HomeMy WebLinkAboutCity of Tamarac Resolution R-2000-117I I
CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-2000-117
Temp Reso. #9013
May 2, 2000
Revision #1, May 8, 2000
Page 1
A RESOLUTION OF THE CITY COMMISSION OF THE
CITY OF TAMARAC, FLORIDA, AUTHORIZING A
CHANGE TO THE INVESTMENT POLICY OF THE CITY
OF TAMARAC, SECTION VII. AUTHORIZED AND
SUITABLE INVESTMENT INSTRUMENTS, TO
INCLUDE "COMMERCIAL PAPER" AND "BANKERS'
ACCEPTANCE" AS AUTHORIZED AND SUITABLE
INVESTMENT INSTRUMENTS FOR THE CITY OF
TAMARAC; 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 City Commission of the City of Tamarac adopted an
investment policy by Resolution R-96-67 on March 27, 1996 (hereto attached as
Exhibit C); and
WHEREAS, the City of Tamarac Finance Department deems it to be in the
best interest of the City of Tamarac and it's residents to include "Commercial
Paper" and "Bankers' Acceptance" as suitable investments for the investment
portfolio of the City of Tamarac; and
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Temp Reso. #9013
May 2, 2000
Revision #1, May 8, 2000
Page 2
WHEREAS, Commercial Paper is an unsecured short-term promissory
note to repay a fixed amount on a certain future date backed solely by the credit
rating of the issuer. Commercial Paper purchased by the City of Tamarac shall
have a favorable rating of A1/P1 or higher by no less than two of the rating
agencies; and
WHEREAS, Bankers' Acceptance are bearer time drafts for a specified
amount payable on a specified date, drawn on a bank by an individual or
business seeking to finance domestic or international trade and collateralized by
commodity products. Bankers' Acceptance is a primary obligation of the
accepting bank and a contingent obligation of the borrower. Bankers'
Acceptance purchased by the City of Tamarac shall have a favorable rating of
A1/P1 or higher by no less than two of the rating agencies; and
WHEREAS, the Investment Advisory Committee, in a letter dated
November 18, 1999 (attached as "Exhibit A") support expanding the current
Investment Policy to include Bankers' Acceptance and Commercial Paper as
authorized and suitable investment instruments; and
WHEREAS, the City financial advisor, Public Financial Management, in a
letter dated January 7, 2000 (attached as "Exhibit B") support considering the
inclusion of Commercial Paper and Bankers' Acceptance as permitted
investments; and
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Temp Reso. #9013
May 2, 2000
Revision #1, May 8, 2000
Page 3
WHEREAS, the Director of Finance, and the Investment Accountant
recommend including Commercial Paper and Bankers' as permitted investments;
and
WHEREAS, the City Commission of the City of Tamarac, Florida, has
deemed it to be in the best interest of the citizens and residents of the City of
Tamarac that the present Investment Policy be expanded to include Bankers'
Acceptance and Commercial Paper as authorized and suitable investment
instruments for the City of Tamarac.
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 appropriate City Officials are hereby authorized ,
to change the Investment Policy (attached hereto as Attachment 1) to include
Commercial Paper and Bankers' Acceptance as authorized and suitable
investment instruments for the City of Tamarac.
SECTION 3: All resolutions or parts of resolutions in conflict
herewith are hereby repealed to the extent of such conflict.
to
Temp Reso. #9013
May 2, 2000
Revision #1, May 8, 2000
Page 4
SECTION 4: 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 application, it shall not affect the validity of the remaining
portions or applications of this Resolution.
SECTION 5: This Resolution shall become effective immediately
upon its passage and adoption.
PASSED, ADOPTED AND APPROVED this 10th day of May, 2000.
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MARION SWEN ON, INTERIM CITY CLERK
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1
Temp Reso #9013
Attachment 1
INVESTMENT POLICY REVISIONS
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 Statutes, 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 "S BA").
2. Direct obligations of the U.S. Government which include but are not limited to Treasury
Bills, Treasury Notes, Treasury Bonds and Treasury Strips.
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
Administration (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.
6. Commercial Paper of any United States corporation provided such notes have a rating of
A1/P1 or higher bat least two of the five ratings agencies.
7. Bankers' Accqptance which may be purchased by the Federal Reserve Banks and which
have a Letter of Credit rating of Al/PI or better.
Coding: Words stmslcdir-eugh.are deletions from the Investment Policy
Words underscored are additions to the Investment Policy
Temp Reso #9013
Attachment 1
INVESTMENT POLICY REVISIONS
IX. 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, page 19).
Table 1
Investment Parameters
Authorized
Maturity
Minimum
Maximum
Investments
Range
Percent (%)
Percent (%)
State Board of Administration (SBA)
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)
1 0 years
0%
85%
U.S. Government Instrumentalities (e.g.
FFCB, FHLMC, FHLB, FNMA)
10 years
0%
85%
Certificate of Deposits
5 years
0%
85%
Commercial Paper
270 days
0%
10%
Bankers' Acceptance
270 days
0%
10%
P-j
Coding: Words struck threugh.are deletions from the Investment Policy
Words underscored are additions to the Investment Policy
EXHIBIT (A)
O k J
11-18--99
MEMO FROM THE INVESTMENT ADVISORY COMMITTEE
THE COMMITTEE IS OF THE OPINION THAT THE CITY SHOULD
CONSIDER EXPANDING ITS INVESTMENT PARAMETER TO INCLUDE AS
PERMISSIBLE THE INVESTMENTS OF PART OF OUR AVAILABLE FUNDS IN
COMMERCIAL PAPER AND BANKERS ACCEPTANCES THAT ARE
RATED A-1 AND P-1.
THE .INVESTMENT IN SUCH SECURITIES WILL IMPROVE TIME YIELD
CONSIDERABLY ON FUNDS HELD FOR SHORT TERM LIQUIDITY NEEDS .
BANKERS ACCEPTANCES ARE SHORT TERM MONEY MARKET
INSTRUMENTS USED TO FINANCE DOMESTIC TRANSACTIONS."ACCEPTED"
INSTRUMENTS ARE GUARANTEED BY DOMESTIC BANKS TO BE PAID AT
MATURITY.
COMMERCIAL PAPER REPRESENTS PROMISSORY NOTES ISSUED BY
LARGE CORPORATIONS -THE YIELD IS USUALLY HIGHER THAN ON
U.S-GOVERNMENT ISSUES OF SIMILAR MATURITIES.
THE CITY OF TAMARAC'S INVESTMENT POLICY AT PRESENT
REQUIRES FOR A MINIMUM OF 5% UP TO A MAXIMUM OF 90% TO BE
INVESTED IN THE STATE BOARD ADMINISTRATION FUND (SBA).USUALLY
BETWEEN 40-50% ARE BEING IN INVESTED BY SBA IN THE ABOVE
NAMED SECURITIES. THE CITY BY INVESTING IN SBA FUNDS IS IN
ACTUALITY INDIRECTLY AN INVESTOR IN THOSE SECURITIES.
AN EXPANSION OF THE CITY'S INVESTMENT PARAMETER WOULD
GIVE FINANCE GREATER FLEXIBILITY TO MAKE INVESTMENT DECISIONS
WITH MAXIMUM RESULTS FOR THE CITY WHENEVER THE OPPORTUNITY
PRESENTS ITSELF.
IT IS THEREFORE THE RECOMENDATION OF THE COMMITTEE TO
AMEND THE CURRENT INVESTMENT POLICY OF THE CITY TO INCLUDE
BANKERS ACCEPTANCES AND COMMERCIAL PAPER AS AUTHORIZED
INVESTMENT INSTRUMENTS.
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EXHIBIT (B)
P F' ti I ti (� (de-�o 41 Cl i
Public Financial Management
January 7, 2000
Ms. Lee Ann Williams
Assistant Treasurer
City of Tamarac
7525 N. W. 88T" Avenue
Tamarac, Florida 33321-2401
Dear Ms. Lee Ann:
. ,�a•zzn,>.
!07 543.1323 fax
L... pfm cnr,
In response to your request for a discussion on the characteristics of commercial paper and bankers'
acceptances, I have provided a review of both investment instruments from the prospective of issuers,
credit risk, liquidity, and transaction terms. The characteristics discussion is followed by an outline of
credit approval and review procedures that should be in place prior to any purchase of commercial paper
or bankers' acceptances executed by the City.
Commercial Paper
Corporate bonds and notes are generally not considered to be money market investments, even when the
passage of time reduces their remaining life to periods of less than one year. However. a wide variety of
corporations issue short-term securities known as commercial paper. Commercial paper is considered to
be a money market investment.
Commercial paper is simply unsecured, short-term promissory notes issued by corporations for specific
a111ounts and with specific maturity dates.
Issuers
More than 2,000 companies in the United States issue commercial paper. Typical issuers are firms that
need large amounts of short-term working capital and/or firms with fluctuating requirements for short-
term funds. Two types of firms traditionally issue almost all commercial paper.
• More than 500 major industrial corporations and some public utilities issue commercial paper. These
firms issue commercial paper to finance working capital (accounts receivable and inventory) on a
seasonal or permanent basis, to fund operating expenses, and to provide temporary finance for
construction projects. These issuers find that they can usually meet their short-term financing needs
more economically or more conveniently with commercial paper than through traditional bank lines
of credit. Paper from these issuers typically comprises about 20 to 25 percent of outstanding
commercial paper.
• Financial companies issue most of the outstanding commercial paper. Paper from these issuers
typically comprises about 75 to 80 percent of outstanding commercial paper. Firms engaged in
leasing, factoring, and mortgage banking usually issue Financial Company paper. The finance
•
Ms. Lee Ann Williams
January 7.2000
Page 2
subsidiaries of major industrial firms compromise the bulk of this market. Firms like General Electric
Capital, a subsidiary of General Electric, General Motors Acceptance Corporation (GMAC), a
subsidiary of General Motors, and Ford Motor Credit are the largest commercial paper issuers. All
together, nonbank finance company issuers comprise about 60 to 65 percent of all outstanding
commercial paper. Bank holding companies, utilities, and insurance companies also issue
commercial paper but their paper comprises less than 10 percent of the total outstandings.
Issuers may be U.S. of foreign companies. The majority of foreign issuers are foreign financial firms.
Transaction Terms
Commercial paper may be sold at a discount or may be interest bearing, however by far the most
commercial paper is issued at a discount. Terms can be as short as one day and usually do not exceed 270
days. (Instruments issued with maturities longer than 270 days must comply with Securities and
Exchange Commission registration requirements and are therefore avoided by issuers.) Most commercial
paper is issued for terms between five and forty-five days. The average maturity of newly issued paper
tends to be thirty to thirty-five days or shorter. Each issuer determines minimum sizes. Minimum sizes
are often $100,000 but may be smaller.
Issuance and Liquidity
Commercial paper is either marketed directly by the issuer or to dealers who resell the paper in the
market. Direct issuers typically include finance companies and bank holding companies that are frequent
and sizable borrowers. Only about a third of all commercial paper is sold by direct issuers. Most dealers
are subsidiaries of investment banks or commercial bank holding companies. There are approximately
125 major dealers. Dealer placed paper is typically issued by smaller finance companies and by
nonfinance issuers.
The secondary market for commercial paper is very small. Since issuers can closely match the maturity
of the paper to the investor's needs, and since the typical maturities of newly issued commercial paper are
quite short; there is only a limited secondary market. However, if an investor in paper sold through
dealers needs cash, the dealer will usually buy back the paper prior to maturity.
Credit Risk
Commercial paper is relatively safe but clearly not the same quality as U.S. Treasury or agency
obligations. (For this reason, commercial paper yields are higher than yields available from U.S. T-bills.)
Historical default rates for commercial paper are very low. Only two major defaults occurred in the
twenty years between 1969 and 1988; however, seven major defaults occurred in the three-year period
from 1989 through 1991. Thus in exchange for the higher yields, investors must be more careful about
the higher risks.
Major credit rating agencies provide published credit ratings for commercial paper issues. Ratings are
reviewed frequently and are primarily based upon the issuer's historical and projected operating results
with an emphasis on profitability and leverage. Other influences on credit quality include size, industry
. characteristics, and the quality of management.
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Ms. Lee Ann Williams
January 7. 2000
Page 3
The rating, and of course the credit quality, of any commercial paper, may be enhanced by supporting
bank lines of credit. Rating agencies require minimum liquidity levels that issuers often supply in the
form of bank lines of credit. For the highest rated issuers, backup liquidity is generally equivalent to 100
percent of the issuer's outstanding commercial paper. These lines not only protect investors from the
potential illiquidity of issuers but also protect investors in the event that a completely unrelated default
may cause a sudden deterioration of market conditions that in turn makes it difficult to offer otherwise
solvent issuers to roll over their maturing paper. Such a market collapse actually occurred in 1970 when
Penn Central, a major issuer, defaulted.
Additional credit quality, and credit rating, enhancements can be achieved with credit enhancements.
Credit enhancements may take the form of guarantees from an issuer's parent company, bank letters of
credit, and indemnity bonds issued by insurance companies. (Do not confuse a parent company's
guarantee with so-called "keep well" agreements and "comfort letters" that are not legally binding.)
Unlike backup lines of credit, credit enhancements provide a guarantee of financial support that cannot be
withdrawn or canceled. Smaller, riskier, and/or non -rated commercial paper issuers use credit
enhancements to give them access to this source of low cost funding.
Asset -Backed Commercial Paper
Since 1933, smaller riskier firms willing to take more risks have been able to siain access to commercial
paper fundin.- through a type of paper called asset -backed commercial paper. rA company, called a
special purpose entity, that purchases receivables from one firm, issues asset -backed commercial paper
and then finances the purchase using funds raised by selling commercial paper secured by those
receivables. «'ith asset -backed paper, the credit risk is directly related to the credit quality of the
financial asset collateral rather than to the General financial condition of the issuing company.
Banker's Acceptances
Banker's acceptances (BAs) are yet another form of money market instruments issued by banks. BAs
arise from transactions involving the import, export, transit. or storage of roods. (This includes domestic
as well as international transit.) The underlying transaction that gives rise to a BA is almost completely
irrelevant to the credit quality or the liquidity of the instrument; the actual BA is created at a late stage in
the underlying transaction when a bank accepts its obligation to pay the holder, or the drawer, of the
accepted draft. In other words, when the transaction becomes a BA, it becomes an unconditional
obligation of the accepting bank.
Credit Risk
From an investor's point of view, a BA is a bank obligation that has at least the same credit strength as
any CD issued by the same bank. In fact, BAs are typically stronger than the uninsured portions of CDs
because, in addition to the credit strength of the accepting bank, they are backed by the credit strength of
a drawer; an endorsing bank, if one is involved in the transaction. and usually by the pledge of documents
representing ownership of the trade goods and insurance on the goods. (Legally, BAs are an example of
two -name paper, since two parties, the drawer and the accepting bank, are obligated to pay. When an
• endorsing bank is included in the transaction. the BA is three -name paper.) BAs do not, however, carry
federal deposit insurance.
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Ms. Lee Ann Williams
January 7, 2000
Page 4
Liquidity
Many BAs are very liquid investments. About a dozen large investment firms maintain an active dealer
market for large BAs that are obligations of the more well known, credit worthy U.S. and foreign banks.
In addition, there is a large and active over-the-counter market for BAs comprised of domestic and
foreign accepting banks, Edge Act corporations, and other financial institutions. Data from a few years
ago showed that commercial banks held 21 percent of outstanding BAs, mainly their own. Money market
mutual funds held 13 percent, dealers held 3 percent, and foreign banks held 3 percent. The remaining 60
percent was held by a variety of investors, of which some of the largest were state and local governments,
pension funds, and insurance companies.
Corporate investors may also be comfortable buying less liquid BAs from smaller regional banks located
in their communities. While BAs from less well-known banks may not trade in the secondary market,
often because the size of the BAs is too small, they can still be safe, very short-term investments.
Transaction Terms
BAs can be a bit more cumbersome for investors than CDs, however. The size, the maturities, and the
pricing of BAs are all unlike the terms for CDs.
Individual BA amounts are rarely in even hundreds or tens of thousands of dollars. Instead, the amount is
the amount of one or the sum of a group of product orders or trade transactions. Often. BAs are in odd
amounts.
Similarly, the term of a BA may be for an even thirty, sixty, ninety, 180 or 270 days when it is created but
is often for an odd number of days by the time an investor purchases it. (BAs meeting certain Federal
Reserve regulations are called "eligible" BAs. Eligible BAs cannot exceed 180 days and are not subject
to reserve requirements.)
Like T-bills, BAs do not pay interest. Instead, they are bought and sold on a discount basis. Discount
rates for acceptances traded in the secondary market are tiered. The acceptances of banks with high credit
rating trade at lower rates of discount than the acceptances of banks with lower credit ratings.
Ms. Lee Ann Williams
January 7, 2000
Page S
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Credit Approval & Review Procedures
Market Analysis: Approval of a Corporate Issuer should begin with an analysis of the relative
size and frequency of the company's issuance, as well as the relative attractiveness of the
available paper. A corporate issuer should provide frequent offerings available at competitive
rates of interest. If this market analysis reveals sporadic offerings, limited product or typically
below market rates, the issuer should not qualify for consideration. Market analysis helps to limit
the number of approved names and increase the quality of the approved list. A sufficiently large
number of approved issuers will decrease the effectiveness of the credit review process as it
becomes unmanageable.
11. Credit Analvsis: A review of corporate issuers is an important step in ensuring that funds are
invested safely. In addition to a review of financial statements and ratios, investors should have
an understanding for each issuer's strengths and weaknesses. Understanding the potential risks
for each issuer can lead to a proactive response when fundamentals deteriorate.
A. Financial Statements: Obtain current financials from the company or from other
sources such as Bloomberg. Review financials looking for positive/negative trends
and industry comparisons.
Industry Specific Guidelines
Banking, & Finance: look for adequate Capital Ratios (Tier 1 Capital = 517c min.,
Total Capital = 10% min.), appropriate earnings trends given market conditions,
trend in percentage of Non -Performing Assets, and discount the level of risk assumed
on its balance sheet (i.e.. low credit loans vs. high credit loans).
Industrial: look for Debt -to -Equity Ratio (typically no more than 150cic), adequate
short-term liquidity as measured by the Current Ratio (1.00 or higher), and positive
revenue & net income trends.
B. Rating Agency Reports: Review ratings and obtain recently issued reports, if
possible. Again, look for trends and potential risks. Purchases of commercial paper
and bankers' acceptances should be limited to A1/P1 (or higher) ratings as provided
by Standard and Poors and Moody's rating agencies.
C. Current News: Search for reports and articles that may provide insight on changes in
the company fundamentals. Common events that can lead to a rapid deterioration of
fundamentals include but are not limited to lawsuits, loss of key customers, earnings
warnings and exposure to regional -specific economic distress.
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Ms. Lee Ann Williams
January 7, 2000
Page 6
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D. Management Quality: Look for signs of a management that is concerned with the
credit quality of the company. Management should provide timely information.
Management teams that aggressively pursue growth strategies with little concern for
balance sheet quality should be avoided.
For example, a management team that expresses the desire to increase market share
through either, (1) major debt -financed acquisitions, or (2) substantial capital
expenditure programs, or (3) a material increase in the risk of the balance sheet, is
less likely to protect the credit quality of the company thereby placing existing credit
ratings at risk.
III. APRroval: Corporate issuers that meet ratings requirements and the in-house credit approval
should be added to a list of approved issuers. Approved issuers should then be reviewed annually
to ensure stability of credit fundamentals. Industry and issuer -specific news should be monitored
on an on -going basis. Any material decline in credit fundamentals or a material deterioration of
the issuer's competitive position should result in the removal of the issuer from the approved list.
The liquidation of existing holdings should be considered on an individual basis.
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The City should consider the addition of commercial paper and bankers' acceptance as permitted
investments, as long the City understands the inherent investment risk associated with these instruments.
And the credit approval and review procedures are abopted as standard investment procedures performed
by the City's investment staff on a routine basis. In order to amend the investment policy, the City
Council will have to approve to the addition of these instruments.
I am happy to answer any additional questions you may have.
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Sincerely,
Public inancial N'lanage ent
Steven Alexande , CCM
Senior Managing Consultant
No Text
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Karen M. Willard
CONTROLLER
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CITY COMMISSION
TAMARAC, FLORIDA
Larry Mishkin
VICE -MAYOR
Bruce Hoffman
COMMISSIONER
John E. McKaye
COMMISSIONER
Joe Schreiber
COMMISSIONER
Robert S. Noe, Jr.
CITY MANAGER
Mitchell Kraft
CITY ATTORNEY
Stanley D. Hawthorne Ivan C. Perrone
DIRECTOR OF FINANCE ACCOUNTANT
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Table of Contents
I. PURPOSE ..................................................... 3
II. SCOPE ....................................................... 3
III. DEFINITIONS .................................................. 4
IV. OBJECTIVES ................................................... 4
A. Safety ................................................... 4
B. Liquidity .................................................. 4
C. Yield .................................................... 4
V. STANDARD OF CARE ........................................... 5
A. Prudence ................................................. 5
B. Ethics and Conflicts of Interest ................................ 5
C. Delegation of Authority ...................................... 5
VI -SAFEKEEPING AND CUSTODY ...................... . ............. 7
X Authorized Financial Dealers and Institutions ..................... 7
B. Internal Controls ........................................... 8
C. Third -Party Custodial Agreements 12
VII. AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS .......... 12
A. Investment Types ......................................... 12
B. Collateral ization ........................................... 13
C. Repurchase Agreement .................................... 13
D. Compliance with City's Bond Covenants ........................ 13
E. Purchase of City's Utility Bonds .............................. 13
VIII. INVESTMENT INSTRUMENTS NOT AUTHORIZED ................... 14
A. High Grade Corporate Debt ................................. 14
B. Repurchase Agreements ................................... 14
C. Derivative Investment Products ............................... 14
IX. INVESTMENT PARAMETERS .................................... 15
A. Diversification ........................................ I... 15
B. Maximum Maturities ....................................... 15
C. Duration ................................................. 16
D. Security Selection ......................................... 16
E. Policies to Enhance Return on Investment ...................... 17
TABLE 1 Investment Parameters ..................................... 19
X. REPORTING .................................................. 20
A. Method ................................................. 20
B. Performance Standards .................................... 20
C. Marking to Market ......................................... 20
X1. POLICY ...................................................... 20
A. Exemption ............................................... 20
B. Amendment .............................................. 20
C. Effective Date ............................................ 20
APPENDIX A - GLOSSARY ........................................... 21
APPENDIX B - RESOLUTION ......................................... 26
EXHIBIT A - CERTIFICATION FORM .................................... 29
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City of Tamarac, Florida
Investment Policy
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.
11. 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 Polic
111. DEFINITIONS
See Glossary Section: Appendix A (Page 21)
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 Polic
V. STANDARD OF CARE
A. Prudence
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 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
investments, 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, page 26).
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
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:
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Investment Polic
C. Delegation of Authority, continued
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.
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;
0 (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.
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Investment Polic
VI SAFEKEEPING 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 quality 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 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.
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Investment Policy
A. Authorized Financial Dealers and Institutions, continued
Before engaging in investment transactions with an institution, the Director of
Finance shall receive a signed certification form (as illustrated in Exhibit A, page 29)
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 (2) the valuation of costs and benefits requires estimates and judgments
by management.
Establishment of Internal Controls
0 The internal controls shall address the following points:
•
a. Control of collusion
Collusion is a situation where two or more employees are
working in conjunction to defraud.
b. Se aration 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. Separation of transaction authoritv from accounting 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.
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Investment Polic
B. Internal Controls, continued
e. Pr hi i i n of ar r-farm ecuriti
Bearer -form securities are much easier to convert to
personal use, than are securities registered in the name of
the City of Tamarac.
Av idance of physigal d liv s curs ies
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. Qlear delega lion of gutho witto 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 regarding curities losses and remedi 1
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.
Written c nfirmation of telephone transacts ns 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.
Docum n a ion 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_
9
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Investment Policy
B. Internal Controls, continued
k. Qgvelgpmeritof a wire transfer aarggment with the
concentration nk
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 transactions costs,
procedures in case of wire failure of other unforeseen mishaps including liability of each
p a rty.
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.
Delivery Versus Payment
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.
10
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Investment Polite
C. Third -Party Custodial Agreements, continued
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 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.
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Investment Policy
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 Statutes, and section 6-26, City
Code, authorized investments include:
1. 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.
3. Obligations guaranteed b the U.S. Government as to principal and
g 9 Y P p
interest which include but are not limited to Government National
Mortgage Association (GNMA), Farmers Home Administration (FmHA),
Small Business Association (SBA), General Services Administration
(GSA), Federal Housing Administration (FHA), Housing and Urban
Development (HUD), Tennessee Valley Authority (TVA).
a. 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.
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Investment Polic
B. Collateralization
Collateralization 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
collate ralization 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 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."
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Investment Policy
VII1. 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.
14
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Investment Policy
IX. 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, page 19).
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.
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Investment Polic
0
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C. Duration
The duration of each investment should not exceed the stated maturity.
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.
16
0 E. Policies to Enhance Return on Investment Investment Polic
•
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
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.
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Investment Policy
E. Policies to Enhance Return on Investment, continued
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
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.
im
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E
Investment Polic
Table 1
Investment Parameters
..................
x IN
001
•:�l
:. y� � r:.y,�•?"•..���� 'I���:�ri.{: •• •��,hV+' i.•:,♦ `�•�•.:. �i}n �v ��
.
:y,�,i :.��;• .
•pjgy� ��
N/A
5%
90%
State Board of Administration (SBA)
Overnight Repurchase Agreement
N/A
N/A
NIA
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%
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Investment Polic
X. REPO
RTING
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.
C. Effective Date
This policy shall become effective immediately upon its adoption by the City Commission.
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Investment Polic
APPENDIX A
GLOSSARY
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
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, brokers/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
principal and interest.
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Investment Polic
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 periodic determination of revenues earned, expenses incurred, and/or net income is
appropriate for capital maintenance, public policy, management control, accountability,
and other purposes.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC):
A federal agency that insure bank deposits, currently up to $100,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB):
The institutions that regulate and lend to savings and loan associations. The Federal
Home Loan Banks play a role analogous to that played by the Federal Reserve Bank
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 assumes and guarantees that all security holders will receive timely payment of
principal and interest.
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.
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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 passthroughs 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.
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--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.
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Investment Policy
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.
SAFEKEEPING:
A service to customers rendered by banks for a fee whereby securities and valuables of
all types and descriptions are held in the bank's 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 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 the selling dealers and investors, not to
the 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
Is expenditure for specified purposes.
24
Investment Polic
THIRD PARTY CUSTODIAL AGREEMENTS:
A safekeeping contract with a trust custodian not involved in the investment transaction.
TREASURY BILLS:
A non -interest bearing discount security issued by the U.S. Treasury to 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 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 non-
member securities maintain a maximum ratio of indebtedness to liquid capital of 15 to
is 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.
•
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 if 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.
25
APPENDIX B
0 Temp. Reso. # 6811
CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-94- 167
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
26
Temp. Reso. # 6811
0
SECTION 1: That the foregoing whereas clauses are hereby ratified and
confirmed as being true and correct and are hereby made a specific part of this resolution
upon adoption hereof.
SECTION 2: All funds of the City or funds held by the City which are
suitable for investment may be invested on behalf of the City by the City Manager or his
designated representative.
SECTION 3: All investments shall be consistent with requirements set forth
within the Florida Statutes and provisions of the Code of the City of Tamarac.
n
�J
SECTION 4: All Resolutions or parts of Resolutions in conflict herewith are
hereby repealed to the extent of such conflict.
SECTION 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 application, it shall not affect the validity of the remaining portions or
applications of this Resolution.
•
27
SECTION 6:
passage and adoption.
tion. 9 p
Passed this
• ATTEST:
Carol A. Evans
City Clerk
This Resolution shall become effective immediately upon its
g�ar��
v� day of , 1994.
NORMAN ABRAMOWITZ
MAYOR
RECORD OF COUNCIL VOTE �
MAYOR ABRAMOWITZ
DIST. 1: V / M KATZ
DIST. 2: C / M MIS; 0N
DIST. 3: C / to SC HR"l :R 194G
DIST. 4: 0 / W Mr1CH !t /1 )z-,
I HEREBY CERTIFY that I have approved
the Resolution as to form.
Mitchell S. *aft/
City Attome
investment
C7
28
•
•
L�
rAM9�
U '14 T
R%
w Mw I.y M fwwr
CITY OF TAMARAC
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 City of Tamarac. All sales personnel of
this firm dealing with the City of Tamarac 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 risksassociated with financial transactions connected with this firm.
(Firm)
Authorized Representative:
(Signature) (Title)
(Name - Printed) (Date)
As account representative for the City of Tamarac on behalf of the above referenced
firm I hereby certify that I have personally read and understand that investment policies of
the City of Tamarac, 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) (Title)
(Name - Printed) (Date)
29