(a) Statement of Purpose. The City and the City Treasurer wish to specify the investment objectives of the City in a manner that stress the safety and integrity of principal of the City’s public funds. Council and City Treasurer wish to maintain the principal in a safe investment environment while maximizing the earning power and operating cash requirements of the invested funds by earning a market rate of return over time. It is required that all investments will be made in a prudent manner and in compliance with all applicable Federal, State of Ohio, and local laws governing the investment of public monies. This policy should be used as a guideline for overseeing all investments of the City as well as serving as a notice of the restrictions the City’s public monies are subjected to and governed by for any and all entities conducting investment activities and business with the City.
(b) Objectives of the Portfolio. The objectives of the City’s investment portfolio of public monies (hereinafter referred to as “the portfolio”)shall be:
(1) To provide adequate liquidity;
(2) To assure the safety of principal; and
(3) To maximize investment income without undue exposure to risk.
In priority order, the primary objectives of the City’s investment activities shall be:
A. Safety: Safety of principal is the foremost objective of the City's investment program. Investments of the City shall be undertaken in a manner that seeks to insure the preservation of capital, namely principal, in the overall portfolio. To attain this objective, diversification is required so that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
B. Liquidity: The City's investment portfolio must remain sufficiently liquid to enable it to meet all operating expenditure requirements which might be reasonably anticipated).
C. Return on investment (ROI): The City's investment portfolio shall be designed with the objective of attaining a market rate of return (as a benchmark, the average yearly rate of return of the State Treasury Asset Reserve (STAR) of Ohio investment pool ) throughout budgetary and economic cycles, taking into account this investment policy and the cash flow characteristics of the portfolio.
(c) Investment Operations.
(1) Compliance with the Ohio Uniform Depository Act.
A. The Treasurer acknowledges that the portfolio he/she administrates on behalf of the City must strictly follow the requirements of the Ohio Uniform Depository Act Ohio Revised Code Section 135.
B. A written investment policy, approved and adopted by City Council Ordinance, must be filed with the State of Ohio Auditor of State. Any and all individuals engaged in investment transactions/business with the City, establishing or changing rules, laws, and policy related to investments of City monies, and/or those offering investment advice or guidance must sign the policy establishing that he/she has read and understands the policy and will adhere to the covenants of said policy as provided.
(2) Reporting.
A. The Treasurer, or in the absence of a City Treasurer the City Auditor, shall provide City Council and Council's Finance Committee quarterly summary investment reports that provide a clear understanding of the current investment holdings of the City as well as the overall status of the current portfolio. This report should include comments on the fixed income markets and related economic conditions, possible changes in the portfolio structure and investment strategies for the future.
(3) Eligible investment.
A. United States (US) Treasury bills, US Treasury notes, US treasury bonds, or any other obligations or securities issued by the United States Treasury or any other obligations guaranteed as to principal and interest by the United States government (except stripped principal or interest obligation of such eligible obligations).
B. Federal Agency/Instrumentality securities (including, but not limited to):
Federal National Mortgage Association (FNMA)
Federal Farm Credit Bank (FFCB)
Federal Home Loan Bank (FHLB)
Federal Home Loan Mortgage Corporation (FHLMC)
Government National Mortgage Association (GNMA)
Student Loan Marketing Association (SLMA)
C. Certificates of Deposit (CDs) with eligible depository institutions
D. Savings accounts with eligible depository institutions
E. Deposit accounts with eligible depository institutions
F. Bonds and other obligations of the State of Ohio or the political subdivisions of the State of Ohio
G. No-Load money market mutual funds consisting exclusively of United States Treasury or federal agency/instrumentality obligations
H. Repurchase Agreements secured by United States Treasury, or federal agency/instrumentality obligations made through eligible depository institutions including repurchase agreements collateralized as required by the Ohio Revised Code with Treasury or federal agency/instrumentality obligations and made through eligible depository institutions for no longer than thirty days.
I. State Treasury Asset Reserve of Ohio (STAR Ohio) investment pool.
J. Commercial paper
K. Bankers Acceptances
(4) Ineligible Investments.
A. All derivative securities
B. Local government investment pools. EXCEPTION: State Treasury Asset Reserve of Ohio
C. All individual stocks and equity securities
D. All bonds except those stated as eligible investments in subsection (c)(3) above
E. All mutual funds except those stated as eligible investments in subsection (c)(3) above
F. All other investments except those stated as eligible investment in subsection (c)(3) above
(d) Diversification. The investment portfolio shall be diversified by:
(1) Limiting investments to avoid over concentration in securities from a specific issuer or business sector. EXCEPTION: United State Treasury issues and securities.
(2) Limiting investments in securities that have higher credit risks
(3) Investment in securities with varying maturities
(4) Continuously investing a portion of the portfolio in highly liquid funds such as State Treasury Asset Reserve of Ohio investment pool, money market funds as described in subsection (c)(3) hereof, or overnight repurchase agreements in order to assure that adequate liquidity is available to satisfy any and all ongoing routine and customary obligations of the City.
(e) Maximum Maturities.
(1) To the extent possible, the City shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specified cash flow, the City will not directly invest in securities maturing more than twenty-four (24) months from the date of purchase in accordance with State of Ohio and local laws.
(2) Due to inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio shall be continuously invested in highly liquid (i.e. cash or cash equivalents) as overnight repurchase agreements, State Treasury Asset Reserve of Ohio, and/or money market funds in order to insure that appropriate liquidity is maintained to meet the routine cash expenditure and expense requirements of the portfolio as well as the City.
(f) Safekeeping and Custody.
(1) All investment and/or security transactions, including securities and investments acquired subject to repurchase agreements from eligible securities dealer(s), but not including securities acquired subject to repurchase agreements from eligible institutions, entered into by the City shall be conducted on a delivery-versus-payment basis.
(2) Purchased securities, those securities which are held for investment, shall remain in the possession of a third-party custodian, designated by the Treasurer or City Council Ordinance, that is a qualified trustee as defined in Ohio Revised Code §135.18(I)
(3) The safekeeping of securities by a third-party custodian shall be evidenced by safekeeping receipts
(4) Securities held for investment shall only be released from the City's portfolio upon verification that the principal and interest, or proceeds from the sale of the securities, have been credited or deposited into the City's specified financial account.
(g) Authorized Financial Dealers and Institutions.
(1) Repurchase agreements and all other eligible investments as defined in subsection (3) hereof, may only be acquired form the following agencies:
A. A bank organized under the laws of the United States, engaged in business in the State of Ohio, and located within the State of Ohio.
B. Savings and loan associations under State of Ohio supervision; or a savings and loan association located within the State of Ohio organized under United States federal law and under federal supervision.
C. Securities dealer located within the State of Ohio that is a member in good standing with the National Association of Securities Dealers (NASD) and represents a Primary Securities Dealer as designated by the Federal Reserve Bank.
(2) All investment activity will be performed on a competitive basis to the most practical extent possible.
(3) Bids and offerings will be solicited from at least three (3) different dealers and be recorded. In the event, two or more proposals present equal offerings, the transaction will be awarded at the discretion of the City Treasurer.
(4) A copy of this policy must be provided to each broker, dealer, or depository institution engaging in investment business with the City. An authorized representative of such agency will be required to sign a release that the organization has received a copy of this policy. The signature will implicitly indicate that the individual and organization has received, read, understands, and will abide by the covenants of this policy and relevant provisions of the Revised Code when making investment recommendations to the City.
(h) Ethics and Conflicts of Interest.
(1) All City officials and other persons involved in the investment process are strictly forbidden from engaging in any personal business activity with brokers or dealers that could conflict with the proper execution of the City's investment program or that could impair the ability to make impartial investment decisions on behalf of the City.
(i) Glossary of Terms.
(1) Accrued Interest: Interest earned on a security during the current accounting period but not to be collected until a subsequent accounting period
(2) Agency: A debt security issued by a federal or federally sponsored agency. Federal agencies are backed by the full-faith and credit of the United States Government. Federally sponsored agencies (FSAs) are supported by each particular agency with a market perception that there is an implicit U.S. government guarantee. Examples of FSAs include Government National Mortgage Association (GNMA) and Federal National Mortgage Association (FNMA)
(3) Amortization: Gradual redemption, reduction, or liquidation of the balance of an investment or account according to a specified schedule of times and amounts
(4) Basis Point: A unit of measurement used in the valuation of fixed-income securities equal to 1/100 of I percent of yield, e g. 1/4 of I percent is equal to 2S basis points
(5) Book Value: The value at which a security is carried on the inventory lists or other financial records of an investor. The book value may differ significantly from the security's current market value
(6) Callable Bond: A bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer under specified conditions
(7) Commercial Paper: An unsecured short-term promissory note issued by corporations, with maturities ranging from 2 to 270 days
(8) Credit Quality: The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer's ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the insurer
(9) Credit Risk: The risk to an investor that an issuer will default in the payment of interest and/or principal on a security
(10) Current Yield (Current Return): A yield calculation determined by dividing the annual interest received on a security by the current market price of that security
(11) Delivery Versus Payment (DVP): A type of security transaction when the securities are delivered either to the purchaser or his/her custodian
(12) Derivative Security: Financial instrument created from, or whose value depends upon, one or more underlying assets or indexes of asset values
(13) Discount: The amount by which the par value of a security exceeds the price paid for the security
(14) Diversification: A process of investing assets among a range of security types by sector, maturity, and quality rating
(15) Duration: A measure of the timing of cash flows, such as the interest payments and the principal repayment, to be received from a given fixed- income security. This calculation is based on three variables: term to maturity, coupon rate, and yield to maturity. The duration of a security is a useful indicator of its price volatility for given changes in interest rates
(16) Federal Funds (Fed Funds): Funds placed on deposit with Federal Reserve Banks by depository institutions in excess of the depositories current reserve requirements. These depository institutions may lend fed funds to each other overnight or longer. They may also transfer funds among each other on a same-day basis through the Federal Reserve banking system. Fed funds are considered to be immediately available funds
(17) Government Securities: An obligation of the United States government, backed by the full faith and credit of the U.S. government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See also Treasury Bills, Notes, and Bonds
(18) Interest Rate Risk: The risk associated with declines or rises in interest rates which cause an investment in a fixed-income security to increase or decrease in value
(19) Investment Policy: A concise and clear statement of the objectives and parameters formulated by an investor or investment manager for a portfolio of investment securities
(20) Liquidity: An asset's ability for conversion easily and quickly into cash
(21) Local Government Investment Pool (LGIP): An investment instrument suitable for purchase by institutional investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or higher by a rating agency
(22) Market Risk: The risk that the value of a security will rise or decline as a result of changes in financial market conditions
(23) Market Value: Current market price of a security
(24) Maturity: The date on which payment of a financial obligation is due. The final stated maturity is the date on which the issuer must retire a bond and pay the face value to bondholder. See also Weighted Average Maturity
(25) Money Market Mutual Fund: Mutual funds that invest solely in short-term money market instruments and debt instruments, such as Treasury bills, commercial paper, banker's acceptance, repurchase agreements and federal funds
(26) Mutual Fund: An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the Investment Company Act of 1940 and must abide by the following Securities and Exchange Commission (SEC) disclosure guidelines:
A. Report standardized performance calculations.
B. Disseminate timely and accurate information regarding their fund's holdings, performance, management and general investment policy
C. Fund investment policies and activities supervised by a board of trustees, which are independent of the advisor, administrator or other vendor of the fund.
D. Maintain the daily liquidity of the fund's shares
E. Value their portfolios on a daily basis known as Net Asset Value (NAV)
F. Have all individuals who sell SEC-registered products licensed with a self-regulating organization (SRO) such as the National Association of Securities Dealers (NASD)
G. Have an investment policy governed by a prospectus which is updated and filed by the SEC annually
(27) No-Load Money Market Mutual Fund: A mutual fund which does not levy a sales charge on the purchase of its shares
(28) Nominal Yield: The stated rate of interest that a bond pays its current owner, based on a par value of the security. It is also known as the coupon, coupon rate, or interest rate
(29) Par: Face value or principal investment value of a security
(30) Positive Yield Curve: A chart formation that illustrates short-term securities having lower yields than long-term securities
(31) Premium: The amount by which the price paid for a security exceeds the security's par value
(32) Prime Rate: A preferred interest rate charged by commercial banks to their most creditworthy customers. Many interest rates keyed to this rate
(33) Principal: The face value or par value of a debt instrument. Also may refer to the amount of capital invested in a given security
(34) Prudent Person Rule: An investment standard outlining the fiduciary responsibilities of public funds investors relating to investment practices
(35) Reinvestment Risk: The risk that a fixed-income investor will be able to reinvest income proceeds from a security holding at the same rate of return currently generated by the investment
(36) Repurchase Agreement: An agreement between two parties where one party agrees to sell securities at a specified price to a second party and the first party engages into a simultaneous agreement whereby to repurchase the securities at a specified price or at a specified later time. Also known as a repo or RP
(37) Safekeeping: Holding of assets or securities by a financial institution
(38) Serial Bond: A bond issue with various principal maturity dates scheduled at regular periodic intervals until the entire issue is retired
(39) Term Bond: A bond issue comprising a large portion of all of a particular issue which mature at a single time. The issuer usually agrees to make periodic payments into a sinking fund for mandatory redemption of the term bond prior to their maturity
(40) Total Return: The sum of all investment income plus changes in the capital value (capital appreciation/depreciation) of the portfolio.
(41) Treasury Bills: Short-term U.S. government non-interest bearing debt securities with maturities of no longer than one-year and issued in minimum denominations of $10,000. Auctions of three and six month bills are held weekly, while auctions of one-year bills are held monthly.
(42) Treasury Notes: Intermediate U.S. government debt securities with maturities of one to ten years issued in denominations ranging from $1,000 to $1 million or more
(43) Treasury Bonds: Long-term U.S. government debt securities with maturities of ten years or longer issued in minimum denominations of $ 1,000
(44) Uniform Net Capital Rule: Securities and Exchange Commission (SEC) Rule 15C-3-1 outlining capital requirements for brokers and dealers
(45) Volatility: A degree of fluctuation in the price and valuation of securities
(46) Volatility Risk Rating: A rating system to clearly indicate the level of volatility and other non-credit risks associated with securities and certain bond funds. The ratings for bond funds range from those that have extremely low sensitivity to changing market conditions and offer the greatest stability of returns (rated "aaa" by Standard & Poor and "V-1" by Fitch); ranging to those that are highly sensitive with currently identifiable market conditions (rated "ccc" by Standard & Poor and "V- 10" by Fitch)
(47) Weighted Average Maturity (WAM): The average maturity of all securities that comprise a portfolio. As per SEC Rule 2A-7, the WAM for SEC registered money market funds may not exceed ninety days and no one security may have a maturity that exceeds 397 days
(48) Yield: The current rate of return on an investment generally expressed as a percentage of the security's current price
(49) Yield-To-Call (YTC): The rate of return an investor earns from a bond assuming the bond is redeemed (railed) prior to its normal maturity date
(50) Yield Curve: A graphic representation that depicts the relationship at a given point in time between yields and maturity for bonds that are completely identical with the exception of maturity. A normal yield curve may be alternately referred to as a positive yield curve.
(51) Yield-To Maturity (YTM): The rate of return yielded by a debt security held to maturity when both interest payments and the investor’s potential capital gain or less are included in the calculation of return.
(Ord. 25-02. Passed 8-8-02.)