11/20/2018 Finance Committee Agenda Finance Committee Agenda
November 20, 2018
County Manager's Front Conference Room
1:00 p.m.
1. Call to order
2. Approval of Agenda (meeting noticed on November 9, 2018)
3. Approval of Minutes from July 17, 2018 Meeting
4. Collier County Water-Sewer District Capital Improvement Program; Future Financing Requirements
(attachment)
5. General Governmental SO Revenue Bond Infrastructure Finance Plan and approval of the Local Option
Infrastructure Sales Tax. (attachment)
6. Investment Policy Discussion (attachment)
7. Other Business
8. Public Comment
9. Adjourn—Next Meeting—TBD
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Collier County Government -ioRkoo,A
Communication & Customer Relations
3299 Tamiami Trail East, Suite 102 colliergov.net
Naples, FL 34112-5746 twitter.com/CollierPIO
facebook.com/CollierGov
youtube.com/CollierGov
November 9, 2018
FOR IMMEDIATE RELEASE
NOTICE OF PUBLIC MEETING
COLLIER COUNTY FINANCE COMMITTEE
COLLIER COUNTY, FLORIDA
TUESDAY, NOVEMBER 20, 2018
1:00 P.M.
Notice is hereby given that the Collier County Finance Committee will meet Tuesday,November 20, at
1:00 p.m. in the County Manager's Front Conference Room, second floor, Collier County Government
Center, 3299 Tamiami Trail East,Naples, Fla.
About the public meeting:
Two or more members of the Board of County Commissioners may be present and may participate at the
meeting. The subject matter of this meeting may be an item for discussion and action at a future Board of
County Commissioners meeting.
All interested parties are invited to attend, and to register to speak. All registered public speakers will be
limited to three minutes unless permission for additional time is granted by the chairman.
Collier County Ordinance No. 2004-05 requires that all lobbyists shall, before engaging in any lobbying
activities (including, but not limited to, addressing the Board of County Commissioners, an advisory board or
quasi-judicial board), register with the Clerk to the Board at the Board Minutes and Records Department.
Anyone who requires an auxiliary aid or service for effective communication, or other reasonable
accommodations in order to participate in this proceeding, should contact the Collier County Facilities
Management Department located at 3335 Tamiami Trail East,Naples, Florida 34112, or(239) 252-8380 as
soon as possible, but no later than 48 hours before the scheduled event. Such reasonable accommodations
will be provided at no cost to the individual.
For more information, call Mark Isackson at(239) 252-8973.
###
DRAFT
COLLIER COUNTY
FINANCE COMMITTEE MEETING
MINUTES
July 17, 2018, 1:00 P.M.
Board members in attendance: Mark Isackson, Corporate Financial Operations CMO; Crystal Kinzel,
Clerk of Courts and Comptroller;Joe Bellone, Director of Operations Support-Public Utilities; Gene Shue-
Growth Management Operations Support Director; Susan Usher, Senior Budget Analyst OMB.
Other attendees: Derek Johnssen-Clerk of Courts Assistant Finance Director; Ed Finn-Senior Budget
Analyst OMB;Jeff Klatzkow-County Attorney; Jim Gibson.
Present by phone: Nicklas Rocca and Sergio Masvidal from the PFM Group; Steve Miller from Nabors,
Giblin & Nickerson.
1. Call to Order: Mark Isackson called the meeting to order at 1:00 p.m.
2. Approval of Agenda: Meeting noticed July 9, 2018. Motion to approve agenda. Joe Bellone
seconded. Unanimously approved.
3. Approval of Minutes from December 14, 2017 meeting: No changes. Mark made motion to
approve minutes. Joe Bellone seconded. Unanimously approved.
4. Tourist Development Tax(TDT) Revenue Bonds,Series 2018 to finance construction of the
Amateur Sports Complex: Committee members discussed the Plan of Finance to issue tourist
development tax(TDT) bonds to finance construction of a tournament caliber amateur sports
complex. This new financing in an amount not to exceed $70,000,000 will be an open market
competitively bid debt issue with a financing term most likely at 25 years and not exceeding 30
years. This debt will be paid by a specific pledge of TDT revenues in accordance with the Board of
County Commissioner's approved TDT plan which increased by one percent to five percent the TDT
tax. Debt service will not exceed $3,750,000. The proposed issue will contain a standard 10-year call
date. It is expected that net bond proceeds to the construction fund will total between $60 million
and $65 million. Sergio indicated that as many as 10 bidders may participate. The planning interest
rate is 4.121%and it is expected that the actual all in true interest cost will be below 4.0%. There
was discussion about revenue generation from the sport's complex and it was indicated that the
sport's complex was never envisioned to be a profit center. Instead, the complex will provide a
tournament quality venue to attract visitors to the destination through sport's tourism. Any
revenue generated will offset operating expenses. Isackson motioned to approve the plan of
finance for the issue of TDT revenue bonds to finance construction of the amateur sports complex.
Bellone second. Motion carried 4-1 with Crystal Kinzel dissenting.
5. General Governmental SO Revenue Bond Plan of Finance if the Local Option Infrastructure Sales
Tax Referendum fails: Mark briefly mentioned that the Board will consider either in December
2018 or January 2019 a General Governmental Infrastructure financing plan outlining
recommendations for financing construction of Vanderbilt Beach Road, Big Corkscrew Regional Park,
DRAFT
bridges, storm-water improvements, etc. should the local option one percent sales tax referendum
fail. No further discussion ensued.
6. Other Business: None.
7. Public Comment: None
8. Adjourn: Meeting adjourned at 1:35 p.m. Motioned by Mark Isackson and seconded by Crystal
Kinzel. Unanimously approved. Meeting re-started at 1:35 p.m. to approve item #3 prior meeting
minutes. Meeting re-adjourned at 1:36 p.m. Motioned by Mark Isackson and seconded by Crystal
Kinzel. Unanimously approved. Next meeting TBD.
APPROVED FINAL
COLLIER COUNTY
FINANCE COMMITTEE MEETING
MINUTES
July 17, 2018, 1:00 P.M.
Board members in attendance: Mark Isackson, Corporate Financial Operations CMO; Crystal Kinzel,
Clerk of Courts and Comptroller;Joe Bellone, Director of Operations Support-Public Utilities; Gene Shue-
Growth Management Operations Support Director; Susan Usher, Senior Budget Analyst OMB.
Other attendees: Derek Johnssen-Clerk of Courts Assistant Finance Director; Ed Finn-Senior Budget
Analyst OMB;Jeff Klatzkow-County Attorney;Jim Gibson.
Present by phone: Nicklas Rocca and Sergio Masvidal from the PFM Group; Steve Miller from Nabors,
Giblin & Nickerson.
1. Call to Order: Mark Isackson called the meeting to order at 1:00 p.m.
2. Approval of Agenda: Meeting noticed July 9, 2018. Motion to approve agenda. Joe Bellone
seconded. Unanimously approved.
3. Approval of Minutes from December 14, 2017 meeting: No changes. Mark made motion to
approve minutes. Joe Bellone seconded. Unanimously approved.
4. Tourist Development Tax(TDT) Revenue Bonds,Series 2018 to finance construction of the
Amateur Sports Complex: Committee members discussed the Plan of Finance to issue tourist
development tax (TDT) bonds to finance construction of a tournament caliber amateur sports
complex. This new financing in an amount not to exceed $70,000,000 will be an open market
competitively bid debt issue with a financing term most likely at 25 years and not exceeding 30
years. This debt will be paid by a specific pledge of TDT revenues in accordance with the Board of
County Commissioner's approved TDT plan which increased by one percent to five percent the TDT
tax. Debt service will not exceed $3,750,000. The proposed issue will contain a standard 10-year call
date. It is expected that net bond proceeds to the construction fund will total between $60 million
and $65 million. Sergio indicated that as many as 10 bidders may participate. The planning interest
rate is 4.121%and it is expected that the actual all in true interest cost will be below 4.0%. There
was discussion about revenue generation from the sport's complex and it was indicated that the
sport's complex was never envisioned to be a profit center. Instead,the complex will provide a
tournament quality venue to attract visitors to the destination through sport's tourism. Any
revenue generated will offset operating expenses. Isackson motioned to approve the plan of
finance for the issue of TDT revenue bonds to finance construction of the amateur sports complex.
Bellone second. Motion carried 4-1 with Crystal Kinzel dissenting.
5. General Governmental SO Revenue Bond Plan of Finance if the Local Option Infrastructure Sales
Tax Referendum fails: Mark briefly mentioned that the Board will consider either in December
2018 or January 2019 a General Governmental Infrastructure financing plan outlining
recommendations for financing construction of Vanderbilt Beach Road, Big Corkscrew Regional Park,
APPROVED FINAL
bridges, storm-water improvements, etc. should the local option one percent sales tax referendum
fail. No further discussion ensued.
6. Other Business: None.
7. Public Comment: None
8. Adjourn: Meeting adjourned at 1:35 p.m. Motioned by Mark Isackson and seconded by Crystal
Kinzel. Unanimously approved. Meeting re-started at 1:35 p.m. to approve item #3 prior meeting
minutes. Meeting re-adjourned at 1:36 p.m. Motioned by Mark Isackson and seconded by Crystal
Kinzel. Unanimously approved. Next meeting TBD.
ITEM 4
2222 Ponce De Leon Blvd 786-671-7480
Third Floor www.pfm.com
Coral Gables,FL
33134
pfrnOctober 11, 2018
To: Collier County Water-Sewer District, FL
From: PFM Financial Advisors LLC
Re: Capital Improvement Program— Future Funding Needs
The Collier County Water-Sewer District ("CCWSD" or "District") anticipates significant
capital investment to become necessary over the next several years. A portion of these
improvements are known to be needed in the near-term (next 6-12 months), while
another large portion may be necessary in the next 24-36 months, depending on the
pace and scale of development throughout the County. The purpose of this
memorandum is to outline a near-term plan of finance, as well as summarize
alternatives for the longer-term capital investments that are still relatively uncertain as
far as timing and amount.
Summary of Capital Expansion Plans
It is our understanding that the District anticipates near-term capital needs in the
approximate amount of$77 million. This would include funding for water, wastewater,
IQ Program, and advance pipes projects. Notice to proceed on these projects will be
sought during the first quarter of 2019, with completion occurring by the end of 2019.
These projects are relatively certain to be necessary, and as such necessitate a funding
strategy that locks in interest rates as quickly as possible. In addition to these projects,
there are approximately $104 million of capacity projects that may need to begin as
early as 2022, followed by an additional $44 million of projects that would be necessary
to begin in 2025. Both of those projects, totaling approximately $148 million, are
expected to be placed in service three years after the anticipated start date.
Project Type Summary Category
Pre-construct NEUF Assets $41,005,064 Near-term
Interim (Temporary) $13,609,000 Near-term
Pipes to Developments $22,134,000 Near-term
SubTotal (Near-Term) $76,748,064
4 mgd NEWRF remaining assets needed in 2025, start in 2022 $104,038,936 Long-Term
5 mgd NERWTP remaining assets needed in 2028, start in 2025 $43,756,000 Long-Term
SubTotal (Long-Term) $147,794,936
Grand Total $224,543,000
Source:Collier County Water-Sewer District
ITEM 4
Plan of Finance — Collier County Water-Sewer District
October 11, 2018
As such, the District is in the process of identifying a funding strategy for both near-term
and longer-term improvements. Near-term projects are considered almost certain in
that the District knows they will require this funding. The longer-term improvements
may have to remain more flexible, as the timing of their need is dependent on a host of
variables, most important of which is the speed of building and development in those
areas.
Summary of Municipal Market Conditions
During 2018, the interest rate environment has seen a significant upward shift from the
historically low rates seen in the municipal market for the last several years. This is
primarily a result of a tightening credit environment and the desire from the Fed to
control inflationary risks by periodically increasing the Fed Funds Rate, which has
periodically increased by 25 basis points (0.25%) since 2015 to its current level of
2.25%. The pace of future increases will largely be dependent on the strength of the
economy and inflationary measures. While not directly correlated to the municipal
market, the Fed Funds rate is a policy tool that is largely viewed as a gauge for broader
interest rates such as US Treasuries, to which municipal rates are generally correlated.
Increases to the Fed Funds Rate has a direct impact on short-term yields, but not
necessarily long-term yields (10+ years), resulting in a gradual "flattening" of the yield
curve. The chart below and associated table show this effect on the municipal yield
curve over the last twelve months, with the short-end of the yield curve increasing
significantly (75-100 bps) and the longer-end with a more modest increase.
MMD AAA G.D. Yield Curve
3.5%
__� -....
f
2.5%
2.0% -' - -
a,
1.5%
1 year Ago
1.0% 1 Month Ago
usw --- •1 Week Ago
Current
MMD AAA G.D. Spot pates
Current 1W eek Ago 1M onth Ago iYearAgo
2-Year 2 i13 1 y7 1.75 1.92
5-Year 2 28 2 20 236 137
7-Year 244 236 226 1.69
10-Year 2b8 258 2A7 231
3 35 319 3.05 2 33
Source:Thomson Reuters
ITEM 4
Plan of Finance — Collier County Water-Sewer District
October 11, 2018
While interest rates have risen significantly over the course of the last twelve months,
we believe it is important to maintain perspective about the current interest rate
environment and its relevance in developing an appropriate plan of finance. The chart
below illustrates the range of municipal rates over the past ten years. As evidenced in
the chart and as described above, short-term rates are closer to their highs over this
timeframe, while long-term rates (10+ years) remain at or near their averages. This
would suggest that for municipal issuers there are still significant advantages to locking
in long-term rates, while maintaining perspective that, historically speaking, overall
borrowing rates remain attractive.
M M D Rates 0 verTin e (Fast 10 Yrs.)
MMD Range(over past 10 years(
Current MMD
50%
—Average MMD(over past 10 Years)
4.0%
N 30%
::: Ij
Op
0.0% -----
I 2 3 4 5 / IO 15 20 2S %t
Maturity
Preliminary Plan of Finance
Our recommendation for the District's financing plan would be to lock in the borrowing
rates for the known project costs. The District currently has senior debt service
obligations that extend to 2036, and can issue new bonds that "wrap" around that
existing debt service. This debt service structure would lock in rates along the longer
end of the yield curve and minimize the near-term debt service impact. The chart below
illustrates the proposed structure for the initial approximation of$77 million of known
costs.
Debt Service (Existing and Proposed)
25
g 20
15 liii
105
P
N 1 !.
N nN 4 O O O O O O O O O O O O O N N N N N N N N N N N N N N N N N N
II Existing Senior Existing Subordinate ■Proposed 2019 Senior
ITEM 4
Plan of Finance— Collier County Water-Sewer District
October 11, 2018
Furthermore, the20-year term length on the proposed 2019 issuance would amortize
the debt faster than a traditional 30-year bond issuance, while still maintaining capacity
to amortize the additional longer-term capital requirements to be issued at a future date.
It should also be noted that for purposes of this memorandum, we included $13 million
of projects that necessitate funding closer to 2021. Our reasoning is that projects
expected to be spent within three years of issuance were included in order to lock in the
borrowing costs for those amounts as well. Should that portion of the projects not
become necessary, the District would have the option of redirecting unspent bond
proceeds towards other projects, or defeasing outstanding bonds. Based on current
market conditions, we believe the County can lock in a borrowing rate at or below
4.00%.
For the longer-term capital investments that are less certain as to timing and amount,
we would not suggest issuing long-term bonds at this time. Rather, the District has
several funding alternatives once those requirements more fully materialize. Flexible
funding alternatives might include, but not limited to the following listed below. A
summary matrix is also provided on the following pages.
• Commercial Paper (CP) Program. Similar to the County's prior Commercial
Paper programs (general fund), this mechanism provides a funding source that
can be drawn upon as needed. The Program can be established on a stand-
alone basis or through the Florida Association of Counties. CP Programs require
a broker-dealer to remarket the paper in increments of 30-270 days, with the
interest rate variable upon each remarketing. In addition, a liquidity provider
(usually in the form of a letter of credit) is necessary to ensure that investors will
receive their principal if/when the paper can't be remarketed. This provides
flexible funding that can be drawn as dictated by the project schedule, and repaid
on relatively short notice.
• Line of Credit. A line of credit functions by making a set amount of capital
available to an issuer for an agreed-upon period of time. The term of a line of
credit is typically separated in two segments, the draw period and the repayment
period. The draw period typically ranges from 18 to 24 months, and the
repayment period usually requires payment within five years of the closing date.
So for example, if the draw period is 24 months the repayment period would be
36 months, for a total term of five years. Unutilized fees (amounts not drawn) are
generally lower than a Commercial Paper Program and fixed (e.g. 10 basis
points), while the interest rates on the drawn amounts are variable and pegged to
an index at the time the line is established. Prepayment is flexible in that it can
be made at any time and without penalty.
• Flexible Drawdown Bond Program. This Program functions in a similar manner
to the CP Program described above; however, in this case one investor (typically
a commercial bank) purchases a note at the time of each draw. Draws can be
flexible as dictated by the project need. There is a fee for maintaining the
ITEM 4
Plan of Finance — Collier County Water-Sewer District
October 11, 2018
program (the "undrawn fee," similar to the letter of credit fee in a CP program),
and the interest rate on drawn amounts is pegged to a specific variable rate
index at the outset of the program. Repayment terms are flexible and can be
made on short notice. While the program is a variable rate mode, there isn't the
risk of a failed remarketing like there would be in a CP Program.
• Delayed Draw Term Loan (DDTL). Pursuant to a DDTL agreement with a bank,
the District would lock in an interest rate reflective of the current market
environment, with advances funded on predetermined future date(s). On the
funding date(s), the District will make draw(s) on the DDTL for a qualified tax-
exempt use. Beyond costs of issuance, there are typically no commitment fees
during the undrawn period or an upfront fee. Prior to execution of the DDTL, the
term loan draw/repayment dates/amounts can be highly customized. Importantly,
after execution of the DDTL, any modification of draw/repayment schedule may
result in significant breakage penalties. Prepayment options can vary and are
negotiated at the outset.
• Forward Delivery Bonds. Forward Delivery Bonds are similar to a traditional
bond issuance. The District would issue the bond with an anticipated funding
date sometime in the future (ranging from 3-12 months). The interest rate is
fixed for the desired term of the financing (10-20-30 years) according to current
market conditions. A forward delivery spread, or premium, is added to the
normal borrowing cost in order to account for the forward nature of the bond.
The bonds can be sold to traditional investors through a negotiated public
offering, or some banks have been willing to purchase the bonds directly on a
forward basis. Typically, publicly-offered bonds allow the issuer to extend the
final maturity over a longer period (15+ years), while a direct bank purchase may
require that the final maturity is shorter.
• WIFIA Loan Program. The Water Infrastructure Finance and Innovation Act is a
relatively new federal loan program established for the benefit of eligible water
and wastewater infrastructure projects. As with any federal program, there are a
host of requirements related to eligible projects, including certain laws and
regulations. One important caveat is that depending on the project type, EPA
may impose limitations on the percentage of the project that can be funded with
the WIFIA loan. The benefits of a WIFIA program include low cost of capital,
flexible repayment terms, and that the interest rate is locked at closing, while
project draws can be made over time instead of all at once. If the District
determined that the project(s) fit the criteria, this could be something that is
revisited in the future. WIFIA is a competitive application process estimated to
require 9-12 months of lead time.
ITEM 4
Plan of Finance — Collier County Water-Sewer District
October 11, 2018
SHORT-TERM FUNDING ALTERNATIVES MATRIX
Flexible Drawdown Delayed Draw Forward Delivery VNFIALoan
Commercial Paper Line of Credit Program Term Loan Bonds Program
Draw period(up to) 5 years 3 years 4 years 1 year 1 year 3 years
Repayment Term(up
to) 5 years 5 years 30 years 30 years 30 years 35 years
None. None.
Maximum. As Maximum. As Maximum. Typically Predetermined Predetermined Varying. Can be
Funding Flexibility needed needed monthly,as needed funding schedule closing date drawn as needed
Provider and/or
Ancillary Letter of Credit,
Requirements Broker-Dealer Commercial Bank Broker-Dealer Underwriter Underwriter Federal,EPA
Index/Spread Index/Spread Fixed rate Fixed rate Fixed rate
Rate/Index Upon each established at established at established at established at established at
established remarketing date closing closing closing closing closing
Equal to letter of
Carrying Cost credit and
(undrawn) remarketing fee 10-30 basis points 10-30 basis points None None None
Varying based on —80%of LIBOR(1- —80%of LIBOR(1- Equivalent MMD Equivalent MMD US Treasury rate of
term(30-270 days). mo currently at mo at 2.27%)or rates plus forward rates plus forward similar maturity(avg
Variable Index Basis Average—0.75% 2.27%) SIFMA(1.56%) spread. spread. life)
Fixed Rate Basis N/A N/A N/A MMD Yield Curve MMD Yield Curve US Treasury Yield
Typical 5 or 10 year Typical 5 or 10 year
Prepayment Option Flexible Flexible Flexible par call par call Flexible
Lead Time(months,
approx) 3-6 3-6 3-6 3-6 3-6 9-12
In conclusion, the District would have several alternatives for funding the longer-term
capital needs. However it is relatively difficult to project which program would be best
suited until such time that the project amounts and timing are better understood. For
the near-term projects, we would advise that the District lock in the costs of funds as
quickly as possible, as those projects are unlikely to change in amount or timing. As a
result, the District will secure that portion of funding and have certainty around the
annual debt service obligations, allowing for additional long-term capital planning over
the next twelve months as the other projects potentially materialize. Furthermore, as
segments of the longer-term projects become more certain, the District would have the
flexibility to fund them on a periodic basis. This approach would serve to lock in costs of
funds through an "averaging" basis, whereby fixed interest rates can be locked in
periodically. If rates move up during that timeframe, the District will have routinely
locked rates along the way, and conversely if rates go lower the District will have
maintained flexibility in locking periodically.
We look forward to discussing the details of the plan of finance and flexible funding
options with your team.
ITEM 4
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Item 5
Office of Economicanchic Research
Local Government Infrastructure Surtax
Section 212.055(2),Florida Statutes
Summary:
The Local Government Infrastructure Surtax may be levied at the rate of 0.5 or 1 percent pursuant to an
ordinance enacted by a majority vote of the county's governing body and approved by voters in a countywide
referendum.Generally,the proceeds must be expended to finance,plan,and construct infrastructure;acquire
land for public recreation, conservation, or protection of natural resources; or finance the closure of local
government-owned solid waste landfills that have been closed or are required to be closed by order of the
Department of Environmental Protection (DEP). Additional spending authority exists for select counties.
During the 2018-19 local fiscal year,the 25 counties levying this surtax will realize an estimated$1.58 billion
in revenue. The 20 eligible counties not currently levying this surtax at the maximum rate will allow an
estimated$2.15 billion to go unrealized.
General Law Amendments:
Chapter 2018-118, L.O.F., (CS/HR 7087) amends the definition of infrastructure to clarify that public
facilities also includes facilities that are necessary to carry out governmental purposes, including, but not
limited to, fire stations, general governmental office buildings, and animal shelters. Additionally, the
legislation amends the definition of infrastructure to include instructional technology used solely in a school
district's classrooms. Instructional technology is defined as an interactive device that assists a teacher in
instructing a class or group of students.The hardware and software necessary to operate the interactive device
and support systems in which an interactive device may mount are also included as authorized expenditures.
These changes became effective on July 1,2018.
Authorization to Levy:
Local governments may levy this surtax at a rate of 0.5 or 1 percent pursuant to an ordinance enacted by a
majority of the members of the county's governing body and approved by the voters in a countywide
referendum. In lieu of action by the county's governing body,municipalities representing a majority of the
county's population may initiate the surtax through the adoption of uniform resolutions calling for a
countywide referendum on the issue. If the proposal to levy the surtax is approved by a majority of the
electors, the levy takes effect.
Additionally, the surtax may not be levied beyond the time established in the ordinance if the surtax was
levied pursuant to a referendum held before July 1, 1993. If the pre-July 1, 1993 ordinance did not limit the
period of the levy,the surtax may not be levied for more than 15 years.There is no state-mandated limit on
the length of levy for those surtax ordinances enacted after July 1, 1993.The levy may only be extended by
voter approval in a countywide referendum.This surtax is one of several surtaxes subject to a combined rate
limitation.A county cannot levy this surtax and the Small County Surtax,Indigent Care and Trauma Center
Surtax, and County Public Hospital Surtax in excess of a combined rate of 1 percent.
Counties Eligible to Levy:
All counties are eligible to levy the surtax.
Distribution of Proceeds:
The surtax proceeds are distributed to the county and its respective municipalities according to one of the
following procedures.
2018 Local Government Financial Information Handbook 179
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Item 5
Office of Economic and Demographic Research
1. An interlocal agreement approved by county's governing body and the governing bodies of the
municipalities representing a majority of the county's municipal population. This agreement may
include a school district with the consent of all governing bodies previously mentioned.
2. If there is no interlocal agreement,then the distribution will be based on the Local Government Half-
cent Sales Tax formulas provided ins. 218.62, F.S.
Authorized Uses of Proceeds:
The surtax proceeds and any accrued interest are expended by the school district, within the county and
municipalities within the county,or,in the case of a negotiated joint county agreement,within another county,
for any of the following purposes.
1. To finance, plan,and construct infrastructure.
2. To acquire any interest in land for public recreation,conservation,or protection of natural resources
or to prevent or satisfy private property rights claims resulting from limitations imposed by the
designation of an area of critical state concern.
3. To provide loans,grants,or rebates to residential or commercial property owners who make energy
efficiency improvements to their residential or commercial property,if a local government ordinance
authorizing such use is approved by referendum.
4. To finance the closure of county or municipal-owned solid waste landfills that have been closed or
are required to be closed by order of the DEP. Any use of the proceeds or interest for purposes of
landfill closures before July 1, 1993, is ratified.
The term energy efficiency improvement means any energy conservation and efficiency improvement that
reduces consumption through conservation or a more efficient use of electricity,natural gas,propane,or other
forms of energy on the property, including, but not limited to, air sealing; installation of insulation;
installation of energy-efficient heating,cooling,or ventilation systems;installation of solar panels;building
modifications to increase the use of daylight or shade;replacement of windows;installation of energy controls
or energy recovery systems;installation of electric vehicle charging equipment; installation of systems for
natural gas fuel as defined in s.206.9951,F.S; and installation of efficient lighting equipment.
The surtax proceeds and any interest may not be used to fund the operational expenses of infrastructure,
except that a county that has a population of fewer than 75,000 that is required to close a landfill may use the
proceeds or interest for long-term maintenance costs associated with landfill closure.Counties,as defined ins.
125.011, F.S.,(i.e., Miami-Dade County)and charter counties may use the proceeds or interest to retire or
service indebtedness incurred for bonds issued before July 1, 1987,for infrastructure purposes,and for bonds
subsequently issued to refund such bonds. Any use of the proceeds or interest for purposes of retiring or
servicing indebtedness incurred for refunding bonds before July 1, 1999,is ratified.
As it relates to the authorized uses of the surtax proceeds and any accrued interest,the term infrastructure has
the following meanings.
1. Any fixed capital expenditure or fixed capital outlay associated with the construction,reconstruction,
or improvement of public facilities that have a life expectancy of 5 or more years,any related land
acquisition,land improvement,design,and engineering costs,and all,other professional and related
costs required to bring the public facilities into service. For this purpose,the term public facilities
180 2018 Local Government Financial Information Handbook
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Office of Economic and Demographic Research
means facilities as defined in ss. 163.3164(39),` 163.3221(13),2 or 189.012(5),'F.S., and includes
facilities that are necessary to carry out governmental purposes, including, but not limited to, fire
stations, general governmental office buildings, and animal shelters,regardless of whether the
facilities are owned by the local taxing authority or another governmental entity.
2. A fire department vehicle, emergency medical services vehicle, sheriff's office vehicle, police
department vehicle, or any other vehicle, and the equipment necessary to outfit the vehicle for its
official use or equipment that has a life expectancy of at least 5 years.
3. Any expenditure for the construction, lease, maintenance, or provision of utilities or security for
those court facilities as defined in s. 29.008,F.S.
4. Any fixed capital expenditure or fixed capital outlay associated with the improvement of private
facilities that have a life expectancy of 5 or more years and that the owner agrees to make available
for use on a temporary basis as needed by a local government as a public emergency shelter or
staging area for emergency response equipment during an emergency officially declared by the state
or by the local government under s.252.38.F.S.These private facility improvements are limited to
those necessary to comply with current standards for public emergency evacuation shelters. The
private facility's owner must enter into a written contract with the local government providing the
improvement funding to make the private facility available to the public for purposes of emergency
shelter at no cost to the local government for a minimum of 10 years after the completion of the
improvement with the provision that the obligation will transfer to any subsequent owner until the
end of the minimum period.
5. Any land-acquisition expenditure for a residential housing project in which at least 30 percent of the
units are affordable to individuals or families whose total annual household income does not exceed
120 percent of the area median income adjusted for household size, if the land is owned by a local
government or by a special district that enters into a written agreement with the local government to
provide such housing.The local government or special district may enter into a ground lease with a
public or private person or entity for nominal or other consideration for the construction of the
residential housing project on land acquired pursuant to this provision.
6. Instructional technology used solely in a school district's classrooms.Pursuant to this provision,the
term instructional technology means an interactive device that assists a teacher in instructing a class
or a group of students and includes the necessary hardware and software to operate the interactive
device.The term also includes support systems in which an interactive device may mount and is not
required to be affixed to the facilities.
Any local government infrastructure surtax imposed or extended after July 1, 1998, may allocate up to 15
percent of the surtax proceeds for deposit within a county trust fund created for the purpose of funding
economic development projects having a general public purpose of improving local economies,including the
funding of operational costs and incentives related to economic development. The referendum ballot
statement must indicate the intention to make the allocation.School districts,counties,and municipalities may
1. Section 163.3164(39),F.S.,defines the term public facilities as major capital improvements,including transportation,sanitary
sewer,solid waste,drainage,potable water,educational,parks and recreational facilities.
2. Section 163.3221(13).F.S.,which defines the term public facilities as major capital improvements,including,but not limited to,
transportation, sanitary sewer, solid waste,drainage,potable water,educational, parks and recreational,and health systems and
facilities.
3. Section 189.012(5),F.S.,which defines the term public facilities as major capital improvements,including,but not limited to,
transportation facilities, sanitary sewer facilities, solid waste facilities, water management and control facilities, potable water
facilities,alternative water systems,educational facilities,parks and recreational facilities,health systems and facilities,and,except
for spoil disposal by those ports listed in s.311.09(1),F.S.,spoil disposal sites for maintenance dredging in waters of the state.
2018 Local Government Financial Information Handbook 181
Item 5
Office o.tEconotnic and Demographic Research
pledge the surtax proceeds for the purpose of servicing new bonded indebtedness.Local governments may
use the services of the Division of Bond Finance of the State Board of Administration to issue bonds,and
counties and municipalities may join together for the issuance of bonds.
A county with a total population of 50,000 or less on April 1, 1992,or any county designated as an area of
critical state concern that imposed the surtax before July 1, 1992,may use the proceeds and accrued interest
of the surtax for any public purpose if the county satisfies all of the following criteria.
1. The debt service obligations for any year are met.
2. The county's comprehensive plan has been determined to be in compliance with part II of ch. 163,
F.S.
3. The county has adopted an amendment to the surtax ordinance pursuant to the procedure provided in
s. 125.66,F.S., authorizing additional uses of the proceeds and accrued interest.
Those counties designated as an area of critical state concern that qualify to use the surtax for any public
purpose may use only up to 10 percent of the surtax proceeds for any public purpose other than for authorized
infrastructure purposes. A county that was designated as an area of critical state concern for at least 20
consecutive years prior to removal of the designation, and that qualified to use the surtax for any public
purpose at the time of the designation's removal,may continue to use up to 10 percent of the surtax proceeds
for any public purpose other than for infrastructure purposes for 20 years following the designation's removal.
After the 20 year period expires,a county may continue to use up to 10 percent of the surtax proceeds for any
public purpose other than for infrastructure if the county adopts an ordinance providing for such continued
use of the surtax proceeds.
Likewise,a municipality located within such a county may not use the proceeds and accrued interest for any
purpose other than an authorized infrastructure purpose unless the municipality's comprehensive plan has
been determined to be in compliance with part II of ch. 163, F.S., and the municipality has adopted an
amendment to its surtax ordinance or resolution pursuant to the procedure provided in s. 166.041, F.S.,
authorizing additional uses of the proceeds and accrued interest.Such municipality may expend the proceeds
and accrued interest for any public purpose authorized in the amendment.
Despite any other use restrictions to the contrary,a county,having a population greater than 75,000 in which
the taxable value of real property is less than 60 percent of the just value of real property for ad valorem tax
purposes for the tax year in which the referendum is placed before voters,and the municipalities within such a
county may use the surtax proceeds and accrued interest for operation and maintenance of parks and
recreation programs and facilities established with the proceeds throughout the duration of the levy or while
accrued interest earnings are available for such use, whichever period is longer.
Attorney General Opinions:
Florida's Attorney General has issued the following legal opinions relevant to this revenue source.
Opinion# Subject
2016-02 Infrastructure surtax,emergency generators
2012-19 Infrastructure surtax,beach erosion projects/studies
2009-28 Counties, use of infrastructure surtax monies
2007-51 Municipalities,use of infrastructure surtax monies
2003-17 Infrastructure surtax use to purchase computer system
182 2018 Local Government Financial Information Handbook
Item 5
Office o/`Economic and Demographic Research
2001-45 Local government infrastructure surtax,health care
2000-06 Expenditure of infrastructure surtax revenues
99-24 Capital improvements to property leased by county
95-73 Counties,infrastructure surtax used to fund engineers
95-71 Tourist development tax/infrastructure surtax
94-79 Uses of local government infrastructure surtax
94-46 Vehicles purchased with proceeds of sales surtax
93-92 Local government infrastructure surtax,purchase of vehicle
92-81 Discretionary local option infrastructure sales surtax
92-08 Local government infrastructure surtax proceeds
90-96 Infrastructure surtax proceeds,payment of debt
88-59 Use of discretionary surtax for construction
The full texts of these opinions are available via a searchable on-line database.4 Local government officials
seeking more clarification should review the opinions in their entirety.The reader should keep the date of the
opinion in mind when reviewing its relevance to current law or any interpretations that have been articulated
in Florida case law.
4. http;//myfloridalegal.com/ago.nsf/Opinions
2018 Local Government Financial Information Handbook 183
Item 6
Collier county's
INVESTMENT POLICY
Approved: 11
Page 1
Item 6 N
•
Table of Contents
Page
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
' Item 6
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.
11. 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.
0l 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 otetute, as amended from time-to-time, and this Policy, FloridaStatute 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 PoUoy, and to administer the Policy on
behalf of the Board of County Commissioners. The Clerk shall be responsible for monitoring internal
nontnn|n, 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
Item 6
,
C
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
prudenma, discretion and intelligence exercise in the management of their own afaino, not for npeuu|ation,
but for inventment, 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 chnngea, 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 pnognam, 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 anmaterial 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 portfo|io, 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 prngnam, 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, imounra, 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
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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
Per Issuer Ma
Sector�, � � Maximum� ` 0��� Minimum' g�Reqwh�me,t` /
�W� - ^� / ~ Maturity
U.S.
�a�� | 100%
5Years
GNMA 40% (5 Years
100% N8A — '�|�3
GovernmentO�erU ��
for
Guaranteed(e.g.AID, 10% GNMA)
GTC)
Federal Agency/GSE:
FNMA, FHLMC, FHLB, 80% 40%' N/A 5 Years
FFCB~
Highest ST or Three HighesLT Rating
Corporates 25% 5% Categories 5 Years
K\'1/P-1.A'A\3orequivalent)
Highest ST or Three HighesLT Rating
Municipals 25% 5% Categories 5 Years
(GP'1/M|G1.A-/A3.urequivalent)
Qe z �Yoem
Agency-- g- 25& 40N/A
Backed Securities(MBS) Avg. Life3
Non-Negotiable
30% N/A N/A 1Yeor
Certificate of Deposits
Depository Bank Account 10096 N/A N/A N/A
Commercial Paper(CP) 25% 5% Highest ST Rating Category
270 Days
(p+1/P-1.orequivalent)
Counterparty(or if the counterparty is rated by
an NRSRO,then the counte 'a parent)must
Repurchase Agreements 2D96 1O96 be rated in the HighestST Rating Category 90 Days
(Repo nrRP) (A'1/P'1. orequivalent)
If the counterparty is a Federal Reserve Bank,no
rating is required
Money Market Funds 50% �g& HighestFund Rating by NRSROawho m�the N/A
(MMFe) fund(AAAm/Aaa-mf,or equivalent)
Fixed-Income
20Y6 10% N/A N/A
Mutual Funds
Intergovernmental Pools Highest Fund Quality and Volatility Rating
50% 25% Categories by all NRSROs who rate the LGIP, N/A
(LG|po)
(AAAm/AAAf, Si,or equivalent)
Florida Local Government |
Highest Fund Rating by all NRSROs who rate the Funds Trust Funds 5096 N/A N/A
fund(A8Am/Aae-mf,or equivalent)
("Florida Prime")
Notes:
Rating by at least one SEC-registered Nationally Recognized Statistical Rating Organization rhIRSRO"), unless otherwise noted,
GT=Shnrt-term; LT=Long'tern.
^MaximumexpoeurahoenyoneFedeno|e8enny. indudingUheoomh|nedho|d|ngoofAgonoydebtondAgenoyMBS. is40%.
»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).
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Item 6
. . l e
1) U.S. Treasury & Government Guaranteed - U.S. Treasury obligoUone, 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 ob|igsdionn, 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 ncteo, 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 tsx*xempt, 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 ShtiMortgage-backed residential,
multi-family or commercial moogagem, that are issued or fully guaranteed as to principal and interest
by a U.G. Federal agency or governmensponsored en0erprise, including but not limifed to pass-
throughs,collateralized mortgage obligations(CMOs)and REMICs.
aaa'thnaugha.00||abaua|izedmortgogeob|igadqns(CMDo)ondREK0|Cn.
6) Non-Negotiable Certificate of Deposits - Non-negotiable interest bearing time certificates of
depnob, 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 otate, 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.G. dollar denominated commercial paper issued or guaranteed by a
domestic corporation, company, financial inmtitudun, 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 resa|e, 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 custodiqn
under a written custodial agreement and may be of deliverable or tn-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 direcobligations 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 102Y4 (or
1009& if the counterparty is a Federal Reserve Bank) of the purchase price plus current
accrued price differential at the close of each business day.
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� Item 6
11 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 inveoting, 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 inveohng, 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 inveoting, 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. Ca||ob|e, step-up oaUab}e, ce||ed, pna-nafunded, 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 ft meets the ratings requirements for the sector
d. Zero coupon issues and othpm, excluding agency mortgage-backed Interest-only structures
(I/0s)
e. Treasury TIPS
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Item 6
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/0s)
d. Inverse or leveraged floating-rate and variable-rate instruments
e. Curs:nny, equity, index and event-linked notes (e.g. range notea), 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 reiotration
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, cnmmodihea, 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 reserveu, construction fundo, and
other non-operating funds ("core funds") shall have a term appropriate to the need for funds and in
accordance with debt novenantm, 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.
Xl. 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 850.000.000 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. (F|NRy\), the registration (where
applicable) or other securities registration,
• Ih80O6
4. proof of state regkstroUun, when required,
5. certification of haviread and agreeing to abide by the Investment Policy and depository
contracts in place in Collier County, and
G. a copy of the firm's established internaoversight and review guidelines controlling business
with governmentaentities.
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 C|erk, details as to the responsibilities of each
perty, method of notification of security purchases, sa|mo, de|ivery, procedures related to repurchase
agreements and wire transfers, safekeeping and transaction coato, 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 pnovided, in writing, to the custodianNo withdrawal of
necunbiee, in whole or in part, shall be made from oah*keeping, 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 mppnophote, in hand at the conclusion of the
transaction. Securities held as collateral shall be held free and clear of any liens.
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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,
S
delegation of authority to subordinate staff members,
6. written confirmation of telephone transactions,
7. supervisory tl of employee actions,
8. identification and minimization of authorized investment officials, and
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' ' Item 6
9. documentation of decisions and transactions.
XVI. CONTINUING EDUCATION
Each individual responsible for making investment decisions, including the C|erk, 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
Annuo|, 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 pn|inies, 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
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Item 6
I 1 r
Attachment A
Glossary of Cash and Investment Manaqement Terms
The following is a glossary of key investing hannm, 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 neceivab|eo, 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 'bulIet" 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 biUion, 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.
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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 coah-f|nwm, 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 ayatemo, 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 ^bn»ker" 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 meouriUes, 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 nb|igation, 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 (quarter|y, 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 securitiao, 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
Item 6
and principal in a more predictable manner. A single pool of mortgages can be carved up into numerous
tranches each with its own paymenand 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 mecuhty, expressed as a percentage of the bond's face
value.
Current Yield. Annual rate of return ono bond based on its price. Calculated as (coupon rate / price), but
does j accurately reflect a bond's true yield level.
Custody. Safekeeping services offered by a bank, financial inmtdution, or trust nompany, referred to as the
'custodian." Service normally includes the holding and reporting of the customer's oeuuhdem, the collection
and disbursement of income, securities settlement,and market values.
Dealer. A dealer, as opposed to a broker, acts as a pdnoipol 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 rotas,
foreign exchange rates, equities, or commodities) For hedging puqpoaeo, common derivatives are opdons,
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, |iquid, non-callable securities that generally have a 2 or 3 year
original maturity. New issues of Designated Bonds are Si 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 iooue, 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.
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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, motuhUeo, industhme, 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 omcuhb/portfoUo, 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 of5ces, and the Washington O.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 banko, 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.G. 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 GNW1A, FNK8A, FHLK8C, FHLB, FFCB, SLMA, and T\64.
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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
nntes, agency notes and callable agency securities. FFCB debt is not an obligation of, nor is it guaranteed
by the U.S. govornment, 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 �
of current reserve naquinaments, 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) oyotem, consisting of wholesale banks (currently twelve district banks) owned by their
member banks, which provides correspondent banking services and credit to various financial innhtudona,
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 modgeQeo, 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' governmant, 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. govomment, although it is considered to have minimal credit risk due to its
importance to the U.G. 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 |endens, 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.
finanniol system and housing market. Frequent issuer of discount noteu, 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 Bonko, their bnanches, 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.
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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 agenuy, 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 munioipm|ity, 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 Sei (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 changoo, 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 ooquireo, packages, and resells mortgages and
mortgage purchase commitments in the form of mortga 'baohed 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.G. govennmant, 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 GLGS.''
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 studenta, honnem, 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 napnid, 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:
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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.
G. 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 peroon. 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: oontno|o, security pmvimione, 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 pndfo|ioo, 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
cnmpmnieu, such as mutual fwndu, are regulated in the areas of advartioing, 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'e, 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. /\|mo, a relative
measure of cash and near-cash items in a portfolio of assets. AddidonoUy, 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,
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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 maturideo, 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 (biUn, 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
instrumento, such as: U.G. Treasury bills, commercial paper, bankers' mcoeptancon, and repurchase
agreements. Money market mutual funds are registered with the SEC under the Investment Company Act of
1940 and are subjecto "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 s1.00. 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 institutiVno, such as savings and |oans, commercial bankm, or
mortgage companies, to finance the borrowers purchase of a home or other real estate. The majority of
MBS are issued and/or guaranteed by GNYNA. 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 unrt 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(NAy).
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 oecuritieo, cash, and any accrued eorningm, then
subtracting the total assets from the fund's |iabi|iheo, 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.)
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[(Total assets) - of shares outstaning)
NRSRO. A 'Nationally Recognized Statistical Rating Organization" (NRSRO) is 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 Phne."
Open Market Operations. A Federal Reserve monetary policy tactic ntai|i 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 A4+/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 tronuaction, 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,
prudwnne, and di|igence, under the circumstances then prevai/ing, 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
m
a higher standard than simple prudence.
Prudent Investor Standard. Standard that requires that when investing, reinvesting, purchasing, acquiring,
exchanging, neUing, or managing public funds, a trustee shall act with care, skill, prudenoe, and diligence
under the circumstances then pnavai|ing, inc|uding, 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.
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lo 1 r2. Has its principal place of businesin this state or has a branch office in this state which is
authorized under the laws of this state or of the United Stateto 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 260, F.G.
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 obliU
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-yen,
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 effe±, 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.
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Safekeeping. Service offered for a fee, usually by financial instituhona, 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
Agreament, 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 indentune, 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 invmstmente,
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 nadone, 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
bpndm, 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 iooued, but
generates enhanced awareness and liquidity in the marketplace through increased issue size and
secondary market volume.
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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.G. Treasury of up to$150 million. Frequent issuer of discount nobam, agency noteo, and callable
agency securities.
Total Return. Investment performance measured over a period of time that includes ooupon intenast,
interest on intenaot, and both realized and unrealized gains or losses. Total return ino|udeo, therefovo, 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 2G-wemhT-8iUn.
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.G. 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(Lwemem). The d�enencwbetween the market value ofaninvestment and �sbook 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., doi|y, weekly, month|y, 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. Tneaouheu, although yield curves exist for
Federal Agencies and various credit quality corporates as well. Yield curves can be positively sloped
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Item 6 I.
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(normal) where longer-term inventments have higher yields, or "inverted" (uncommon) where longer-term
investments have lower yields than shorteones.
•
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 inwasLmert, 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
Cume.''"Yield to Call,"and "Yield to Maturity."
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Attachment B
Investment Pool/Fund Questionnaire
1. A description of eligible investment oeourbiau, 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 (inciuding 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.
G. Are roo*mem, 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?
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