HomeMy WebLinkAbout20230691.tiffRESOLUTION
RE: APPROVE REVISIONS TO WELD COUNTY INVESTMENT POLICY
WHEREAS, the Board of County Commissioners of Weld County, Colorado, pursuant to
Colorado statute and the Weld County Home Rule Charter, is vested with the authority of
administering the affairs of Weld County, Colorado, and
WHEREAS, the Board has been presented with Revisions to the Investment Policy for the
County of Weld, State of Colorado, by and through the Board of County Commissioners of Weld
County, on behalf of the Treasurer's Office, with further terms and conditions being as stated in
said revised investment policy, and
WHEREAS, after review, the Board deems it advisable to approve said revised investment
policy, a copy of which is attached hereto and incorporated herein by reference.
NOW, THEREFORE, BE IT RESOLVED by the Board of County Commissioners of
Weld County, Colorado, that the Revised Investment Policy for the County of Weld, State of
Colorado, by and through the Board of County Commissioners of Weld County, on behalf of the
Treasurer's Office, be, and hereby is, approved.
The above and foregoing Resolution was, on motion duly made and seconded, adopted
by the following vote on the 13th day of March, A.D., 2023.
BOARD OF COUNTY COMMISSIONERS
WELD COUNTY, COLORADO
ATTEST: dit4400 4•1‘044..
Weld County Clerk to the Board
BY:
APP
my Attorney
Date of signature: 03/I 6 /23
OS-
Mik- -eman, Chair
erry L. B ck, Pro-Tem
Sco t K. Jam
evin D. Ross
Lori Saine
ce:TR(QF) FI(RRfcPfs )
03/17123
2023-0691
TR0031
Table of Contents
I. INTRODUCTION 2
II. SCOPE 2
III. INVESTMENT OBJECTIVES 2
IV. DELEGATION OF AUTHORITY 4
V. PRUDENCE AND INDEMNIFICATION 4
VI. ETHICS AND CONFLICTS OF INTEREST 4
VII. INTERNAL CONTROLS 5
VIII. ELIGIBLE INVESTMENTS AND TRANSACTIONS 5
IX. PROHIBITED INVESTMENT VEHICLES AND PRACTICES 8
X. RISK MANAGEMENT AND DIVERSIFICATION 9
XI. INVESTMENT POOLS/MUTUAL FUNDS 10
XII. COMPETITIVE TRANSACTIONS 10
XIII. SELECTION OF BROKER/DEALERS 10
XIV. SELECTION OF BANKS AND SAVINGS AND LOANS 11
XV. SAFEKEEPING AND CUSTODY 11
XVI. PERFORMANCE BENCHMARKS 12
XVII. REPORTING 12
XVIII. POLICY REVISIONS 13
Exhibit I 13
Glossary of Investment Terms 14
2023-0691
o3/ Bo0 TV -o031 1
WELD COUNTY
INVESTMENT POLICY 2023
I. INTRODUCTION
The Board of County Commissioners of Weld County has appointed an oversight
committee, known as the Investment Advisory Committee, comprised of the Treasurer,
the Director of Finance and Administration, CFO, Controller, and the Chair and Chair
Pro-tem of the Board of County Commissioners, to oversee compliance of the County's
investments with this Investment Policy and to provide advice to the Board of County
Commissioners and the Treasurer regarding investments and any necessary changes to
this Investment Policy.
This Investment Policy replaces any previous Investment Policy or Investment
Procedures of Weld County. The investment guidelines outlined below have been written
to comply with various regulatory requirements under which Weld County operates.
This Investment Policy was endorsed and recommended for adoption by the Weld
County Investment Advisory Committee on March 6, 2023.
IL SCOPE
The following investment policy addresses the methods, and procedures to ensure
effective and judicious fiscal and investment management of the County's funds. This
policy shall apply to the investment management of all financial assets and funds under
control of the County except for its employee retirement system fund, which is organized
and administered separately by the Weld County Retirement Board. These investment
transactions/activities are accounted for in the government's annual financial report and
include the following:
1. General fund,
2. Special Revenue funds,
3. Debt Service funds.
4. Capital Projects funds,
5. Enterprise fund,
6. Internal Service funds,
7. Trust and Agency funds - Expendable Trust funds & Agency funds, and
8. Any new fund created by the governing body, unless specifically exempted by
the governing body
III. INVESTMENT OBJECTIVES
All funds which are held for future disbursement shall be deposited and invested by the
County in accordance with Colorado State Statutes and ordinances and resolutions
enacted by the Board of Weld County Commissioners in a manner to accomplish the
following objectives:
1. Safety of Funds: Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. The objective will be to mitigate
credit risk and interest rate risk.
A. Credit Risk. The County will minimize credit risk, the risk of loss due
to the failure of the security issuer, by:
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a) Limiting investments to the safest types of securities;
b) Pre -qualifying the financial institutions, broker/dealers, and advisors
with which the County does business, and
c) Diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
B. Interest Rate Risk: The County will minimize the risk that the market
value of securities in the portfolio will fall due to changes in general
interest rates by:
a) Structuring the investment portfolio so that securities mature
sufficiently close to cash requirements for ongoing operations, thereby
minimizing the potential need to sell securities on the open market
prior to maturity; and
b) Investing operating funds primarily in short- to intermediate -term
securities, approved local government investment pools, approved
money market mutual funds and repurchase agreements.
2. Liquidity of Funds: The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. To ensure
that adequate funds are available to pay the County's projected financial
obligations, investments will be purchased that reasonably match the anticipated
cash disbursements of the County.
Since all possible cash demands cannot be anticipated, the portfolio shall consist
largely of securities with active secondary or resale markets so that the potential
for a realized loss, if an early liquidation of a security is necessary, can be
minimized.
A core of stable funds may be identified through cash flow analysis that is
available for investing in longer -term securities. Although the market value of
these longer -term securities may fluctuate significantly, the fluctuation will not
affect the liquidity of the portfolio since they can be held to maturity in all bat
extreme circumstances.
3. Yield: The County's portfolio shall earn a competitive market rate of return an
available funds throughout budgetary and economic cycles. In meeting this
objective, investment management personnel will take into account the County's
investment risk constraints and cash flow needs.
The County's overall investment program shall be designed and managed with a degree
of professionalism that is worthy of the public trust. The County recognizes that no
investment is totally free of risk and that the investment activities of the County are a
matter of public record. Accordingly, the County recognizes that occasional measured
losses are inevitable in a diversified portfolio and shall be considered within the context
of the overall portfolio's return, provided that this policy has been followed and that the
sale of a security prior to maturity is in the best long-term interest of the County.
After safety and liquidity, Weld County staff, investment advisors and fund managers
will only consider financial factors when seeking the highest rate of return. Weld
County will not base investment decisions on Environmental, Social and Governance
(ESG) factors.
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IV. DELEGATION OF AUTHORITY
Authority to manage the investment program is granted to the Treasurer derived from
Article 11 of the Weld County Home Rule Charter. Responsibility for the operation of
the investment program is hereby delegated to the Treasurer, who shall carry out
established written procedures and internal controls for the operation of the investment
program consistent with this investment policy. Procedures shall include references to:
safekeeping, delivery vs. payment, investment accounting, repurchase 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 Treasurer.
The Treasurer shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials.
The Treasurer may engage the support services of outside professionals, so long as it can
be demonstrated that these services produce a net financial advantage and necessary
financial protection of the County's resources. Such services may include engagement of
financial advisors in conjunction with debt issuance, portfolio management support,
special legal representation, third party custodial services, and appraisal of independent
rating services. Investment Advisors shall be registered with the Securities Exchange
Commission under the Investment Advisors Act of 1940. Advisors shall be subject to the
provisions of this Policy, and shall not, under any circumstances, take custody of any County
funds or securities.
PRUDENCE AND INDEMNIFICATION
The standard of prudence, as defined by the Colorado Revised Statutes, to be used for
managing the County's assets is the "prudent investor" rule applicable to a fiduciary,
which states that a prudent investor "shall exercise the judgment and care, under
circumstances then prevailing, which men of prudence, discretion, and intelligence
exercise in the management of the property of another, not in regard to speculation but in
regard to the permanent disposition of funds, considering the probable income as well as
the probable safety of their capital" (CR5 15-1-304, Standard for Investments.)
The Director of Finance, Treasurer and other authorized persons acting in accordance
with written procedures and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes provided
deviations from expectations are reported in a timely fashion and the liquidity and the
sale of securities are carried out in accordance with the terms of this policy. The
Treasurer will be responsible for ensuring that sufficient liquidity exists to maintain the
County's operations in the event of adverse market conditions or claims.
V. ETHICS AND CONFLICTS OF INTEREST
As noted in Section 16-9 (2) (b) of the Weld County Home Rule Charter: "Neither the
Treasurer nor employees of the Treasurer's Office shall have any proprietary interest in
any financial institution in which the County maintains deposits."
All participants in the investment process shall act as custodians of the public trust.
Investment officials shall recognize that the investment portfolio is subject to public
review and evaluation. Thus, employees and officials involved in the investment process
shall refrain from personal business activity that could create a conflict of interest or the
appearance of a conflict with proper execution of the investment program, or which could
impair their ability to make impartial investment decisions.
Employees and investment officials shall disclose to the Board of County Commissioners
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any material interests in financial institutions with which they conduct business, and they
shall further disclose any large personal financial/investment positions that could be
related to the performance of the investment portfolio. Employees and officers shall
refrain from undertaking any personal investment transactions with the same individual
with whom business is conducted on behalf of the County.
VI. INTERNAL CONTROLS
The Treasurer 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 requies estimates and judgments by management.
Periodically, as deemed appropriate by the County and/or the Board of County
Commissioners, an independent analysis by an external auditor shall be conducted to review
internal controls, account activity and compliance with policies and procedures.
VII. ELIGIBLE INVESTMENTS AND TRANSACTIONS
All investments will be made in accordance with the Colorado Revised Statutes (CRS) as
follows CRS 11-10.5-101, et seq. Public Deposit Protection Act, CRS 11-47.101, et seq.
Savings and Loan Association Public Deposit Protection Act; CRS 24-75-601, et seq.
Funds -Legal Investments for Governmental Units; CRS 24-75-603, et seq. Depositories;
and CRS 24-75-702, et seq. Local Governments -Local Government Pooling. Any
revisions on extensions of these sections of the CRS will be assumed to be part of this
policy immediately upon being enacted.
The credit quality of any eligible investment will be evaluated using the following Nationally
Recognized Statistical Rating Organizations (NRSROs): Standard & Poor's, Moody's or Fitch
(or any of their successor agencies).
This investment policy further defines the following types of securities and transactions
as eligible for use by the County:
L U.S. Treasury Obligations fully guaranteed by, or for which the full faith
and credit of the United States Treasury is pledged for payment.
A. Maturities shall not exceed five years from the date of trade
settlement.
B. There are no limits on the dollar amount or percentage that the
County may invest in U.S. Treasuries.
2. Federal Agency and Instrumentality Securities issued by or fully guaranteed as to
principal and interest by federal agencies or U.S. Government Sponsored
Enterprises (GSEs). Subordinated securities are not permissible under this policy.
A. Maturities shall not exceed five (5) years from the date of trade
settlement.
B. There are no limits on the dollar amount or percentage that the County
may invest in federal Agency and GSE securities. No more than 35%
of the total portfolio may be invested in any single Agency/GSE issuer.
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3. Repurchase Agreements with a defined termination date of 180 days or less
collateralized by U. S. Treasury and agency securities listed in item 1 and 2 above
with a maturity not exceeding 10 years. Title must transfer to the County of Weld
or the County must have a perfected security interest. For the purpose of this
section, the term "collateral' shall mean "purchased securities" under the terms of
the County's approved Master Repurchase Agreement. The purchased securities
shall have a fixed coupon rate and an original minimum market value including
accrued interest of 102 percent of the dollar value of the transaction and the
collateral maintenance level shall be 102 percent. Collateral shall be held in the
County's custodial bank as safekeeping agent, and the market value of the
collateral securities shall be marked -to -the -market daily based on that day's bid
price.
Repurchase Agreements shall be entered into only with dealers who have
executed a Master Repurchase Agreement with the County and who are
recognized as Primary Dealers with the Market Reports Division of the Federal
Reserve Bank of New York. The Master Repurchase Agreement will be
substantially in the form developed by the Securities Industry and Financial
Markets Association (SIFMA).
Approved counterparties to repurchase agreements shall have at least a short-term
debt rating of A-1 or the equivalent and a long-term debt rating of A or the
equivalent from one on more nationally recognized organizations which regularly
rates such obligations. No more than 50% of the portfolio may be invested in
repurchase agreements and no more than 10% may be invested with a single
counterparty.
4, Local Government Investment Pools authorized under CRS 24-75-701, 702 et seq.,
provided they
A. are managed to a stable value ($1 per share);
B. Are "no-load" (i.e., no commission or fees shall be charged on
purchases or sales of shares) and charge no 12b1 fees;
C. Limit assets of the fund to securities authorized by state statute;
D. Have a maximum stated maturity and weighted average maturity in
accordance with Rule 2a-7 of the Investment Company Act of 1940.
E. Have a rating of AAAm by Standard and Poor's or Aaa by Moody's, or
AAAmmf by Fitch Investors Service.
F. A maximum of 100% of the portfolio may be invested in local government
investment pools with a single pool constituting no more than 35% of the
portfolio.
5. Certificates of Deposit or savings accounts in state or national banks or in state or
federally chartered savings and loans that are state approved depositories per CRS
24-75-603, et seq. (as evidenced by the State Banking Board) and are insured by
the FDIC. Certificates of deposit which exceed the FDIC insured amount shall be
collateralized in accordance with the Colorado Public Deposit Protection Act or
the Savings and Loan Association Public Deposit Protection Act. [Allow CD
purchases up to the FDIC limit in US banks outside of Colorado.]
A. Maturities shall not exceed five (5) years from the date of settlement.
B. No more than 30% of the total portfolio may be invested in certificates of
deposit.
C. No more than 5% of the total portfolio may be invested in any one issuer.
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Money Market Mutual Funds registered under the Investment Company Act of
1940, provided they:
A. Have a constant daily net asset value per share of $1.00;
B. Are "no load" (i.e.: no commission or fee shall be charged on
purchases or sales of shares) and charge no 12b1 fees;
C. Limit assets of the fund to securities authorized by state statute;
D. Have a maximum stated maturity and weighted average maturity is
accordance with Rule 2a-7 of the Investment Company Act of 1940;
and
E. Have a rating of AAAm by Standard and Poor's or Aaa by Moody's,
or AAAmmf by Fitch Investors Service.
F. A maximum of 100% of the portfolio may be invested in money market
mutual funds with a single fund constituting no more than 35% of the
portfolio.
7. Corporate or Bank Securities denominated in United States dollars.
A. Bonds, notes, debentures and medium -term notes issued by a corporation or
bank which is organized and operated within the United States, wlh
remaining maturities not exceeding three years from the date of trade
settlement. Such securities, at the time of purchase, must be rated at least AA -
by Standard & Poor's, Aa3 by Moody's, or AA- by Fitch by at least two
services that rate the issue.
B. Commercial paper with maturities not exceeding 270 days from the date of
trade settlement that is rated at least A-1 by Standard and Poor's, P-1 by
Moody's, or F-1 by Fitch at the time of purchase by at least two services that
rate the commercial paper.
C. Eligible Banker's Acceptances with original maturities not exceeding 180
days from the date of trade settlement. Banker's Acceptances shall be rated at
least A-1 by Standard and Poor's, P-1 by Moody's, or F-1 by Fitch at the time
of purchase by at least two services that rate them.
D. The term "Bank Security" includes Negotiable Certificates of Deposit issued
by banks organized and chartered within the United States. These
instruments are investment securities and not deposits as described in Section
VIII, 5. Negotiable Certificates of Deposit must have a final maturity not
exceeding three years from the date of trade settlement and must be issued by
institutions which have short-term debt obligations rated at least A-1 by
Standard and Poor's, P-1 by Moody's, or F-1 by Fitch at the time of purchase
by at least two services that rate the issue. or long-term obligations rated at
least AA- by Standard & Poor's, Aa3 by Moody's, or AA- by Fitch by at least
two services that rate the issue.
E. At no time shall the book value of investments in corporate and bask
securities total more than 50% of the total book value of the
County's portfolio with no greater than 5% exposure to any single
issuer.
F. No subordinated security may be purchased.
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$ Municipal Securities of state or local governments with a maturity not exceeding
five years from the date of trade settlement.
A. General obligation and revenue obligation securities of this state or any
political subdivision of this state must be rated at the time of purchase at
least "A-" or its equivalent by at least two NRSROs.
B. General obligation and revenue obligation securities of any other state or political
subdivision of any other state must be rated at the time of purchase at least "AA-" or its
equivalent by at least two NRSROs.
C. No more than 30% of the total portfolio may be invested in municipal
securities.
D. No more than 5% of the total portfolio may be invested in the securities
of any single issuer.
9. Supranationals, provided that:
A. Issues are US dollar denominated senior unsecured unsubordinated
obligations issued or unconditionally guaranteed by the World Bank.
B. The securities are rated at the time of purchase at least "AA" or its
equivalent by an NRSRO.
C. No more than 30% of the total portfolio may be invested in these
securities.
D. No more than 10% of the portfolio may be invested in any single issuer.
E. The maximum maturity does not exceed five (5) years.
Eligible Investment Summary
The following table summarizes the eligible investment requirements stated in the above section.
Security Type
Maximum
Portfolio %
Maximum
Issuer %
Maturity
Restrictions
Minimum
Rating
U.S. Treasuries
100%
100%
5 years
N/A
U.S. Agencies and Instrumentalities
100%
35%
5 years
N/A
Repurchase Agreements
50%
10%
180 Days
A -1/A
Local Government Investment Pools
100%
35%
2a-7
AAA
Certificates of Deposits (CD)
30%
5%
5 years
N/A
Money Market Mutual Funds
100%
35%
2a-7
AAA
Corporate or Bank Securities
50%
5%
3 Years
AA -
Commercial Paper
5%
270 Days
A-1
Bankers' Acceptances
5%
180 Days
A-1
Negotiable Certificates of Deposits
5%
5 Years
A-1/AA-
Municipal Bonds (Colorado/Other)
30%
5%
5 years
A-/AA-
Supranationals
20%
10%
5 Years
AA
Any deviation from this list must be pre -approved by the Board of Weld County
Commissioners in writing.
VIII. PROHIBITED INVESTMENT VEHICLES AND PRACTICES
State law notwithstanding, any investments not specifically authorized pursuant to this approved Investment
Policy are prohibited, including but not limited to:
1. Futures and options
2. Investment in inverse floaters, range notes, or mortgage derived interest -only strips
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3. Investment in any security that could result in a zero -interest accrual if held to maturity
4. Trading securities for the sole purpose of speculating on the future direction of interest rates
5. Purchasing or selling securities on margin
6. The purchase of foreign currency denominated securities
IX. RISK MANAGEMENT AND DIVERSIFICATION
It is the intent of the County to diversify the investments in the portfolio to avoid
incurring unreasonable risks inherent in over -investing in specific instruments, individual
financial institutions or maturities. The asset allocation in the portfolio should, however,
be flexible depending upon the outlook for the economy, the securities market, and the
County's anticipated cash flow needs.
Mitigating Credit Risk in the Portfolio
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived
change in the ability of the issuer to repay its debt. The County will mitigate credit risk by adopting the
following strategies:
1. The County may elect to sell a security prior to its maturity and record a capital gain or loss in order to
improve the quality, liquidity or yield of the portfolio in response to market conditions or the County's
risk preferences.
2. If securities owned by the County are downgraded by a nationally recognized statistical ratings
organization (NRSRO) to a level below the quality required by this Investment Policy, it will be the
County's policy to review the credit situation and make a determination as to whether to sell or retain
such securities in the portfolio.
A. If a security is downgraded, the Treasurer will use discretion in determining whether to sell
or hold the security based on its current maturity, the economic outlook for the issuer, and
other relevant factors.
B. If a decision is made to retain a downgraded security in the portfolio, its presence in the
portfolio will be monitored and reported to the Investment Advisory Committee.
Mitigating Market Risk in the Portfolio
Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates.
The County recognizes that, over time, longer -term portfolios have the potential to achieve higher returns. On
the other hand, longer -term portfolios have higher volatility of return. The County will mitigate market risk by
providing adequate liquidity for short-term cash needs, and by making longer -term investments only with
funds that are not needed for current cash flow purposes. The County, therefore, adopts -the following
strategies to control and mitigate its exposure to market risk:
1. Investments shall be limited to maturities not exceeding five (5) years unless otherwise approved in
writing by the Board of Weld County Commissioners for special circumstances (e.g., the reinvestment
of bond proceeds).
2_ The County shall maintain at least 10% of its total investment portfolio in instruments maturing in 90
days or less.
3. The maximum percent of callable securities (does not include "make whole call" securities as defined
in the Glossary) in the portfolio will be 20%.
4. The duration of the portfolio will at all times be approximately equal to the duration (typically, plus or
minus 20%) of a Market Benchmark, an index selected by the County based on the County's
investment objectives, constraints and risk tolerances.
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X. INVESTMENT POOLS/MUTUAL FUNDS
The County shall conduct a thorough investigation of any local government investment pool or money market
mutual fund prior to making an investment, and on a continual basis thereafter. There shall be a questionnaire
developed which will answer the following general questions:
1. A description of eligible investment securities, and a written statement of investment policy and
objectives.
2. A description of interest calculations and how it is distributed, and how gains and losses are
treated.
3. A description of how the securities are safeguarded (including the settlement processes), and how
often the securities are priced, and the program audited.
4. A description of who may invest in the program, how often, what size deposit and withdrawal are
allowed.
5. A schedule for receiving statements and portfolio listings.
6. Are reserves, retained earnings, etc. utilized by the pool/fund?
7. A fee schedule, and when and how is it assessed.
8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
XI. COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with broker/dealers who
have been authorized by the County. Securities shall be purchased at the then best
offering price based on the market conditions at that time.
XII. SELECTION OF BROKER/DEALERS AND FINANCIAL
INSTITUTIONS ACTING AS BROKER/ DEALERS AND FINANCIAL
INSTITUTIONS PROVIDING INVESTMENT SERVICES.
The Treasurer shall maintain a list of authorized broker/dealers and financial institutions
which are approved for investment purposes, and it shall be the policy of the County to
purchase securities only from those authorized institutions and firms.
To be eligible, a firm/investment bank, bank, or savings and loan institution must meet at
least one of the following criteria:
1. Report voluntarily to the Federal Reserve Bank of New York;
2. Be recognized as a Primary Dealer by the Federal Reserve Bank of New
York or have a primary dealer within its holding company structure; or
3. .Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1
(Uniform Net Capital Rule).
Broker/dealers and other financial institutions will be selected by the Treasurer on the
basis of their expertise in public cash management and their ability to provide service to
the County's account. Each investment firm authorized by the Treasurer shall be a
FINRA reporting broker/dealer. Broker/Dealers must supply the Treasurer with audited
financials and shall also attest in writing that they have received a copy of this policy.
Selection of broker/dealers used by an external investment adviser retained by the County
will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers
shall be selected on a competitive basis and their bid or offering prices shall be recorded. If
there is no other readily available competitive offering, best efforts will be made to document
quotations for comparable or alternative securities. When purchasing original issue
instrumentality securities, no competitive offerings will be required as all dealers in the
selling group offer those securities at the same original issue price.
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The County may purchase commercial paper from direct issuers even though they are not on
the approved broker/dealer list as long as the paper meets the criteria outlined in item 7 of the
section "VIII' titled "Eligible Investments and Transactions."
A list of approved Broker/Dealers, Banks, and Savings & Loan institutions is included in
various "Resolutions" performed by the Board of County Commissioners of Weld
County, Colorado.
XIII. SELECTION OF BANKS AND SAVINGS AND LOANS (DESIGNATION
UNDER CRS 11-10.5-106 (Banks) and CRS.11-47-105 (Savings & Loan)) AS
DEPOSITORIES AND PROVIDERS OF GENERAL BANKING SERVICES AND
ASSET POOLS AS DEPOSITORIES
The Treasurer shall maintain a list of authorized banks, savings and loans, and public
asset pools as depositories for Weld County funds which are approved by the Board of
Weld County Commissioners by resolution per CRS 30-10-708 to provide depository and
other banking services for the County. To be eligible for authorization, a bank is required
to be designated an eligible public depository by the state banking board and a savings
and loan must be designated an eligible public depository by the state commissioner of
Banking. Additionally, banks or savings and loans, in the judgment of the Treasurer, who
no longer offer adequate safety or service to the County, will be removed from the
approved list. The list will be updated annually if any changes are requested to insure
compliance. Depositories shall be selected based on ratings and competitive rates of
return.
XIV. SAFEKEEPING AND CUSTODY
1. The Treasurer shall approve one or more financial institutions to provide safekeeping and
custodial services for the County. A County approved Safekeeping Agreement shall be executed
with each custodian bank prior to utilizing that bank's safekeeping services. To be eligible for
designation as the County's safekeeping and custodian bank, a financial institution shall have a
Bauer rating of 3 stars or better out of possible 5 -star rating.
Custodian banks will be selected on the basis of their safety and ability to provide
service to the County's account with competitive pricing of their safekeeping
related services.
Custodian banks shall be selected through the County's procurement process,
which shall include a formal request for proposal as needed. Custodial banks
should be in the highest rating categories.
Delivery -versus -Payment (DVP). All investment transactions shall be conducted on a
delivery -versus -payment basis.
SAFEKEEPING
All purchased securities will be perfected in the name of the County. Sufficient evidence
to title shall be consistent with modem investment, banking and commercial practices.
All investment securities, except non-negotiable certificates of deposit, local government
investment pools, and money market funds, purchased by the County will be held by a
PDPA eligible Colorado State bank or delivered by either book entry or physical delivery
and will be held in third -party safekeeping by a County approved custodian bank, its
correspondent New York Bank or the Depository Trust Corporation (DTC).
All non -book entry (physical delivery) securities shall be held by Weld County's
designated custodian bank for the benefit of the county. The County may utilize the
services of the Depository Trust Corporation (DTC) as a depository for delivery of non-
wireable securities.
All custodies securities that are registered shall be registered in the name of the County or
in the name of a nominee of the County or in the name of the custodian or its nominee or,
if in a clearing corporation, in the name of the clearing corporation or its nominee.
The County's custodian will be required to furnish the County with monthly reports of
holdings of custody securities as well as an account analysis report of monthly securities
activity.
XV. PERFORMANCE BENCHMARKS
The investment portfolio shall be designed to attain a market -average rate of return throughout
budgetary and economic cycles, taking into account the County's risk constraints, the cash
flow characteristics of the portfolio, and state and local laws, ordinances or resolutions that
restrict investments. The Treasurer shall select an appropriate, readily available index to use as
a market benchmark. The Treasurer shall monitor and evaluate the portfolio's performance
relative to the market benchmark.
The Treasurer shall present to the Investment Advisory Committee of Weld County a
review of the current investments and the portfolio's adherence to appropriate risk levels
and a comparison between the portfolio's total return and the established investment
objectives and goals.
XVI. REPORTING
Accounting and reporting on the County's investment portfolio shall conform to
Generally Accepted Accounting Principles (GAAP) and the Governmental Accounting
Standards.
QUARTERLY REPORTS
The CFO or Treasurer will submit a quarterly investment report to the Investment Advisory Committee which
provides full disclosure of the County's investment activities within 30 days after the end of the quarter. These
reports will disclose, at a minimum, the following information about County's portfolio:
1. An asset listing showing par value, cost and independent third -party fair market value of each security as
of the date of the report, the source of the valuation, type of investment, issuer, maturity date, interest rate
and interest rate.
2. Transactions for the period.
3. A description of the funds, investments and programs managed by contracted parties (i.e. local
government investment pools and outside money managers)
4. A one -page summary report that shows:
a.) Average maturity of the portfolio and modified duration of the portfolio;
b.) Maturity distribution of the portfolio;
c.) Percentage of the portfolio represented by each investment category;
d.) Average portfolio credit quality; and,
e.) Time -weighted total rate of return for the portfolio for the prior one month, three months,
twelve months and since inception compared to the County's market benchmark returns for
the same periods;
12
5. A statement of compliance with the Investment Policy, including a schedule of any transactions or holdings
which do not comply with this Policy, including a justification for their presenco in the portfolio and a
timetable for resolution.
ANNUAL REPORTS
A comprehensive annual report will be presented to the Board of County Commiss_oners. This report will
include comparisons of the County's return to the market benchmark return, suggest policies and improvements
that might enhance the investment program, and will include an investment plan for the coming year.
XVIII. POLICY REVISIONS
This investment policy shall he reviewed at least annually by the Director of Finance and
Treasurer and may be amended by the Investment Advisory Committee of Weld County
as conditions warrant. The data contained in the annexes to this policy may be updated by
the Treasurer as necessary, provided the changes in no way affect the substance or irtent
of this policy.
Exhibit I
Authorized Personnel
The following persons are authorized to transact investment business and wire funds for
investment purposes on behalf of the Weld County:
Treasurer
Assistant Treasurer
INVESTMENT COMMITTEE
13
Glossary of Investment Terms
AGENCIES. Shorthand market terminology for any obligation issued by a government -sponsored entity (GSE), or a
federally related institution. Most obligations of GSEs are not guaranteed by the full faith and credit of the US
government. Examples are:
FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB
issues discount notes and bonds.
FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues
discount notes and bonds
FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the
housing market. FHLMC, also called "FreddieMac" issues discount notes, bonds and mortgage pass -
through securities.
FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was established to provide
credit and liquidity in the housing market. FNMA, also known as "FannieMae," issues discount notes,
bonds and mortgage pass -through securities.
GNMA. The Government National Mortgage Association, known as "GinnieMae," issues mortgage pass -
through securities, which are guaranteed by the full faith and credit of the US Government.
PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed
by the full faith and credit of the US government.
TVA. The Tennessee Valley Authority provides flood control and power and promotes development in portions
of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues discount notes and bonds.
ASKED. The price at which a seller offers to sell a security.
ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of revolving lines
of credit.
AVERAGE LIFE. In mortgage -related investments, including CMOs, the average time to expected receipt of principal
payments, weighted by the amount of principal expected.
BANKER'S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It is highly
liquid and safe because the risk of the trade transaction is transferred to the bank which "accepts" the obligation
to pay the investor.
BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects
the mix of securities allowed under a specific investment policy.
BID. The price at which a buyer offers to buy a security.
BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A
broker does not sell securities from his own position.
CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity. The main
cause of a call is a decline in interest rates. If interest rates decline since an issuer issues securities, it will likely
call its current securities and reissue them at a lower rate of interest. Callable securities have reinvestment risk
as the investor may receive its principal back when interest rates are lower than when the investment was
initially made.
CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. Large denomination
CDs may be marketable.
CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that allows local
agencies to purchase more than $250,000 in CDs from a single financial institution (must be a participating
institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is currently the only entity
providing this service. CDARS facilitates the trading of deposits between the institution and other participating
institutions in amounts that are less than $250,000 each, so that FDIC coverage is maintained.
COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also,
securities pledged by a financial institution to secure deposits of public monies.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of mortgage
securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to
the underlying mortgage securities.
COMMERCIAL PAPER. The short-term unsecured debt of corporations.
COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not give effect to
premiums and discounts which may have been included in the purchase cost, it is an incomplete measure of
return.
COUPON. The rate of return at which interest is paid on a bond.
14
CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes
in the condition of the issuer.
CURRENT YIELD. The annual income from an investment divided by the current market value. Since the mathematical
calculation relies on the current market value rather than the investor's cost, current yield is unrelated to the
actual return the investor will earn if the security is held to maturity.
DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own
position.
DEBENTURE. A bond secured only by the general credit of the issuer.
DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a secusty must be made at the
time the security is delivered to the purchaser's agent.
DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for
reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of
another security which has been separated from other components ("Stripped" coupons and principal). A
derivative is also defined as a financial instrument the value of which is totally or partially derived from the
value of another instrument, interest rate, or index.
DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some
short-term securities, such as T -bills and banker's acceptances, are known as discount securities. They sell at a
discount from par and return the par value to the investor at maturity without additional interest. Other securities,
which have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for
securities of that maturity and/or quality.
DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to any one
source of risk.
DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash
flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration).
FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other banks. The Federal Reserve
Bank through open -market operations establishes it.
FEDERAL OPEN MARKET COMMITTEE. A committee of the Federal Reserve Board that establishes monetary policy
and executes it through temporary and permanent changes to the supply of bank reserves.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earniigs at a rate higher than
the cost of borrowing.
LIQUIDITY. The speed and ease with which an asset can be converted to cash.
LOCAL GOVERNMENT INVESTMENT POOL. An investment by local governments in which their money is pooled as a
method for managing local funds.
MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early.
Unlike a call option, with a make whole call provision, the issuer makes a lump sum payment that equals the
net present value (NPV) of future coupon payments that will not be paid because of the call. With this type of
call, an investor is compensated, or "made whole."
MARGIN. The difference between the market value of a security and the loan a broker makes using that security as
collateral.
MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest
rates.
MARKET VALUE. The price at which a security can be traded.
MARKING TO MARKET. The process of posting current market values for securities in a portfolio.
MATURITY. The final date upon which the principal of a security becomes due and payable.
MEDIUM TERM NOTES. Unsecured, investment -grade senior debt securities of major corporations which are sold in
relatively small amounts on either a continuous or an intermittent basis. MTNs are highly flexible debt
instruments that can be structured to respond to market opportunities or to investor preferences.
MODIFIED DURATION. The percent change in price for a 100 -basis point change in yields. Modcied duration is the best
single measure of a portfolio's or security's exposure to market risk.
MONEY MARKET. The market in which short-term debt instruments (T -bills, discount notes, commercial paper, and
banker's acceptances) are issued and traded.
MORTGAGE PASS -THROUGH SECURITIES. A securitized participation in the interest and principal cash flows from a
specified pool of mortgages. Principal and interest payments made on the mortgages are passed through to the
holder of the security.
MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating expenses.
15
MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities which is
specifically defined in the fund's prospectus. Mutual funds can be invested in various types of domestic and/or
international stocks, bonds, and money market instruments, as set forth in the individual fund's prospectus. For
most large, institutional investors, the costs associated with investing in mutual funds are higher than the
investor can obtain through an individually managed portfolio.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO).
A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory
purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments,
especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent
NRSROs are Fitch, S&P, and Moody's.
NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, savings or federal association,
state or federal credit union, or state -licensed branch of a foreign bank. Negotiable CDs are traded in a
secondary market and are payable upon order to the bearer or initial depositor (investor).
PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost is above par.
PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities.
PREPAYMENT WINDOW. The time period over which principal repayments will be received on mortgage securities at a
specified prepayment speed.
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of
market operations to carry out U.S. monetary policy, and (2) that participates for statistical reporting purposes
in compiling data on activity in the U.S. Government securities market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. An investment standard outlining the fiduciary responsibilities of
public funds investors relating to investment practices.
REALIZED YIELD. The change in value of the portfolio due to interest received and interest earned and realized gains
and losses. It does not give effect to changes in market value on securities, which have not been sold from the
portfolio.
REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit of its customers without
maintaining substantial inventories of securities and that is not a primary dealer.
REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back
at a higher price. From the seller's point of view, the same transaction is a reverse repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer's name.
STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula tied to other interest
rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase
when other interest rates are falling, and which fall when other interest rates are rising, and "dual index floaters,"
which pay interest based on the relationship between two other interest rates - for example, the yield on the ten-
year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing
interest rate swap agreements.
SUPRANATIONAL. A Supranational is a multi -national organization whereby member states transcend national
boundaries or interests to share in the decision making to promote economic development in the member
countries.
TOTAL RATE OF RETURN. A measure of a portfolio's performance over time. It is the internal rate of return, which
equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and
unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of the
United States. Treasuries are considered to have no credit risk and are the benchmark for interest rates on all
other securities in the US and overseas. The Treasury issues both discounted securities and fixed coupon notes
and bonds.
TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments
and are called Treasury bills. The Treasury currently issues three- and six-month T -bills at regular weekly
auctions. It also issues "cash management" bills as needed to smooth out cash flows.
TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes and pay
interest semi-annually.
TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like
Treasury notes, they pay interest semi-annually.
VOLATILITY. The rate at which security prices change with changes in general economic conditions or the general level
of interest rates.
YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected cash flows
from the investment to its cost.
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Table of Contents
I. INTRODUCTION 2
II. SCOPE 2
III. INVESTMENT OBJECTIVES 3
IV. DELEGATION OF AUTHORITY 4
V. PRUDENCE AND INDEMNIFICATION 5
VI. ETHICS AND CONFLICTS OF INTEREST 5
VII. INTERNAL CONTROLS 5
VIII. ELIGIBLE INVESTMENTS AND TRANSACTIONS 6R
IX. PROHIBITED INVESTMENT VEHICLES AND PRACTICES 9
X. RISK MANAGEMENT AND DIVERSIFICATION 9
XI. INVESTMENT POOLS/MUTUAL FUNDS 10
XII. COMPETITIVE TRANSACTIONS 1138
XIII. SELECTION OF BROKER/DEALERS 113-0
XIV. SELECTION OF BANKS AND SAVINGS AND LOANS 11
XV. SAFEKEEPING AND CUSTODY 1234
XVI. PERFORMANCE BENCHMARKS 1332
XVII. REPORTING 1312 POLICY REVISIONS 1433
Exhibit I 141-3
Glossary of Investment Terms 1534
WELD COUNTY
INVESTMENT POLICY 2023
I. INTRODUCTION
The Board of County Commissioners of Weld County has appointed an oversight
committee, known as the Investment Advisory Committee, comprised of the Treasurer,
the Director of Finance and Administration, CFO, Controller, and the Chair and Chair
Pro-tem of the Board of County Commissioners, to oversee compliance of the County's
investments with this Investment Policy and to provide advice to the Board of County
Commissioners and the Treasurer regarding investments and any necessary changes to
this Investment Policy.
This Investment Policy replaces any previous Investment Policy or Investment
Procedures of Weld County. The investment guidelines outlined below have been written
to comply with various regulatory requirements under which Weld County operates.
This Investment Policy was endorsed and recommended for adoption by the Weld
County Investment Advisory Committee on March 6, 2023.
II. SCOPE
The following investment policy addresses the methods, and procedures to ensure
effective and judicious fiscal and investment management of the County's funds. This
policy shall apply to the investment management of all financial assets and funds under
control of the County except for its employee retirement system fund, which is organized
and administered separately by the Weld County Retirement Board. These investment
transactions/activities are accounted for in the government's annual financial report and
include the following:
1. General fund,
2. Special Revenue funds,
3. Debt Service funds.
4. Capital Projects funds,
5. Enterprise fund,
6. Internal Service funds,
7. Trust and Agency funds - Expendable Trust funds & Agency funds, and
8. Any new fund created by the governing body, unless specifically exempted by
the governing body
2021-3112
2
III. INVESTMENT OBJECTIVES
All funds which are held for future disbursement shall be deposited and invested by the
County in accordance with Colorado State Statutes and ordinances and resolutions
enacted by the Board of Weld County Commissioners in a manner to accomplish the
following objectives:
1. Safety of Funds: Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. The objective will be to mitigate
credit risk and interest rate risk.
A. Credit Risk. The County will minimize credit risk, the risk of loss due
to the failure of the security issuer, by:
a) Limiting investments to the safest types of securities;
b) Pre -qualifying the financial institutions, broker/dealers, and adh isors
with which the County does business, and
c) Diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
B. Interest Rate Risk: The County will minimize the risk that the market
value of securities in the portfolio will fall due to changes in general
interest rates by:
a) Structuring the investment portfolio so that securities mature
sufficiently close to cash requirements for ongoing operations, thereby
minimizing the potential need to sell securities on the open market
prior to maturity; and
b) Investing operating funds primarily in short- to intermediate -term
securities, approved local government investment pools, approved
money market mutual funds and repurchase agreements.
2. Liquidity of Funds: The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. To ensure
that adequate funds are available to pay the County's projected financial
obligations, investments will be purchased that reasonably match the anticipated
cash disbursements of the County.
Since all possible cash demands cannot be anticipated, the portfolio shall consist
largely of securities with active secondary or resale markets so that the potential
for a realized loss, if an early liquidation of a security is necessary, can be
minimized.
3
A core of stable funds may be identified through cash flow analysis that is
available for investing in longer -term securities. Although the market value of
these longer -term securities may fluctuate significantly, the fluctuation will not
affect the liquidity of the portfolio since they can be held to maturity in all but
extreme circumstances.
3. Yield: The County's portfolio shall earn a competitive market rate of return on
available funds throughout budgetary and economic cycles. In meeting this
objective, investment management personnel will take into account the County's
investment risk constraints and cash flow needs.
The County's overall investment program shall be designed and managed with a degree
of professionalism that is worthy of the public trust. The County recognizes that no
investment is totally free of risk and that the investment activities of the County are a
matter of public record. Accordingly, the County recognizes that occasional measured
losses are inevitable in a diversified portfolio and shall be considered within the context
of the overall portfolio's return, provided that this policy has been followed and that the
sale of a security prior to maturity is in the best long-term interest of the County.
After safety and liquidity, Weld County staff, investment advisors and fund managers
will only consider financial factors when seeking the highest rate of return. Weld
County will not base investment decisions on Environmental, Social and Governance
(ESG) factors.
IV. DELEGATION OF AUTHORITY
Authority to manage the investment program is granted to the Treasurer derived from
Article 11 of the Weld County Home Rule Charter. Responsibility for the operation of
the investment program is hereby delegated to the Treasurer, who shall carry out
established written procedures and internal controls for the operation of the investment
program consistent with this investment policy. Procedures shall include references to:
safekeeping, delivery vs. payment, investment accounting, repurchase 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 Treasurer.
The Treasurer shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials.
The Treasurer may engage the support services of outside professionals, so long as it can
be demonstrated that these services produce a net financial advantage and necessary
financial protection of the County's resources. Such services may include engagement of
financial advisors in conjunction with debt issuance, portfolio management support,
special legal representation, third party custodial services, and appraisal of independent
rating services. Investment Advisors shall be registered with the Securities Exchange
Commission under the Investment Advisors Act of 1940. Advisors shall be subject to the
provisions of this Policy, and shall not, under any circumstances, take custody of any County
funds or securities.
4
V. PRUDENCE AND INDEMNIFICATION
The standard of prudence, as defined by the Colorado Revised Statutes, to be used for
managing the County's assets is the "prudent investor" rule applicable to a fiduciary,
which states that a prudent investor "shall exercise the judgment and care, under
circumstances then prevailing, which men of prudence, discretion, and intelligence
exercise in the management of the property of another, not in regard to speculation but in
regard to the permanent disposition of funds, considering the probable income as well as
the probable safety of their capital" (CR5 15-1-304, Standard for Investments.)
The Director of Finance, Treasurer and other authorized persons acting in accordance
with written procedures and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes provided
deviations from expectations are reported in a timely fashion and the liquidity and the
sale of securities are carried out in accordance with the terms of this policy. The
Treasurer will be responsible for ensuring that sufficient liquidity exists to maintain the
County's operations in the event of adverse market conditions or claims.
VI. ETHICS AND CONFLICTS OF INTEREST
As noted in Section 16-9 (2) (b) of the Weld County Home Rule Charter: "Neither the
Treasurer nor employees of the Treasurer's Office shall have any proprietary interest in
any financial institution in which the County maintains deposits."
All participants in the investment process shall act as custodians of the public trust.
Investment officials shall recognize that the investment portfolio is subject to public
review and evaluation. Thus, employees and officials involved in the investment process
shall refrain from personal business activity that could create a conflict of interest or the
appearance of a conflict with proper execution of the investment program, or which could
impair their ability to make impartial investment decisions.
Employees and investment officials shall disclose to the Board of County Commissioners
any material interests in financial institutions with which they conduct business, and they
shall further disclose any large personal financial/investment positions that could be
related to the performance of the investment portfolio. Employees and officers shall
refrain from undertaking any personal investment transactions with the same individual
with whom business is conducted on behalf of the County.
VII. INTERNAL CONTROLS
The Treasurer 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.
Periodically, as deemed appropriate by the County and/or the Board of County
Commissioners, an independent analysis by an external auditor shall be conducted to review
internal controls, account activity and compliance with policies and procedures.
5
VIII. ELIGIBLE INVESTMENTS AND TRANSACTIONS
All investments will be made in accordance with the Colorado Revised Statutes (CRS) as
follows CRS 11-10.5-101, et seq. Public Deposit Protection Act, CRS 11-47.101, et seq.
Savings and Loan Association Public Deposit Protection Act; CRS 24-75-601, et seq.
Funds -Legal Investments for Governmental Units; CRS 24-75-603, et seq. Depositories;
and CRS 24-75-702, et seq. Local Governments -Local Government Pooling. Any
revisions on extensions of these sections of the CRS will be assumed to be part of this
policy immediately upon being enacted.
The credit quality of any eligible investment will be evaluated using the following Nationally
Recognized Statistical Rating Organizations (NRSROs): Standard & Poor's, Moody's or Fitch
(or any of their successor agencies).
This investment policy further defines the following types of securities and transactions
as eligible for use by the County:
1. U.S. Treasury Obligations fully guaranteed by, or for which the full faith
and credit of the United States Treasury is pledged for payment.
A. Maturities shall not exceed five years from the date of trade
settlement.
B. There are no limits on the dollar amount or percentage that the
County may invest in U.S. Treasuries.
2. Federal Agency and Instrumentality Securities issued by or fully guaranteed as to
principal and interest by federal agencies or U.S. Government Sponsored
Enterprises (GSEs). Subordinated securities are not permissible under this policy.
A. Maturities shall not exceed five (5) years from the date of trade
settlement.
B. There are no limits on the dollar amount or percentage that the County
may invest in federal Agency and GSE securities. No more than 35%
of the total portfolio may be invested in any single Agency/GSE issuer.
3 Repurchase Agreements with a defined termination date of 180 days or less
collateralized by U. S. Treasury and agency securities listed in item 1 and 2 above
with a maturity not exceeding 10 years. Title must transfer to the County of Weld
or the County must have a perfected security interest. For the purpose of this
section, the term "collateral' shall mean "purchased securities" under the terms of
the County's approved Master Repurchase Agreement. The purchased securities
shall have a fixed coupon rate and an original minimum market value including
accrued interest of 102 percent of the dollar value of the transaction and the
collateral maintenance level shall be 102 percent. Collateral shall be held in the
County's custodial bank as safekeeping agent, and the market value of the
collateral securities shall be marked -to -the -market daily based on that day's bid
price.
Repurchase Agreements shall be entered into only with dealers who have
executed a Master Repurchase Agreement with the County and who are
recognized as Primary Dealers with the Market Reports Division of the Federal
6
Reserve Bank of New York. The Master Repurchase Agreement will be
substantially in the form developed by the Securities Industry and Financial
Markets Association (SIFMA).
Approved counterparties to repurchase agreements shall have at least a short-term
debt rating of A-1 or the equivalent and a long-term debt rating of A or the
equivalent from one on more nationally recognized organizations which regularly
rates such obligations. No more than 50% of the portfolio may be invested in
repurchase agreements and no more than 10% may be invested with a single
counterparty.
Local Government Investment Pools authorized under CRS 24-75-701, 702 et seq.,
provided they
A. are managed to a stable value ($1 per share);
B. Are "no-load" (i.e., no commission or fees shall be charged on
purchases or sales of shares) and charge no 12b1 fees;
C. Limit assets of the fund to securities authorized by state statute;
D. Have a maximum stated maturity and weighted average maturity in
accordance with Rule 2a-7 of the Investment Company Act of 1940.
E. Have a rating of AAAm by Standard and Poor's or Aaa by Moody's, or
AAAmmf by Fitch Investors Service.
F. A maximum of 100% of the portfolio may be invested in local government
investment pools with a single pool constituting no more than 35% of the
portfolio.
5. Certificates of Deposit or savings accounts in state or national banks or in state or
federally chartered savings and loans that are state approved depositories pir CRS
24-75-603, et seq. (as evidenced by the State Banking Board) and are insured by
the FDIC. Certificates of deposit which exceed the FDIC insured amount shall be
collateralized in accordance with the Colorado Public Deposit Protection Act or
the Savings and Loan Association Public Deposit Protection Act. [Allow CD
purchases up to the FDIC limit in US banks outside of Colorado.]
A. Maturities shall not exceed five (5) years from the date of settlemen-.
B. No more than 30% of the total portfolio may be invested in certificates of
deposit.
C. No more than 5% of the total portfolio may be invested in any one issuer.
6. Money Market Mutual Funds registered under the Investment Company Act of
1940, provided they:
A. Have a constant daily net asset value per share of $1.00;
B. Are "no load" (i.e.: no commission or fee shall be charged on
purchases or sales of shares) and charge no 12b1 fees;
C. Limit assets of the fund to securities authorized by state statute;
D. Have a maximum stated maturity and weighted average maturity in
accordance with Rule 2a-7 of the Investment Company Act of 1940;
and
E. Have a rating of AAAm by Standard and Poor's or Aaa by Moody's,
or AAAmmf by Fitch Investors Service.
7
F. A maximum of 100% of the portfolio may be invested in money market
mutual funds with a single fund constituting no more than 35% of the
portfolio.
7. Corporate or Bank Securities denominated in United States dollars.
A. Bonds, notes, debentures and medium -term notes issued by a corporation or
bank which is organized and operated within the United States, with
remaining maturities not exceeding three years from the date of trade
settlement. Such securities, at the time of purchase, must be rated at least AA -
by Standard & Poor's, Aa3 by Moody's, or AA- by Fitch by at least two
services that rate the issue.
B. Commercial paper with maturities not exceeding 270 days from the date of
trade settlement that is rated at least A-1 by Standard and Poor's, P-1 by
Moody's, or F-1 by Fitch at the time of purchase by at least two services that
rate the commercial paper.
C. Eligible Banker's Acceptances with original maturities not exceeding 180
days from the date of trade settlement. Banker's Acceptances shall be rated at
least A-1 by Standard and Poor's, P-1 by Moody's, or F-1 by Fitch at the time
of purchase by at least two services that rate them.
D. The term "Bank Security" includes Negotiable Certificates of Deposit issued
by banks organized and chartered within the United States. These
instruments are investment securities and not deposits as described in Section
VIII, 5. Negotiable Certificates of Deposit must have a final maturity not
exceeding three years from the date of trade settlement and must be issued by
institutions which have short-term debt obligations rated at least A-1 by
Standard and Poor's, P-1 by Moody's, or F-1 by Fitch at the time of purchase
by at least two services that rate the issue. or long-term obligations rated at
least AA- by Standard & Poor's, Aa3 by Moody's, or AA- by Fitch by at least
two services that rate the issue.
E. At no time shall the book value of investments in corporate and bank
securities total more than 50% of the total book value of the
County's portfolio with no greater than 5% exposure to any single
issuer.
F. No subordinated security may be purchased.
8. Municipal Securities of state or local governments with a maturity not exceeding
five years from the date of trade settlement.
A. General obligation and revenue obligation securities of this state or any
political subdivision of this state must be rated at the time of purchase at
least "A-" or its equivalent by at least two NRSROs.
B. General obligation and revenue obligation securities of any other state or political
subdivision of any other state must be rated at the time of purchase at least "AA-" or its
equivalent by at least two NRSROs.
C. No more than 30% of the total portfolio may be invested in municipal
securities.
D. No more than 5% of the total portfolio may be invested in the securities
of any single issuer.
9. Supranationals, provided that:
A. Issues are US dollar denominated senior unsecured unsubordinated
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obligations issued or unconditionally guaranteed by the World Bank.
B. The securities are rated at the time of purchase at least "AA" or its
equivalent by an NRSRO.
C. No more than 30% of the total portfolio may be invested in these
securities.
D. No more than 10% of the portfolio may be invested in any single issuer.
E. The maximum maturity does not exceed five (5) years.
Eligible Investment Summary
The following table summarizes the eligible investment requirements stated in the ahave section.
Security
Type
Maximum
Portfolio
%
Maximum
Issuer %
Restrictions
Maturity
Minimum
Rating
U.S. Treasuries
100%
100%
5 years
N/A
U.S. Agencies and
Instrumentalities
100%
35%
5 years
N/A
Repurchase
Agreements
50%
10%
180 Days
A -1/A
Local
Government
Investment
Pools
100%
35%
2a-7
AAA
Certificates
of
Deposits
(CD)
30%
5%
5 years
N/A
Money
Market
Mutual
Funds
100%
35%
2a-7
AAA
Corporate
or Bank Securities
50%
5%
3 Years
AA -
Commercial
Paper
5%
270
Days
A-1
Bankers'
Acceptances
5%
180 Days
A-1
Negotiable
Certificates
of Deposits
5%
5 Years
A-1/AA-
Municipal
Bonds (Colorado/Other)
30%
5%
5 years
A-/AA-
Supranationals
20%
10%
5 Years
AA
Any deviation from this list must be pre -approved by the Board of Weld County
Commissioners in writing.
IX. PROHIBITED INVESTMENT VEHICLES AND PRACTICES
State law notwithstanding, any investments not specifically authorized pursuant to this approved Investment
Policy are prohibited, including but not limited to:
1. Futures and options
2. Investment in inverse floaters, range notes, or mortgage derived interest -only strips
3. Investment in any security that could result in a zero -interest accrual if held to maturity
4. Trading securities for the sole purpose of speculating on the future direction of interest rates
5. Purchasing or selling securities on margin
6. The purchase of foreign currency denominated securities
X. RISK MANAGEMENT AND DIVERSIFICATION
It is the intent of the County to diversify the investments in the portfolio to avoid
incurring unreasonable risks inherent in over -investing in specific instruments, individual
financial institutions or maturities. The asset allocation in the portfolio should, however,
be flexible depending upon the outlook for the economy, the securities market, anc the
County's anticipated cash flow needs.
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Mitigating Credit Risk in the Portfolio
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived
change in the ability of the issuer to repay its debt. The County will mitigate credit risk by adopting the
following strategies:
1. The County may elect to sell a security prior to its maturity and record a capital gain or loss in order to
improve the quality, liquidity or yield of the portfolio in response to market conditions or the County's
risk preferences.
2. If securities owned by the County are downgraded by a nationally recognized statistical ratings
organization (NRSRO) to a level below the quality required by this Investment Policy, it will be the
County's policy to review the credit situation and make a determination as to whether to sell or retain
such securities in the portfolio.
A. If a security is downgraded, the Treasurer will use discretion in determining whether to sell
or hold the security based on its current maturity, the economic outlook for the issuer, and
other relevant factors.
B. If a decision is made to retain a downgraded security in the portfolio, its presence in the
portfolio will be monitored and reported to the Investment Advisory Committee.
Mitigating Market Risk in the Portfolio
Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates.
The County recognizes that, over time, longer -term portfolios have the potential to achieve higher returns. On
the other hand, longer -term portfolios have higher volatility of return. The County will mitigate market risk by
providing adequate liquidity for short-term cash needs, and by making longer -term investments only with
funds that are not needed for current cash flow purposes. The County, therefore, adopts the following
strategies to control and mitigate its exposure to market risk:
1. Investments shall be limited to maturities not exceeding five (5) years unless otherwise approved in
writing by the Board of Weld County Commissioners for special circumstances (e.g., the reinvestment
of bond proceeds).
2. The County shall maintain at least 10% of its total investment portfolio in instruments maturing in 90
days or less.
3. The maximum percent of callable securities (does not include "make whole call" securities as defined
in the Glossary) in the portfolio will be 20%.
4. The duration of the portfolio will at all times be approximately equal to the duration (typically, plus or
minus 20%) of a Market Benchmark, an index selected by the County based on the County's
investment objectives, constraints and risk tolerances.
XI. INVESTMENT POOLS/MUTUAL FUNDS
The County shall conduct a thorough investigation of any local government investment pool or money market
mutual fund prior to making an investment, and on a continual basis thereafter. There shall be a questionnaire
developed which will answer the following general questions:
1. A description of eligible investment securities, and a written statement of investment policy and
objectives.
2. A description of interest calculations and how it is distributed, and how gains and losses are
treated.
3. A description of how the securities are safeguarded (including the settlement processes), and how
often the securities are priced, and the program audited.
4. A description of who may invest in the program, how often, what size deposit and withdrawal are
allowed.
5. A schedule for receiving statements and portfolio listings.
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6. Are reserves, retained earnings, etc. utilized by the pool/fund?
7. A fee schedule, and when and how is it assessed.
8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
XII. COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with broker/dealers who
have been authorized by the County. Securities shall be purchased at the then best
offering price based on the market conditions at that time.
XIII.SELECTION OF BROKER/DEALERS AND FINANCIAL
INSTITUTIONS ACTING AS BROKER/ DEALERS AND FINANCIAL
INSTITUTIONS PROVIDING INVESTMENT SERVICES.
The Treasurer shall maintain a list of authorized broker/dealers and financial institutions
which are approved for investment purposes, and it shall be the policy of the County to
purchase securities only from those authorized institutions and firms.
To be eligible, a firm/investment bank, bank, or savings and loan institution must meet at
least one of the following criteria:
1. Report voluntarily to the Federal Reserve Bank of New York;
2. Be recognized as a Primary Dealer by the Federal Reserve Bank of New
York or have a primary dealer within its holding company structure; or
3. .Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1
(Uniform Net Capital Rule).
Broker/dealers and other financial institutions will be selected by the Treasurer on the
basis of their expertise in public cash management and their ability to provide service to
the County's account. Each investment firm authorized by the Treasurer shall be a
FINRA reporting broker/dealer. Broker/Dealers must supply the Treasurer with audited
financials and shall also attest in writing that they have received a copy of this policy.
Selection of broker/dealers used by an external investment adviser retained by the County
will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers
shall be selected on a competitive basis and their bid or offering prices shall be recorded. If
there is no other readily available competitive offering, best efforts will be made to document
quotations for comparable or alternative securities. When purchasing original issue
instrumentality securities, no competitive offerings will be required as all dealers in the
selling group offer those securities at the same original issue price.
The County may purchase commercial paper from direct issuers even though they are not on
the approved broker/dealer list as long as the paper meets the criteria outlined in item 7 of the
section "VIII" titled "Eligible Investments and Transactions."
A list of approved Broker/Dealers, Banks, and Savings & Loan institutions is included in
various "Resolutions" performed by the Board of County Commissioners of Weld
County. Colorado.
XIV. SELECTION OF BANKS AND SAVINGS AND LOANS (DESIGNATION
UNDER CRS 11-10.5-106 (Banks) and CRS.11-47-105 (Savings & Loan)) AS
DEPOSITORIES AND PROVIDERS OF GENERAL BANKING SERVICES AND
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ASSET POOLS AS DEPOSITORIES
The Treasurer shall maintain a list of authorized banks, savings and loans, and public
asset pools as depositories for Weld County funds which are approved by the Board of
Weld County Commissioners by resolution per CRS 30-10-708 to provide depository and
other banking services for the County. To be eligible for authorization, a bank is required
to be designated an eligible public depository by the state banking board and a savings
and loan must be designated an eligible public depository by the state commissioner of
Banking. Additionally, banks or savings and loans, in the judgment of the Treasurer, who
no longer offer adequate safety or service to the County, will be removed from the
approved list. The list will be updated annually if any changes are requested to insure
compliance. Depositories shall be selected based on ratings and competitive rates of
return.
XV. SAFEKEEPING AND CUSTODY
1. The Treasurer shall approve one or more financial institutions to provide safekeeping and
custodial services for the County. A County approved Safekeeping Agreement shall be executed
with each custodian bank prior to utilizing that bank's safekeeping services. To be eligible for
designation as the County's safekeeping and custodian bank, a financial institution shall have a
Bauer rating of 3 stars or better out of possible 5 -star rating.
Custodian banks will be selected on the basis of their safety and ability to provide
service to the County's account with competitive pricing of their safekeeping
related services.
Custodian banks shall be selected through the County's procurement process,
which shall include a formal request for proposal as needed. Custodial banks
should be in the highest rating categories.
Delivery -versus -Payment (DVP). All investment transactions shall be conducted on a
delivery -versus -payment basis.
SAFEKEEPING
All purchased securities will be perfected in the name of the County. Sufficient evidence
to title shall be consistent with modem investment, banking and commercial practices.
All investment securities, except non-negotiable certificates of deposit, local government
investment pools, and money market funds, purchased by the County will be held by a
PDPA eligible Colorado State bank or delivered by either book entry or physical delivery
and will be held in third -party safekeeping by a County approved custodian bank, its
correspondent New York Bank or the Depository Trust Corporation (DTC).
All non -book entry (physical delivery) securities shall be held by Weld County's
designated custodian bank for the benefit of the county. The County may utilize the
services of the Depository Trust Corporation (DTC) as a depository for delivery of non-
wireable securities.
All custodies securities that are registered shall be registered in the name of the County or
in the name of a nominee of the County or in the name of the custodian or its nominee or,
if in a clearing corporation, in the name of the clearing corporation or its nominee.
The County's custodian will be required to furnish the County with monthly reports of
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holdings of custody securities as well as an account analysis report of monthly securities
activity.
XVI. PERFORMANCE BENCHMARKS
The investment portfolio shall be designed to attain a market -average rate of return throughout
budgetary and economic cycles, taking into account the County's risk constraints, the cash
flow characteristics of the portfolio, and state and local laws, ordinances or resolutions that
restrict investments. The Treasurer shall select an appropriate, readily available index To use as
a market benchmark. The Treasurer shall monitor and evaluate the portfolio's perforrr ance
relative to the market benchmark.
The Treasurer shall present to the Investment Advisory Committee of Weld County a
review of the current investments and the portfolio's adherence to appropriate risk levels
and a comparison between the portfolio's total return and the established investment
objectives and goals.
XVII. REPORTING
Accounting and reporting on the County's investment portfolio shall conform to
Generally Accepted Accounting Principles (GAAP) and the Governmental Accourling
Standards.
QUARTERLY REPORTS
The CFO Finance Director or Treasurer will submit a quarterly investment report to the Investment Advisory
Committee which provides full disclosure of the County's investment activities withir 30 days after the end of
the quarter. These reports will disclose, at a minimum, the following information abott County's portfolio:
1. An asset listing showing par value, cost and independent third -party fair market value of each security as
of the date of the report, the source of the valuation, type of investment, issuer, maturity date, interest rate
and interest rate.
2. Transactions for the period.
3. A description of the funds, investments and programs managed by conxacted parties (i.e. local
government investment pools and outside money managers)
4. A one -page summary report that shows:
a.) Average maturity of the portfolio and modified duration of the portfolio;
b.) Maturity distribution of the portfolio;
c.) Percentage of the portfolio represented by each investment category ;
d.) Average portfolio credit quality; and,
e.) Time -weighted total rate of return for the portfolio for the prior one month, three months,
twelve months and since inception compared to the County's marIce,t benchmark returns for
the same periods;
5. A statement of compliance with the Investment Policy, including a schedule of any transactions or holdings
which do not comply with this Policy, including a justification for their presence in the portfolio and a
timetable for resolution.
ANNUAL REPORTS
A comprehensive annual report will be presented to the Board of County Commissioners. This report will
include comparisons of the County's return to the market benchmark return, suggest policies and improvements
that might enhance the investment program, and will include an investment plan for tie coming year.
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XVIII. POLICY REVISIONS
This investment policy shall he reviewed at least annually by the Director of Finance and
Treasurer and may be amended by the Investment Advisory Committee of Weld County
as conditions warrant. The data contained in the annexes to this policy may be updated by
the Treasurer as necessary, provided the changes in no way affect the substance or intent
of this policy.
Exhibit I
Authorized Personnel
The following persons are authorized to transact investment business and wire funds for
investment purposes on behalf of the Weld County:
Treasurer
Assistant Treasurer
INVESTMENT COMMITTEE
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Glossary of Investment Terms
AGENCIES. Shorthand market terminology for any obligation issued by a government -sponsored entity (GSE), or a
federally related institution. Most obligations of GSEs are not guaranteed by the full faith and credit of the US
government. Examples are:
FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB
issues discount notes and bonds.
FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues
discount notes and bonds.
FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the
housing market. FHLMC, also called "FreddieMac" issues discount notes, bonds and mortgage pass -
through securities.
FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was established to provide
credit and liquidity in the housing market. FNMA, also known as "FannieMae," issues discount notes,
bonds and mortgage pass -through securities.
GNMA. The Government National Mortgage Association, known as "GinnieMac," issues mortgage pass -
through securities, which are guaranteed by the full faith and credit of the US Government.
PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed
by the full faith and credit of the US government.
TVA. The Tennessee Valley Authority provides flood control and power and promotes development in portions
of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues discount notes and bonds.
ASKED. The price at which a seller offers to sell a security.
ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of revolving lines
of credit.
AVERAGE LIFE. In mortgage -related investments, including CMOs, the average time to expected receipt of principal
payments, weighted by the amount of principal expected.
BANKER'S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It is highly
liquid and safe because the risk of the trade transaction is transferred to the bank which "accepts" the obligation
to pay the investor.
BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects
the mix of securities allowed under a specific investment policy.
BID. The price at which a buyer offers to buy a security.
BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A
broker does not sell securities from his own position.
CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity. The main
cause of a call is a decline in interest rates. If interest rates decline since an issuer issues securities, it will likely
call its current securities and reissue them at a lower rate of interest. Callable securities have reinvestment risk
as the investor may receive its principal back when interest rates are lower than when the investment was
initially made.
CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. Large denomination
CDs may be marketable.
CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that allows local
agencies to purchase more than $250,000 in CDs from a single financial institutior (must be a participating
institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is currently the only entity
providing this service. CDARS facilitates the trading of deposits between the institut:on and other participating
institutions in amounts that are less than $250,000 each, so that FDIC coverage is maintained.
COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also,
securities pledged by a financial institution to secure deposits of public monies.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of mortgage
securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to
the underlying mortgage securities.
COMMERCIAL PAPER. The short-term unsecured debt of corporations.
COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not give effect to
premiums and discounts which may have been included in the purchase cost, it is an incomplete measure of
return.
15
COUPON. The rate of return at which interest is paid on a bond.
CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes
in the condition of the issuer.
CURRENT YIELD. The annual income from an investment divided by the current market value. Since the mathematical
calculation relies on the current market value rather than the investor's cost, current yield is unrelated to the
actual return the investor will earn if the security is held to maturity.
DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own
position.
DEBENTURE. A bond secured only by the general credit of the issuer.
DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security must be made at the
time the security is delivered to the purchaser's agent.
DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for
reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of
another security which has been separated from other components ("Stripped" coupons and principal). A
derivative is also defined as a financial instrument the value of which is totally or partially derived from the
value of another instrument, interest rate, or index.
DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some
short-term securities, such as T -bills and banker's acceptances, are known as discount securities. They sell at a
discount from par and return the par value to the investor at maturity without additional interest. Other securities,
which have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for
securities of that maturity and/or quality.
DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to any one
source of risk.
DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash
flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration).
FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other banks. The Federal Reserve
Bank through open -market operations establishes it.
FEDERAL OPEN MARKET COMMITTEE. A committee of the Federal Reserve Board that establishes monetary policy
and executes it through temporary and permanent changes to the supply of bank reserves.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate higher than
the cost of borrowing.
LIQUIDITY. The speed and ease with which an asset can be converted to cash.
LOCAL GOVERNMENT INVESTMENT POOL. An investment by local governments in which their money is pooled as a
method for managing local funds.
MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early.
Unlike a call option, with a make whole call provision, the issuer makes a lump sum payment that equals the
net present value (NPV) of future coupon payments that will not be paid because of the call. With this type of
call, an investor is compensated, or "made whole."
MARGIN. The difference between the market value of a security and the loan a broker makes using that security as
collateral.
MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest
rates.
MARKET VALUE. The price at which a security can be traded.
MARKING TO MARKET. The process of posting current market values for securities in a portfolio.
MATURITY. The final date upon which the principal of a security becomes due and payable.
MEDIUM TERM NOTES. Unsecured, investment -grade senior debt securities of major corporations which are sold in
relatively small amounts on either a continuous or an intermittent basis. MTNs are highly flexible debt
instruments that can be structured to respond to market opportunities or to investor preferences.
MODIFIED DURATION. The percent change in price for a 100 -basis point change in yields. Modified duration is the best
single measure of a portfolio's or security's exposure to market risk.
MONEY MARKET. The market in which short-term debt instruments (T -bills, discount notes, commercial paper, and
banker's acceptances) are issued and traded.
MORTGAGE PASS -THROUGH SECURITIES. A securitized participation in the interest and principal cash flows from a
specified pool of mortgages. Principal and interest payments made on the mortgages are passed through to the
holder of the security.
MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating expenses.
16
MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities which is
specifically defined in the fund's prospectus. Mutual funds can be invested in various types of domestic and/or
international stocks, bonds, and money market instruments, as set forth in the individual fund's prospectus. For
most large, institutional investors, the costs associated with investing in mutual funds are higher than the
investor can obtain through an individually managed portfolio.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO).
A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory
purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments,
especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent
NRSROs are Fitch, S&P, and Moody's.
NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, sav .ngs or federal association,
state or federal credit union, or state -licensed branch of a foreign bank. Negotiable CDs are traded in a
secondary market and are payable upon order to the bearer or initial depositor (investor).
PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost is above par.
PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities.
PREPAYMENT WINDOW. The time period over which principal repayments will be received on mortgage securities at a
specified prepayment speed.
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of
market operations to carry out U.S. monetary policy, and (2) that participates for statistical reporting purposes
in compiling data on activity in the U.S. Government securities market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. An investment standard outlining the fiduciary responsibilities of
public funds investors relating to investment practices.
REALIZED YIELD. The change in value of the portfolio due to interest received and interest earned and realized gains
and losses. It does not give effect to changes in market value on securities, which have not been sold from the
portfolio.
REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit of its customers without
maintaining substantial inventories of securities and that is not a primary dealer.
REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back
at a higher price. From the seller's point of view, the same transaction is a reverse repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer's name.
STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula tied to other interest
rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase
when other interest rates are falling, and which fall when other interest rates are rising. and "dual index floaters,"
which pay interest based on the relationship between two other interest rates - for example, the yield on the ten-
year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing
interest rate swap agreements.
SUPRANATIONAL. A Supranational is a multi -national organization whereby member states transcend national
boundaries or interests to share in the decision making to promote economic development in the member
countries.
TOTAL RATE OF RETURN. A measure of a portfolio's performance over time. It is the internal rate of return, which
equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and
unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of the
United States. Treasuries are considered to have no credit risk and are the benchmark for interest rates on all
other securities in the US and overseas. The Treasury issues both discounted securities and fixed coupon notes
and bonds.
TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments
and are called Treasury bills. The Treasury currently issues three- and six-month T -bills at regular weekly
auctions. It also issues "cash management" bills as needed to smooth out cash flows.
TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes and pay
interest semi-annually.
TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like
Treasury notes, they pay interest semi-annually.
VOLATILITY. The rate at which security prices change with changes in general economic conditions or the general level
of interest rates.
YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected cash flows
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