Investment Policy RevisionMasterpiece on the Mississippi
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Investment Policy Revisions
DATE: April 28, 2010
Finance Director Ken TeKippe recommends City Council approval of a required update
to the City of Dubuque Investment Policy. The only change is to move section 8.1.8
"Municipal securities approved by Municipal Security Rulemaking Board (MSRB)" from
allowed to prohibited investments to comply with State of Iowa laws relative to
investments.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
MCVM:jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Kenneth J. TeKippe, Finance Director
ael C. Van
Milligen
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Dubuque
All- AmedcaCily
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The updated Investment Policy was approved by the Investment Oversight Advisory
Commission (IOAC) at their January 27, 2010 meeting. The original policy was
approved in July 1992.
TO: Michael C. Van Milligen, City Manager
FROM: Kenneth J. TeKippe, Finance Director
SUBJECT: Investment Policy Revisions
DATE: April 26, 2010
INTRODUCTION
The purpose of the memorandum is to provide a required update to the City of Dubuque
Investment Policy.
DISCUSSION
Attached is an updated City of Dubuque Investment Policy. Significant revisions were
approved to refine the policy in October 2008. The revisions included clarifications,
expanded definitions, wording changes relative to Governmental Accounting Standards
Board (GASB) Statement Number 40 on prescribed level of credit risk.
The only change at this time is to move section 8.1.8 "Municipal securities approved by
Municipal Security Rulemaking Board (MSRB)" from allowed to prohibited investments
to comply with State of Iowa laws relative to investments. The new section number is
8.2.6. The previous section 8.1.9 "Agency issued Collateralized Mortgage Obligations
(CMO's), which are securities underwritten and guaranteed by Ginnie Mae, Fannie Mae
or Freddie Mac" is renumbered to 8.1.8.
REQUESTED ACTION
The requested action step for City Council is to adopt the attached Investment Policy.
KJT /jmg
Enclosures
RESOLUTION NO. 144 -10
RESOLUTION ADOPTING THE CITY OF DUBUQUE INVESTMENT POLICY
Whereas, changes to the code of Iowa have consolidated public funds
investment code; and references to code in the City Investment Policy require revision;
and
Whereas the City Treasurer /Finance Director and Assistant Finance Director
have reviewed the proposed changes with the City Investment Oversight Advisory
Commission and the Commission has recommended adoption of the revised policy.
NOW THEREFORE, BE IT RESOLVED BY. THE CITY COUNCIL OF THE CITY
OF DUBUQUE, IOWA:
Section 1. The City of Dubuque Investment Policy, attached hereto, is hereby
adopted and all previous resolutions inconsistent therewith are hereby rescinded.
Section 2. City staff and the Investment Oversight Advisory Commission are
directed to act in accordance with the policies set forth in the City of Dubuque
Investment Policy and to bring forward proposed changes to the Investment Policy as
deemed necessary.
Passed, approved and adopted this 3rd day of May, 2010.
Attest: Jeanne Schneider, City Clerk
Roy D. Buol, Mayor
CITY OF DUBUQUE, IOWA
INVESTMENT POLICY
REVISED JANUARY 27, 2010
Revised 1/27/10
Council Approved _/ /2010 Resolution No. -10
KEN TEKIPPE
JEAN NACHTMAN
City of Dubuque, Iowa
Investment Policy
Table of Contents
1.0 PURPOSE 4
2.0 INVESTMENT POLICY 4
3.0 SCOPE 4
3.1 Pooling of Funds 4
4.0 GENERAL OBJECTIVES 4
4.1 Prescribed Level of Credit Risk 4
4.2 Safety 5
4.3 Liquidity 5
4.4 Yield 5
5.0 STANDARDS OF CARE 6
5.1 Prudence 6
5.2 Ethics and Conflicts of Interest 6
5.3 Delegation of Authority 6
6.0 LEGAL AUTHORITY 6
7.0 INVESTMENT AUTHORITY AND RESPONSIBILITY 9
7.1 Legal Background 9
7.2 Authority and Responsibility Assigned 9
8.0 AUTHORIZED INVESTMENT INSTRUMENTS (Section 12B.10(5)) 10
8.1 Permitted Investments 10
8.2 Prohibited Investments 11
9.0 INVESTMENT OPTIONS 11
10.0 PROFESSIONAL INVESTMENT ASSISTANCE 11
10.1 Investment Advisor Defined 12
10.2 City - Investment Advisor Relationship 12
10.3 Selection of Investment Advisor 12
10.4 Investment Consultant Defined 12
10.5 Selection of Investment Consultant 13
11.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS 13
11.1 Selection Process 13
11.2 Financial Institutions and Brokers/Dealers 13
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11.3 Financial Advisors and Custodians 14
11.4 Independent Auditor's Verification 14
12.0 COLLATERALIZATION 14
13.0 MAXIMUM MATURITIES 14
13.1 Operating Funds - Available for Short-Term Investment 14
13.2 Reserve and Construction Funds - Available for Long -Term Investment 14
14.0 SAFEKEEPING AND CUSTODY 15
14.1 Delivery Versus Payment 15
14.2 Investment Securities 15
14.3 Bonding 15
15.0 DIVERSIFICATION 15
16.0 INTERNAL CONTROLS 15
17.0 REPORTING 15
18.0 ETHICS AND CONFLICT OF INTEREST 16
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Investment Policy
1.0 PURPOSE
The purpose of this investment statement is to establish the policy that the City shall follow to promote the
responsible use of public funds as income - eaming resources. The statement will outline the methods,
procedures and practices that the City shall follow in carrying out its investment activities.
2.0 INVESTMENT POLICY
3.0 SCOPE
It is the policy of the City of Dubuque to invest public funds in a manner which will provide the maximum
security, maintain necessary liquidity and obtain a reasonable investment return, all in accordance with Iowa
statutes governing the investment of public funds.
This Investment Policy applies to all funds under the management of the City of Dubuque. The funds are
accounted for in the City's Comprehensive Annual Financial Report.
3.1 Pooling of Funds
Except for cash in certain restricted and special funds, the City of Dubuque will consolidate cash
balances from all funds to maximize investment earnings Investment income will be allocated to
various funds based on their respective participation and in accordance with generally accepted
accounting principles.
4.0 GENERAL OBJECTIVES
4.1 Prescribed Level of Credit Risk
CITY OF DUBUQUE, IOWA
INVESTMENT POLICY
The primary objectives, in priority order, of the City's investment activities shall be safety, liquidity and
yield.
According to General Accounting Standards Board Statement Number 40, paragraphs 68 and 69, the
categories of credit risk for investments, dependent on the nature of the investment and the custodial
provisions are:
• Deposits that are not covered by depository insurance and are (a) uncollateralized, (b)
collateralized with securities held by the pledging financial institution, or (c) collateralized with
securities held by the pledging fmancial institution's trust department or agent but not in the
depositor - government's name
• Investment securities that are uninsured, are not registered in the name of the government, and
are held by either (a) the counterparty or (b) the counterparty's trust department or agent but not
in the government's name.
The City Treasurer/Finance Director shall arrange safekeeping procedures so that investments are insured or
registered, or are held by the City or its agent in the City's name.
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4.2 Safety
Safety of principal is the foremost objective of the investment program. Investments shall be
undertaken in such 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 will minimize the risk of loss due to the failure of the security issuer or backer, by:
• Limiting investments to the safest types of securities
• Pre - qualifying the financial institutions, broker /dealers, intermediaries, and advisors with
which the City will do business
• Diversifying the investment portfolio so that potential losses on individual securities will
be minimized
• An investment shall be rated within the two highest classifications as established by at least
one of the rating review services approved by the Superintendent of Banking by Rule
adopted pursuant to Chapter 17A.
b. Interest Rate Risk
The City will minimize the risk that the market value of securities in the portfolio will fall due
to changes in general 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.
• Investing operating funds primarily in shorter -term securities, money market mutual funds,
or similar investment pools.
• Investing in securities with adjustable coupons.
c. Duration Risk
• Less than or equal to six years
• Manager should disclose duration of portfolio on monthly reports
• Prepayment risk for mortgaged back securities needs to be disclosed
4.3 Liquidity
4.4 Yield
The investment portfolio shall remain sufficiently liquid to meet all operating and capital
requirements that may be reasonably anticipated by structuring the portfolio so that securities mature
concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash
demands cannot be anticipated, the portfolio will consist largely of securities with active secondary
or resale markets. A portion of the portfolio also may be placed in money market mutual funds or
investment pools that provide same -day liquidity for short-term funds.
The investment portfolio shall be constituted 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. The return on investments is to be accorded secondary importance compared to the
safety and liquidity objectives described above. The core of investments will focus on relatively low
risk securities with an expectation of earning a fair return relative to the risk being assumed.
Securities shall not be sold prior to maturity, with the following exceptions:
a. A security with declining value may be sold early to minimize loss of principal.
b. A security may be exchanged to improve the quality, yield or target duration in the portfolio
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c. A security may be sold in order to satisfy liquidity requirements.
5.0 STANDARDS OF CARE
5.1 Prudence
The criterion for the management decisions to be exercised by the 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 responsibility for an individual security's credit
risk or market price changes, provided deviations from expectations are reported in a timely manner
and the liquidity and the sale of securities are administered in accordance with the terms of this
policy. 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.
5.2 Ethics and Conflicts of Interest
Officers and employees involved in the investment processes shall refrain from personal business
activity that could conflict with the proper execution and management of the investment program, or
could impair their ability to make impartial decisions. Employees and investment officials shall
disclose any material interests in financial institutions with which business is conducted. They shall
further disclose any personal financial or investment positions that could be related to the
performance of the investment portfolio. Also, these same individuals shall refrain from undertaking
personal investment transactions with the same individual with whom investment business is
conducted on behalf of the City.
5.3 Delegation of Authority
The authority for management of the investment program is vested in the City Treasurer/Finaxce
Director and is derived from Section 12B.10, Subsection 1, of the Code of Iowa. In the absence of
the City Treasurer/Finance Director, the authorization is delegated first to the Assistant Finance
Director and then to the Budget Director. Responsibility for the operation of the investment program
is hereby delegated to the appropriate investment officer, who shall act in accordance with
established written procedures and internal controls for the operation of the investment program
consistent with this investment policy.
6.0 LEGAL AUTHORITY
Code of Iowa
The following is a summary of sections of the Code of Iowa applicable to City investments administration.
• Section 372.8. Council - Manager Form of Government - Supervision
(1) The City Manager is the chief administrative officer of the City and shall:.. .
(2)(n) Appoint a treasurer subject to the approval of the Council .. .
• Section 12B.10. Public Funds Investment Standards
1. The City Treasurer/Finance Director shall at all times keep funds coming into the City's
possession as public money in a vault or safe to be provided for that purpose or in one or more
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Investment Policy
depositories approved pursuant to Chapter 12C. However, the City Treasurer/Finance Director
shall invest, unless otherwise provided, any public funds not currently needed in investments
authorized by this section.
2. The City Treasurer/Finance Director and other investment officials of the City, when investing,
depositing, or acting as custodian of public funds are acting in a fiduciary capacity for the
citizens of Dubuque and shall exercise the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity and familiar with
such matters would use to attain the goal of this subsection. This standard requires that when
making investment decisions, a public entity shall consider the role the investment or deposit
plays within the portfolio of assets of the public entity and the goals of this subsection.
The primary goals of investment prudence shall be based in the following order of priority:
a. Safety of principal is the first priority.
b. Maintaining the necessary liquidity to match expected liabilities is the second priority.
c. Obtaining a reasonable return is the third priority.
3. Investments of public funds shall be made in accordance with written policies. A written
investment policy shall address the goals set out in Iowa Code Section 12B.10(2) and shall also
address, but is not limited to, compliance with Iowa law, diversification, maturity, quality and
capability of investment management.
The trading of securities in which any public funds are invested for the purpose of speculation
and the realization of short-term trading profits is prohibited.
City investments must have maturities that are consistent with the needs and use of the City.
4. Subsection 5 of Section 12B.10 identifies permitted investments and is included in Section 8.0
of this Investment Policy.
• 12B.10A. Public Investment Maturity and Procedural Limitations
1. "Operating funds" means those funds which are reasonably expected to be expended during a
current budget year or within fifteen months of receipt. Operating funds are subject to the
following limitations:
a. Operating funds must be identified and distinguished from all other funds available for
investment.
Operating funds may only be invested in investments which mature within 397 days or
less and which are authorized by law and as limited by this written investment policy of
the City.
2. All investments of public funds by the City shall be subject to the following:
a. Each investment must be authorized by applicable law and as limited by the written
investment policy of the City.
b. All custodial agreements shall comply with rules adopted by the Treasurer of State
pursuant to Iowa Code Section 12B.10C.
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c. All contracts providing for the investment of public funds shall be in writing and shall
contain a provision requiring that all investments shall be in accordance with the laws of
the State and as limited by the written investment policy of the City.
d. A contract for the investment or deposit of public funds shall not provide for
compensation of an agent or fiduciary based upon investment performance.
3. A City Treasurer/Finance Director may invest funds that are not operating funds in investments
having maturities longer than 397 days to provide funding for pay -as- you -go financing of utility
construction and required bond and insurance reserves.
• Section 12B.10B. Written Investment Policy
1. Political subdivisions shall approve written investment policies which incorporate the
guidelines specified in Section 12B.10, Sections 12B.10A through 12B.10C, and any other
provisions deemed necessary to adequately safeguard public funds.
2. The written investment policy must be delivered to all of the following:
a. City Council.
b. All depository institutions or fiduciaries for public funds of the City.
c. The auditor of the City.
• Section 12B.10C. Regulation of Public Funds Custodial Agreements
"Public Funds Custodial Agreement" means any contractual arrangement pursuant to which one or
more persons (including but not limited to, investment advisors, investment companies, trustees, agents,
the federal reserve and custodians) are authorized to act as a custodian of or to designate another
person to act as a custodian of public funds or any security or document of ownership or title
evidencing public funds investments. This does not include custodial agreements between an open -end
management investment company registered with the Federal Securities and Exchange Commission and
a custodian bank.
The City of Dubuque shall comply with any rules adopted by the Treasurer of the State of Iowa
requiring the inclusion in public fund custodial agreements any provision necessary to prevent loss of
public funds.
However, this section does not apply to public funds that are invested under the provisions of a
resolution or indenture for the issuance of bonds, notes, certificates, warrants, or other evidences of
indebtedness.
• Section 12C.1. Deposits in General - Defmitions
The City Treasurer/Finance Director shall invest all funds not needed for current operating expenses in
time certificates of deposit in approved depositories pursuant to this chapter, or in investments
permitted in Section 12B.10.
Current operating funds are retained in interest bearing checking and savings accounts with local
financial institutions.
• Section 12C.9. Investment of Sinking Funds - Bond Proceeds
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Investment Policy
The City Treasurer/Finance Director may invest the proceeds of public bonds or obligations and funds
being accumulated for the payment of principal and interest or reserves in investments set out in
Section 12B.10, Subsection 4, paragraphs "a" through "g ", an investment contract or tax exempt bonds.
The investment shall be as defined and permitted by Section 148 of the Internal Revenue Code and
applicable regulations under this section. An investment contract or tax exempt bonds shall be rated
within the two highest classifications as established by at least one of the standard rating services
approved by the Superintendent of Banking by rule adopted pursuant to Chapter 17A.
• Sections 12C.15 through 12C.23 pertain to collateralization requirements. They are not repeated here
because of the length of these sections. Those sections are hereby incorporated by reference.
• Section 384.21. Joint Investment of Funds
A city or a city utility board shall keep all funds invested to the extent practicable, and may invest the
funds jointly with one or more cities, utility boards, judicial district departments of correctional
services, or counties pursuant to a joint investment agreement. All investment of funds shall be subject
to Sections 12B.10 and 12B.10A and other applicable laws.
7.0 INVESTMENT AUTHORITY AND RESPONSIBILITY
7.1 Legal Background
The City Council is charged, under Iowa Code Section 12B.10B, with approving a written investment
policy which incorporates the guidelines specified in Section 12B.10 entitled "Public Funds
Investment Standards"; Section 12B.10A entitled "Public Investment Maturity and Procedural
Limitations "; Section 12B.10B entitled "Written Investment Policies "; and Section 12B.10C entitled
"Regulation of Public Funds Custodial Agreements" and which are described in Section 6.0 of this
Investment Policy entitled "Legal Authority".
Authority to invest City funds is designated in the City Treasurer/Finance Director by Iowa statute as
designated above. (Iowa Code Section 12B.10, Subsection 1)
The City Manager, as chief administrative officer for the City, is responsible by statute for budget
preparation, overall business affairs of the City and appointment, with City Council approval, of the
City Treasurer/Finance Director.
7.2 Authority and Responsibility Assigned
The City Treasurer/Finance Director shall establish written procedures for the operation of the
investment programs consistent with this Investment Policy. Procedures should include references to
safekeeping, repurchase agreements, money managers, wire transfer agreements, collateral/depository
agreements and banking service contracts.
The City Treasurer/Finance Director shall invest all funds in accordance with this policy. In the
absence of the City Treasurer/Finance Director, the Assistant Finance Director shall be responsible
and in the absence of the Assistant Finance Director, the responsibility shall be assumed by the
Budget Director. No person shall engage in an investment transaction except as provided under the
terms of this investment policy and the procedures established by the City Treasurer/Finance Director.
The City Treasurer/Finance Director shall be responsible for all transactions undertaken and shall
establish a system of controls and reports to inform the City Manager of the details of investment
transactions. At least quarterly the City Manager shall meet with the City Treasurer/Finance Director
to discuss the status of current investments, strategies for future investments and other investment
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matters deemed necessary. Quarterly and fiscal year -to -date reports shall be provided by the City
Manager to the City Council so they can review performance of the investments.
In carrying out prescribed responsibilities the City Manager may establish an internal City Investment
Committee. The City has established an Investment Oversight Advisory Commission. Bylaws of the
Commission are attached.
8.0 AUTHORIZED INVESTMENT INSTRUMENTS (Section 12B.10(5))
8.1 Permitted Investments
Investment instruments authorized for purchase by the City Treasurer/Finance Director shall be
limited to:
1. United States Government, Agency and Instrumentality Obligations.
2. Certificates of Deposit (time, demand and/or negotiable) and other evidences of deposit such
as time deposits, savings accounts at federally insured depository institutions approved
pursuant to Chapter 12C, Code of Iowa.
3. Prime bankers' acceptances that mature within 270 days and that are eligible for purchase by a
federal reserve member bank provided that at the time of purchase no more than ten percent of
the investment portfolio shall be in investments authorized by this paragraph and that at the
time of purchase no more than five percent of the investment portfolio shall be invested in the
securities of a single issuer.
4. Repurchase agreements. A master repurchase agreement between the City and bank or dealer
must be in place prior to entering into any repurchase transaction. The master repurchase
agreement must include the following provisions:
a. The underlying collateral shall be limited to United States Government, Agency and
Instrumentality Obligations;
b. Collateral shall be marked -to- market daily by the custodian and shall be maintained at
value equal to or greater than the cash investment;
c. At the time of purchase, the market value of the collateral shall represent 102 percent
of the cash investment;
d. An authorized third party custodian or safekeeping agent shall hold all securities
purchased under a repurchase agreement;
e. A seller of repurchase securities shall not be entitled or authorized to substitute
collateral, except as authorized by the City Treasurer/Finance Director; and
f. Retail repurchase agreements and reverse repurchase agreements shall not be
authorized for purchase.
5. Management investment company including open ended, exchanged or closed end registered
with the Federal Securities and Exchange Commission under the Federal Investment Company
Act of 1940, 15 U.S.C. §80(a), and operating in accordance with 17 C.F.R. §270.2a -7,
provided such entity limits its investments to those allowed by this policy.
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6. A joint investment trust organized pursuant to Chapter 28E of the Iowa Code prior to and
existing in good standing on the effective date of this Act or a joint investment trust organized
pursuant to Chapter 28E after April 28, 1992, provided that the joint investment trust shall
either be rated within the two highest classifications by at least one of the standard rating
services approved by the Superintendent of Banking by rule adopted pursuant to Chapter 17A
and operated in accordance with 17 C.F.R. §270.2a -7, or be registered with the Federal
Securities and Exchange Commission under the Federal Investment Company Act of 1940, 15
U.S.C. §80(a) and operated in accordance with 17 C.F.R. §270.2a -7. The manager or
investment advisor of the joint investment trust shall be registered with the Federal Securities
and Exchange Commission under the Investment Advisor Act of 1940 15 U.S.C., § 80(b), as
amended, provided such entity limits its investments to those allowed by this policy.
7. Participation in investment pools is authorized by Section 384.21. The City may participate in
investment pools after approved by the City Council as an action item on the City Council
agenda. Recommendations from the City Manager for participation in a pool or trust shall
include in the background portion of the cover memo a discussion of research findings on the
reliability and experience of the firm and its top executive officer(s). Participation is limited
to pools that invest only in authorized instruments identified above and whose investment
strategy is consistent with the City's Investment Policy.
8. Agency issued Collateralized Mortgage Obligations (CMO's), which are securities
underwritten and guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
8.2 Prohibited Investments
1. Futures and options contracts are not permissible investments. Iowa Code Section
12B.10(5)(h).
2. Whole loan CMO's or privately labeled CMO's, which are typically issued by private entities
including subsidiaries of investment banks, financial institutions and home builder's or mutual
funds that hold whole loan CMO.
3. The trading of securities in which any public funds are invested for the purpose of speculation
and the realization of short-term trading profits is prohibited. (Iowa Code Section 12B.10(3)).
4. International bonds are not permissible investments.
5. Corporate bonds are not permissible investments.
6. Municipal securities approved by Municipal Security Rulemaking Board (MSRB).
9.0 INVESTMENT OPTIONS
The City Treasurer/Finance Director is not required to use all the investment options authorized by this
Investment Policy. The selection of investment options shall be determined by the legal requirements or
other limitations on investment opportunities, cash flow characteristics, the acceptability of exposure to
market risks, the rate of return, the technical ability of the staff responsible for administering the investment
program, and the availability of time and tools for City staff to engage in conservative but active
management.
10.0 PROFESSIONAL INVESTMENT ASSISTANCE
This investment policy authorizes the use of investment advisors (money managers) and investment
consultants to assist the City in the management of its invested funds.
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10.1 Investment Advisor Defined
An "Investment Advisor" (money manager) is a person or firm with investment expertise paid a fee
to manage funds to enhance the rate of return. The investment advisor shall be selected because of
the advisor's investment expertise, experience, strategy and fund management aids. The
investment advisor shall determine the actual investments to be made of funds under management
according to this Investment Policy. This Investment Policy shall apply in all aspects to the
investment activities of the City's investment advisor.
10.2 City - Investment Advisor Relationship
The investment advisor's plan shall be explicit, in writing, personally presented to the City at least
annually and mutually agreed upon. Any meaningful change to the plan should be communicated
in writing to the City in the interim. It shall also be within the competence of the investment
advisor; be realistic and reasonable relative to the market; and satisfy the legitimate and informed
expectations of the City.
Investment advisor compensation shall not be based upon performance (Section 12B.10A(2)(c))
10.3 Selection of Investment Advisor
Prospective investment advisors shall be examined in three major areas: professional investment
competence, commitment to City service, and soundness of business strategy.
A prospective investment advisor must have a clear concept of how to add value to the City's
portfolio. Such a concept can be based upon the advisor's perception of an opportunity in the
market that presents opportunities for it to increase the portfolio's rate of return. In addition to a
sound concept of how to add value, the advisor must have developed a sensible process for making
decisions to execute the concept, and must have a convincing record of achievement of the results
intended.
The advisor will be reasonably accessible for the convenience of personal meetings and will be a
fixed- fee -based provider of services and not a performance- based -fee provider. Monthly, calendar
year -to -date, one year, three year, five year and from inception returns need to be reported by each
investment advisor monthly in order to capture a full market cycle. Returns should be reported
gross and net of fees. The investment advisors should include the following benchmarks* for
comparison in the reporting:
• 90 Day T -Bills
• Lehman Brothers Aggregate U.S. Bonds
• Lehman Brothers Short Term 1 -3 year U.S. Bonds
• Lehman Brothers Government Intermediate U.S. Bonds
*Specific benchmark requirements are subject to change.
10.4 Investment Consultant Defined
An "Investment Consultant" is a person or firm with investment expertise used by the City to assist
in the development of investment plans and strategies that are consistent with the Investment
Policy, to identify investment advisors whose investment management style and strategy are
consistent with the objectives, intent and limitations of the Investment Policy and to monitor the
performance of the investment advisors selected by the City. The investment consultant shall not
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be an investment advisor (money manager) or custodian and may not benefit in any manner from
making investments in behalf of the City.
10.5 Selection of Investment Consultant
The Investment Consultant may be an individual or firm. Said consultant will be thoroughly
familiar with all investment instruments authorized for use in the City of Dubuque Investment
Policy. The consultant will be or will become knowledgeable as to the intent of the City of
Dubuque Investment Policy. The consultant will convey this intent to prospective investment
advisors to guarantee the suitability of investment instruments to be selected by said advisor(s).
The individual consultant or the individual representing the consultant firm will have had at least
five years of hands on experience in the selection process and in monitoring of investment advisors
or closely related experience, such as, having worked in an advisory capacity for at least five years.
The consultant will be reasonably accessible for the convenience of personal meetings and will be
a fee based provider of services and may not benefit in any manner from making investments in
behalf of the City. The consultant will have an orientation toward the needs and requirements
pertaining to the investment of public funds.
11.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
11.1 Selection Process
A set, formal process shall be used to select financial advisors, third party custodians, and
brokers /dealers in money market instruments. Authorized dealers and Institutions must be
approved by the City Investment Committee and City Treasurer/Finance Director. This policy is
intended to screen out institutions that lack economic viability or whose past practices suggests
that the safety of public capital would be impaired if transactions were directed to or through such
firms. As required by Chapter 23A.3, Code of Iowa, it shall be City policy to consider purchasing
services from locally owned businesses if the cost and other considerations are relatively equal.
The City Treasurer/Finance Director shall maintain a list of investment advisors and financial
institutions authorized to provide investment advisor and custodian services. In addition, a list
shall also be maintained of approved security broker /dealers selected by credit worthiness. These
may include "primary" dealers or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3 -1 (uniform net capital rule). Investment Advisory Firms registered with
the SEC under the Investment Advisors Act of 1940. No public deposit shall be made except in a
qualified public depository as established by the Treasurer of the state of Iowa. The City may also
maintain an account with the federal reserve for custodial services and investment transactions.
11.2 Financial Institutions and Brokers/Dealers
All fmancial institutions and broker /dealers who desire to become qualified bidders for investment
transactions of the City of Dubuque or its investment advisors shall supply the City
Treasurer/Finance Director with the following: annual audited financial statements or Uniform
Application for Investment Advisor Registration (ADV) report, proof of state registration if
applicable, or Federal Depository Bank registration and certification of having read the City of
Dubuque's Investment Policy. An annual review of the financial condition and registrations of
qualified bidders shall be conducted by the City Treasurer/Finance Director or his/her designee.
Each financial institution and broker /dealer that bids on City of Dubuque (or City of Dubuque
investment advisors) investment transactions shall file a current audited fmancial statement.
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11.3 Financial Advisors and Custodians
All financial institutions who desire to become qualified to bid on investment custodial services
shall execute the City of Dubuque's Investment Custodial Agreement and supply the City
Treasurer/Finance Director with the following: audited financial statements and certification of
having read the City of Dubuque's Investment Policy and Custodial Agreement. Before funds are
placed with a financial institution acting as custodian of City funds for the City of Dubuque, an
executed Custodial Agreement shall be on file with the City Treasurer/Finance Director.
All qualified investment advisors shall execute the City of Dubuque's Investment Advisor
Agreement and shall supply the City Treasurer/Finance Director with one of the following: audited
financial statements, Uniform Application for Investment Advisor Registration (ADV), proof of
SEC registration or federal depository bank registration. Monthly detailed transaction accounting
will be required.
11.4 Independent Auditor's Verification
The City's independent auditor verifies account balances for securities /instruments being held by
the custodian annually
12.0 COLLATERALIZATION
Collateralization shall be required on two types of investments: Certificates of Deposit, and other evidence
of deposit at City Council approved insured depository institutions; and repurchase agreements. In order to
anticipate market changes and provide a level of security for all funds, the collateralization level shall be
that as is required by Iowa law for Certificates of Deposit and other evidence of deposit and 102 percent of
market value of principal and accrued interest for repurchase agreements.
The City chooses to limit collateral to those investment instruments authorized by this Investment Policy.
Collateral shall always be held by an independent third party bailee who holds the collateral for the benefit
of the City and where the City is a party to the bailee agreement. A clearly marked evidence of ownership
(safekeeping receipt) shall be supplied to the City and retained by the City Treasurer/Finance Director.
Collateral substitution is not authorized, except as approved in writing by the City Treasurer/Finance
Director.
13.0 MAXIMUM MATURITIES
The City of Dubuque will attempt to match its investments with anticipated cash flow requirements.
13.1 Operating Funds - Available for Short-Term Investment
Operating funds represent fund balances, current revenues and other moneys anticipated to be
expended during a current fiscal year or within 15 months of receipt. Operating funds may only be
invested in instruments that mature within 397 days or less. Operating funds must be identified
and distinguished from all other funds available for investment. (Section 12B.1OA(1)
13.2 Reserve and Construction Funds - Available for Long -Term Investment
Reserve and construction funds available for long -term investment represent debt service and self -
insurance and operating reserve funds; funds being accumulated for capital improvements on a
pay -as- you -go basis; and construction funds for future projects. These funds may be invested in
investments having maturities longer than 397 days. (Section 12B.10A(3) The maturities for
long -term investments shall coincide as nearly as practicable with expected use of the funds. For
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securities with maturity longer than one year, duration will be used as the primary measure of
maturity rather than final maturity of the fmancial instrument. The City Treasurer/Finance
Director will provide written notice of anticipated withdrawals.
14.0 SAFEKEEPING AND CUSTODY
14.1 Delivery Versus Payment
All security transactions, including collateral for repurchase agreements, entered into by the City of
Dubuque shall be conducted on a delivery- versus - payment (DVP) basis. Securities will be held by
a third party custodian designated by the Treasurer and evidenced by safekeeping receipts.
14.2 Investment Securities
14.3 Bonding
15.0 DIVERSIFICATION
Investment securities shall be held by the City Treasurer/Finance Director or by a custodian who:
(a) is not also the Investment Manager for the funds; (b) is designated in writing by the City
Treasurer/Finance Director; and (c) will issue safekeeping receipts to the City Treasurer/Finance
Director for securities held for the City.
City investment officials shall be bonded to protect the public against possible embezzlement
and/or malfeasance.
The City shall diversify its investments by security type, maturity, specific issue and financial institution.
With the exception of U.S. Government Treasury Securities, federal agencies and instrumentality's, and
deposits in approved depositories, no more than twenty-five (25) percent of the City's remaining investment
portfolio shall be invested in a single authorized pool.
16.0 INTERNAL CONTROLS
The City Treasurer/Finance Director shall be responsible for establishing a system of internal controls that
will provide reasonable assurance that the City investments comply with the objectives of the Investment
Policy. The system shall include but not be limited to the following:
1. All investment transactions shall be reported to the Assistant Finance Director and the results
recorded in the general ledger.
2. Verification of the securities held by the Assistant Finance Director shall be conducted internally,
at least semiannually.
3. Review of compliance with the internal policy and related procedures shall be part of the annual
audit process conducted by the City's independent auditors. This shall include a confirmation letter
from each financial institution, money manager and third party custodian verifying the principal
amount and the market value of all obligations secured by the City of Dubuque's deposits and
investments. Managers should disclose pricing service used for MBS.
17.0 REPORTING
The City Treasurer/Finance Director is charged with the responsibility of including a market report on
investment activities and returns in the City's comprehensive annual fiscal report. In addition, the City
Manager shall be responsible for providing quarterly and fiscal year -to -date reports to the City Council,
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covering the City's investment activities. The reports shall include the earnings for the period and overall
portfolio statistics, such as types of investment holdings and location of all invested funds.
18.0 ETHICS AND CONFLICT OF INTEREST
City officers and employees involved in the investment process shall refrain from personal business activity
that could conflict with the proper execution of the investment program, or which could impair the ability to
make impartial investment decisions. Such officers and employees shall disclose to the City Council any
material financial interests in financial institutions that conduct business with the City and they shall further
disclose any large personal financial/investment positions that could be related to the City's portfolio. City
officers and employees shall subordinate their personal investment transactions to those of the City
particularly with regard to the time of purchases and sales.
The appearance of a conflict of interest shall also be avoided by those investing City funds.
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GENERAL RULES OF PROCEDURE
INVESTMENT OVERSIGHT ADVISORY COMMISSION
CITY OF DUBUQUE, IOWA
ARTICLE I
MEETINGS
1. Regular meetings of the Investment Oversight Advisory Commission shall be held
at 3:00 p.m., on the fourth Wednesday of January, April, July, and October, or as
rescheduled by the Commission to be in compliance with open meeting rules.
2. Special meetings may be called by the Chairperson or upon request of two
members of the Commission.
3. A quorum of the Commission shall consist of three members.
ARTICLE II
OFFICERS AND DUTIES
1. The Chairperson will be popularly elected each year during the first commission
meeting after July 1.
2. The Chairperson shall preside at all meetings and hearings of the Commission. In
the event of the absence or disability of the Chairperson, the Chairperson shall
appoint a Chairperson Pro Tem to preside.
3. The Chairperson, subject to these rules, shall decide all points of procedure unless
otherwise directed by a majority of the Commission in session at the time.
4. The Chairperson shall, subject to these rules, and further instructions from the
Commission and transact the official business of the Commission.
5. City staff shall provide the necessary clerical support upon request from the
commission.
ARTICLE III
AMENDMENTS
1. These rules may be amended or modified by an affirmative vote of not Tess than
three (3) members of the Commission, provided that such amendment be
presented in writing at a regular meeting.
ARTICLE IV
ORDER OF BUSINESS AT THE REGULAR MEETING
1. The order of business at regular meetings of the Commission shall be as follows:
a. Call to order.
b. Certification of compliance with Iowa Open Meetings Law.
c. Review minutes of prior meeting.
d. Review of quarterly performance reports and investment summaries.
e. Communications from the public, commission and staff.
f. Discuss additional information needs with staff.
g. Adjourn.
2. The Commission may, with cause, modify the order of business items.
Passed, approved and adopted the 27 day of April, 2005.
Paul Lassance
Paul Lassance, Chairperson
Investment Oversight Advisory Commission
GLOSSARY
Attachment to City of Dubuque Investment Policy
AGENCIES: Federal agency securities and/or Government- sponsored enterprises.
ASKED: The price at which securities are offered.
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.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of the
investment portfolio. A benchmark should represent a close correlation to the level of risk
and the average duration of the portfolio's investments.
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a
bid.) See Offer.
BROKER: A broker brings buyers and sellers together for a commission.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a
Certificate. Large- denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits
of public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report
for the City of Dubuque. It includes financial statements of the governmental activities, the
business -type activities, the discretely presented component unit, each major fund, and the
aggregate remaining fund information. It also includes supporting schedules necessary to
demonstrate compliance with finance- related legal and contractual provisions, extensive
introductory material, and a detailed Statistical Section.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder
on the bond's face value. (b) A certificate attached to a bond evidencing interest due on
a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all
transactions, buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery
versus payment and delivery versus receipt. 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.
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DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from,
the movement of one or more underlying index or security, and may include a leveraging factor,
or (2) financial contracts based upon notional amounts whose value is derived from an
underlying index or security (interest rates, foreign exchange rates, equities or commodities).
DISCOUNT: The difference between the cost price of a security and its maturity when quoted
at lower than face value. A security selling below original offering price shortly after sale also is
considered to be at a discount.
DISCOUNT SECURITIES: Non - interest bearing money market instruments that are issued a
discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit
to various classes of institutions and individuals, e.g., S &L's, small business firms, students,
farmers, farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that
insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The
rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal
Reserve through open - market operations.
FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks
(currently 12 regional banks), which lend funds and provide correspondent banking services to
member commercial banks, thrift institutions, credit unions and insurance companies. The
mission of the FHLBs is to liquefy the housing related assets of its members who must purchase
stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal
corporation working under the auspices of the Department of Housing and Urban Development
(HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie
Mae, as the corporation is called, is a private stockholder -owned corporation. The corporation's
purchases include a variety of adjustable mortgages and second loans, in addition to fixed -rate
mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes
and guarantees that all security holders will receive timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of
the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on
a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding
purchases and sales of Government Securities in the open market as a means of influencing the
volume of bank credit and money.
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FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress
and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks
and about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae):
Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage
bankers, commercial banks, savings and loan associations, and other institutions. Security
holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities
are backed by the FHA, VA or FmHA mortgages. The term "pass- throughs" is often used to
describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without
a substantial loss of value. In the money market, a security is said to be liquid if the spread
between bid and asked prices is narrow and reasonable size can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase — reverse repurchase agreements that establishes 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: The market in which short-term debt instruments (bills, commercial
paper, bankers' acceptances, etc.) are issued and traded.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for
an offer.) See Asked and Bid.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as directed by the FOMC
in order to influence the volume of money and credit in the economy. Purchases inject reserves
into the bank system and stimulate growth of money and credit; sales have the opposite effect.
Open market operations are the Federal Reserve's most important and most flexible monetary
policy tool.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily reports of
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market activity and positions and monthly financial statements to the Federal Reserve Bank
of New York and are subject to its informal oversight. Primary dealers include Securities
and Exchange Commission (SEC)- registered securities broker - dealers, banks, and a few
unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states the law requires that a
fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody
state —the so- called legal list. In other states the trustee may invest in a security if it is one
which would be bought by a prudent person of discretion and intelligence who is seeking a
reasonable income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim
exemption from the payment of any sales or compensating use or ad valorem taxes under the
laws of this state, which has segregated for the benefit of the commission eligible collateral
having a value of not less than its maximum liability and which has been approved by the Public
Deposit Protection Commission to hold public deposits.
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 the current income
return.
REPURCHASE AGREEMENT (RP OR REPO): 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 for this. Dealers use RP extensively to finance their
positions. Exception: When the Fed is said to be doing RP, it is lending money that is,
increasing bank reserves.
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 vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SEC RULE 15C3 -1: See Uniform Net Capital Rule.
STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA,
SLMA, etc.) and Corporations, which have imbedded options (e.g., call features, step -up
coupons, floating rate coupons, derivative -based returns) into their debt structure. Their market
performance is impacted by the fluctuation of interest rates, the volatility of the imbedded
options and shifts in the shape of the yield curve.
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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 coupon - bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities of more than 10 years.
TREASURY NOTES: Medium -term coupon - bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities from two to 10 years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker - dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment, expressed as a percentage. (a)
INCOME YIELD is obtained by dividing the current dollar income by the current market
price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield
minus any premium above par or plus any discount from par in purchase price, with the
adjustment spread over the period from the date of purchase to the date of maturity of the bond.
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