Resolution 032-2019 RESOLUTION NO. 032 -2019
A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS
OF MONROE COUNTY, FLORIDA ADOPTING THE MONROE
COUNTY INVESTMENT POLICY.
WHEREAS,Chapter 218,Part IV,Florida Statutes,requires a unit of local government to
file with the State Board of Administration either a resolution to deposit surplus funds in the Local
Government Surplus Funds State Trust Fund or a formally adopted policy for alternative
investment activity; and
WHEREAS, Monroe County has heretofore operated under the alternative investment
guidelines of Section 218.415(15), Florida Statutes; and
WHEREAS, it is desired to establish a written investment plan in accordance with
investment policies developed pursuant to subsections (1)through (14) of Section 218.415;
NOW THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY
COMMISSIONERS OF MONROE COUNTY,FLORIDA that:
Section 1. The Monroe County Investment Policy attached hereto as Exhibit A and
incorporated herein by reference is adopted as the County's investment policy.
PASSED AND ADOPTED by the Board of County Commissioners of Monroe County,
Florida, at a regular meeting of said Board held on the 23rd day of January 2019.
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Mayor Sylvia Murphy Yes fir- rm rn
.. Mayor Pro Tern Danny Kolhage Yes
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� ' Commissioner Heather Carruthers Yes ` ' v o
wa `� Commissioner David Rice Yes _ _„
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Commissioner Michelle Coldiron Yes 't.--
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ATTEST. BOARD OF COUNTY COMMISSIONERS
KEVIN MADOK,Clerk OF MONR y CO FLORIDA
By: (7 By: .
Deputy Clerk Mayor
,MON1lOE COUNTY TORN Y
APB VED •TT `OR
Date:_._.;] 2- - -49(
Page 1 of 1
Monroe County, Florida
Board of County Commissioners
Investment Policy
Prepared By:
Kevin Madok, CPA
Monroe County
Clerk of Circuit Court & Comptroller
Approved: January 23, 2019
T ABLE OF C ONTENTS
Page
I.PURPOSE 3
II.SCOPE 3
III.DEFINITIONS 3
IV.INVESTMENT OBJECTIVES 4
V.MANAGEMENT OF INVESTMENTS 5
VI.STANDARDS OF PRUDENCE 5
VII.ETHICS AND CONFLICTS OF INTEREST 6
VIII.INTERNAL CONTROLS AND INVESTMENT PROCEDURES 6
IX.CONTINUING EDUCATION 7
X.AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 7
XI.MATURITY AND LIQUIDITY REQUIREMENTS 7
XII.RISK AND DIVERSIFICATION 8
XIII.MASTER REPURCHASE AGREEMENT 8
XIV.COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS 8
XV. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION 9
XVI.PROHIBITED INVESTMENTS 13
XVII.PERFORMANCE MEASUREMENTS 13
XVIII.REPORTING 14
XIX.THIRD-PARTY CUSTODIAL AGREEMENTS 14
XX.INVESTMENT POLICY ADOPTION 15
ATTACHMENT A: Glossary of Cash and Investment Management Terms
ATTACHMENT B: Investment Pool/Fund Questionnaire
Monroe County Board of County Commissioners Investment Policy Page 2
Investment Policy
Monroe County, Florida
Board of County Commissioners
I.PURPOSE
Section 218.415, Florida Statutes, authorizes a unit of local government to invest its funds pursuant to
a written investment plan adopted by the governing body, and pursuant to Article VIII, s. 1 of the Florida
Constitution, the “clerk of the circuit court and comptroller shall be ex officio clerk of the board of
county commissioners, auditor, recorder and custodian of all county funds.” It furthers the public interest
of the County to invest any monies not immediately required to be disbursed and to maximize the net
earnings on such funds and it is the intent and desire of the Board to authorize investments that shall
provide a high rate of return without compromising the safety of such funds.
Therefore, the purpose of this Investment Policy (“Policy”) is to set forth the investment objectives and
parameters for the management of public funds of the Monroe County Board of County Commissioners
(the “Board”). This Policy is designed to safeguard funds on behalf of the County, to assure the
availability of operating and capital funds when needed, and provide an investment return competitive
with comparable funds and financial market indices.
II.SCOPE
In accordance with Section 218.415, Florida Statutes, this Policy applies to all cash and investments
held or controlled by the Clerk on behalf of the County. This Policy does not apply to pension funds or
funds related to the issuance of debt where there are other existing policies or indentures in effect for
such funds. Additionally, any future revenues, which have statutory investment requirements conflicting
with this Policy and funds held or controlled by Federal or State agencies (e.g., Department of Revenue),
are not subject to the provisions of this Policy. The Clerk will consolidate cash balances from appropriate
funds into a pool to maximize investment earnings. Investment income will be allocated to the various
funds based on their respective participation and in accordance with generally accepted accounting
principles.
III.DEFINITIONS
For purposes of this Policy, the following terms shall have the following meanings:
“Board” means the Board of County Commissioners of Monroe County, Florida.
“Clerk” or “Clerk of the Circuit Court and Comptroller” means the Clerk of the Circuit Court
and Comptroller, and Ex Officio Clerk to the Board of County Commissioners of Monroe
County or any duly authorized designee who has been so designated in writing by the Clerk of
the Circuit Court and Comptroller.
Monroe County Board of County Commissioners Investment Policy Page 3
“Core portfolio” means long term investments that are held primarily as reserves.
“County” means Monroe County, a political subdivision of the State of Florida.
“Investment Advisor” means an advisor or firm registered under the Investment Adviser’s Act
of 1940 and selected by the Clerk.
“Investment Officials” means any authorized designee of the Clerk.
“Moody’s” means Moody’s Investors Service, a global credit rating, research and risk analysis
firm, publishing credit opinions, research and ratings on fixed income securities, issuers of
securities and other credit obligations.
“Short term portfolio” means investment of cash that is needed for operating purposes within a
twelve-month period.
“Standard and Poor’s” means Standard and Poor’s Corp., an independent bond rating service,
which measures the probability of the timely payment of principal and interest.
“Third Party Custodian” means any financial institution which shall lawfully act as a depository
chartered by the Federal Government, the State of Florida, or any other state or territory of the
United States which has a branch or principal place of business in the State of Florida as defined
in Section 658.12, Florida Statutes, or by a national association organized and existing under
the laws of the United States which is authorized to accept and execute trusts and which is doing
business in the State of Florida.
IV.INVESTMENT OBJECTIVES
The objectives of this Policy are as follows:
A.Safety of Principal
The foremost objective of this investment program is the safety of the principal of funds.
Investment transactions shall seek to keep capital losses at a minimum, whether they are from
securities defaults or erosion of market value. To attain this objective, investments will be
diversified to the extent practicable to control the risk of loss resulting from over concentration
of assets in a specific maturity, issuer (credit risk), instrument, dealer, or financial institution in
order that potential losses on individual securities do not exceed the income generated from the
remainder of the portfolio.
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B.Maintenance of Liquidity
To reduce interest rate risk on the market value of the portfolios, funds shall be managed such
that they are available to meet reasonably anticipated cash flow requirements. Periodic cash flow
analyses shall be completed to ensure that the funds are positioned to provide sufficient liquidity.
C.Return on Investment
Investment portfolios shall be designed with the objective of attaining a market rate of return
throughout budgetary and economic cycles, taking into account the investment risk constraints
and liquidity needs. Return on investment is of least importance compared to the safety and
liquidity objectives described above. However, return is attempted through active management
where the Investment Adviser uses a total return strategy (which includes both realized and
unrealized gains and losses in the portfolio). This total return strategy seeks to increase the value
of the portfolio through reinvestment of income and capital gains. The core of investments is
limited to relatively low risk securities in anticipation of earning a fair return relative to the risk
being assumed. Despite this, an Investment Adviser may trade to recognize a loss from time to
time to achieve a perceived relative value based on its potential to enhance the total return of the
portfolio.
V.MANAGEMENT OF INVESTMENTS
The Clerk shall oversee the day-to-day management of County investments. The Clerk shall be
responsible for the transferring of appropriate funds to affect investment transactions consistent with
this Policy. Should the Clerk elect to select an investment advisor, such advisor or firm must be
registered under the Investment Adviser’s Act of 1940.
VI.STANDARDS OF PRUDENCE
The standard of prudence to be used by Investment Officials shall be the “Prudent Person” standard and
shall be applied in the context of managing the overall investment program. Investment officials, acting
in accordance with written procedures and this investment policy and exercising due diligence, shall be
relieved of personal responsibility for an individual security’s credit risk or market price changes,
provided deviations from expectation are reported to the Clerk in a timely fashion and the liquidity and
the sales of securities are carried out in accordance with the terms of this policy. The Prudent Person
standard states the following:
Investments shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence, discretion and intelligence exercise in the management of
their own affairs, not for speculation, but for investment, considering the probable safety
of their capital as well as the probable income to be derived from the investment.
While the standard of prudence to be used by Investment Officials who are officers or employees is the
Prudent Person standard, any person or firm hired or retained to invest, monitor, or advise concerning
Monroe County Board of County Commissioners Investment Policy Page 5
these assets shall be held to the higher standard of “Prudent Expert.” This is a revised version of the
Prudent Person standard required by ERISA to guide managers of pension and profit sharing portfolios.
The main addition is that the Investment Advisor must act as someone with familiarity with matters
relating to the management of money, not just prudence. The standard is as follows:
In investing and reinvesting moneys and in acquiring, retaining, managing, and disposing
of investments of these funds, the person or firm shall exercise the judgment, care, skill,
prudence, and diligence under the circumstances then prevailing, which persons of
prudence, discretion, and intelligence, acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of like character and with like aims by
diversifying the investments of the funds, so as to minimize the risk, considering the
probable income as well as the probable safety of their capital.
VII.ETHICS AND CONFLICTS OF INTEREST
Investment Officials shall refrain from personal business activity that could conflict with proper
execution of the investment program, or which could impair their ability to make impartial investment
decisions. Also, Investment Officials shall disclose to the Clerk any material financial interests in
Qualified Institutions that conduct business with the Clerk or the County, and they shall further disclose
any material personal financial/investment positions that could be related to the performance of the
County’s investment program.
VIII.INTERNAL CONTROLS AND INVESTMENT PROCEDURES
The Clerk of the Circuit Court and Comptroller, as Chief Financial Officer, shall establish a system of
investment internal control and operational procedures that are in writing and made a part of the
operational procedures. The investment internal controls shall be designed to prevent losses of funds,
which might arise from fraud, employee error, and misrepresentation by third parties, or imprudent
actions by employees. The written procedures shall include reference to safekeeping, separation of
transaction authority from accounting and record keeping, wire transfer agreements, banking service
contracts, collateral/depository agreements, and delivery-vs-payment procedures. No person shall
engage in an investment transaction except as authorized under the terms of this policy.
Independent auditors, as a normal part of the annual financial audit to the County, shall conduct a review
of the system of investment internal controls to ensure compliance with policies and procedures.
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IX.CONTINUING EDUCATION
Investment Official(s) and/or designee shall annually complete eight (8) hours of continuing education
in subjects or course of study related to investment practices and products.
X.AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS
Authorized Staff shall only purchase securities from financial institutions, which are qualified as public
depositories by the Treasurer, or Chief Financial Officer of the State of Florida, “Primary Dealers” as
designated by the Federal Reserve Bank of New York, or from direct issuers of commercial paper and
bankers’ acceptances.
The Clerk’s Investment Advisor shall use and maintain its own list of approved primary and non-primary
dealers.
Authorized Staff shall only enter into Repurchase agreements with “Primary Dealers” as designated by
the Federal Reserve Bank of New York and financial institutions that are state qualified public
depositories.
XI.MATURITY AND LIQUIDITY REQUIREMENTS
To the extent possible, an attempt shall be made to match investment maturities with known cash needs
and anticipated cash flow requirements.
A. Maturity Guidelines
To the extent possible, an attempt will be made to match investment maturities with known cash
needs and anticipated cash flow requirements. Investments of current operating funds (“short
term funds”) shall have maturities of no longer than twenty-four (24) months. Investments of
bond reserves, construction funds, and other non-operating funds (“core funds” or “Surplus
Fund”) shall have a term appropriate to the need for funds and in accordance with debt covenants.
The purchase of investments for core funds shall not have maturities longer than five and one-
half (5.50) years. The maturities of the underlying securities of a repurchase agreement will
follow the requirements of the Master Repurchase Agreements.
B. Liquidity Requirements
The Clerk shall determine the approximate amount of funds required to meet the day-to-day
expenditure needs of the County. All balances in the depository bank shall be maintained in an
interest-bearing account. To have an available source of funds to meet unexpected cash
requirements, a minimum of three-month’s operating expenses shall be invested in bank
deposits, an authorized money market fund or other short-term alternatives. The balance of the
County’s funds shall be available for investment according to the guidelines incorporated within
this Policy.
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XII. RISK AND DIVERSIFICATION
Assets held shall be diversified to control risks resulting from over concentration of assets in a
specific maturity, issuer, instruments, dealer, or bank through which these instruments are
bought and sold. The Clerk shall determine diversification strategies within the established
guidelines.
XIII. MASTER REPURCHASE AGREEMENT
The Clerk will require all approved institutions and dealers transacting repurchase agreements
to execute and perform as stated in the Master Repurchase Agreement. All repurchase agreement
transactions will adhere to requirements of the Master Repurchase Agreement.
XIV.COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS
After the Clerk has determined the approximate maturity date based on cash flow needs and market
conditions and has analyzed and selected one or more optimal types of investments, a minimum of three
(3) Qualified Institutions must be contacted and asked to provide bids/offers on the securities in question.
Pursuant to Section 119.07(3)(m), Florida Statutes, bids shall be held in confidence until the bid deemed
to best meet the investment objectives is determined and selected. The Clerk shall utilize the competitive
bid process to select the securities to be purchased or sold. However, if obtaining bids/offers are not
feasible and appropriate, securities may be purchased/sold using the comparison to current market price
method on an exception basis. Selection by comparison to a current market price shall only be used
when, in the judgment of the Clerk, competitive bidding would inhibit the selection process. The
Investment Adviser will provide the Clerk with a written explanation of the purpose of using the
comparison to a current market price method.
A. Examples of when this method may be used include:
i.When time constraints due to unusual circumstances preclude the use of the
competitive bidding process,
ii.When no active market exists for the issue being traded due to the age or depth
of the issue,
iii.When a security is unique to a single dealer, for example, a private placement, or
iv.When the transaction involves new issues or issues in the “when issued” market.
B.Acceptable current market price providers include, but are not limited to the following:
i.TradeWeb,
ii.Bloomberg Information Systems,
iii.Wall Street Journal or a comparable nationally recognized financial publication
providing daily market pricing, and
iv.Daily market pricing provided by the County’s custodian or its correspondent
institution.
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XV.AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION
Investments should be made subject to cash flow needs and subject to revisions as market conditions
and County needs change. However, when the invested funds are needed in whole or in part for the
purpose originally intended or for more optimal investments, the Clerk may sell the investment at the
then-prevailing market price and place the proceeds into the proper account at the County’s financial
institution.
The following are the investment requirements and allocation limits on security types, issuers, and
maturities as established by the County. Diversification strategies within the established guidelines shall
be reviewed and revised periodically as necessary by the Clerk.
The Clerk shall have the option to further restrict investment percentages from time to time based on
market conditions, risk and diversification investment strategies. The percentage allocation
requirements for investment types and issuers are calculated based on the original cost, at the time of
purchase, of each investment.
Permitted Investments
Sector Per Issuer
Maximum
1
Sector MaximumMaximumMinimum Ratings Requirement
Maturity
(%) (%)
U.S. Treasury 100%
5.50 Years
(5.50 Years
GNMA 40%
100%N/A
3
avg. life
Other U.S. Government
for GNMA)
10%
Guaranteed (e.g. AID, GTC)
Federal Agency/GSE:
2
FNMA, FHLMC, FHLB, 40%
FFCB*
75%N/A 5.50 Years
Federal Agency/GSE
10%
other than those above
Supranationals
Highest ST or Two Highest LT Rating Categories
where U.S. is a shareholder 25% 10% 5.50 Years
(A-1/P-1, AAA/Aaa, or equivalent)
and voting member
Highest ST or Three Highest LT Rating Categories
2
Corporates 50% 5%5.50 Years
(A-1/P-1, A-/A3 or equivalent)
Highest ST or Three Highest LT Rating Categories
Municipals 25% 5% 5.50 Years
(SP-1/MIG 1, A-/A3, or equivalent)
Agency Mortgage-Backed 5.50 Years
2
25% 40%N/A
3
Securities (MBS) Avg. Life
Asset-Backed Securities Highest ST or LT Rating 5.50 Years
25% 5%
3
(ABS) (A-1+/P-1, AAA/Aaa, or equivalent) Avg. Life
Non-Negotiable Collateralized
None, if fully
Bank Deposits or Savings 50%None, if fully collateralized. 2 Years
collateralized
Accounts
Highest ST Rating Category
2
Commercial Paper (CP) 50%5%270 Days
(A-1/P-1, or equivalent)
Highest ST Rating Category
2
Bankers’ Acceptances (BA) 10%5%180 Days
(A-1/P-1, or equivalent)
Monroe County Board of County Commissioners Investment Policy Page 9
Sector Per Issuer
Maximum
1
Sector MaximumMaximumMinimum Ratings Requirement
Maturity
(%) (%)
Counterparty (or if the counterparty is not rated by an
NRSRO, then the counterparty’s parent) must be rated in
Repurchase Agreements (Repo the Highest ST Rating Category
40% 20% 1 Year
or RP) (A-1/P-1, or equivalent)
If the counterparty is a Federal Reserve Bank, no rating
is required
Highest Fund Rating by all NRSROs who rate the fund
Money Market Funds (MMFs) 50% 25% N/A
(AAAm/Aaa-mf, or equivalent)
Highest Fund Quality and Volatility Rating Categories
Intergovernmental Pools
50% 25% by all NRSROs who rate the LGIP, N/A
(LGIPs)
(AAAm/AAAf, S1, or equivalent)
Florida Local Government
Highest Fund Rating by all NRSROs who rate the fund
Surplus Funds Trust Funds 25% N/A N/A
(AAAm/Aaa-mf, or equivalent)
(“Florida Prime”)
Notes:
1
Rating by at least one SEC-registered Nationally Recognized Statistical Rating Organization (“NRSRO”), unless otherwise noted. ST=Short-
term; LT=Long-term.
2
Maximum allocation to all corporate and bank credit instruments is 50% combined.
3
Maximum exposure to any one Federal agency, including the combined holdings of Agency debt and Agency MBS, is 40%.
4
The maturity limit for MBS and ABS is based on the expected average life at time of settlement, measured using Bloomberg or other industry
standard methods.
* Federal National Mortgage Association (FNMA); Federal Home Loan Mortgage Corporation (FHLMC); Federal Home Loan Bank or its
District banks (FHLB); Federal Farm Credit Bank (FFCB).
1)U.S. Treasury & Government Guaranteed - U.S. Treasury obligations, and obligations the
principal and interest of which are backed or guaranteed by the full faith and credit of the U.S.
Government.
2)Federal Agency/GSE - Debt obligations, participations or other instruments issued or fully
guaranteed by any U.S. Federal agency, instrumentality or government-sponsored enterprise
(GSE).
3)Supranationals – U.S. dollar denominated debt obligations of a multilateral organization of
governments where U.S. is a shareholder and voting member.
4)Corporates – U.S. dollar denominated corporate notes, bonds or other debt obligations issued
or guaranteed by a domestic corporation, financial institution, non-profit, or other entity.
5)Municipals – Obligations, including both taxable and tax-exempt, issued or guaranteed by any
State, territory or possession of the United States, political subdivision, public corporation,
authority, agency board, instrumentality or other unit of local government of any State or
territory.
6)Agency Mortgage Backed Securities - Mortgage-backed securities (MBS), backed by
residential, multi-family or commercial mortgages, that are issued or fully guaranteed as to
Monroe County Board of County Commissioners Investment Policy Page 10
principal and interest by a U.S. Federal agency or government sponsored enterprise, including
but not limited to pass-throughs, collateralized mortgage obligations (CMOs) and REMICs.
7)Asset-Backed Securities - Asset-backed securities (ABS) whose underlying collateral consists
of loans, leases or receivables, including but not limited to auto loans/leases, credit card
receivables, student loans, equipment loans/leases, or home-equity loans.
8)Non-Negotiable Certificate of Deposit and Savings Accounts - Non-negotiable interest-
bearing time certificates of deposit, or savings accounts in banks organized under the laws of
this state or in national banks organized under the laws of the United States and doing business
in this state, provided that any such deposits are secured by the Florida Security for Public
Deposits Act, Chapter 280, Florida Statutes.
9)Commercial Paper – U.S. dollar denominated commercial paper issued or guaranteed by a
domestic corporation, company, financial institution, trust or other entity, only unsecured debt
permitted.
10)Bankers’ Acceptances - Bankers’ acceptances issued, drawn on, or guaranteed by a U.S. bank
or U.S. branch of a foreign bank.
11)Repurchase Agreements - Repurchase agreements (Repo or RP) that meet the following
requirements:
a.Must be governed by a written SIFMA Master Repurchase Agreement which specifies
securities eligible for purchase and resale, and which provides the unconditional right to
liquidate the underlying securities should the Counterparty default or fail to provide full
timely repayment.
b.Counterparty must be a Federal Reserve Bank, a Primary Dealer as designated by the
Federal Reserve Bank of New York, or a nationally chartered commercial bank.
c.Securities underlying repurchase agreements must be delivered to a third-party custodian
under a written custodial agreement and may be of deliverable or tri-party form.
Securities must be held in the County’s custodial account or in a separate account in the
name of the County.
d.Acceptable underlying securities include only securities that are direct obligations of, or
that are fully guaranteed by, the United States or any agency of the United States, or U.S.
Agency-backed mortgage related securities.
e.Underlying securities must have an aggregate current market value of at least 102% (or
100% if the counterparty is a Federal Reserve Bank) of the purchase price plus current
accrued price differential at the close of each business day.
f.Final term of the agreement must be 1 year or less.
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12)Money Market Funds - Shares in open-end and no-load money market mutual funds, provided
such funds are registered under the Investment Company Act of 1940 and operate in accordance
with Rule 2a-7.
A thorough investigation of any money market fund is required prior to investing, and on an
annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered
prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus
must be obtained.
13)Local Government Investment Pools – State, local government or privately-sponsored
investment pools that are authorized pursuant to state law.
A thorough investigation of any intergovernmental investment pool is required prior to investing,
and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be
answered prior to investing, that cover the major aspects of any investment pool/fund. A current
prospectus must be obtained.
14)The Florida Local Government Surplus Funds Trust Funds (“Florida Prime”) A thorough
investigation of the Florida Prime is required prior to investing, and on an annual basis.
Attachment B is a questionnaire that contains a list of questions, to be answered prior to
investing, that cover the major aspects of any investment pool/fund. A current prospectus or
portfolios report must be obtained.
General Investment and Limits
1.General investment limitations:
a.Investments must be denominated in U.S. dollars and issued for legal sale in U.S.
markets.
b.Minimum ratings are based on the highest rating by any one Nationally Recognized
Statistical Ratings Organization (“NRSRO”), unless otherwise specified.
c.All limits and rating requirements apply at time of purchase.
d.Should a security fall below the minimum credit rating requirement for purchase, the
Investment Advisor(s) will notify the Clerk.
e.The maximum maturity (or average life for MBS/ABS) of any investment is 5.50 years.
Maturity and average life are measured from settlement date. The final maturity date can
be based on any mandatory call, put, pre-refunding date, or other mandatory redemption
date.
2.General portfolios limitations:
a.The maximum effective duration of the aggregate portfolios is 3 years.
3.Investment in the following are permitted, provided they meet all other Policy requirements:
a.Callable, step-up callable, called, pre-refunded, putable and extendable securities, as long
as the effective final maturity meets the maturity limits for the sector.
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b.Variable-rate and floating-rate securities.
c.Subordinated, secured and covered debt, if it meets the ratings requirements for the
sector.
d.Zero coupon issues and strips, excluding agency mortgage-backed Interest-only
structures (I/Os).
e.Treasury TIPS.
4.The following are NOT PERMITTED investments,unless specifically authorized by statute
and with prior approval of the governing body:
a.Trading for speculation.
b.Derivatives (other than callables and traditional floating or variable-rate instruments).
c.Mortgage-backed interest-only structures (I/Os).
d.Inverse or leveraged floating-rate and variable-rate instruments.
e.Currency, equity, index and event-linked notes (e.g. range notes), or other structures that
could return less than par at maturity.
f.Private placements and direct loans, except as may be legally permitted by Rule 144A or
commercial paper issued under a 4(2) exemption from registration.
g.Convertible, high yield, and non-U.S. dollar denominated debt.
h.Short sales.
i.Use of leverage.
j.Futures and options.
k.Mutual funds, other than fixed-income mutual funds and ETFs, and money market funds.
l.Equities, commodities, currencies and hard assets.
XVI.PROHIBITED INVESTMENTS
Investment Officials or Investment Advisor may not invest in investment products that include the use
of derivatives or reverse repurchase agreements, unless permitted in section XV of this Policy.
Additionally, securities lending transactions are not permitted by this Policy. A "derivative" is defined
as a financial instrument the value of which depends on, or is derived from, the value of one or more
underlying assets or index or asset values. Investments not listed in this Policy are prohibited.
XVII.PERFORMANCE MEASUREMENTS
In order to assist in the evaluation of the portfolios performance, the Clerk shall use performance
benchmarks for short-term and core portfolios. The use of benchmarks shall allow the County to measure
its returns against other investors in the same markets.
A. Investment performance of funds designated as short-term funds and other funds that must
maintain a high degree of liquidity will be compared to the return of the S&P Rated GIP Index
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Government 30-Day Gross of Fees Yield. Investments of current operating funds shall have
maturities of no longer than twenty-four (24) months.
B. Investment performance of funds designated as core funds and other non-operating funds that
have a longer-term investment horizon will be compared to the Bank of America Merrill Lynch
1-3 Year U.S. Treasury Note Index. The portfolio’s total rate of return will be compared to this
benchmark. The appropriate index will have a duration and asset mix that approximates the
portfolio and will be utilized as a benchmark to be compared to the portfolio’s total rate of return.
Investments of bond reserves, construction funds, and other non-operating funds (“core funds”)
shall have a term appropriate to the need for funds and in accordance with debt covenants, but
in no event shall exceed five and one-half (5.50) years.
XVIII. REPORTING
The Clerk and the Investment Advisor shall prepare periodic reports at least annually for the Board that
shall include securities in the portfolio by class or type, income earned, market value and a comparison
of the portfolios’ asset allocation positions to the policy’s asset allocation requirements as of the
reporting date.
The annual report shall provide all, but not limited to, the following: a complete list of all invested funds,
name or type of security in which the funds are invested, the amount invested, the maturity date, earned
income, the book value, the market value and the yield on each investment. The annual report shall show
performance on both a book value and total rate of return basis and shall compare the results to the
above-stated performance benchmarks. All investments shall be reported pursuant to Statements issued
by the Governmental Accounting Standards Board.
XIX.THIRD-PARTY CUSTODIAL AGREEMENTS
Securities shall be held with a third party custodian and should be properly designated as an asset of the
County. The securities must be held in an account separate and apart from the assets of the financial
institution. The custodian shall accept transaction instructions only from those persons who have been
duly authorized by Clerk and which authorization has been provided, in writing, to the custodian. No
withdrawal of securities, in whole or in part, shall be made from safekeeping or permitted unless by a
duly authorized person.
Monthly, the custodian shall provide the Clerk with detailed information on the securities held by the
custodian. Security transactions between a broker/dealer and the custodian involving the purchase or
sale of securities by transfer of money or securities must be made on a delivery vs. payment basis, if
applicable, to ensure that the custodian shall have the security or money, as appropriate, in hand at the
conclusion of the transaction. Only after receiving written authorization from an Investment Official
shall authorized securities be delivered. Securities held as collateral shall be held free and clear of any
liens.
Monroe County Board of County Commissioners Investment Policy Page 14
XX.INVESTMENT POLICY ADOPTION
The Clerk shall review the Policy annually and make recommendations to the Board for modification
thereto.
The Mayor of the Board of County Commissioners,
Monroe County, Florida
By:
Date:
The Clerk of the Circuit Court and Comptroller of
Monroe County, Florida
By:
Date:
Monroe County Board of County Commissioners Investment Policy Page 15
Attachment A
Glossary of Cash and Investment Management Terms
The following is a glossary of key investing terms, many of which appear in the Monroe County Board
of County Commissioners’ investment policy. This glossary clarifies the meaning of investment terms
generally used in cash and investment management. This glossary has been adapted from the GFOA
Sample Investment Policy and the Association of Public Treasurers of the United States and Canada’s
Model Investment Policy.
Accrued Interest. Interest earned but which has not yet been paid or received.
Agency. See "Federal Agency Securities."
Ask Price. Price at which a broker/dealer offers to sell a security to an investor. Also known as “offered
price.”
Asset Backed Securities (ABS). A fixed-income security backed by notes or receivables against assets
other than real estate. Generally issued by special purpose companies that “own” the assets and issue
the ABS. Examples include securities backed by auto loans, credit card receivables, home equity loans,
manufactured housing loans, farm equipment loans, and aircraft leases.
Average Life. The average length of time that an issue of serial bonds and/or term bonds with a
mandatory sinking fund feature is expected to be outstanding.
Bankers' Acceptance (BA's). A draft or bill of exchange drawn upon and accepted by a bank.
Frequently used to finance shipping of international goods. Used as a short-term credit instrument,
bankers' acceptances are traded at a discount from face value as a money market instrument in the
secondary market on the basis of the credit quality of the guaranteeing bank.
Basis Point. One hundredth of one percent, or 0.01%. Thus 1% equals 100 basis points.
Bearer Security. A security whose ownership is determined by the holder of the physical security.
Typically, there is no registration on the issuer’s books. Title to bearer securities is transferred by
delivery of the physical security or certificate. Also known as “physical securities.”
Benchmark Bills: In November 1999, FNMA introduced its Benchmark Bills program, a short-term
debt securities issuance program to supplement its existing discount note program. The program
includes a schedule of larger, weekly issues in three- and six-month maturities and biweekly issues in
one-year for Benchmark Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA
conducts a weekly auction for each Benchmark Bill maturity and accepts both competitive and
non-competitive bids through a web based auction system. This program is in addition to the variety of
other discount note maturities, with rates posted on a daily basis, which FNMA offers. FNMA's
Benchmark Bills are unsecured general obligations that are issued in book-entry form through the
Federal Reserve Banks. There are no periodic payments of interest on Benchmark Bills, which are sold
at a discount from the principal amount and payable at par at maturity. Issues under the Benchmark
program constitute the same credit standing as other FNMA discount notes; they simply add
organization and liquidity to the short-term Agency discount note market.
Benchmark Notes/Bonds: Benchmark Notes and Bonds are a series of FNMA “bullet” maturities (non-
callable) issued according to a pre-announced calendar. Under its Benchmark Notes/Bonds program, 2,
Monroe County Board of County Commissioners Investment Policy Page 16
3, 5, 10, and 30-year maturities are issued each quarter. Each Benchmark Notes new issue has a
minimum size of $4 billion, 30-year new issues having a minimum size of $1 billion, with re-openings
based on investor demand to further enhance liquidity. The amount of non-callable issuance has allowed
FNMA to build a yield curve in Benchmark Notes and Bonds in maturities ranging from 2 to 30 years.
The liquidity emanating from these large size issues has facilitated favorable financing opportunities
through the development of a liquid overnight and term repo market. Issues under the Benchmark
program constitute the same credit standing as other FNMA issues; they simply add organization and
liquidity to the intermediate- and long-term Agency market.
Benchmark. A market index used as a comparative basis for measuring the performance of an
investment portfolio. A performance benchmark should represent a close correlation to investment
guidelines, risk tolerance, and duration of the actual portfolio's investments.
Bid Price. Price at which a broker/dealer offers to purchase a security from an investor.
Bond. Financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner
of the bond) a specified stream of future cash-flows, including periodic interest payments and a principal
repayment.
Book Entry Securities. Securities that are recorded in a customer’s account electronically through one
of the financial markets electronic delivery and custody systems, such as the Fed Securities wire, DTC,
and PTC
(as opposed to bearer or physical securities). The trend is toward a certificate-free society in order to cut
down on paperwork and to diminish investors’ concerns about the certificates themselves. The vast
majority of securities are now book entry securities.
Book Value. The value at which a debt security is reflected on the holder's records at any point in time.
Book value is also called “amortized cost” as it represents the original cost of an investment adjusted
for amortization of premium or accretion of discount. Also called “carrying value.” Book value can vary
over time as an investment approaches maturity and differs from “market value” in that it is not affected
by changes in market interest rates.
Broker/Dealer. A person or firm transacting securities business with customers. A “broker” acts as an
agent between buyers and sellers, and receives a commission for these services. A “dealer” buys and
sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities,
whereas a broker merely matches up buyers and sellers. See also "Primary Dealer."
Bullet Notes/Bonds. Notes or bonds that have a single maturity date and are non-callable.
Call Date. Date at which a call option may be or is exercised.
Call Option. The right, but not the obligation, of an issuer of a security to redeem a security at a specified
value and at a specified date or dates prior to its stated maturity date. Most fixed-income calls are a par,
but can be at any previously established price. Securities issued with a call provision typically carry a
higher yield than similar securities issued without a call feature. There are three primary types of call
options (1) European - one-time calls, (2) Bermudan - periodically on a predetermined schedule
(quarterly, semi-annual, annual), and (3) American - continuously callable at any time on or after the
call date. There is usually a notice period of at least 5 business days prior to a call date.
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Callable Bonds/Notes. Securities which contain an imbedded call option giving the issuer the right to
redeem the securities prior to maturity at a predetermined price and time.
Certificate of Deposit (CD). Bank obligation issued by a financial institution generally offering a fixed
rate of return (coupon) for a specified period of time (maturity). Can be as long as 10 years to maturity,
but most CDs purchased by public agencies are one year and under.
Collateral. Investment securities or other property that a borrower pledges to secure repayment of a
loan, secure deposits of public monies, or provide security for a repurchase agreement.
Collateralization. Process by which a borrower pledges securities, property, or other deposits for
securing the repayment of a loan and/or security.
Collateralized Mortgage Obligation (CMO). A security that pools together mortgages and separates
them into short, medium, and long-term positions (called tranches). Tranches are set up to pay different
rates of interest depending upon their maturity. Interest payments are usually paid monthly. In “plain
vanilla” CMOs, principal is not paid on a tranche until all shorter tranches have been paid off. This
system provides interest and principal in a more predictable manner. A single pool of mortgages can be
carved up into numerous tranches each with its own payment and risk characteristics.
Commercial Paper. Short term unsecured promissory note issued by a company or financial institution.
Issued at a discount and matures for par or face value. Usually a maximum maturity of 270 days and
given a short-term debt rating by one or more NRSROs.
Convexity. A measure of a bond's price sensitivity to changing interest rates. A high convexity indicates
greater sensitivity of a bond's price to interest rate changes.
Corporate Note. A debt instrument issued by a corporation with a maturity of greater than one year and
less than ten years.
Counterparty.The other party in a two party financial transaction. "Counterparty risk" refers to the
risk that the other party to a transaction will fail in its related obligations. For example, the bank or
broker/dealer in a repurchase agreement.
Coupon Rate. Annual rate of interest on a debt security, expressed as a percentage of the bond’s face
value.
Current Yield. Annual rate of return on a bond based on its price. Calculated as (coupon rate / price),
but does not accurately reflect a bond’s true yield level.
Custody.Safekeeping services offered by a bank, financial institution, or trust company, referred to as
the “custodian.” Service normally includes the holding and reporting of the customer's securities, the
collection and disbursement of income, securities settlement, and market values.
Dealer. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for
his/her own account.
Delivery Versus Payment (DVP). Settlement procedure in which securities are delivered versus
payment of cash, but only after cash has been received. Most security transactions, including those
through the Fed Securities Wire system and DTC, are done DVP as a protection for both the buyer and
seller of securities.
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Depository Trust Company (DTC). A firm through which members can use a computer to arrange for
securities to be delivered to other members without physical delivery of certificates. A member of the
Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust
Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs,
and BAs clear through DTC.
Derivatives. (1) Financial instruments whose return profile is linked to, or derived from, the movement
of one or more underlying index or security, and may include a leveraging factor, or (2) financial
contracts based upon notional amounts whose value is derived from an underlying index or security
(interest rates, foreign exchange rates, equities, or commodities). For hedging purposes, common
derivatives are options, futures, interest rate swaps, and swaptions.
Derivative Security. Financial instrument created from, or whose value depends upon, one or more
underlying assets or indexes of asset values.
Designated Bond. FFCB’s regularly issued, liquid, non-callable securities that generally have a 2 or 3
year original maturity. New issues of Designated Bonds are $1 billion or larger. Re-openings of existing
Designated Bond issues are generally a minimum of $100 million. Designated Bonds are offered through
a syndicate of two to six dealers. Twice each month the Funding Corporation announces its intention to
issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a Designated Bond.
Issues under the Designated Bond program constitute the same credit standing as other FFCB issues;
they simply add organization and liquidity to the intermediate- and long-term Agency market.
Discount Notes. Unsecured general obligations issued by Federal Agencies at a discount. Discount
notes mature at par and can range in maturity from overnight to one year. Very large primary (new issue)
and secondary markets exist.
Discount Rate. Rate charged by the system of Federal Reserve Banks on overnight loans to member
banks. Changes to this rate are administered by the Federal Reserve and closely mirror changes to the
“fed funds rate.”
Discount Securities. Non-interest bearing money market instruments that are issued at discount and
redeemed at maturity for full face value. Examples include: U.S. Treasury Bills, Federal Agency
Discount Notes, Bankers' Acceptances, and Commercial Paper.
Discount. The amount by which a bond or other financial instrument sells below its face value. See also
"Premium."
Diversification. Dividing investment funds among a variety of security types, maturities, industries,
and issuers offering potentially independent returns.
Dollar Price. A bond’s cost expressed as a percentage of its face value. For example, a bond quoted at
a dollar price of 95 ½, would have a principal cost of $955 per $1,000 of face value.
Duff & Phelps. One of several NRSROs that provide credit ratings on corporate and bank debt issues.
Duration.The weighted average maturity of a security’s or portfolio’s cash-flows, where the present
values of the cash-flows serve as the weights. The greater the duration of a security/portfolio, the greater
its percentage price volatility with respect to changes in interest rates. Used as a measure of risk and a
Monroe County Board of County Commissioners Investment Policy Page 19
key tool for managing a portfolio versus a benchmark and for hedging risk. There are also different
kinds of duration used for different purposes (e.g. MacAuley Duration, Modified Duration).
Fannie Mae. See "Federal National Mortgage Association."
Fed Money Wire. A computerized communications system that connects the Federal Reserve System
with its member banks, certain U. S. Treasury offices, and the Washington D.C. office of the Commodity
Credit Corporation. The Fed Money Wire is the book entry system used to transfer cash balances
between banks for themselves and for customer accounts.
Fed Securities Wire. A computerized communications system that facilitates book entry transfer of
securities between banks, brokers and customer accounts, used primarily for settlement of U.S. Treasury
and Federal Agency securities.
Fed. See "Federal Reserve System."
Federal Agency Security. A debt instrument issued by one of the Federal Agencies. Federal Agencies
are considered second in credit quality and liquidity only to U.S. Treasuries.
Federal Agency. Government sponsored/owned entity created by the U.S. Congress, generally for the
purpose of acting as a financial intermediary by borrowing in the marketplace and directing proceeds to
specific areas of the economy considered to otherwise have restricted access to credit markets. The
largest Federal Agencies are GNMA, FNMA, FHLMC, FHLB, FFCB, SLMA, and TVA.
Federal Deposit Insurance Corporation (FDIC). Federal agency that insures deposits at commercial
banks, currently to a limit of $250,000 per depositor per bank.
Federal Farm Credit Bank (FFCB). One of the large Federal Agencies. A government sponsored
enterprise (GSE) system that is a network of cooperatively-owned lending institutions that provides
credit services to farmers, agricultural cooperatives and rural utilities. The FFCBs act as financial
intermediaries that borrow money in the capital markets and use the proceeds to make loans and provide
other assistance to farmers and farm-affiliated businesses. Consists of the consolidated operations of the
Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks. Frequent issuer
of discount notes, agency notes and callable agency securities. FFCB debt is not an obligation of, nor is
it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its
importance to the U.S. financial system and agricultural industry. Also issues notes under its “designated
note” program.
Federal Funds (Fed Funds). Funds placed in Federal Reserve Banks by depository institutions in
excess of current reserve requirements, and frequently loaned or borrowed on an overnight basis
between depository institutions.
Federal Funds Rate (Fed Funds Rate). The interest rate charged by a depository institution lending
Federal Funds to another depository institution. The Federal Reserve influences this rate by establishing
a "target" Fed Funds rate associated with the Fed's management of monetary policy.
Federal Home Loan Bank System (FHLB). One of the large Federal Agencies. A government
sponsored enterprise (GSE) system, consisting of wholesale banks (currently twelve district banks)
owned by their member banks, which provides correspondent banking services and credit to various
financial institutions, financed by the issuance of securities. The principal purpose of the FHLB is to
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add liquidity to the mortgage markets. Although FHLB does not directly fund mortgages, it provides a
stable supply of credit to thrift institutions that make new mortgage loans. FHLB debt is not an obligation
of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk
due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes,
agency notes and callable agency securities. Also issues notes under its “global note” and “TAP”
programs.
Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One of the large Federal
Agencies. A government sponsored public corporation (GSE) that provides stability and assistance to
the secondary market for home mortgages by purchasing first mortgages and participation interests
financed by the sale of debt and guaranteed mortgage backed securities. FHLMC debt is not an
obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal
credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of
discount notes, agency notes, callable agency securities, and MBS. Also issues notes under its “reference
note” program.
Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the large Federal
Agencies. A government sponsored public corporation (GSE) that provides liquidity to the residential
mortgage market by purchasing mortgage loans from lenders, financed by the issuance of debt securities
and MBS (pools of mortgages packaged together as a security). FNMA debt is not an obligation of, nor
is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its
importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency
notes, callable agency securities and MBS. Also issues notes under its “benchmark note” program.
Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve System.
Federal Reserve System (the Fed). The independent central bank system of the United States that
establishes and conducts the nation's monetary policy. This is accomplished in three major ways:
(1) raising or lowering bank reserve requirements, (2) raising or lowering the target Fed Funds Rate and
Discount Rate, and (3) in open market operations by buying and selling government securities. The
Federal Reserve System is made up of twelve Federal Reserve District Banks, their branches, and many
national and state banks throughout the nation. It is headed by the seven member Board of Governors
known as the “Federal Reserve Board” and headed by its Chairman.
Financial Industry Regulatory Authority, Inc. (FINRA). A private corporation that acts as a
self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities
Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental
organization that performs financial regulation of member brokerage firms and exchange markets. The
government also has a regulatory arm for investments, the Securities and Exchange Commission (SEC).
Fiscal Agent/Paying Agent. A bank or trust company that acts, under a trust agreement with a
corporation or municipality, in the capacity of general treasurer. The agent performs such duties as
making coupon payments, paying rents, redeeming bonds, and handling taxes relating to the issuance of
bonds.
Fitch Investors Service, Inc. One of several NRSROs that provide credit ratings on corporate and
municipal debt issues.
Floating Rate Security (FRN or “floater”). A bond with an interest rate that is adjusted according to
changes in an interest rate or index. Differs from variable-rate debt in that the changes to the rate take
Monroe County Board of County Commissioners Investment Policy Page 21
place immediately when the index changes, rather than on a predetermined schedule. See also “Variable
Rate Security.”
Freddie Mac. See "Federal Home Loan Mortgage Corporation."
Ginnie Mae. See "Government National Mortgage Association."
Global Notes: Notes designed to qualify for immediate trading in both the domestic U.S. capital market
and in foreign markets around the globe. Usually large issues that are sold to investors worldwide and
therefore have excellent liquidity. Despite their global sales, global notes sold in the U.S. are typically
denominated in U.S. dollars.
Government National Mortgage Association (GNMA or "Ginnie Mae"). One of the large Federal
Agencies. Government-owned Federal Agency that acquires, packages, and resells mortgages and
mortgage purchase commitments in the form of mortgage-backed securities. Largest issuer of mortgage
pass-through securities. GNMA debt is guaranteed by the full faith and credit of the U.S. government
(one of the few agencies that are actually full faith and credit of the U.S. government).
Government Securities. An obligation of the U.S. government, backed by the full faith and credit of
the government. These securities are regarded as the highest quality of investment securities available
in the U.S. securities market. See "Treasury Bills, Notes, Bonds, and SLGS."
Government Sponsored Enterprise (GSE). Privately owned entity subject to federal regulation and
supervision, created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of
the economy such as students, farmers, and homeowners. GSEs carry the implicit backing of the U.S.
government, but they are not direct obligations of the U.S. government. For this reason, these securities
will offer a yield premium over U.S. Treasuries. Examples of GSEs include: FHLB, FHLMC, FNMA,
and SLMA.
Government Sponsored Enterprise Security. A security issued by a Government Sponsored
Enterprise. Considered Federal Agency Securities.
Index.A compilation of statistical data that tracks changes in the economy or in financial markets.
Interest-Only (IO) STRIP. A security based solely on the interest payments from the bond. After the
principal has been repaid, interest payments stop and the value of the security falls to nothing. Therefore,
IOs are considered risky investments. Usually associated with mortgage-backed securities.
Internal Controls. An internal control structure ensures that the assets of the entity are protected from
loss, theft, or misuse. The internal control structure is designed to provide reasonable assurance that
these objectives are met. The concept of reasonable assurance recognizes that 1) the cost of a control
should not exceed the benefits likely to be derived and 2) the valuation of costs and benefits requires
estimates and judgments by management. Internal controls should address the following points:
1.Control of collusion - Collusion is a situation where two or more employees are working in
conjunction to defraud their employer.
2.Separation of transaction authority from accounting and record keeping - A separation of
duties is achieved by separating the person who authorizes or performs the transaction from the
people who record or otherwise account for the transaction.
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3.Custodial safekeeping - Securities purchased from any bank or dealer including appropriate
collateral (as defined by state law) shall be placed with an independent third party for custodial
safekeeping.
4.Avoidance of physical delivery securities - Book-entry securities are much easier to transfer
and account for since actual delivery of a document never takes place. Delivered securities must
be properly safeguarded against loss or destruction. The potential for fraud and loss increases
with physically delivered securities.
5.Clear delegation of authority to subordinate staff members - Subordinate staff members must
have a clear understanding of their authority and responsibilities to avoid improper actions. Clear
delegation of authority also preserves the internal control structure that is contingent on the
various staff positions and their respective responsibilities.
6.Written confirmation of transactions for investments and wire transfers - Due to the
potential for error and improprieties arising from telephone and electronic transactions, all
transactions should be supported by written communications and approved by the appropriate
person. Written communications may be via fax if on letterhead and if the safekeeping institution
has a list of authorized signatures.
7.Development of a wire transfer agreement with the lead bank and third-party custodian -
The designated official should ensure that an agreement will be entered into and will address the
following points: controls, security provisions, and responsibilities of each party making and
receiving wire transfers.
Inverse Floater. A floating rate security structured in such a way that it reacts inversely to the direction
of interest rates. Considered risky as their value moves in the opposite direction of normal fixed-income
investments and whose interest rate can fall to zero.
Investment Advisor. A company that provides professional advice managing portfolios, investment
recommendations, and/or research in exchange for a management fee.
Investment Adviser Act of 1940. Federal legislation that sets the standards by which investment
companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance
reporting requirements, and securities valuations.
Investment Grade. Bonds considered suitable for preservation of invested capital, including bonds
rated a minimum of Baa3 by Moody’s, BBB- by Standard & Poor’s, or BBB- by Fitch. Although “BBB”
rated bonds are considered investment grade, most public agencies cannot invest in securities rated
below “A.”
Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a
relative measure of cash and near-cash items in a portfolio of assets. Additionally, it is a term describing
the marketability of a money market security correlating to the narrowness of the spread between the
bid and ask prices.
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Local Government Investment Pool (LGIP). An investment by local governments in which their
money is pooled as a method for managing local funds, (e.g., Florida State Board of Administration’s
Florida Prime Fund).
Long-Term Core Investment Program. Funds that are not needed within a one-year period.
Market Value. The fair market value of a security or commodity. The price at which a willing buyer
and seller would pay for a security.
Mark-to-market. Adjusting the value of an asset to its market value, reflecting in the process unrealized
gains or losses.
Master Repurchase Agreement. A widely accepted standard agreement form published by the
Securities Industry and Financial Markets Association (SIFMA) that is used to govern and document
Repurchase Agreements and protect the interest of parties in a repo transaction.
Maturity Date. Date on which principal payment of a financial obligation is to be paid.
Medium Term Notes (MTN's). Used frequently to refer to corporate notes of medium maturity (5-
years and under). Technically, any debt security issued by a corporate or depository institution with a
maturity from 1 to 10 years and issued under an MTN shelf registration. Usually issued in smaller issues
with varying coupons and maturities, and underwritten by a variety of broker/dealers (as opposed to
large corporate deals issued and underwritten all at once in large size and with a fixed coupon and
maturity).
Money Market. The market in which short-term debt instruments (bills, commercial paper, bankers’
acceptance, etc.) are issued and traded.
Money Market Mutual Fund (MMF). A type of mutual fund that invests solely in money market
instruments, such as: U.S. Treasury bills, commercial paper, bankers' acceptances, and repurchase
agreements. Money market mutual funds are registered with the SEC under the Investment Company
Act of 1940 and are subject to “rule 2a-7” which significantly limits average maturity and credit quality
of holdings. MMF’s are managed to maintain a stable net asset value (NAV) of $1.00. Many MMFs
carry ratings by a NRSRO.
Moody's Investors Service. One of several NRSROs that provide credit ratings on corporate and
municipal debt issues.
Mortgage Backed Securities (MBS). Mortgage-backed securities represent an ownership interest in a
pool of mortgage loans made by financial institutions, such as savings and loans, commercial banks, or
mortgage companies, to finance the borrower's purchase of a home or other real estate. The majority of
MBS are issued and/or guaranteed by GNMA, FNMA, and FHLMC. There are a variety of MBS
structures with varying levels of risk and complexity. All MBS have reinvestment risk as actual principal
and interest payments are dependent on the payment of the underlying mortgages which can be prepaid
by mortgage holders to refinance and lower rates or simply because the underlying property was sold.
Mortgage Pass-Through Securities. A pool of residential mortgage loans with the monthly interest
and principal distributed to investors on a pro-rata basis. The largest issuer is GNMA.
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Municipal Note/Bond. A debt instrument issued by a state or local government unit or public
agency.The vast majority of municipals are exempt from state and federal income tax, although some
non-qualified issues are taxable.
Mutual Fund. Portfolio of securities professionally managed by a registered investment company that
issues shares to investors. Many different types of mutual funds exist (e.g., bond, equity, and money
market funds); all except money market funds operate on a variable net asset value (NAV).
Negotiable Certificate of Deposit (Negotiable CD). Large denomination CDs ($100,000 and larger)
that are issued in bearer form and can be traded in the secondary market.
Net Asset Value. The market value of one share of an investment company, such as a mutual fund. This
figure is calculated by totaling a fund's assets including securities, cash, and any accrued earnings, then
subtracting the total assets from the fund's liabilities, and dividing this total by the number of shares
outstanding. This is calculated once a day based on the closing price for each security in the fund's
portfolio. (See below.)
\[(Total assets) - (Liabilities)\]/(Number of shares outstanding)
NRSRO. A “Nationally Recognized Statistical Rating Organization” (NRSRO) is a designated rating
organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit
ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory
purposes of rating. Includes Moody’s, S&P, Fitch, and Duff & Phelps.
Offered Price. See also "Ask Price."
Open Market Operations. A Federal Reserve monetary policy tactic entailing the purchase or sale of
government securities in the open market by the Federal Reserve System from and to primary dealers
in order to influence the money supply, credit conditions, and interest rates.
Par Value. The face value, stated value, or maturity value of a security.
Physical Delivery. Delivery of readily available underlying assets at contract maturity.
Portfolio. Collection of securities and investments held by an investor.
Premium. The amount by which a bond or other financial instrument sells above its face value. See also
"Discount."
Primary Dealer. A designation given to certain government securities dealer by the Federal Reserve
Bank of New York. Primary dealers can buy and sell government securities directly with the Fed.
Primary dealers also submit daily reports of market activity and security positions held to the Fed and
are subject to its informal oversight. Primary dealers are the largest buyers and sellers by volume in the
U.S. Treasury securities market.
Prime Paper. Commercial paper of high quality. Highest rated paper is A-1+/A-1 by S&P and P-1 by
Moody’s.
Principal. Face value of a financial instrument on which interest accrues. May be less than par value if
some principal has been repaid or retired. For a transaction, principal is par value times price and
includes any premium or discount.
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Prudent Expert Rule. Standard that requires that a fiduciary manage a portfolio with the care, skill,
prudence, and diligence, under the circumstances then prevailing, that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an enterprise of a like character and
with like aims. This statement differs from the “prudent person” rule in that familiarity with such matters
suggests a higher standard than simple prudence.
Prudent Investor Standard. Standard that requires that when investing, reinvesting, purchasing,
acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence,
and diligence under the circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated needs of the agency, that a prudent person acting in a like
capacity and familiarity with those matters would use in the conduct of funds of a like character and
with like aims, to safeguard the principal and maintain the liquidity needs of the agency. More stringent
than the “prudent person” standard as it implies a level of knowledge commensurate with the
responsibility at hand.
Qualified Public Depository - Per Subsection 280.02(26), F.S., “qualified public depository” means
any bank, savings bank, or savings association that:
1.Is organized and exists under the laws of the United States, the laws of this state or any other
state or territory of the United States.
2.Has its principal place of business in this state or has a branch office in this state which is
authorized under the laws of this state or of the United States to receive deposits in this state.
3.Has deposit insurance under the provision of the Federal Deposit Insurance Act, as amended, 12
U.S.C. ss.1811 et seq.
4.Has procedures and practices for accurate identification, classification, reporting, and
collateralization of public deposits.
5.Meets all requirements of Chapter 280, F.S.
6.Has been designated by the Chief Financial Officer as a qualified public depository.
Range Note. A type of structured note that accrues interest daily at a set coupon rate that is tied to an
index. Most range notes have two coupon levels; a higher accrual rate for the period the index is within
a designated range, the lower accrual rate for the period that the index falls outside the designated range.
This lower rate may be zero and may result in zero earnings.
Rate of Return. Amount of income received from an investment, expressed as a percentage of the
amount invested.
Realized Gains (Losses). The difference between the sale price of an investment and its book value.
Gains/losses are “realized” when the security is actually sold, as compared to “unrealized” gains/losses
which are based on current market value. See “Unrealized Gains (Losses).”
Reference Bills: FHLMC’s short-term debt program created to supplement its existing discount note
program by offering issues from one month through one year, auctioned on a weekly or on an alternating
four-week basis (depending upon maturity) offered in sizeable volumes ($1 billion and up) on a cycle
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of regular, standardized issuance. Globally sponsored and distributed, Reference Bill issues are intended
to encourage active trading and market-making and facilitate the development of a term repo market.
The program was designed to offer predictable supply, pricing transparency, and liquidity, thereby
providing alternatives to U.S. Treasury bills. FHLMC’s Reference Bills are unsecured general corporate
obligations. This program supplements the corporation’s existing discount note program. Issues under
the Reference program constitute the same credit standing as other FHLMC discount notes; they simply
add organization and liquidity to the short-term Agency discount note market.
Reference Notes: FHLMC’s intermediate-term debt program with issuances of 2, 3, 5, 10, and 30-year
maturities. Initial issuances range from $2 - $6 billion with re-openings ranging $1 - $4 billion.
The notes are high-quality bullet structures securities that pay interest semiannually. Issues under the
Reference program constitute the same credit standing as other FHLMC notes; they simply add
organization and liquidity to the intermediate- and long-term Agency market.
Repurchase Agreement (Repo). A short-term investment vehicle where an investor agrees to buy
securities from a counterparty and simultaneously agrees to resell the securities back to the counterparty
at an agreed upon time and for an agreed upon price. The difference between the purchase price and the
sale price represents interest earned on the agreement. In effect, it represents a collateralized loan to the
investor, where the securities are the collateral. Can be DVP, where securities are delivered to the
investor’s custodial bank, or “tri-party” where the securities are delivered to a third party intermediary.
Any type of security can be used as “collateral,” but only some types provide the investor with special
bankruptcy protection under the law. Repos should be undertaken only when an appropriate Securities
Industry and Financial Markets Association (SIFMA) approved master repurchase agreement is in place.
Reverse Repurchase Agreement (Reverse Repo). A repo from the point of view of the original seller
of securities. Used by dealers to finance their inventory of securities by essentially borrowing at short-
term rates. Can also be used to leverage a portfolio and in this sense, can be considered risky if used
improperly.
Safekeeping. Service offered for a fee, usually by financial institutions, for the holding of securities and
other valuables. Safekeeping is a component of custody services.
Secondary Market. Markets for the purchase and sale of any previously issued financial instrument.
Securities Industry and Financial Markets Association (SIFMA). The bond market trade association
representing the largest securities markets in the world. In addition to publishing a Master Repurchase
Agreement, widely accepted as the industry standard document for Repurchase Agreements, the SIFMA
also recommends bond market closures and early closes due to holidays.
Securities Lending. An arrangement between and investor and a custody bank that allows the custody
bank to “loan” the investors investment holdings, reinvest the proceeds in permitted investments, and
shares any profits with the investor. Should be governed by a securities lending agreement. Can increase
the risk of a portfolio in that the investor takes on the default risk on the reinvestment at the discretion
of the custodian.
Sinking Fund. A separate accumulation of cash or investments (including earnings on investments) in
a fund in accordance with the terms of a trust agreement or indenture, funded by periodic deposits by
the issuer (or other entity responsible for debt service), for the purpose of assuring timely availability of
moneys for payment of debt service. Usually used in connection with term bonds.
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Spread.The difference between the price of a security and similar maturity U.S. Treasury investments,
expressed in percentage terms or basis points. A spread can also be the absolute difference in yield
between two securities. The securities can be in different markets or within the same securities market
between different credits, sectors, or other relevant factors.
Standard & Poor's. One of several NRSROs that provide credit ratings on corporate and municipal
debt issues.
STRIPS (Separate Trading of Registered Interest and Principal of Securities). Acronym applied to
U.S. Treasury securities that have had their coupons and principal repayments separated into individual
zero-coupon Treasury securities. The same technique and "strips" description can be applied to non-
Treasury securities (e.g., FNMA strips).
Structured Notes. Notes that have imbedded into their structure options such as step-up coupons or
derivative-based returns.
Supranational. Supranational organizations are international financial institutions that are generally
established by agreements among nations, with member nations contributing capital and participating
in management. These agreements provide for limited immunity from the laws of member countries.
Bonds issued by these institutions are part of the broader class of Supranational, Sovereign, and Non-
U.S. Agency (SSA) sector bonds. Supranational bonds finance economic and infrastructure
development and support environmental protection, poverty reduction, and renewable energy around
the globe. For example, the World Bank, International Finance Corporation (IFC), and African
Development Bank (AfDB) have “green bond” programs specifically designed for energy resource
conservation and management. Supranational bonds, which are issued by multi-national organizations
that transcend national boundaries. Examples include the World Bank, African Development Bank, and
European Investment Bank.
Swap. Trading one asset for another.
TAP Notes: Federal Agency notes issued under the FHLB TAP program. Launched in 6/99 as a
refinement to the FHLB bullet bond auction process. In a break from the FHLB’s traditional practice of
bringing numerous small issues to market with similar maturities, the TAP Issue Program uses the four
most common maturities and reopens them up regularly through a competitive auction. These maturities
(2, 3, 5, and 10 year) will remain open for the calendar quarter, after which they will be closed and a
new series of TAP issues will be opened to replace them. This reduces the number of separate bullet
bonds issued, but generates enhanced awareness and liquidity in the marketplace through increased issue
size and secondary market volume.
Tennessee Valley Authority (TVA). One of the large Federal Agencies. A wholly owned corporation
of the United States government that was established in 1933 to develop the resources of the Tennessee
Valley region in order to strengthen the regional and national economy and the national defense. Power
operations are separated from non-power operations. TVA securities represent obligations of TVA,
payable solely from TVA's net power proceeds, and are neither obligations of nor guaranteed by the
United States. TVA is currently authorized to issue debt up to $30 billion. Under this authorization,
TVA may also obtain advances from the U.S. Treasury of up to $150 million. Frequent issuer of discount
notes, agency notes, and callable agency securities.
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Total Return. Investment performance measured over a period of time that includes coupon interest,
interest on interest, and both realized and unrealized gains or losses. Total return includes, therefore,
any market value appreciation/depreciation on investments held at period end.
Treasuries. Collective term used to describe debt instruments backed by the U.S. government and
issued through the U.S. Department of the Treasury. Includes Treasury bills, Treasury notes, and
Treasury bonds. Also a benchmark term used as a basis by which the yields of non-Treasury securities
are compared (e.g., "trading at 50 basis points over Treasuries").
Treasury Bills (T-Bills). Short-term direct obligations of the United States government issued with an
original term of one year or less. Treasury bills are sold at a discount from face value and do not pay
interest before maturity. The difference between the purchase price of the bill and the maturity value is
the interest earned on the bill. Currently, the U.S. Treasury issues 4-week, 13-week, and 26-week
T-Bills.
Treasury Bonds. Long-term interest-bearing debt securities backed by the U.S. government and issued
with maturities of ten years and longer by the U.S. Department of the Treasury.
Treasury Notes. Intermediate interest-bearing debt securities backed by the U.S. government and issued
with maturities ranging from one to ten years by the U.S. Department of the Treasury. The Treasury
currently issues 2-year, 3-year, 5-year, and 10-year Treasury Notes.
Trustee. A bank designated by an issuer of securities as the custodian of funds and official
representative of bondholders. Trustees are appointed to insure compliance with the bond documents
and to represent bondholders in enforcing their contract with the issuer.
Uniform Net Capital Rule. SEC Rule 15c3-1 that outlines the minimum net capital ratio (ratio of
indebtedness to net liquid capital) of member firms and non-member broker/dealers.
Unrealized Gains (Losses). The difference between the market value of an investment and its book
value. Gains/losses are “realized” when the security is actually sold, as compared to “unrealized”
gains/losses which are based on current market value. See also “Realized Gains (Losses).”
Variable-Rate Security. A bond that bears interest at a rate that varies over time based on a specified
schedule of adjustment (e.g., daily, weekly, monthly, semi-annually, or annually). See also “Floating
Rate Note.”
Weighted Average Maturity (or just “Average Maturity”). The average maturity of all securities
and investments of a portfolio, determined by multiplying the par or principal value of each security or
investment by its maturity (days or years), summing the products, and dividing the sum by the total
principal value of the portfolio. A simple measure of risk of a fixed-income portfolio.
Weighted Average Maturity to Call. The average maturity of all securities and investments of a
portfolio, adjusted to substitute the first call date per security for maturity date for those securities with
call provisions.
Yield Curve. A graphic depiction of yields on like securities in relation to remaining maturities spread
over a time line. The traditional yield curve depicts yields on U.S. Treasuries, although yield curves
exist for Federal Agencies and various credit quality corporates as well. Yield curves can be positively
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sloped (normal) where longer-term investments have higher yields, or “inverted” (uncommon) where
longer-term investments have lower yields than shorter ones.
Yield to Call (YTC). Same as “Yield to Maturity,” except the return is measured to the first call date
rather than the maturity date. Yield to call can be significantly higher or lower than a security’s yield to
maturity.
Yield to Maturity (YTM). Calculated return on an investment, assuming all cash-flows from the
security are reinvested at the same original yield. Can be higher or lower than the coupon rate depending
on market rates and whether the security was purchased at a premium or discount. There are different
conventions for calculating YTM for various types of securities.
Yield.There are numerous methods of yield determination. In this glossary, see also "Current Yield,”
"Yield Curve," "Yield to Call," and "Yield to Maturity."
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Attachment B
Investment Pool/Fund Questionnaire
1.A description of eligible investment securities, and a written statement of investment policy and
objectives.
2.Does the pool/fund have a stable or floating net asset value?
3.What are the liquidity gates?
4.A description of interest calculations and how it is distributed, and how gains and losses are
treated.
5.A description of how the securities are safeguarded (including the settlement processes), and
how often the securities are priced and the program audited.
6.A description of who may invest in the program, how often, what size deposit and withdrawal
are allowed.
7.A schedule for receiving statements and portfolio listings.
8.Are reserves, retained earnings, etc. utilized by the pool/fund?
9.A fee schedule, and when and how is it assessed.
10.Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
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