DENVER URBAN RENEWAL AUTHORITY INVESTMENT POLICY

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1 DENVER URBAN RENEWAL AUTHORITY INVESTMENT POLICY Effective Date: March 20, 2014

2 Table of Contents Section Page 1. Purpose Scope Objectives Standards of Care Eligible Investments Investment Parameters Safekeeping and Custody Reporting Requirements Performance Standards Investment Policy Approval Eligible Investment Summary... 10

3 Denver Urban Renewal Authority Investment Policy Statement 1. PURPOSE It is the policy of the Denver Urban Renewal Authority (the Authority ) to invest funds in accordance with the requirements of the Denver Urban Renewal Authority Board of Commissioners to meet needs of liquidity, working capital, and financing for the present and future operations of the Authority while conforming to Federal, State and local statutes governing investment funds. 2. SCOPE This Investment Policy ("Policy") applies to all funds of the Authority and funds controlled by the Authority ("Portfolio") or unless such funds are subject to other separate and specific requirements. Nothing in this Investment Policy is intended to apply to funds held or invested as part of any pension plan, retirement plan or deferred compensation plan. This Investment Policy does not restrict the use of Denver Urban Renewal Authority funds for authorized program purposes. 3. OBJECTIVES The objectives, in priority order, of the Authority's investment activities shall be: 3.1 Safety Safety of principal is the foremost objective of the investment program. Investments of the Authority will be made in a manner that seeks to ensure the preservation of capital in the Portfolio. To attain this objective, the Authority will endeavor to mitigate credit and interest rate risks. Credit Risk: The Authority will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by: Limiting investments to the types of securities listed in the Eligible Investments section of this Policy. Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. Interest Rate Risk: The Authority will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 1

4 3.2 Liquidity The Portfolio will remain sufficiently liquid to enable the Authority to meet all operating requirements which might be reasonably anticipated. This will be achieved through maturity diversification and purchases of securities that have an established secondary market. 3.3 Yield The 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, liquidity needs, and cash flow characteristics of the Portfolio. 3.4 Diversification The Portfolio management will maintain diversification of investments to avoid inappropriate concentration in the type of investments held. 3.5 Fiduciary Control Provides fiduciary control of all investments and cash by a Trustee Administrator and/or Denver Urban Renewal Authority s Board appointed Audit and Finance Committee. 4. STANDARDS OF CARE 4.1 Prudence The Executive Director and the Authority shall adhere to the guidance provided by the prudent investor standard to insure that: When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law." This standard of prudence is to be used by all Authority officers and employees involved in the investment process as well as any external investment advisors. The Authority shall recognize that no investment is totally riskless and that the investment activities of the Authority are a matter of public record. Accordingly, the Authority recognizes that occasional measured losses are inevitable in a diversified portfolio and shall be considered within the context of the overall portfolio s return, provided that adequate diversification has 2

5 been implemented, and that the sale of a security is in the best long-term interest of the Authority. Authorized investment personnel acting in accordance with this Policy and exercising due diligence shall be relieved of personal responsibility for an individual security s credit risk or market price changes, provided that deviations from expectation are reported in a timely fashion and appropriate action is taken to control adverse developments. 4.2 Delegation of Authority Management responsibility for the investment program is hereby delegated to the Executive Director and her designees. The Executive Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The Authority may, in its discretion, contract with one or more investment advisers, registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, to manage a portion of its portfolio assets. Any such advisor shall comply with this Policy and such other written instructions as provided by the Authority. While it is understood that the procedures and trading counterparties of a contracted investment adviser may differ from those of the Authority, contracted investment advisers must maintain internal controls and compliance systems at least as extensive as those of the Authority in order to assure adequate protection of its assets in keeping with the standards of prudence outlined above. 4.3 Investment Procedures The Authority shall establish written procedures for the operation of the investment program, consistent with this Policy, which shall include 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 internal procedures established by the Authority. Persons who are authorized to transact investment business and wire funds on behalf of the Authority are as identified by Board Resolution. 4.4 Internal Controls The Executive Director shall establish a system of internal controls, which shall be reviewed annually. The controls shall be designed to prevent loss of funds due to fraud, employee error, and misrepresentation by third parties or imprudent actions by employees of the Authority. Compliance with the Authority s Investment Policy shall be subject to review by external auditors or others as determined from time to time by the Audit and Finance Committee. 4.5 Ethics and Conflicts of Interest 3

6 Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the Executive Director any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the Authority s portfolio. Employees and officers shall subordinate their personal investment transactions to those of the Authority, particularly with regard to the time of purchases and sales. 5. ELIGIBLE INVESTMENTS The Authority is authorized to invest in those investment vehicles that are specifically listed below. The Authority recognizes that investment risk can result from issuer defaults, market price changes or various technical impediments leading to diminished liquidity or loss of capital. Portfolio risk management and diversification are employed as a way to minimize the risks inherent in investing. Credit criteria listed in this section refer to the credit rating at the time the security is purchased. Rating categories defined by nationally recognized statistical rating organizations (NRSRO) include intermediate rating categories. For example, the second highest rating category will include bonds rated AA+, AA and AA- for Standard & Poor's and Aa1, Aa2 and Aa3 for Moody's Investors Service. In the event that an issuer is downgraded below the minimum rating level for any specific security that is held in the Portfolio, the Authority will review the exposure of that security holding and will determine if it is advisable to sell such holding. Maturity restrictions shall be calculated from settlement date to maturity date. Portfolio percentage restrictions by security type and issuer are applicable only on the date of purchase of the investment. 1. U.S. Treasury Obligations. Obligations in the form or bills, notes, bonds or certificates of indebtedness backed by the full faith and credit of the United States of America. 100% of the Portfolio may be invested in U.S. Treasury Obligations. The maximum maturity for investments in U.S. Treasury Obligations shall be limited to five years. 2. U.S. Agency Obligations. Obligations issued by or fully guaranteed as to principal and interest by Federal Agencies or United States government-sponsored enterprises ( Agencies ). No more than 75% of the Portfolio may be invested in Agencies obligations with no more than 25% being invested in a single U.S. Agency. Subordinate debt of any U.S. Agency is not authorized. The maximum maturity for investments in Agencies shall be limited to five years. The Portfolio will be limited to an aggregate exposure of 50% for the following investment types: Municipal Bonds, Corporate Bonds, Commercial Paper, Time Deposits/Time Certificates of Deposit and Banker's Acceptances. 4

7 3. Municipal Bonds. Obligations of a political subdivision of any state, including bonds payable solely out of revenues from a revenue producing property owned, controlled or operated by the state or any local agency or by a department, board, agency or authority of the state or any local agency ("Municipal Bonds"), provided that the obligations are rated in one of the two highest categories by a NRSRO. For short term or variable rate instruments ("Short Term Municipal Bonds"), the securities must be rated A-1, "P1" or higher, or the equivalent, by a nationally recognized statistical ratings organization. With the exception of Pre-Refunded Municipal Bonds ( Pre-Refunded Municipal Bonds ) described below, no more than 20% of the Portfolio may be invested in Municipal Bonds and Short Term Municipal Bonds with no more than 3% of the Portfolio invested with a single issuer. The maximum maturity for investments in Municipal Bonds shall be limited to three years. No more than 40% of the Portfolio may be invested in Pre-Refunded Municipal Bonds secured by an escrow of U.S. treasury securities or State and Local Government Series securities, with no more than 5% being invested in a single issuer. 4. Corporate Bonds. Debt securities issued by corporations or financial institutions organized and operating in the United States. Eligible corporate bonds shall be rated in one of the two highest categories by a NRSRO. No more than 30% of the Portfolio may be invested in corporate bonds and no more than 3% may be invested with a single corporation. The maximum maturity for investments in corporate bonds shall be limited to three years. 5. Commercial paper. Commercial paper issued by a corporation or bank that is organized and operated within the United States. Investments in commercial paper must carry at least two credit ratings from any NRSRO and must not be rated below A-1, "P1" or F1 by any credit rating agency. Investments in commercial paper may not exceed 40% of the Portfolio and no more than 3% may be invested with a single issuer. The maximum maturity for investments in commercial paper is 270 days. 6. Time Deposits/ Time Certificates of Deposit (CDs). Time Deposits/Time Certificates of Deposit (CDs) issued by a nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank. Eligible certificates of deposit shall be rated in one of the two highest categories by a NRSRO. CDs shall be exempted from rating requirements if either of these conditions exist: a) The CDs are insured by the Federal Deposit Insurance Corporation (FDIC). For CDs in amounts in excess of the FDIC limit, the CD amount must be collateralized in accordance with the Public Deposit Protection Act. No more than 10% of the Portfolio may be invested in securities described in this investment category. No more 5

8 than 3% of the Portfolio may be invested in CDs of a single institution. The maximum maturity for investments in CDs shall be limited to one year. 7. Bankers Acceptances (BAs). Bills of exchange or time drafts that are drawn on and accepted by a commercial bank. Eligible BAs shall be rated in one of the two highest categories by a NRSRO. No more than 30% of the Portfolio may be invested in BAs and no more than 3% may be invested with a single institution. The maximum maturity for investments in BAs shall be limited to one year. 8. Repurchase Agreements. Repurchase Agreements concerning U.S. Treasury and agency securities listed in items (1) or (2) above. Repurchase agreement counterparties must be Primary Government Securities Dealers reporting to the Federal Reserve Bank of New York and shall have either a) a long term rating in one of the two highest categories by a NRSRO, or b) short term ratings not less than A1, P1 or F1 by any NRSRO. The market value of collateral securities shall be marked-to-market daily. The Authority shall have specific written agreements with each firm with which it enters into repurchase agreements. No more than 40% of the Portfolio may be invested in repurchase agreements and no more than 10% may be invested with a single counterparty. The maximum maturity for a repurchase agreement shall be limited to 90 days. 9. Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and meeting the maturity requirements specified in rule 2a-7 of that Act. To be eligible for investment, these companies shall have either: (i) attained the highest ranking or the highest letter and numerical rating provided by one or more NRSRO or (ii) assets under management of one billion dollars or more ($1,000,000,000). The investment policies of the fund include seeking to maintain a constant share price. Additionally, the purchase price of shares of beneficial interest shall not include any commission that these companies may charge. 100% of the Portfolio may be invested in any money market fund rated in the highest rating category. 10. Local Government Investment Pools. Any interest in a local government investment pool organized under CRS et. seq. which are rated in the highest rating category. 100% of the Portfolio may be invested in any local government investment pool. 11. Other investments. Any security of the Authority or any similar arrangement evidencing rights in payments to be made by the Authority subject to approval by the Board of Commissioners. Any other security or investment as permitted by law, subject to the approval by the Board of Commissioners. 6

9 6. INVESTMENT PARAMETERS 6.1 Sale of Securities The Authority does not make investments for the purpose of trading or speculation, but, rather, with the prevalent intent to hold securities to maturity. The prohibition of speculative investment precludes pursuit of profit through unusual risk or conjectural fluctuations in market prices. However, fluctuations in market rates or changes in credit quality may produce situations where securities may be sold at a nominal loss in order to mitigate further erosion of principal or to reinvest proceeds of sale in securities that will out-perform the original investment. 6.2 Competitive Bidding A record shall be maintained of all bids and offers for securities transactions to support the Authority's competitive pricing process. Relative offerings shall not be required in the purchase of obligations at their initial auction or offering. Typically, awards will be made to the bidder offering the highest effective yield consistent with the Policy: however, transaction costs, diversification requirements, extraordinary events and other factors may be considered by the Authority when awarding investments. 6.3 Portfolio Duration The maturity of the securities in the Portfolio shall be managed with respect to the cash flow needs of the Authority and the Portfolio shall be managed to maintain a duration of three years or less. 6.4 Authorized Financial Dealers and Institutions The Authority will maintain a list of financial institutions authorized to provide investment services and it shall be the policy of the Authority to purchase securities only from those authorized institutions and firms. Trading counterparties shall be limited to (i) primary dealers reporting to the Federal Reserve Bank of New York, or (ii) broker/dealers that qualify under Securities and Exchange Commission Rule 15c3-1 (uniform net capital rule). 6.5 Authorized Investment Advisors The Authority may engage the services of one or more professional investment advisory firms to assist in the management of the Portfolio. Such investment advisors may be granted discretion to purchase and sell investment securities in accordance with this Policy and may utilize their own approved list of broker/dealers. Such firms must be authorized to conduct business in the State of Colorado and shall be registered with the Securities and Exchange Commission under the Investment Advisers Act of SAFEKEEPING AND CUSTODY 7

10 7.1 Safekeeping and custody With the exception of collateral under repurchase agreements (discussed below), all investment securities purchased shall be held in a safekeeping account or trust custody account at a designated third party custodian. For safekeeping accounts, the institution shall issue a safekeeping receipt for each security, listing the specific instrument, par value, rate, CUSIP and any other pertinent information. In addition, the safekeeping or trust custody institutions shall provide a statement on at least a monthly basis listing all securities held in account, including book value and market value of holdings at month end. For collateral (purchased securities) under repurchase agreements, the Authority may utilize tri-party repurchase agreements with an acceptable third-party custodian provided that the Authority is satisfied that it has perfected interest in the securities used as collateral, and that the Authority has a properly executed tri-party agreement. 7.2 Delivery vs. Payment All investment transactions will be executed on a delivery versus payment basis 8. REPORTING REQUIREMENTS Transaction summaries shall be maintained and available in the office of the Executive Director or other authorized investment personnel. Quarterly investment reports shall be submitted to the Executive Director and shall outline the Authority's total investment return and compare the portfolio s performance to a publicly available index of securities having similar quality and duration characteristics. Within 120 days of the end of the Authority's fiscal year, the Executive Director or other authorized investment personnel directed by the Executive Director shall prepare a comprehensive report on the Authority's investment program and investment activity. The annual report shall include quarterly comparisons of investment return and may suggest improvements that might be made in the investment program. Such annual report shall include any other item of significance which may enhance the understanding of the investment program. Each investment advisor shall submit like reports in a timely manner based on the respective terms of each contract and agreement 9. PERFORMANCE STANDARDS The Authority's Portfolio is managed with the objective of obtaining a market rate of return, commensurate with identified risk constraints and cash flow characteristics. Because the composition of the Portfolio fluctuates, depending on market and credit conditions, various indices may be used to monitor investment performance. The current Board-approved index for the liquidity tier of the portfolio (cash and cash equivalents) is the federal funds rate. For the enhanced cash portion of the portfolio (securities maturing between 90 days and 5 years and with a target duration of 1 year), the designated performance benchmark is the Merrill Lynch 1-year U.S. Treasury Note Index. 8

11 The Authority recognizes that bond proceeds must be invested in accordance with Section of the U.S. Internal Revenue Code, related to arbitrage rebate, which limits the investment returns which may be achieved or retained by the Authority on such proceeds investments. For purposes of this Policy bond proceeds shall mean proceeds from the issuance of bonds, certificates of participation or other financial securities issued by the Authority. 10. INVESTMENT POLICY REVIEW AND APPROVAL The Authority's Investment Policy has been adopted by Resolution of Denver Urban Renewal Authority s Board of Commissioners. The Policy shall be reviewed on an annual basis by the Authority s Audit and Finance Committee and any modifications made thereto must be approved by the Board of Commissioners. Appendix Items: Resolution approving Investment Policy Information for files: List of Trustee Bank and Banking Administrators Safekeeping Agreements Banking Contracts Trustee Agreements Written Operational Investment Procedures 9

12 11. ELIGBLE INVESTMENT SUMMARY THIS PAGE IS PROVIDED FOR SUMMARY PURPOSES ONLY. PLEASE SEE SECTION 5 FOR A DETAILED DESCRIPTION OF THE ELIGIBLE INVESTMENTS. Security Type Maximum Portfolio % Maximum Issuer % Maturity Restrictions Rating Restrictions U.S. Treasuries 100% 100% 5 years N/A U.S. Agencies 75% 25% 5 years N/A Municipal Bonds 20% 3% 3 years AA- Pre-Refunded Municipal Bonds 40% 5% 3 years AA- Corporate Bonds 30% 3% 3 years AA- Commercial Paper 40% 3% 270 days A-1/P1 Time Deposit/CD 10% 3% 1 year AA- Banker Acceptances 30% 3% 1 year AA- Repurchase Agreements 40% 10% 90 days AA- Money Market Funds 100% 100% N/A AAA Local Government Investment Pools 100% 100% N/A AAA Note: The Portfolio will be limited to an aggregate exposure of 50% for the following investment types: Municipal Bonds, Corporate Bonds, Commercial Paper, Time Deposits/Time Certificates of Deposit and Bankers Acceptances. 10

RESOLUTION NO

RESOLUTION NO. 28260 RESOLUTION OF THE COUNCIL OF THE CITY OF SANTA ROSA AMENDING NO 000-26 - STATEMENT OF INVESTMENT POLICY AND DELEGATING AUTHORITY WHEREAS, Section 53607 of the California Government