[HISTORY: Adopted by the Board of Selectmen 4-4-2017; amended in its entirety and approved
at Town Meeting 5-20-2019 by Art.
12. Subsequent amendments noted where applicable.]
The primary purpose of this Investment Policy Statement (IPS)
is to provide a clear understanding regarding the Town of Dudley (the
"Town") Long Term Funds and, General Fund objectives, goals, risk
tolerance, and investment guidelines established for the, investment
of town funds.
A.
Scope. This section of the IPS applies only to short-term operating
funds such as general funds, special revenue funds, enterprise funds,
bond proceeds and capital project funds. A separate Contributory Retirement
Board, either local or county, is responsible for the investment of
the pension funds.
B.
Investment instruments.
(1)
Note: Public investments in Massachusetts are not protected through
provisions in state law.
(2)
The Treasurer may invest in the following instruments:
(a)
Massachusetts State pooled fund: unlimited amounts (pool is
liquid). The Massachusetts Municipal Depository Trust (MMDT), an investment
pool for state, local, county and other independent governmental authorities,
is under the auspices of the State Treasurer. It invests in bankers
acceptances, commercial paper of high quality, bank certificates of
deposit, repurchase agreements (repos), and U.S. Treasury obligations.
It has Federal Deposit Insurance Corporation (F.D.I.C.) pass-through
insurance on the CDs up to the standard limits and takes delivery
on the repos and treasuries. Under Government Accounting Standards
Board Regulation (GASB III), it is not considered an uncollateralized
product.
(b)
U.S. Treasuries that will be held to maturity: unlimited amounts
(up to one-year maturity from date of purchase).
(c)
U.S. agency obligations that will be held to maturity: unlimited
amounts (up to one-year maturity from date of purchase).
(d)
Bank accounts or certificates of deposit ("CDs") (up to three
years' maturities from the date of purchase) which are fully
collateralized through a third-party agreement: unlimited amounts.
(e)
Bank accounts and CDs (up to three years' maturities from
the date of purchase) insured by F.D.I.C. up to the coverage limit.
All bank accounts and CDs in one institution are considered in the
aggregate for the insurance coverage limit. In some cases, banking
institutions carry additional insurance, depository insurance fund
(D.I.F.): Contact banking representative for amounts of coverage.
(f)
Unsecured bank deposits of any kind, such as other checking,
savings, money market, or certificates of deposit accounts at banks
that do not fit the above categories. These investments are subject
to the following limitations: No more than 5% of an institution's
assets and no more than 25% of a municipality's cash may be comprised
of unsecured bank deposits. This percentage may be increased for not
more than 30 days during times of heavy collection or in anticipation
of large payments that will be made by the entity in the near future.
For example, these payments may be for such items as debt service
payment or regional school assessments. Their credit worthiness will
be tracked by Veribanc, or other bank credit worthiness reporting
systems. They will be diversified as much as possible. CDs will be
purchased for no more than one year and will be reviewed frequently.
(g)
Money market mutual funds that are registered with the Securities
and Exchange Commission that have received the highest possible rating
from at least one nationally recognized statistical rating organization
and as otherwise referenced in the Massachusetts General Laws Chapter
44, Section 55.
C.
Diversification. Diversification should be interpreted in two ways:
in terms of maturity as well as instrument type and issuer. The diversification
concept should include prohibition against over concentration of maturities,
as well as concentration in a specific institution. Except for U.S.
Treasury obligations or investments fully collateralized by U.S. Treasuries
or agencies, and state pools (MMDT), no more than 25% of the Town's
investments shall be invested in a single financial institution.
D.
Authorization. The Treasurer has authority to invest entity funds,
subject to the statutes of the Commonwealth of Massachusetts General
Laws Chapter 44, Sections 55, 55A and 55B.
E.
Restrictions. Massachusetts General Laws Chapter 44, Section 55,
sets forth several restrictions that the Treasurer must be aware of
when making investment selections.
(1)
A Treasurer shall not at any one time have on deposit in a bank or
trust company an amount exceeding 60% of the capital and surplus of
such bank or trust company or banking company unless satisfactory
security is given to it by such bank or trust company or banking company
for such excess.
(2)
The Treasurer shall not make a deposit in any bank, trust company
or banking company with which he is, or for any time during the three
years immediately preceding the date of any such deposit was, associated
as an officer or employee.
(3)
All securities shall have a maturity from date of purchase of one
year or less, with the exception of bank certificates of deposits
that have a three-year limit from the date of purchase.
(4)
Purchases under an agreement with a trust company, national bank
or banking company to repurchase at not less than original purchase
price of said securities on a fixed date shall not exceed 90 days.
A.
Scope.
(1)
This section of the IPS applies only to funds that are designated
as long-term, i.e., trust funds, stabilization funds, cemetery perpetual
care, Town Preservation Act and other funds the Town may have set
aside for long-term use.
(2)
All accounts will be maintained separately, receiving their proportionate
interest and any realized and unrealized gains or losses. The account
may be established as a pooled investment portfolio unless otherwise
stated. Any additional accounts will be maintained in this same manner.
B.
Authority.
(1)
Massachusetts General Laws Chapter 44, Section 54, pertains to the investment of Trust Funds, Massachusetts General Laws Chapter 40, Section 5B, pertains to the investment of stabilization funds and, Massachusetts General Laws Chapter 44B, Section 7, pertains to the investments of town Preservation Funds. All trust funds shall fall under the control of the entity's Treasurer unless otherwise provided or directed by the donor.
(2)
If the trust fund results from a gift, grant or bequest from a private donor, and the private donor specifies how the trust shall be invested; the trust fund shall be invested in accordance with the terms of the gift, grant or bequest. If there is a conflict between such donor terms and this § A402-3, the donor terms shall govern, subject to the general principles of prudence set forth in the policy.
C.
Investment instruments.
(1)
Massachusetts General Laws Chapter 44, Section 54, states that money should be deposited into savings banks trust companies incorporated under the laws of the commonwealth, banking companies incorporated under the laws of the commonwealth which are members of the Federal Deposit Insurance Corporation, or national banks, or invested in participation units in a combined investment fund under Massachusetts General Laws, Chapter 29, Section 38A, or in a paid-up shares and accounts of and in cooperative banks, or in shares of savings and loan associations or in share or savings deposits of federal savings and loan associations doing business in the commonwealth.
(2)
Additionally, the Town may invest such funds in securities, other
than mortgages or collateral loans, which are legal for the investment
of funds of savings banks under the laws of the commonwealth, provided
that not more than 15% of any such trust funds shall be invested in
bank stocks and insurance company stocks, nor shall more than 1 1/2%
of such funds be invested in the stock of any one bank or insurance
company.
(3)
The Treasurer may invest in the following instruments:
(a)
U.S. Treasuries that maybe sold prior to maturity: unlimited
amounts (with no limit to the length of maturity from date of purchase).
(b)
U.S. Agency obligations that maybe sold prior to maturity: unlimited
amounts (with no limit to the length of maturity from date of purchase).
(c)
Bank accounts or certificates of deposit ("CDs"): unlimited
amounts (with no limit to the length of maturity from date of purchase),
which is fully collateralized through a third-party agreement.
(d)
Bank accounts and CDs (with no limit to the length of maturity
from date of purchase) fully insured by F.D.I.C. and in some cases
also Depository Insurance Fund of Massachusetts (D.I.F.): All bank
accounts and CDs in one institution are considered in the aggregate
to receive the insurance coverage limit.
(e)
Unsecured bank deposits of any kind such as other checking,
savings, money market, or certificates of deposit accounts at banks
that do not fit the above categories. These investments are subject
to the following limitations: These investments will be limited to
no more than 5% of an institution's assets and no more than 25%
of a municipality's cash. This percentage may be increase for
not more than 30 days during times of heavy collection or in anticipation
of large payments that will be made by the Town in the near future.
These payments may be for such items as debt service payment or regional
school assessments. Their credit worthiness will be tracked by Veribane,
or other bank credit worthiness reporting systems. They will be diversified
as much as possible. CDs will be purchased with no limit to the length
of maturity from the date of purchase and will be reviewed frequently.
(f)
Common and preferred stock that are listed in the List of Legal
Investments.
(g)
Investment funds that are listed in the List of Legal Investments.
(h)
All other items not separately identified here that are listed
in the List of Legal Investments.
D.
Standards of care.
(1)
The standard of prudence to be used by the Treasurer shall be the
"prudent person" standard and shall be applied in the context of managing
an overall portfolio. The Treasurer acting in accordance with written
procedures and this IPS, and exercising reasonable due diligence,
shall be relieved of personal responsibility for an individual security's
credit risk or market price changes, provided that the purchases and
sale of securities is carried out in accordance with the terms of
this IPS and the associated Massachusetts General Laws.
(2)
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.
(3)
In addition, this section would also apply to Massachusetts General
Laws Chapter 44, Section 55A, which refers to the liability of the
Treasurer for losses due to bankruptcy.
E.
Diversification. Diversification should be interpreted in two ways:
in terms of maturity as well as instrument type and issuer. The diversification
concept should include prohibition against over concentration of maturities,
as well as concentration in a specific institution, except for U.S.
Treasury obligations or investments fully collateralized by U.S. Treasuries
or agencies.
G.
Trust Funds may be commingled and invested in any instruments allowed
by the Commonwealth of Massachusetts List of Legal Investments issued
by the Banking Commissioner each July. Each trust fund must be accounted
for separately. Massachusetts General Laws Chapter 44, Section 54,
sets forth that Treasurers may invest in instruments that are legal
for savings banks. This list of investments is included in the Commonwealth
of Massachusetts List of Legal Investments, Chapter 167, Section 15A.
A.
Objective.
(1)
Massachusetts General Laws Chapter 44, Section 55B, requires the
entity's Treasurer to invest all public funds except those required
to be kept uninvested for purposes of immediate distribution.
(2)
This section also requires that invested funds are to be placed at
the highest possible rate of interest reasonably available, considering
the acceptable levels of safety, liquidity and yield. Therefore, these
guidelines are intended to further the objective of securing the highest
reasonable return available that is consistent with safety of principal
while meeting the daily cash requirements for the operation of the
entity's business.
(a)
Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to
preserve capital through the mitigation of credit risk and interest
rate risk. These risks shall be mitigated by the diversification and
prudent selection of investment instruments, and choice of depository.
Credit risk is the risk of loss due to the failure of the security
issuer or backer. Interest rate risk is the risk that the market value
of the security will fall due to changes in general interest rates.
(b)
Liquidity is the next most important objective. The overall
investment portfolio shall remain sufficiently liquid to meet all
operating requirements that may be reasonably anticipated. Since all
possible cash demands cannot be anticipated, the Treasurer shall attempt
to carry out investment activities in a manner that provides for meeting
unusual or unexpected cash demands without requiring the liquidation
of investments that could result in forfeiture of accrued interest
earnings, and loss of principal in some cases.
(c)
Yield is the third, and last, objective. Investments shall be
undertaken to achieve a fair market average rate of return, taking
into account safety and liquidity constraints as well as all legal
requirements.
B.
Risk tolerance.
(1)
Credit risk.
(a)
"Credit risk" is the risk that an issuer or other counterparty
to an investment will not fulfill its obligations.
(b)
The Town will manage credit risk several ways. There will be no limit to the amount of United States Treasury and United States Government Agency obligations. In regard to other investments, the Town will only purchase investment grade securities with a high concentration in securities rated A or better. The Town may invest in the Massachusetts Municipal Depository Trust (MMDT) with no limit to the amount of funds placed in the fund. The Town may place funds in banking institutions as stated in § A402-3C of this IPS.
(2)
Custodial risk.
(a)
The "custodial credit risk" for deposits is the risk that, in
the event of the failure of a depository financial institution, a
municipality will not be able to recover deposits or will not be able
to recover collateral securities that are in the possession of an
outside party. The custodial credit risk for investments is the risk
that, in the event of the failure of the counterparty to a transaction,
a municipality will not be able to recover the value of investment
or collateral securities that are in the possession of an outside
party.
(b)
The Town will review the financial institution's financial
statements and the background of the advisor. The intent of this qualification
is to limit the Town's exposure to only those institutions with
a proven financial strength, capital adequacy of the firm, and overall
affirmative reputation in the municipal industry. Further, all securities
not held directly by the Town, will be held in the Town's name
and tax identification number by a third-party custodian approved
by the Treasurer and evidenced by safekeeping receipts showing individual
CUSIP numbers for each security.
(3)
Concentration of credit risk.
(a)
"Concentration of credit risk" is the risk of loss attributed
to the magnitude of a government's investment in a single issuer.
(b)
The Town will minimize concentration of credit risk by diversifying
the investment portfolio so that the impact of potential losses from
any one type of security or issuer will be minimized.
C.
Ethics. The Treasurer (and Assistant Treasurer) shall refrain from
any personal activity that may conflict with the proper execution
of the investment program or which could impair or appear to impair
their ability to make impartial investment decisions. Said individuals
shall disclose to the Board of Selectmen any material financial interest
in financial institutions that do business with the Town. They shall
also disclose any large personal financial investment positions or
loans that could be related to the performance of the Town's
investments.
D.
Relationship with financial institutions.
(1)
Financial institutions should be selected first and foremost about
their financial soundness and stability. The Town may subscribe to
the Veribanc Rating Service to evaluate the banking institutions with
which it chooses to establish relationships. Brokers should be recognized,
reputable dealers and members of the Financial Industry Regulatory
Authority (FINRA).
(2)
In instances where the Town does not purchase the Veribanc Rating
Service, the Treasurer should request the banking institution's
Veribanc rating from all the banking institutions that are working
with the Town on a quarterly basis.
(3)
When using the Veribanc Rating Service the Treasurer may invest in
such banks that show a green rating in a quarter. If a rating is yellow
the Treasurer should contact the appropriate banking institution and
request in writing an explanation of the change in rating and the
expected time table for it to be changed to green. If for a second
quarter such rating is not green, the Treasurer should consider removing
all funds that are not collateralized, or carry some form of depositor's
insurance. If a rating moves to red, all money should be immediately
collateralized or covered by some form of depositor's insurance
or be removed from the banking institution.
(4)
The Treasurer shall require any brokerage houses and broker/dealers
wishing to do business with the municipality to supply the following
information to the Treasurer on an annual basis:
(a)
Annual financial statements.
(b)
If acting as a registered investment advisor, copy of their
most recent Form ADV Part II report.
(c)
Errors and omissions insurance amounting to, at a minimum, the
total fair market value of the trust fund portfolio.
(d)
A statement that the advisor has read the municipality's
IPS and will comply with it on an annual basis.
(e)
Annual review all advisors through www.finra.org: Broker Check.
E.
Reporting requirements. On a quarterly basis, a report containing
the following information will be prepared by the Treasurer and distributed
to the Board of Selectmen, as appropriate. The quarterly report will
include the following information, as a minimum requirement:
(1)
A listing of the individual accounts and individual securities held
at the end of the reporting period.
(2)
A listing of the short-term investment portfolio by security type
and maturity to ensure compliance with the diversification and maturity
guidelines established in the diversification section of this IPS.
(3)
A summary of the income earned monthly and year-to-date basis shall
be reported.
(4)
The Treasurer shall include in the report a brief statement of general
market and economic conditions and other factors that may affect the
entity's cash position.
(5)
The report should demonstrate the degree of compliance with the tenets
set forth in the IPS.
