CITY OF BOULDER FINANCIAL INVESTMENT STAFF GUIDELINES

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1 CITY OF BOULDER FINANCIAL INVESTMENT STAFF GUIDELINES I. POLICY It is the policy of the City of Boulder to invest public funds in a manner which will provide preservation of capital, meet the daily liquidity needs of the City, diversify the City s investments, conform to all cited local and state statutes governing the investment of public funds, and generate market rates of return. Investments will be purchased in accordance with the City s investment policy and in accordance with Title 2, Chapter 10 of the Boulder Revised Code (1981). II. SCOPE These investment guidelines apply to the activities of the City with regard to investing the financial assets of all funds as specified in BRC These guidelines are adopted by the Finance Director as guidance to the Treasury Staff. III. STANDARDS OF CARE B. Delegation of Authority Authority to manage the portfolio for the City of Boulder investment program is derived from BRC Management responsibility for the investment program is delegated by the City Manager to the Finance Director. A list of employees of the City of Boulder who are authorized to purchase, sell, wire securities or funds, or transfer custodianship on behalf of the City shall be maintained by the Finance Director. The Finance Director shall have the discretion to appoint (or to not appoint) one or more investment advisers, registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, to assist in the management of all or a portion of the City s investment portfolio. All investments made through such investment advisers shall be within the guidelines of the City s investment policies. C. Investment Committee The Finance Director will appoint an Investment Committee, chaired by the Finance Director and including at least two (2) additional employees of the City knowledgeable in the area of governmental investments. The purpose of the Investment Committee shall be to provide advice regarding the operation of the cash management and investment program. The Committee shall meet at least once per quarter. Version

2 IV. AUTHORIZED AND SUITABLE INVESTMENTS INCLUDING COLLATERALIZATION AND DIVERSIFICATION B. Diversification 2. It is the policy of the City to diversify its investment portfolio. Investments shall be diversified to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific class of securities. Diversification strategies shall be reviewed periodically by the Investment Committee. 3. Table 1 summarizes which securities may be purchased by the Finance Director, limits on security issues, limits on issuers, and maximum maturities for the various types of securities. Investments may be further restricted in selected instruments, to conform to then-present market conditions. 3. Tests for limitations on percentages of holdings apply to the composite of the entire portfolio of the City, not to individual portfolios maintained by the City. Percentage limitations used for measurements are based on the percentage of cost value of the portfolio. 4. If a security is purchased that requires a certain rating at the time of purchase, the security does not have to be sold if the rating subsequently drops below the required rating level. The Investment Committee should be made aware of the change in rating. Version

3 SUMMARY OF AUTHORIZED SECURITIES WHICH MAY BE PURCHASED BY THE CITY OF BOULDER PORTFOLIO ISSUER MATURITY INSTRUMENT MIN/MAX MAXIMUM MAXIMUM U.S. Treasury Obligations 10% min 100% max 100% Ten (10) years unless the maturity is matched to a specific cash flow need. U.S. Government Agencies 20% max 20% Ten (10) years unless the maturity is matched to a specific cash flow need. U.S. Government Instrumentalities 75% max 35% Ten (10) years unless the maturity is matched to a specific cash flow need. CD s (non-negotiable) 10% max 5% Five (5) years Commercial Paper 50% max 5% 270 days Banker s Acceptances 50% max 5% 180 days Repurchase Agreements Collateralized Mortgage Obligations (CMOs) 100% with direct obligations 50% any other type of collateral 50% 50% 180 days (Collateral of Treasuries and Fed Instrumentalities with maturities of less than Ten (10) years) 10% max 5% Rated in 1 of its 2 highest rating categories by 2 or more rating agencies - Tranche A maturities of less than Ten (10) years Corporate Bonds 10% max 5% Three (3) years LGIPs 50% max 30% Comply with 270-2A-7 regs Money Market Mutual Funds 20% max 10% Comply with 270-2A-7 regs Table 1 Version

4 V. INTERNAL CONTROLS The Finance Director shall establish appropriate internal controls that shall safeguard the funds of the City. Examples of the internal controls may include, but not be limited to, the following items: A. Delivery versus Payment B. Other VI. GLOSSARY All securities purchased or sold will be transferred when possible only under delivery versus payment (D.V.P.) method to ensure that funds or securities are not released until all criteria relating to the specific transaction are met. Securities may be transferred free of payment only after obtaining pre-approval in writing from the Finance Director or the appointed designee. Internal controls and documented procedures shall encompass at a minimum the additional issues of: separation of functions including transaction authority from accounting and record-keeping, to the extent deemed appropriate given available staff. delegation of authority to staff members or authorized investment advisors. written confirmation of telephone or fax transactions. supervisory oversight of employee actions and operations review. guidelines regarding review of holdings. guidelines for purchasing and selling securities with broker/dealers. minimum credit criteria for banks. Agencies: Federal agency securities. Bankers Acceptance (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. Broker: A broker brings buyers and sellers together for a commission paid by the initiator of the transaction or by both sides; the broker does not position. In the money market, brokers are active in markets in which banks buy and sell money and in inter-dealer markets. Callable Bond: A bond redeemable by the issuer before the scheduled maturity. Certificate of Deposit: A time deposit with a specific maturity evidenced by a certificate. Large denomination CDs are typically negotiable. Version

5 Collateral: Securities or property pledged by a borrower to secure payment. Collateralized Mortgage Obligation: Mortgage-backed bond that separates mortgage pools into short, medium and long term portions. The different time frames are split into time frames called tranches. Commercial Paper: An unsecured promissory note with a fixed maturity of no more than 270 days. Commercial paper is normally sold at a discount from face value. Dealer: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his/her own account. Delivery Versus Payment: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt (also called free). Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. Debenture: A bond secured only by the general credit of the issuer. Derivative Security: A financial instrument whose value is based on, and determined by, another security or benchmark (i.e. stock options, futures, interest rate swaps, floating rate notes, caps/floors). Diversification: Dividing investment funds among a variety of securities offering independent returns. Federal Deposit Insurance Corporation (FDIC): A federal institution that insures bank and savings and loan deposits, currently up to $100,000. Fed Wire: A computer system linking member banks and other financial institutions to the Fed, used for making inter-bank payments of Fed funds and for making deliveries of and payments for Treasury, agency and book-entry mortgage backed securities. Investment Adviser s Act: Legislation passed by Congress in 1940 that requires all investment advisers to register with the Securities and Exchange Commission. The Act is designed to protect the public from fraud or misrepresentation by investment advisers. Liquidity: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. Local Government Investment Pool: The aggregate of all funds from political subdivisions that are placed in custody of pools authorized under the laws of the State. Market Value: The price at which a security is trading and could presumably be purchased or sold. Version

6 Master Repurchase Agreement: A written contract covering all future transactions between the parties to repurchase reverse repurchase agreements that establish each party s rights in the transactions. A Master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. Maturity: The date upon which the principal or stated value of an investment becomes due and payable. Money Market Mutual Fund: A mutual fund that limits its investments to some or all types of money market instruments. Mutual Funds: A fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities. Portfolio: Collection of securities held by an investor. Prudent Investor Rule: 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. Rate of Return: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return. Ratings: An evaluation of an issuer of securities by Moody s, Standard & Poor s, Fitch, or other rating services of a security s credit worthiness. Repurchase Agreements: A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security buyer in effect lends the seller money for the period of the agreement, and the terms of the agreement are structured to compensate him/her. Dealers use repurchase agreements extensively to finance their positions. Reverse Repurchase Agreements: The mirror image of a repurchase agreement. In exchange for securities, a dealer transfers cash to the institutional investor. Often used as a source of liquidity when cash flow needs are mismatched with maturities. Safekeeping: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank s vault for protection. Treasury Bills: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. Treasury Bonds: Long-term U.S. Treasury securities having initial maturities of more than ten years. Version

7 Treasury Notes: Intermediate term coupon bearing U.S. Treasury securities having initial maturities of from one to ten years. Weighted Average Life (WAL): A measure that summarizes the maturity characteristics of a pass through security using prepayment assumptions. Yield: The rate of annual income return on an investment, expressed as a percentage. Zero Coupon Bonds: Bonds where the owner separates the interest-bearing coupons and sells the remaining principal certificate, usually at a price substantially below its face value. VII. EXCEPTIONS Any exceptions to these investment guidelines must be approved by the Director of Finance in writing. VIII. ACCEPTANCE AND APPROVAL These investment guidelines are hereby approved, effective as of the date noted below until amended, superseded or rescinded by the Director of Finance. Robert W. Eichem Director of Finance City of Boulder Effective Date Version

8 CITY OF BOULDER FINANCIAL INVESTMENT GUIDELINES ADDENDUM 1 The following broker/dealers are hereby approved for conducting City business: Morgan Stanley/Smith Barney Angela Pizzichini, Matt Gurba, Deidre Cortney Mizuho Securities USA Sheila Doyle Cantor Fitzgerald Robyn Grade Wells Fargo Dave Johnson, William Knorr UBS Paul Arevian The following personnel are authorized to execute trades for the City of Boulder according to these guidelines: Kim Carpentier Duane Hudson Robert Eichem This addendum is hereby approved, effective as of the date noted below until amended, superseded or rescinded by the Director of Finance. Robert W. Eichem Director of Finance City of Boulder Effective Date 11/8/2010 9:27 AM -1 -

CITY OF SOUTHFIELD, MICHIGAN

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