Trustees of Trust Funds Investment Policy
Town of Fremont, NH Trustees of Trust Funds
INVESTMENT POLICY STATEMENT
25 February 2010
Reviewed and Readopted 30 January 2013; Reviewed and Readopted 8 May 2015
Reviewed and Readopted 14 December 2016; Reviewed and Readopted 10 November 2021
Reviewed, Amended and Readopted 14 December 2022
Reviewed and Readopted 29 February 2024
I. Scope
This Investment Policy Statement (“IPS”) is issued by the Town of Fremont, NH for the purpose of detailing the oversight and management of the Town of Fremont Trust Funds (collectively, the “Trust Funds”). This IPS applies to all financial assets of the Trust Funds. The Trust Funds are accounted for in the Town’s annual financial report and include:
• Cemetery Funds
• Capital Reserve Funds
• Individual Trust Funds
• Waddell Scholarship Funds
• Carey Doucette Scholarship Funds
This IPS applies to all transactions involving the financial assets and related activity of all foregoing funds.
II. Objectives
The investment objective for the Trust Funds is the preservation of capital while taking into consideration the erosive impacts of inflation. Recognizing that there are risks inherent in any investment, reviews and oversight of the management of the Trust Funds will seek to ensure that principal is protected. Investment review will encompass, but not be limited to, the parameters set forth in this IPS. Investments will be made with the intent of the investment being held long-term (at least 1 year). In the case of common trusts, the portfolio of investments shall be managed on a collective basis (all common trusts sharing common investments) in order to minimize costs and maximize efficiency.
The Town of Fremont delegates investment responsibility for the Trust Funds to the Trustees of Trust Funds (“Trustees”) who execute this responsibility in regularly scheduled and special meetings. The Trustees seek to attain a rate of return on Trust Fund investments consistent with the constraints imposed by this IPS, cash flow considerations and state laws that restrict the placement of Trust Funds. The Trustees shall act responsibly as custodians of the public trust. The Trustees shall have full power and authority to manage, invest, and reinvest all Trust Funds assets. Furthermore, the Trustees shall have full power and authority to employ, retain or engage the services of such custodians, trustees, fiscal agents, investment advisors, and other professional personnel as it shall deem necessary or desirable. Trustees shall avoid any transaction that might impair public confidence in the Trustees’ ability to administer the Trust Funds effectively.
III. Statutory Authority
This IPS is intended to comply with the requirements of RSA 31:27 – Collective Investments for Trust Funds, and RSA 35:9 – Investments, and RSA 31:38-a – Professional Banking and Brokerage Assistance.
In the event of any conflict between this IPS and any of the above statutory provisions including the interpretation or application of this IPS, the statute shall control and the Policy shall be deemed to have been revised or amended to conform to the statute.
IV. Investment Authority
Management responsibility for the investment program is herby delegated to the Trustees who shall make investments in accordance with this IPS. The Trustees shall establish such procedures necessary to implement this investment policy. No person, except the Trustees, may engage in an investment transaction. The Trustees shall be responsible for all transactions undertaken and establish a system of reviews to ensure compliance with this IPS. All investments require advance approval of the Trustees.
V. Prudence
The standard of investment to be used by the Trustees shall be the Prudent Person Rule. The Trustees as a whole, acting in accordance with written procedures 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 fashion and appropriate action is taken to control adverse developments.
VI. Ethics and Conflicts of Interest
If any Trustee shall have, or appear to have, a conflict of interest that impairs or appears to impair the Trustee’s ability to exercise independent and unbiased judgment in the good faith discharge of his or her duties, he or she shall disclose such conflicts prior to meaningful discussion. The Trustees should subordinate their personal investment transactions to those of the Trust Funds.
The Town’s Conflict of Interest Ordinance shall apply to all Trustees of Trust Funds and their activities.
VII. Internal Controls
The Trustees shall establish a system of internal controls, to be documented in writing. The Trustees and town’s independent auditor shall review the internal controls. The controls shall be designed to prevent loss of public funds arising from fraud, employee error, and misrepresentation by third parties, or imprudent actions by employees and officers of the Town.
VIII. Reporting
The Trustees shall submit an investment report that summarizes the portfolio cost, market value, and performance of investments. The Trustees shall prepare and submit the necessary investment reports to the New Hampshire Attorney General’s Office, Charitable Trust Division.
IX. Investment Instruments
Collective investment assets and capital reserve fund assets of the Trust Funds may be invested in:
a) Deposits in savings banks or the savings department of a national bank or trust company in this state or TD Bank Escrow Services account.
b) Shares of a building and loan association or cooperative bank, incorporated and doing business under the laws of this state.
c) Shares of any federal savings and loan association, located and doing business in this state.
d) Certificates of Deposit (CDs) within this state.
e) Bonds, notes or other obligations of the U.S. government or of the state, county, town, city, school district, or water and sewer district.
f) Stocks and bonds as are legal for investment by NH savings banks.
g) Shares of mutual funds or money market mutual funds.
X. Investment Criteria
The following investment criteria reflect the variables needed to be met for each category of investment in order for purchases to be made of a specific investment.
Depositories
Deposits in savings banks or in the savings department of a national bank or trust company or shares of a building and loan association, cooperative bank, a federal savings and loan association or CDs shall be made only if the following criteria are met by the financial institution:
a) Minimum total assets of $100 million.
b) Minimum ratio of equity capital to total assets of 6%.
c) Maximum ratio of non-performing assets to equity of 35%.
d) Minimum of an average rating by a bank rating service.
Government Bonds and Other Obligations
The purchase of bonds, notes or other obligations of the U.S. government or of the state, county, town, city, school district, or water and sewer district shall be made within the following restrictions:
a) Bonds shall have maturities of 10 years or less after the purchase date.
b) Bonds shall have a minimum credit rating of Aa (Moody’s) or equivalent.
Corporate Stocks and Bonds
The purchase of stocks and bonds shall be made only if the company meets the following criteria:
a) The company is listed on the legal list of investments published by the NH Banking Department.
b) The company has a minimum of $500 million in assets.
c) The company has been in business for over 10 years.
d) The review shall include, but not be limited to, the following financial ratios. The majority of ratios for the company under consideration should compare favorably to other companies in the industry to which it belongs.
Current ratio, quick ratio, debt/equity ratio, price/earnings ratio (equities only), price/book ratio (equities only), price/earnings/growth ratio (PEG ratio) (equities only), Return on equity (ROE), gross profit margin, earnings per share (EPS) (equities only), cash flow per share (equities only), dividends per share (equities only), five-year trends for earnings, sales, and debt growth
e) Bonds shall have maturities of 10 years or less after the purchase date.
f) Bonds shall have a minimum credit rating of Aa (Moody’s) or equivalent.
g) No more than 10% of the portfolio (cost basis) shall be invested in the stock and/or bonds of any one corporation.
Shares in Mutual Funds
The purchase of shares in a mutual fund shall be made only in the fund meets the following criteria:
a) The fund is a no load, open ended fund, and does not charge 12b-1 expenses.
b) The fund is qualified for sale in the State of New Hampshire with the Securities Regulations Bureau of the NH Secretary of State.
c) The fund is registered with the Securities and Exchange Commission (SEC).
d) A prospectus for the fund is available to the Trustees outlining the investment philosophy and major holdings in the fund.
e) The fund has a Morningstar rating of four stars of better over a majority of periods.
f) The fund can invest in equities or bonds or both.
g) Price/earnings and price/book should be reasonable within the given market conditions and sectors.
h) If the fund invests in fixed income securities, the average credit quality of the fixed income securities should be A or higher.
i) No investment shall be made into high yield bond funds.
XI. Holding Period
There shall be no set policy for the holding period for specific securities. The Trustees shall determine, based on a quarterly review, whether any holdings have appreciated beyond their fair value providing an advantageous opportunity for the sale of the security. Additionally, a security shall be sold if it is determined after a decline in value that it is unlikely that the security will recover.
XII. Diversification
It is the policy of the Trustees to diversify the investment portfolio. Common Trust assets held in common investments shall be diversified to eliminate the risks associated with the over concentration of assets in a specific maturity, industry or issuer. To this end:
a) With the exceptions of U.S. government or agency obligations, no more than 10% of the portfolio (cost basis) shall be invested in the obligations of any one entity, corporation or organization.
b) No more than 20% of the portfolio (cost basis) shall be invested in any one sector.
c) Approximately 10% of the portfolio should be held in more liquid money market accounts.
XIII. Risk
The Trustees recognize that there are various risks associated with investing including issuer defaults, fluctuations in market prices or various technical complications that result in a temporary loss in liquidity. Portfolio diversification is to be employed as a means to control risk. The Trustees are expected to use prudence in the selection of securities as a way to minimize default risk. No individual investment transaction shall be undertaken that jeopardizes the total capital position of the specific issuer. The Trustees shall review and, if appropriate, proceed to liquidate any securities having comparable credit risks.
XIV. Ineligible Investments/Trading Techniques
The Trustees shall not employ derivatives or leverage in the investment portfolio(s).
XV. Safekeeping and Custody
To protect against potential fraud and embezzlement and to provide central accounting and efficiency, all investment assets of the Trust Funds shall be held in a brokerage account for safekeeping, or by other financial institutions that meet or exceed industry guidelines for insurance protection standards. The Trustees shall review the security procedures of the brokerage firm to assure the safety of Trust Fund assets. The Treasurer is authorized to take advantage of computerized purchase and sales methods in order to realize any discounts offered.
XVI. Capital Gains, Dividends and Interest
Both short and long term capital gains or losses shall be accounted for as increases or decreases, respectively, of the principal of the trusts and shall be distributed to the individual trust at least quarterly, prorated based on the beginning principal position of the underlying funds.
All dividends and interest shall be considered an increase to the accumulated income of the underlying funds and shall be distributed to the individual funds at least quarterly, prorated based on the beginning principal and accumulated interest position of the underlying funds.
Appendix: Subject to update with any statutory changes/amendments. Updated NH Statutes with May 2015 policy review.
Referenced Statutory Requirements:
31:25 Custody; Investment. – The trustees shall have the custody of all trust funds held by their town. Any person who directly or indirectly receives any such trust funds for deposit or for investment in securities of any kind shall, prior to acceptance of such funds, make available at the time of such deposit or investment an option to have such funds secured by collateral having value at least equal to the amount of such funds. Such collateral shall be segregated for the exclusive benefit of the town depositing or investing such funds. Only securities defined by the bank commissioner, as provided by rules adopted pursuant to RSA 386:57, shall be eligible to be pledged as collateral. The funds shall be invested only in deposits in any federally or state-chartered bank or association authorized to engage in a banking business in this state, or in deposits in any credit union in this state, or in state, county, town, city, school district, water and sewer district bonds and the notes of towns or cities in this state; and such stocks and bonds as are legal for investment by any bank or association chartered by this state to engage in a banking business; and in participation units in the public deposit investment pool established pursuant to RSA 383:22; or in obligations with principal and interest fully guaranteed by the United States government. The obligations may be held directly or in the form of securities of or other interests in any open-end or closed-end management-type investment company or investment trust registered under 15 U.S.C. section 80a-1 et seq., if the portfolio of the investment company or investment trust is limited to such obligations and repurchase agreements fully collateralized by such obligations. Deposits in a federally or state-chartered bank or association or credit union shall be made in the name of the town which holds the same as a trust, and it shall appear upon the books thereof as a trust fund. Shares of mutual funds are also permitted if they are registered with the Securities and Exchange Commission, qualified for sale in the state of New Hampshire in accordance with the New Hampshire uniform securities act of the New Hampshire secretary of state's office, and which have in their prospectus a stated investment policy which is consistent with the investment policy adopted by the trustees of trust funds in accordance with this chapter, and when so invested, the trustees shall not be liable for the loss thereof. The trustees may retain investments as received from donors, until the maturity thereof. The trustees shall formally adopt an investment policy for all investments made by them or by their agents for any trust funds in their custody in conformance with the provisions of applicable statutes. Such investment policy shall be reviewed and confirmed at least annually. A copy of the investment policy shall be filed with the attorney general.
Source. 1915, 162:3. 1917, 75:1; 171:1. PL 42:22. 1929, 100:1. 1933, 46:1. 1939, 72:11. 1941, 21:1. RL 51:23. RSA 31:25. 1969, 447:1. 1992, 24:2, II, eff. April 3, 1992. 1996, 209:4, eff. Aug. 9, 1996. 1997, 181:1, eff. Aug. 16, 1997. 2001, 54:1, eff. Jan. 1, 2002. 2007, 164:1, eff. Aug. 17, 2007.
31:27 Collective Investments. – Notwithstanding any statute or rule of law to the contrary, town and city trustees of trust funds may establish, maintain and operate one or more common trust funds, in which may be combined money and property belonging to the various trusts in their care, for the purpose of facilitating investments, providing diversification and obtaining reasonable income; provided however, that said common trust funds shall be limited to the investments authorized in RSA 31:25; provided further, that not more than $10,000, or more than 10 percent of the fund whichever is greater, of any town or city common trust funds shall be invested under RSA 31:25 in the obligations of any one corporation or organization, excepting deposits in any federally or state-chartered bank or association authorized to engage in a banking business in this state, in credit unions in this state, or in obligations of the United States and of the state of New Hampshire and its subdivisions; or in participation units in the public deposit investment pool established pursuant to RSA 383:22, or in shares of open ended mutual funds selected by the trustees for investment under RSA 31:25, and provided further, that the participating contributory interests of said trusts are properly evidenced by appropriate bookkeeping entries showing on an annual basis the capital contribution of and the profits and income allocable to each trust.
Source. 1951, 227:1, par. 31-a. RSA 31:27. 1959, 253:1. 1969, 447:3. 1992, 24:2, IV, eff. April 3, 1992. 1997, 181:3, eff. Aug. 16, 1997. 2001, 54:4, eff. Jan. 1, 2002.
35:9 Investment. – Each capital reserve fund shall be maintained separately on the books of the town. The assets of such funds may be pooled in order to invest in a broader range of investments to maximize growth and mitigate risk. Said capital reserve funds shall be invested only in deposits in any federally or state-chartered bank or association authorized to engage in a banking business in this state, or in bonds or notes of this state, in such stocks and bonds as are legal for investment by banks and associations chartered by this state to engage in a banking business, or in participation units in the public deposit investment pool established pursuant to RSA 383:22, or in obligations with principal and interest fully guaranteed by the United States government. The obligations may be held directly or in the form of securities of or other interests in any open-end or closed-end management-type investment company or investment trust registered under 15 U.S.C. section 80a-1 et seq., if the portfolio of the investment company or investment trust is limited to such obligations and repurchase agreements fully collateralized by such obligations. When so invested the trustees hereinafter named shall not be liable for the loss thereof. Any interest earned or capital gains realized on the moneys so invested shall accrue to and become a part of the individual funds on a pro rata basis. Deposits in federally or state-chartered banks and associations shall be made in the name of the town, district, or county which holds the same as a reserve, and it shall appear upon the books thereof that the same is a capital reserve fund. Any person who directly or indirectly receives any such capital reserve funds for deposit or for investment in securities of any kind shall, prior to acceptance of such funds, make available at the time of such deposit or investment an option to have such funds secured by collateral having a value at least equal to the amount of such funds. Such collateral shall be segregated for the exclusive benefit of the town, school district, village district, or county depositing or investing such funds. Only securities defined by the bank commissioner as provided by rules adopted pursuant to RSA 386:57 shall be eligible to be pledged as collateral. The trustees shall formally adopt an investment policy for all investments made by them or by their agents for any trust funds in their custody in conformance with the provisions of applicable statutes. The trustees shall review and confirm the investment policy at least annually. A copy of the investment policy shall be filed with the attorney general.
Source. 1943, 160:7. RSA 35:9. 1961, 136:8. 1991, 268:7; 383:4. 1995, 20:7, eff. June 11, 1995. 1996, 209:9, eff. Aug. 9, 1996. 2001, 54:6, eff. Jan. 1, 2002. 2007, 164:3, eff. Aug. 17, 2007. 2010, 52:1, eff. July 17, 2010.
31:38-a Professional Banking and Brokerage Assistance. –
I. The provisions of RSA 31:19 through 31:38 as amended shall remain in full force and effect. This section is intended only to provide help to trustees covered by this subdivision by enabling them to have professional banking and brokerage assistance in the performance of their duties as trustees.
II. "Bank'' as used in this section means a savings bank, national bank or trust company in this state, any building and loan association or cooperative bank, incorporated and doing business under the laws of this state or any federal savings and loan association located and doing business in this state.
II-a. "Brokerage firm'' in this section means a firm registered under the securities law effecting transactions in securities for the accounts of others.
II-b. "Portfolio management department'' in this section means the department of a brokerage firm responsible for investment management of client accounts.
II-c. "Investment advisor'' in this section means a qualified investment advisory firm registered with the appropriate regulatory authorities. Such firm may or may not be associated with a brokerage firm as defined in paragraph II-a.
III. Any trustee or trustees of trust funds authorized by this chapter may hire or employ the trust department or departments of a bank or banks or a brokerage firm to assist in the management and investment of trust fund resources or to provide bookkeeping services in connection therewith or to do both. They may also place securities in the nominee name of a trust department or departments or a brokerage firm to facilitate transfers for such securities. Trust fund records maintained by any bank or brokerage firm must be available at all times for examination by local auditors, by independent accountants or auditors retained by a municipality, or by the auditors of the department of revenue administration; and such records shall be municipal records and property. In employing such trust departments, portfolio management departments, or investment advisors, the trustees may enter into contracts or agreements delegating the management of such trust funds to those departments subject to investment guidelines adopted by the trustees under applicable statutes and subject to at least quarterly review and approval of such management by the trustees.
IV. Any expenses incurred pursuant to paragraph III of this section by a trustee or trustees of trust funds authorized by this chapter shall be charges against the trust funds involved and shall be identified and reported in the annual report of the trustee or trustees as expenditures out of trust funds made pursuant to RSA 31:38-a, III.
Source. 1977, 214:1. 1983, 107:1, eff. July 23, 1983; 264:4, eff. Aug. 17, 1983. 1996, 209:5-7, eff. Aug. 9, 1996.