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HomeMy WebLinkAboutFIN-08-040 - Investment Policy (I-605)1 I~~TC~~R . , . Financial Services Report To: Councillor B. Vrbanovic, Chair, and Members of the Finance and Corporate Services Committee Date of Meeting: March 31, 2008 Submitted By: Dan Chapman, General Manager of Financial Services Prepared By: Bernita Stever, Senior Financial Analyst Ward(s) Involved: ALL Date of Report: March 20, 2008 Report No.: FIN-08-040 Subject: Investment Policy RECOMMENDATION: THAT the amended City of Kitchener Investment Policy (I-605) be approved, as attached to staff report FIN-08-040. BACKGROUND: The City of Kitchener Investment Policy is governed by the Municipal Act and its regulations, and was last updated in 2004,. On October 22, 2007, Council granted a temporary increase in the limit for the amount invested with Schedule I banks, as staff were having difficulty finding suitable products in other investment categories, and it was felt that the limits on investments held in Schedule I banks were overly restrictive. As part of that approval, Council stipulated that a revised investment policy be presented within six months. REPORT: The attached Investment policy (Appendix 1) is a conservative approach to investing the City's funds prior to the time they are to be disbursed. It gives due consideration to the safety of principal, maintenance of liquidity and rate of return. Caution must be exercised to ensure that secure investments are chosen. The changes in the policy to add debt issued by supranational agencies, other countries, Schedule III Banks, loan and credit unions, and public hospitals, non-profit housing corporations, local housing corporations, post secondary educational institutions and colleges of applied arts are intended to provide greater flexibility to invest municipal funds in instruments issued by organizations with ratings as high as, or higher than, both the banks and trust companies permitted in the past, with the prospect of incremental enhancements to rates of return. Adding the potential use of Forward Rate Agreements to the policy permits the City to manage interest rate uncertainty. Eligible Investments The "Eligible Investments" regulation under the Municipal Act (O. Reg 438/97) has been amended by O. Reg 265/02 and O. Reg 39/07. The latter amendment maintains the existing range of investments permitted under the former regulations, with the following additions: • Debt issued by supranational agencies, Schedule III Banks, other countries; • Debt issued by loan companies and credit unions or leagues; • Debt issued by public hospitals, non-profit housing corporations, local housing corporations, post secondary educational institutions and colleges of applied arts; • Debt or shares issued by Canadian corporations through the ONE Fund; • Debt issued by Canadian corporations; and • Forward Rate Agreements used to manage interest rate uncertainty. The regulation prohibits direct municipal investment in asset-backed securities, commercial paper or corporate debt where the municipalities' long-term debt obligations are unrated. As the City's long term debt obligations are issued by the Region of Waterloo, the City has no debt rating. Therefore, the City is prohibited from direct investment in asset-backed securities, commercial paper or corporate debt. The investment policy permits investment in municipalities and local boards within the Region of Waterloo. The City uses this section to invest in itself in several ways: (1) via inter fund loans between the various funds -operating, capital, reserve, trust and enterprise -through use of a consolidated bank account and (2) via investment in internally issued debentures for City capital projects. Interest is charged to or earned by each fund as appropriate so that no fund is unfairly treated. The Investment Policy requires a minimum credit rating for City investments. The City of Kitchener subscribes to the Dominion Bond Rating Service (DBRS). The City's requirements for credit ratings are in Schedules C and D of the Investment Policy. Eligibility of Credit Union Letters of Credit The investment policy requires that issuers of letters of credit have a superior credit rating to ensure that the City has access to funds in the event the party to the letter of credit is unable to fulfill its contractual obligations to the City. Individual credit unions have no credit rating. Only the central credit union is rated. In Ontario, the central credit union which supports individual credit unions has an R-1 (low) rating which does not meet the City's rating requirement. In addition, as the central credit union does not guarantee the letters of credit of individual members but provides support, its rating is not transferable to the individual credit unions. Therefore, letters of credit from individual credit unions are not currently permitted under the terms of the investment policy. Forward Rate Agreements A forward rate agreement is an agreement to make an investment on a future date, not further than one year from now, at a fixed rate of interest to minimize the cost or risk associated with fluctuating interest rates. The investment policy permits the City to enter into such agreements to reduce the risk of future interest rate changes associated with known cash inflows such as tax receipts and outflows such as payments to the region and school boards. This would allow better planning as the investment returns on these large cash inflows and outflows are known in advance. The City has included these as eligible under the wording of the policy, and will further investigate the potential for their use as part of the development of an investment plan and the development of more rigorous cash flow forecasting tools. Schedule I, II and III Bank Issuer Limits Schedule I banks are Canadian-owned whereas Schedule II banks are subsidiaries of foreign institutions and Schedule III banks are branches of foreign institutions. On October 22, 2007, Council granted a temporary increase in the Schedule I bank limit to 100%. Under the investment policy in effect, the limit for Schedule I and Schedule II banks was 60% and 50% respectively. Therefore, the combined limit for banks was 100%. The attached investment policy recommends that the temporary increase in the Schedule I bank limit of 100% become permanent. The six largest Schedule I banks own 90% of the banking assets in Canada. The debt securities issued by them are more liquid and their supply is greater than those of other banks. HSBC Canada, a Schedule II bank, owns 2.5% of the banking assets in Canada, The debt securities they issue are also liquid. The remaining Schedule II banks and Schedule III banks represent 1 % and 5% of the banker's acceptances market. Securities issued by these banks are less liquid and in limited supply. Increasing the Schedule I bank limit reduces the liquidity risk. Equity Fund Limit Municipalities are now permitted to invest in shares of Canadian corporations through the ONE Fund which is professionally managed. Investing in shares provides opportunities to enhance investment returns over the long-term. Historically, equities have earned higher returns over the long-term than the money market and bonds. For example, the S&P/TSX 60 earned 8.9% per annum for the 10 years ended February 29, 2008. After management fees, the return is 8.3% per annum. This compares favourably to the 4% return earned on the short-term portfolio over the same period. Investing in shares increases diversification and reduces the vulnerability of investments to adverse interest rate changes. Investment in shares will be part of the long-term portfolio to reduce the risk associated with short-term fluctuations in share prices. The policy recommends a limit of 10% of the long-term portfolio for the equity fund administered by the ONE Fund. Internal vs. External Cash Manaaement The City has, for the past many years, internally managed the placing of investment funds in specific instruments. The funds could be placed in externally managed funds and withdrawn as needed. The ability to pick specific instruments with maturity dates that more closely match the City's needs as well as the fees charged for professional services, means that it is usually of more benefit to internally manage investments particularly when restrictions on investment vehicles are factored in. The additional interest generated in comparison to what ONE, the Public Sector Group of Funds would have earned in its Money Market Fund was $ 143,000 for 2007. The recommended policy gives sufficient flexibility to place more funds with an externally managed fund if its performance exceeds what the City can generate on its own provided the policies and procedures of the fund are compliant with the City's investment policies and plans. FINANCIAL IMPLICATIONS: As noted in report Dan Chapman, CA MPA General Manager of Financial Services Roger LeBrun, CMA Director of Financial Planning & Reporting Bernita Stever, CGA Senior Financial Analyst POLICY COUNCIL RESOLUTION POLICY NUMBER: I-605 DATE: AUGUST 30, 2004 Amended: APRIL 7, 2008 POLICY TYPE: FINANCIAL SUBJECT: INVESTMENT POLICY 1.0 POLICY CONTENT It is the policy of the City of Kitchener to invest public funds in a manner that will provide the highest investment return while protecting and preserving capital, maintaining liquidity, meeting the daily cash flow demands of the City and conforming to all legislation governing the investment of public funds. 2.0 SCOPE The investment policy applies to all financial assets of the City of Kitchener held within the following: • General Fund • Capital Fund • Reserve Funds • Enterprise Funds • Trust Funds 3.0 OBJECTIVES The primary objectives, in order of priority, of the City's investment activities shall be: 3.1 Adherence to statutory requirements Investment activity will be governed by the Municipal Act as amended. Investments will be limited to investments eligible under the Act and related subsequent provincial regulations. 3.2 Preservation of capital Safety of principal is a key objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. This is accomplished as follows: KITCHENER PAGE 1 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY 3.2.1 Credit Risk 3.2.1.1 Credit Ratings All long-term non-government investments will be in securities of borrowers with a minimum DBRS rating of AA(low) (or its equivalent rating if unavailable). Schedule A contains the equivalent ratings. All short-term investments will be in securities with a minimum DBRS rating of R-1 (middle) (or its equivalent rating if unavailable). Schedule B contains the equivalent ratings. 3.2.1.2 Diversification Investments must adhere to sector and individual issuer limitations established under Schedule C to minimize potential losses on individual securities. 3.2.2 Interest Rate Risk The following measures will the minimize risk associated fluctuating interest rates: Structure portfolio so securities mature to meet ongoing cash requirements to reduce the need to sell securities on the open market prior to maturity Primarily invest operating funds in shorter-term securities or investment pools Diversifying longer-term holdings to match term exposures to requirements of underlying funds and to mitigate effects of interest rate volatility 3.3 Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating and capital requirements that might be reasonably anticipated and to limit temporary borrowing requirements. Where possible, securities are selected to mature concurrent with projected cash demands. As these cannot be fully anticipated, the portfolio shall consist largely of securities with an active secondary or resale market. 3.4 Return on Investments The investment portfolio shall be designed to attain the maximum rate of return while meeting the above three objectives. KITCHENER PAGE 2 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY 4.0 ELIGIBLE INVESTMENTS The City of Kitchener may invest in securities expressed and payable in Canadian dollars issued or guaranteed by issuers identified in Schedule E and Schedule F subject to the restrictions, limitations and terms in Schedule C and Schedule D. 4.1 Forward Rate Agreements A Forward Rate Agreement is an agreement to make an investment on a future date in a security in order to minimize the cost or risk associated with the investment because of fluctuations in interest rates. The agreement fixes the interest rate that will be paid on an investment at a future date when know cash inflows such as tax payments will be received. The agreement is subject to the conditions set out below: 4.1.1 Conditions • The Agreement is made with a bank listed as Schedule I, II or III in the Bank Act (Canada) whose long-term debt obligations have a minimum DBRS rating of "A (high)" or its equivalent. • Agreement shall specify the forward amount, settlement day, forward rate of interest, and reference rate of interest, and shall require a settlement payment on settlement rate if the forward and reference rate of interest are different. • All forward amounts under other forward rate agreements shall not exceed the total amount of the principal of the investment. • Settlement day is within 12 months of the day on which the agreement is executed. • Settlement shall not exceed the difference between the amount of interest that would be payable on the forward amount calculated at the forward rate of interest and the amount that would be payable calculated at the reference rate of interest. 4.1.2 Use of Forward Rates By the City The City may enter into Forward Rate Agreements (FRA) to reduce the risk of future interest rate changes associated with known cash inflows. A report analyzing the risks and return profile of the transaction, the risk exposure to the City without the FRA and specific risk control measures must be approved by the Treasurer prior to entering into a FRA agreement. The FRA may only be executed with Schedule I, II or III Banks whose minimum DBRS rating is AA(low) (or its equivalent if unavailable). The term of any FRA must be less than 12 months and comply with the issuer limits in Schedule C. KITCHENER PAGE 3 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY The FRA must specify the forward amount, settlement date, forward interest rate, reference rate of interest and schedule of approximate payments/costs to or by the City should the reference and forward rate differ. 4.2 Investment Pools Council must approve a by-law which authorizes the City of Kitchener to enter into an Agency Agreement for the purpose of participation in joint municipal investment funds. Unrated municipalities are only permitted to invest in the following securities if made through the ONE Fund: commercial paper, corporate debt and shares, and asset-backed securities. A thorough investigation of the pool/fund is required prior to Council approval and on a continual basis. Investigation should include the following: • a written statement of investment policies and objectives • a description of eligible investments • a description of who may invest in the program, how often, what size deposit and withdrawal are allowed • a description of how earnings are allocated and distributed • a description of how investments are safeguarded and how often the investments are priced and the program audited • a schedule for receiving statements and portfolio listings • a fee schedule, and when and how it is assessed 5.0 DIVERSIFICATION The City of Kitchener will diversify its investments by security type and institution according to Schedules C and D. These restrictions apply at the time an investment is made. At specific times, portfolio limitations may be exceeded as a result of timing of individual instrument maturities. 6.0 SAFEKEEPING AND CUSTODY Investments are held in safekeeping either in the City's safety deposit box or by the vendor financial institution. KITCHENER PAGE 4 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY 7.0 TERM OF INVESTMENTS To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing more than 365 days from the date of purchase. Reserve and Trust Funds may be invested in securities exceeding 365 days if the maturity of such investments is made to coincide as nearly as possible with the expected use of the funds. 8.0 PERFORMANCE STANDARDS The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the investment risk constraints and the cash flow needs. 8.1 Yields Yields on the short-term portfolio-contains securities with a term to maturity of 1 year or less on the purchase date--should be higher than the rate given by the City's bank for the City's general bank account. Bond indices used as long-term benchmarks calculate returns based on prevailing market values. As the accounting system maintains only historical cost data, the City's calculated returns are derived from the purchase cost. Since the comparison of cost based returns to market returns is not meaningful, there is no benchmark for the long-term portfolio. 9.0 STANDARD OF CARE 9.1 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. Investment officers and employees exercising due diligence and acting in accordance with written procedures and this Policy shall be relieved of personal responsibility for an individual security's credit risks or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidation or the sale of securities are carried out in accordance with the terms of the Policy. KITCHENER PAGE 5 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY 9.2 Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Officers and employees shall not undertake personal transactions with the same individuals with whom business is conducted on behalf of the Corporation. 9.3 Internal Control The Treasurer shall ensure adequate internal controls over investment policies and procedures. The Treasurer shall establish a process of independent review by an internal or external auditor. 9.4 Delegation of Authority The investment policy and any amendments must be adopted by City Council. The City Treasurer will have overall responsibility for the prudent investment of the Corporation's portfolio which complies with this policy, pursuant to the requirements of the Municipal Act. The Director of Financial Planning and Reporting will be responsible for and have the authority for the implementation of the investment program and the establishment of written investment procedures to provide for the effective control and management of investments. These procedures require explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Director of Financial Planning and Reporting. 9.5 Reporting The Treasurer shall provide an investment report to Council at least twice per year. The investment report should include: • statement by Treasurer whether all investments made in accordance with policy • amount and percentage of portfolio represented by each authorized investment category • monthly short term investment balances • long term investment balances • earned rates • proportion of total investments invested in the City's own long and short term securities • statement of all transactions involving purchase and sale of City's own securities, if any KITCHENER PAGE 6 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY 10.0 AUTHORIZED INVESTMENT DEALERS Authorized investment dealers must be registered as Investment Dealers with the Ontario Securities Commission and members of the Investment Dealers Association of Canada, and approved by the Treasurer. 11.0 SECURITIES FOR SUBDIVISION AND DEVELOPMENT SERVICING This policy relating to securities required for Subdivision and Development Servicing has been designed to provide adequate protection to the City of Kitchener and to be fair and reasonable to developers and other interested parties. The objective of the securities policy is to ensure that monies to guarantee the installation of services will be available to the City when required. 11.1 Permitted securities The City of Kitchener shall accept only the following approved securities: • Letter of Credit (in prescribed form acceptable to the City Solicitor) issued by a Schedule I bank, Schedule II bank, Schedule III bank or Trust Company with a DBRS rating of R-1 (middle or high) or AAA , AA (low ,middle or high) (or its equivalent if unavailable). 12.0 GLOSSARY Asset-backed Short or long term debt instruments, which are backed by high Securities: quality assets (such as loans or mortgages) of the issuer, issued under Reg. 733 (50) (1) of the Loans and Trust Corporations Act Commercial Paper: Short term notes or drafts issued by a corporation, incorporated under the laws of Canada or a province of Canada Credit Risk: Risk to an investor that the issuer of an investment will default interest or principal payments Credit Union: Community based financial co-operatives owned and controlled by members Diversification: Process of investing in a range of security types by class, sector, maturity, and quality rating KITCHENER PAGE 7 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY DBRS: Dominion Bond Rating Service is a service that assesses the credit rating of institutions Forward Rate Contract with a qualified financial institution allowing an investor Agreement (FRA): to fix the interest rate to be received on an investment for a specified term beginning at an agreed to future date Interest rate risk: Risk of an increase or decrease in the value of affixed-income security caused by declining or rising interest rates Long-term Investment whose term to maturity is greater than one year investment: Liquidity: Measure of asset's convertibility into cash ONE Fund-Public Pooled investment fund meeting the eligibility criteria defined by Sector Group of the regulations under the Municipal Act. It is operated by the Funds: Local Authorities Service Limited and CHUMS Financing Corporation Schedule I Bank: A chartered bank operating under the Bank Act. The voting shares must be widely held with no investor holding more than 10% and foreign ownership limited to 25% Schedule II Bank: A chartered bank operating under the Bank Act. Schedule II banks may be wholly owned by non-residents Schedule III Bank: A foreign bank branch of foreign institutions operating under the Bank Act under certain restrictions Short-term Investment whose term to maturity is one year or less investment: Supranational An agency sponsored by highly rated foreign bank(s) or Institution: governments issuing debt to fund loans in developing countries for large infrastructure projects. Supranational institutions may be owned or guaranteed by a consortium of national governments Trust Company: Financial institution which acts as a fiduciary, trustee or agent in the administration of trust funds, estates and custodial arrangements KITCHENER PAGE 8 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE A: LONG-TERM CREDIT RATINGS The following chart compares the different scales for long-term securities used by four rating agencies recognized in Ontario Regulation 438/97. Credit Qualit DBRS S&P Mood 's Fitch Superior: extremely strong capacity to AAA AAA Aaa AAA repay principal and interest AA(high) AA+ Aa1 AA+ AA AA Aa2 AA AA(low) AA- Aaa AA- Good: strong capacity to repay A(high) A+ Al A+ principal and interest A A A2 A Allow) A- A3 A- SCHEDULE B: SHORT-TERM CREDIT RATINGS The following chart compares the different scales for short-term securities used by four rating agencies recognized in Ontario Regulation 438/97. Credit Qualit DBRS S&P Fitch Superior: extremely strong capacity to R-1 (high) A-1 + F-1 + repay principal and interest R-1(middle) Good: strong capacity to repay principal R-1 (low) A-1 F-1 and interest KITCHENER PAGE 9 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE C: INVESTMENT POLICY SUMMARY-- SHORT TERM PORTFOLIO Maximum Sector Credit Rating Portfolio Share Limit Government of 100% Canada Provinces R-1 middle, 100% high Municipalities R-1 middle, 20% high Schedule I banks R-1 middle, 100% high Schedule II banks R-1 middle, 30% and Schedule III high banks 25%/issuer 10%/issuer For top 5 major chartered banks: 25%/issuer Other Schedule I banks: 20%/issuer HSBC Canada: 20%/issuer Other Schedule II and III banks: 10%/issuer Credit Unions and R-1 middle, 20% Trust Companies high Eligible Money 100% Market Investment Pools 10%/issuer KITCHENER PAGE 10 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE D: INVESTMENT POLICY SUMMARY-- LONG TERM PORTFOLIO Maximum Sector DBRS Credit Rating Portfolio Limit Share Government of Canada 100% Governments of other AAA 10% 5%/issuer Countries and Supranationals Provincial AAA 50% 25%/issuer AA(high), AA, AA(low) 25%/issuer A(high), A, Allow) 10%/issuer Municipal Region of Waterloo 35% Other municipalities 25% 10%/issuer Including Infrastructure Ontario (10), Municipal Finance Authority of British Columbia (BCMFA), boards and Conservation authorities College, University, AAA 10% 5%/issuer Housing Corp. & Hospital AA(high), AA, AA(low) Municipal Total 35% Debt in Incorporated 100% Total issued Municipal Electrical to City at Utilities incorporation KITCHENER PAGE 11 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE D: INVESTMENT POLICY SUMMARY-- LONG TERM PORTFOLIO (CONT'D) Maximum Sector DBRS Credit Rating Portfolio Limit Share Financial Schedule Ibanks--top 5 AAA 40% 15%/issuer major chartered banks AA(high), AA, AA(low) Other Schedule I, AAA 10% 5%/issuer Schedule II and Schedule AA(high), AA, AA(low) III Banks, Loans and Trust Companies, Credit Unions Financial Total 40% Eligible Pooled Equity 10% Investment Funds KITCHENER PAGE 12 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE E: SUMMARY OF ELIGIBLE DEBT INVESTMENTS AND CONDITIONS Bonds, Debentures, Promissory Notes or Other Evidences of Indebtedness Issuer Conditions Canada or rovince or territor of Canada gency of Canada or a province or territory of Canada Country other than Canada Minimum DBRS rating of "AA(low)" or its equivalent When an investment falls below this standard, the municipality shall sell the investment within 90 da s Municipality in Canada School board or similar entity in Canada Money raised is to be used for school ur oses. Local board as defined in the Municipal Affairs ct (not including a school board or a munici alit Conservation authority established under the Conservation Authorities Act Municipal Finance Authority of British Columbia Ontario Infrastructure Projects Corporation 10 Post-secondary education institution as Minimum DBRS rating of "AA(low)" or its efined in s. 3 of the Post-Secondary Choice equivalent and Excellence Act, 2000 or Board of When an investment falls below this Governors of college of applied arts and standard, the municipality shall sell the echnolo investment within 90 da s Board of a Public Hospital within the meaning Minimum DBRS rating of "AA(low)" or its of the Public Hospitals Act equivalent When an investment falls below this standard, the municipality shall sell the investment within 90 da s Non-profit housing corporation as defined in s. Minimum DBRS rating of "AA(low)" or its 13 of Housing Development Actor local equivalent housing Corporation as defined in s. 2 of When an investment falls below this Social Housing Reform Act, 2000 standard, the municipality shall sell the investment within 90 days Bank Defined As Schedule I, II or III by the Minimum DBRS rating of "AA(low)" or its Bank Act e uivalent Loan Corporation or Trust Company, Credit Minimum DBRS rating of "AA(low)" or its Union or League, Province of Ontario Savings equivalent Office KITCHENER PAGE 13 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE E: SUMMARY OF ELIGIBLE DEBT INVESTMENTS AND CONDITIONS (CONT'D) Bonds, Debentures, Promissory Notes or Other Evidences of Indebtedness Issuer Conditions International Bank for Reconstruction and Develo ment IBRD Supranational financial institution or Minimum DBRS rating of "AAA" or its overnment organization other than equivalent International Bank for Reconstruction and When an investment falls below this Development (IBRD) standard, the municipality shall sell the investment within 90 da s sset-backed securities made under Loan Unrated Municipalities shall invest through and Trust Cor orations Act the ONE Fund Corporation incorporated under the laws of Unrated Municipalities shall invest through Canada or a rovince of Canada the ONE Fund Corporation incorporated under section 142 As long as it is held, it ranks at least equally of the Electricity Act, 1998 in payment of principal and debt with all unsecured debt Total debt investment after the proposed investment is not greater than the total debt investment in such a corporation prior to the proposed investment May not be held longer than 10 years Above conditions do not apply if acquired through a transfer by-law or otherwise under that Act. Source: Municipal Act, 2001 Ontario Regulation 438/97, Last amendment: O. Reg. 39/07 KITCHENER PAGE 14 OF 15 MARCH 2008 POLICY NUMBER: I-605 SUBJECT: INVESTMENT POLICY SCHEDULE F: SUMMARY OF ELIGIBLE SHARE INVESTMENTS AND CONDITIONS suer Conditions ~rporation incorporated under the laws of Only permitted through the ONE Fund with ~nada or a province of Canada the following exceptions: • Securities of a corporation if the municipality first acquires the securities as a gift in a will and the gift is not made for a charitable purpose. However, the securities must be sold within 90 days after it vests in the municipality • Shares of a corporation if: o the corporation has a debt payable to the municipality o under a court order, the corporation has received protection from its creditors o the acquisition of the shares in lieu of the debt is authorized by the court order, and o the treasurer of the municipality is of the opinion that the debt will be uncollectible by the municipality unless the debt is converted to shares under the court order Source: Municipal Act, 2001 Ontario Regulation 438/97, Last amendment: O. Reg. 39/07 KITCHENER PAGE 15 OF 15 MARCH 2008