Essay on OPERATING RESERVE AND INVESTMENT POLICY Tentative

Submitted By Kreacher45
Words: 1118
Pages: 5

OPERATING RESERVE AND INVESTMENT POLICY

The following Policy has been adopted by the Board of Directors of West River Transit Authority d.b.a. Prairie Hills Transit (PHT) and is to be shared with the Finance Committee and any active portfolio managers responsible for investing unrestricted assets of the organization:

A. Policy Statement

The primary objective of this policy is to establish the investment objectives, policies, guidelines and eligible securities relating to any investments owned or controlled by the organization and any of its subsidiary organizations.

1. Identify the criteria against which the investment performance of the organization’s investments will be measured. 2. Communicate the objectives to the Board, staff, investment managers, brokers, donors and funding sources that may have involvement.

3. Serve as a review document to guide the ongoing oversight of the management of the organizations’ investments.

The primary investment objective of this policy is capital preservation and liquidity.

B. Operating Reserve

PHT will maintain an operating reserve that will be no less than 2 months (minimum) and no more than 6 months (maximum) of the annual operating budget. The operating reserve will be reviewed by the Finance Committee at least annually to see if the organization is in compliance with this policy.

A minimum of 75% of the increase in unrestricted net assets from the current year will be added to the operating reserve until the maximum reserve balance has been achieved.

An amount should be built into the annual budget to build the operating reserve to the desired level.

The operating reserve funds will be invested in accordance with the Investment Policy adopted by the Board.

Earnings from the operating reserve investments will be added to the balance until the maximum reserve balance is achieved. Once the maximum balance is achieved, then the earnings can be used for general operations.

Any spending of the operating reserve corpus must be approved in advance by the Board.

C. Investments

Since capital preservation and liquidity are the two main objectives for the investment, the portfolio will be one with a variable focus pursuant to current need. The investment goal of the total fund is to achieve a total return (income and appreciation) of 5% after inflation, over a full market cycle (3-5 years). The following guidelines apply to the three main investment asset classes:

1) Money Market Funds – Allowable range: Minimum 5%; Maximum 30% of total assets

A quality money market fund will be utilized for the liquidity needs of the portfolio whose objective is to seek as high a current income as is consistent with liquidity and stability of principal. The fund will invest in “money market” instruments with remaining maturities of one year or less, that have been rated by at least one nationally recognized rating agency in the highest category for short-term debt securities. If non-rated, the securities must be of comparable quality.

2) Equities: Allowable Range- Minimum 10%; Maximum 40% of total assets

The equity component of the portfolio will consist of high-quality, large capitalization, domestic (U.S.) equity securities traded on either the New York, NASDAQ or American Stock exchanges. The securities must be screened for their above average financial characteristics such as price-to-earnings, return-on-equity, debt-to-capital ratios, etc.

No more than 5% of the equity portion of the account will be invested in any one issuer. As well, not more than 20% of the equity portion of the account will be invested in stocks contained within the same industry.

It is acceptable to invest in an equity mutual fund(s) adhering to the investment characteristics identified above, as long as it is a no-load fund, without 12(b)(1) charges, which maintains an expense ratio consistent with those other funds of similar investment styles as measured by the…