May 8, 1996



INTRODUCTION

The principal purpose of this Investment Policy Statement is to provide long-term direction to the Town of Manchester for the investment of its funds and the spending of income. A secondary purpose is to describe the underlying logic and philosophy supporting this Statement.

Setting investment policy is the most critical phase of the entire investment process. The effects of a good or bad policy can be more significant than the effects of good or poor investment management.

To be successful, an investment policy needs to be appropriate for its organization. It needs to match the needs of the organization to the financial assets most likely to meet those needs. The best way to minimize investment risk is to match, as closely as possible, the timing of cash needs with timing of future cash flows from the portfolio assets.

The policy statement also has to withstand certain risks such and for that reason this statement contains an introductory section presenting the principles and expectations upon which the policy is based.

PRINCIPLES & ASSUMPTIONS

WE EXPECT THE AMERICAN ECONOMY TO GROW, IN REAL (INFLATION-ADJUSTED) TERMS. We expect the economy to show modest real growth over full business cycles, even after allowance for occasional recessions. We expect short to intermediate fixed income investments to match or slightly exceed the rate of inflation. We expect stock prices to grow somewhat in line with the economy, although the naturally volatile nature of stock prices makes such growth invisible except when observed over long periods.

WE EXPECT CONTINUED INFLATION. We believe some inflation is a natural by-product of our present economic system. Its timing and severity we cannot predict, but we believe it will be of sufficient magnitude that to ignore it would damage our ability to meet our long-term objectives.

WE ARE LONG TERM INVESTORS. This enables us to purchase some long term assets, such as longer bonds and equities, which tend to have high returns over many years but whose price volatility precludes their use by those with shorter time horizons. By both planning for short-term needs and keeping our long-term focus in mind at all times, we hope to weather the periodic bad times when investors with short term orientations tend to panic. We expect this long-term view to provide us with better long-range results than will be earned by those who pick just short-term investments or who will abandon planned strategies during turbulent years.

General

OBJECTIVES

To maintain the real market value of the assets, after inflation, while recognizing that security price gyrations may keep market values over or underpriced for several years at a time.

To achieve a balance between providing as much real spendable income as possible for current and future expenditures, without compromising all of the long term growth potential of the portfolio needed to offset the effects of inflation.

To provide sufficient liquidity in the portfolio to meet the planned periodic withdrawals set by the Investment Committee.

To avoid taking excessive risks with the portfolio.

SCOPE

• This investment policy applies to all the financial assets of the Town of Manchester. These funds are accounted for in the Town’s audited financial statements and include the General Fund and include any Special Revenue Funds, Enterprise Funds, Capital Project Funds, Bond Funds, and Municipal Trust Funds.

PRUDENCE

• Investments shall be made with judgement and care under prevailing circumstances which persons of prudence, discretion and intelligence exercise in the management of their own affairs. Investments shall not be made for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.

ETHICS

• Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. No town employee shall accept any gift of material value, free service or payment of any kind for performing their duties under this policy.

DELEGATION OF AUTHORITY

• Authority to manage the investment program is derived from 30-A, M.R.S.A. Section 5706 et seq., is granted to the Town Treasurer, and may be further delegated. Responsibility for the operations of the investment policy is hereby delegated to the Town Manager, who shall establish written procedures to comply with this policy.

• The Selectmen will appoint an Investment Committee to oversee town investments on a regular basis, but no less than two times per year. The Investment Committee will include the Town Manager, Town Treasurer, Chairman of the Budget Committee and at least one member of the Board of Selectmen. A representative of the firm selected to execute transaction on behalf of the town will act as the Investment Manager.

STRATEGY

The Investment Committee’s aim is to set guidelines regarding the management of the Fund’s assets that will allow the Investment Manager to meet the objectives of the Fund. (Real inflation adjusted returns without taking excessive investment risk to achieve it.) These guidelines include fixed income and cash allocation parameters and diversification requirements.

• The bond portion of the portfolio will be to provide a higher income stream and to match maturities with short to intermediate term funding needs.

The Investment Manager has the latitude and discretion to make tactical asset allocation changes between fixed income, and cash equivalents, as the Investment Manager deems appropriate and prudent, based on changing conditions in the capital markets, providing the manager stays within the guidelines set by the Investment Committee as outlined in this Investment Policy.

• The Town of Manchester will not directly or indirectly invest in any product which derives its value from other assets, so called “derivatives.” All investments will comply with state statutes.

EFFECTIVE DATE

• This policy shall apply to all investments purchased after the date of adoption of this policy by the Board of Selectmen.

REPORTING

• The Town Treasurer shall submit copies of quarterly investment reports to the Town Manager and the Board of Selectmen. The report shall list the investment type, amount, interest rate, maturity, and market value (for maturity greater than one year).

SUPERVISION

The Town Manager will periodically report to the full Board of Selectmen on the administration of these funds.

The Investment Manager, in recognition of his/her role as a fiduciary of the funds, must assume responsibilities related to the following areas:

Investment Program -

1. Investing assets in accordance with the objectives as defined in the

document.

2. Exercising full discretionary authority as to all buy, hold, and sell

decisions for each security under management

Communication -

Monthly- Statements will be provided to the Investment Committee, indicating:

1. All principal cash transactions, including all buys and sells in sufficient descriptive detail, and including commissions paid. Statements should also indicate income cash transactions, including the sources and nature of all interest and dividends.

2. Portfolio composition showing asset structure for each major asset

class security.

3. Positions, by individual security, showing both cost and market value.

In cases of commingled assets, the unit position cost and market value will be used.

Semi-Annually - The Investment Manager will report either on a semiannual basis or at the request of the Investment Committee, the investment performance of the funds.

At least once each year the Investment Committee will review this Policy Statement to ensure that it remains appropriate and is complete.

The Investment Committee requires immediate notice of any change in the Investment Manager’s (1) fundamental investment strategy, (2) personnel, or (3) firm ownership. The Investment Committee also requires immediate notice of any deviations from the restrictions outlined in this policy.

Operating and Reserve Fund

RESTRICTIONS

While realizing that all investments involve both uncertainty and risk, and that some (but not all) kinds of risk bear long term rewards, the Board of Selectmen does not wish to take unnecessary risks with the portfolio. Asset allocation will therefore be bound by the following limits:

Cash & Cash Equivalents 10% to 50% of portfolio

Recommended

Debt Securities 30% to 70% of portfolio Ranges

FIXED INCOME

Fixed income securities have generally produced competitive long-term inflation and risk adjusted rates of return, above cash reserves and below equity securities. They are a useful investment to help manage the company’s assets and liabilities, and have been given a substantial allocation range. The following will serve as an outline for the management of fixed income securities:

Quality and Risk Criteria: The purchase of fixed income investment shall be limited to one of the three highest rating categories by a nationally recognized statistical rating organization (NRSRO) such as Standard & Poor’s and Moody’s. Purchases of fixed income securities will primarily be in U.S. Treasury and U.S. Government Agency bonds and high-grade domestic corporate bonds.

Maturity Range: Maturities of fixed income securities shall be structured to provide an average life of one to five years. The majority of the fixed income purchases shall be concentrated in the one to ten year maturity ranges, or with an average life of up to six years for mortgage backed securities.

Composition: Fixed income investments will be limited to:

Fixed Income Security Type Maximum Allocation

U.S. Treasury obligations 100%

U.S. Government Agency obligations 100%

U.S. Government Agency mortgage backed securities 50%

Domestic corporate debt obligations 10%

Domestic bank certificates of deposit 10%

Banker’s acceptances and commercial paper 10%

Trust Funds

OBJECTIVES

To maintain the real market value of the assets, after inflation, while recognizing that security price gyrations may keep market values over or underpriced for several years at a time.

To achieve a balance between providing as much real spendable income as possible for current and future expenditures, without compromising all of the long term growth potential of the portfolio needed to offset the effects of inflation.

To provide sufficient liquidity in the portfolio to meet the planned annual withdrawals set by the Investment Committee.

To avoid taking excessive risks with the portfolio.

STRATEGY

The Investment Committee’s aim is to set guidelines regarding the management of the Fund’s assets that will allow the Investment Manager to meet the objectives of the Fund. (Real inflation adjusted returns without taking excessive investment risk to achieve it.) These guidelines include asset allocation parameters and diversification requirements.

The Investment Manager has the latitude and discretion to make tactical asset allocation changes between equities, fixed income, and cash equivalents, as the Investment Manager deems appropriate and prudent, based on changing conditions in the capital markets, providing the Manager stays within the guidelines set by the Investment Committee as outlined in this Investment Policy.

The equity portion of the portfolio will be to provide a dividend stream that grows at least as fast as the inflation rate.

The bond portion of the portfolio will be, first, to provide a higher income stream to supplement the modest current income from stocks, and second, to dampen overall portfolio price volatility.

Trust Funds

RESTRICTIONS

While realizing that all investments involve both uncertainty and risk, and that some (but not all) kinds of risk bear long term rewards, the Board of Selectmen does not wish to take unnecessary risks with the portfolio. Asset allocation will therefore be bound by the following limits:

Cash & Cash Equivalents 0% to 20% of portfolio

Debt Securities 30% to 70% of portfolio Recommended

Ranges

Equity Securities 20% to 50% of portfolio

EQUITIES

Equities have generally produced the highest long term, inflation and risk adjusted returns, as compared to cash reserves and fixed income. In order to generate the best trade-off between risk and return, the Investment Manager will invest in numerous segments of the equity markets. Specific investment and performance details are provided as follow for the equity segments.

U.S. Large Capitalized: Consists of common stocks listed on domestic exchanges, with an emphasis on higher quality stocks with market capitalization of $2 billion or more. Large cap stock selection will be limited to those quality equities with a Standard & Poor’s rating of B or better.

U.S. Small Capitalized: Consists of common stocks listed on domestic exchanges, which generally have market capitalization of less than $2 billion.

International: Consists of common stocks listed on non-U.S. exchanges, which are generally considered to be of high quality relative to their domestic markets.

• No single equity will comprise more than 10% of the total value of the portfolio. In an attempt to diversify equities across a variety of domestic sectors and industries, the domestic portfolio’s sector exposure will be restricted to a variance of 50% to 200% of the S & P 500 sector breakdown, with the exception of those sectors representing only 5% or less of the S&P 500.

Trust Funds

The equity portfolio may be diversified across capitalization and internationally as follows:

Small capitalization equities - 0% - 20% of portfolio

Diversified international equities - 0% - 20% of portfolio

FIXED INCOME

Fixed income securities have generally produced competitive long term; inflation and risk adjusted rates of return, above cash reserves and below equity securities. They are a useful investment to help manage the company’s assets and liabilities, and have been given a substantial allocation range. The following will serve as an outline for the management of fixed income securities:

Quality and Risk Criteria: The purchase of fixed income investment shall be limited to one of the three highest rating categories by a nationally recognized statistical rating organization (NRSRO) such as S & P and Moody’s. Purchases of fixed income securities will primarily be in U.S. Treasury and U.S. Government Agency bonds and high-grade domestic corporate bonds.

Maturity Range: Maturities of fixed income securities shall be structured to provide an average life of three to five years. The majority of the fixed income purchases shall be concentrated in the one to ten year maturity ranges, or with an average life of up to six years for mortgage backed securities.

Composition: Fixed income investments will be limited to:

Fixed Income Security Type Maximum Allocation

U.S. Treasury obligations 100%

U.S. Government Agency obligations 100%

U.S. Government Agency mortgage backed securities 50%

Domestic corporate debt obligations 10%

Domestic bank certificates of deposit 10%

Banker’s acceptances and commercial paper 10%

DISTRIBUTION POLICY

The Investment Committee, under the direction of the Board of Selectmen, will determine on an annual basis how much income will be spent and how much will be reinvested. Since the assets are to be managed on a total return basis, payouts may come from earned income, realized capital gains, or a combination of the two. Any return above the payout is to remain invested to grow for future needs. At the discretion of the Town Treasurer, 3% to 4% of market value of the fund will be designated for distribution each year.

Approved by the Board of Selectmen on August 28, 2007 by a 5-0 vote

_______________________________ ______________________________

Terri Watson, Chairman Maynard Whitten, Vice Chairman

________________________________ ______________________________

Elaine Fuller Donald McLeod

_________________________________

Jeremy Pare

C: //Manager’s Documents/Policies/Investment Policy/Manchester Investment Policy Approved 8-28-07

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