HomeMy WebLinkAboutCity of Tamarac Resolution R-96-067Temp. Reso #7344
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CITY OF TAMARAC
RESOLUTION NO. R-99- b 7
A RESOLUTION OF THE CITY COMMISSION OF THE CITY
OF TAMARAC, FLORIDA ADOPTING AN INVESTMENT
POLICY AND AUTHORIZING ITS IMPLEMENTATION;
PROVIDING FOR CONFLICTS; PROVIDING FOR
SEVERABILITY; AND PROVIDING FOR AN EFFECTIVE
DATE.
WHEREAS, an investment policy provides the formal structure that governs the
activities of investment official(s) and clarifies the City's investment objectives,
standards, and activities; and
WHEREAS, the safety of principal invested shall always be the primary concern
of the City of Tamarac; and
WHEREAS, the City currently has no formal comprehensive investment policy;
and
WHEREAS, Grant Thornton LLP, the City's external auditor for fiscal year 1994,
recommended in their management letter the formal adoption of an Investment Policy,
and
WHEREAS, the Municipal Treasurers' Association of the United States and
Canada (MTA), Government Finance Officers Association (GFOA), and the Florida
Government Finance Officers Associations (FGFOA) recommend that a formal
Investment Policy be adopted by the governing body (City Commission); and
WHEREAS, the Investment Advisory Committee reviewed and approved the
Proposed Investment Policy during their meeting on March 14, 1996; and
WHEREAS, the proposed investment policy complies with section 6.26 of the
City Code entitled Investment of City Funds and State Statute 218.415 entitled Local
Government Investment Policies; and
WHEREAS, the City Manager and Finance Director recommend the adoption
and implementation of the Proposed Investment Policy; and
WHEREAS, the City Commission of the City of Tamarac, Florida deems it to be
in the best interests of the citizens and residents of the City of Tamarac to adopt the
Proposed Investment Policy.
Temp. Reso #7344
1
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE
CITY OF TAMARAC, FLORIDA:
Section 1: The foregoing "WHEREAS" clauses are hereby ratified and confirmed as
being true and correct and are hereby made a specific part of this resolution.
Section 2: The adoption of the Investment Policy, provided as Exhibit 1, is hereby
approved.
Section 3: The appropriate City Officials are hereby authorized to implement the
Investment Policy.
Sectio : All resolutions or parts of resolutions in conflict herewith are hereby repealed
to the extent of such conflict.
Sectiop 5: If any clause, section, other part or application of this Resolution is held by
any court of competent jurisdiction to be unconstitutional or invalid, in part or in
application, it shall not affect the validity of the remaining portion or applications of this
Resolution.
Section 6: This Resolution shall become effective immediately upon its adoption.
PASSED, ADOPTED AND APPROVED this R day of �� , 1996.
ATTEST:
2.dEP;2 �Alk"e It'
CAROL A. EVANS, CMC
CITY CLERK
I HEREBY CERTIFY that I have
approved this Resolution as /
to farm. .
MAYOR
/-154wZ114 DIST.1:
DIST. 2:
MITCHELL S. KRA DIST. 3:
CITY ATTORNET DIST.4:
WRMANSITZ
.;-• •
MAYOR
RECORD' OF COMMISSION VOTE
•
TqM� EXHIBIT 1
�oF
-a, City of Tamarac, Florida
�`OIZI
Investment Policy
Title: INVESTMENT POLICY
Effective Date: 03-27-96
Originating Department: FINANCE
Supersedes:
Policy Number: R-96-67
Page 1 of ___15_
I. PURPOSE
The intent of this policy is to provide the Director of Finance and designated staff with
sufficient latitude to effectively manage the City of Tamarac's (City) financial assets so
as to 1) ensure the preservation of principal, 2) maintain sufficient cash flow to enable
the City to meet its obligations, and 3) maximize the return on assets with an
acceptably low exposure to risk.
II. SCOPE
This Investment Policy shall apply to all the funds held by the City on behalf of the
residents of the City of Tamarac with the exception of Pension Fund assets and Funds
whose uses are restricted by debt covenants; prior contracts; or legal, regulatory or other
constraints.
All financial assets held or controlled by the City, not otherwise classified as restricted
assets requiring separate investing, shall be identified as "general operating funds" of the
City for the purpose of this policy, and shall be invested under the guidelines as herein set
forth. The guidelines, provided herein, are the general operating procedures. General
operating funds include: General Fund, Special Revenue Funds, Debt Service Funds,
Capital Projects, Enterprise Funds, Internal Service Funds, Trust and Agency Funds, and
any new funds created by the governing body, unless specifically exempt.
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INVESTMENT POLICY R-96-67 PAGE 2 OF 15
III. DEFINITIONS
See Glossary Section: Appendix A
IV. OBJECTIVES
The following investment objectives will be applied in the management of City funds:
A. Safety
Ensuring the preservation of principal is the primary objective of the City's investment
activities. All other objectives are secondary to the preservation of principal. Each
investment transaction shall be executed to insure that capital losses are avoided, whether
from market value fluctuations or credit erosion. This objective includes mitigation of credit
risk and interest rate risk.
B. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating requirements
that may be reasonably anticipated. This will be accomplished by structuring the portfolio
so that securities mature concurrent with cash needs to meet anticipated demands.
Furthermore, since all possible cash demands cannot be anticipated, the portfolio will
consist largely of securities with active secondary markets.
C. Yield
The investment portfolio shall be designed with the objective of attaining a market rate of
return throughout budgetary and economic cycles, taking into account the investment risk
constraints and liquidity needs. Return on investment shall not have as much weight in
comparison to safety and liquidity objectives. The core of investments will be limited to
relatively low risk securities in anticipation of earning a fair return relative to the risk being
assumed.
Securities shall not be sold prior to maturity with the following exceptions: a declining
credit security could be sold early to minimize loss of principal, a security swap that would
improve the quality, yield, or target duration in the portfolio; or liquidity needs of the
portfolio require that the security be sold. No transactions of this kind will be executed
without the approval of the City Manager.
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INVESTMENT POLICY R-96-67 PAGE 3 OF 15
V. STANDARD 0,E„CARE
0 A. Prudence
E
The standard of prudence to be applied by the Director of Finance or designee shall be
the "Prudent Person Rule" which states: "Investments shall be made with judgement 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
derived." The "Prudent Person Rule" shall be applied in the context of managing the
overall portfolio.
B. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict or appear to conflict with the proper execution and
management of the investment program, or that could impair their ability to make impartial
decisions. Employees and investment officials shall disclose any material interests in
financial institutions with which they conduct business. They shall further disclose any
personal financial/investment positions that could be related to the performance of the
investment portfolio. Officers and employees shall be prohibited from undertaking
personal investment transactions with the same individual with whom business is
conducted on behalf of their entity.
C. Delegation of Authority
The authority to manage the City's investment program is granted to the City Manager as
set forth in City of Tamarac Resolution R-94-167 (see Appendix B). Responsibility for the
operation of the investment program is hereby delegated to the Director of Finance, who
shall carry out established written procedures and internal controls for the operation of the
investment program consistent with this investment policy. Procedures include:
safekeeping, delivery vs. payment, investment accounting, wire transfer agreements,
collateral/depository agreements and banking services contracts. No person may engage
in an investment transaction except as provided under the terms of this policy and the
procedures established by the Director of Finance. The Director of Finance shall be
responsible for all transactions undertaken and shall establish a system of controls to
regulate the activities of subordinate officials. These include but are not limited to:
1. The Director of Finance, and/or other staff as may be designated by the
Director of Finance, shall have the authority to execute trades and to otherwise
conduct business within the scope of the City's Investment Policy.
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INVESTMENT POLICY R-96-67 PAGE 4 OF 15
V. STANDA-RD OF CARE
C. Delegation of Authority, continued
2. The Director of Finance shall have the authority to further restrict the authority
delegated to any staff member.
3. The Director of Finance shall prepare or cause to be prepared month -end
reports which, at a minimum, include:
a. Investment Holdings Reports which at a minimum detail
shall include
(1)
holdings by class of security;
(2)
income earned;
(3)
book value; and
(4)
market value
b. Performance Measurement Reports for the City's Aggregate
Investment Portfolio, as well as for each separate portfolio and
respective third -party manager.
4. The reports which are required under Item 3 above, as well as any others
. deemed appropriate by the Director of Finance, shall be provided to the
members of the Investment Committee no less frequently than monthly.
VI. SAFEKEEPAING AND CUSTODY
A. Authorized Financial Dealers and Institutions
The Director of Finance or designee shall maintain a list of financial institutions authorized
to provide investment services. In addition, a list will be maintained of approved security
brokers/dealers selected by credit worthiness who are authorized to provide investment
services in the State of Florida. These may include "primary" dealers or regional dealers
that qualify under Securities & Exchange Commission Rule 15C3-1(Uniform Net Capital
Rule). No public deposits shall be made except in a qualified public depository as
established by the laws and regulations of the State of Florida. A current audited financial
statement is required to be on file for each financial institution and broker/dealer in which
the City invests.
Certificates of Deposit shall be placed only with financial institutions which qualify under
Florida Law. Other securities shall be purchased only 1) through the financial institutions
which provide the services of a securities dealer, (who qualify as public depositories), with
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INVESTMENT POLICY R-96-67 PAGE 5 OF 15
VI. SAFEKEEPING AND CUSTODY
A. Authorized Financial Dealers and Institutions, continued
an office convenient to the City of Tamarac, 2) through the "primary government securities
dealer" as designated by the Federal Reserve Bank. These institutions, dealers and
issuers must meet capital adequacy guidelines as determined by their respective
regulatory agencies and certify that no material adverse events have occurred since the
issue of their most recent financial statements. They must also agree to notify the City in
a timely manner in the event of material adverse events affecting their capital adequacy.
All securities purchased shall be only those securities of authorized issuers of the various
security types. Lists of these authorized institutions, dealers and issuers of the various
security types will be maintained by the Director of Finance or his designee. Criteria for
addition to or deletion from the lists will be based on the following: 1) in accordance with
State Law, City Ordinance or Resolution, or investment policy requirements, 2) financial
condition; 3) consistent lack of competitiveness; 4) experience or familiarity of the account
representative in providing service to large institutional accounts; and/or 5) when deemed
in the best interest of the City.
Before engaging in investment transactions with an institution, the Director of Finance shall
receive a signed certification form (as illustrated in Exhibit A) attesting that the individual
responsible for the City's account with that firm has reviewed the City's investment policy
and that they agree to undertake necessary and appropriate efforts to preclude imprudent
transactions involving City funds.
B. Internal Controls
The Director of Finance or designee is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the entity are protected from
loss, theft or misuse. The internal control structure shall be 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.
Establishment of Internal Controls
The internal controls shall address the following points:
a. Control of co lusion
Collusion is a situation where two or more employees are working in
conjunction to defraud.
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INVESTMENT POLICY R-96-67
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VI. AFEKEEPIN DCUSTODY,_,__
B. Internal Controls, continued
PAGE 6 OF 15
b. Separation of functions
By separating key functions and having different people perform each
function, each person can perform a "check and balance" review of
the other people in the same area.
C. Seoaration of transaction authoritv from accountina and record
keeping
By separating the person who authorized or performs the transaction,
from the people who record or otherwise account for the transaction,
a good separation of duties is achieved.
d. Custodial Safekeeping
Securities purchased from any bank or dealer, including appropriate
collateral, should be placed into a third party bank for custodial
safekeeping.
e. Probibitipo of bea[er-forn securities
Bearer -form of securities are much easier to convert to personal use,
than are securities registered in the name of the City of Tamarac.
Avoidance of physical delivery secufities
Book entry securities are much easier to transfer and account for,
since actual delivery is never taken. Physical delivery securities must
be properly safeguarded as are any valuable documents. The
potential for fraud and loss increases with physical delivery securities.
g. Clear delegation of authority to subordinate staff members
Subordinate staff members must have a clear understanding of their
authority and responsibilities to avoid any improper actions. Clear
delegations of authority also preserves the internal control structure
that is built around the various staff positions and their respective
responsibilities.
h. Specific limitations reaardina securities losses and remedial action
Securities losses may be necessary to adhere to the Investment
Policy. These losses should be restricted to specified purposes and
proper documentation, and the required approval should be clearly
defined for each staff person and further requires the approval of the
City Manager.
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INVESTMENT POLICY R-96-67 PAGE 7 OF 15
. YL SAFEKEEPING AND CUSTODY
B. Internal Controls, continued
Written confirmation of telephone transactions for investments and
wire transfers
Due to the potential for error and improprieties arising from the lack
of written confirmations, all transactions must be supported by written
communications and approved by the appropriate person.
Documentation of transactions and strategies
All transactions and the strategies that may have been used to
develop the transactions must be documented in writing and
approved by the appropriate person.
k. Development of a wire transfer agreement with the concentration bank
This agreement must outline the various controls and security
provisions for making and receiving wire transfers.
2. Training and Education
It is the policy of the City to provide periodic training in investments for the
investment officials through courses and seminars offered by the
Government Finance Officers Association, Municipal Treasurers Association
and/or other qualified and pertinent organizations.
C. Third -Party Custodial Agreements
The City will execute a Third Party Custodial Safekeeping Agreement with a commercial
bank's trust department which is separately chartered by the United States Government
and the State of Florida. All securities purchased and/or collateral obtained by the City
shall be properly designated as an asset of the City and held in safekeeping by the trust
department and no withdrawal of such securities in whole or in part, shall be made from
safekeeping except by an authorized City staff member. The Third -Party Custodial
Safekeeping Agreement shall include letters of authority from the City, details as to
responsibilities of each party, notification of security purchases, sales, delivery,
repurchase agreements, wire transfers, safekeeping and transaction costs, procedures in
case of wire failure or other unforeseen mishaps including liability of each party.
Internal controls shall include details of delivery vs. payment procedures and trust receipt
documentation. Such controls and procedures shall be reviewed annually by the External
Auditor.
1. Delivery Y Versus Payment
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INVESTMENT POLICY R-96-67 PAGE 8 OF 15
VI. SAFEKEEPING AND CUSTODY
C. Third -party Custodial Agreements, continued
All securities purchased or sold will be transferred when possible only under
the "delivery versus payment" (D.V.P.) method (or "payment versus delivery"
method) to insure that funds or securities are not released until all criteria
relating to the specific transactions are met.
2. Trust Receipt and Confirmation
The Director of Finance or designee is authorized to accept, on the behalf
of and in the name of the City of Tamarac, bank trust receipts or
confirmations in return for investment of temporarily idle funds as evidence
of actual delivery of the obligations or securities. Any such trust receipt or
confirmation shall fully describe the various obligations or securities held,
together with the specific identification number of each obligation or security
held, and that they are held for the City of Tamarac. The actual obligations
or securities, whether in book -entry or physical form, on which trust receipts
or confirmations are issued may be held by a third party custodial bank
and/or institution or a designated corresponding bank or custodian institution
which has a correspondent relationship to the City's third party custodian or
its correspondent institution, who is acting on behalf of and under the same
obligation as the City's third party custodian. The above shall apply to all
investments with the exception of securities underlying overnight repurchase
agreements; the custodial relationship for these instruments is described in
Third -Party Custodial Agreements.
VII. AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS
A. Investment Types
The following are the authorities for investments and limits on security issues, issuers,
and maturities as established within this policy. The Director of Finance or designee shall
have the option to further restrict investment in selected instruments, to conform to then -
present market conditions.
In accordance with Section 166.261, Florida Statues, and section 6-26, City Code,
authorized investments include:
The Florida Local Government Surplus Trust Fund (Administered by the
State Board of Administration and commonly referred as the "SBA").
2. Direct obligations of the U.S. Government which include but are not limited
to Treasury Bills, Treasury Notes, Treasury Bonds and Treasury Strips.
INVESTMENT POLICY R-96-67 PAGE 9 OF 15
VII. AU TH E D ITAB INVESTMENT INSTRUMENTS
A. Investment Types, continued
3. Obligations guaranteed by the U.S. Government as to principal and interest
Which include but are not limited to Government National Mortgage
Association (GNMA), Farmers home Administration (FmHA), Small Business
Association (SBA), General Services Administraiton (GSA), Federal Housing
Administration (FHA), Housing and Urban Development (HUD), Tennessee
Valley Authority (TVA).
4. Time deposits and savings accounts in bank and savings and loan
associations, under the laws of Florida and the United States, doing
business in and situated in -state. All such deposits shall be collateralized
as provided for by Florida Statutes Chapter 280.
5. Securities issued and guaranteed by a federally sponsored corporation which
are backed by, or the entity is capable of borrowing from, the U.S. Treasury.
These securities carry the "implied guarantee" of the U.S. Government and
include the Federal Farm Credit Banks (FFCB), Federal Home Loan Bank
. Mortgage Corporation (FHLMC) (participation certificates), Federal National
Mortgage Association (FNMA), Federal Home Loan Bank (FHLB) or its
banks.
B. Collateralization
Collateral ization will be required on two types of investments: certificates of deposit and
overnight repurchase agreements (as described in the City Code, section 6-26). In order
to anticipate market changes and provide a level of security for all funds, the
collateral ization level will be 100.0% at a minimum with up to 102.0% being desired.
C. Repurchase Agreement
Overnight Repurchase Agreements are the only repurchase agreements authorized as
stated in the City Code section 6-26.
D. Compliance with City's Bond Covenants
Certain surplus funds available for investment represent capital project funds generated
through the issuance of long term bonded indebtedness, or represent debt service funds
created for the repayment of outstanding principal and interest on such bonded
indebtedness. Whenever ordinances and/or resolutions adopted by the City Commission
which authorize the issuance of such bonded indebtedness contain specific provisions
relative to the investment of funds, the investment of such funds shall comply with the
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INVESTMENT POLICY
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VI H RI AND 5UITABLE INVE TMEN R MENT
D. Compliance with City's Bond Covenants, continued
PAGE 10 OF 15
provision of the applicable bond ordinance and/or resolution, the requirement contained
in this policy, and applicable statutory or administrative law.
E. Purchase of City's Utility Bonds
The City may use funds on hand to purchase in the open market outstanding utility system
bonds. Pursuant to Resolution R-85-436, Section 512(b), monies held in the General
Reserve Fund under the Bond Resolution may be used to "purchase or redeem bonds."
Under Section 208, sub section (a), Director of Finance is authorized to purchase any
outstanding Term Bonds "on the most advantageous term obtainable with reasonable
diligence, such as price not to exceed the principal of such Term Bonds plus the amount
of the redemption premium, if any, which might on the next redemption date be paid to the
holder of such Term Bonds ...if Such Term Bonds should be called for redemption on such
date from monies in the Sinking Fund."
Vill. INVESTMENT INSTRUMENTS NOT AUTHORIZED
. Types of securities that are Non -Authorized and not suitable for investment (and in
accordance with Section VII of this policy) include the following as examples:
A. High Grade Corporate Debt
U.S. dollar denominated debt obligations of domestic or foreign corporations, or foreign
sovereignties issued in the United States or in foreign markets. This shall include, but not
be limited to, corporate notes, bonds, medium term notes, Eurodollar notes and bonds,
Yankee notes and bonds, banker acceptances and commercial paper.
B. Repurchase Agreements
Transaction in which securities are purchased from an institution with an agreement to re-
sell the same securities on a specified future date with the exception of overnight repos.
C. Derivative Investment Products
This includes but is not limited to collateralized mortgage obligations (CMOs), interest -only
(IOs) and principal only (POs), forwards, futures, currency and interest rate swaps,
options, floaters/inverse floaters, and caps/floors/collars.
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INVEST ENT(POLICY R-96-67 PAGE 11 OF 15
rI
X INVESTMENT PARAMETERS
A. Diversification
It is the policy of the City of Tamarac to diversify its investment portfolios. Assets held
shall be diversified to control the risk of loss resulting from over concentration of assets
in a specific maturity, a specific issuer, a specific instrument, a class of instruments, and
a dealer through whom these investments are bought and sold. Diversification strategies
within the established guidelines shall be reviewed and revised periodically as necessary
by the appropriate management staff and approved by the Director of Finance. (See Table
1).
B. Maximum Maturities
To the extent possible, the City will attempt to match its investments with overall
anticipated cash flow requirements. The City will not invest in long term securities unless
matched to a specific cash flow requirement.
Investments do not necessarily have to be made for the same length of time that funds are
available. The basic criteria for consideration for investments are listed below:
• Keep maturities short in a period of constantly rising interest rates based on
treasury bill auctions or the daily Fed Funds rate.
• Keep maturities short in a period of an inverted treasury yield curve (short
term rates are higher than long term rates).
• Maturities should be lengthened when the treasury yield curve is normal and
expected to remain that way based on economic reports taken as a whole.
The yield curve is normal when short term rates are lower than long term
rates.
• Maturities should be lengthened when interest rates are expected to fall
based on economic reports taken as a whole.
• The yield curves of the market should be analyzed for significant breaks in
yields over various maturity dates. The points at which the yield curve
breaks are the points at which there are significant marginal declines in
yields for incremental changes in the maturity dates. Investments should be
made at the breaks in the yield curve so that yields will be maximized.
C. Duration
The duration of each investment should not exceed the stated maturity.
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INVESTMENT POLICY R-96-67 PAGE 12 OF 15
IX. INVESTMENT A„RAM � . ntinued
„P ERSo c.
D. Security Selection
When purchasing or selling securities, the Director of Finance or designee shall select the
security which provides the highest rate of return within the parameters of this policy (see
Investment Objectives) and given the current objectives and needs of the City's portfolio.
These selections shall be made utilizing one of the following methods:
Competitive bids, wherein the City solicits quotes from a minimum of three
firms.
Comparison to the current market price as indicated by one of the market
pricing resources available to the City (such as the City's financial advisors,
the Wall Street Journal, or a comparable nationally recognized financial
publication providing daily market pricing)
In most situations, the City shall utilize the competitive bid process to select the securities
to be purchased or sold. Selection by comparison to current market prices, as indicated
above, shall be utilized when, in the judgement of two members of the investment staff,
competitive bidding would inhibit the selection process. Examples of when this might
occur are:
. When time constraints due to unusual circumstances preclude use of the
competitive bidding process.
When the transaction involves new issues or issues in the "when issued"
market.
When using the competitive bid process, all bids shall become part of the record of the
specific security involved. When the selection is made based on comparison to current
market price, the following information shall become part of the record of the security
involved:
Reason for use of this method.
Source of the current market value used.
Price and/or interest rate quoted by said source.
E. Policies to Enhance Return on Investment
The City's investment strategy is active. Given this strategy, the basis used by the Director
of Finance to determine whether market yields are being achieved is the State Board of
Administration (State Pool). The following specific policies are set forth below to provide
additional guidance in implementing Return on Investment objectives.
Active Portfolio Management
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INVESTMENT POLICY R-96-67 PAGE 13OF15
IX. INVESTMENJ PARAMETERS,continued
• E. Policies to Enhance Return on Investment, continued
It is the policy of the City to actively manage the investment portfolio within the
constraints outlined in these investment policies. By using an active portfolio
management philosophy, portfolio yield will be enhanced without an appreciable
increase in risk.
2. Portfolio Maturity Management
When structuring the maturity composition of the investment portfolio, it is the policy
of the City to evaluate current economic conditions, relative interest rate levels and
general direction of interest rates. During periods where economic conditions
demonstrate considerable potential for interest rate increases in the near future, the
City will consider appropriate actions to shorten maturities. Similarly, during
periods where economic conditions demonstrate potential for interest rate
decreases in the near future, the City will consider appropriate actions to lengthen
maturities.
3. Bond Swaps
It shall be the policy of the City to pursue bond swaps as they may present
themselves over the term of any investment. All swaps shall adequately
• compensate the City for administrative costs, reinvestment risk, and quality
considerations. The following categories of bond swaps are considered appropriate
for the City:
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. At
times it may be difficult to isolate the swap opportunities that are
attributable to this factor or (1) above.
C. Swaps to Reduce Maturity:
Market aberrations occasionally create a situation where longer
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INVESTMENT POLICY R-96-67 PAGE 14 OF 15
IX. INVESTMENT PARAM TERS, continued
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Policies to Enhance Return on Investment, continued
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 security with
little or no interest penalty.
d. Overall Loss vs. Initial Accounting Loss:
It is the City's policy to avoid all swaps that result in a loss over the
accounting period of the applicable securities. Other swap
transactions may result in initial accounting losses for the owned
security but offer a gain over the maturity period of the applicable
securities. The City is generally reluctant to enter into this latter form
of swap but reserves the discretion to incur such initial accounting
losses in the event the transaction offers sufficient enhancements to
yield, maturity or credit risk with the approval of the Director of
Finance.
Table 1
Investment Parameters
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N/A
5%
90%
Overnight Repurchase Agreement
N/A
N/A
N/A
U.S. Treasury Securities
15 years
10%
95%
U.S. Government Obligations (e.g. GNMA,
HUD,FMHA,SBA,GSA,FHA,TVA)
10 years
0%
85%
U.S. Government Instrumentalities (e.g.
FFCB, FHLMC, FHLB, FNMA)
10 years
0%
85%
Certificate of Deposits
5 years
0%
85%
14
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INVESTMENT POLICY R-96-67 PAGE 15 OF 15
X. REPORTING
A. Method
The Director of Finance shall generate monthly reports for the City Manager and for the
City Commission. The report shall summarize the investment strategies employed and
describe the portfolio in terms of investment securities, maturities, risk characteristic and
other features.
The Director of Finance or Designee shall provide other such reports and information as
deemed reasonable, upon request from other internal and external sources.
B. Performance Standards
The investment portfolio will be managed in accordance with the parameters specified
within this policy. The portfolio should obtain a market average rate of return during a
market/economic environment of stable interest rates. Portfolio performance should be
compared to appropriate benchmarks on a regular basis.
C. Marking to Market
A statement of the market value of the portfolio shall be issued at least monthly. This will
ensure that the minimal amount of review has been performed on the investment portfolio
in terms of value and subsequent price volatility.
XI. POLICY
A. Exemption
Any investments currently held that do not meet the guidelines of the policy shall be
exempted from the requirements of this policy. At maturity or liquidation, such monies so
invested shall be reinvested only as provided for in this policy.
The Director of Finance or designee may take a sufficient period of time to adjust the
existing portfolio to the provisions of the policy so as not to require the premature
liquidation of any investment.
B. Amendment
This policy shall be reviewed on a timely basis. Any material changes to the Investment
Policy should be recommended by the Director of Finance and the City Manager and
approved by the City Commission.
0 C. Effective Date
This policy shall become effective immediately upon its adoption by the City Commission.
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APPENDIX A
BANKING SERVICES AGREEMENT:
The purpose of the all -encompassing
banking services agreement is to
combine all facets of the total banking
relationship into a single document.
Depending on the nature and scope of
the requesting banking services, the
banking services agreement may
include any member of provisions.
CAPITAL ADEQUACY GUIDELINES:
One test of a dealer's financial solvency
is the relationship between the firm's
capital position and its risk exposure,
known as capital adequacy. Losses
that result from trading and credit risk
reduce the capital of the firm. After
capital is exhausted, further losses may
fall on the firm's customers if the
Broker/Dealer is holding the securities.
Capital adequacy guidelines measure
trading and credit risk to the available
liquid capital.
CAPITAL PROJECTS FUNDS:
Accounts for financial resources to be
used for the acquisition or construction
of major capital facilities.
CERTIFICATE OF DEPOSIT (CD): A
time deposit with a specific maturity
evidenced by a certificate. Large
denomination CD's are typically
negotiable.
COLLATERAL: Securities, evidence of
deposit or other property which a
borrower pledges to secure repayment
of a loan. Also refers to securities
pledged by a bank to secure deposits of
Al
public monies.
CREDIT RISK: Credit Risk is the risk of
loss due to the failure of the security
issuer or backer. Credit risk may be
mitigated by: limiting investments to the
safest types of securities; pre -qualifying
the financial institutions, broker/dealers,
intermediaries, and advisors with which
the City will do business; and
diversifying the investment portfolio so
that potential losses on individual
securities will be minimized.
DEBT SERVICE FUNDS: Accounts for
the accumulation of resources for, and
the payment of, general long-term debt
principal and interest.
DELIVERY VERSUS PAYMENT: There
are two methods of delivery of
securities: delivery versus payment and
delivery versus receipt (also called
free). Delivery versus payment is
delivery of securities with an exchange
of money for the securities. Delivery
versus receipt is delivery of securities
with an exchange of a signed receipt for
the securities.
ENTERPRISE FUNDS: Accounts for
operations (a) that are financed and
operated in a manner similar to private
business enterprises --where the intent
of the governing body is that the costs
of providing goods or services to the
general public on a continuing basis be
financed or recovered primarily through
user charges; or (b) where the
governing body has decided the
ie Y l'6. 6
APPENDIX A
GLOSSARY
periodic determination of revenues payment of principal and interest.
earned, expenses incurred, and/or net
income is appropriate for capital
maintenance, public policy,
ENTERPRISE FUNDS, CONTINUED:
management control, accountability,
and other purposes.
FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC): A federal
agency that insures bank deposits,
currently up to $100,000 per deposit.
FEDERAL HOME LOAN BANKS
(FHLB): The institutions that regulate
and lend to savings and loan
FEDERAL HOME LOAN BANKS
(FHLB), CONTINUED: associations.
The Federal Home Loan Banks play a
role analogous to that played by the
Federal Reserve Banks vis-a-vis
member commercial banks.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA): FNMA, like
GNMA was chartered under the Federal
National Mortgage Association Act in
1938. FNMA is a federal corporation
working under the auspices of the
Department of Housing and Urban
Development, H.U.D. It is the largest
single provider of residential mortgage
funds in the United States. Fannie Mae,
as the corporation is called, is a private
stockholder -owned corporation. The
corporation's purchases include a
variety of adjustable mortgages and
second loans in addition to fixed-rate
mortgages. FNMA's securities are also
highly liquid and are widely accepted.
FNMA assumes and guarantees that all
security holders will receive timely
A
FEDERAL RESERVE BANK: The
central bank of the United States
created by Congress and consisting of a
seven member Board of Governors in
Washington, D.C., 12 regional banks
and about 5,700 commercial banks that
are members of the system.
GENERAL FUND: Accounts for all
financial resources except those
required to be accounted for in another
fund.
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (GNMA
OR GINNIE MAE): Securities
guaranteed by GNMA and issued by
mortgage bankers, commercial banks,
savings and loan associations, and
other institutions, Security holder is
protected by full faith and credit of the
U.S. Government. Ginnie Mae
securities are backed by FHA, VA or
FMHM mortgages. The term pass-
throughs is often used to describe
Ginnie Maes.
INTEREST RATE RISK: Interest rate
risk is the risk that the market value of
securities in the portfolio will fall due to
changes in the general interest rates.
Interest rate risk may be mitigated by:
structuring the investment portfolio so
that securities mature to meet cash
requirements for ongoing operations,
thereby avoiding the need to sell
securities on the open market prior to
maturity; and by investing operating
funds primarily in shorter -term securities
or by cash flow projections.
•
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GLOSSARY
INTERNAL SERVICE FUNDS:
Accounts for the financing of goods or
services provided by one department or
agency to other departments or
agencies of the governmental units, on
a cost reimbursement basis.
LIQUIDITY: A liquid asset is one that
can be converted easily and rapidly into
cash without a substantial loss of value.
In the money market, a security is said
to be liquid if the spread between bid
and asked prices is narrow and
reasonable size can be done at those
quotes.
PORTFOLIO: Combined holding of
more than one stock, bond, commodity,
real estate investment, CASH
EQUIVALENT, or other asset by an
individual or institutional investor. The
purpose of a portfolio is to reduce risk
by diversification.
PRIMARY DEALER: A group of
government securities dealers that
submit daily reports of market activity
and positions and monthly financial
statements to the Federal Reserve Bank
of New York and are subject to its
informal oversight. Primary dealers
include Securities and Exchange
commission (SEC) registered securities
broker -dealers, banks, and a few
unregulated firms.
PRUDENT PERSON RULE: An
investment standard. In some states
the law requires that a fiduciary, such as
a trustee, may invest money only in a
list of securities selected by the state -
A 3
the -so-called legal list. In other states
the trustee may invest in a security if it
is one which would be bought by a
prudent person of discretion and
intelligence who is seeking a
reasonable income and preservation of
capital.
QUALIFIED PUBLIC DEPOSITORIES:
A financial institution which does not
claim exemption from the payment of
any sales or compensating use or ad
valorem taxes under the laws of this
state, which has segregated for the
benefit of the commission eligible
collateral having a value of not less than
its maximum liability and which has
been approved by the Public Deposit
Protection Commission to hold public
deposits.
(MARKET) RATE OF RETURN: The
yield obtainable on a security basis on
its purchase price or its current market
price. This may be the amortized yield
to maturity on a bond or the current
income return.
REPURCHASE AGREEMENT (RP OR
REPO): A holder of securities sells
these securities to an investor with an
agreement to repurchase them at a
fixed price on a fixed date. The security
"buyer" in effect lends the "seller'
money for the period of the agreement,
and the terms of the agreement are
structured to compensate him for this.
Dealers use RP extensively to finance
their positions. Exception: When the
FED is said to be doing RP, it is lending
money, that is, increasing bank
reserves.
� 56--- �, -7
APPENDIX A
GLOSSARY
THIRD PARTY CUSTODIAL
SAFEKEEPING: A service to customers AGREEMENT, CONTINUED: with
rendered by banks for a fee whereby financial institutions, investment
securities and valuables of all types and securities, or securities underlying
descriptions are held in the bank's repurchase agreements.
vaults for protections.
SAFETY: Relates to the volatility of the
principal of the investment. Complete
safety means no increase or decrease
in nominal value. The original sum
invested is returnable to the investor
SAFETY, CONTINUED: either at the
investor's option or at the end of some
short contractual period.
SECONDARY MARKET: Exchanges
and over-the-counter markets where
securities are bought and sold
subsequent to original issuance, which
took place in the PRIMARY MARKET.
Proceeds of secondary market sales
accrue to he selling dealers and
investors, not to he companies that
originally issued the securities. Market
in which money-market instruments are
traded among investors.
SECURITIES & EXCHANGE
COMMISSION: Agency created by
Congress to protect investors in
securities transactions by administering
securities legislation.
SPECIAL REVENUE FUNDS: Accounts
for the proceeds of specific revenue
sources that are legally restricted to
expenditure for specified purposes.
THIRD PARTY CUSTODIAL
AGREEMENTS: A written contract
establishing the responsibilities of a
custodian holding collateral for deposits
TREASURY BILLS: A non -interest
bearing discount security issued by the
U.S. Treasury o finance the national
debt. Most bills are issued to mature in
three months, six months, or one year.
TREASURY BONDS: Long-term U.S.
Treasury securities having initial
maturities of more than ten years.
TREASURY NOTES: Intermediate term
coupon bearing U.S. Treasury securities
having initial maturities of from one to
ten years.
TRUST AND AGENCY FUNDS:
Accounts for assets held by a
governmental unit in a trustee capacity
or as an agent for individuals, private
organizations, other governmental units,
and/or other trust funds.
UNIFORM NET CAPITAL RULE:
Securities and Exchange Commission
requirement that member firms as well
as nonmember broker -dealers in
securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1;
also called net capital rule and net
capital ratio. Indebtedness covers all
money owed to a firm, including margin
loans and commitments to purchase
securities, one reason new public
issues are spread among members of
underwriting syndicates. Liquid capital
includes cash and assets easily
converted into cash.
A4
/.1=4ki10EI.1
GLOSSARY
WIRE TRANSFER AGREEMENTS:
Many banks require an executed Wire
Transfer Agreement from their
commercial customers - those who
utilize the Fedwire system as a means
for transferring large amounts of funds
on a regular basis.
YIELD: The rate of annual income
return on an investment, expressed as a
percentage. (A) INCOME YIELD is
obtained by dividing the current dollar
income by the current market price for
the security. (B) NET YIELD or YIELD
TO MATURITY is the current income
yield minus any premium above par or
plus any discount from par in purchase
price, with the adjustment spread over
the period from the date of purchase to
the date of maturity of the bond.
•
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APPENDIX B
Temp. Reso. # 6811
CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-94-- I(0 1
A RESOLUTION AUTHORIZING THE INVESTMENT OF CITY
FUNDS BY THE CITY MANAGER OR HIS DESIGNATED
REPRESENTATIVE IN A MANNER CONSISTENT WITH THE
FLORIDA STATUTES AND THE CODE OF THE CITY OF TAMARAC,
FLORIDA; PROVIDING FOR CONFLICTS; PROVIDING FOR
SEVERABILITY; AND PROVIDING FOR AN EFFECTIVE DATE.
WHEREAS, the City Charter, Section 7.02 provides for any City funds on deposit
not currently needed for public purposes are to be invested in instruments or institutions
0 as authorized by Florida Statutes but does not clearly set forth a procedure for the
•
Investment of City funds; and
WHEREAS, Section 166.261, Florida Statutes, states that investments by local
governments are to be by resolution of the governing body unless otherwise set forth by
ordinance; and
WHEREAS, the City Code, Section 6-27, provides that the investment of City funds
shall be the responsibility of the City Council which shall establish by resolution
procedures for investment transactions; and
B1
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SECTION 1.
TemR. Reso. # 6811
That the foregoing whereas clauses are hereby ratified and I
confirmed as being true and correct and are hereby made a specific part of this resolution I
upon adoption hereof.
SECTION 2: All funds of the City or funds held by the City which are I
suitable for investment may be invested on behalf of the City by the City Manager or his
designated representative.
SECTION _9: All investments shall be consistent with requirements set forth I
within the Florida Statutes and provisions of the Code of the City of Tamarac.
SEgMQN 4: All Resolutions or parts of Resolutions in conflict herewith are I
hereby repealed to the extent of such conflict.
ECT ON : If any clause, section, other part or application of this I
Resolution is held by any court of competent jurisdiction to be unconstitutional or invalid,
in part or application, it shall not affect the validity of the remaining portions or
applications of this Resolution.
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SECTION 6:
passage and adoption.
Passed this
ATTEST:
This Resolution shall become effective immediately upon its
v� day of ardr- , 1994.
Carol A. Evans 0
City Clerk
NORMAN ABRAMOWITZ
MAYOR
RECORD OF
MAYOR
ABRAMOW 7
DIST.1:
V / M KATZ
DIST. 2:
C / M MISHtIN
DIST. 3:
C / M SCHRMSER
DIST. 4:
C / W f AGHEK
I HEREBY CERTIFY that I have approved
the Resolution as to form.
/ %
Mitchell S. If haft/
City Attorney,/
in"Swent
OM
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EXHIBIT A
[ENTITY]
]
INVESTMENT FIRM CERTIFICATION FORM
As an authorized representative of the undersigned firm, I hereby certify that said firm
has in place reasonable procedures to monitor the activities of employees of this firm
engaged in transactions between our firm and the [entity]. All sales personnel of this
firm dealing with the [entity] have been informed and will be routinely informed of the
City's investment objectives, policies, risk constraints and other pertinent factors,
whenever we are so informed. This firm further pledges due diligence in informing the
City of foreseeable risks associated with financial transactions connected with this firm.
(Firm)
Authorized Representative
(Signature)
(Name - Printed )
(Title)
(Date)
As account representative for the [entity] on behalf of the above referenced firm
hereby certify that I have personally read and understand that investment policies of
the [entity], in such form as said policies were provided to me. I agree to use my best
efforts to comply with the City's written policies and will not knowingly enter into any
transaction with the City which appears to be in violation of the City's written policies.
Account Representative
(Signature)
(Name - Printed )
E1
(Title)
(Date)