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3o Guaranteed Investment Contracts 31 Guaranteed Investment Contracts ( "GIC's ") are unsecured promissory notes used by financial institutions 32 as a vehicle to borrow money. Initially a tool used by insurance companies to attract pension fund 33 investments, GIC's have been emulated in recent years by other financial institutions (banks, finance 34 companies, etc.) as an alternative to corporate bonds, commercial paper, or bank loans. 35 36 A GIC is a contract between the investor and the financial institution borrowing the money. The contract 37 contains the terms of the investment (interest rates, maturity dates, withdrawal provisions, etc.). The 38 contract also contains information on security and the credit quality of the borrower and typically contains 39 protection for the investor against a credit problem of the borrower. For example, if a borrower is 4o downgraded from a strong credit rating of `AA', to a weaker credit rating of `A', contract terms can require 41 the borrower to post collateral or allow the funds to be redeemed at par. 42 43 GIC's issued by high credit quality (AA or better) institutions, and containing downgrade protection (see 44 above) are very safe, yield higher than comparable term government securities such as U.S. Treasuries, and 45 can be designed to meet specific investment cash flow needs. 46 47 Bankers Acceptances 48 A banker's acceptance is a promised future payment which is accepted and guaranteed by a bank and drawn 49 on a deposit at the bank. The banker's acceptance outlines the amount of money, the date, and the person to 50 which the payment is owed. The Acceptance becomes an unconditional liability of the bank. 51 52 A banker's acceptance typically covers a period of 12 months or less. They work similar to a post -dated 53 check. However, with the bank guarantee it's more analogous to a post -dated check drawn on a deposit 54 with over -draft protection. Like GIC's, Bankers Acceptances would only be used with high credit quality 55 (AA or better) institutions. 56 57 A copy of the proposed Investment Policy is embedded in AttachmentA in markup form. City Staff will be 58 available at the meeting to address any Council inquires. 59 POLICY OBJECTIVE 60 Maintaining an Investment Policy is consistent with governmental best practices and ensures compliance 61 with all State Statutes. That Policy should maintain an emphasis on security and liquidity but also address 62 the City's cash flow needs. 63 FINANCIAL IMPACTS 64 Not applicable. 65 STAFF RECOMMENDATION 66 Staff Recommends the Council adopt the revised Investment Policy to allow for greater investment 67 earnings of the the City's bond proceeds, while meeting the City's cash flow needs. 68 REQUESTED COUNCIL ACTION 69 Motion to Adopt the attached resolution approving the revised Investment Policy. 70 71 Prepared by: Chris Miller, Finance Director Attachments: A: Resolution to adopt the City's Investment Policy (revised — See Portfolio Management Section) Page 2 of 7