MWRAINVESTMENTPOLICY

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MASSACHUSETTS WATER RESOURCES AUTHORITY

INVESTMENT POLICY

I. Purpose

II. Scope

III. Statements of Objectives

IV. Standards of Care

V. Suitable & Permitted Investments

VI. Investment Monitoring and Reporting

VII. Review of Policy

Appendix A Excerpts from MWRA’s General Bond Resolution

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MASSACHUSETTS WATER RESOURCES AUTHORITY INVESTMENT POLICY

I. Purpose: The purpose of this document is to establish policies for governing the investment of the funds of the Massachusetts Water Resources Authority (“Authority”). The Policy is designed to ensure the prudent management of funds, and the availability of operating and capital funds when required, while earning a competitive return within the Policy framework. The Policy will serve to further codify the permitted investment restrictions and requirements defined by the Authority’s General Bond Resolution.

II. Scope: This Investment Policy applies to activities of the Authority with regard to investing all of the Authority’s funds, which is specifically governed by Sections 522 and 523 of the General Bond Resolution. The funds covered by this policy, described in more detail in Appendix A includes the following:

Per the General Bond Resolution:

1. Construction Fund 2. Revenue Fund 3. Operating Fund 4. Debt Service Fund 5. Subordinated Debt Service Fund 6. Debt Service Reserve Fund 7. Subordinated Debt Service Reserve Fund 8. Revenue Bond Redemption Account 9. Community Obligation and Revenue Enhancement Fund (CORE) 10. Rate Stabilization Fund 11. Rebate Fund 12. Commonwealth Obligation Fund 13. Operating Reserve Fund 14. Insurance Reserve Fund 15. Renewal and Replacement Reserve Fund

III. Statements of Objectives:

The portfolio shall be structured with the objective of maximizing return on investments considering the risk constraints and the cash flow requirements of Authority. Preservation of principal is the foremost objective of the Investment Policy where investment safety is defined as the certainty of receiving principal plus accrued interest at a security’s maturity.

Funds are invested in vehicles that provide the liquidity necessary to enable the Authority to meet operating, debt service, and other cash flow requirements. Portfolio liquidity is defined as the ability to sell a security on short notice near the security’s par value. An adequate

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amount of funds will be kept in short-term money market investments to accommodate the reasonable cash needs of the Authority.

The primary objectives, in order of priority, of investment activity shall be safety, liquidity, and yield.

Safety: Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in 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.

Credit Risk: The Authority will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by:

i) Limiting investments to securities listed in the General Bond Resolution;

ii) Diversifying the investment portfolio to minimize the impact of potential

losses from one type of security or individual issuer, excluding U.S. Treasuries, Federally Guaranteed Obligations, Government Sponsored Enterprises and the Massachusetts Municipal Depository Trust “MMDT”.

Interest Rate Risk: The Authority will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates.

Liquidity: The investment portfolio shall remain sufficiently liquid to meet all operating, debt service, and other cash flow requirements that may be reasonably anticipated. Yield: The investment portfolio shall be designed with the objective of attaining an optimal market rate of return considering the investment risk constraints and liquidity needs outlined in the General Bond Resolution and this Policy. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. With respect to the investment of funds under the Authority’s Bond Resolution, such investment portfolios shall be designed with the objective of maintaining compliance with all yield restrictions imposed under applicable federal tax law.

IV. Standards of Care:

All participants in the investment process shall act responsibly and professionally. The Authority’s portfolio shall be invested and managed in accordance with the “Prudent Investor Rule” set forth in MGL Ch. 203C. In general, the Authority will invest and manage the assets under its control as a prudent investor would, considering the purposes of the Authority and the terms under which such assets are held by the Authority, exercising reasonable care, skill, and caution.

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V. Suitable and Permitted Investments: Funds shall be invested in the securities permitted under the definition of Investment Securities and other applicable sections of the General Bond Resolution. Appendix A contains an excerpt from the General Bond Resolution listing the permitted investments.

VI. Investment Monitoring and Reporting: On a continuing basis the Treasury department will monitor the market trends of instruments, prepare a monthly market valuation of all long-term investments and report results for use in preparing financial statements. These reports shall include a schedule showing principal amount, description of investment, maturity date, yield rate, and market value.

VII. Review of Policy The Investment Policy shall be reviewed periodically, but in no case less than every two years as required by the Commonwealth’s Finance Advisory Board’s Regulation. Any changes to the Investment Policy shall be adopted by the Board of Directors

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Appendix A

Excerpts from MWRA’s General Bond Resolution:

Section 101. Definitions (pages 6-9) Section 521. Depositaries (page 49) Section 522. Deposits (page 50) Section 523. Investment of Certain Funds (pages 50-52) Section 524. Valuation and Sale of Investments (page 52)

VOTE EXTRACTS FEBRUARY 13, 2013 BOARD OF DIRECTORS’ MEETING

(Subject to final Board approval of meeting minutes) I. APPROVAL OF MINUTES Voted to approve the minutes of the Board of Directors’ meeting of January 16, 2013, as presented and filed with the records of the meeting. IV. BOARD ACTIONS A. Approvals 1. FY14 Proposed Current Expense Budget (ref. AF&A B.1) Voted to approve transmittal of the FY14 Proposed Current Expense

Budget to the MWRA Advisory Board for its 60-day review and comment period.

2. Adoption of Investment Policy (ref. AF&A B.2) Voted to adopt the MWRA Investment Policy, in compliance with the

Commonwealth of Massachusetts Finance Advisory Board’s regulations (976 CMR 2.03), substantially in the form presented and filed with the records of the meeting.

3. Appointment of the Proxy for the Fore River Railroad Corporation

(ref. AF&A B.3) Voted that the MWRA Board of Directors, as holder of all voting

rights of all the issued and outstanding shares of stock in the Fore River Railroad Corporations, appoints Kathy Soni, with the power of substitution, to vote as proxy at the next annual meeting and any special meeting of the stockholders for the fore River Railroad Corporation in accordance with the form of proxy presented and filed with the records of the meeting. In addition, the Board of Directors directs the proxy to elect the following board members: Joel A. Barrera, Godfrey O. Ezeigwe, Michele S. Gillen, Lisa R. Grollman, Michael J. Hornbook, Frederick A. Laskey, Rachel C. Madden, Steven A. Remsberg, John P. Vetere and John J. Walsh.

4. Approval of the MWRA Affirmative Action Plan (ref. P&C A.1) Voted to approve the MWRA Affirmative Action Plan effective for a

one-year period from January 1, 2013 through December 31, 2013.

Vote Extracts, February 13, 2013 Page 2 of 3 5. Appointment of Regional Manager, Toxic Reduction and Control

Unit (ref. P&C A.2) Voted to approve the Executive Director’s recommendation to

appoint Matthew Dam to the position of Regional Manager, Toxic Reduction and Control Unit, Operations Division (Unit 9, Grade 29) at an annual salary of $85,999.44 effective February 16, 2013.

6. Appointment of Security Services Administrator, Office of

Emergency Preparedness (ref. P&C A.3) Voted to approve the Executive Director’s recommendation to

appoint Donald Martel to the position of Security Services Administrator in the Office of Emergency Preparedness, at an annual salary of $85,221.00 effective February 16, 2013.

7. PCR Amendments – February 2013 (ref. P&C A.4) Voted to approve amendments to the Position Control Register, as

presented and filed with the records of the meeting. B. Contract Awards 1. Audit Services: KPMG, LLP, Contract F223 (ref. AF&A C.1) Voted to approve the recommendation of the Consultant Selection

Committee to select KPMG, LLP to provide Audit Services to the Authority and to authorize the Executive Director, on behalf of the Authority, to execute Contract F223 with KPMG, LLP in an amount not to exceed $119,000.00 for a term of one year from April 1, 2013 to March 31, 2014. Further, to authorize the Executive Director, under delegated authority, to extend the term for an additional three year period in an amount not to exceed $382,550.00, for a total amount of $501,550.00.

2. Security System Improvements at Various Facilities - Design and

Construction Administration Services: EDA2, Inc., Contract 6760U (ref. AF&A C.2)

Voted to approve the recommendation of the Consultant Selection

Committee to select EDA2, Inc. to provide design and construction administration services for security system improvements at various MWRA facilities and to authorize the Executive Director, on behalf of the Authority, to execute Contract 6760U with EDA2, Inc. in an amount not to exceed $197,800.00 for a term of 730 calendar days from the Notice to Proceed.

Vote Extracts, February 13, 2013 Page 3 of 3 3. Janitorial Services at the Deer Island Treatment Plant: WRA-3575Q,

S.J. Services, Inc. (ref. WW B.1) Voted to approve the award of Contract WRA-3575Q, Janitorial

Services at the Deer Island Treatment Plant, to the lowest eligible and responsible bidder, S.J. Services, Inc., and to authorize the Executive Director, on behalf of the Authority, to execute and deliver said contract in an amount not to exceed $427,171.00 for a term of eleven months.

C. Contract Amendments/Change Orders 1. Primary and Secondary Clarifier Rehabilitation - Deer Island

Treatment Plant: CDM Smith Inc., Contract 6965, Amendment 2 (ref. WW C.1)

Voted to authorize the Executive Director, on behalf of the Authority,

to approve Amendment No. 2 to extend the term of Contract No. 6965 with CDM Smith, Inc., Primary and Secondary Clarifier Rehabilitation - Deer Island Treatment Plant, by 212 calendar days to September 12, 2013, with no increase in contract amount. Further, to approve a change of name of the consultant for Contract 6965 from Camp Dresser & McKee Inc. to CDM Smith Inc.

2. Lynnfield/Saugus Pipeline: Albanese Brothers, Inc., Contract 6584,

Change Order 27 (ref. W A.1) Voted to authorize the Executive Director, on behalf of the Authority,

to approve Change Order No. 27 to decrease the amount of Contract No. 6584 with Albanese Brothers, Inc., Lynnfield/Saugus Pipeline Construction, for a net lump sum credit amount of ($20,315.26), decreasing the contract amount to $6,336,685.17, with no increase in contract term; and to authorize the Executive Director to approve additional change orders as may be needed to Contract No. 6584 in amounts not to exceed the aggregate of $250,000.00, in accordance with the Management Policies of the Board of Directors.