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Backup Documents 12/09/2014 Item #11C ORIGINAL DOCUMENTS CHECKLIST & ROUTING SLIP 1 1 V TO ACCOMPANY ALL ORIGINAL DOCUMENTS SENT TO , THE BOARD OF COUNTY COMMISSIONERS OFFICE FOR SIGNATURE Print on pink paper. Attach to original document. The completed routing slip and original documents are to be forwarded to the County Attorney Office at the time the item is placed on the agenda. All completed routing slips and original documents must be received in the County Attorney Office no later than Monday preceding the Board meeting. **NEW** ROUTING SLIP Complete routing lines#1 through#2 as appropriate for additional signatures,dates,and/or information needed. If the document is already complete with the exception of the Chairman's signature,draw a line through routing lines#1 through#2,complete the checklist,and forward to the County Attorney Office. Route to Addressee(s) (List in routing order) Office Initials Date 1. 2. 3. County Attorney Office County Attorney Office JAK 12/12/14 4. BCC Office Board of County Commissioners V / 17—`1 S\V- 5. Minutes and Records Clerk of Court's Office \Oki ' Vali (:ice PRIMARY CONTACT INFORMATION Normally the primary contact is the person who created/prepared the Executive Summary. Primary contact information is needed in the event one of the addressees above,may need to contact staff for additional or missing information. Name of Primary Staff Mark Isacon, OMB Phone Number 252-8717 Contact/ Department J Agenda Date Item was 12/9/14 Agenda Item Number 11-C Approved by the BCC Type of Document Resolution adopting amended Investment Number of Original One Attached Policy �Q 1 --��(2 Documents Attached PO number or account (Only when the document is to be recorded number if document is in the Public Records) to be recorded INSTRUCTIONS & CHECKLIST Initial the Yes column or mark"N/A" in the Not Applicable column,whichever is Yes N/A(Not appropriate. (Initial) Applicable) 1. Does the document require the chairman's original signature? JAK 2. Does the document need to be sent to another agency for additional signatures? If yes, JAK provide the Contact Information(Name;Agency;Address; Phone)on an attached sheet. 3. Original document has been signed/initialed for legal sufficiency. (All documents to be JAK signed by the Chairman, with the exception of most letters,must be reviewed and signed by the Office of the County Attorney. 4. All handwritten strike-through and revisions have been initialed by the County Attorney's JAK Office and all other parties except the BCC Chairman and the Clerk to the Board 5. The Chairman's signature line date has been entered as the date of BCC approval of the JAK document or the final negotiated contract date whichever is applicable. 6. "Sign here"tabs are placed on the appropriate pages indicating where the Chairman's JAK signature and initials are required. 7. In most cases(some contracts are an exception),the original document and this routing slip JAK should be provided to the County Attorney Office at the time the item is input into SIRE. Some documents are time sensitive and require forwarding to Tallahassee within a certain time frame or the BCC's actions are nullified. Be aware of your deadlines! 8. The document was approved by the BCC on 12/9/14 and all changes made during the JAK meeting have been incorporated in the attached document. The County Attorney's Office has reviewed the changes, if applicable. 9. Initials of attorney verifying that the attached document is the version approved by the ( • K - BCC, all changes directed by the BCC have been made,and the document is ready for t e Chairman's signature. 1:Forms/County Forms/BCC Forms/Original Documents Routing Slip WWS Original 9.0 04,Revised 1.26.05,Revised 2.24.05;Revised 11/30/12 I1C MEMORANDUM Date: December 16, 2014 To: Mark Isackson, Director Office of Management & Budget From: Martha Vergara, Deputy Clerk Minutes & Records Department Re: Resolution 2014-260 Amended Investment Policy Attached, for your records is one (1) certified copy of the resolution referenced above, (Agenda Item #11C) adopted by the Board of County Commissioners on Tuesday, December 9, 2014. If you should have any questions, please call 252-7240. Thank you. Attachment 11c $ RESOLUTION NO.2014- 2 6 0 A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS OF COLLIER COUNTY, FLORIDA, ADOPTING AN AMENDED INVESTMENT POLICY. WHEREAS, Florida Statute Sec. 218.415 requires all local governments to adopt a written investment plan consistent with the requirements of that statute; and WHEREAS, the Board adopted Resolution No. 87-65 on October 13, 1987 which provided for and approved and adopted an Investment Policy which has been in effect and subsequently amended from time to time; and WHEREAS, the Board of County Commissioners and the Clerk have mutually agreed that it is appropriate and in the best interests of Collier County to revise its Investment Policy to provide for current best practices and to better enable the Clerk to the Board to perform his role under Florida Statute 28.33. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF COLLIER COUNTY, FLORIDA, that The Investment Policy attached hereto as Exhibit"A" is hereby approved and adopted. THIS RESOLUTION ADOPTED after motion, second and majority vote favoring same, this 9th day of December, 2014. ATTEST: h'k F. BOARD OF COUNTY COMMISSIONERS UM:61-T E. BRQCK,,CLERK COLLIER COUNTY, FL 1 RIDA r , _ / :1: 01111fr4i0r By: -_s W ' .i....M► .dif • •. ,el _ • 0, -- Deputy+CV TOM HENNING, CHAP . =N Attest as� Cltai ah s signature nl . land Appro a t ' legality: ,.. .` I Item# --4A-- Jeffrey A.'IJlatkkow, County Attorney Agendai2191 i 4 Date Date Rec'd 1(49 I 1 L . !{I, iii...I, i��uty Perk Collier County's INVESTMENT POLICY Approved: 12/09/2014 11C Page 1 11C Table of Contents Page I. SCOPE 3 II. POLICY 3 III. INVESTMENT OBJECTIVES 3 IV. AUTHORITY 3 V. PERFORMANCE MEASURES 3 VI. PRUDENCE AND ETHICAL STANDARDS 4 VII. ETHICS AND CONFLICTS OF INTEREST 4 VIII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSTION 4 IX. MATURITY AND LIQUIDITY REQUIREMENTS 8 X. RISK AND DIVERSIFICATION 8 XI. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 8 XII. THIRD-PARTY CUSTODIAL AGREEMENTS 9 XIII. MASTER REPURCHASE AGREEMENTS 10 XIV. BID REQUIREMENT 10 XV. INTERNAL CONTROLS 10 XVI. CONTINUING EDUCATION 11 XVII. REPORTING 11 XVIII. INVESTMENT POLICY ADOPTION 11 ATTACHMENT A: Glossary of Cash and Investment Management Terms ATTACHMENT B: Investment Pool/Fund Questionnaire Page 2 Collier County, Florida Investment Policy 1. SCOPE In accordance with Section 218.415, Florida Statutes, this investment policy applies to all financial assets, of the Board of County Commissioners with the exception of Pension Funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Funds held by state agencies(e.g., Department of Revenue) are not subject to the provisions of this policy. Il. POLICY The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of Collier County Board of County Commissioners (hereinafter "Board"). These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices. Ill. INVESTMENT OBJECTIVES Primary Objectives: 1. Preservation of capital and protection of investment principal. 2. Match assets to liabilities by maintaining sufficient liquidity to meet reasonably anticipated operating and capital requirements. Secondary Objectives: Return on Investment - The investment portfolio shall be designed with the objective of attaining a market rate of return, 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. 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, the County may trade to recognize a loss from time to time to achieve a perceived relative value based on its potential to enhance the return of the portfolio. IV. AUTHORITY This Investment Policy is adopted pursuant to Florida Statute Section 218.415. Should there be any conflict between this statute, as amended from time-to-time, and this Policy, Florida Statute Section 218.415 shall control. This Policy specifically authorizes the Collier County Clerk to maintain an Investment Procedures and Internal Controls Manual based upon and consistent with this Policy, and to administer the Policy on behalf of the Board of County Commissioners. The Clerk shall be responsible for monitoring internal controls, administrative controls, and to regulate the activities of staff involved with the investment program. V. PERFORMANCE MEASURES In order to assist in the evaluation of the portfolio's performance, the Clerk will use performance benchmarks. The use of benchmarks will allow the Clerk and Board to measure the 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 Government 30-Day Gross of Fees Yield. Page 3 lie 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. VI. PRUDENCE AND ETHICAL STANDARDS: 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. 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 an overall portfolio. Investment officers acting in accordance with written procedures and the 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 expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Officers and employees involved in the investment process 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. Employees and investment officials shall disclose to the Clerk any material financial interests in financial institutions that conduct business within this jurisdiction and they shall further disclose any material personal financial/investment positions that could be related to the performance of the portfolio. Employees and officers shall subordinate their personal investment transactions to those transactions made in the portfolio, particularly with regard to the time of purchase and sales. Employees shall also disclose any gifts or entertainment received as a result of their employment in regard to the investments of Collier County. Bond swaps are appropriate when undertaken in conformity with the prudent person test and overall portfolio objectives in order to (a) increase yield to maturity without affecting the asset liability match; (b) reduce maturity while maintaining or increasing the yield to maturity or (c) increase portfolio quality without affecting the asset liability match. The County should only sell securities at a loss if undertaken in connection with prudent portfolio management. VII. ETHICS AND CONFLICTS OF INTEREST Employees involved in the investment process 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, employees involved in the investment process shall disclose any financial interests in financial institutions that conduct business with the Board or Clerk. VIII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION Investments should be made subject to the cash flow needs and such cash flows are subject to revisions as market conditions and the Board's 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. The following are the guidelines for investments and limits on security types, issuers, and maturities as established by the Board. The Clerk shall have the option to further restrict investment percentages from time to time based on market conditions. The percentage allocation requirements for investment types and Page 4 issuers are calculated based on the original cost of each investment, at the time of purchase. Investments not listed in this policy are prohibited. Permitted Investments Sector Per Issuer Sector Maximum Maxmum Minimum Ratings Requirement' Maturitm (%) (%) y U.S. Treasury 100% 5 Years GNMA 40% (5 Years 100% N/A avg. life3 Other U.S. Government for Guaranteed (e.g.AID, 10% GNMA) GTC) Federal Agency/GSE: FNMA, FHLMC, FHLB, 80% 40%2 N/A 5 Years FFCB* Highest ST or Three Highest LT Rating Corporates 25% 5% Categories 5 Years (A-1/P-1,A-/A3 or equivalent) Highest ST or Three Highest LT Rating Municipals 25% 5% Categories 5 Years (SP-1/MIG 1, A-/A3, or equivalent) Agency Mortgage- 25% 40%2 N/A 5 Years Backed Securities(MBS) Avg. Life3 Non-Negotiable 30% N/A N/A 1 Year Certificate of Deposits Depository Bank Account 100% N/A N/A N/A Commercial Paper(CP) 25% 5% Highest ST Rating Category 270 Days (A-1/P-1, or equivalent) Counterparty(or if the counterparty is not rated by an NRSRO,then the counterparty's parent)must Repurchase Agreements be rated in the Highest ST Rating Category 20% 10% 90 Days (Repo or RP) (A-1/P-1, or equivalent) If the counterparty is a Federal Reserve Bank, no rating is required Money Market Funds 50% 25% Highest Fund Rating by all NRSROs who rate the N/A (MMFs) fund (AAAm/Aaa-mf, or equivalent) Fixed Income 20% 10% N/A N/A Mutual Funds Intergovernmental Pools ° ° Highest Fund Quality and Volatility Rating (LGIPS) 50% 25% Categories by all NRSROs who rate the LGIP, N/A (AAAm/AAAf, S1,or equivalent) Florida Local Government ° Highest Fund Rating by all NRSROs who rate the Surplus Funds Trust Funds 50% N/A N/A ("Florida Prime") fund(AAAm/Aaa-mf, or equivalent) Notes: Rating by at least one SEC-registered Nationally Recognized Statistical Rating Organization ("NRSRO"), unless otherwise noted. ST=Short-term; LT=Long-term. 2 Maximum exposure to any one Federal agency, including the combined holdings of Agency debt and Agency MBS, is 40%. 3 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). Page 5 lic 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) 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. 4) 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. 5) Agency Mortgage Backed Securities - Mortgage-backed securities (MBS), backed by residential, multi-family or commercial mortgages, that are issued or fully guaranteed as to 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. 6) Non-Negotiable Certificate of Deposits - 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. 7) Depository Bank Account - Now 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. 8) Commercial Paper — U.S. dollar denominated commercial paper issued or guaranteed by a domestic corporation, company, financial institution, trust or other entity, including both unsecured debt and asset-backed programs. 9) 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. Page 6 1i c f. Final term of the agreement must be 1 year or less. 10) 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. 11) Fixed-Income Mutual Funds - Shares in open-end and no-load fixed-income mutual funds whose underlying investments would be permitted for purchase under this policy and all its restrictions. 12) 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. 13) 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 portfolio report must be obtained. General Investment and Portfolio 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 Clerk will notify the Board. e. The maximum maturity(or average life for MBS/ABS) of any investment is 5 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 portfolio limitations: a. The maximum effective duration of the aggregate portfolio 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 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 Page 7 1 C 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 I. Equities, commodities, currencies and hard assets IX. MATURITY AND LIQUIDITY REQUIREMENTS 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 twelve (12) months. 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, however the maturities shall not exceed five (5) years from the date of settlement. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the SIFMA Master Repurchase Agreements. X. RISK AND DIVERSIFICATION Collier County will diversify its investments by security type, specific maturity, dealer or bank through which financial instruments are bought or sold. XI. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS The Clerk will maintain a list of the financial institutions authorized to provide investment services. These shall include Primary Dealers as designated by the Federal Reserve Bank of New York and regional dealers that (1) qualify under Securities & Exchange Commission Rule 15C3 (Uniform Net Capital Rule), (2) have capital of at least $50,000,000 and (3) have an institutional sales office and an institutional sales professional domiciled in Florida. No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Clerk with the following: 1. audited financial statements, 2. certification that no material adverse events have occurred since the issue of their most recent financial statements, 3. proof of Financial Industry Regulatory Authority, Inc. (FINRA), the registration (where applicable) or other securities registration, Page 8 lic 4. proof of state registration, when required, 5. certification of having read and agreeing to abide by the Investment Policy and depository contracts in place in Collier County, and 6. a copy of the firm's established internal oversight and review guidelines controlling business with governmental entities. Each financial institution and broker/dealer must also agree to notify the Clerk in the event of material adverse events affecting their capital adequacy. Each institution and broker/dealer shall provide their written mark up schedule and guidelines to the Clerk. Each institution and broker/dealer shall disclose to the Clerk any proposed trade that would exceed the guidelines prior to executing the trade. The Clerk shall do a background check on each broker with whom the County does business which shall, at a minimum, consist of contacting the State or FINRA for regulatory & disciplinary dates which are maintained on brokers. An annual review of the financial condition and registration of qualified bidders will be conducted by the Clerk. A current audited financial statement is required to be on file for each financial institution and broker/dealer authorized to provide investment services. Criteria for addition to or deletion from the lists will be based on the following: (1) state law, Board Ordinance Code, or Investment Policy requirements where applicable, (2) perceived financial difficulties, (3) consistent lack of competitiveness, (4) lack or experience or familiarity of the account representative in providing service to large institutional accounts, (5) request of the institution or broker/dealer, and (6)when deemed in the best interest of the public. XII. THIRD-PARTY CUSTODIAL AGREEMENTS All securities, with the exception of certificates of deposits, shall be held with a third party custodian; and all securities purchased by, and all collateral obtained by; the securities and cash should be properly designated as an asset of the Board. The securities must be held in an account separate and apart from the assets of the financial institution. A third party custodian is defined as any bank 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. Certificates of deposits will be placed in the provider's safekeeping department for the term of the deposit. The Clerk will execute a third party custodial agreement(s) with its bank(s) and depository institution(s). Such agreements may include letters of authority from the Clerk, details as to the responsibilities of each party, method of notification of security purchases, sales, delivery, procedures related to repurchase agreements and wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps and describing the liability of each party. The custodian shall accept transaction instructions only from those persons who have been duly authorized by the 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, shall be permitted unless by such a duly authorized person. 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 will have the security or money, as appropriate, in hand at the conclusion of the transaction. Securities held as collateral shall be held free and clear of any liens. Page 9 11C XIII. MASTER REPURCHASE AGREEMENTS The Clerk will require all approved institutions and dealers transacting repurchase agreements to execute and perform as stated in the Securities Industry and Financial Markets Association (SIFMA) Master Repurchase Agreement. All repurchase agreement transactions will adhere to requirements of the SIFMA Master Repurchase Agreement. XIV. BID REQUIREMENT The Clerk shall utilize the competitive bid process to sell and purchase securities, subject only to the exceptions noted in the Investment Policy. 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 investment, a minimum of three (3) banks or dealers must be contacted to ask for offerings of securities that fit the investment criteria. Documentation must be collected to insure that the securities meet Investment Policy guidelines and that price levels executed are consistent with market levels at the time. When selling securities, a minimum of three (3) dealer bids will be sought. Documentation of all transactions must be maintained. Examples of when the competitively bid process can be passed, include: 1. When time constraints due to unusual circumstances preclude the use of the competitive bidding process. 2. When no active market exists for the issue being traded due to the age or depth of the issue, 3. When a security is unique to a single dealer, for example a private placement. 4. When the transaction involved new issues or issues on the"when issued"market. If the maturing investment is a certificate of deposit, one of the contacts made shall be the present holder of the funds subject to portfolio diversification requirements in the Investment Policy. Overnight repurchase agreements, and the overnight sweep repurchase agreement associated with the Depository Bank Account will be included in the master agreement with the Depository Bank. The Depository Bank/Concentration Bank shall be selected through a competitive process on a periodic basis that takes into account the quality and scope of service. XV. INTERNAL CONTROLS The Clerk shall establish and monitor a set of written internal controls designed to protect the County's financial assets and ensure proper accounting and reporting of the transactions. The Clerk shall establish an annual process of independent review by an external auditor which will serve as an internal control by assuring compliance with policies and procedures. Internal controls will encompass at a minimum the following issues: 1. transfers of all funds(purchases, sales, etc.), 2. separation of functions including transaction authority from accounting and record-keeping, and wire transfer initiation and wire approval, 3. custodial safekeeping, 4. avoidance of delivery of bearer-form or non-wireable securities, 5. delegation of authority to subordinate staff members, 6. written confirmation of telephone transactions, 7. supervisory control of employee actions, 8. identification and minimization of authorized investment officials, and Page 10 11C 9. documentation of decisions and transactions. XVI. CONTINUING EDUCATION Each individual responsible for making investment decisions, including the Clerk, shall annually complete eight hours of continuing education in subjects or courses of study related to investment practices and products. Evidence of such education will be maintained by each individual and available for inspection. XVII. REPORTING Annual, quarterly and monthly reports of assets will be presented to the Board. The following items will be included in the reports at least annually: 1. Securities in the portfolio by type, book value, income earned, market value, final maturity and average life. 2. Information on activity in the account, 3. Performance based on total rate of return which includes earned income as well as realized and unrealized gains and losses, and 4. The market values presented in these reports will be consistent with accounting guidelines in GASB Statement 31. XVIII. INVESTMENT POLICY ADOPTION At the time of adoption, any securities that become out of compliance with the Investment Policy can be retained to reduce the possibility of having to sell financial assets before maturity at a loss. Any and all exceptions to the Investment Policy require majority vote of the Board. This investment policy is established pursuant to statutory authority. The Board establishes overall investment policies, the implementation of which is a constitutional responsibility of the Clerk. The investment policy shall be adopted by the Board. Duly adopted this day of 2014. BOARD OF COUNTY COMMISSIONERS COLLIER COUNTY, FLORIDA Page 11 11C Attachment A Glossary of Cash and Investment Management Terms The following is a glossary of key investing terms, many of which appear in the County's 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. 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, 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. Page 12 C 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. 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 Page 13 nc 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. 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. All Collateralized Mortgage Obligations (CMOs) are derivatives. 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. Page 14 11c 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 '/, 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 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, Effective Duration). Effective Duration is a duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective duration is the approximate percentage change in price for a 100 basis point change in rates. To compute you can apply the following equation. Price if yield decline-price if yield rise/2(initial price)(change in yield in decimal) 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. Page 15 I 1 c 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 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. Page 16 lie 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 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 (10) 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, lOs 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: Page 17 11 .E 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. 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. 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. Page 18 1 1 c 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. 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.) Page 19 11c [(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. 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. Page 20 I1C 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 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. Page 21 1 1 c 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. 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. Page 22 11C 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, WA 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. 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 sloped Page 23 11C (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." Page 24 11C Attachment B Investment Pool/Fund Questionnaire 1. A description of eligible investment securities, and a written statement of investment policy and objectives. 2. A description of interest calculations and how it is distributed, and how gains and losses are treated. 3. A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 4. A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. 5. A schedule for receiving statements and portfolio listings. 6. Are reserves, retained earnings, etc. utilized by the pool/fund? 7. A fee schedule, and when and how is it assessed. 8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? Page 25