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Agenda 12/09/2014 Item # 11C 12/9/2014 11 .C. EXECUTIVE SUMMARY Recommendation (1) to approve a Resolution adopting a revised Investment Policy, which provides for best practices as directed by the Board and recommended by Public Financial Management Group (PFM), the County's contractual Financial Advisor (FA), and (2) direct the County Attorney to advertise and bring back to a future public hearing an ordinance repealing Ordinance 87-65. OBJECTIVE: To revise the Investment Policy in accordance with best practices and repeal Ordinance 87-65. CONSIDERATIONS: The Board of County Commissioners on October 14, 2014, Item 11(C) directed staff to prepare final modifications to the County's investment policy in accordance with best practice recommendations provided by PFM and to bring back suggested revisions to Ordinance 87-65 which essentially provides for implementation and management of the policy by the Clerk. The Board also discussed and requested recommendations on achieving optimal investment returns; an assessment on current investment procedures and internal controls; proper use of investment audits and any suggested alterations to current reporting documents which are posted monthly on line through the Clerk's office. Attached for Board review and action is the revised investment policy which is presented in the edited format and final version. As part of this updating of the County's Investment Policy, for the reasons set forth in the Legal Considerations, the County Attorney recommends the repeal of Ordinance 87-65. Regarding investment performance, the Clerk is responsible for investment practices in accordance with the investment policy. It is not appropriate for PFM to give specific investment advice because they are not under contract as the County's investment advisor. That said, the revised investment platform contained within the policy provides an opportunity for achieving returns in line with or exceeding the performance benchmarks within the policy. The following table and related graph provides information on past monthly investment returns compared with the new performance benchmarks contained within the policy. Packet Page -464- 12/9/2014 11.C. Collier County, Florida Bank of America 1-3 Year Month Pooled Weighted U.S.Treasury Note Index Average Yield Effective Yield October 2012 0.44% 0.29% November 2012 0.46% 0.27% December 2012 0.39% 0.26% January 2013 0.42% 0.27% February 2013 0.44% 0.25% March 2013 0.43% 0.25% April 2013 0.43% 0.22% May 2013 0.46% 0.31% June 2013 0.43% 0.37% July 2013 0.43% 0.32% August 2013 0.44% 0.41% September 2013 0.44% 0.33% October 2013 0.43% 0.32% November 2013 0.44% 0.31% December 2013 0.43% 0.40% January 2014 0.50% 0.36% February 2014 0.51% 0.35% March 2014 0.51% 0.44% April 2014 0.52% 0.42% May 2014 0.50% 0.39% June 2014 0.53% 0.45% July 2014 0.55% 0.53% August 2014 0.56% 0.51% September 2014 0.54% 0.59% October 2014 0.55% 0.51% Packet Page-465- 12/9/2014 11 .C. Collier County Weighted Average Yield 0.70% VS- 1-3 Treasury Yield Index 0.60% 0.50% 41 j . s � 0.40% 0.30% 0.20% 0.10% 0.00% N N N m m m m m m rn rn m m rn m C 01 e7 d cr .-1 e•1 .-1 e-i .-i e1 e-1 '-I e-1 '-1 e•4 e-i .--I c-I .-i '-I e-I e1 .-1 a--I O O O O O O O O O O O O O O O O O O O O 00 O O O C N N N C V N N N N N I N I N N N N N N N N N N N N N N N v o v ^ a Q cc c�i D o a `6 Q � °' o z ° —,�-- oiliertou t'WtcrcAJ '.Yield z ° =- -1-3`Treasury Yid. Index' `^ In addition to an investment policy, state statutes also require a policy and procedures manual be developed to manage and implement investment practices. The Clerk's office is in the process of revising their treasury management and investment policies and procedures anticipating approval of the investment policy revisions. To assist the Clerk in this process, a tutorial of certain recommended policy and procedure areas has been provided by PFM. These are attached for Board information. The Clerk of Courts is also considering revisions to the investment reports which appear on line under the Clerk's web site and which the Board receives quarterly as part of the BCC agenda. Representatives from the Clerk's office and PFM will be in attendance on Tuesday December 9, 2014 to address questions regarding the revised policy provisions and/or any part of the investment process. FISCAL IMPACT: The fee for this consulting engagement to date is $2,500. GROWTH MANAGEMENT IMPACT: None LEGAL CONSIDERATIONS: This item has been reviewed by the County Attorney. Ordinance 87-65 on its face was adopted pursuant to Florida Statutes Sec. 125.31. That Packet Page-466- 12/9/2014 11 .C. statute concerned the investment of surplus public funds. In 1995 the Florida Legislature adopted Florida Statutes Sec. 218.415, which required a local government investment policy. In 2000 the Legislature substantially amended Florida Statutes Sec. 218.415, making it far more comprehensive than Florida Statutes Sec. 125.31, while simultaneously repealing Florida Statutes Sec. 125.31. With the repeal of the statute underlying Ordinance 87-65, and the expansiveness of Florida Statutes Sec. 218.415, Ordinance 87-65 became unnecessary and arguably both preempted by and in part in conflict with the revised statute. The County's proposed revised investment policy designates the Clerk as the day-to-day administrator of the County's Investment Policy, which was the underlying purpose of Ordinance 87-65. Accordingly,it is recommended that as part of this updating process Ordinance 87-65 be repealed and replaced with the new Investment Policy. With that noted, this item is approved as to form and legality, and requires majority support for approval. -JAK RECOMMENDATION: That the resolution providing for amendments to the current investment policy be approved and that the Board direct the County Attorney to advertise and bring back to a future public hearing an ordinance repealing Ordinance 87-65. Prepared by: Mark Isackson, Director of Corporate Finance, Office of Management and Budget Packet Page -467- 12/9/2014 11 .C. COLLIER COUNTY Board of County Commissioners Item Number: 11.11.C. Item Summary: Recommendation (1)to approve a Resolution adopting a revised Investment Policy, which provides for best practices as directed by the Board and recommended by Public Financial Management Group (PFM), the County's contractual Financial Advisor (FA), and (2) direct the County attorney to advertise and bring back to a future public hearing an ordinance repealing Ordinance 87-65. (Mark Isackson, Corporate Financial and Management Services Director) Meeting Date: 12/9/2014 Prepared By Name: Valerie Fleming Title: Operations Coordinator, Office of Management&Budget 12/3/2014 9:34:11 AM Submitted by Title: Operations Coordinator, Office of Management&Budget Name: Valerie Fleming 12/3/2014 9:34:12 AM Approved By Name: IsacksonMark Title: Director-Corp Financial and Mngmt Svs, Office of Management&Budget Date: 12/3/2014 11:05:33 AM Name: KlatzkowJeff Title: County Attorney, Date: 12/3/2014 2:13:58 PM Name: OchsLeo Title: County Manager, County Managers Office Date: 12/3/2014 2:42:58 PM Packet Page -468- 12/9/2014 11.C. RESOLUTION NO.2014- A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS OF COLLIER COUNTY, FLORIDA, ADOPTING AN AMENDED INVESTMENT POLICY. WHEREAS, Florida Statute Sec. 218.415 requires all local governments to adopt a written investment plan consistent with the requirements of that statute;and WHEREAS, the Board adopted Resolution No. 87-65 on October 13, 1987 which provided for and approved and adopted an Investment Policy which has been in effect and subsequently amended from time to time; and WHEREAS, the Board of County Commissioners and the Clerk have mutually agreed that it is appropriate and in the best interests of Collier County to revise its Investment Policy to provide for current best practices and to better enable the Clerk to the Board to perform his role under Florida Statute 28.33. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF COLLIER COUNTY, FLORIDA, that The Investment Policy attached hereto as Exhibit"A" is hereby approved and adopted. THIS RESOLUTION ADOPTED after motion, second and majority vote favoring same, this 9th day of December, 2014. ATTEST: BOARD OF COUNTY COMMISSIONERS DWIGHT E. BROCK, CLERK COLLIER COUNTY, FLORIDA By: By: , Deputy Clerk TOM HENNING, CHAIRMAN Approved as to form and legality: Jeffrey A. Klatzkow, County Attorney 1 Packet Page-469- 12/9/2014 11 .C. Collier County's INVESTMENT POLICY Approved: Page 1 Packet Page-470- 12/9/2014 11.C. Table of Contents Page I. SCOPE 3 II. POLICY 3 III. INVESTMENT OBJECTIVES 3 IV. AUTHORITY 3 V. PERFORMANCE MEASURES 3 VI. PRUDENCE AND ETHICAL STANDARDS 4 VII. ETHICS AND CONFLICTS OF INTEREST 4 VIII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSTION 4 IX. MATURITY AND LIQUIDITY REQUIREMENTS 8 X. RISK AND DIVERSIFICATION 8 XI. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 8 XI I. 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 XVII I. INVESTMENT POLICY ADOPTION 11 ATTACHMENT A: Glossary of Cash and Investment Management Terms ATTACHMENT B: Investment Pool/Fund Questionnaire Page 2 Packet Page-471- 12/9/2014 11 .C. Collier County, Florida Investment Policy L SCOPE In accordance with Section 218.415, Florida Statutes, this investment policy applies to all financial assets, of the Board of County Commissioners with the exception of Pension Funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Funds held by state agencies (e.g., Department of Revenue)are not subject to the provisions of this policy. IL POLICY The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of Collier County Board of County Commissioners (hereinafter "Board"). These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices. Ill. INVESTMENT OBJECTIVES Primary Objectives: 1. Preservation of capital and protection of investment principal. 2. Match assets to liabilities by maintaining sufficient liquidity to meet reasonably anticipated operating and capital requirements. Secondary Objectives: Return on Investment - The investment portfolio shall be designed with the objective of attaining a market rate of return, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Despite this, the County may trade to recognize a loss from time to time to achieve a perceived relative value based on its potential to enhance the return of the portfolio. IV. AUTHORITY This Investment Policy is adopted pursuant to Florida Statute Section 218.415. Should there be any conflict between this statute, as amended from time-to-time, and this Policy, Florida Statute Section 218.415 shall control. This Policy specifically authorizes the Collier County Clerk to maintain an Investment Procedures and Internal Controls Manual based upon and consistent with this Policy, and to administer the Policy on behalf of the Board of County Commissioners. The Clerk shall be responsible for monitoring internal controls, administrative controls, and to regulate the activities of staff involved with the investment program. V. PERFORMANCE MEASURES In order to assist in the evaluation of the portfolio's performance, the Clerk will use performance benchmarks. The use of benchmarks will allow the Clerk and Board to measure the returns against other investors in the same markets. A. Investment performance of funds designated as short-term funds and other funds that must maintain a high degree of liquidity will be compared to the return of the S&P Rated GIP Index Government 30-Day Gross of Fees Yield. Page 3 Packet Page-472- 12/9/2014 11 .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 prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the Clerk any material financial interests in financial institutions that conduct business within this jurisdiction and they shall further disclose any material personal financial/investment positions that could be related to the performance of the portfolio. Employees and officers shall subordinate their personal investment transactions to those transactions made in the portfolio, particularly with regard to the time of purchase and sales. Employees shall also disclose any gifts or entertainment received as a result of their employment in regard to the investments of Collier County. Bond swaps are appropriate when undertaken in conformity with the prudent person test and overall portfolio objectives in order to (a) increase yield to maturity without affecting the asset liability match; (b) reduce maturity while maintaining or increasing the yield to maturity or (c) increase portfolio quality without affecting the asset liability match. The County should only sell securities at a loss if undertaken in connection with prudent portfolio management. VII. ETHICS AND CONFLICTS OF INTEREST Employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Also, employees involved in the investment process shall disclose any financial interests in financial institutions that conduct business with the Board or Clerk. VIII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION Investments should be made subject to the cash flow needs and such cash flows are subject to revisions as market conditions and the Board's needs change. However, when the invested funds are needed in whole or in part for the purpose originally intended or for more optimal investments, the Clerk may sell the investment at the then-prevailing market price. The following are the guidelines for investments and limits on security types, issuers, and maturities as established by the Board. The Clerk shall have the option to further restrict investment percentages from time to time based on market conditions. The percentage allocation requirements for investment types and Page 4 Packet Page -473- 12/9/2014 11 .C. issuers are calculated based on the original cost of each investment, at the time of purchase. Investments not listed in this policy are prohibited. Permitted Investments Sector Per Issuer Maximum Sector Maximum Maximum Minimum Ratings Requirement' Maturity (%) (%) U.S.Treasury 100% 5 Years ° (5 Years GNMA 100% 40/° N/A avg. life3 Other U.S. Government for Guaranteed(e.g.AID, 10% GNMA) GTC) Federal Agency/GSE: FNMA, FHLMC, FHLB, 80% 40%2 N/A 5 Years FFCB* Highest ST or Three Highest LT Rating Corporates 25% 5% Categories 5 Years (A-1/P-1,A-/A3 or equivalent) Highest ST or Three Highest LT Rating Municipals 25% 5% Categories 5 Years (SP-1/MIG 1,A-/A3,or equivalent) Agency Mortgage- 5 Years 25% 40%2 N/A 3 Backed Securities(MBS) Avg. Life Non Negotiable 30% N/A N/A 1 Year Certificate of Deposits Depository Bank Account 100% N/A N/A N/A Commercial Paper(CP) 25% 5% Highest ST Rating Category 270 Days (A-1/P-1,or equivalent) Counterparty(or if the counterparty is not rated by an NRSRO, then the counterparty's parent) must Repurchase Agreements ° ° be rated in the Highest ST Rating Category 90 Days (Repo or RP) 20/° 10/° (A-1/P-1,or equivalent) y If the counterparty is a Federal Reserve Bank, no rating is required Money Market Funds 50% 25% Highest Fund Rating by all NRSROs who rate the N/A (MMFs) fund(AAAm/Aaa-mf,or equivalent) Fixed-Income 20% 10% N/A N/A Mutual Funds Intergovernmental Pools ° ° Highest Fund Quality and Volatility Rating (LGIPs) 50% 25% Categories by all NRSROs who rate the LGIP, N/A (AAAm/AAAf, S1,or equivalent) Florida Local Government Highest Fund Rating by all NRSROs who rate the Surplus Funds Trust Funds 50% N/A N/A fund (AAAm/Aaa-mf,or equivalent) ("Florida Prime") Notes: ' Rating by at least one SEC-registered Nationally Recognized Statistical Rating Organization ("NRSRO"), unless otherwise noted. ST=Short-term; LT=Long-term. 2 Maximum exposure to any one Federal agency, including the combined holdings of Agency debt and Agency MBS, is 40%. 3 The maturity limit for MBS and ABS is based on the expected average life at time of settlement, measured using Bloomberg or other industry standard methods. Federal National Mortgage Association (FNMA); Federal Home Loan Mortgage Corporation(FHLMC); Federal Home Loan Bank or its District banks(FHLB); Federal Farm Credit Bank(FFCB). Page 5 Packet Page-474- 12/9/2014 11 .C. 1) U.S. Treasury & Government Guaranteed - U.S. Treasury obligations, and obligations the principal and interest of which are backed or guaranteed by the full faith and credit of the U.S. Government. 2) Federal Agency/GSE - Debt obligations, participations or other instruments issued or fully guaranteed by any U.S. Federal agency, instrumentality or government-sponsored enterprise (GSE). 3) Corporates — U.S. dollar denominated corporate notes, bonds or other debt obligations issued or guaranteed by a domestic corporation, financial institution, non-profit, or other entity. 4) Municipals — Obligations, including both taxable and tax-exempt, issued or guaranteed by any State, territory or possession of the United States, political subdivision, public corporation, authority, agency board, instrumentality or other unit of local government of any State or territory. 5) Agency Mortgage Backed Securities - Mortgage-backed securities (MBS), backed by residential, multi-family or commercial mortgages, that are issued or fully guaranteed as to principal and interest by a U.S. Federal agency or government sponsored enterprise, including but not limited to pass- throughs, collateralized mortgage obligations(CMOs) and REMICs. 6) Non-Negotiable Certificate of Deposits - Non-negotiable interest bearing time certificates of deposit, or savings accounts in banks organized under the laws of this state or in national banks organized under the laws of the United States and doing business in this state, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Chapter 280, Florida Statutes. 7) Depository Bank Account - Now accounts in banks organized under the laws of this state or in national banks organized under the laws of the United States and doing business in this state, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Chapter 280, Florida Statutes. 8) Commercial Paper — U.S. dollar denominated commercial paper issued or guaranteed by a domestic corporation, company, financial institution, trust or other entity, including both unsecured debt and asset-backed programs. 9) Repurchase Agreements - Repurchase agreements (Repo or RP) that meet the following requirements: a. Must be governed by a written SIFMA Master Repurchase Agreement which specifies securities eligible for purchase and resale, and which provides the unconditional right to liquidate the underlying securities should the Counterparty default or fail to provide full timely repayment. b. Counterparty must be a Federal Reserve Bank, a Primary Dealer as designated by the Federal Reserve Bank of New York, or a nationally chartered commercial bank. c. Securities underlying repurchase agreements must be delivered to a third party custodian under a written custodial agreement and may be of deliverable or tri-party form. Securities must be held in the County's custodial account or in a separate account in the name of the County. d. Acceptable underlying securities include only securities that are direct obligations of, or that are fully guaranteed by, the United States or any agency of the United States, or U.S. Agency-backed mortgage related securities. e. Underlying securities must have an aggregate current market value of at least 102% (or 100% if the counterparty is a Federal Reserve Bank) of the purchase price plus current accrued price differential at the close of each business day. Page 6 Packet Page -475- 12/9/2014 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 investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus must be obtained. 11) Fixed-Income Mutual Funds - Shares in open-end and no-load fixed-income mutual funds whose underlying investments would be permitted for purchase under this policy and all its restrictions. 12) Local Government Investment Pools —State, local government or privately-sponsored investment pools that are authorized pursuant to state law. A thorough investigation of any intergovernmental investment pool is required prior to investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus must be obtained. 13) The Florida Local Government Surplus Funds Trust Funds ("Florida Prime") A thorough investigation of the Florida Prime is required prior to investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus or portfolio report must be obtained. General Investment and Portfolio Limits 1. General investment limitations: a. Investments must be denominated in U.S. dollars and issued for legal sale in U.S. markets. b. Minimum ratings are based on the highest rating by any one Nationally Recognized Statistical Ratings Organization ("NRSRO"), unless otherwise specified. c. All limits and rating requirements apply at time of purchase. d. Should a security fall below the minimum credit rating requirement for purchase, the Clerk will notify the Board. e. The maximum maturity(or average life for MBS/ABS) of any investment is 5 years. Maturity and average life are measured from settlement date. The final maturity date can be based on any mandatory call, put, pre-refunding date, or other mandatory redemption date. 2. General portfolio limitations: a. The maximum effective duration of the aggregate portfolio is 3 years. 3. Investment in the following are permitted, provided they meet all other policy requirements: a. Callable, step-up callable, called, pre-refunded, putable and extendable securities, as long as the effective final maturity meets the maturity limits for the sector b. Variable-rate and floating-rate securities c. Subordinated, secured and covered debt, if it meets the ratings requirements for the sector d. Zero coupon issues and strips, excluding agency mortgage-backed Interest-only structures (I/Os) e. Treasury TIPS Page 7 Packet Page-476- 12/9/2014 11 .C. 4. The following are NOT PERMITTED investments, unless specifically authorized by statute and with prior approval of the governing body: a. Trading for speculation b. Derivatives (other than callables and traditional floating or variable-rate instruments) c. Mortgage-backed interest-only structures (I/Os) d. Inverse or leveraged floating-rate and variable-rate instruments e. Currency, equity, index and event-linked notes (e.g. range notes), or other structures that could return less than par at maturity f. Private placements and direct loans, except as may be legally permitted by Rule 144A or commercial paper issued under a 4(2) exemption from registration g. Convertible, high yield, and non-U.S. dollar denominated debt h. Short sales i. Use of leverage j. Futures and options k. Mutual funds, other than fixed-income mutual funds and ETFs, and money market funds I. Equities, commodities, currencies and hard assets IX. MATURITY AND LIQUIDITY REQUIREMENTS To the extent possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash flow requirements. Investments of current operating funds (short-term funds) shall have maturities of no longer than twelve (12) months. Investments of bond reserves, construction funds, and other non-operating funds ("core funds") shall have a term appropriate to the need for funds and in accordance with debt covenants, however the maturities shall not exceed five (5) years from the date of settlement. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the SIFMA Master Repurchase Agreements. X. RISK AND DIVERSIFICATION Collier County will diversify its investments by security type, specific maturity, dealer or bank through which financial instruments are bought or sold. XI. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS The Clerk will maintain a list of the financial institutions authorized to provide investment services. These shall include Primary Dealers as designated by the Federal Reserve Bank of New York and regional dealers that (1) qualify under Securities & Exchange Commission Rule 15C3 (Uniform Net Capital Rule), (2) have capital of at least $50,000,000 and (3) have an institutional sales office and an institutional sales professional domiciled in Florida. No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Clerk with the following: 1. audited financial statements, 2. certification that no material adverse events have occurred since the issue of their most recent financial statements, 3. proof of Financial Industry Regulatory Authority, Inc. (FINRA), the registration (where applicable) or other securities registration, Page 8 Packet Page -477- 12/9/2014 11 .C. 4. proof of state registration,when required, 5. certification of having read and agreeing to abide by the Investment Policy and depository contracts in place in Collier County, and 6. a copy of the firm's established internal oversight and review guidelines controlling business with governmental entities. Each financial institution and broker/dealer must also agree to notify the Clerk in the event of material adverse events affecting their capital adequacy. Each institution and broker/dealer shall provide their written mark up schedule and guidelines to the Clerk. Each institution and broker/dealer shall disclose to the Clerk any proposed trade that would exceed the guidelines prior to executing the trade. The Clerk shall do a background check on each broker with whom the County does business which shall, at a minimum, consist of contacting the State or FINRA for regulatory & disciplinary dates which are maintained on brokers. An annual review of the financial condition and registration of qualified bidders will be conducted by the Clerk. A current audited financial statement is required to be on file for each financial institution and broker/dealer authorized to provide investment services. Criteria for addition to or deletion from the lists will be based on the following: (1) state law, Board Ordinance Code, or Investment Policy requirements where applicable, (2) perceived financial difficulties, (3) consistent lack of competitiveness, (4) lack or experience or familiarity of the account representative in providing service to large institutional accounts, (5) request of the institution or broker/dealer, and (6)when deemed in the best interest of the public. XII. THIRD-PARTY CUSTODIAL AGREEMENTS All securities, with the exception of certificates of deposits, shall be held with a third party custodian; and all securities purchased by, and all collateral obtained by; the securities and cash should be properly designated as an asset of the Board. The securities must be held in an account separate and apart from the assets of the financial institution. A third party custodian is defined as any bank depository chartered by the Federal Government, the State of Florida', or any other state or territory of the United States which has a branch or principal place of business in the State of Florida as defined in Section 658.12, Florida Statutes, or by a national association organized and existing under the laws of the United States which is authorized to accept and execute trusts and which is doing business in the State of Florida. Certificates of deposits will be placed in the provider's safekeeping department for the term of the deposit. The Clerk will execute a third party custodial agreement(s) with its bank(s) and depository institution(s). Such agreements may include letters of authority from the Clerk, details as to the responsibilities of each party, method of notification of security purchases, sales, delivery, procedures related to repurchase agreements and wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps and describing the liability of each party. The custodian shall accept transaction instructions only from those persons who have been duly authorized by the Clerk and which authorization has been provided, in writing, to the custodian. No withdrawal of securities, in whole or in part, shall be made from safekeeping, shall be permitted unless by such a duly authorized person. The custodian shall provide the Clerk with detailed information on the securities held by the custodian. Security transactions between a broker/dealer and the custodian involving the purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment" basis, if applicable, to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. Securities held as collateral shall be held free and clear of any liens. Page 9 Packet Page -478- 12/9/2014 11 .C. XIII. MASTER REPURCHASE AGREEMENTS The Clerk will require all approved institutions and dealers transacting repurchase agreements to execute and perform as stated in the Securities Industry and Financial Markets Association (SIFMA) Master Repurchase Agreement. All repurchase agreement transactions will adhere to requirements of the SIFMA Master Repurchase Agreement. XIV. BID REQUIREMENT The Clerk shall utilize the competitive bid process to sell and purchase securities, subject only to the exceptions noted in the Investment Policy. After the Clerk has determined the approximate maturity date based on cash flow needs and market conditions and has analyzed and selected one or more optimal types of investment, a minimum of three (3) banks or dealers must be contacted to ask for offerings of securities that fit the investment criteria. Documentation must be collected to insure that the securities meet Investment Policy guidelines and that price levels executed are consistent with market levels at the time. When selling securities, a minimum of three (3) dealer bids will be sought. Documentation of all transactions must be maintained. Examples of when the competitively bid process can be passed, include: 1. When time constraints due to unusual circumstances preclude the use of the competitive bidding process. 2. When no active market exists for the issue being traded due to the age or depth of the issue, 3. When a security is unique to a single dealer, for example a private placement. • 4. When the transaction involved new issues or issues on the when issued" market. If the maturing investment is a certificate of deposit, one of the contacts made shall be the present holder of the funds subject to portfolio diversification requirements in the Investment Policy. Overnight repurchase agreements, and the overnight sweep repurchase agreement associated with the Depository Bank Account will be included in the master agreement with the Depository Bank. The Depository Bank/Concentration Bank shall be selected through a competitive process on a periodic basis that takes into account the quality and scope of service. XV. INTERNAL CONTROLS The Clerk shall establish and monitor a set of written internal controls designed to protect the County's financial assets and ensure proper accounting and reporting of the transactions. The Clerk shall establish an annual process of independent review by an external auditor which will serve as an internal control by assuring compliance with policies and procedures. Internal controls will encompass at a minimum the following issues: 1. transfers of all funds(purchases, sales, etc.), 2. separation of functions including transaction authority from accounting and record-keeping, and wire transfer initiation and wire approval, 3. custodial safekeeping, 4. avoidance of delivery of bearer-form or non-wireable securities, 5. delegation of authority to subordinate staff members, 6. written confirmation of telephone transactions, 7. supervisory control of employee actions, 8. identification and minimization of authorized investment officials, and Page 10 Packet Page -479- 12/9/2014 11 .C. 9. documentation of decisions and transactions. XVI. CONTINUING EDUCATION Each individual responsible for making investment decisions, including the Clerk, shall annually complete eight hours of continuing education in subjects or courses of study related to investment practices and products. Evidence of such education will be maintained by each individual and available for inspection. XVII. REPORTING Annual, quarterly and monthly reports of assets will be presented to the Board. The following items will be included in the reports at least annually: 1. Securities in the portfolio by type, book value, income earned, market value, final maturity and average life. 2. Information on activity in the account, 3. Performance based on total rate of return which includes earned income as well as realized and unrealized gains and losses, and 4. The market values presented in these reports will be consistent with accounting guidelines in GASB Statement 31. XVIII. INVESTMENT POLICY ADOPTION At the time of adoption, any securities that become out of compliance with the Investment Policy can be retained to reduce the possibility of having to sell financial assets before maturity at a loss. Any and all exceptions to the Investment Policy require majority vote of the Board. This investment policy is established pursuant to statutory authority. The Board establishes overall investment policies, the implementation of which is a constitutional responsibility of the Clerk. The investment policy shall be adopted by the Board. Duly adopted this day of 2014. BOARD OF COUNTY COMMISSIONERS COLLIER COUNTY, FLORIDA Page 11 Packet Page-480- 12/9/2014 11.C. Attachment A Glossary of Cash and Investment Management Terms The following is a glossary of key investing terms, many of which appear in the County's investment policy. This glossary clarifies the meaning of investment terms generally used in cash and investment management. This glossary has been adapted from the GFOA Sample Investment Policy and the Association of Public Treasurers of the United States and Canada's Model Investment Policy. Accrued Interest. Interest earned but which has not yet been paid or received. Agency. See "Federal Agency Securities." Ask Price. Price at which a broker/dealer offers to sell a security town investor. Also known as "offered price." Asset Backed Securities (ABS). A fixed-income security backed by notes or receivables against assets other than real estate. Generally issued by special purpose companies that "own" the assets and issue the ABS. Examples include securities backed by auto loans, credit card receivables, home equity loans, manufactured housing loans, farm equipment loans, and aircraft leases. Average Life. The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding. Basis Point. One hundredth of one percent, or 0.01%. Thus 1%equals 100 basis points. Bearer Security. A security whose ownership is determined by the holder of the physical security. Typically, there is no registration on the issuer's books. Title to bearer securities is transferred by delivery of the physical security or certificate. Also known as "physical securities." Benchmark Bills: In November 1999, FNMA introduced its Benchmark Bills program, a short-term debt securities issuance program to supplement its existing discount note program. The program includes a schedule of larger, weekly issues in three- and six-month maturities and biweekly issues in one-year for Benchmark Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA conducts a weekly auction for each Benchmark Bill maturity and accepts both competitive and non-competitive bids through a web based auction system. This program is in addition to the variety of other discount note maturities, with rates posted on a daily basis, which FNMA offers. FNMA's Benchmark Bills are unsecured general obligations that are issued in book-entry form through the Federal Reserve Banks. There are no periodic payments of interest on Benchmark Bills, which are sold at a discount from the principal amount and payable at par at maturity. Issues under the Benchmark program constitute the same credit standing as other FNMA discount notes; they simply add organization and liquidity to the short-term Agency discount note market. Benchmark Notes/Bonds: Benchmark Notes and Bonds are a series of FNMA "bullet" maturities (non- callable) issued according to a pre-announced calendar. Under its Benchmark Notes/Bonds program, 2, 3, 5, 10, and 30-year maturities are issued each quarter. Each Benchmark Notes new issue has a minimum size of $4 billion, 30-year new issues having a minimum size of $1 billion, with re-openings based on investor demand to further enhance liquidity. The amount of non-callable issuance has allowed FNMA to build a yield curve in Benchmark Notes and Bonds in maturities ranging from 2 to 30 years. The liquidity emanating from these large size issues has facilitated favorable financing opportunities through the development of a liquid overnight and term repo market. Issues under the Benchmark program constitute the same credit standing as other FNMA issues; they simply add organization and liquidity to the intermediate-and long-term Agency market. Page 12 Packet Page -481- 12/9/2014 11 .C. Benchmark. A market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance, and duration of the actual portfolio's investments. Bid Price. Price at which a broker/dealer offers to purchase a security from an investor. Bond. Financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash-flows, including periodic interest payments and a principal repayment. Book Entry Securities. Securities that are recorded in a customer's account electronically through one of the financial markets electronic delivery and custody systems, such as the Fed Securities wire, DTC, and PTC (as opposed to bearer or physical securities). The trend is toward a certificate-free society in order to cut down on paperwork and to diminish investors' concerns about the certificates themselves. The vast majority of securities are now book entry securities. Book Value. The value at which a debt security is reflected on the holder's records at any point in time. Book value is also called "amortized cost" as it represents the original cost of an investment adjusted for amortization of premium or accretion of discount. Also called "carrying value." Book value can vary over time as an investment approaches maturity and differs from "market value" in that it is not affected by changes in market interest rates. Broker/Dealer. A person or firm transacting securities business with customers. A "broker" acts as an agent between buyers and sellers, and receives a commission for these services. A "dealer" buys and sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities, whereas a broker merely matches up buyers and sellers. See also"Primary Dealer." Bullet Notes/Bonds. Notes or bonds that have a single maturity date and are non-callable. Call Date. Date at which a call option may be or is exercised. Call Option. The right, but not the obligation, of an issuer of a security to redeem a security at a specified value and at a specified date or dates prior to its stated maturity date. Most fixed-income calls are a par, but can be at any previously established price. Securities issued with a call provision typically carry a higher yield than similar securities issued without a call feature. There are three primary types of call options (1) European - one-time calls, (2) Bermudan periodically on a predetermined schedule (quarterly, semi- annual, annual), and (3) American continuously callable at any time on or after the call date. There is usually a notice period of at least 5 business days prior to a call date. Callable Bonds/Notes. Securities which contain an imbedded call option giving the issuer the right to redeem the securities prior to maturity at a predetermined price and time. Certificate of Deposit (CD). Bank obligation issued by a financial institution generally offering a fixed rate of return (coupon) for a specified period of time (maturity). Can be as long as 10 years to maturity, but most CDs purchased by public agencies are one year and under. Collateral. Investment securities or other property that a borrower pledges to secure repayment of a loan, secure deposits of public monies, or provide security for a repurchase agreement. Collateralization. Process by which a borrower pledges securities, property, or other deposits for securing the repayment of a loan and/or security. Collateralized Mortgage Obligation (CMO). A security that pools together mortgages and separates them into short, medium, and long-term positions (called tranches). Tranches are set up to pay different rates of interest depending upon their maturity. Interest payments are usually paid monthly. In "plain vanilla" CMOs, principal is not paid on a tranche until all shorter tranches have been paid off. This system provides interest Page 13 Packet Page-482- 12/9/2014 11 .C. and principal in a more predictable manner. A single pool of mortgages can be carved up into numerous tranches each with its own payment and risk characteristics. Commercial Paper. Short term unsecured promissory note issued by a company or financial institution. Issued at a discount and matures for par or face value. Usually a maximum maturity of 270 days and given a short-term debt rating by one or more NRSROs. Convexity. A measure of a bond's price sensitivity to changing interest rates. A high convexity indicates greater sensitivity of a bond's price to interest rate changes. Corporate Note. A debt instrument issued by a corporation with a maturity of greater than one year and less than ten years. Counterparty. The other party in a two party financial transaction. "Counterparty risk" refers to the risk that the other party to a transaction will fail in its related obligations.For example, the bank or broker/dealer in a repurchase agreement. Coupon Rate. Annual rate of interest on a debt security, expressed as a percentage of the bond's face value. Current Yield. Annual rate of return on a bond based on its price. Calculated as (coupon rate / price), but does not accurately reflect a bond's true yield level. Custody. Safekeeping services offered by a bank, financial institution, or trust company, referred to as the "custodian." Service normally includes the holding and reporting of the customer's securities, the collection and disbursement of income, securities settlement, and market values. Dealer. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his/her own account. Delivery Versus Payment (DVP). Settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and DTC, are done DVP as a protection for both the buyer and seller of securities. Depository Trust Company (DTC). A firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs, and BAs clear through DTC. Derivatives. (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities, or commodities). For hedging purposes, common derivatives are options, futures, interest rate swaps, and swaptions. All Collateralized Mortgage Obligations(CMOs) are derivatives. Derivative Security. Financial instrument created from, or whose value depends upon, one or more underlying assets or indexes of asset values. Designated Bond. FFCB's regularly issued, liquid, non-callable securities that generally have a 2 or 3 year original maturity. New issues of Designated Bonds are $1 billion or larger. Re-openings of existing Designated Bond issues are generally a minimum of$100 million. Designated Bonds are offered through a syndicate of two to six dealers. Twice each month the Funding Corporation announces its intention to issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a Designated Bond. Issues under the Designated Bond program constitute the same credit standing as other FFCB issues; they simply add organization and liquidity to the intermediate- and long-term Agency market. Page 14 Packet Page -483- 12/9/2014 11 .0. Discount Notes. Unsecured general obligations issued by Federal Agencies at a discount. Discount notes mature at par and can range in maturity from overnight to one year. Very large primary (new issue) and secondary markets exist. Discount Rate. Rate charged by the system of Federal Reserve Banks on overnight loans to member banks. Changes to this rate are administered by the Federal Reserve and closely mirror changes to the"fed funds rate." Discount Securities. Non-interest bearing money market instruments that are issued at discount and redeemed at maturity for full face value. Examples include: U.S. Treasury Bills, Federal Agency Discount Notes, Bankers'Acceptances, and Commercial Paper. Discount. The amount by which a bond or other financial instrument sells below its face value. See also "Premium." Diversification. Dividing investment funds among a variety of security types, maturities, industries, and issuers offering potentially independent returns. Dollar Price. A bond's cost expressed as a percentage of its face value. For example, a bond quoted at a dollar price of 95 %2, would have a principal cost of$955 per$1,000 of face value. Duff& Phelps. One of several NRSROs that provide credit ratings on corporate and bank debt issues. Duration. The weighted average maturity of a security's or portfolio's cash-flows, where the present values of the cash-flows serve as the weights. The greater the duration of a security/portfolio, the greater its percentage price volatility with respect to changes in interest rates. Used as a measure of risk and a key tool for managing a portfolio versus a benchmark and for hedging risk. There are also different kinds of duration used for different purposes(e.g. MacAuley Duration, Modified Duration, Effective Duration). Effective Duration is a duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective duration is the approximate percentage change in price for a 100 basis point change in rates. To compute you can apply the following equation. Price if yield decline-price if yield rise/2(initial price)(change in yield in decimal) Fannie Mae. See "Federal National Mortgage Association." Fed Money Wire. A computerized communications system that connects the Federal Reserve System with its member banks, certain U. S. Treasury offices, and the Washington D.C. office of the Commodity Credit Corporation. The Fed Money Wire is the book entry system used to transfer cash balances between banks for themselves and for customer accounts. Fed Securities Wire. A computerized communications system that facilitates book entry transfer of securities between banks, brokers and customer accounts, used primarily for settlement of U.S. Treasury and Federal Agency securities. Fed. See "Federal Reserve System." Federal Agency Security. A debt instrument issued by one of the Federal Agencies. Federal Agencies are considered second in credit quality and liquidity only to U.S. Treasuries. Federal Agency. Government sponsored/owned entity created by the U.S. Congress, generally for the purpose of acting as a financial intermediary by borrowing in the marketplace and directing proceeds to specific areas of the economy considered to otherwise have restricted access to credit markets. The largest Federal Agencies are GNMA, FNMA, FHLMC, FHLB, FFCB, SLMA, and TVA. Page 15 Packet Page-484- 12/9/2014 11.C. Federal Deposit Insurance Corporation (FDIC). Federal agency that insures deposits at commercial banks, currently to a limit of$250,000 per depositor per bank. Federal Farm Credit Bank (FFCB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system that is a network of cooperatively-owned lending institutions that provides credit services to farmers, agricultural cooperatives and rural utilities. The FFCBs act as financial intermediaries that borrow money in the capital markets and use the proceeds to make loans and provide other assistance to farmers and farm-affiliated businesses. Consists of the consolidated operations of the Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks. Frequent issuer of discount notes, agency notes and callable agency securities. FFCB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and agricultural industry. Also issues notes under its"designated note" program. Federal Funds (Fed Funds). Funds placed in Federal Reserve Banks by depository institutions in excess of current reserve requirements, and frequently loaned or borrowed on an overnight basis between depository institutions. Federal Funds Rate (Fed Funds Rate). The interest rate charged by a depository institution lending Federal Funds to another depository institution. The Federal Reserve influences this rate by establishing a "target" Fed Funds rate associated with the Fed's management of monetary policy. Federal Home Loan Bank System (FHLB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system, consisting of wholesale banks (currently twelve district banks) owned by their member banks, which provides correspondent banking services and credit to various financial institutions, financed by the issuance of securities. The principal purpose of the FHLB is to add liquidity to the mortgage markets. Although FHLB does not directly fund mortgages, it provides a stable supply of credit to thrift institutions that make new mortgage loans. FHLB debt is not an obligation of nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes and callable agency securities. Also issues notes under its"global note"and "TAP" programs. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that provides stability and assistance to the secondary market for home mortgages by purchasing first mortgages and participation interests financed by the sale of debt and guaranteed mortgage backed securities. FHLMC debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities, and MBS.Also issues notes under its "reference note" program. Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the large Federal Agencies. A government sponsored public corporation (GSE)that provides liquidity to the residential mortgage market by purchasing mortgage loans from lenders, financed by the issuance of debt securities and MBS (pools of mortgages packaged together as a security). FNMA debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its"benchmark note" program. Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve System. Federal Reserve System (the Fed). The independent central bank system of the United States that establishes and conducts the nation's monetary policy. This is accomplished in three major ways: (1) raising or lowering bank reserve requirements, (2) raising or lowering the target Fed Funds Rate and Discount Rate, and (3) in open market operations by buying and selling government securities. The Federal Reserve System is made up of twelve Federal Reserve District Banks, their branches, and many national and state banks throughout the nation. It is headed by the seven member Board of Governors known as the "Federal Reserve Board" and headed by its Chairman. Page 16 Packet Page-485- 12/9/2014 11 .C. Financial Industry Regulatory Authority, Inc. (FINRA). A private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets. The government also has a regulatory arm for investments, the Securities and Exchange Commission (SEC). Fiscal Agent/Paying Agent. A bank or trust company that acts, under a trust agreement with a corporation or municipality, in the capacity of general treasurer. The agent performs such duties as making coupon payments, paying rents, redeeming bonds, and handling taxes relating to the issuance of bonds. Fitch Investors Service, Inc. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. Floating Rate Security (FRN or "floater"). A bond with an interest rate that is adjusted according to changes in an interest rate or index. Differs from variable-rate debt in that the changes to the rate take place immediately when the index changes, rather than on a predetermined schedule. See also "Variable Rate Security." Freddie Mac. See "Federal Home Loan Mortgage Corporation." Ginnie Mae. See "Government National Mortgage Association." Global Notes: Notes designed to qualify for immediate trading in both the domestic U.S. capital market and in foreign markets around the globe. Usually large issues that are sold to investors worldwide and therefore have excellent liquidity. Despite their global sales, global notes sold in the U.S. are typically denominated in U.S. dollars. Government National Mortgage Association (GNMA or "Ginnie Mae"). One of the large Federal Agencies. Government-owned Federal Agency that acquires, packages, and resells mortgages and mortgage purchase commitments in the form of mortgage-backed securities. Largest issuer of mortgage pass-through securities. GNMA debt is guaranteed by the full faith and credit of the U.S. government (one of the few agencies that are actually full faith and credit of the U.S. government). Government Securities. An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See "Treasury Bills, Notes, Bonds, and SLGS." Government Sponsored Enterprise (GSE). Privately owned entity subject to federal regulation and supervision, created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy such as students, farmers, and homeowners. GSEs carry the implicit backing of the U.S. government, but they are not direct obligations of the U.S. government. For this reason, these securities will offer a yield premium over U.S. Treasuries. Examples of GSEs include: FHLB, FHLMC, FNMA, and SLMA. Government Sponsored Enterprise Security. A security issued by a Government Sponsored Enterprise. Considered Federal Agency Securities. Index. A compilation of statistical data that tracks changes in the economy or in financial markets. Interest-Only (10) STRIP. A security based solely on the interest payments from the bond. After the principal has been repaid, interest payments stop and the value of the security falls to nothing. Therefore, IOs are considered risky investments. Usually associated with mortgage-backed securities. Internal Controls. An internal control structure ensures that the assets of the entity are protected from loss, theft, or misuse. The internal control structure is designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that 1)the cost of a control should not exceed the benefits likely to be derived and 2) the valuation of costs and benefits requires estimates and judgments by management. Internal controls should address the following points: Page 17 Packet Page-486- 12/9/2014 11 .C. 1. Control of collusion - Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. Separation of transaction authority from accounting and record keeping - A separation of duties is achieved by separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction. 3. Custodial safekeeping - Securities purchased from any bank or dealer including appropriate collateral (as defined by state law) shall be placed with an independent third party for custodial safekeeping. 4. Avoidance of physical delivery securities - Book-entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. 5. Clear delegation of authority to subordinate staff members - Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. 6. Written confirmation of transactions for investments and wire transfers - Due to the potential for error and improprieties arising from telephone and electronic transactions, all transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and if the safekeeping institution has a list of authorized signatures. 7. Development of a wire transfer agreement with the lead bank and third-party custodian - The designated official should ensure that an agreement will be entered into and will address the following points: controls, security provisions, and responsibilities of each party making and receiving wire transfers. Inverse Floater. A floating rate security structured in such a way that it reacts inversely to the direction of interest rates. Considered risky as their value moves in the opposite direction of normal fixed-income investments and whose interest rate can fall to zero. Investment Advisor. A company that provides professional advice managing portfolios, investment recommendations, and/or research in exchange for a management fee. Investment Adviser Act of 1940. Federal legislation that sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations. Investment Grade. Bonds considered suitable for preservation of invested capital, including bonds rated a minimum of Baa3 by Moody's, BBB- by Standard & Poor's, or BBB- by Fitch. Although "BBB" rated bonds are considered investment grade, most public agencies cannot invest in securities rated below"A." Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a relative measure of cash and near-cash items in a portfolio of assets. Additionally, it is a term describing the marketability of a money market security correlating to the narrowness of the spread between the bid and ask prices. Local Government Investment Pool (LGIP). An investment by local governments in which their money is pooled as a method for managing local funds, (e.g., Florida State Board of Administration's Florida Prime Fund). Long-Term Core Investment Program. Funds that are not needed within a one-year period. Page 18 Packet Page-487- 12/9/2014 11 .C. Market Value. The fair market value of a security or commodity. The price at which a willing buyer and seller would pay for a security. Mark-to-market. Adjusting the value of an asset to its market value, reflecting in the process unrealized gains or losses. Master Repurchase Agreement. A widely accepted standard agreement form published by the Securities Industry and Financial Markets Association (SIFMA) that is used to govern and document Repurchase Agreements and protect the interest of parties in a repo transaction. Maturity Date. Date on which principal payment of a financial obligation is to be paid. Medium Term Notes (MTN's). Used frequently to refer to corporate notes of medium maturity(5-years and under). Technically, any debt security issued by a corporate or depository institution with a maturity from 1 to 10 years and issued under an MTN shelf registration. Usually issued in smaller issues with varying coupons and maturities, and underwritten by a variety of broker/dealers (as opposed to large corporate deals issued and underwritten all at once in large size and with a fixed coupon and maturity). Money Market. The market in which short-term debt instruments (bills, commercial paper, bankers' acceptance, etc.)are issued and traded. Money Market Mutual Fund (MMF). A type of mutual fund that invests solely in money market instruments, such as: U.S. Treasury bills, commercial paper, bankers' acceptances, and repurchase agreements. Money market mutual funds are registered with the SEC under the Investment Company Act of 1940 and are subject to "rule 2a-7" which significantly limits average maturity and credit quality of holdings. MMF's are managed to maintain a stable net asset value (NAV) of $1.00. Many MMFs carry ratings by a NRSRO. Moody's Investors Service. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. Mortgage Backed Securities (MBS). Mortgage-backed securities represent an ownership interest in a pool of mortgage loans made by financial institutions, such as savings and loans, commercial banks, or mortgage companies, to finance the borrower's purchase of a home or other real estate. The majority of MBS are issued and/or guaranteed by GNMA, FNMA, and FHLMC. There are a variety of MBS structures with varying levels of risk and complexity. All MBS have reinvestment risk as actual principal and interest payments are dependent on the payment of the underlying mortgages which can be prepaid by mortgage holders to refinance and lower rates or simply because the underlying property was sold. Mortgage Pass-Through Securities. A pool of residential mortgage loans with the monthly interest and principal distributed to investors on a pro-rata basis. The largest issuer is GNMA. Municipal Note/Bond. A debt instrument issued by a state or local government unit or public agency.The vast majority of municipals are exempt from state and federal income tax, although some non-qualified issues are taxable. Mutual Fund. Portfolio of securities professionally managed by a registered investment company that issues shares to investors. Many different types of mutual funds exist (e.g., bond, equity, and money market funds); all except money market funds operate on a variable net asset value (NAV). Negotiable Certificate of Deposit (Negotiable CD). Large denomination CDs ($100,000 and larger) that are issued in bearer form and can be traded in the secondary market. Net Asset Value. The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund's assets including securities, cash, and any accrued earnings, then subtracting the total assets from the fund's liabilities, and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund's portfolio. (See below.) Page 19 Packet Page -488- 12/9/2014 11 .C. [(Total assets)-(Liabilities)]/(Number of shares outstanding) NRSRO. A "Nationally Recognized Statistical Rating Organization" (NRSRO) is a designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody's, S&P, Fitch, and Duff& Phelps. Offered Price. See also "Ask Price." Open Market Operations. A Federal Reserve monetary policy tactic entailing the purchase or sale of government securities in the open market by the Federal Reserve System from and to primary dealers in order to influence the money supply, credit conditions, and interest rates. Par Value. The face value, stated value, or maturity value of a security. Physical Delivery. Delivery of readily available underlying assets at contract maturity. Portfolio. Collection of securities and investments held by an investor. Premium. The amount by which a bond or other financial instrument sells above its face value. See also "Discount." Primary Dealer. A designation given to certain government securities dealer by the Federal Reserve Bank of New York. Primary dealers can buy and sell government securities directly with the Fed. Primary dealers also submit daily reports of market activity and security positions held to the Fed and are subject to its informal oversight. Primary dealers are the largest buyers and sellers by volume in the U.S. Treasury securities market. Prime Paper. Commercial paper of high quality. Highest rated paper is A-1+/A-1 by S&P and P-1 by Moody's. Principal. Face value of a financial instrument on which interest accrues. May be less than par value if some principal has been repaid or retired. For a transaction, principal is par value times price and includes any premium or discount. Prudent Expert Rule. Standard that requires that a fiduciary manage a portfolio with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. This statement differs from the "prudent person" rule in that familiarity with such matters suggests a higher standard than simple prudence. Prudent Investor Standard. Standard that requires that when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. More stringent than the "prudent person" standard as it implies a level of knowledge commensurate with the responsibility at hand. Qualified Public Depository - Per Subsection 280.02(26), F.S., "qualified public depository" means any bank, savings bank, or savings association that: 1. Is organized and exists under the laws of the United States, the laws of this state or any other state or territory of the United States. Page 20 Packet Page-489- 12/9/2014 11 .C. 2. Has its principal place of business in this state or has a branch office in this state which is authorized under the laws of this state or of the United States to receive deposits in this state. 3. Has deposit insurance under the provision of the Federal Deposit Insurance Act, as amended, 12 U.S.C. ss.1811 et seq. 4. Has procedures and practices for accurate identification, classification, reporting, and collateralization of public deposits. 5. Meets all requirements of Chapter 280, F.S. 6. Has been designated by the Chief Financial Officer as a qualified public depository. Range Note. A type of structured note that accrues interest daily at a set coupon rate that is tied to an index. Most range notes have two coupon levels; a higher accrual rate for the period the index is within a designated range, the lower accrual rate for the period that the index falls outside the designated range. This lower rate may be zero and may result in zero earnings. Rate of Return. Amount of income received from an investment, expressed as a percentage of the amount invested. Realized Gains (Losses). The difference between the sale price of an investment and its book value. Gains/losses are "realized" when the security is actually sold, as compared to "unrealized" gains/losses which are based on current market value. See"Unrealized Gains(Losses)." Reference Bills: FHLMC's short-term debt program created to supplement its existing discount note program by offering issues from one month through one year, auctioned on a weekly or on an alternating four-week basis (depending upon maturity) offered in sizeable volumes($1 billion and up) on a cycle of regular, standardized issuance. Globally sponsored and distributed, Reference Bill issues are intended to encourage active trading and market-making and facilitate the development of a term repo market. The program was designed to offer predictable supply, pricing transparency, and liquidity, thereby providing alternatives to U.S. Treasury bills. FHLMC's Reference Bills are unsecured general corporate obligations. This program supplements the corporation's existing discount note program. Issues under the Reference program constitute the same credit standing as other FHLMC discount notes; they simply add organization and liquidity to the short-term Agency discount note market. Reference Notes: FHLMC's intermediate-term debt program with issuances of 2, 3, 5, 10, and 30-year maturities. Initial issuances range from $2 -$6 billion with re-openings ranging $1 - $4 billion. The notes are high-quality bullet structures securities that pay interest semiannually. Issues under the Reference program constitute the same credit standing as other FHLMC notes; they simply add organization and liquidity to the intermediate- and long-term Agency market. Repurchase Agreement (Repo). A short-term investment vehicle where an investor agrees to buy securities from a counterparty and simultaneously agrees to resell the securities back to the counterparty at an agreed upon time and for an agreed upon price. The difference between the purchase price and the sale price represents interest earned on the agreement. In effect, it represents a collateralized loan to the investor, where the securities are the collateral. Can be DVP, where securities are delivered to the investor's custodial bank, or "tri-party" where the securities are delivered to a third party intermediary. Any type of security can be used as "collateral," but only some types provide the investor with special bankruptcy protection under the law. Repos should be undertaken only when an appropriate Securities Industry and Financial Markets Association (SIFMA) approved master repurchase agreement is in place. Reverse Repurchase Agreement (Reverse Repo). A repo from the point of view of the original seller of securities. Used by dealers to finance their inventory of securities by essentially borrowing at short-term rates. Can also be used to leverage a portfolio and in this sense, can be considered risky if used improperly. Page 21 Packet Page -490- 12/9/2014 11 .0. Safekeeping. Service offered for a fee, usually by financial institutions, for the holding of securities and other valuables. Safekeeping is a component of custody services. Secondary Market. Markets for the purchase and sale of any previously issued financial instrument. Securities Industry and Financial Markets Association (SIFMA). The bond market trade association representing the largest securities markets in the world. In addition to publishing a Master Repurchase Agreement, widely accepted as the industry standard document for Repurchase Agreements, the SIFMA also recommends bond market closures and early closes due to holidays. Securities Lending. An arrangement between and investor and a custody bank that allows the custody bank to"loan"the investors investment holdings, reinvest the proceeds in permitted investments, and shares any profits with the investor. Should be governed by a securities lending agreement. Can increase the risk of a portfolio in that the investor takes on the default risk on the reinvestment at the discretion of the custodian. Sinking Fund. A separate accumulation of cash or investments (including earnings on investments) in a fund in accordance with the terms of a trust agreement or indenture, funded by periodic deposits by the issuer (or other entity responsible for debt service), for the purpose of assuring timely availability of moneys for payment of debt service. Usually used in connection with term bonds. Spread. The difference between the price of a security and similar maturity U.S. Treasury investments, expressed in percentage terms or basis points. A spread can also be the absolute difference in yield between two securities. The securities can be in different markets or within the same securities market between different credits, sectors, or other relevant factors. Standard & Poor's. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. STRIPS (Separate Trading of Registered Interest and Principal of Securities). Acronym applied to U.S. Treasury securities that have had their coupons and principal repayments separated into individual zero- coupon Treasury securities. The same technique and "strips" description can be applied to non-Treasury securities(e.g., FNMA strips). Structured Notes. Notes that have imbedded into their structure options such as step-up coupons or derivative-based returns. Supranational. Supranational organizations are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. These agreements provide for limited immunity from the laws of member countries. Bonds issued by these institutions are part of the broader class of Supranational, Sovereign, and Non-U.S. Agency (SSA) sector bonds. Supranational bonds finance economic and infrastructure development and support environmental protection, poverty reduction, and renewable energy around the globe. For example, the World Bank, International Finance Corporation (IFC), and African Development Bank (AfDB) have "green bond" programs specifically designed for energy resource conservation and management. Supranational bonds, which are issued by multi-national organizations that transcend national boundaries. Examples include the World Bank, African Development Bank, and European Investment Bank. Swap. Trading one asset for another. TAP Notes: Federal Agency notes issued under the FHLB TAP program. Launched in 6/99 as a refinement to the FHLB bullet bond auction process. In a break from the FHLB's traditional practice of bringing numerous small issues to market with similar maturities, the TAP Issue Program uses the four most common maturities and reopens them up regularly through a competitive auction. These maturities (2, 3, 5, and 10 year) will remain open for the calendar quarter, after which they will be closed and a new series of TAP issues will be opened to replace them. This reduces the number of separate bullet bonds issued, but generates enhanced awareness and liquidity in the marketplace through increased issue size and secondary market volume. Page 22 Packet Page-491- 12/9/2014 11 .C. Tennessee Valley Authority(TVA). One of the large Federal Agencies. A wholly owned corporation of the United States government that was established in 1933 to develop the resources of the Tennessee Valley region in order to strengthen the regional and national economy and the national defense. Power operations are separated from non-power operations. TVA securities represent obligations of TVA, payable solely from TVA's net power proceeds, and are neither obligations of nor guaranteed by the United States. TVA is currently authorized to issue debt up to $30 billion. Under this authorization, TVA may also obtain advances from the U.S. Treasury of up to $150 million. Frequent issuer of discount notes, agency notes, and callable agency securities. Total Return. Investment performance measured over a period of time that includes coupon interest, interest on interest, and both realized and unrealized gains or losses. Total return includes, therefore, any market value appreciation/depreciation on investments held at period end. Treasuries. Collective term used to describe debt instruments backed by the U.S. government and issued through the U.S. Department of the Treasury. Includes Treasury bills, Treasury notes, and Treasury bonds. Also a benchmark term used as a basis by which the yields of non-Treasury securities are compared (e.g., "trading at 50 basis points over Treasuries"). Treasury Bills (T-Bills). Short-term direct obligations of the United States government issued with an original term of one year or less. Treasury bills are sold at a discount from face value and do not pay interest before maturity. The difference between the purchase price of the bill and the maturity value is the interest earned on the bill. Currently, the U.S. Treasury issues 4-week, 13-week, and 26-week T-Bills. Treasury Bonds. Long-term interest-bearing debt securities backed by the U.S. government and issued with maturities of ten years and longer by the U.S. Department of the Treasury. Treasury Notes. Intermediate interest-bearing debt securities backed by the U.S. government and issued with maturities ranging from one to ten years by the U.S. Department of the Treasury. The Treasury currently issues 2-year, 3-year, 5-year, and 10-year Treasury Notes. Trustee. A bank designated by an issuer of securities as the custodian of funds and official representative of bondholders. Trustees are appointed to insure compliance with the bond documents and to represent bondholders in enforcing their contract with the issuer. Uniform Net Capital Rule. SEC Rule 15c3-1 that outlines the minimum net capital ratio (ratio of indebtedness to net liquid capital) of member firms and non-member broker/dealers. Unrealized Gains (Losses). The difference between the market value of an investment and its book value. Gains/losses are "realized" when the security is actually sold, as compared to "unrealized" gains/losses which are based on current market value. See also"Realized Gains (Losses)." Variable-Rate Security. A bond that bears interest at a rate that varies over time based on a specified schedule of adjustment (e.g., daily, weekly, monthly, semi-annually, or annually). See also "Floating Rate Note." Weighted Average Maturity (or just "Average Maturity"). The average maturity of all securities and investments of a portfolio, determined by multiplying the par or principal value of each security or investment by its maturity(days or years), summing the products, and dividing the sum by the total principal value of the portfolio. A simple measure of risk of a fixed-income portfolio. Weighted Average Maturity to Call. The average maturity of all securities and investments of a portfolio, adjusted to substitute the first call date per security for maturity date for those securities with call provisions. Yield Curve. A graphic depiction of yields on like securities in relation to remaining maturities spread over a time line. The traditional yield curve depicts yields on U.S. Treasuries, although yield curves exist for Federal Agencies and various credit quality corporates as well. Yield curves can be positively sloped Page 23 Packet Page-492- 12/9/2014 11 .C. (normal) where longer-term investments have higher yields, or "inverted" (uncommon) where longer-term investments have lower yields than shorter ones. Yield to Call (YTC). Same as "Yield to Maturity," except the return is measured to the first call date rather than the maturity date. Yield to call can be significantly higher or lower than a security's yield to maturity. Yield to Maturity(YTM). Calculated return on an investment, assuming all cash-flows from the security are reinvested at the same original yield. Can be higher or lower than the coupon rate depending on market rates and whether the security was purchased at a premium or discount. There are different conventions for calculating YTM for various types of securities. Yield. There are numerous methods of yield determination. In this glossary, see also"Current Yield," "Yield Curve," "Yield to Call,"and "Yield to Maturity." Page 24 Packet Page-493- 12/9/2014 11 .0. Attachment B Investment Pool/Fund Questionnaire 1. A description of eligible investment securities, and a written statement of investment policy and objectives. 2. A description of interest calculations and how it is distributed, and how gains and losses are treated. 3. A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 4. A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. 5. A schedule for receiving statements and portfolio listings. 6. Are reserves, retained earnings, etc. utilized by the pool/fund? 7. A fee schedule, and when and how is it assessed. 8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? Page 25 Packet Page -494- 12/9/2014 11 .C. Approved: Page 1 Packet Page -495- 12/9/2014 11 .C. Table of Contents Page I. SCOPE 3 II. POLICY 3 III. INVESTMENT OBJECTIVES 3 IV. AUTHORITY 3 V. PERFORMANCE MEASURES 3 VI. PRUDENCE AND ETHICAL STANDARDS 4 VII. ETHICS AND CONFLICTS OF INTEREST 4 VIII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSTION 4 IX. MATURITY AND LIQUIDITY REQUIREMENTS 8 X. RISK AND DIVERSIFICATION 8 XI. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 8 XI I. THIRD-PARTY CUSTODIAL AGREEMENTS 9 XI II. MASTER REPURCHASE AGREEMENTS 10 XIV. BID REQUIREMENT 10 XV. INTERNAL CONTROLS 10 XVI. CONTINUING EDUCATION 11 XVII. REPORTING 11 XVI I I. INVESTMENT POLICY ADOPTION 11 ATTACHMENT A: Glossary of Cash and Investment Management Terms ATTACHMENT B: Investment Pool/Fund Questionnaire Page 2 Packet Page-496- 12/9/2014 11 .C. Collier County, Florida investment Policy I. I 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. Investment policy applies to all financial a,..-sets under the direct control of the Board of County Commissioners. II. POLICY The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of Collier County Board of County Commissioners (hereinafter "Board"). These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices. Ill. INVESTMENT OBJECTIVES Primary Objectives: 1. Preservation of capital and protection of investment principal. 2. Match assets to liabilities by TA-maintaining sufficient liquidity to meet reasonably anticipated operating and capital requirements. 3. Match a°.,ets to liabilities, to the extent poccible. Secondary Objectives: 1. 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.,.,_ . - • -•_ _ ., - - . -. - - index such as the Consumer Price Index. 2. Control risks and diversify investments through appropriate oversight and regular reporting. IV. AUTHORITY This Investment Policy is adopted pursuant to Florida Statute Section 218.415. Should there be any conflict between this statute, as amended from time-to-time, and this Policy, Florida Statute Section 218.415 shall control. This Policy specifically authorizes the Collier County Clerk to maintain an Investment Procedures and Internal Controls Manual based upon and consistent with this Policy, and to administer the Policy on behalf of the Board of County Commissioners. The Clerk shall be responsible for monitoring internal controls, administrative controls, and to regulate the activities of staff involved with the investment program. V. PERFORMANCE MEASURES Page 3 Packet Page -497- 12/9/2014 11 .C. 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. 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. Objective is to exceed the annual yield of the Florida Local Government Surplus Trust Fund (SBA). VI. I PRUDENCE AND ETHICAL STANDARDS: Investments shall be made with judgment and care (under circumstances then prevailing) which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the Chief Financial OfficerClerk any material financial interests in financial institutions that conduct business within this jurisdiction and they shall further disclose any material personal financial/investment positions that could be related to the performance of the portfolio. Employees and officers shall subordinate their personal investment transactions to those transactions made in the portfolio, particularly with regard to the time of purchase and sales. Employees shall also disclose any gifts or entertainment received as a result of their employment in regard to the investments of Collier County. Bond swaps are appropriate when undertaken in conformity with the prudent person test and overall portfolio objectives in order to (a) increase yield to maturity without affecting the asset liability match; (b) reduce maturity while maintaining or increasing the yield to maturity or (c) increase portfolio quality without I affecting the asset liability match while maintaining or increasing the yield to maturity. The County should not, however, have a policyonly against selli securities at a loss if undertaken in connection with prudent portfolio management. VII. ETHICS AND CONFLICTS OF INTEREST Employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Also, employees involved in the investment process shall disclose any financial interests in financial institutions that conduct business with the Board or Clerk. Page 4 Packet Page -498- 12/9/2014 11 .C. VIII. I AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION Investments should be made subject to the cash flow needs and such cash flows are subject to revisions as market conditions and the Board's needs change. However, when the invested funds are needed in whole or in part for the purpose originally intended or for more optimal investments, the Clerk may sell the investment at the then-prevailing market price. The following are the guidelines for investments and limits on security types, issuers, and maturities as established by the Board. The Clerk shall have the option to further restrict investment percentages from time to time based on market conditions. The percentage allocation requirements for investment types and 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 U.S. Treasury 100% 5 Years GNMA 40% (5 Years 100% N/A avg. life3 Other U.S. Government for Guaranteed (e.g.AID, 10% GNMA) GTC) Federal Agency/GSE: FNMA, FHLMC, FHLB, 7-580% 40%2 N/A 5 Years FFCB* Highest ST or Three Highest LT Rating Corporates 25% 5% Categories 5 Years fA-1/P-1, A-/A3 or equivalent) Highest ST or Three Highest LT Rating Municipals 25% 5% Categories 5 Years (SP-1/MIG 1,A-/A3,or equivalent) Agency Mortgage- 25% 40%2 N/A 5 Years 3 Backed Securities(MBS) Avg. Life Non Negotiable 30% N/A N/A 1 Year Certificate of Deposits — U epository Bank Account 100% N/A N/A N/A Highest ST Rating Category ommercial Paper(CP) 25% 5% 270 Days (A-1/P-1, or equivalent) Counterparty(or if the counterparty is not rated by an NRSRO, then the counterparty's parent) must Repurchase Agreements be rated in the Highest ST Rating Category 20% 10% 90 Days (Repo or RP) (A-1/P-1, or equivalent) If the counterparty is a Federal Reserve Bank, no rating is required Money Market Funds 50% 25% Highest Fund Rating by all NRSROs who rate the N/A (MMFs) fund (AAAm/Aaa-mf,or equivalent) Fixed Income 20% 10% N/A N/A Mutual Funds Irtergovernmental Pools Highest Fund Quality and Volatility Rating (LGIPs) 50% 25% Categories by all NRSROs who rate the LGIP, N/A (AAAm/AAAf, S1,or equivalent) Florida Local Government Highest Fund Rating by all NRSROs who rate the Su-plus Funds Trust Funds 50% N/A N/A "Florida Prime") fund (AAAm/Aaa-mf,or equivalent) Page 5 Packet Page -499- 12/9/2014 11 .C. Notes: 1 Rating by at least one SEC-registered Nationally Recognized Statistical Rating Organization ("NRSRO"), unless otherwise noted. S`=Short-term; LT=Long-term. 2 Maximum exposure to any one Federal agency, including the combined holdings of Agency debt and Agency MBS, is 40%. 3 The maturity limit for MBS and ABS is based on the expected average life at time of settlement, measured using Bloomberg or otner industry standard methods. * Federal National Mortgage Association(FNMA); Federal Home Loan Mortaage Corporation(FHLMC); Federal Home Loan Bank or its District banks(FHLB); Federal Farm Credit Bank(FFCB). 1) U.S. Treasury & Government Guaranteed - U.S. Treasury obligations, and obligations the principal and interest of which are backed or guaranteed by the full faith and credit of the U.S. Government. 2) Federal Agency/GSE - Debt obligations, participations or other instruments issued or fully guaranteed by any U.S. Federal agency, instrumentality or government-sponsored enterprise (GSE). 3) Corporates — U.S. dollar denominated corporate notes, bonds or other debt obligations issued or guaranteed by a domestic corporation, financial institution, non-profit, or other entity. 4) Municipals — Obligations, including both taxable and tax-exempt, issued or guaranteed by any State, territory or possession of the United States,political subdivision, public corporation, authority, agency board, instrumentality or other unit of local government of any State or territory. 5) Agency Mortgage Backed Securities - Mortgage-backed securities (MBS), backed by residential, multi-family or commercial mortgages, that are issued or fully guaranteed as to principal and interest by a U.S. Federal agency or government sponsored enterprise, including but not limited to pass- throughs, collateralized mortgage obligations (CMOs) and REM ICs. 6) Non-Negotiable Certificate of Deposits - Non-negotiable interest bearing time certificates of deposit, or savings accounts in banks organized under the laws of this state or in national banks organized under the laws of the United States and doing business in this state, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Chapter 280, Florida Statutes. 7) Depository Bank Account - Now accounts in banks organized under the laws of this state or in national banks organized under the laws of the United States and doing business in this state, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Chapter 280, Florida Statutes. 8) Commercial Paper — U.S. dollar denominated commercial paper issued or guaranteed by a domestic corporation, company, financial institution, trust or other entity, including both unsecured debt and asset-backed programs. 9) Repurchase Agreements - Repurchase agreements (Repo or RP) that meet the following requirements: a. Must be governed by a written SIFMA Master Repurchase Agreement which specifies securities eligible for purchase and resale, and which provides the unconditional right to liquidate the underlying securities should the Counterparty default or fail to provide full timely repayment. Page 6 Packet Page-500- 12/9/2014 11 .C. b. Counterparty must be a Federal Reserve Bank, a Primary Dealer as designated by the Federal Reserve Bank of New York, or a nationally chartered commercial bank. c. Securities underlying repurchase agreements must be delivered to a third party custodian under a written custodial agreement and may be of deliverable or tri-party form. Securities must be held in the County's custodial account or in a separate account in the name of the County. d. Acceptable underlying securities include only securities that are direct obligations of, or that are fully guaranteed by, the United States or any agency of the United States, or U.S. Agency-backed mortgage related securities. e. Underlying securities must have an aggregate current market value of at least 102% (or 100% if the counterparty is a Federal Reserve Bank) of the purchase price plus current accrued price differential at the close of each business day. f. Final term of the agreement must be 1 year or less. 10) Money Market Funds - Shares in open-end and no-load money market mutual funds, provided such funds are registered under the Investment Company Act of 1940 and operate in accordance with Rule 2a-7. A thorough investigation of any money market fund is required prior to investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus must be obtained. 11) Fixed-Income Mutual Funds - Shares in open-end and no-load fixed-income mutual funds whose underlying investments would be permitted for purchase under this policy and all its restrictions. 12) Local Government Investment Pools —State, local government or privately-sponsored investment pools that are authorized pursuant to state law. A thorough investigation of any intergovernmental investment pool is required prior to investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus must be obtained. 13) The Florida Local Government Surplus Funds Trust Funds ("Florida Prime") A thorough investigation of the Florida Prime is required prior to investing, and on an annual basis. Attachment B is a questionnaire that contains a list of questions, to be answered prior to investing, that cover the major aspects of any investment pool/fund. A current prospectus or portfolio report must be obtained. General Investment and Portfolio Limits 1. General investment limitations: a. Investments must be denominated in U.S. dollars and issued for legal sale in U.S. markets. b. Minimum ratings are based on the highest rating by any one Nationally Recognized Statistical Ratings Organization ("NRSRO"), unless otherwise specified. c. All limits and rating requirements apply at time of purchase. d. Should a security fall below the minimum credit rating requirement for purchase, the Clerk will notify the Board. e. The maximum maturity(or average life for MBS/ABS) of any investment is 5 years. Maturity and average life are measured from settlement date. The final maturity date can be based on any mandatory call, put, pre-refunding date, or other mandatory redemption date. 2. General portfolio limitations: Page 7 Packet Page -501- 12/9/2014 11 .C. a. The maximum effective duration of the aggregate portfolio is 3 years. 3. Investment in the following are permitted, provided they meet all other policy requirements: a. Callable, step-up callable, called, pre-refunded, putable and extendable securities, as long as the effective final maturity meets the maturity limits for the sector b. Variable-rate and floating-rate securities c. Subordinated, secured and covered debt, if it meets the ratings requirements for the sector d. Zero coupon issues and strips, excluding agency mortgage-backed Interest-only structures (I/Os) e. Treasury TIPS Page 8 Packet Page -502- 12/9/2014 11.C. 4. The following are NOT PERMITTED investments, unless specifically authorized by statute and with prior approval of the governing body: a. Trading for speculation b. Derivatives (other than callables and traditional floating or variable-rate instruments) c. Mortgage-backed interest-only structures (I/Os) d. Inverse or leveraged floating-rate and variable-rate instruments e. Currency, equity, index and event-linked notes (e.g. range notes), or other structures that could return less than par at maturity f. Private placements and direct loans, except as may be legally permitted by Rule 144A or commercial paper issued under a 4(2)exemption from registration q. Convertible, high yield, and non-U.S. dollar denominated debt h. Short sales i. Use of leverage i. Futures and options k. Mutual funds, other than fixed-income mutual funds and ETFs, and money market funds I. Equities, commodities, currencies and hard assets 1. Florida Local Government Surplus Trust Fund (SBA) 2. US Government Securities Direct Obligations �. US Federal Instrumentalities US Federal Agency Securities Not Backed by Full Faith and Credit of US Government, except for Student Loan Marketing Association 6. Repurchase Agreements(As defined herein) 7. Fixed Income Mutual Funds Collateralized with US Government Securities or Federal Agencies 9. Prime Commercial Paper Rated "A I"and "P I". 10. Tax Exempt Obligations Rated "AA"or higher and issued by state or local governments 11. Now Account Fully collateralized in accordance with Chapter 280 Florida Statutes, limited to Limitation on Variable Rate Securities Acceptable only if the rate is a straight floating rate that is set in a • 2. Pa-s the Federal Financial Investment Examination Council (FFIEC)test at time of purchase, and fifteen (15) years at zero PSA. The term "zero PSA" means that all interest and principal payments are 1. Interest only strips of mortgage backed securities 2. Leveraged bonds �. Variable rate securities that set a rate based on an inverse relationship to an index 5. Variable rate debt that sets a rate based on more than a single index Page 9 Packet Page -503- 12/9/2014 11 .C. IX. I MATURITY AND LIQUIDITY REQUIREMENTS To the extent possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash flow requirements. Investments of current operating funds (short-term funds) shall have maturities of no longer than twelve (12) months. Investments of bond reserves, construction funds, and other non-operatinq funds ("core funds") shall have a term appropriate to the need for funds and in accordance with debt covenants, however the maturities shall not exceed five (5) years from the date of settlement. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the SIFMA Master Repurchase Aqreements.The objective will be to match investment cash liabilities)to the extent possible. Investment of funds shall have final maturities of not more than five(5)years, except for: 1. SBA No stated final maturity 2. Certificates of Deposit 1 Year 3. Repurchase Agroemont 00 Days 5. Prime Commercial Paper 180 Days Securities and Federal Agencies have average maturity of one year. 7. Mortgage Securities Have an average life of seven (7) years or less and have an absolute final maturity of no more than fifteen (15) years at zero PSA. Utilization of Mortgage Securities: 1. Mortgage securities shall not be used to match liabilities that are reasonably definable as to amount and disbursement date. 2. Mortgage securities should only be used to invest funds associated with reserves or liabilities that are not associated with a specifically identified cash flow schedule. 3. Mortgage securities should be used to prudently enhance the return on the portfolio. Exception for Refunding Bond Escrows US Government Securities and Federal Agencies deposited into an escrow in connection with the refunding of a County bond issue can have a final maturity of more than five years. •. f' .. . _ •�A_4_ • This policy recognizes that the portfolio operates in a dynamic environment. Therefore, in the event the maximum allowable percentages are exceeded due to cash flow demands within the portfolio after the date of the purchase of the security, this policy does not force the sell of the security prior to maturity. Maximum Investment Type % of Portfolio Fund (SBA)* 50% Page 10 Packet Page-504- 12/9/2014 11 .C. 2. US Government Securities 1-90°,4 3. US Federal Agencies"" 4. US Federal Instrumentalities"" 180°4 5. Certificates of Deposit 39% 6. Repurchase Agreements 20% 7. Fixed Income Mutual Funds 8. Domestic Bankers Acceptance 10% 9. Prime Commercial Paper 10% 10. Tax Exempt Obligations 10% t o e - e.--e -- - --• -- .•e " - .-e: - e: - - - - - . . - 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. Subject to the limitations under Portfolio Composition, Federal Instrumentalities. XI. I AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS The Chief Financial OfficerClerk 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"pr nary" dealc4-s and regional dealers that (1) qualify under Securities & Exchange Commission Rule 15C3(Uniform Net Capital Rule), (2) have capital of at least$50,000,000 and AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS (continued) (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 I transactions must supply the Chief Financial OfficerClerk with the following: 1. audited financial statements, 2. certification that no material adverse events have occurred since the issue of their most recent financial statements, 3. proof of Financial Industry Regulatory Authority, Inc. (FINRA)National Association of Securities Dealers, the registration (where applicable) or other securities registration, Page 11 Packet Page-505- 12/9/2014 11 .C. 4. proof of state registration,when required, 5. certification of having read and agreeing to abide by the Investment Policy and depository contracts in place in Collier County, and 6. a copy of the firm's established internal oversight and review guidelines controlling business with governmental entities. Each financial institution and broker/dealer must also agree to notify the Chief Financial OfficerClerk 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 Chief Financial OfficerClerk. Each institution and broker/dealer shall disclose to the Chief Financial OfficerClerk any proposed trade that would exceed the guidelines prior to executing the trade. The Clerk Chief Financial Officer 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 NASD 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 I Chief Financial OfficerClerk. 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 I from the lists will be based on the following: (1) state law, Board of County Commissioners 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 publicinterestthe Board of County Commissionors. more than 30% of the total dollar amount of sales and trades executed through other than a competitive bid proce°s can be conducted with a single dealer. XII. THIRD-PARTY CUSTODIAL AGREEMENTS All security transactions, including collateral for repurchase agreements, entered into by Collier County shall be conducted on a delivery versus payment(DVP) basis. safekeeping receipts or advice of the transaction. The third party custodian shall be a third party custodian bank or other third party custodial institution with certified fiduciary powers, chartered by the United Stares Government or the State of Florida and have combined capital and surplus of at least The Chief Financial Officer will execute third party custodial agreements approved by the Board of County -. . . . • ■ _ 10 Id , from the Chief Financial Officer with details as to responsibilities of each party, notification of security purchases, sales, delivery, repurchase agreements and wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps including liability of each party. 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 Page 12 Packet Page-506- 12/9/2014 11.C. 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 executeon behalf of the Board, a third party custodial agreement(s) with its bank(s) and depository institution(s). Such agreements may include letters of authority from the Clerk, details as to the responsibilities of each party, method of notification of security purchases, sales, delivery, procedures related to repurchase agreements and wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps and describing the liability of each party. The custodian shall accept transaction instructions only from those persons who have been duly authorized by the Clerk and which authorization has been provided, in writing, to the custodian. No withdrawal of securities, in whole or in part, shall be made from safekeeping, shall be permitted unless by such a duly authorized person. The custodian shall provide the Clerk with - - -e•'- z.-'e detailed information on the securities held by the custodian. Security transactions between a broker/dealer and the custodian involving the purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment" basis, if applicable, to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. Securities held as collateral shall be held free and clear of any liens. Page 13 Packet Page-507- 12/9/2014 11 .C. .'Ill. J MASTER REPURCHASE AGREEMENTS 1. Each firm involved in a repurchase agreement must execute the County's Master Master Repurchase Agreement. more than one business day. 3. Collateral requirements will be based on economic and financial conditions existing at the- agreement with the County. The markot value of the collateral shall not be less than the fallowing Maturity of US Government US Fedora!Agencies Mortgage Backed Socuritioc Sccuritioc and Instrumentalities' Socuritioo -_ ! 0. e 0. e_0. ! o• 10 !.o. - - - 9_0 !.0, !_0. "Excluding mortgage backed securities. 4. Collateral shall be marked to market at least weekly. 5. Substitution of collateral is permitted. 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. I BID REQUIREMENT The Chief Financial OfficerClerk shall utilize the competitive bid process to sell and purchase securities, subject only to the exceptions noted in the Investment Policy. After the Chief Financial OfficerClerk 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, (On a "work out" basis). 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. Due to the cost of safekeeping, one business dayOvernight repurchase agreements less than $1,000,000, and the overnight sweep repurchase agreement associated with the New-Depository Bank Account will +yet-be-bidbe included in the master agreement with the Depository Bank. Page 14 Packet Page -508- 12/9/2014 11 .C. 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. I INTERNAL CONTROLS I The Chief Financial OfficerClerk 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 e• - 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: transfers of all funds (purchases, sales, etc.), 2. separation of functions including transaction authority from accounting and record-keeping, and wire transfer initiation and wire approval, 3. custodial safekeeping, 4. avoidance of delivery of bearer-form or non-wireable securities, 5. delegation of authority to subordinate staff members, 6. written confirmation of telephone transactions, 7. supervisory control of employee actions, 8. identification and minimization of authorized investment officials, and 9. documentation of decisions and transactions_, and 10. documentation of completo description of mortgago securities purchased and yield tables at purchase date. XVI. I CONTINUING EDUCATION Each individual responsible for making investment decisions,including the Chief Financial OfficerClerk, 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. I REPORTING Annual, quarterly and monthly reports of assets will be presented to the Board. The following items will be included in the reports at least annually: 1. Securities in the portfolio by type, book value, income earned, market value, final maturity and average life. 2. Information on activity in the account, and 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.- XV/II. I OTHEINVESTMENT POLICY ADOPTION R 1. At the time of adoption, any securities that become out of compliance with the Investment Policy can be retained Grandfather existing securities in the portfolio to reduce the possibility of having to sell financial assets before maturity at a loss. Page 15 Packet Page-509- 12/9/2014 11 .C. 2. Any and all exceptions to the Investment Policy require majority vote of the Board of County Commiionerc. This investment policy is established pursuant to statutory authority. The Board establishes overall investment policies, the implementation of which is a constitutional responsibility of the Clerk. The investment policy shall be adopted by the Board. D- uly adopted this day of 2014. B- OARD OF COUNTY COMMISSIONERS COLLIER COUNTY, FLORIDA Page 16 Packet Page -510- 12/9/2014 11 .C. Attachment A Glossary of Cash and Investment Management Terms The following is a glossary of key investing terms, many of which appear in the County's investment policy. This glossary clarifies the meaning of investment terms generally used in cash and investment management. This glossary has been adapted from the GFOA Sample Investment Policy and the Association of Public Treasurers of the United States and Canada's Model Investment Policy. Accrued Interest. Interest earned but which has not yet been paid or received. Agency. See "Federal Agency Securities." Ask Price. Price at which a broker/dealer offers to sell a security to an investor. Also known as "offered price." Asset Backed Securities (ABS). A fixed-income security backed by notes or receivables against assets other than real estate. Generally issued by special purpose companies that "own" the assets and issue the ABS. Examples include securities backed by auto loans, credit card receivables, home equity loans, manufactured housing loans, farm equipment loans, and aircraft leases. Average Life. The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding. Basis Point. One hundredth of one percent, or 0.01%. Thus 1%equals 100 basis points. Bearer Security. A security whose ownership is determined by the holder of the physical security. Typically, there is no registration on the issuer's books. Title to bearer securities is transferred by delivery of the physical security or certificate. Also known as "physical securities." Benchmark Bills: In November 1999, FNMA introduced its Benchmark Bills program, a short-term debt securities issuance program to supplement its existing discount note program. The program includes a schedule of larger, weekly issues in three- and six-month maturities and biweekly issues in one-year for Benchmark Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA conducts a weekly auction for each Benchmark Bill maturity and accepts both competitive and non-competitive bids through a web based auction system. This program is in addition to the variety of other discount note maturities, with rates posted on a daily basis, which FNMA offers. FNMA's Benchmark Bills are unsecured general obligations that are issued in book-entry form through the Federal Reserve Banks. There are no periodic payments of interest on Benchmark Bills, which are sold at a discount from the principal amount and payable at par at maturity. Issues under the Benchmark program constitute the same credit standing as other FNMA discount notes; they simply add organization and liquidity to the short-term Agency discount note market. Benchmark Notes/Bonds: Benchmark Notes and Bonds are a series of FNMA "bullet" maturities (non- callable) issued according to a pre-announced calendar. Under its Benchmark Notes/Bonds program, 2, 3, 5, 10, and 30-year maturities are issued each quarter. Each Benchmark Notes new issue has a minimum size of $4 billion, 30-year new issues having a minimum size of $1 billion, with re-openings based on investor demand to further enhance liquidity. The amount of non-callable issuance has allowed FNMA to build a yield curve in Benchmark Notes and Bonds in maturities ranging from 2 to 30 years. The liquidity emanating from these large size issues has facilitated favorable financing opportunities through the development of a liquid overnight and term repo market. Issues under the Benchmark program constitute the same credit standing as other FNMA issues; they simply add organization and liquidity to the intermediate- and long-term Agency market. Page 17 Packet Page -511- 12/9/2014 11 .C. Benchmark. A market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance, and duration of the actual portfolio's investments. Bid Price. Price at which a broker/dealer offers to purchase a security from an investor. Bond. Financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash-flows, including periodic interest payments and a principal repayment. Book Entry Securities. Securities that are recorded in a customer's account electronically through one of the financial markets electronic delivery and custody systems, such as the Fed Securities wire, DTC, and PTC (as opposed to bearer or physical securities). The trend is toward a certificate-free society in order to cut down on paperwork and to diminish investors' concerns about the certificates themselves. The vast majority of securities are now book entry securities. Book Value. The value at which a debt security is reflected on the holder's records at any point in time. Book value is also called "amortized cost" as it represents the original cost of an investment adjusted for amortization of premium or accretion of discount. Also called "carrying value." Book value can vary over time as an investment approaches maturity and differs from "market value" in that it is not affected by changes in market interest rates. Broker/Dealer. A person or firm transacting securities business with customers. A "broker" acts as an agent between buyers and sellers, and receives a commission for these services. A "dealer" buys and sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities, whereas a broker merely matches up buyers and sellers. See also "Primary Dealer." Bullet Notes/Bonds. Notes or bonds that have a single maturity date and are non-callable. Call Date. Date at which a call option may be or is exercised. Call Option. The right, but not the obligation, of an issuer of a security to redeem a security at a specified value and at a specified date or dates prior to its stated maturity date. Most fixed-income calls are a par, but can be at any previously established price. Securities issued with a call provision typically carry a higher yield than similar securities issued without a call feature. There are three primary types of call options (1) European - one-time calls, (2) Bermudan periodically on a predetermined schedule (quarterly, semi- annual, annual), and (3) American continuously callable at any time on or after the call date. There is usually a notice period of at least 5 business days prior to a call date. Callable Bonds/Notes. Securities which contain an imbedded call option giving the issuer the right to redeem the securities prior to maturity at a predetermined price and time. Certificate of Deposit (CD). Bank obligation issued by a financial institution generally offering a fixed rate of return (coupon) for a specified period of time (maturity). Can be as long as 10 years to maturity, but most CDs purchased by public agencies are one year and under. Collateral. Investment securities or other property that a borrower pledges to secure repayment of a loan, secure deposits of public monies, or provide security for a repurchase agreement. Collateralization. Process by which a borrower pledges securities, property, or other deposits for securing the repayment of a loan and/or security. Collateralized Mortgage Obligation (CMO). A security that pools together mortgages and separates them into short, medium. and long-term positions (called tranches). Tranches are set up to pay different rates of interest depending upon their maturity. Interest payments are usually paid monthly. In "plain vanilla" CMOs, principal is not paid on a tranche until all shorter tranches have been paid off. This system provides interest Page 18 Packet Page-512- 12/9/2014 11 .C. and principal in a more predictable manner. A single pool of mortgages can be carved up into numerous tranches each with its own payment and risk characteristics. Commercial Paper. Short term unsecured promissory note issued by a company or financial institution. Issued at a discount and matures for par or face value. Usually a maximum maturity of 270 days and given a short-term debt rating by one or more NRSROs. Convexity. A measure of a bond's price sensitivity to changing interest rates. A high convexity indicates greater sensitivity of a bond's price to interest rate changes. Corporate Note. A debt instrument issued by a corporation with a maturity of greater than one year and less than ten years. Counterparty. The other party in a two party financial transaction. "Counterparty risk" refers to the risk that the other party to a transaction will fail in its related obligations. For example, the bank or broker/dealer in a repurchase agreement. Coupon Rate. Annual rate of interest on a debt security, expressed as a percentage of the bond's face value. Current Yield. Annual rate of return on a bond based on its price. Calculated as (coupon rate / price), but does not accurately reflect a bond's true yield level. Custody. Safekeeping services offered by a bank, financial institution, or trust company, referred to as the "custodian." Service normally includes the holding and reporting of the customer's securities, the collection and disbursement of income, securities settlement, and market values. Dealer. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his/her own account. Delivery Versus Payment(DVP). Settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and DTC, are done DVP as a protection for both the buyer and seller of securities. Depository Trust Company (DTC). A firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs, and BAs clear through DTC. Derivatives. (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities, or commodities). For hedging purposes, common derivatives are options, futures, interest rate swaps, and swaptions. All Collateralized Mortgage Obligations (CMOs)are derivatives. Derivative Security. Financial instrument created from, or whose value depends upon, one or more underlying assets or indexes of asset values. Designated Bond. FFCB's regularly issued, liquid, non-callable securities that generally have a 2 or 3 year original maturity. New issues of Designated Bonds are $1 billion or larger. Re-openings of existing Designated Bond issues are generally a minimum of$100 million. Designated Bonds are offered through a syndicate of two to six dealers. Twice each month the Funding Corporation announces its intention to issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a Designated Bond. Issues under the Designated Bond program constitute the same credit standing as other FFCB issues; they simply add organization and liquidity to the intermediate- and long-term Agency market. Page 19 Packet Page-513- 12/9/2014 11 .C. Discount Notes. Unsecured general obligations issued by Federal Agencies at a discount. Discount notes mature at par and can range in maturity from overnight to one year. Very large primary (new issue) and secondary markets exist. Discount Rate. Rate charged by the system of Federal Reserve Banks on overnight loans to member banks. Changes to this rate are administered by the Federal Reserve and closely mirror changes to the"fed funds rate." Discount Securities. Non-interest bearing money market instruments that are issued at discount and redeemed at maturity for full face value. Examples include: U.S. Treasury Bills, Federal Agency Discount Notes, Bankers'Acceptances, and Commercial Paper. Discount. The amount by which a bond or other financial instrument sells below its face value. See also "Premium." Diversification. Dividing investment funds among a variety of security types, maturities, industries, and issuers offering potentially independent returns. Dollar Price. A bond's cost expressed as a percentage of its face value. For example, a bond quoted at a dollar price of 951/2, would have a principal cost of$955 per$1,000 of face value. Duff& Phelps. One of several NRSROs that provide credit ratings on corporate and bank debt issues. Duration. The weighted average maturity of a security's or portfolio's cash-flows, where the present values of the cash-flows serve as the weights. The greater the duration of a security/portfolio, the greater its percentage price volatility with respect to changes in interest rates. Used as a measure of risk and a key tool for managing a portfolio versus a benchmark and for hedging risk. There are also different kinds of duration used for different purposes (e.g. MacAuley Duration, Modified Duration, Effective Duration). Effective Duration is a duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective duration is the approximate percentage change in price for a 100 basis point change in rates. To compute you can apply the following equation. Price if yield decline- price if yield rise/2(initial price)(change in yield in decimal) Fannie Mae. See "Federal National Mortgage Association." Fed Money Wire. A computerized communications system that connects the Federal Reserve System with its member banks, certain U. S. Treasury offices, and the Washington D.C. office of the Commodity Credit Corporation. The Fed Money Wire is the book entry system used to transfer cash balances between banks for themselves and for customer accounts. Fed Securities Wire. A computerized communications system that facilitates book entry transfer of securities between banks, brokers and customer accounts, used primarily for settlement of U.S. Treasury and Federal Agency securities. Fed. See "Federal Reserve System." Federal Agency Security. A debt instrument issued by one of the Federal Agencies. Federal Agencies are considered second in credit quality and liquidity only to U.S. Treasuries. Federal Agency. Government sponsored/owned entity created by the U.S. Congress, generally for the purpose of acting as a financial intermediary by borrowing in the marketplace and directing proceeds to specific areas of the economy considered to otherwise have restricted access to credit markets. The largest Federal Agencies are GNMA, FNMA, FHLMC, FHLB. FFCB, SLMA, and TVA. Page 20 Packet Page -514- 12/9/2014 11 .C. Federal Deposit Insurance Corporation (FDIC). Federal agency that insures deposits at commercial banks, currently to a limit of$250,000 per depositor per bank. Federal Farm Credit Bank (FFCB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system that is a network of cooperatively-owned lending institutions that provides credit services to farmers, agricultural cooperatives and rural utilities. The FFCBs act as financial intermediaries that borrow money in the capital markets and use the proceeds to make loans and provide other assistance to farmers and farm-affiliated businesses. Consists of the consolidated operations of the Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks. Frequent issuer of discount notes, agency notes and callable agency securities. FFCB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and agricultural industry. Also issues notes under its"designated note" program. Federal Funds (Fed Funds). Funds placed in Federal Reserve Banks by depository institutions in excess of current reserve requirements, and frequently loaned or borrowed on an overnight basis between depository institutions. Federal Funds Rate (Fed Funds Rate). The interest rate charged by a depository institution lending Federal Funds to another depository institution. The Federal Reserve influences this rate by establishing a "target" Fed Funds rate associated with the Fed's management of monetary policy. Federal Home Loan Bank System (FHLB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system, consisting of wholesale banks (currently twelve district banks) owned by their member banks, which provides correspondent banking services and credit to various financial institutions, financed by the issuance of securities. The principal purpose of the FHLB is to add liquidity to the mortgage markets. Although FHLB does not directly fund mortgages, it provides a stable supply of credit to thrift institutions that make new mortgage loans. FHLB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes and callable agency securities. Also issues notes under its"global note" and "TAP" programs. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that provides stability and assistance to the secondary market for home mortgages by purchasing first mortgages and participation interests financed by the sale of debt and guaranteed mortgage backed securities. FHLMC debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities, and MBS. Also issues notes under its "reference note" program. Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the large Federal Agencies. A aovernment sponsored public corporation (GSE)that provides liquidity to the residential mortgage market by purchasing mortgage loans from lenders, financed by the issuance of debt securities and MBS (pools of mortgages packaged together as a security). FNMA debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its"benchmark note" program. Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve System. Federal Reserve System (the Fed). The independent central bank system of the United States that establishes and conducts the nation's monetary policy. This is accomplished in three major ways: (1) raising or lowering bank reserve requirements, (2) raising or lowering the target Fed Funds Rate and Discount Rate, and (3) in open market operations by buying and selling government securities. The Federal Reserve System is made up of twelve Federal Reserve District Banks, their branches, and many national and state banks throughout the nation. It is headed by the seven member Board of Governors known as the "Federal Reserve Board" and headed by its Chairman. • Page 21 Packet Page-515- 12/9/2014 11 .C. Financial Industry Regulatory Authority, Inc. (FINRA). A private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets. The government also has a regulatory arm for investments, the Securities and Exchange Commission (SEC). Fiscal Agent/Paying Agent. A bank or trust company that acts, under a trust agreement with a corporation or municipality, in the capacity of general treasurer. The agent performs such duties as making coupon payments, paying rents, redeeming bonds, and handling taxes relating to the issuance of bonds. Fitch Investors Service, Inc. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. Floating Rate Security (FRN or "floater"). A bond with an interest rate that is adjusted according to changes in an interest rate or index. Differs from variable-rate debt in that the changes to the rate take place immediately when the index changes, rather than on a predetermined schedule. See also "Variable Rate Security." Freddie Mac. See "Federal Home Loan Mortgage Corporation." Ginnie Mae. See "Government National Mortgage Association." Global Notes: Notes designed to qualify for immediate trading in both the domestic U.S. capital market and in foreign markets around the globe. Usually large issues that are sold to investors worldwide and therefore have excellent liquidity. Despite their global sales, global notes sold in the U.S. are typically denominated in U.S. dollars. Government National Mortgage Association(GNMA or "Ginnie Mae"). One of the large Federal Agencies. Government-owned Federal Agency that acquires, packages, and resells mortgages and mortgage purchase commitments in the form of mortgage-backed securities. Largest issuer of mortgage pass-through securities. GNMA debt is guaranteed by the full faith and credit of the U.S. government (one of the few agencies that are actually full faith and credit of the U.S. government). Government Securities. An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See "Treasury Bills, Notes, Bonds. and SLGS." Government Sponsored Enterprise (GSE). Privately owned entity subject to federal regulation and supervision, created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy such as students, farmers, and homeowners. GSEs carry the implicit backing of the U.S. government, but they are not direct obligations of the U.S. government. For this reason, these securities will offer a yield premium over U.S. Treasuries. Examples of GSEs include: FHLB, FHLMC, FNMA, and SLMA. Government Sponsored Enterprise Security. A security issued by a Government Sponsored Enterprise. Considered Federal Agency Securities. Index. A compilation of statistical data that tracks changes in the economy or in financial markets. Interest-Only (10) STRIP. A security based solely on the interest payments from the bond. After the principal has been repaid, interest payments stop and the value of the security falls to nothing. Therefore, lOs are considered risky investments. Usually associated with mortgage-backed securities. Internal Controls. An internal control structure ensures that the assets of the entity are protected from loss, theft, or misuse. The internal control structure is designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that 1) the cost of a control should not exceed the benefits likely to be derived and 2) the valuation of costs and benefits requires estimates and judgments by manaaement. Internal controls should address the following points: Page 22 Packet Page -516- 12/9/2014 11 .C. 1. Control of collusion - Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. Separation of transaction authority from accounting and record keeping - A separation of duties is achieved by separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction. 3. Custodial safekeeping - Securities purchased from any bank or dealer including appropriate collateral (as defined by state law) shall be placed with an independent third party for custodial safekeeping. 4. Avoidance of physical delivery securities - Book-entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. 5. Clear delegation of authority to subordinate staff members - Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. 6. Written confirmation of transactions for investments and wire transfers - Due to the potential for error and improprieties arising from telephone and electronic transactions, all transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and if the safekeeping institution has a list of authorized signatures. 7. Development of a wire transfer agreement with the lead bank and third-party custodian -The designated official should ensure that an agreement will be entered into and will address the following points: controls, security provisions, and responsibilities of each party making and receiving wire transfers. Inverse Floater. A floating rate security structured in such a way that it reacts inversely to the direction of interest rates. Considered risky as their value moves in the opposite direction of normal fixed-income investments and whose interest rate can fall to zero. Investment Advisor. A company that provides professional advice managing portfolios, investment recommendations, and/or research in exchange for a management fee. Investment Adviser Act of 1940. Federal legislation that sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations. Investment Grade. Bonds considered suitable for preservation of invested capital, including bonds rated a minimum of Baa3 by Moody's, BBB- by Standard & Poor's, or BBB- by Fitch. Although "BBB" rated bonds are considered investment grade, most public agencies cannot invest in securities rated below"A." Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a relative measure of cash and near-cash items in a portfolio of assets. Additionally, it is a term describing the marketability of a money market security correlating to the narrowness of the spread between the bid and ask prices. Local Government Investment Pool (LGIP). An investment by local governments in which their money is pooled as a method for managing local funds. (e.g., Florida State Board of Administration's Florida Prime Fund). Long-Term Core Investment Program. Funds that are not needed within a one-year period. Page 23 Packet Page-517- 12/9/2014 11 .0. Market Value. The fair market value of a security or commodity. The price at which a willing buyer and seller would pay for a security. Mark-to-market. Adjusting the value of an asset to its market value, reflecting in the process unrealized gains or losses. Master Repurchase Agreement. A widely accepted standard agreement form published by the Securities Industry and Financial Markets Association (SIFMA) that is used to govern and document Repurchase Agreements and protect the interest of parties in a repo transaction. Maturity Date. Date on which principal payment of a financial obligation is to be paid. Medium Term Notes (MTN's). Used frequently to refer to corporate notes of medium maturity(5-years and under). Technically, any debt security issued by a corporate or depository institution with a maturity from 1 to 10 years and issued under an MTN shelf registration. Usually issued in smaller issues with varying coupons and maturities, and underwritten by a variety of broker/dealers (as opposed to large corporate deals issued and underwritten all at once in large size and with a fixed coupon and maturity). Money Market. The market in which short-term debt instruments (bills, commercial paper, bankers' acceptance, etc.) are issued and traded. Money Market Mutual Fund (MMF). A type of mutual fund that invests solely in money market instruments, such as: U.S. Treasury bills, commercial paper, bankers' acceptances, and repurchase agreements. Money market mutual funds are registered with the SEC under the Investment Company Act of 1940 and are subject to "rule 2a-7" which significantly limits average maturity and credit quality of holdings. MMF's are managed to maintain a stable net asset value (NAV) of $1.00. Many MMFs carry ratings by a NRSRO. Moody's Investors Service. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. Mortgage Backed Securities (MBS). Mortgage-backed securities represent an ownership interest in a pool of mortgage loans made by financial institutions, such as savings and loans, commercial banks, or mortgage companies, to finance the borrower's purchase of a home or other real estate. The majority of MBS are issued and/or guaranteed by GNMA, FNMA, and FHLMC. There are a variety of MBS structures with varying levels of risk and complexity. All MBS have reinvestment risk as actual principal and interest payments are dependent on the payment of the underlying mortgages which can be prepaid by mortgage holders to refinance and lower rates or simply because the underlying property was sold. Mortgage Pass-Through Securities. A pool of residential mortaaae loans with the monthly interest and principal distributed to investors on a pro-rata basis. The largest issuer is GNMA. Municipal Note/Bond. A debt instrument issued by a state or local government unit or public agency.The vast majority of municipals are exempt from state and federal income tax, although some non-qualified issues are taxable. Mutual Fund. Portfolio of securities professionally managed by a registered investment company that issues shares to investors. Many different types of mutual funds exist (e.g.. bond, equity, and money market funds); all except money market funds operate on a variable net asset value (NAV). Negotiable Certificate of Deposit (Negotiable CD). Large denomination CDs ($100,000 and larger) that are issued in bearer form and can be traded in the secondary market. Net Asset Value. The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund's assets including securities, cash, and any accrued earnings, then subtracting the total assets from the fund's liabilities, and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund's portfolio. (See below.) Page 24 Packet Page-518- 12/9/2014 11 .C. f(Total assets) - (Liabilities)1/(Number of shares outstanding) NRSRO. A "Nationally Recognized Statistical Rating Organization" (NRSRO) is a designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody's, S&P, Fitch, and Duff& Phelps. Offered Price. See also "Ask Price." Open Market Operations. A Federal Reserve monetary policy tactic entailing the purchase or sale of government securities in the open market by the Federal Reserve System from and to primary dealers in order to influence the money supply, credit conditions, and interest rates. Par Value. The face value, stated value, or maturity value of a security. Physical Delivery. Delivery of readily available underlying assets at contract maturity. Portfolio. Collection of securities and investments held by an investor. Premium. The amount by which a bond or other financial instrument sells above its face value. See also "Discount." Primary Dealer. A designation given to certain government securities dealer by the Federal Reserve Bank of New York. Primary dealers can buy and sell government securities directly with the Fed. Primary dealers also submit daily reports of market activity and security positions held to the Fed and are subject to its informal oversight. Primary dealers are the largest buyers and sellers by volume in the U.S. Treasury securities market. Prime Paper. Commercial paper of high quality. Highest rated paper is A-1+/A-1 by S&P and P-1 by Moody's. Principal. Face value of a financial instrument on which interest accrues. May be less than par value if some principal has been repaid or retired. For a transaction, principal is par value times price and includes any premium or discount. Prudent Expert Rule. Standard that requires that a fiduciary manage a portfolio with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. This statement differs from the "prudent person" rule in that familiarity with such matters suggests a higher standard than simple prudence. Prudent Investor Standard. Standard that requires that when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. More stringent than the "prudent person" standard as it implies a level of knowledge commensurate with the responsibility at hand. Qualified Public Depository - Per Subsection 280.02(26), F.S., "qualified public depository" means any bank, savings bank, or savings association that: 1. Is organized and exists under the laws of the United States, the laws of this state or any other state or territory of the United States. Page 25 Packet Page-519- 12/9/2014 11 .C. 2. Has its principal place of business in this state or has a branch office in this state which is authorized under the laws of this state or of the United States to receive deposits in this state. 3. Has deposit insurance under the provision of the Federal Deposit Insurance Act, as amended, 12 U.S.C. ss.1811 et seq. 4. Has procedures and practices for accurate identification, classification, reporting, and collateralization of public deposits. 5. Meets all requirements of Chapter 280, F.S. 6. Has been designated by the Chief Financial Officer as a qualified public depository. Range Note. A type of structured note that accrues interest daily at a set coupon rate that is tied to an index. Most range notes have two coupon levels; a higher accrual rate for the period the index is within a designated range, the lower accrual rate for the period that the index falls outside the designated range. This lower rate may be zero and may result in zero earnings. Rate of Return. Amount of income received from an investment, expressed as a percentage of the amount invested. Realized Gains (Losses). The difference between the sale price of an investment and its book value. Gains/losses are "realized" when the security is actually sold, as compared to "unrealized" gains/losses which are based on current market value. See"Unrealized Gains(Losses)." Reference Bills: FHLMC's short-term debt program created to supplement its existing discount note program by offering issues from one month through one year, auctioned on a weekly or on an alternating four-week basis (depending upon maturity) offered in sizeable volumes ($1 billion and up) on a cycle of regular, standardized issuance. Globally sponsored and distributed, Reference Bill issues are intended to encourage active trading and market-making and facilitate the development of a term repo market. The program was designed to offer predictable supply, pricing transparency, and liquidity, thereby providing alternatives to U.S. Treasury bills. FHLMC's Reference Bills are unsecured general corporate obligations. This program supplements the corporation's existing discount note program. Issues under the Reference program constitute the same credit standing as other FHLMC discount notes: they simply add organization and liquidity to the short-term Agency discount note market. Reference Notes: FHLMC's intermediate-term debt program with issuances of 2, 3, 5, 10, and 30-year maturities. Initial issuances range from $2 -$6 billion with re-openings ranging $1 - $4 billion. The notes are high-quality bullet structures securities that pay interest semiannually. Issues under the Reference program constitute the same credit standing as other FHLMC notes; they simply add organization and liquidity to the intermediate-and long-term Agency market. Repurchase Agreement (Repo). A short-term investment vehicle where an investor agrees to buy securities from a counterparty and simultaneously agrees to resell the securities back to the counterparty at an agreed upon time and for an agreed upon price. The difference between the purchase price and the sale price represents interest earned on the agreement. In effect, it represents a collateralized loan to the investor, where the securities are the collateral. Can be DVP, where securities are delivered to the investor's custodial bank, or "tri-party" where the securities are delivered to a third party intermediary. Any type of security can be used as "collateral," but only some types provide the investor with special bankruptcy protection under the law. Repos should be undertaken only when an appropriate Securities Industry and Financial Markets Association (SIFMA) approved master repurchase agreement is in place. Reverse Repurchase Agreement (Reverse Repo). A repo from the point of view of the original seller of securities. Used by dealers to finance their inventory of securities by essentially borrowing at short-term rates. Can also be used to leverage a portfolio and in this sense, can be considered risky if used improperly. Page 26 Packet Page -520- 12/9/2014 11 .C. Safekeeping. Service offered for a fee, usually by financial institutions, for the holding of securities and other valuables. Safekeeping is a component of custody services. Secondary Market. Markets for the purchase and sale of any previously issued financial instrument. Securities Industry and Financial Markets Association (SIFMA). The bond market trade association representing the largest securities markets in the world. In addition to publishing a Master Repurchase Agreement, widely accepted as the industry standard document for Repurchase Agreements, the SIFMA also recommends bond market closures and early closes due to holidays. Securities Lending. An arrangement between and investor and a custody bank that allows the custody bank to"loan" the investors investment holdings, reinvest the proceeds in permitted investments, and shares any profits with the investor. Should be governed by a securities lending agreement. Can increase the risk of a portfolio in that the investor takes on the default risk on the reinvestment at the discretion of the custodian. Sinking Fund. A separate accumulation of cash or investments (including earnings on investments) in a fund in accordance with the terms of a trust agreement or indenture, funded by periodic deposits by the issuer (or other entity responsible for debt service), for the purpose of assuring timely availability of moneys for payment of debt service. Usually used in connection with term bonds. Spread. The difference between the price of a security and similar maturity U.S.Treasury investments, expressed in percentage terms or basis points. A spread can also be the absolute difference in yield between two securities. The securities can be in different markets or within the same securities market between different credits, sectors, or other relevant factors. Standard & Poor's. One of several NRSROs that provide credit ratings on corporate and municipal debt issues. STRIPS (Separate Trading of Registered Interest and Principal of Securities). Acronym applied to U.S. Treasury securities that have had their coupons and principal repayments separated into individual zero- coupon Treasury securities. The same technique and "strips" description can be applied to non-Treasury securities (e.g.. FNMA strips). Structured Notes. Notes that have imbedded into their structure options such as step-up coupons or derivative-based returns. Supranational. Supranational organizations are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. These agreements provide for limited immunity from the laws of member countries. Bonds issued by these institutions are part of the broader class of Supranational, Sovereign. and Non-U.S. Agency (SSA) sector bonds. Supranational bonds finance economic and infrastructure development and support environmental protection, poverty reduction, and renewable energy around the globe. For example, the World Bank. International Finance Corporation (IFC), and African Development Bank (AfDB) have "green bond" programs specifically designed for energy resource conservation and management. Supranational bonds, which are issued by multi-national organizations that transcend national boundaries. Examples include the World Bank, African Development Bank, and European Investment Bank. Swap. Trading one asset for another. TAP Notes: Federal Agency notes issued under the FHLB TAP program. Launched in 6/99 as a refinement to the FHLB bullet bond auction process. In a break from the FHLB's traditional practice of bringing numerous small issues to market with similar maturities, the TAP Issue Program uses the four most common maturities and reopens them up regularly through a competitive auction. These maturities (2, 3, 5, and 10 year) will remain open for the calendar quarter, after which they will be closed and a new series of TAP issues will be opened to replace them. This reduces the number of separate bullet bonds issued, but generates enhanced awareness and liquidity in the marketplace through increased issue size and secondary market volume. Page 27 Packet Page-521- 12/9/2014 11 .C. Tennessee Valley Authority(TVA). One of the large Federal Agencies. A wholly owned corporation of the United States government that was established in 1933 to develop the resources of the Tennessee Valley. region in order to strengthen the regional and national economy and the national defense. Power operations are separated from non-power operations. TVA securities represent obligations of TVA, payable solely from TVA's net power proceeds, and are neither obligations of nor guaranteed by the United States. TVA is currently authorized to issue debt up to $30 billion. Under this authorization, TVA may also obtain advances from the U.S. Treasury of up to $150 million. Frequent issuer of discount notes, agency notes, and callable agency securities. Total Return. Investment performance measured over a period of time that includes coupon interest, interest on interest, and both realized and unrealized gains or losses. Total return includes, therefore, any market value appreciation/depreciation on investments held at period end. Treasuries. Collective term used to describe debt instruments backed by the U.S. government and issued through the U.S. Department of the Treasury. Includes Treasury bills, Treasury notes, and Treasury bonds. Also a benchmark term used as a basis by which the yields of non-Treasury securities are compared (e.g., "trading at 50 basis points over Treasuries"). Treasury Bills (T-Bills). Short-term direct obligations of the United States government issued with an original term of one year or less. Treasury bills are sold at a discount from face value and do not pay interest before maturity. The difference between the purchase price of the bill and the maturity value is the interest earned on the bill. Currently, the U.S. Treasury issues 4-week,13-week, and 26-week T-Bills. Treasury Bonds. Long-term interest-bearing debt securities backed by the U.S. government and issued with maturities of ten years and longer by the U.S. Department of the Treasury. Treasury Notes. Intermediate interest-bearing debt securities backed by the U.S. government and issued with maturities ranging from one to ten years by the U.S. Department of the Treasury. The Treasury currently issues 2-year, 3-year, 5-year, and 10-year Treasury Notes. Trustee. A bank designated by an issuer of securities as the custodian of funds and official representative of bondholders. Trustees are appointed to insure compliance with the bond documents and to represent bondholders in enforcing their contract with the issuer. Uniform Net Capital Rule. SEC Rule 15c3-1 that outlines the minimum net capital ratio (ratio of indebtedness to net liquid capital)of member firms and non-member broker/dealers. Unrealized Gains (Losses). The difference between the market value of an investment and its book value. Gains/losses are "realized" when the security is actually sold. as compared to "unrealized" gains/losses which are based on current market value. See also"Realized Gains (Losses)." Variable-Rate Security. A bond that bears interest at a rate that varies over time based on a specified schedule of adjustment (e.g., daily, weekly, monthly, semi-annually, or annually). See also "Floating Rate Note." Weighted Average Maturity (or just "Average Maturity"). The average maturity of all securities and investments of a portfolio, determined by multiplying the par or principal value of each security or investment by its maturity(days or years), summing the products, and dividing the sum by the total principal value of the portfolio. A simple measure of risk of a fixed-income portfolio. Weighted Average Maturity to Call. The average maturity of all securities and investments of a portfolio, adjusted to substitute the first call date per security for maturity date for those securities with call provisions. Yield Curve. A graphic depiction of yields on like securities in relation to remaining maturities spread over a time line. The traditional yield curve depicts yields on U.S. Treasuries, although yield curves exist for Federal Agencies and various credit quality corporates as well. Yield curves can be positively sloped Page 28 Packet Page -522- 12/9/2014 11 .C. (normal) where longer-term investments have higher yields, or "inverted" (uncommon) where longer-term investments have lower yields than shorter ones. Yield to Call (YTC). Same as "Yield to Maturity," except the return is measured to the first call date rather than the maturity date. Yield to call can be significantly higher or lower than a security's yield to maturity. Yield to Maturity(YTM). Calculated return on an investment, assuming all cash-flows from the security are reinvested at the same original yield. Can be higher or lower than the coupon rate depending on market rates and whether the security was purchased at a premium or discount. There are different conventions for calculating YTM for various types of securities. Yield. There are numerous methods of yield determination. In this glossary, see also "Current Yield," "Yield Curve," "Yield to Call," and "Yield to Maturity." Page 29 Packet Page -523- 12/9/2014 11 .0. Attachment B Investment Pool/Fund Questionnaire 1. A description of eligible investment securities, and a written statement of investment policy and objectives. 2. A description of interest calculations and how it is distributed, and how pains and losses are treated. 3. A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 4. A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. 5. A schedule for receiving statements and portfolio listings. 6. Are reserves, retained earnings, etc. utilized by the pool/fund? 7. A fee schedule, and when and how is it assessed. 8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? Page 30 Packet Page -524- 12/9/2014 11 .C. SAMPLE INTERNAL CONTROLS AND OPERATIONAL PROCEDURES MANUAL FOR INVESTMENTS Prepared by: Date: Packet Page-525- 12/9/2014 11.C. Table of Contents Page Number I. PURPOSE 4 II. SCOPE 4 III. DELEGATION OF AUTHORITY 4 IV. INTERNAL CONTROLS A. Chain of Command 5 B. Duties and Responsibilities 5 C. Separation of Duties 5 D. Custodial Accounts 5 • E. Delivery vs.Payment 6 F. Collateralization 6 G. Interest Rate Risk 6 H. Liquidity Objectives 7 I. Portfolio Management 7 J. Banking Services RFPs 8 V. OPERATIONAL PROCEDURES A. Cash Review 8 B. Investment Selection 9 C. Purchasing an Investment 9 D. Settlement and Follow Through 11 E. Prepare and Review Investment Transactions 11 F. Daily Operations 11 1. Worksheet 11 2. Trading 12 3. Trade Ticket 12 4. Money Market Funds 12 5. Authorized Wires 13 6. Bank Corrections 13 7. Accountant 14 8. Accounting Specialist 111 14 9. Trade Flow Responsibilities Summary 15 Sample Internal Controls and Operational Procedures Page 2 Packet Page-526- 12/9/2014 11.C. Table of Contents, continued G. Reporting Requirements 15 VI. INVESTMENT COMMITTEE 16 VII. REVIEW AND APPROVAL 16 VIII. ATTACHMENTS 16 IX. EXHIBITS 16 Sample Internal Controls and Operational Procedures Page 3 Packet Page-527- 12/9/2014 11 .C. Internal Controls and Operational Procedures Manual for Investments Sample PURPOSE The ADD NAME recognizes that as a public entity the ADD NAME is endowed with the trust and use of funds from various sources including the issuance of debt, federal, state and local grants, and proceeds generated from operations. An important part of the earnings is the investment of funds derived from these sources. Therefore, the purpose of this Internal Controls and Operational Procedures Manual for Investments is to provide guidelines to assist the Authorized Staff with day- to-day investment operations. II. SCOPE In accordance with Section 218.415, Florida Statutes , this Internal Controls and Operational Procedures Manual for Investments ("Manual") applies to all cash and investments held or controlled by the ADD NAME and consistent with approved Investment Policy (see attached) The ADD TITLE has established a system of internal controls and operational procedures. The internal controls have been designed to prevent losses of funds, which might arise from fraud, employee error, and misrepresentation by third parties, or imprudent actions by employees. The procedures are intended to reduce to a relatively low level the risk that material losses may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. The written procedures include reference to safekeeping, repurchase agreements, and separation of transactions from accounting and record keeping, wire transfer agreements and depository agreements. No person may engage in any investment transaction except as authorized under the terms of this Manual. III. DELEGATION OF AUTHORITY Responsibility for the investment program is assigned to the ADD TITLE, who shall maintain this Internal Controls and Operational Procedures Manual for investments pursuant to the Investment Policy. Authorized Staff shall be responsible for monitoring internal controls, administrative controls and to regulate the activities of the ADD TITLE' staff involved with the investment program. The Authorized Staff is limited to the following positions: • ADD TITLE • Assistant ADD TITLE Sample Internal Controls and Operational Procedures Page 4 Packet Page-528- 12/9/2014 11.C. IV. INTERNAL CONTROLS A. Chain of Command For the purpose of obtaining approval on investment activity, the following chain of command is appropriate. 1. ADD TITLE 2. ADD TITLE 3. Assistant ADD TITLE As designated by the ADD NAME Council, management responsibility for the investment program is assigned to the ADD TITLE and Assistant ADD TITLE. The ADD TITLE and Assistant ADD TITLE and other persons granted investment authority shall be considered and referred to as "Investment Officers" for the purpose of this Policy. As such, the Investment Officers are authorized to deposit, withdraw, invest, transfer, execute documentation, and otherwise manage ADD NAME funds according to this Policy. The Investment Officers may grant, in writing, investment authority to other persons within the Finance Division. Any limitations placed on this authority will be specifically stated. No person may engage in an investment transaction or the management of funds except as provided under the terms of the Investment Policy, Investment Strategy Statement and other operational procedures established by the Investment Officers. B. Duties and Responsibilities The Assistant ADD TITLE has specific duties and responsibilities as assigned by the ADD TITLE. The ADD TITLE shall be responsible for the management of the investment program and the Assistant ADD TITLE shall be responsible for the daily operational duties (i.e., purchases, liquidations, bank accounts wires, and investment reports). C. Separation of Duties The Assistant ADD TITLE shall not be responsible for the reconciliation of the bank accounts or writing checks; these responsibilities reside with the ADD TITLE. Furthermore, adequate separation of duties requires that the Assistant ADD TITLE shall not prepare bank deposits or handle receipts (cash or checks). The Lead Cashiers shall prepare bank deposits. D. Custodial Accounts Securities purchased from a broker/dealer or financial institutions, including the provision of appropriate collateral, shall be placed with a third party custodian in a custodial account governed by a custodial agreement. Additional situations to avoid if possible, as follows: l. Avoidance of Bearer-Form Securities The Assistant ADD TITLE will strive to avoid the use of bearer-form securities in its investment portfolio insofar as such securities are much easier to convert to personal use than registered securities. 2. Avoidance of Physical Delivery Securities The Assistant ADD TITLE will strive to avoid the use of physical delivery securities insofar as such securities must be properly safe guarded, as are any valuable documents. Sample Internal Controls and Operational Procedures Page 5 Packet Page-529- 12/9/2014 11 .C. The potential for fraud and loss is minimized with primary reliance upon book entry securities, which do not involve the physical delivery of securities. E. Delivery vs.Payment Simultaneous with the release of ADD NAME funds to purchase a security, there will be a delivery of the securities purchased. Similarly, for any sale of securities, there will be a simultaneous transfer of funds to the ADD NAME before the release of the securities. This policy ensures that the ADD NAME neither transfers money or securities before receiving the other side of the transaction. Accordingly, both transfers will occur simultaneously through a custodial bank, authorized to act in such capacity for the ADD NAME. F. Collateralization Collateral requirements for Interest Bearing Time Deposits, Certificates of Deposit, or savings accounts issued by state and national banks domiciled in Florida that are: guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or secured by obligations of any direct federal agency or instrumentality issues that have a market value of not less than the principal amount of the certificates or Certificate of Deposit balances exceeding FDIC insurance limits will be fully collateralized by securities listed in sections B, C or D of the investment policy. Collateral will be held by the ADD NAME's third party custodian. Collateral requirements for overnight or short-term repurchase agreements shall require collateral with a market value of principal and accrued interest of at least 100% of the Repurchase Agreement. Term Repurchase Agreements,which may be entered into from time to time, shall be limited to primary government security dealers. The actual collateral requirements for such term Repurchase Agreements will be based upon economic and financial conditions existing at the time of execution, as well as the particular broker/dealer, which enters into the Repurchase Agreement with the ADD TITLE. However, such term repurchase agreements shall require collateral with a market value of principal and accrued interest of at least 102% of the term repurchase agreement. An independent third party with whom the ADD TITLE has a current custodial agreement shall hold such collateral. The right of collateral substitution may be granted; however, in no event shall the collateral securities to be accepted represent securities other than those recognized as authorized investments for the ADD TITLE. G. Interest Rate Risk Longer maturity investments have a greater potential for price volatility. Accordingly, in support of the desire to protect public funds from market price erosion resulting from rising interest rates, the ADD NAME will limit all securities in its portfolio to a maturity of five years. This policy shall not apply to securities assembled and placed in reserve or escrow account in order to satisfy specific financial obligations of the nature typically associated with defeased bond issues. Sample Internal Controls and Operational Procedures Page 6 Packet Page-530- 12/9/2014 11.C. H. Liquidity Objectives 1. Cash Flow Forecasting The Assistant ADD TITLE will attempt to forecast expected cash outflows and inflows by major categories in as much detail, and with as much precision as reasonably possible. The Assistant ADD TITLE will monitor the findings of the cash flow forecast and will revise the forecast and the investment portfolio where appropriate. 2. Maintenance of Liquidity Base A liquidity base of approximately forty-five days of anticipated disbursements will be kept in relatively short-term and liquid investments. These would include repurchase agreements,U.S. Treasury obligations, and/or money markets pools 3. Weighted Average Maturity The ADD TITLE will strive to maintain the investment portfolio in such a way as to limit the weighted average to maturity of the short-term portfolio to a period of less than 365 days. For purposes of this test, adjustable rate securities shall be measured on the basis of the period elapsed between interest rate re-set dates. The weighted average for the long-term portfolio will be limited to a period of less than two years. 4. Purchase of Securities with Active Secondary Markets Although many securities are acceptable for investment using the legal authorized list, some may not be very desirable from a liquidity standpoint. Accordingly, the ADD TITLE's overall liquidity concerns shall include a conscious element and desire to avoid undue reliance upon securities that do not possess active secondary markets. Portfolio Management 1. Portfolio Composition and Maturity Management When structuring the maturity composition of the investment portfolio, the ADD TITLE's procedure is to evaluate current economic conditions, relative interest rate levels and the general direction of interest rates. During periods where economic conditions demonstrate considerable potential for interest rate increases in the near future, the Assistant ADD TITLE will consider appropriate actions to modestly shorten maturities. Similarly, during periods where economic conditions demonstrate considerable potential for interest rate decreases in the near future, the Assistant ADD TITLE will consider appropriate actions to modestly lengthen maturities. These actions should not be confused with speculative activities, which are specifically prohibited. 2. Bond Swaps The Assistant ADD TITLE will pursue bond swaps as they may present themselves over the term of any investment. All swaps should adequately compensate the ADD NAME for administrative costs, reinvestment risk, and quality considerations. The Sample Internal Controls and Operational Procedures Page 7 Packet Page -531- 12/9/2014 11.C. following categories of bond swaps are considered appropriate for the Assistant ADD TITLE: a. Swaps to Increase Yield Market aberrations are often caused by supply and demand conditions for particular securities. For example, if a short supply exists for a particular security or maturity range, then it may be advantageous to swap out of a security in short supply and into another similar security. b. Swaps between Different Issuers Interest rate differentials commonly exist between U.S. Treasury and agency securities. Periodically, these relationships may become distorted and thereby present advantageous swap opportunities. c. Swaps to Reduce Maturity Market aberrations occasionally create a situation where longer maturity securities are yielding the same or less than securities with a shorter maturity. Portfolio quality can be improved by switching from the longer maturity security to the shorter maturity with little or no interest rate penalty. d. Net Loss vs. Initial Accounting Loss The ADD TITLE's procedure is to avoid swaps that result in a net loss over the accounting period of the applicable securities included in the swap. Unless, the new security produces a net gain over the maturity period of the applicable securities involved in the swap. J. Banking Service RFPs The Department ADD TITLE's procedure is to formally define banking needs and periodically request for proposals (RFP) from area financial institutions for the general banking services. The scope of such banking services generally includes elements that can impact return on investment objectives; a competitive environment for these services can best ensure that the ADD NAME's interests in this area are maximized. Assistant ADD TITLE will maintain Third-Party Custodian Agreement. V. OPERATIONAL PROCEDURES A. Cash Review The Assistant ADD TITLE must review the cash balances and investment portfolio daily, or as needed, and monitors all relevant draw schedules for capital projects. Items to be reviewed should include the following: 1. Bank balances by account 2. Maturing investments (includes Repo's, CD's, Commercial Paper, Bankers' Acceptances and general securities). Sample Internal Controls and Operational Procedures Page 8 Packet Page -532- 12/9/2014 11 .C. 3. Bond sales and other large,periodic receipts. 4. Bond and coupon payments (debt service) and other large periodic cash disbursements. 5. Anticipated cash flow transactions B. Investment Selection The Assistant ADD TITLE determines how much of the cash balance is available for investment and selects the area of the yield curve that most closely matches the required maturity date. In determining the maturity date, the Assistant ADD TITLE should consider liquidity, cash flow and expected expenditures. A review of some of the following sources should be made to determine whether the investments should be placed to match projected expenditures or shorter, or to take advantage of current and expected interest rate environments, as follows: 1. The Wall Street Journal or similar daily business publication. 2. Input from approved brokers/dealers. 3. Input from depository banks. 4. Publications on general trends of economic statistics. 5. Input from data services (Tradeweb,Bloomberg,Reuters,etc.). 6. Input from the Investment Advisor. C. Purchasing an Investment The Assistant ADD TITLE or authorized Investment Officer (or external Investment Advisor) shall only purchase securities from financial institutions, which are qualified in conformance with the ADD NAME's investment policy. The Assistant ADD TITLE or authorized Investment Officer should be as specific as possible in requesting for a security offering. If a particular type of investment or a particular issuing agency is to be excluded due to policy limitations that should be stated to the providers. If collateral is required (i.e. for Repo's or CD's), the collateral limitations (excess margin,types of securities, maximum maturity, etc.)should be specified. The following must be determined prior to contacting the providers: 1. Settlement—cash, regular (next day), corporate (3 business days) or when-issued if a new issue. 2. Amount—either par value or total dollars to be invested. 3. Type of security to be purchased, or type to be excluded. 4. Targeted maturity, or maturity range. 5. Time limit to show offering-5 minutes, 15 minutes, etc. Sample Internal Controls and Operational Procedures Page 9 Packet Page-533- 12/9/2014 11 .C. If choosing an external pool or fund as the preferred investment vehicle, the following should be available for inspection prior to purchase and at any reasonable time thereafter: 1. A written investment policy, if a government-run investment pool. 2. A prospectus for money-market funds,mutual funds or bank-managed funds. 3. A schedule of the types of reports and the frequency of distribution. 4. A clear description of how interest rates are calculated(30/360, actual/365, etc.). 5. A schedule of when and how income is distributed. 6. Are the pools or fund types of investments restricted to legal and policy limits? 7. Are the pools or fund investments restricted to maturity limits? Before concluding the transaction, the Assistant ADD TITLE or authorized Investment Officer in conjunction with should validate the following: 1. The security selected for purchase meets all criteria, including portfolio diversification, collateralization (if appropriate), and maturity. If the security has any imbedded options such as call provisions or coupon adjustments, these should also be reviewed. 2. Yield calculations should be verified. 3. Total purchase cost (including accrued interest) does not exceed funds available for investment. 4. Advise the successful provider that their offering has been selected for purchase. 5. After the confirmation of the purchase, as a courtesy, notify the other brokers/dealers that you have placed the investment. After consummation of the transaction, and prior to settlement date, the Assistant ADD TITLE or authorized Investment Officer and the provider should exchange and review the following information to ensure prompt and uninterrupted settlement, as follows: 1. Name of third-party safekeeping agent. 2. ABA number of safekeeping agent. 3. Safekeeping account number. 4. Reconfirm amount of transaction. 5. Reconfirm settlement date. 6. Acquire CUSIP number of security, if applicable. Sample Internal Controls and Operational Procedures Page 10 Packet Page -534- 12/9/2014 11 .C. D. Settlement and Follow Through The Assistant ADD TITLE, or authorized Investment Officer should forward to the safekeeping agent a trade confirmation of the investment transaction. If the Investment Officer executes the transaction, the trade ticket should also be forwarded to the ADD TITLE's Office. The report may be verbal, but a written form should be sent and acknowledged. 1. Provision of receipt or disbursement of funds. 2. Internal transfer or wiring of funds. 3. Validation of written a trade confirmation. 4. Notification of discrepancy prior to acceptance or rejection of the transaction. 5. Immediate notification if a fail has occurred: by the provider if they are responsible, by safekeeping agent if they are responsible. E. Prepare and Review Investment Transactions The Accountant will prepare the journal entries to be posted for all investment transactions and the journal entries will be submitted to the ADD TITLE for review and posting into the ADD NAME's accounting system. The Assistant ADD TITLE must supply the necessary supporting documentation for all journal entries, for example brokerage or bank statements. Additionally, the Accountant will perform the following: 1. Prepares staff accounting entries into general ledger 2. Requests any bank corrections in writing 3. Reviews and analyzes monthly reports 4. Reviews all bank account reconciliations F. Daily Operations Daily operations are defined as those duties and procedures required to maintain the investment program on a daily basis. 1. Worksheets a. All investment activity is recorded on the daily worksheets, which include but are not limited to purchases, maturities, incoming and outgoing wires, see Exhibit 1. The worksheets are maintained in a file for reference purposes. b. The top section of the worksheet is for debits to the account. The middle section is for money requirements. The bottom section is for investment purchases. A daily worksheet is completed in conjunction with a download from the bank to determine daily cash requirements and/or use of funds for investment purposes. If the available cash balance is negative, funds can be Sample Internal Controls and Operational Procedures Page 1I Packet Page-535- 12/9/2014 11.C. drawn from the XXXX or an investment to provide for expenditures. If a positive balance is at the bottom of a spreadsheet,the balance can be used to purchase new investments or if the amount is too small, it can be deposited to the bank or XXXXX. The goal is to have all daily worksheets with a zero balance, however, wire costs and interest rates may affect the decision to zero out a bank account balance. c. Finally, when the daily worksheets are completed the appropriate accountant shall receive a copy of the daily worksheets for review. 2. Trading a. All trading, except as provided for in the ADD NAME's Investment Policy, must be executed with an approved broker/dealer and a minimum of three (3) quotes per security must be obtained. b. Required procedures prior to purchases or sales (additional steps may be required). l) Verify amounts available at the XXXX or in a bank/investment account. 2) Check investment limits to determine which investment types have availability in the portfolio. 3) Review the investment statements to determine the required maturity dates. 4) Decide on an investment type, then obtain quotes from three different brokers/dealers and choose the best quote. 3. Trade Ticket Trade tickets or comparable documents shall be prepared by the Assistant ADD TITLE for each investment transaction evidencing the ADD NAME's understanding of the terms and delivery instructions. Transactions shall be recorded as necessary to permit accurate preparation of financial records and maintain accountability for assets. All quotes received from brokers/dealers must be recorded on a trade ticket, which includes but is not limited to the account name, trade date, the dollar amount, settlement date, security description, offer information, and comments. See Exhibit 2. 4. Money Market Funds Money market funds must meet the ratings standards and cannot exceed the asset allocation limits as set forth in the Investment Policy. Prospectuses for money market funds should be kept and reviewed at least annually to ensure compliance and to obtain the best possible returns. Sample Internal Controls and Operational Procedures Page 12 Packet Page -536- 12/9/2014 11.C. 5. Authorized Wires The Assistant ADD TITLE Authorizes bank wires or transfers for the purchase of securities or movement of monies between investment accounts. However, only authorized representatives as stated in the Bank's Funds Transfer Agreement (see Exhibit 3) are authorized to wire ADD NAME's funds. Wire instructions and personal identification numbers (PIN's) shall be safeguarded by the Authorized Staff. One authorized representative will enter the wire information into the bank' electronic wire system and another authorized representative will verify the information, release the wire, and verify the wire has been sent by reviewing the bank's wire report. Repetitive Wires The Assistant ADD TITLE and staff are allowed only repetitive wires privileges. The Assistant ADD TITLE will send all approved wire forms to the bank for assignment of a repetitive wire number. Once this number is assigned by the bank, the Assistant ADD TITLE will create a repetitive wire template into the on-line bank wire system. Once the template is created the Assistant ADD TITLE will assign wire template users transaction limits (if required). The limits will restrict the amount of funds that can be wired. Only single wire authorization is needed for Repetitive wires. Non-Repetitive Wires Non-repetitive wires can only be authorized by the ADD TITLE and or the Assistant ADD TITLE. Dual approval is required on all non-repetitive wires. Once it is determined that a non-repetitive wires is required the Assistant ADD TITLE will notify the ADD TITLE. The ADD TITLE will authenticate the need for the wire. Once authenticated, the Assistant ADD TITLE will call the bank to transfer the funds. The bank will then call the ADD TITLE to validate the funds transfer. If it is determine that the wire will be used again in the future the Assistant ADD TITLE will create a repetitive wire template. All wire transaction request must be in writing and signed by the Assistant ADD TITLE as well as the requestor and appropriate Manager. All outgoing and incoming wires shall be printed from the daily activity report and filed with the appropriate daily work package. The purpose of the wire shall be recorded with the wire information. 6. Bank Corrections All bank corrections shall be requested in a written memo. The memo should provide for a section to state the problem followed by a section for a solution to the problem. The memo is delivered to the bank's corporate cash management section. Copies of the memos shall be maintained two files, one for open requests and the Sample Internal Controls and Operational Procedures Page 13 Packet Page-537- 12/9/2014 11 .C. other for closed requests. 7. Accountant The Accountant reports to the Assistant ADD TITLE and has the following responsibilities associated with invesment and investment transactions: a. Prepares internal monthly investment report for the Assistant ADD TITLE b. Confirms the timely receipt of income c. Reviews all trades with trade tickets and confirms d. Reviews portfolio for compliance 1) Securities selected 2) Maturities 3) Brokers used 4) Portfolio overall composition e. Enters investment data into accounting subsystem 1) Investment trades and maturities 2) Income received 3) Updated pricing f. Updates/Edits the investment subsystem with all bank statements and original securities' confirms: 1) Exceptions 2) Errors 3) Additional information(pricing, cusip numbers, maturities) g. Accounting Specialist will be assigned as the backup to this position. h. Reconciliation of bank accounts (accountant) i. Reconciles investment subsystem with all bank accounts along with safekeeping position at custodian bank(accountant), see Exhibit 5 j. Approval of reconciliation(senior accountant) k. Approves and post all general ledger journal entries(Accounting Manager) 1. Original security confirmations, see Exhibit 6 m. Monthly reports n. Monthly reconciliation of subsystem to the bank statements (with supporting copies of banks statements) o. Daily investment worksheets with support of daily activity 8. Accounting Specialist III The Cash Management Accountant reports directly to the Assistant ADD TITLE and as the following duties: a. Executes wire instructions from Assistant ADD TITLE b. Obtains bank and custodian information via automatic on-line system Sample Internal Controls and Operational Procedures Page 14 Packet Page-538- 12/9/2014 11.C. 9. Trade Flow Responsibilities Summary See Appendix A for Trade Flow Responsibilities G. Reporting Requirements The Assistant ADD TITLE shall provide the ADD TITLE with monthly investment reports. The Investment Officer shall provide the ADD TITLE with monthly/quarterly/annual investment reports. Quarterly the ADD TITLE or his designated representative will present the quarterly investment report to the ADD NAME Council. Schedules in the monthly/quarterly reports shall include the following: 1. A description of all securities held in investment portfolios at month end. 2. Percentage of available funds represented by each investment type. 3. Coupon, discount or earning rate. 4. Average life or duration and final maturity of all investments. 5. Par value and market value. 6. The total rate of return for the quarter and year-to-date versus appropriate benchmarks. In addition, the monthly/quarterly investment reports summarize but are not limited to the following: 1. Recent market conditions, economic developments and anticipated investment conditions. 2. The investment strategies employed in the most recent quarter. 3. Any areas of policy concern warranting possible revisions to current or planned investment strategies. The market values presented in these reports will be consistent with accounting guidelines in GASB Statement 31. 4. Notations of corrections/planned corrections of instances of non-compliance (if any) of the investment policy. At least annually, the Assistant ADD TITLE shall prepare and submit to the ADD NAME Council (through the ADD TITLE) a written report on all invested funds. The annual report shall provide all, but not limited to, the following: a complete list of all invested funds,name or type of security in which the funds are invested, the amount invested, the maturity date, earned income,the book value,the market value and the yield on each investment. The annual report will show performance on both a book value and total rate of return basis and will compare the results approved performance benchmarks. All investments shall be reported at fair value per GASB standards. Investment reports shall be available to the public. Sample Internal Controls and Operational Procedures Page 15 Packet Page-539- 12/9/2014 11 .C. VI. INVESTMENT COMMITTEE The ADD NAME has established an Investment Committee for the purpose of formulating alternative investment strategies within the guidelines herein set forth and for monitoring the performance and structure of the portfolio. The Committee shall include the ADD TITLE as Chairman,the ADD TITLE or designee,the Assistant ADD TITLE. The Assistant ADD TITLE will provide the Committee members with current market information, an updated portfolio listing and analysis, and various pertinent financial data. The Committee or quorum of the committee shall meet as often as deemed necessary, under the given conditions, to review, discuss and provide recommendations regarding the current investment strategy and perform other functions. VII. REVIEW AND APPROVAL The Investment Committee shall review the Manual annually and, if necessary, present modifications to the ADD TITLE for approval. Approved this day of 2006. ADD TITLE of the ADD NAME VIII. ATTACHMENT A. Trade Flow Responsibility Matrix IX. EXHIBITS 1. Daily Worksheet 2. Sample Trade Ticket 3. Fund Transfer Agreement 4. Third-Party Custodian Agreement 5. Sample Trust Statement 6. 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E N a p) C O a)9 F a) 2 C (y E 0 aCi c 0 3 c o m co -o _ N E N 2 0 0 O a) NOES-O N [5 > co C U C U C a) N N U .= C N U 2 N U c N C-0 C C XN > XN > a) a) N OL W S.0 W S.0 0 CI..2 N 0 U a) W N of Q• O) L O C N Z C N a C C U E Das Oa) n0 0 2 >"O N a).0 Q m co_o >tt co C m 5 'C C O N'C 3 C C a) E N .0 a) N _ E a) a).0 ca) Q=a EN W ;a oa � oY ooato 2' N U L CC O.--- a) liiiC a) m E C 0 N m = N° L m o °''O C U 0_ C co c0 t6 a1 co a) U a) a) 'O cn H U < O N W Packet Page -542- 12/9/2014 11 .C. Ct i) O L c ca L O 0 0 0 U U . Packet Page-543- 12/9/2014 11.C. ORDINANCE NO. B7- 65 i',lU („ AN ORDINANCE AUTHORIZING THE INVESTMENT AND ,3. • : ` ' REINVESTMENT OF SURPLUS PUBLIC FUNDS BY THE :?5 CLERK TO THE BOARD ON BEHALF OF AND IN THE : NAME OF THE BOARD OF COUNTY COMMISSIONERS; ' �irt'i Ti - �; d • :-r ':::: :'.AUTHORIZING THE INVESTMENT AND REINVESTMENT ; W ci '- OF SUCH SURPLUS FUNDS IN INVESTMENT SECURI- ., V --TIES; REQUIRING THAT A CASH MANAGEMENT AND cc• H �r"" INVESTMENT POLICY BE ADOPTED ' PURSUANT TO z f ;ri Ll RESOLUTION OF THE BOARD; PROVIDING FOR o ° •CONFLICT AND SEVERABILITY; PROVIDING AN ; , EFFECTIVE DATE. --I. WHEREAS, in 1981, the Board of County Commissioners authorized the Clerk to the Board to invest surplus public funds : � in the Local Government Surplus Funds Trust Fund pursuant to �' Section 125.31 (1) (a) Florida Statutes; and • WHEREAS, Section 125.31, Florida Statutes, provides that the . 0.,. Board of County Commissioners may adopt an ordinance to authorize . : investment opportunities in addition to those set forth in '? y • Section 125.31 (1) (a)-(e) ; and WHEREAS, it is the desire and intent of the Board of County "'`` • ,, Commissioners to authorize additional investments for surplus '4 public funds in order to seek a higher rate of return on such 'G• " funds; and c':::, WHEREAS, the Board also wishes to establish a policy for the cash management and investment alternatives applicable to said .13 surplus funds; . 'I• , unds; ';, NOW, THEREFORE, BE IT ORDAINED BY THE BOARD OF COUNTY COMMISSIONERS OF COLLIER COUNTY, FLORIDA, that SECTION ONE. In accordance with, a Cash Management and Investment Policy fir;• •j established by the Board of County Commissioners by Resolution, ► 71. the Clerk to the Board is hereby authorized to purchase and sell ,'' ; investment securities at prevailing market prices/rates on behalf ,_�, of and in the name of the Board of County Commissioners when, in f . the judgment of the Clerk to the Board, ^ (a) sufficient surplus funds have accumulated in the • accounts of the Board of County Commissioners, or • ball) 1/28 ` 02 Packet Page -544- 12/9/2014 11.C. • (b) The Board of County Commissioners has on hand or has M accumulated monies by reason of the sale of its own gr securities. The Clerk to the Board, in accordance with the Cash •g" " Management and Investment Policy adopted by the Board, shall pay :5 .' the proceeds of such security sales into the proper accounts or l ,;:• funds of the Board of County Commissioners. .7.4,..?. • SECTION TWO _ Upon adoption of this Ordinance, the Clerk to the Board f shall prepare and propose to the Board of County Commissioners a Ca• Cash Management and Investment Policy which shall address, at a '; minimum, the issues of general investment objectives, types of �`" •. instruments to be selected, maturity, risk and diversification of za • • a�" investments, and investment institutions, issuers and dealers to y• be selected. Upon review of the Clerk's proposed policy and such ,. e other matters as the Board may deem appropriate, the Board shall '�'• i3• establish a Cash Management and Investiment Policy by resolution. In addition, the Clerk to the Board shall establish . appropriate written internal control and investment procedures • which shall address, at a minimum, master accounts, separation of . :i.' functions, investment delivery and payment procedure, custodial 11"• arrangements, trust receipts and confirmation, performance • evaluations and operations auditing and reporting, both interim 1' and annual. Such procedures shall be reviewed periodically as ;� may be determined by the Clerk to the Board to assure optimum �" fiscrl control. SECTION THREE. i . 1. • This Ordinance is not intended to and shall not be 1 '" interpreted to abrogate any provision contained in any bond resolution or ordinance of the Board of County Commissioners • relating to the investment of bond proceeds temporarily available in specific funds or accounts. SECTION FOUR: Conflict and Severability. In the event this Ordinance conflicts with any other ordinance of Collier County or other applicable law, the more restrictive shall apply. If any phrase or portion of this - 2 _ Rnnr i 2R.-vt. 03 Packet Page -545 12/9/2014 11 .C. Ordinance is held invalid or unconstitutional by any court of : '7r •competent jurisdiction, such portion shall be deemed a separate, distinct and independent provision and such holding shall not affect the validity of the remaining portion. F. SECTION FIVE: Effective Date. . This Ordinance shall become effective upon receipt of notice - =,; from the Secretary of State that this Ordinance has been filed w with the Secretary of State, - . , ... , PASSED AND DULY ADOPTED by the Board of County Commissioners +, of Collier County, Florida, this 2 day of r 97. 1 ATTEST: BOARD OF COUNTY COMMISSIONERS ..- JAMES C. GILES, Clerk OF COLLIER COUNTY, 'FLORIDA• rf , ,_ - :t By. is �e . i / /� X . SS , R , C ai /an -.... .an w` ,''�•Approved.as to form and ; '4..egal,sufficiency: ' !- • f - Tht ordinonce filed with tM - • Secretory of Stott':Office the - ., i . I .t' —iial'of CL.- T.r/`Y.F? Kennet B. Cuy er/ and ocknowledgemertt of that c £6 County Attorney f11i received fit "day 0 an • `j; �r 1. ^-T. - aoox 028 P Q4 ..• Packet Page -546- 12/9/2014 11.C. • STATE OF FLORIDA ) • COUNTY OF COLLIER ) I, JAMES C. GILES, Clerk of Courts in and for the Twentieth j Judicial Circuit, Collier County, Florida, do hereby certify that the foregoing is a true copy of ORDINANCE 87-65 which was adopted by the Board of County Commissioners on the 25th day of August, 1987 during Regular Session. WITNESS my hand and the official seal of the Board of County Commissioners of Collier County, Florida, this 25th day of August, 1987, JAMES C. GILES • \ =1 li,;f4 Clerk of Courts and Clerk' i Ex-officio to Board of Count ommissioher By: Virginia Mag?j� .1,`� Deputy Clerk ..;.... s ' tom CLEi rr.c. 05 ., Packet Page -547- 12/9/2014 11 .C. The 2014 Florida Statutes 218.415 Local government investment policies.—Investment activity by a unit of local government must be consistent with a written investment plan adopted by the governing body, or in the absence of the existence of a governing body, the respective principal officer of the unit of local government and maintained by the unit of local government or, in the alternative, such activity must be conducted in accordance with subsection(17). Any such unit of local government shall have an investment policy for any public funds in excess of the amounts needed to meet current expenses as provided in subsections (1)-(16), or shall meet the alternative investment guidelines contained in subsection(17). Such policies shall be structured to place the highest priority on the safety of principal and liquidity of funds. The optimization of investment returns shall be secondary to the requirements for safety and liquidity. Each unit of local government shall adopt policies that are commensurate with the nature and size of the public funds within its custody. (1) SCOPE.—The investment policy shall apply to funds under the control of the unit of local government in excess of those required to meet current expenses. The investment policy shall not apply to pension funds, including those funds in chapters 175 and 185, or funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. (2) INVESTMENT OBJECTIVES.—The investment policy shall describe the investment objectives of the unit of local government. Investment objectives shall include safety of capital, liquidity of funds, and investment income, in that order. (3) PERFORMANCE MEASUREMENT.—The investment policy shall specify performance measures as are appropriate for the nature and size of the public funds within the custody of the unit of local government. (4) PRUDENCE AND ETHICAL STANDARDS.—The investment policy shall describe the level of prudence and ethical standards to be followed by the unit of local government in carrying out its investment activities with respect to funds described in this section. The unit of local government shall adopt the Prudent Person Rule, which states that: "Investments should be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived from the investment." (5) LISTING OF AUTHORIZED INVESTMENTS.—The investment policy shall list investments authorized by the governing body of the unit of local government, subject to the provisions of subsection (16). Investments not listed in the investment policy are prohibited. If the policy authorizes investments in derivative products, the policy must require that the unit of local government's officials responsible for making investment decisions or chief financial officer have developed sufficient understanding of the derivative products and have the expertise to manage them. For purposes of this subsection, a"derivative" is defined as a financial instrument the value of which depends on, or is derived from, the value of one or more underlying assets or index or asset values. If the policy authorizes investments in reverse repurchase agreements or other forms of leverage, the policy must limit the investments to transactions in which the proceeds are intended to provide liquidity and for which the unit of local government has sufficient resources and expertise. (6) MATURITY AND LIQUIDITY REQUIREMENTS.—The investment policy shall require that the investment portfolio is structured in such manner as to provide sufficient liquidity to pay obligations as they come due. To that end, the investment policy should direct that, to the extent Packet Page-548- 12/9/2014 11.C. possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash-flow requirements. (7) PORTFOLIO COMPOSITION.—The investment policy shall establish guidelines for investments and limits on security issues, issuers, and maturities. Such guidelines shall be commensurate with the nature and size of the public funds within the custody of the unit of local government. (8) RISK AND DIVERSIFICATION.—The investment policy shall provide for appropriate diversification of the investment portfolio. Investments held should be diversified to the extent practicable to control the risk of loss resulting from overconcentration of assets in a specific maturity, issuer, instrument, dealer, or bank through which financial instruments are bought and sold. Diversification strategies within the established guidelines shall be reviewed and revised periodically, as deemed necessary by the appropriate management staff. (9) AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS.—The investment policy should specify the authorized securities dealers, issuers, and banks from whom the unit of local government may purchase securities. (10) THIRD-PARTY CUSTODIAL AGREEMENTS.—The investment policy shall provide appropriate arrangements for the holding of assets of the unit of local government. Securities should be held with a third party; and all securities purchased by, and all collateral obtained by, the unit of local government should be properly designated as an asset of the unit of local government. No withdrawal of securities, in whole or in part, shall be made from safekeeping, except by an authorized staff member of the unit of local government. Securities transactions between a broker-dealer and the custodian involving purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment"basis, if applicable, to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. (11) MASTER REPURCHASE AGREEMENT.—The investment policy shall require all approved institutions and dealers transacting repurchase agreements to execute and perform as stated in the Master Repurchase Agreement. All repurchase agreement transactions shall adhere to the requirements of the Master Repurchase Agreement. (12) BID REQUIREMENT.—The investment policy shall require that the unit of local government's staff determine the approximate maturity date based on cash-flow needs and market conditions, analyze and select one or more optimal types of investment, and competitively bid the security in question when feasible and appropriate. Except as otherwise required by law, the bid deemed to best meet the investment objectives specified in subsection (2) must be selected. (13) INTERNAL CONTROLS.—The investment policy shall provide for a system of internal controls and operational procedures. The unit of local government's officials responsible for making investment decisions or chief financial officer shall establish a system of internal controls which shall be in writing and made a part of the governmental entity's operational procedures. The investment policy shall provide for review of such controls by independent auditors as part of any financial audit periodically required of the unit of local government. The internal controls should be designed to prevent losses of funds which might arise from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the unit of local government. (14) CONTINUING EDUCATION.The investment policy shall provide for the continuing education of the unit of local government's officials responsible for making investment decisions Packet Page-549- 12/9/2014 11 .C. or chief financial officer. Such officials must annually complete 8 hours of continuing education in subjects or courses of study related to investment practices and products. (15) REPORTING.—The investment policy shall provide for appropriate annual or more frequent reporting of investment activities. To that end, the governmental entity's officials responsible for making investment decisions or chief financial officer shall prepare periodic reports for submission to the legislative and governing body of the unit of local government, which shall include securities in the portfolio by class or type, book value, income earned, and market value as of the report date. Such reports shall be available to the public. (16) AUTHORIZED INVESTMENTS; WRITTEN INVESTMENT POLICIES.—Those units of local government electing to adopt a written investment policy as provided in subsections (1)- (15) may by resolution invest and reinvest any surplus public funds in their control or possession in: (a) The Local Government Surplus Funds Trust Fund or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act of 1969, as provided in s. 163.01. (b) Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency. (c) Interest-bearing time deposits or savings accounts in qualified public depositories as defined in s. 280.02. (d) Direct obligations of the United States Treasury. (e) Federal agencies and instrumentalities. (f) Rated or unrated bonds, notes, or instruments backed by the full faith and credit of the government of Israel. (g) Securities of, or other interests in, any open-end or closed-end management-type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et seq., as amended from time to time, provided that the portfolio of such investment company or investment trust is limited to obligations of the United States Government or any agency or instrumentality thereof and to repurchase agreements fully collateralized by such United States Government obligations, and provided that such investment company or investment trust takes delivery of such collateral either directly or through an authorized custodian. (h) Other investments authorized by law or by ordinance for a county or a municipality. (i) Other investments authorized by law or by resolution for a school district or a special district. (17) AUTHORIZED INVESTMENTS; NO WRITTEN INVESTMENT POLICY.—Those units of local government electing not to adopt a written investment policy in accordance with investment policies developed as provided in subsections (1)-(15) may invest or reinvest any surplus public funds in their control or possession in: (a) The Local Government Surplus Funds Trust Fund, or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act of 1969, as provided in s. 163.01. (b) Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency. (c) Interest-bearing time deposits or savings accounts in qualified public depositories, as defined in s. 280.02. (d) Direct obligations of the U.S. Treasury. Packet Page-550- 12/9/2014 11.C. The securities listed in paragraphs (c) and (d) shall be invested to provide sufficient liquidity to pay obligations as they come due. (18) SECURITIES; DISPOSITION.— (a) Every security purchased under this section on behalf of the governing body of a unit of local government must be properly earmarked and: 1. If registered with the issuer or its agents, must be immediately placed for safekeeping in a location that protects the governing body's interest in the security; 2. If in book entry form, must be held for the credit of the governing body by a depository chartered by the Federal Government, the state, or any other state or territory of the United States which has a branch or principal place of business in this state as defined in s. 658.12, 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 this state, and must be kept by the depository in an account separate and apart from the assets of the financial institution; or 3. If physically issued to the holder but not registered with the issuer or its agents, must be immediately placed for safekeeping in a secured vault. (b) The unit of local government's governing body may also receive bank trust receipts in return for investment of surplus funds in securities. Any trust receipts received must enumerate the various securities held, together with the specific number of each security held. The actual securities on which the trust receipts are issued may be held by any bank depository chartered by the Federal Government, this state, or any other state or territory of the United States which has a branch or principal place of business in this state as defined in s. 658.12, 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 this state. (19) SALE OF SECURITIES.—When the invested funds are needed in whole or in part for the purposes originally intended or for more optimal investments, the unit of local government's governing body may sell such investments at the then-prevailing market price and place the proceeds into the proper account or fund of the unit of local government. (20) PREEXISTING CONTRACT.—Any public funds subject to a contract or agreement existing on October 1, 2000, may not be invested contrary to such contract or agreement. (21) PREEMPTION.—Any provision of any special act, municipal charter, or other law which prohibits or restricts a local governmental entity from complying with this section or any rules adopted under this section is void to the extent of the conflict. (22) AUDITS.—Certified public accountants conducting audits of units of local government pursuant to s. 218.39 shall report, as part of the audit, whether or not the unit of local government has complied with this section. (23) AUTHORIZED DEPOSITS.—In addition to the investments authorized for local governments in subsections (16) and(17) and notwithstanding any other provisions of law, a unit of local government may deposit any portion of surplus public funds in its control or possession in accordance with the following conditions: (a) The funds are initially deposited in a qualified public depository, as defined in s. 280.02, selected by the unit of local government. (b) The selected depository arranges for depositing the funds in financial deposit instruments insured by the Federal Deposit Insurance Corporation in one or more federally insured banks or savings and loan associations, wherever located, for the account of the unit of local government. Packet Page-551- 12/9/2014 11 .C. (c) The full amount of the principal and accrued interest of each financial deposit instrument is insured by the Federal Deposit Insurance Corporation. (d) The selected depository acts as custodian for the unit of local government with respect to each financial deposit instrument issued for its account. History.—s. 1, ch. 95-194; s. 2, ch. 97-9; s. 3, ch. 2000-264; ss. 66, 141, ch. 2001-266; s. 2, ch. 2005-126; s. 1, ch. 2007-89; s. 42, ch. 2008-4; s. 2, ch. 2009-140. Packet Page-552- Statutes & Constitution :View Statutes : Online Sunshine 12/9/2014 11.C. Select Year 2014»± Go The 2014 Florida Statutes Title XIV Chapter 218 View Entire TAXATION AND FINANCIAL MATTERS PERTAINING TO POLITICAL Chapter FINANCE SUBDIVISIONS 218.403 Definitions.—The following words or terms, when used in this part, shall have the following meanings: (1) "Board" means the State Board of Administration. (2) "Chief Financial Officer" means the mayor, manager, administrator, clerk, comptroller, treasurer, director of finance, or other local government official, regardless of the title of his or her office, charged with administering the fiscal affairs of a unit of local government. (3) "Current expenses" means expenses to meet known cash needs and anticipated cash-flow requirements for the short term. (4) "GASB" means the Governmental Accounting Standards Board. (5) . "GFOA" means the Government Finance Officers Association. (6) "Governing body" means the body or board in which the Legislative power of a unit of local government is vested. (7) "Short term" means a maximum of 6 months of operation. (8) "Surplus funds" means any funds in any general or special account or fund of a unit of local government, or funds held by an independent trustee on behalf of a unit of local government, which in reasonable contemplation will not be immediately needed for the purposes intended. (9) "Trust fund" means the pooled investment fund created by s. 218.405 and known as the Local Government Surplus Funds Trust Fund. (10) "Trustees" mean the Trustees of the State Board of Administration. (11) "Unit of local government" means any governmental entity within the state not part of state government and shall include, but not be limited to, the following and the officers thereof: any county, municipality, school district, special district, clerk of the circuit court, sheriff, property appraiser, tax collector, supervisor of elections, authority, board, public corporations, or any other political subdivision of the state. History.—s. 1, ch. 77-394; s. 4, ch. 87-239; s. 1178, ch. 95-147; s. 5, ch. 95-194; s. 1, ch. 97-9; s.2, ch. 2008-59. Copyright® 1995-2014 The Florida Legislature • Privacy Statement • Contact Us Packet Page -553- http://www.leg.state.fl.us/Statutes/index.cfm?App mode—Display Statute&Search Strin... 11/19/2014 Statutes & Constitution :View Statutes : Online Sunshine 12/9/2014 11 .C. Select Year: _2014 The 2014 Florida Statutes Title V Chapter 28 View Entire Chapter JUDICIAL BRANCH CLERKS OF THE CIRCUIT COURTS 28.33 Investment of county funds by the clerk of the circuit court.—The clerk of the circuit court in each county shall invest county funds in excess of those required to meet expenses as provided in s. 218.415. No clerk investing such funds shall be liable for the loss of any interest when circumstances require the withdrawal of funds placed in a time deposit and needed for immediate payment of county obligations. Except for interest earned on moneys deposited in the registry of the court, all interest accruing from moneys deposited shall be deemed income of the county and may be expended as receipts of the county as approved by the board of county commissioners pursuant to chapter 129. The clerk may invest moneys deposited in the registry of the court and shall retain as income of the office of the clerk and as a reasonable investment management fee 10 percent of the interest accruing on those funds with the balance of such interest being allocated in accordance with e the interest of the depositors. History.—s. 1, ch. 73-282; s. 1, ch. 82-117; s. 166, ch. 95-147; s. 7, ch. 2000-264; s. 6, ch.2009-61. Copyright© 1995-2014 The Florida Legislature • Privacy Statement • Contact Us http://www.leg.state.fl.us/Statutes/index.cPacket Page 554-play_Statute&Search_String... 12/1/201