[Ord. No. 1206 §1, 11-16-2009]
A.
This
policy applies to the investment of all operating funds of the City
of Pevely. Longer-term funds, including investments of employees'
retirement funds and proceeds from certain bond issues, are covered
by a separate policy.
1.
Pooling of funds. Except for cash in certain restricted
and special funds, the City of Pevely will consolidate cash balances
from all funds to maximize investment earnings. Investment income
will be allocated to the various funds based on their respective participation
and in accordance with generally accepted accounting principles.
2.
External management of funds. Investment through
external programs, facilities and professionals operating in a manner
consistent with this policy will constitute compliance.
[Ord. No. 1206 §1, 11-16-2009]
A.
The
primary objectives, in priority order, of investment activities shall
be safety, liquidity and yield:
1.
Safety. Safety of principal is the foremost objective
of the investment program. Investments shall be undertaken in a manner
that seeks to ensure the preservation of capital in the overall portfolio.
The objective will be to mitigate credit risk and interest rate risk.
a.
Credit risk. The City of Pevely will minimize credit
risk, the risk of loss due to the failure of the security issuer or
backer, by:
b.
Interest rate risk. The City of Pevely will minimize
the risk that the market value of securities in the portfolio will
fall due to changes in general interest rates by:
2.
Liquidity. The investment portfolio shall remain
sufficiently liquid to meet all operating requirements that may be
reasonably anticipated. This is accomplished by structuring the portfolio
so that securities mature concurrent with cash needs to meet anticipated
demands (static liquidity). Furthermore, since all possible cash demands
cannot be anticipated, the portfolio should consist largely of securities
with active secondary or resale markets (dynamic liquidity). A portion
of the portfolio also may be placed in bank deposits or repurchase
agreements that offer same-day liquidity for short-term funds.
3.
Yield. The investment portfolio shall be designed
with the objective of attaining a market rate of return throughout
budgetary and economic cycles, taking into account the investment
risk constraints and liquidity needs. Return on investment is of secondary
importance compared to the safety and liquidity objectives described
above. The core of investments are limited to relatively low risk
securities in anticipation of earning a fair return relative to the
risk being assumed. Securities shall not be sold prior to maturity
with the following exceptions:
[Ord. No. 1206 §1, 11-16-2009]
A.
Prudence. The standard of care to be used by investment
officials shall be the "prudent person" standard and shall be applied
in the context of managing an overall portfolio. Investment officers
acting in accordance with written procedures and this investment policy
and exercising due diligence shall be relieved of personal liability
for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion
to the Governing Body and the liquidity and the sale of securities
are carried out in accordance with the terms of this policy.
Investments shall be made with judgement 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.
B.
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. Employees and officers shall refrain from undertaking personal
investment transactions with the same individual with which business
is conducted on behalf of the City of Pevely.
C.
Delegation Of Authority. Authority to manage the investment
program is granted to the City Clerk, hereinafter referred to as investment
officer, and derived from Ordinance No. 1204. Responsibility for the
operation of the investment program is hereby delegated to the investment
officer who shall act in accordance with the established written procedures
and internal controls for the operation of the investment program
consistent with this investment policy. Procedures should include
references to: safekeeping, delivery vs. payment, investment accounting,
repurchase agreements, wire transfer agreements and collateral/depository
agreements. No person may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the investment officer. The investment officer shall be responsible
for all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate officials.
[Ord. No. 1206 §1, 11-16-2009]
A.
Authorized Financial Dealers And Institutions.
1.
A list will be maintained of financial institutions authorized to
provide investment transactions. In addition, a list also will be
maintained of approved security broker/dealers selected by credit
worthiness as determined by the investment officer and approved by
the Governing Body. These may include "primary" dealers or regional
dealers that qualify under Securities and Exchange Commission (SEC)
Rule 15C3-1 (uniform net capital rule).
2.
All financial institutions and broker/dealers who desire to become
qualified for investment transactions must supply the following as
appropriate:
3.
An annual review of the financial condition and registration of qualified
financial institutions and broker/dealers will be conducted by the
investment officer.
4.
From time to time, the investment officer may choose to invest in instruments offered by emerging or minority firms and community financial institutions. In such situations, a waiver to the criteria under Subsection (A)(1) may be granted by the Governing Body. All terms and relationships will be fully disclosed prior to purchase and will be reported to the Governing Body of the City of Pevely on a consistent basis. The Governing Body of the City of Pevely should approve these types of investment purchases in advance.
B.
Internal Controls.
1.
The investment officer is responsible for establishing and maintaining
an internal control structure that will be reviewed annually with
the City of Pevely's independent auditor. The internal control structure
shall be designed to ensure that the assets of the City of Pevely
are protected from loss, theft or misuse and to provide reasonable
assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of control should not exceed
the benefits likely to be derived and (2) the valuation of costs and
benefits require estimates and judgements by management.
2.
The internal controls shall address the following points:
a.
Control of collusion.
b.
Separation of transaction authority from accounting and record keeping.
c.
Custodial safekeeping.
d.
Avoidance of physical delivery securities.
e.
Clear delegation of authority to subordinate staff members.
f.
Written confirmation of transactions for investments and wire transfers.
g.
Development of a wire transfer agreement with the lead bank and third
(3rd) party custodian.
C.
Delivery vs. Payment. All trades where applicable will
be executed by delivery vs. payment (DVP) to ensure that securities
are deposited in eligible financial institutions prior to the release
of funds. All securities shall be perfected in the name or for the
account of the City of Pevely and shall be held by a third (3rd) party
custodian as evidenced by safekeeping receipts.
[Ord. No. 1206 §1, 11-16-2009]
A.
Investment Types. In accordance with and subject to restrictions
imposed by current statutes, the following list represents the entire
range of investments that City of Pevely will consider and which shall
be authorized for the investments of funds by the City of Pevely.
1.
United States Treasury securities. The City of Pevely
may invest in obligations of the United States Government for which
the full faith and credit of the United States are pledged for the
payment of principal and interest.
2.
United States agency securities. The City of Pevely
may invest in obligations issued or guaranteed by any agency of the
United States Government as described in V. (2).
3.
Repurchase agreements. The City of Pevely may invest
in contractual agreements between the City of Pevely and commercial
banks or primary government securities dealers. The purchaser in a
repurchase agreement (repo) enters into a contractual agreement to
purchase U.S. Treasury and government agency securities while simultaneously
agreeing to resell the securities at predetermined dates and prices.
4.
Collateralized public deposits (certificates of deposit). Instruments issued by financial institutions which state that specified
sums have been deposited for specified periods of time and at specified
rates of interest. The certificates of deposit are required to be
backed by acceptable collateral securities as dictated by State Statute.
5.
Bankers' acceptances. Time drafts drawn on and accepted
by a commercial bank, otherwise known as bankers' acceptances. The
City of Pevely may invest in bankers' acceptances issued by domestic
commercial banks possessing the highest rating issued by Moody's Investor
Services, Inc., or Standard and Poor's Corporation.
B.
Security Selection. The following list represents the entire
range of United States agency securities that the City of Pevely will
consider and which shall be authorized for the investment of funds
by the City of Pevely. Additionally, the following definitions and
guidelines should be used in purchasing the instruments:
1.
U.S. Government agency coupon and zero coupon securities. Bullet coupon bonds with no embedded options.
2.
U.S. Government agency discount notes. Purchased
at a discount with maximum maturities of one (1) year.
3.
U.S. Government agency callable securities. Restricted
to securities callable at par only with final maturities of five (5)
years.
4.
U.S. Government agency step-up securities. The coupon
rate is fixed for an initial term. At coupon date, the coupon rate
rises to a new, higher fixed term. Restricted to securities with final
maturities of five (5) years.
5.
U.S. Government agency floating rate securities. The coupon rate floats off one (1) index. Restricted to coupons
with no interim caps that reset at least quarterly.
6.
U.S. Government mortgage backed securities. Restricted
to securities with final maturities of five (5) years.
C.
Investment Restrictions And Prohibited Transactions. To
provide for the safety and liquidity of the City of Pevely's funds,
the investment portfolio will be subject to the following restrictions:
1.
Borrowing for investment purposes ("leverage") is prohibited.
2.
Instruments known as structured notes (e.g. inverse floaters, leveraged
floaters and equity-linked securities) are not permitted. Investment
in any instrument, which is commonly considered a "derivative" instrument
(e.g. options, futures, swaps, caps, floors and collars), is prohibited.
3.
Contracting to sell securities not yet acquired in order to purchase
other securities for purposes of speculating on developments or trends
in the market is prohibited.
4.
No more than five percent (5%) of the total market value of the portfolio
may be invested in bankers' acceptances issued by any one (1) commercial
bank and no more than five percent (5%) of the total market value
of the portfolio may be invested in commercial paper of any one (1)
issuer.
D.
Collateralization.
1.
Collateralization will be required on two (2) types of investments:
certificates of deposit and repurchase agreements. The market value
(including accrued interest) of the collateral should be at least
one hundred percent (100%).
2.
For certificates of deposit, the market value of collateral must
be at least one hundred percent (100%) or greater of the amount of
certificates of deposits plus demand deposits with the depository,
less the amount, if any, which is insured by the Federal Deposit Insurance
Corporation or the National Credit Unions Share Insurance Fund.
3.
All securities, which serve as collateral against the deposits of
a depository institution, must be safekept at a non-affiliated custodial
facility. Depository institutions pledging collateral against deposits
must, in conjunction with the custodial agent, furnish the necessary
custodial receipts within five (5) business days from the settlement
date.
4.
The City of Pevely shall have a depositary contract and pledge agreement
with each safekeeping bank that will comply with the Financial Institutions,
Reform, Recovery and Enforcement Act of 1989 (FIRREA). This will ensure
that the [entity's] security interest in collateral pledged to secure
deposits is enforceable against the receiver of a failed financial
institution.
E.
Repurchase Agreements. The securities for which repurchase
agreements will be transacted will be limited to U.S. Treasury and
government agency securities that are eligible to be delivered via
the Federal Reserve's Fedwire book entry system. Securities will be
delivered to the [entity's] designated custodial agent. Funds and
securities will be transferred on a delivery vs. payment basis.
[Ord. No. 1206 §1, 11-16-2009]
A.
Diversification. The investments shall be diversified to
minimize the risk of loss resulting from over concentration of assets
in specific maturity, specific issuer or specific class of securities.
Diversification strategies shall be established and periodically reviewed.
At a minimum, diversification standards by security type and issuer
shall be:
1.
U.S. treasuries and securities having principal and/or interest guaranteed
by the U.S. Government: 100%.
2.
Collateralized time and demand deposits: 100%.
3.
U.S. Government agencies and government sponsored enterprises: no
more than 60%.
4.
Collateralized repurchase agreements: 50%.
5.
U.S. Government agency callable securities: no more than 30%.
6.
Bankers' acceptances: no more than ten percent (10%).
B.
Maximum Maturities.
1.
To the extent possible, the City of Pevely shall attempt to match
its investments with anticipated cash flow requirements. Investments
in bankers' acceptances shall mature and become payable not more than
one hundred eighty (180) days from the date of purchase. All other
investments shall mature and become payable not more than five (5)
years from the date of purchase. The City of Pevely shall adopt weighted
average maturity limitations that should not exceed three (3) years
and is consistent with the investment objectives.
2.
Because of inherent difficulties in accurately forecasting cash flow
requirements, a portion of the portfolio should be continuously invested
in readily available funds such as in bank deposits or overnight repurchase
agreements to ensure that appropriate liquidity is maintained to meet
ongoing obligations.
[Ord. No. 1206 §1, 11-16-2009]
A.
Methods. The investment officer shall prepare an investment
report at least quarterly, including a management summary that provides
an analysis of the status of the current investment portfolio and
transactions made over the last quarter. This management summary will
be prepared in a manner that will allow the City of Pevely to ascertain
whether investment activities during the reporting period have conformed
to the investment policy. The report should be provided to the Governing
Body of the City of Pevely. The report will include the following:
1.
Listing of individual securities held at the end of the reporting
period.
2.
Realized and unrealized gains or losses resulting from appreciation
or depreciation by listing the cost and market value of securities
over one (1) year duration (in accordance with Government Accounting
Standards Board (GASB) 31 requirements). [Note, this is only required
annually.]
3.
Average weighted yield to maturity of portfolio on investments as
compared to applicable bench marks.
4.
Listing of investment by maturity date.
5.
Percentage of the total portfolio which each type of investment represents.
B.
Performance Standards.
1.
The investment portfolio will be managed in accordance with the parameters
specified within this policy. The portfolio should obtain a market
average rate of return during a market/economic environment of stable
interest rates. A series of appropriate bench marks may be established
against which portfolio performance shall be compared on a regular
basis.
2.
Bankers' acceptances must be reviewed monthly to determine if the
rating level has changed. Bankers' acceptances should be reviewed
for possible sale if the securities are downgraded below the minimum
acceptable rating levels.
C.
Marking To Market. The market value of the portfolio shall
be calculated at least quarterly and a statement of the market value
of the portfolio shall be issued at least annually to the Governing
Body of the City of Pevely. This will ensure that review of the investment
portfolio, in terms of value and price volatility, has been performed.
[Ord. No. 1206 §1, 11-16-2009]
A.
Exemption. Any investment currently held that does not meet
the guidelines of this policy shall be exempt from the requirements
of this policy. At maturity or liquidation, such monies shall be reinvested
only as provided by this policy.
B.
Adoption. This policy shall be adopted by resolution of
the [entity's] Governing Body. The policy shall be reviewed annually
by the investment officer and recommended changes will be presented
to the Governing Body for consideration.
[Ord. No. 1206 §1, 11-16-2009]
A.
The
following documents, as applicable, are attached to this policy:
1.
Securities acceptable as collateral to secure deposits.
2.
Listing of authorized personnel.
3.
Relevant investment Statutes and ordinances.
4.
Repurchase agreements and tri-party agreements.
5.
Listing of authorized broker/dealers and financial institutions.
6.
Safekeeping agreements.
7.
Wire transfer agreements.
8.
Sample investment reports.
9.
Glossary.
