10nal and d1stnct mumc1palny and the County of Oxford: ("municipalite") "person" includes a local board as defined m the A!uniCipal Affairs Ace: ("personne") "school board" has the same meaning as "board" m subsection 1 (I ) of the £ducat1on Act but does not mclude a board established under secuon 68 of that Act; ("conseil scola1re") "umversuy" means a degree grantmg msutuuon as authonzed under secnon 3 of the Degree Grantmg Act. ("umverstte") 1993. c 26. s. 47. 1996. c. 32. s. 38 {I); 1997, c. 3 1. s. 155 (9).

167.4.(2)Jomt mvestment 167 A (2) A power given to a mumcipality under thiS Act to invest money

Schedule 1 Page 4 of 9

TOWN OF AR~RIOR - I VESTME T POLICY

EXT~>\CTS FROM LEGISLA TIO~

mcludes the power to enter mto an agreement with any other mumc1paliry, or with a hospnal, Unl\ ersny. college or school board. or the1r agents. for the JOint mvestment of money. 1993, c 26. s. 47.

I 67 .4(3 )Restrictions 1674.(3) Joint mvestment under subsect1on (2) IS restricted to the investments that are penn1lted to the participating mumc1pahty with the most hmited mvestment powers. 1996, c. 32, s. 38 (2).

167.4 (4)Regulations 16 7 4.( 4) For the purposes of subsection (2), the M1n1ster may make regulations,

(a) prescribing additional persons or classes of them with which a mumc1pality may enter into jomt investment agreements; (b) prescnbmg condnions to be satisfied before a munic1paht: rna: enter into a JOint investment agreement with a person or class of persons prescribed under clause (a) 1996. c 32. s 38 (3) .

.llunicipnl Act - Regu lation 438/97 (E ligible Investments)

A municipality does not have the power to mvest under secuon 16"7 of the Act m a secumy other than a secunry prescribed under this Regulation. 0 Reg. 438/97. s. I. 1

The follow1ng are prescnbed. for the purposes of clause 167 (2) (a) of the Act. as secunues that a mumc1pahty may invest m·

I Bonds, debentures, promissory notes or other ev1dence of mdebtedness issued or guaran teed by.

1. Canada or a province or territory of Canada. 11. an agency of Canada or a province or territory of Canada. 111. a country other than Canada. i,· a mumc1paliry in Canada mcludmg the mumc1paht} makmg the

investment, v a school board or s1milar entity in Canada. v1. a local board as defined in the Mumc1pal Affmrs Act (but not mcludmg a

school board or a municipality) or a conservation authOnt} estabhshed under the ConservatiOn Authonues Act. or

'11 the Mumctpal Finance Authonry of Bnush Columb1a 2 Bonds, debenntres, prom1ssory notes or other ev1dence of tndebtedness of a

corporauon if. 1 the bond. debenture or other ev1dence of mdebtedness IS secured by the

asstgnmem. to a trustee. as defined m the Trustee Act. of payments that Canada or a provmce or temto~ of Canada has agreed to make or ts reqUired to make under a federal. provmc1al or territonal statute. and

chcdule I Page 7 of9

TOW OF ARNPRIOR - INVESTME T POLICY


(d) a record of the date of each transaction m or d1sposal of us own secunues, includmg a statement of the purchase and sale pnce of each secunty. and

(e) such other infonnarion that the councll may requ1re or that, m the opm10n of the treasurer, should be mcluded. 0. Reg. 438/97, s. 8. 9.( I)

9.( I) Despite tillS Regulation, an investment by a mumctpality m bonds. debentures or other indebtedness of a corporation made before March 6. 1997 may be contmucd if the bond, debenture or other indebtedness is rated.

(a) by Canadian Bond Rating Service lnc. as "AA-" or higher; (b) by Dominion Bond Rating Service Limited as "AA(Iow)" or h1gher; (c) by Moody's Investors Services Inc. as "Aa3" or h1gher; or (d) by Standard and Poor's Inc. as "AA-" or h1gher.

9 (2)

9 (1) If the rating of an mvesrmenr continued under subsecuon (I) falls below the standard reqUired by that subsection. the muructpa!Jty shall sell the mvestment wtthin 90 days after the day the mvestmenr falls below the standard 0 Reg. 438/97. s. 9.

Jluuicipa/ Act- Regulation 77/97 (J oint In,·estments-Designation of Additional Person )

01'\TARJO REGULATION 77197 No Amendments

Thts Regul:~uon ts made m English only. I.

1. The following are prescribed. for the purposes of subsection 167.4 (2) of the Act. as persons wtrh whom a municipaljty may enter into joint investment agreements:

I. A local board as defined in secuon I of the Mumcipal Affairs Act other than a school board .

., An agent of a local board descnbed m paragraph I. 0. Reg. 77197. s. I.

Trustee Act- Section 26

26 Other Acts 26. If a prov1s1on of another Act or the regulations under another Act authorizes money or other property ro be mvested m property tn wh1ch a trustee IS amhonzed to mvest and the prov1sion came into force before secuon 16 of Schedule B of the Red Tape Reduction Act. 1998. the provJs1on shall be deemed to authonze investment m the property m wh1ch a trustee could JO\ est 1tnmed1ately before the commg mto force of section 16 of Schedule B of the Red Tape Reduction Act. I 998. 1998. c. 18. Sched B. s. 16 (I).

chedule 1 Page 8 of 9

TOWN OF ARNPRIOR - I VESTME T POLICY

E TRACTS FRO~l LEGI LA TIO '

Trustee Act- Section 27

27 .(I) Standard of care 27. 27 (I) In mvestmg trust property. a trustee must exerctse the care. skill, dthgence and JUdgment that a prudent mvestor would exerctse m makmg investments.

27 (2)Authonzed mvestments llillA trustee may invest nusl property in any fonn of property in whtch a prudent investor mtght mvesr.

:!7.(3}Mutual funds £1.QlAny ru le of law that prohibits a trustee from delegating powers or duties does not prevent the trustee from mvesting in mutual funds.

27 (4)Common trust funds 27 ( 4) If tntst property is held by co-trustees and one of the co-trustees is a trust corporauon as defined m the Loan and Tntst Corporations Act, any rule of law that prohibits a trustee from delegatmg powers or duues does not prevent the cotrustees from 1m esung m a common trust fund. as defined m that Act. that is mamtamed by the trust corporatton

27 .(5)Cntena 2"'.(5) A trustee must constder the follo\\ mg cmena m plaMing the m,·estmem of trust property. in addition to any others that are relevant to the ctrcumstances:

27 ( 6 )Otverst ficauon

I. General economic condtuons. 2. The possible effect of mflatton or deflation. 3. The expected tax consequences of tnvestmem decisions or strategies. 4. The role that each investmen t or course of action plays wtthin the overall trust portfolio 5. The expected total return from income and the appreciation of capital. 6. Needs for hqutdity, regulanty of mcome and preservauon or appreciation of capual. 7 An asset's spectal relationship or spec tal value. tf any. to the purposes of the trust or to one or more of the benefictanes.

27 (6) A trustee must diverstfy the mvestmem of trust property to an extent that ts appropriate to.

(a)

(b)

27.(7)1nvestmcnt advtce

the reqUirements of the trust: and general economtc and mvestment market condtuons.

27 {7) A tntstee may obtain advice in relauon to the mvcstment of trust property

chedulc I Page 9 of 9

TOWN OF ARNPRIOR- INVESTMENT POLICY


27.(8)Reliance on advice 27.(8) his not a breach of trust for a trustee to rely on ad,·ice obtained under subsection (7) if a prudent investor would rely on the advice under comparable circumstances.

27 .(9)Terms of trust £l.12l. This section does not authorize or require a trustee to invest in a manner that is inconststent wHh rhe terms of the trust. 1998, c. 18. Sched. B.s. 16 (I).

Schedule 2


RATING AGENCY MONEY MARKET RATINGS

Canadian Bond Rating Service

Al - Highest Quality AI High Quality A2 Strong Quality A3 Adequate but vulnerable A4 Undergoing substantial change

Source: Canadian Bond Rating Service

Dominion Bond Rating Service

R-1 Prime Credit R-2 Medium Grade Credit R-3 Below Medium Grade Credit

The ratings may carry a high, medium. or low designation indicaung the standing within a rating classification.

Source: Dominion Bond Rating Service



RATING AGENCY BOND RATINGS

Canadian Bond Rating Service

AAA ~ Highest Quality AA ,. Very Good Quality A .... Good Quality ,. BBB .. Medium Grade Quality ,. BB " ,. Lower Medium Grade Quality B ,. Poor Quality c ,, ,. Speculative D ,. Default Suspended ~ Rating Suspended

Sub-categories of"+" for high and" - " for low are also utilized.

Source: Canadian Bond Racing Service

Dominion Bond Rating Service

AAA Provinces rated 'AAA' have a budget surplus as well as occasional deficits. but have a cumulative budget surplus, or are trending that way. The economies are strong, government expenditures are under good control. and revenue growth is being generated by an improvmg economy, and nor only by tax increases.

AA Provinces rated 'AA · are in deficit position, and also have cumulative budget deficits since confederation. The economies are showing above average growth. Expenditures are under reasonable control, and are growing at a level consistent wtth revenue. Revenue growth comes not only from higher tax rates, but mamly from an expanding economy. The various ratios calculated for the province must be above average. relative to other provinces.

A This is the most common raring category for Canadian provinces. Provinces with an ·A' rarmg are experiencing deficits, and have a growing cumulative


TOWN OF ARNPRIOR- INVESTlVIENT POLICY

RATING AGENCY BOND RATINGS

budget deficit position. The economies are growing nt reasonable rates. Budget deficits are being contained by raising taxes. and only moderate attempts are being made to cut expenditures '. Interest costs are growing in relation toG DP and per capital. Capacity to raise future ta..':es still exists, but the options are becoming limited, and are not as clear cur as that of ao · AA · rated govenunent.

BBB Provinces rated ·BBB · have relatively higher budget deficits than ·A· rated provinces. and the trend is negative. Cumulative deficits are growing. and it is difficult to control government expenditures. Tax rates may be high. and there may be a limited capacity to raise them. The tax base also may be limited. The economy may be sluggish, and interest costs from borrowings related ro cumulative deficits are growing. which is raising the deficits.

BB Provinces rates 'BB' are mildly speculative risks. with large and growing deficits. Expendirures are rising quickly. and revenue growth may be restricted by the fact that high tax rates already exist. interest costs from cumulative deficits are growing. and the economy is sluggish.

B Provinces rated ·a· are moderately speculative. and the size of the deficH is higher then that of a · BB · rated province. Expenditures are high. and revenues are low and sluggish . Also. the economy is weak. and interest costs from cumulaLive deficits are high.

CCC A ·CCC' rating is highly speculative. The province has high cumulanve deficits. a weak economy. expendimres are high. and revenue is sluggish due to already high tax rates and a limited tax base.

CC A 'CC' rating indicates a province in default. where a province is unable to pay interest or principal on debt as specified.

C A ·c rating is reserved for a second tier of indebtedness or junior claims on a province. where the senior indebtedness is rated · CC.

High or Low In addition .. DBRS ratings may be modified by the quotation "high' or "10\''' to indicare the relmive standing within a rating classification.

So11rce: Dominion Bond Rating Sen·ice

Schedule 4


PORTFOLIO DISTRIBUTION

Limit of Portfolio Size Individual Term

Issuer/Guaran tor of Securities Limitations* InstHution* Restriction Min Max

Canadian government 0% 50% 50% 10 years

Provincial government:

• Ontario 0% 50% 50% 10 years

• Other 0% 15°/o 10% 3 years

Murucipal government:

• Ontario 0% 10% 5% 3 years

• Other external 0% 5% 5% 3 years

• Internal 0% 25% 25% 3 years

ONE Funds 0% 20% 20% N/A

Financial Institutions

• Six Schedule l banks 25% 75% 25% 5 years

• Schedule 11 banks 0% 25% I I ooto 3 years '

• as a percentage of the entire portfoho

1. POLICY STATEMENT


From time to time, the Town may have cash on hand which is surplus to its short-term operations. ln order to ensure that these surplus funds are invested appropriately, the Town believes that it is necessary to set an Investment Policy that will provide a framework for making investments.

The Town's Investment Policy should therefore act as an essential means of communication between the Town's Council and staff. It should also be useful as a directive to an Investment Manager who may be asked to make investments on behalf of the Town. Finally, the Investment Policy shouJd outline the objectives of the Town's investment strategy and should encompass all possible situations that are likely to arise in the management of an investment portfolio.

OBJECTIVES

Any Investment Policy must consider the following objectives: • Asset class preferences; • Risk tolerance~

• Time horizon; and • Expected or desired rate of return.

The Town's objective is to earn a reasonable rate of return on its investments, while taking only modest risk, and ensuring that its investments are legal, creditworthy and liquid. These issues are considered in Section 3.

2. SCOPE

This Investment Policy will govern the investment of surplus funds from operating, capital , reserve fund, development charge reserve fund and trust fund sources.

Under this Investment Policy, surplus funds are defmed to exclude any surplus funds expected to be held for less than 45 days. For example school board taxes may be collected from municipal taxpayers prior to the date that they are due to the school board.

3. PROCEDURE

INTERNAL INVESTMENTS

The Town may periodically require cash flow for short-term working capital purposes. In these instances, it may be financial ly prudent to borrow these funds internally from reserve or trust fund sources.

If required, internal inter-fund investments shall be made at an interest rate comparable to the current rate available to the Town on short-term investments, and shall be evidenced by a signed promissory note. In no case shall any fund invest more than 25% of its assets in an internal investment.

INVESTMENT GUIDELINES

After taking into consideration the general Investment Policy objectives, and the Town's specific objective, the Town has established the following guidelines.


Legislative authority with respect to investment portfolios of municipal governments is outlined in Sections 163 and 167 of the Municipal Act R.S.O. 1990 and Ontario Regulation 438197 and 77197 made under the Municipal Act as well as Sections 26 and 27 of the Trustee Act. Schedule 1, attached, presents these legislative extracts.

Section 163 is applicable for investment of reserve fund assets and generally looks to legislative guidelines within the Trustee Act. For other surplus funds, section 167 provides more restrictive investment regulation. Note also that the regulations prescribe the adoption of an Investment Policy by-Jaw. Consequently, the investment Policy and all investments made thereunder must confonn to these Acts.

Where the Town acts as trustee for the Town's Trust Funds, the Trustee Act allows investment in additional securities. Included are preferred shares, common shares, and bonds and debentures of corporations. Nonetheless, it is generally considered prudent for a municipality to invest trust funds under the same guidelines as other municipal funds, and it is the Town's intention that these funds will be subject to this Investment Policy.

Authorized investments shall include bond and money market instruments, and bank deposits. Issuers shall be restricted to the following public sector entities Canada, Ontario, other Canadian provinces, Ontario municipalities, other Canadian municipalities, and ONE Funds. Issuers may also include the following .financial institutions: Canadian Schedule I and Schedule II banks

Risk Tolerance

The investment categories authorized by the Town include many institutions of high credit quality. Nonetheless, there are also many entities whose credit may not be acceptable to the Town. The Town must have a process to ensure that it is not taking undue risk in making investments in specific entities.

In Canada, credit ratings for many marketable investments can be obtained from Dominion Bond Rating Service Limited (DBRS) and Canadian Bond Rating Service ( CBRS ). Credit rating information provides a sound basis for informed decisions, which minimizes risk and maximizes returns consistent with an acceptable degree of risk and liquidity requirements. Credit ratings are available for short-term (Money Market) and long-term (Bond) investments. For information purposes, Schedule 2 presents definitions ofDBRS and CBRS Money Market credit ratings, while Schedule 3 presents definitions for Bond credit ratirlgs. Regulations prescribe minimum acceptable credit ratings for bonds.

With the exception of the Town 's internal investments, all investments shall have a minimum DBRS (or equivalent) rating of "Rl (low)" for money market, and ''AA( low) " for bonds. Where a rating is not available, the investment shall not be purchased unless the investment vehicle (e.g. ONE Funds) invests solely in authorized instruments with acceptable ratings.

Time Horizon

While the Town will plan for its utilization of surplus funds, it is possible that funds may be required on short notice. Most instruments authorized under this policy have a ready market and would be able to be liquidated with less than one-week's notice.

The Town shall invest in financial instruments that have sufficient liquidity that the Town would be able to draw on its funds with a one-week notice period

For mutual funds, the rate of return is subject to fund performance. For other investments, where the Town holds a financial instrument to maturity, then its rate of return is locked in for the entire period of the investment. However, should the Town wish to sell that instrument prior to its maturity date, then the Town is subject to fluctuations in market interest rates which could either inflate or deflate the carrying value of the instrument. Accordingly, the Town should implement term limitations on its investments in order to ensure that it does not catTY an inappropriate level of market risk.

The maximum term for Canada and Ontario bonds shall be 10 years. The maximum term lfor Schedule I Bank investments shall be 5 years. For all other approved securities, the maximum term shall be 3 years.

Rate of Return

The Town's objective is to earn a reasonable rate of return on its investments. For a fixed income portfolio of money market instruments and bonds, the Town can influence its rate of return in two ways - by varying either the term or the quality of its investments.

The variabi.lity in term is reflected by the yield curve. A similar investment in the same entity will carry a different rate of return based upon the time to maturity. For example, consider a Canadian government bond. The market rate for a 1-year bond may differ from a 30-year bond, despite the fact that they are issued by the same entity.

The variability in quality is reflected by the credit rating. For example, the market rate of return on a Canada bond is typically considered the "risk free" rate of return, as the Government of Canada has the highest credit quality of any public or private sector entity in Canada. A risk premium is added to this figure to reflect the increased risk of other entities. For example, on a given date, a 5-year Newfoundland bond would have a higher market rate of return than a 5-year Ontario bond, which in turn would have a higher market rate of return than a 5-yearCanada bond. The CBRS andDBRS ratings allow third parties to assess the required risk premium for various investments.

Accordingly, the rate of return earned by the Town will be affected by the proportion of investments made at the "AA(low)" or "R-l(low)" rating, versus the proportion of investments made in investments with higher ratings. The rate of return will also be affected by the average term of its investments. The risk versus rate of return issue is typically managed on a portfolio basis.

The Town shall distribute its resources among various creditworthy investments. This mix of investments shall be maintained such that the portfolio distribution in Schedule 4 will be achieved for each of (1) trustfimds; and (2) all other municipal.funds. This mix should be considered on a cost basis, at the time that each investment is made.

Being a public sector entity, the Town needs to demonstrate that it is taking steps to ensure that investments being purchased are realizing a competitive rate of return. Nonetheless, in many cases, the Town will be able to verify that it is earning a competitive rate without asking for competitive quotations.

The Town shall ensure that each investment that it makes will earn a competitive rate of return. Where the Town does not ask for competitive quotations, it shall obtain some evidence, verbal or written, that the rate of return agreed is fair and reasonable. Note that this guideline does not apply to ONE Funds or to bank account balances.

REPORTING STANDARDS

In setting reporting standards, the regulations of the Municipal Act must be considered. These regulations must be supplemented by principles of timeliness, relevance, and materiality with due consideration to available time and resources.

The Treasurer shall prepare a report for Town Council, on a semi-annual basis, or more frequently as specified by Council. This report shall contain the following information:

• A detailed listing of investments, showing (where available) cost, issuer, expected rate of return, credit rating, market value, and maturity date.

• An indication of each investment 's percentage of the entire portfolio;

• A summary of the portfolio performance for that period, including the overall rate of return;

• A listing of all internal investments;

• A statement by the Treasurer as to whether or not, in his or her opinion, all investments were made in accordance with this Investment Policy; and

• Such other information that the Council may require or that, in the opinion of the Treasurer, should be included.

4. RESPONSIDILITY

INVESTMENT MANAGER

The Town believes that is appropriate to engage outside expertise to appropriately manage the purchase, sale, settlement and custody of the various instruments that may be purchased pursuant to this Investment Policy.

-


INvESTMENT POLICY

1. POLICY STATEMENT


APPENDIX A

From time to time, the Town may have cash on hand which is surplus to its short-term operations. In order to ensure that these surplus funds are invested appropriately, the Town believes that it is necessary to set an Investment Policy that will provide a framework for making investments.

The Town's Investment Policy should therefore act as an essential means of communication between the Town's Council and staff. It should also be useful as a directive to an Investment Manager who may be asked to make investments on behalf of the Town. Finally, the Investment Policy should outline the objectives of the Town's investment strategy and should encompass all possible situations that are likely to arise in the management of an investment portfolio.

OBJECTIVES

Any Investment Policy must consider the fo llowing objectives: • Asset class preferences; • Risk tolerance; • Time horizon; and • Expected or desired rate of return.

The Town's objective is to earn a reasonable rate of return on its investments, while taking only modest risk, and ensuring that its investments are Legal, creditworthy and liquid. These issues are considered in Section 3.

2. SCOPE

This Investment Policy will govern the investment of surplus funds from operating, capital, reserve fund, development charge reserve fund and trust fund sources.

Under this Investment Policy, surplus funds are defined to exclude any surplus funds expected to be held for less than 45 days. For example school board taxes may be collected from municipal taxpayers prior to the date that they are due to the school board.

Page 1 of6

T HE CORPORATION OF THE TOWN OF ARNPRIOR

INvESTMENT POUCY

3. PROCEDURE

INTERNAL INVESTMENTS

APPENDIX A

The Town may periodically require cash flow for short-term working capital purposes. [n these instances, it may be financially prudent to borrow these funds internally from reserve or trust fund sources.

If required, internal inter-fund investments shall be made at an interest rate comparable to the current rate available to the Town on short-term investments, and shall be evidenced by a signed promissory note. In no case shall any fund invest more than 25% of its assets in an internal investment.

INVESTMENT GUfDELINES

After taking into consideration the general Investment Policy objectives, and the Town's specific objective, the Town has established the following guidelines.


Legislative authority with respect to investment portfolios of municipal governments is outlined in Sections 163 and 167 ofthe Municipal Act R.S.O. I990 and Ontario Regulation 438/97 and 77197 made under the Municipal Act as well as Sections 26 and 27 of the Trustee Act. Schedule I , attached, presents these legislative extracts.

Section 163 is applicable for investment of reserve fund assets and generaJJy looks to legislative guidelines within the Trustee Act. For other surplus funds, section 167 provides more restrictive investment regulation. Note also that the regulations prescribe the adoption of an Investment Policy by-law. Consequently, the Investment Policy and all investments made thereunder must conform to these Acts.

Where the Town acts as trustee for the Town's Trust Funds, the Trustee Act allows investment in additional securities. Included are preferred shares, common shares, and bonds and debentures of corporations. Nonetheless, it is generally considered prudent for a municipality to invest trust funds under the same guidelines as other municipal funds, and it is the Town's intention that these funds will be subject to this Investment Policy.

Authorized investments shall include bond and money market instruments, and bank deposits. Issuers shall be restricted to the following public sector

Page 2 of6

-THE CORPORATION OF THE TOWN OF ARNPRIOR

INVESTMENT P OLICY

APPENDIX A

entities: Canada, Ontario, other Canadian provinces, Ontario municipalities, other Canadian municipalities, and ONE Funds. Issuers may also include thefollowingfinancial institutions: Canadian Schedule I and Schedule II banks.

Risk Tolerance

The investment categories authorized by the Town include many institutions of high credit quality. Nonetheless, there are also many entities whose credit may not be acceptable to the Town. The Town must have a process to ensure that it is not taking undue risk in making investments in specific entities.

In Canada, credit ratings for many marketable investments can be obtained from Dominion Bond Rating Service Limited (DBRS) and Canadian Bond Rating Service (CBRS). Credit rating information provides a sound basis fo r informed decisions, which minimizes risk and maximizes returns consistent with an acceptable degree of risk and liquidity requirements. Credit ratings are available for short-term (Money Market) and long-term (Bond) investments. For information purposes, Schedule 2 presents definitions ofDBRS and CBRS Money Market credit ratings, while Schedule 3 presents definitions for Bond credit ratings. Regulations prescribe minimum acceptable credit ratings for bonds.

With the exception of the Town 's infernal investments, all investments shall have a minimum DBRS (or equivalent) rating of"Rl (low)"for money market, and ''AA ( low) "for bonds. Where a rating is not available, the investment shall not be purchased unless the investment vehicle (e.g. ONE Funds) invests solely in authorized instruments with acceptable ratings.

Time Horizon

While the Town will plan for its utilization of surplus funds, it is possible that funds may be required on short notice. Most instruments authorized under thi s policy have a ready market and would be able to be liquidated with less than one-week's notice.

The Town shall invest in financial instruments that have sufficient liquidity ~hat the Town would be able to draw on its .funds with a one-week notice !period

For mutual funds, the rate of return is subject to fund performance. For other investments, where the Town holds a ·financial instrument to maturity, then its rate of

Page 3 of6

-THE CORPORATION OF THE TOWN OF .ARNPRIOR

INvEsTMENT Poucv

APPENDIX A

return is locked in for the entire period of the investment. However, should the Town wish to sell that instrument prior to its maturity date, then the Town is subject to fluctuations in market interest rates which could either inflate or deflate the carrying value of the instrument. Accordingly, the Town should implement term limitations on its investments in order to ensure that it does not carry an inappropriate level of market risk.

The maximum term for Canada and Ontario bonds shall be 10 years. The "{naximum term for Schedule I Bank investments shall be 5 years. For all "(:Jther approved securities, the maximum term shall be 3 years.

Rate of Return

The Town's objective is to earn a reasonable rate of return on its investments. For a fixed income portfolio of money market instruments and bonds, the Town can influence its rate of return in two ways- by varying either the term or the quality of its investments.

The variability in term is reflected by the yield curve. A similar investment in the same entity wi ll carry a different rate of return based upon the time to maturity. For example, consider a Canadian government bond. The market rate for a 1-year bond may differ from a 30-year bond, despite the fact that they are issued by the same entity.

The variability in quality is reflected by the credit rating. For example, the market rate of return on a Canada bond is typically considered the "risk free" rate of return, as the Government of Canada bas the highest credit quality of any public or private sector entity in Canada. A risk premium is added to this figure to reflect the increased risk of other entities. For example, on a given date, a 5-year Newfoundland bond would have a higher market rate of return than a 5-year Ontario bond, which in tum would have a higher market rate of return than a 5-year Canada bond. The CBRS and DBRS ratings allow third parties to assess the required risk premium for various investments.

Accordingly, the rate of return earned by the Town will be affected by the proportion of investments made at the "AA(low)'' or "R-1 (low)" rating, versus the proportion of investments made in investments with higher ratings. The rate of return will also be affected by the average term of its investments. The risk versus rate of return issue is typical ly managed on a portfolio basis.

The Town shall distribute its resources among various creditworthy investments. This mix of investments shall be maintained such that the portfolio distribution in Schedule 4 will be achieved for each of (1) trust

Page 4 of6


I NVESTMENT POLICY

APPENDIX A

funds; and (2) all other municipal funds. This mix should be considered on a cost basis, at the time that each investment is made.

Being a public sector entity, the Town needs to demonstrate that it is taking steps to ensure that investments being purchased are realizing a competitive rate of return. Nonetheless, in many cases, the Town will be able to verify that it is earning a competitive rate without asking for competitive quotations.

The Town shall ensure that each investment that it makes will earn a competitive rate of return. Where the Town does not askfor competitive quotations, if shall obtain some evidence, verbal or written, that the rate of return agreed is fair and reasonable. Note that this guideline does not apply to ONE Funds or to bank account balances.

REPORTING STANDARDS

In setting reporting standards, the regulations of the Municipal Act must be considered. These regulations must be supplemented by principles of timeliness, relevance, and materiality with due consideration to available time and resources.

The Treasurer shall prepare a report for Town Council, on a semi-annual basis, or more frequently as spec!fied by Council. This report shall contain the following information:

• A detailed listing of investments, showing (where available) cost, issuer, expected rate of return, credil rating, market value, and maturity date.

• An indication of each investment 's percentage of the entire portfolio;

• A summary of the portfolio performance for that period, including the overall rate of return;

• A listing of all internal investments;

• A statement by the Treasurer as to whether or not, in his or her opinion, all inveshnents were made in accordance with this Investment Policy; and

• Such other information that the Counc;/ may require or that, in the opinion ofthe Treasurer, should be included

4. RESPONSffiiLITY

Page 5 of6

-- -THE CORPORATION OF THE TOWN OF ARNPRJOR

INVESTMENT POLICY

fNVE TMENT MANAGER

APPENDIX A

The Town believes that is appropriate to engage outside expertise to appropriately manage the purchase, sale, settlement and custody of the various instruments that may be purchased pursuant to this Investment Policy.

Page 6 of 6

THE CORPORATION OF THE TOWN OF ARNPRTOR

INvESTMENT POLICY

APPENDIX A

The Town shall enter into an agreement wilh an Investment Manager to assist with the management of the Town 's investment portfolio. The Investment Manager shall be provided with a copy of this Investment Policy. The Investment Manager shall be authorized to maintain custody of the security instruments. Unless authorized otherwise, the Investment Manager shall be the investment arm of the Town 's banker.

TOWN PERSONNEL

The Investment Policy must delegate responsibilities to authorized Town staff members, and must establish appropriate checks and procedures over this authorization.

• The Treasurer shall ensure that each proposed new investment is in accordance with this Investment Policy, including Schedule 4.

• The Treasurer shall make recommendations to the Chief Administrative Officer (CA 0) on issuer, amount and term of investments.

• The Treasurer shall make recommendations to the CAO on any early disposition of an investment.

• With the prior approvaL of the CAO, the Treasurer shall contact the Investment Manager and purchase or sell the appropriate investments ..

• In the absence of the Treasurer, the CA 0 may make recommendations and execute trades. Where this occurs, the Treasurer 's approval shall be sought within 14 days after the completion of the trade.

• In the absence of the CAO, the Treasurer may execute trades. Where this occurs, the CAD 's approval shall be sought within 14 days after the cornpletion ofthe trade.

Page 7 of6

corporation of the moved by: seconded by: investment ...€¦ · the corporation of the town of...

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