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Agenda Item # Page #

CHAIR AND MEMBERS BOARD OF CONTROL

MEETING ON JULY 20,2005

MIKE ST. AMANT CITY TREASURER

INVESTMENT POLICY AND UPDATED AUTHORITY TO INVEST FUNDS

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RECOMMENDATION

That, on the recommendation of the City Treasurer:

1. the attached investment policy BE APPROVED;

2. investment of funds in the ONE FUNDS -The Public Sector Group of Funds BE APPROVED; and

3. investment of funds totalling $25 million with the Bank of Nova Scotia investment firms BE APPROVED,

IT BEING NOTED that these actions are now possible due to the continued implementation of the strategic financial planning process, which has resulted in a more predictable and stable cash flow, and allowed for an increase in the average term of invested funds providing higher long-term returns.

PREVIOUS REPORTS PERTINENT TO THIS MATTER

N/A

I BACKGROUND

Concurrent with this report, a report has been submitted which details investment activityforthe year ended December 31,2004. As is evident in the report, returns on invested funds of 2.34% are very conservative and reflect an approach to financing appropriate when capital spending and debt financing needs are high. The report also indicates that the average balance available for investment fluctuated between $77 million and $199 million, with larger balances available in the latter half of the year, partly due to receipt of debenture funds from the Ontario Strategic Infrastructure Financing Authority (OSIFA). The vast majority of interest earned during 2004 came from funds deposited in the bank, which bore interest at prime less 1.75%, currently yielding 2.5%. As short term treasury bills yield approximately the same amount, there were few investment purchases made.

The major contributant to the increase in cash available for investment in 2004 was the continued focus applied to capital spending restraint, brought about by Council's adherence to the debt cap, authorizing no more than $30 million in any budget year.

In addition, application by Council of the 2004 year end surplus and the new Ontario Municipal Program Funding (OMPF) to debt substitution, as well as additional OSIFA funding for 2005, has placed the Corporation in a more stable position.

Continued adherence to conservative capital budgeting practices will provide clarity regarding the City's cash flow, which will allow for an increase in the average term of investments, with a resultant increase in returns.

Agenda Item # Page # 3

Attached as appendix A, is a brief description of the Scotia companies investment proposal, the ONE FUNDS, and the "do-it-yourself' approach to longer term investing.

RECOMMENDED BY: I

INANCIAL PLANNING CITY TREASURER

Attach Appendix A Investment policy

Appendix "A"

Description of Investment Options

Scotia Private Client Group -Canadian Income Fund

The Scotia Private Client Group is a sub-component of the Scotiabank Group (e.g. Bank of Nova Scotia, Scotia Cassels Investment, etc.). The Bank of Nova Scotia is the City's bank.

The objective of the Canadian Income fund is to provide a high level of regular interest income and modest capital gains. The City of London's portfolio would be tailored to the City's requirements and be limited to investments authorized by the City's investment policy, and the Municipal Act, typically bonds and money market securities issued by Canadian federal, provincial, and municipal governments, bankers' acceptances, and eligible commercial paper.

The City will have to 'pay' for this investment service (basis points deducted from the yield), but the returns generated by expert management of the portfolio are expected to exceed the cost. The one year annual compound return of the Canadian Income fund for 2004 was 7.08% (this return will be hard to duplicate in 2005, but was a good return in the context of the 2004 bond market).

While the City can retrieve cash out of this fund on short notice, this vehicle is best used for long term investment of cash that will not be needed for some time.

The One Fund

The ONE Fund is operated by Local Authority Services Limited (a subsidiary of the Association of Municipalities of Ontario) and the CHUMS Financing Corporation (a subsidiary of the Municipal Finance Officers' Association of Ontario). The ONE Fund is a municipal pooled investment program that was designed specifically for the public sector and is tailored to maximize returns using a safe investment strategy.

The One Fund offers two investment vehicles: a Money Market Fund for the short-term investor and a Bond Fund for the longer-term investor.

A cosffperformance comparison of the Bond Fund to the Canadian Income Fund described above favors the Scotia product, but the Money Market fund is operated at a minimum overhead cost and a good performance record.

The Money Market fund investment horizon is limited to 365 days and investments include government securities, Schedule I & II banks, short term municipal securities, asset backed securities and commercial paper. A following graph depicts the Fund's recent performance versus the City's rate for cash in the bank (net after fees deducted):

One Money Market vs Bank Prime less 1.75%

Appendix "A" Page 2

Short term investment on the One Fund Money rket Droduct is exDec to Dro' 3 a modest improvement over the bank deposit rate whiie at the same time inproving security by diversification (as a member of a large funding pool).

It should be noted that the City Treasurer is a member of the Municipal Finance Officers' Association of Ontario board, but not the One Fund Advisory Committee.

investments are above the bank deposit rate (a least when the differential justifies the administrative effort). Staff do not speculate on bank rate changes, and investments are 'bought and held' (not traded). Professional fund managers have the resources to trade actively, and the pool of funds to be able to trade in anticipation of bank rate changes. There is a cost to professional fund management (usually an increment of basis points deducted from the returns), which partially offsets the advantage.

been kept available to be able to fund capital works prior to the issue of long term debt. The best approach to building a portfolio now is to add up investments in layers over time, e.g. pick up $2 million every quarter and choose investments to stagger maturity dates. This approach would ultimately pick up the extra yield associated with longer term investments, but it would be hard to match the performance, diversity, and liquidity of the product offered by Scotia.

THE CORPORATION OF THE CITY OF LONDON INVESTMENT POLICY (Policy Manual Chapter 8) July, 2005

1.0 POLICY

It is the policy of The Corporation of the City of London to invest public funds in a manner that will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the City and conforming to all legislation governing the investment of public funds.

The overall objectives of the investment policy are to ensure maximum investment income that can be achieved with a minimal risk to capital. Accordingly, emphasis on investments is placed on security first, liquidity second and overall yields third. The objective of this investment policy is to ensure integrity of the investment management process and to establish a reporting structure.

2.0 SCOPE

The investment policy applies to all financial assets of The Corporation of the City of London held within the following:

0 General Fund Capital Fund Reserve Funds Trust Funds

3.0 PRUDENCE

Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.

DEFINITIONS

Asset Backed Securities: fixed income securities (other than a government security) issued by a Special Purpose Entity, substantially all of the assets of which consist of Qualifying Assets.

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Credit Risk: the risk to an investor that an issuer will default in the payment of interest and/or principal on a security.

Diversification: a process of investing assets among a range of security types by sector, maturity, and quality rating.

Liquidity: a measure of an asset's convertibility to cash.

Market Risk: the risk that the value of a security will rise or decline as a result of changes in market conditions.

Market Value: current market price of a security.

Maturity: the date on which payment of a financial obligation is due. The final stated maturity is the date on which the issuer must retire a bond and pay the face value to the bondholder.

One Funds: The ONE Funds are a municipal pooled investment program designed specifically for the public sector and tailored to maximize returns using a safe investment strategy. The program consists of a Money Market Fund for the short-term investor and a Bond Fund for the longer-term investor. The ONE Funds are operated by LAS (Local Authority Services Ltd.,a subsidiary of the Association of Municipalities of Ontario) and the CHUMS Financing Corporation (a subsidiary of the Municipal Finance Officers' Association of Ontario).

Qualifying Assets: financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period, plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to security holders.

Schedule I Bank: A chartered bank operating under the Bank Act (Canada). The voting shares must be widely held with no investor holding more than 10% and foreign ownership limited to 25%. There are seven Schedule I Banks: Royal Bank, CIBC, Bank of Montreal, Bank of Nova Scotia, Toronto-Dominion Bank, National Bank and Laurentian Bank).

Schedule I I Bank: A chartered bank operating under the Bank Act (Canada). Schedule II Banks may be wholly owned by non-residents.

Special Purpose Entity: a trust, corporation, partnership or other entity organized for the sole purpose of issuing securities that entitle the holders to receive payments that depend primarily on the cash flow from Qualifying Assets, but does not include a registered investment company.

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4.0 OBJECTIVES

Minimization of Credit Risk

Meeting the first objective requires the adoption of a defensive policy to minimize the risk of incurring a capital loss and of preserving the value of the invested principal. This is accomplished by investing in properly rated financial instruments in accordance with applicable legislation and by the further limitations placed upon the instruments through the adoption of higher credit ratings than the legislative minimum, by limiting the types of investments to a maximum percentage of the total portfolio and by limiting the amount invested within individual institutions to a maximum percentage of the total portfolio.

Maintenance of Liquidity

The term liquidity implies a high degree of marketability and a high level of price stability. The portfolio is structured as to maintain a proportionate ratio of short, medium and long term maturities to meet the funding requirements of the City. Therefore the important liquidity considerations are a reliable forecast of the timing of the requirement of funds and to cover the possibility of unplanned requirement of funds and an expectation of reliable secondary marketability prior to maturity.

The investment portfolio is comprised of:

1. 2. Reserves 3. Reserve funds 4. Trust Funds

Operating and Capital cash flow balances (positive and negative)

Rate of Return

Investment yields can only be sought within the boundaries set by the two foregoing objectives. Higher yields are best obtained by taking advantage of the interest rate curve of the capital market which normally yields higher rates of return for longer term investments.

Yields will also fluctuate by institution as per individual credit ratings (greater risk confirmed by a lower credit rating) and by the type of capital instrument. For example, an instrument of a small trust company would in many cases have a slightly higher yield than a major bank. Lower credit rating generally makes investments more difficult to sell on the secondary market and therefore less liquid. As well, capital instruments that are non-callable will have a lower yield

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than instruments which are callable, but the call feature does not necessarily compromise marketability.

5.0 LEGISLATIVE AUTHORITY

The investment of municipal funds is governed by several statutes and regulations, including, s. 418 of the Municipal Act, 2001-and Ontario Regulation 438/97 (eligible investments), the Trustee Act (the investment of trust funds) and the City of London Act, 1972 (reserve fund borrowing restrictions).

Under s. 418 of the Municipal Act, 2001, a municipality may combine and invest money held in a general fund, a capital fund and a reserve fund. Earnings from the combined investment shall be credited to the separate funds in proportion to the amount invested from those funds. In addition, under s. 420 of the Municipal Act, 2001, more than one municipality may combine and jointly invest money held in their general funds, capital funds and reserve funds. As larger investment amounts generally achieve higher yields than do smaller investments, the ability to pool the said investment funds should enhance the ability of municipalities to earn a higher rate of return on their investments.

Eligible investments prescribed by Ontario Regulation 438/97 are listed in Appendix "A".

The Treasurer shall obtain legal advice on an investment when the Treasurer, or Council, deems it appropriate.

6.0 ELIGIBLE INVESTMENT REQUIREMENTS

All City investments will meet the eligibility requirements as set out in the Ontario Regulation 438197 - Eligible Investments (attached as Appendix "A).

7.0 DIVERSIFICATION

The investments shall be diversified by:

Limiting investments to avoid over-concentration in securities from a specific issuer or sector (excluding Government of Canada securities)

Limiting investment in securities to those that have higher credit ratings

Investing in securities with varying maturities

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Investing in mainly liquid, marketable securities which have an active secondary market, to ensure that appropriate liquidity is maintained in order to meet ongoing obligations

The City's requirements for diversification extend beyond the minimum requirements set out by regulation. The total investment in securities issued by the federal, provincial or municipal governments or Schedule I banks be not less than 75% of the total investment portfolio at the time the investment is made. The remaining 25% will be invested in Schedule I1 banks and trust and mortgage companies, eligible asset-backed securities, and eligible commercial paper, with no more than 10% invested in eligible asset-backed securities, and eligible commercial paper.

Short term funds invested in investment pools shall be exempt from the ratios set out above. Funds can only be placed in investment pools that limit investments to instruments eligible for municipalities. The size of the investment pool provides diversity not available to individual municipalities.

Long term investment of funds within pooled, professionally-managed funds (e.g. Scotia Private Client Units Canadian Income Fund) shall meet all requirements set out in Ontario Regulation 438197 - Eligible Investments, but othetwise the proportion of different eligible investments (diversity) will be subject to the judgement of the fund managers.

Specific institutions and limits will be reviewed regularly by the City Treasurer and amended as necessary in order to minimize the exposure of The Corporation of the City of London to changes in the financial marketplace, taking into consideration current financial information available.

8.0 BIDDING

The City Treasurer or his appointee shall obtain competitive quotes from the list of preferred dealers on any individual short-term investment transaction prior to the decision to invest.

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9.0 AUTHORIZATION

All investments must be authorized by two of the following Department of Finance and Corporate Services administration officers, one of whom must be the City Treasurer when present:

0 General Manager of Finance and Corporate Services 0 City Treasurer 0 Director of Financial Planning & Policy 0 Manager of Financial Planning & Policy

Division Manager of Tax & Revenue

10.0 INVESTMENT STRATEGY

As noted above, higher yields are best obtained by taking advantage of the interest rate curve of the capital market which normally yields higher rates of return for longer term investments. Cash that will not be required for some time, e.g. cash in Sanitary Landfill Reserve Fund, can be invested over a longer term for a higher interest rate. Matching investment terms to a cash requirement schedule and holding the investments to term is a simple and safe strategy which only requires a solid cash flow forecast to succeed.

Some municipalities actively trade investments rather than holding to term. This 'active' investment strategy can produce a modest improvement in yield, but to be successful a large amount of excess cash and sophisticated investment expertise is required.

The City can enjoy the advantage of active trading by investing in professional managed pooled funds. Investment funds do charge a fee (usually basis points deducted from the yield) but it is anticipated the performance of the fund will exceed the cost of administration. Nevertheless, performance of managed funds must be regularly compared industry benchmarks and to the result that might be achieved using a 'do-it-yourself' approach.

The basic strategy is to invest cash that will not be required for operations and internal financing in longer term products, and to keep the bulk of the total required for internal financing in the bank, the 'One Fund', or in short term (30-90 days) investments. This strategy is illustrated below.

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longer term investment.

-50

-100 General bank before borrowing from reserves

-150

The graph above shows a sample cash flow pattern (millions of dollars). For most of the year at east $50 million in cash was available and this is the amount that would be considered for onger term investing.

The key to choosing the right level of long term investment is an accurate cash flow forecast, The main cash elements of the operating budget are fairly stable and predictable, e.g. tax revenue is collected five times a year, and the payroll is more or less set when the budget is approved. The main variable in predicting cash demands is the total capital spending supported by the General fund prior to securing long term financing (primarily long term debt).

Large un-financed capital amounts have consumed most of cash that would ordinarily be available for investment in recent years. Capital budgets have moderated (beginning in 2003), and short term financing is now available from the Ontario Strategic Infrastructure Financing Authority, so the opportunity to build a modest long term portfolio (one to five years) in marketable securities is on the horizon.

Given the variability of capital spending, interest rates, and non-tax revenues, the investment strategy must be reviewed on an annual basis, and in volatile times, on a quarterly basis. The Treasurer must report annually to the Board of Control

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and Council on the investment results of the prior year. Any significant in-year change in approach will be reported to Board of Control and Council promptly.

In summary, to the extent possible, the City will attempt to match its investments with anticipated cash flow requirements to maximize the advantage of longer investment terms, while preserving cash sufficient for internal financing purposes, except where the projected period of external borrowing is very brief.

11.0 INTERNAL BORROWING RATE

As illustrated above, the General fund borrows from the reserve funds to provide cash for operations and to finance capital work on a short term basis. For the most part the interest charged is going 'from one City pocket to another', but given that some reserve funds are non-rate funded, there is a requirement to pay a fair rate to the reserve funds for 'investing' in the General fund. A fair rate will be applied based on the interest rate paid on funds in the City's consolidated bank account.

12.0 REPORTING

The Treasurer shall provide an investment report to Board of Control and Council at least once per year, in accordance with 0. Reg. 438/97, s. 8. The investment report shall include:

a statement about the performance of the portfolio of investments of the municipality during the period covered by the report;

a description of the estimated proportion of the total investments of a municipality that are invested in its own long-term and short-term securities to the total investment of the municipality and a description of the change, if any, in that estimated proportion since the previous year's report;

a statement by the treasurer as to whether or not, in his or her opinion, all investments were made in accordance with the investment policies and goals adopted by the municipality;

a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and sale price of each security;

Such other information that the council may require or that, in the opinion of the treasurer, should be included.

The Treasurer's report will also include a description of the investment strategy to be employed during the next year.

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LINKS TO LEGISLATION AND REGULATIONS

Web site Ontario Regulation 438/97 - Eligible Investments

Trustee Act

The City of London Act, 1972 is not available online; a copy is kept in the Legal Division's library.

Listing of Scheduled Banks:

One Funds One Funds investment guidelines Qualifying Assets: financial assets, either fixed or revolving, that by their terms convert into cash within a fmite time period, plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to security holders.

Link

http://www.e-

http://www.e- laws.qov.on.calDBLaws/Statutes/Enqlish/90t23 e.htm

_ _ _. ~

CBA - Our Industry - Banks In Canada

http / / w w w w s netlindex cfm _ _

_ _

http://www.onefunds.netlreports/reports.cfrn#invest

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Municipal Act, 2001 - 0. Reg. 438197 Page 1 of 7 Appendix A

Municipal Act, 2001 Loi de 2001 sur les municipalitbs

ONTARIO REGULATION 438/97

Amended to 0. Reg. 399102

ELIGIBLE INVESTMENTS

Notice of Ciirreucy:" 'This document is up to date

*This notice is usually current to within two business days of accessing this document. For more current amendment information, see the Table of Regulations (Legislative History).

This Regulation is made in English on&.

1. A municipality does not have the power to invest under section 4 18 of the Act in a security other than a security prescribed under this Regulation. 0. Reg. 438197, s. 1; 0. Reg. 399102, S . 1.

2. The following are prescribed, for the purposes of subsection 418 (1) ofthe Act, as securities that a municipality may invest in:

1. Bonds, debentures, promissory notes or other evidence of indebtedness issued or guaranteed by,

i. Canada or a province or territory of Canada,

ii. an agency of Canada or a province or territoly of Canada,

iii. a country other than Canada,

iv. a municipality in Canada including the municipality making the investment,

v. a school board or similar entity in Canada,

vi. a local board as defined in the Municipal Affuirs Act (but not including a school board or a municipality) or a conservation authority established under the Consewation Authorities Act, or

vii. the Municipal Finance Authority of British Columbia.

2. Bonds, debentures, promissory notes or other evidence of indebtedness of a corporation if,

i . the bond, debenture or other evidence of indebtedness is secured by the assignment, to a trustee, as defined in the Trustee Act, of payments that

2005-07- 12

Page 2 of 7 Municipal Act, 2001 - 0. Reg. 438197

Canada or a province or territory of Canada has agreed to make or is required to make under a federal, provincial or territorial statute, and

ii. the payments referred to in subparagraph i are sufficient to meet the amounts payable under the bond, debenture or other evidence of indebtedness, including the amounts payable at maturity.

3. Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments issued, guaranteed or endorsed by,

i. a bank listed in Schedule I or I1 to the Bank Act (Canada),

ii. a loan corporation or trust corporation registered under the Loan and Trust Corporation Act,

iii. a credit union or league to which the Credit Unions and Caisses Populaires Act, I994 applies, or

iv. the Province of Ontario Savings Office.

4. Bonds, debentures or evidence of long-term indebtedness issued or guaranteed by an institution listed in paragraph 3.

5. Short term securities, the terms of which provide that the principal and interest shall be fully repaid no later than three days after the day the investment was made, that are issued by,

i. the board of governors of a college of applied arts and technology established under section 5 of the Ministry of Training Colleges and Universities Act.

ii. a degree granting institution as authorized under section 3 of the Post- secondary Education Choice and Excellence Act, 2000, or

iii. a board as defined in the Public Hospitals Act.

6. Bonds, debentures or other securities issued or guaranteed by the International Bank for Reconstruction and Development.

7. Asset-backed securities, as defined in subsection 50 (1) of Regulation 733 of the Revised Regulations of Ontario, 1990 made under the Loan and Trust Corporations Act.

8. Negotiable promissory notes or commercial paper, other than asset-backed securities, maturing one year or less from the date of issue, if that note or commercial paper has been issued by a corporation that is incorporated under the laws of Canada or a province of Canada.

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9. Bonds, debentures, promissory notes and other evidences of indebtedness of a corporation incorporated under section 142 of the Electricity Act, 1998. 0. Reg. 438197, s. 2; 0. Reg. 265102, s. 1; 0. Reg. 399102, s. 2.

3. (1) A municipality shall not invest in a security under subparagraph iii of paragraph 1 or paragraph 4 of section 2 unless the bond, debenture, promissory note or evidence of indebtedness is rated,

(a) Revoked: 0. Reg. 265102, s. 2 (I).

(b) by Dominion Bond Rating Service Limited as "AA(1ow)" or higher;

(c) by Moody's Investors Services Inc. as "Aa3" or higher; or

(d) by Standard and Poor's as "AA-" or higher. 0. Reg. 438197, s. 3 (1); 0. Reg. 265/02, s. 2 (1); 0. Reg. 399102, s. 3 (1).

(2) If an investment made under subparagraph iii of paragraph 1 or paragraph 4 of section 2 falls below the standard required under subsection (I), the municipality shall sell the investment within 90 days after the day the investment falls below the standard. 0. Reg. 438197, s. 3 (2).

(3) A municipality shall not invest in an asset-backed security under paragraph 7 of section 2 that matures more than one year from the date of issue unless the security is rated,

(a) by Dominion Bond Rating Service Limited as " M A " ;

(b) by Moody's Investors Services Inc. as "Aaa"; or

(c) by Standard and Poor's as "AAA". 0. Reg. 265102, s. 2 (2); 0. Reg. 399102, s. 3 (2).

(4) A municipality shall not invest in an asset-backed security under paragraph 7 of section 2 that matures one year or less from the date of issue unless the security is rated,

(a) by Dominion Bond Rating Service Limited as "R-l(high)";

(b) by Moody's Investors Services Inc. as "Prime-1"; or

(c) by Standard and Poor's as "A-l+". 0. Reg. 265102, s. 2 (2); 0. Reg. 399102, s. 3 (3).

(5) A municipality shall not invest in a security under paragraph 8 of section 2 unless the promissory note or commercial paper is rated,

(a) by Dominion Bond Rating Service Limited as "R-l(mid)" or higher;

(b) by Moody's Investors Services Inc. as "Prime-1"; or

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Page 4 of 7 Municipal Act, 2001 - 0. Reg. 438197

(c) by Standard and Poor's as "A-l+". 0. Reg. 265/02, s. 2 (2); 0. Reg. 399102, s. 3 (4).

(6) If an investment made under paragraph 7 or 8 of section 2 falls below the standard required under subsection (3), (4) or (5), as the case may be, the municipality shall sell the investment within 30 days after the day the investment falls below the standard. 0. Reg. 265/02, s. 2 (2).

(7) A municipality shall not invest in a security under paragraph 9 of section 2 unless, at the time the investment is made and as long as it continues, the investment ranks, at a minimum, concurrently and equally in respect of payment of principal and interest with all unsecured debt of the corporation. 0. Reg. 265/02, s. 2 (2).

(8) A municipality shall not invest in a security under paragraph 9 of section 2 unless, at the time the investment is made, the total amount of the municipality's investment in debt of any corporation incorporated under section 142 of the Electric@ Act, 1998 that would result after the proposed investment is made does not exceed the total amount of investment in debt, including any interest accrued on such debt, of the municipality in such a corporation that existed on the day before the day the proposed investment is to be made. 0. Reg. 265102, s. 2 (2).

(9) Any investment made under paragraph 9 of section 2, including any refinancing, renewal or replacement thereof, may not be held for longer than a total of 10 years from the date such investment is made. 0. Reg. 265/02, s. 2 (2).

4. (1) A municipality shall not invest more then 25 per cent of the total amount in all sinking and retirement finds in respect of debentures of the municipality, as estimated by its treasurer on the date of the investment, in short-term debt issued or guaranteed by the municipality. 0. Reg. 438/97, s. 4 (1).

(2) In this section,

"short-term debt" means any debt, the terms of which provide that the principal and interest of the debt shall be hlly repaid no later than 364 days after the debt is incurred. 0. Reg. 438/97, s. 4 (2).

4.1 (1) A municipality shall not invest in a security under paragraph 7 of section 2 or in a promissory note or commercial paper under paragraph 8 of section 2 unless, on the date that the investment is made,

(a) all of the municipality's long-term debt obligations are rated,

(i) by Dominion Bond Rating Service Limited as "AA(1ow)" or higher,

(ii) by Moody's Investors Services Inc. as "Aa3" or higher, or

(iii) by Standard and Poor's as "AA-" or higher; or

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Municipal Act, 2001 - 0. Reg. 438197 Page 5 of 7

(b) the municipality has entered into an agreement with the Local Authority Services Limited and the CHUMS Financing Corporation to act together as the municipality's agent for the investment in that security, promissory note or commercial paper. 0. Reg. 265/02, s. 3; 0. Reg. 399102, s. 4.

(2) The investment under clause (b) must be made in the public sector group of funds of the Local Authority Services Limited and the CHUMS Financing Corporation with,

(a) another municipality;

(b) a public hospital;

(c) a university in Ontario that is authorized to operate under section 3 of the Post- secondary Education Choice and Excellence Act, 2000;

(d) a college established under section 5 of the Ministry of Training, Colleges and Universities Act;

( e ) a school board; or

(f) any agent of an institution listed in clauses (a) to (d). 0. Reg. 265/02, s. 3.

5. A municipality shall not invest in a security issued or guaranteed by a school board or similar entity unless,

(a) the money raised by issuing the security is to be used for school purposes; and

(b) Revoked: 0. Reg. 248101, s. 1.

0. Reg. 438/97, s. 5; 0. Reg. 248/01, s. 1.

6. (1) A municipality shall not invest in a security that is expressed or payable in any currency other than Canadian dollars. 0. Reg. 438197, s. 6 (1).

(2) Subsection (1) does not prevent a municipality from continuing an investment, made before this Regulation comes into force, that is expressed and payable in the currency of the United States of America or the United Kingdom. 0. Reg. 438/97, s. 6 (2).

7. (1) Before a municipality invests in a security prescribed under this Regulation, the council of the municipality shall, if it has not already done so, adopt a statement of the municipality's investment policies and goals. 0. Reg. 438/97, s. 7.

(2) In preparing the statement of the municipality's investment policies and goals under subsection (l), the council of the municipality shall consider,

(a) the municipality's risk tolerance and the preservation of its capital;

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(b) the municipality's need for a diversified portfolio of investments; and

(c) obtaining legal advice and financial advice with respect to the proposed investments. 0. Reg. 265/02, S. 4.

(3) Before a municipality makes an investment under clause 4.1 (1 ) (b), the municipality shall require a statement from the treasurer as to whether, in his or her opinion, the investment guidelines of the Local Authority Services Limited and the CHUMS Financing Corporation comply with the statement of the municipality's investment policies and goals under this section. 0. Reg. 265102, s. 4.

(4) In preparing the statement of the municipality's investment policies and goals under subsection (1) for investments made under paragraph 9 of section 2, the council of the municipality shall consider its plans for the investment and how the proposed investment would affect the interest of municipal taxpayers. 0. Reg. 265/02, s. 4.

8. (1) If a municipality has an investment in a security prescribed under this Regulation, the council of the municipality shall require the treasurer of the municipality to prepare and provide to the council, each year or more frequently as specified by the council, an investment report. 0. Reg. 438197, s. 8 (1).

(2) The investment report referred to in subsection (1) shall contain,

(a) a statement about the performance of the portfolio of investments of the municipality during the period covered by the report;

(b) a description of the estimated proportion of the total investments of a municipality that are invested in its own long-term and short-term securities to the total investment of the municipality and a description of the change, if any, in that estimated proportion since the previous year's report;

(c) a statement by the treasurer as to whether or not, in his or her opinion, all investments were made in accordance with the investment policies and goals adopted by the municipality;

(d) a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and sale price of each security; and

(e) such other information that the council may require or that, in the opinion of the treasurer, should be included. 0. Reg. 438197, s. 8 (2).

(3) Upon disposition of any investment made under paragraph 9 of section 2, the council of the municipality shall require the treasurer of the municipality to prepare and provide to the council a report detailing the proposed use of funds realized in the disposition. 0. Reg. 265102, s. 5 .

9. (1) Despite this Regulation, an investment by a municipality in bonds, debentures or other indebtedness of a corporation made before March 6 , 1997 may be continued if the bond,

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Municipal Act, 2001 - 0. Reg. 438197 Page 7 of 7

debenture or other indebtedness is rated,

(a) Revoked: 0. Reg. 265/02, s. 6.

(b) by Dominion Bond Rating Service Limited as "AA(low)" or higher;

(c) by Moody's Investors Services Inc. as "Aa3" or higher; or

(d) by Standard and Poor's as "AA-" or higher. 0. Reg. 438197, s. 9 (1); 0. Reg. 265/02, s. 6; 0. Reg. 399/02, s. 5.

(2) If the rating of an investment continued under subsection (1) falls below the standard required by that subsection, the municipality shall sell the investment within 90 days after the day the investment falls below the standard. 0. Reg. 438197, s. 9 (2).

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