Recommended CPB Short-term Investment Policy

. CORPO~~~'~~:~:'i~~~~~ADCASTING

901 E Street, NW

Washington, OC 20004-2037 (202) 879-9600

Memorandum

TO:

CPB Board of Directors

~~ FROM:

Richard W. Carlson

RE:

Recommended CPB Short-term Investment Policy

DATE: January 11, 1995

Management has requested that KPMG Peat Marwick review CPB's current investment guidelines, compare these guidelines to those of a representative sample of other not-for-profit organizations, and make any recommendations deemed appropriate to improve our investment performance without assuming substantial additional portfolio risk. A copy of their report dated December 12, 1994 is attached.

Management has reviewed this report and believes that adoption of its recommendations will provide significant additional investment options and flexibility. This increased flexibility should allow us to improve investment yield while maintaining a prudent and conservative investment policy.

Accordingly, we recommend that the Board approve investment of CPB funds by the cpa Treasurer in the following:

1. u.s. Treasury Bills. 2. u.s. Treasury Notes maturing within two years.

3. Obligations of u.S. Government Agencies maturing within two years.

4. Bankers acceptances of u.S. banks rated "B" or higher by Bankwatch.

5. Repurchase agreements collateralized by u.S.

Government securities or u.s. Government Agency

securities.

6. Negotiable certificates of deposit and time deposits

of u.s. banks maturing within two years and rated "B"

or higher by Bankwatch.

7. Commercial paper of domestic corporations rated both "A1" by Standard and Poors and "P1" by Moody's.

CPB Board of Directors January 11, 1995 Page 2

In addition, we recommend that the following limits be applied to the investment of CPB funds:

1. No limit is imposed on purchases of U.S. Treasury Bills, U.S. Treasury Notes or obligations of U.s. Government Agencies.

2. No more than 10% of the portfolio is to be invested in securities issued by anyone bank.

3. No more than 10% of the portfolio is to be invested in securities issued by anyone corporation.

4. No more than 40% of the portfolio is to be invested in commercial paper.

Finally, we recommend that the authority vested in the CPB Treasurer may be delegated to the Director of Financial Management or (in his absence) to the Deputy Director of Financial Management, and that the Treasurer be authorized to open accounts to deposit CPB funds and close such accounts, in accordance with this investment policy.

KPMG Peat Marwick will discuss their recommendations with the Board and are prepared to answer any questions related thereto.

.,

Peat Marwick LLP

345 Park Avenue New York. NY 10154

Board of Directors Corporation for Public Broadcasting 901 E Street, NW Washington, D.C. 20004-2037

To: CPB Board of Directors

Telephone 212 7589700 Telex428038

Telefax 212 758 9819

December 12, 1994

At the request of CPB management, we have been asked to evaluate your current investment guidelines to see if they are appropriate for achieving the objectives of the fund. We have compared your portfolio yield to similar style external investment managers over the past five fiscal years ending in 1993 and made suggestions as to how you might improve your investment performance without taking on substantial additional portfolio risk. Attached to this letter is a

.. sample of how similar corporations invest their operating portfolios and a draft recommended

. investment policy and guidelinesfor the CPB portfolio.

Comparison with External Investment Managers We have compared CPB yields with a sample of three large, high quality, external investment managers and found that your internal investment performance, given your current very conservative guidelines, has been reasonable. Since investment management fees would average between ten and twenty basis points, we believe that you should continue to manage this portfolio internally until such time as you can expand your guidelines to invest not only in other types of short tenn securities, but also to move further out on the yield curve to allow the investment manager discretion to add incrementalvalue.

Review of Investment Guidelines

Our review of the investment guidelines shows that they are indeed very conservative, even for a money market type investment style. At this point we would recommend the following adjustments to the current guidelines:

Bankers Acceptances/ Negotiable Certificates of Deposit The current guidelines state that the CPB can invest in BA's and CD's of the ten largest banks in the United States. We believe that the ten largest should be changed to only banks that maintain a minimum rating of "B" by Bankwatch. This change would guarantee a minimum quality rating rather than just selecting a bank based on its size.

One of the other issues concerning bankers acceptances is the fact that there are not many banks

that are issuing them and the market for these instruments is shrinking. Banks have found other methods of financing over the past several years and it is unclear whether this market will ever be as large as it used to be.

IIII

Membe"',mof Kfynve'" p.a, Ma ................
................

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