HomeMy WebLinkAboutRes 2003-09RESOLUTION NO.2003-09
A RESOLUTION OF THE MAYOR AND COUNCIL OF THE TOWN OF
FOUNTAIN HILLS,ARIZONA,ADOPTING THE TOWN OF FOUNTAIN
HILLS INVESTMENT POLICY.
WHEREAS,the Mayor and Council of the Town of Fountain Hills (the "Town
Council")has determined that itisinthe best interests of the citizens of the Town of Fountain
Hills(the "Town")to establish written financial policies that ensure financial stability despite
changes in Town personnel or political bodies;and
WHEREAS,the existence of written financial policies isan important factor in securing
and maintaining a favorable municipal bond rating;and
WHEREAS,the Town Council desires to establish an investment policy to formalize the
framework forthe Town's daily investment activities to include scope,objectives,authority,
standards of riskand prudence,authorized institutions,investment type,col lateralization and
diversification.
NOW,THEREFORE,BE IT RESOLVED BY THE MAYOR AND COUNCIL OF
THE TOWN OF FOUNTAIN HILLS,ARIZONA as follows:
SECTION 1.That the "Town of Fountain Hills Investment Policy"is hereby adopted in
theform attached hereto as Exhibit Aand incorporated herein by reference.
SECTION 2.That the Town Manager is hereby authorized and directed to take all steps
necessary to ensure thatthe Town of Fountain Hills Investment Policy is implemented and
applied toall Town investments.
PASSED AND ADOPTED BY the Mayor and Council of the Town of Fountain Hills,
Arizona,March 20,2003.
FOR THE TOWN OF FOUNTAIN HILLS:
Tim G.Pickering,Town Manager
9196.001V .\2003-09 -lnvesLPolicy.fes.doc
3-14-03-1
ATTESTED TO:
Bevelyn J.Binderj^Town Clerk
APPROVED AS TO FORM:
Andrew J.McGuire,Town Attorney
TOWN OF FOUNTAIN HILLS
INVESTMENT/CASH MANAGEMENT POUCY
1.0 Pnliry-
Itis the investmentpolicy of the Town of
FountainHills Uiat idlepublicfundswillbe
invested in a manner which maintains the
safety of principal,maintainsliquidityto meet
cashflow needs,and conforming toallstate
andlocalstatutesgoverning die investment of
publicfunds.Investments willhe made with
judgement andcarethat prudent persons
would exercise,inthe exercise of their own
affairs.The purpose of diese invesunent
guidelines isto formalize die framework for
the Town's daily investment activitiesto
include scope,prudence,objectives,auUiority,
eligible investments,collateralization and
diversification.
2.0 SrnpP-
This investment policyislimitedinits
application tofundsthatare not immediately
needed and are available for investment,
including any and/or alldistricts,component
units,etc.(hereinafter referred toas "die
Town").These funds are accounted for in tiie
Town of Fountain Hills Annual Financial
Report andmayinclude:
2.1 Funds:
2.1.1
2.1.2
2.1.3
2.1.4
2.1.5
2.1.6
General Fund
Special Revenue Funds
Capital Project Funds
Debt Service Funds
Municipal Property Funds
Anynew fund/component unit
created unlessspecifically
exempted.
\\caith\JGhctti\WPDATA\l NVEST.docRc\iscci 3/13/2003
Exceptforcashincertainrestrictedand
specialfunds,tfic Town will consolidate cash
balances from all funds to maximize
investment earnings.Investment income will
be allocated to the various funds based on
dicir respectiveparticipationandin
accordance withgenerallyacceptedaccounting
principles.
3.0 PniHffnrPT
Investments shallbe made with judgment and
care-under circumstances thenprevailing-
which persons of prudence,discretion and
intelligence exercise in tiic management of
theirownaffairs,not forspeculation,butfor
investment,considering theprobablesafetyof
theircapitalaswellasthe probable income to
be derived.
3.1 The standard of prudence tobeused
byany Finn or individualgivenresponsibilityas
investmentofficialshallbe die "prudent
person"standard and shallbe applied in die
context of managing anoverall portfolio or
account Investment officersactingin
accordance witii written procedures and tiie
investment policy and exercising due diligence
shallberelieved of personal responsibility for
an individual security's credit risk or market
price changes,provided deviationsfrom
expectations are reported inatimely fasliion
and appropriate action is taken to control
adverse developments.
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4.0 Ohjertive-
The primaryobjectives,inpriority order,of
die Town of Fountain Hills investment
activities shall be:
4.1Safety:Safety of principal is tiie
foremost objective of die invesunentprogram.
Investments of The Town shall be undertaken
in a manner tiiat seeks to ensure die
preservation of capitalin die overall portfolio.
To attain diis objective,diversification is
requiredin order dial potentiallosseson
individual securities do not exceed die income
generated from die remainder of tiie portfolio.
4.2 Liquidity:The Town of Fountain
Hills investment portfolio will remain
sufficiendyliquidto enable die Town of
FountainHillsto meet all operating
requirements wliicli mightbereasonably
anticipated.
4.3 Return on Investments:The Town of
FountainHills invesunent portfolio shallbe
designed widi theobjective of attainingarate
of return throughout budgetary and
economic cycles,commensurate widi die
Town of Fountain Hills investment risk
constraints and die cash flow characteristics
of die portfolio.Return shallbe
subordinated tosafetyandliquidity.The
coreofinvestmentsarelimitedtorelatively
lowriskbeing assumed.Securities shallnot
besoldpriortomaturity widi die following
exceptions:
•Asecurity widi declining credit may be
soldearlyto minimize loss of
principal.
•Asecurityswapwould improve the
quality,yield or target duration in die
portfolio.
•Liquidity needs of die portfolio
require diat die securitybesold.
Revised 3/13/2003
5.0Delegation r>f Aiithnrity-
Audiority tomanagethe Town of Fountain
Hillsinvestmentprogramisderivedfrom die
ARS§35-323 dirough 328.Management
responsibility for die investmentprogramis
hereby delegated to die Town of"Fountain
Hills Town Manager,or liis designee,who
shallestablishwrittenproceduresforthe
operationof die investmentprogram
consistent widi diis investmentpolicy.
Procedures should include reference to:
safekeeping,PSArepurchase agreements,wire
transfer agreements,bankingservice contracts
and collateral/depository agreements.Such
procedures shallincludeexplicitdelegation of"
audiorityto persons responsiblefor
invesunent transactions.Nopersonmay
engageinaninvestmenttransactionexceptas
provided under die termsof diis policyand
die procedures establishedby die Town
Manager.No person mayengageinan
invesunent transactionexceptasprovided
under die terms of diis policyand die
procedures establishedby die Town Manager.
The Town ofFountainHillsTownManager
shallbe responsible foralltransactions
undertaken andshallestablishasystem of
controls toregulate die activities of
subordinate officials.
6.0 F.thirs anrl ("!nnflirt«;nf Interest*
Officersand employees involvedin die
invcsUnent processshallrefrainfrompersonal
business activity diat couldconflict widi proper
execution of die invcsUnent program,or wliich
could impair dicirabilitytomakeimpartial
invcsUnent decisions.Employees and
invcsUnent officials shall disclose to die Town
Manager any material financial interests in
financial institutions diat conduct business
widiin diis jurisdiction,and they shallfurtlier
discloseanylarge personal
Page 2 of 9
financial/investment positions diat couldbe
relatedto die performance of die Town of
FountainHills,particularly widi regardto die
time of purchases andsales.
7.0 Authorized Finanrial Dealer*and
Institutions'
The Town Manager will maintain alist of
financialinstitutions autiiorized to provide
investment services.In addition,alistwill also
be maintained of approved security
broker/dealers selected by credit wortliiness
whoarc authorized to provide investment
services in the State of Arizona.The Town
shallqualifyinstitutionsbyapplyinggenerally
accepted industry standards (i.e.capital
requirements,assetquality,earnings,liquidity,
management and local community
development)usingavailablepublicagency
andprivateratingservicesas appropriate.
Investment transactions shall only be
conducted with financial institutions diat are
licensedasmaybe required bylawtodo
businessin Arizona.Primary government
securities dealers,or broker-dealers engaged in
thebusiness of selling government securities
shallberegisteredin compliance widi section
15 or 15C of die Securities Exchange Act of
1934and registered pursuant toA.R.S.§44-
3101,as amended (see excerpt attached as
Exliibit A).Itshallbethe responsibility of die
financial institutions and broker/dealers who
desireto become qualified bidders for
invesunent transactions to provide die
following:
a)audited financial statements within six
months ofdie close ofdie fiscalyear,
b)proof of National Association of
Security Dealers certification,trading
resolution,
c)proofofArizona registration,
d)certification of ha\ing read theTown
of Fountain Hills investment policy
and depository contracts.
Revised 3/11/2003
Byresolutionof die Council,an eligible listing
of broker/dealers shall be established for the
purchase and sale of invcsUnent securities and
furtlierresolved dial allpriorresolutions
cstablisliing broker/dealers be rescinded.A
newlist of approved broker/dealers will be
establishedas needed andatleastevery five
years.An annual review of the financial
condition andregistrations of qualified
companies willbe conducted by die Town
Manager.
8.0 Authorized fr Suitable Investments'
The TownofFountainHillsisempoweredby
statutetoinvestin die following types of
investments:
Eligible Investments'
The followingforms of investment are
specifiedaseligible investments.All
investments not listed will be considered
prohibited investment purchases.
1.Collateralized or insured certificates of
deposit,savings accounts,deposit
accounts or money market deposits in
amounts diat are continuously and
fully insured by die Federal Deposit
Insurance Corporation ("FDIC"),
including die Bank Insurance Fund
and die Savings Association Insurance
Fund,collateralized at no less dian 102
percent.
2.Slate of Arizona lxx:al Government
Investment Pool -GOV.
3.U.S.government obligations,U.S.
government agency obligations,and
U.S.government instrumentality
obligations,wliich havealiquid market
Page3 ol 9
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widi areadily determinable market
value.
4.Obligations of the Government
NationalMortgageAssociation,
Federal National Mortgage
Association,or Federal Home Loan
Mortgage Corporation,or any federal
farm credit bank,federal land bank or
banks or federal home loan bank
notes or bonds.
Prohibited Investments
In addition to die limitations on investment
types according to Arizona statutes,Town
funds will not be invested in reverse
repurchase agreement,callableagencies,
derivativetype investments such as
collateralized mortgage obligations,strips,
floaters,etc.Certain types of such investments
mayqualify under statestatute but are not
deemed appropriate forusebythe Town of
Fountain Hills.
9.0 G0llatp.rali7a.tinn;
Collateralization willbe required onalltypes
of investments:including certificates of
deposit,money market or savings accounts,
securities,etc.In order to anticipate market
changesand provide alevel of securityfor all
funds,the collateralization levelwill be (102%)
of market value of principal and accrued
interest Acceptable collateral of surplus cash
in demand deposit accounts andcertificates of
deposit are:
•direct obligations of die United States
Government,its agencies or
instrumentalities to die payment of
which die full faith and credit of die
Government of die United States is
pledged,or obligations tothe payment
of wliich die full faidi and credit of diis
stateis pledged.
Revised 3/14/2003
TheFederalDepositInsuranceCorporation
(FDIC)protectsdepositsupto$100,000.The
Town will seek to collateralize certificates of
depositorany odicr timedepositinan
amount equal to100%of die investment less
die amount ($100,000)insuredby die FDICat
levels per recommended practices of die
Government Finance Officers Association.
Collateral will always beheldbyan
independent diird party widi whom die Town
of Fountain Hills has a current custodial
agreement Aclearly marked evidence of
ownersliip (safekeepingreceipt)mustbe
supplied tothe Town of Fountain Hills and
retained.
Acceptablecollateralwillbesubjecttoa
recognized and readily available market
pricing.
10.0 Safe.ker.ping andCustody:
Allsecurity transactions including collateralfor
repurchase agreements,entered intobythe
Town of Fountain Hills or it's agents/trustees
shallbe conducted ona delivery-versus-
payment (DVP)basis.Securities shallbeheld
bya custodian designated by die Town
Manager and evidenced bysafekeeping
receipts.
11.0 Diversifiratinn;
The Town of Fountain Hillswilldiversifyits
investments by security type and institution.
Widi die exception of U.S.Treasury securities
and audiorized pools,no more dian 25%of
die Town of Fountain Hills'total invesunent
portfolio willbeinvestedinasinglesecurity
type or widi asinglefinancialinstitution.
Investments willbe diversified by:
Page 4 of 9
c
limiting investments toavoidover-
concentration in securities from a
specificissuer or business sector;
Limiting investments in securities widi
higher credit risks;
Investinginsecurities widi varying
maturities;and
Continuously investinga portion of die
portfolio inreadilyavailablefunds
such as die Local Government
InvcsUnent Pool or moneymarket
fundsto ensure diat appropriate
liquidityis maintained to meet ongoing
obligations.
12.0 Mavimiim Maturities;
To the extent possible,die Town or it's
agents/trustees will attempt to match its
investments widi anticipated cashflow
requirements.The weiglitedaverage maturity
of all investments will not exceed three (9)
months.
Unless matched toaspecificcash
requirement,die Town shall not direcdy invest
insecurities maturing more than two(2)years
fromthedate of purchase.Reserve or odier
funds widi longer-term investment horizons
maybeinvestedinsecurities exceeding five
years,if die maturities of such invesunents are
made to coincide as nearly as practicable widi
die expected use of funds.
13.0 Tntemal Control;
The Town Manager shall establish an annual
process of independent reviewas part of die
externalaudit.Tliis review will provide
internal control byassuring compliance widi
policiesand procedures.The invesunent
officeris responsible for establishing and
maintaining an internal control structure
designed to ensure dial theassets of die Town
Revised 3/14/2003
arc protected fromloss,dicft or misuse,'flic
internalcontrolstructureshallbedesignedto
provide reasonable assurance dial these
objectivesare met
14.0 Reporting:
The Town Manager or designeeischarged
widi die responsibility of includinga report on
invesunent activity and returns in die Town of
FountainHills Comprehensive Annual
Financial Report The report shallsummarize
investmenttransactions diat occurred during
die reporting period,and shalldiscussthe
current portfoliointerms of performance,
market sector breakdown,number of trades,
interestearnings,and odier features.
15.0 General Obligation Bond Fund
Proceeds
General obligation bond fund proceeds shall
beinvested pursuant toapplicable laws,
relevant bond indenture requirements and
relevanttenets of thispolicy.Proceeds from
tax-exempt general obligation bonds shallbe
invested,recorded and reported inthe
manner setforthby die U.S.Treasury and
InternalRevenueServicetopreserve die tax-
exempt status of die bonds.The Finance
Department will maintain systemsto ensure
diat diese requirements are met
16.0 Investment Pnliry AHnptinn-
The Town of FountainHillsinvestmentpolicy
shallbe adopted by resolution of die Town of
Fountain Hills legislative audiority."Hie policy
shallbereviewed annually by die Town
Manager and any modifications made diercto
must be approved by die Town Council.
Page5 of 9
c
17.Certification
Acopy of dus policywillbe provided upon
request to die senior management of any
financialinstitutionwhois approved to
transact business widi die Town in order that it
is appraised of"die policies of die Town.The
certificationmustbesignedand executed bya
senior member of die financial institution
before any business is conducted.
Revised 3/14/2003 Page6of9
GLOSSAKY
AGENCY:Adebtsecurityissuedbya federal orfederally
sponsored agency.Federalagenciesare backed bythefull
faithandcreditof die U.S.Government.Federally
sponsoredagencies (FSA's)arebackedbyeachparticular
agencywithamarketperceptionthatthereisanimplicit
government guarantee.An example of federalagencyis
die Government NationalMortgageAssociation(GNMA).
AnexampleofaFSAistheFederalNationalMortgage
Association (FNMA).
ASKED:The priceat wliich securitiesarcoffered.
BANKERS'ACCEPTANCE (BA):a draft or bill or
exchangeacceptedbyabankortrustcompany.The
acceptinginstitutionguarantees payment of thebill,aswell
as the issuer.
BASIS POINT:A unit of measurement used in the
valuation of fixed-incomesecuritiesequalto1/100 of 1
percent ofyield,e.g.,"1/4"of 1 percent isequalto 2.5 basis
points.
BID:The priceofferedbyabuyer of securities.(When
youaresellingsecurities,youaskforabid.)See Oiler.
BROKER:A broker bringsbuyersandsellerstogetherfor
commission.
CERTIFICATE OF DEPOSIT (CD):Atimedeposit
witha specific maturityevidencedbya certificate.Large-
denomination CD'saretypicallynegotiable.
COLLATERAL:Securities,evidenceofdepositorother
propertywhichaborrowerpledgestosecure repayment of
aloan.Alsoreferstosecuritiespledgedbyabankto
securedepositsofpublicmonies.
COMPREHENSIVE ANNUAL FINANCIAL
REPORT (CAFR):The officialannual report forthe
Town of Fountain Hills.It includes live combined
statementsforeachindividual fund andaccountgroup
prepared inconformitywith GAAP.Italsoincludes
supportingschedulesnecessarytodemonstratecompliance
with finance-related legalandcontractualprovisions,
extensive introductory material,anda detailed Statistical
Section.
COUPON:(a)The annual rate of interest diat a bond's
issuer promises topay tfic bondholder on die bond's face-
value,(b)Accrtiiicatcattachedtoa bond evidencing
interest due on a payment date.
DEALER:Adealer,as opposed toa broker,actsasa
principalinalltransactions,buyingandsellingfor liis own
Revised 3/13/2003
account.
DEBENTURE:Abondsecuredonlyby die generalcredit
of die issuer.
DELIVERY VERSUS PAYMENT:There arc two
mcdiods ol"deliveryof securities:deliveryversuspayment
anddeliveryversus receipt.Deliveryversuspaymentis
delivery of securities widi an exchange ofmoneyfor die
securities.Deliveryversusreceiptisdeliveryofsecurities
widi anexchangeofasignedreceiptfor die securities.
DISCOUNT:The difference between thecostpriceofa
securityanditsmaturitywhenquotedatlower dian face
value.Asecuritysellingbelow original offering price
shortlyaftersalealsois considered to be atadiscount.
DISCOUNT SECURITIES:Non-interest bearingmoney
market instruments diat arc issued a discount and
redeemed atmaturityforfullfacevalue,e.g.U.S.Treasury
Bills.
DIVERSIFICATION:Dividing invesunentfundsamong
a variety ofsecuritiesoffering independent returns.
FEDERAL CREDIT AGENCIES:Agenciesof die
Federal Government setuptosupplycredittovarious
classesofinstitutionsand individuals,e.g.,S&L's small
businessfirms,students,farmers,farmcooperatives,and
exporters.
FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC):Afederalagencythatinsures
bank dc]x>sils,currendyupto$100,000 j)er deposit
FEDERAL FUNDS RATE:The rate of interest at which
Fedfundsaretraded.Thisrateiscurrendypeggedby die
FederalReservethroughopen-marketoperations.
FEDERAL HOME LOAN BANKS (FHLB):The
institutions diat regulateandlendtosavingsandloan
associations.The Federal Home loanBanksplayarole
analogousto diat playedby die FederalReserveBanksvis
a-vis member commercial banks.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA):FNMA,like GNMA was
chartered under die FederalNationalMortgageAssociation
Actin1938.FNMAisafederal corj>oration working
under die auspices of die Department ofHousingand
Urban Development (HUD).Itis die largestsingle
provider of residential mortgagefundsin die UnitedStates.
FannieMac,as die corjx>ration iscalled,isaprivate
stockholder-owned corjx>ration.The coqx>ration's
Page7 of 9
purchasesincludeavarietyofadjustablemortgagesand
second loans,in addition tofixed-ratemortgages.FNMA's
securitiesarealso liiglily liquidandarewidely accepted.
FNMA assumesand guarantees that .ill security holders
willreceivetimelypaymentofprincipaland intcrcsL
FEDERAL OPEN MARKET COMMITTEE (FOMQ:
Consists of seven members of the Federal Reserve Board
and five of the twelve Federal Reserve Bank Presidents.
The President of die New York Federal Reserve Bank isa
permanent member,whilethe other Presidents serveona
rotatingbasis.The Committee periodically meetstoset
Federal Reserveguidelinesregarding purchases andsales of
Government Securitiesin die open market asa means of
influencing die volumeof bank creditandmoney.
FEDERAL RESERVE SYSTEM:The central bank of die
UnitedStatescreatedbyCongressandconsistingofaseven
member Board of Governors in Washington,D.C.,12
regionalbanksand about 5,700 commercial banksthatare
members ofthesystem.
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA OR GINNIE MAE):
Securitiesinfluencing die volumeof bank credit guaranteed
by GNMA andissuedbymortgage bankers,commercial
banks,savingsandloanassociations,and odier institutions.
Security holder is protected byfullfaithandcreditof die
U.S.Government.GinnieMaesecuritiesarcbackedby
the FHA,VAor FMHM mortgages.The term
"passthroughs"isoftenusedto describe Ginnie Macs.
INTERNAL CONTROLS:An internal control structure
designedtoensurethattheassetsoftheentityareprotected
from loss,theft,or misuse.The internal control structure is
designedtoprovide reasonable assurance diat diese
objectivesare met.The concept of reasonable assurance
recognizesthat1)thecost of a control should not exceed
thebenefitslikelytobederivedand2)thevaluation of costs
andbenefitsrequiresestimates and judgments by
management.Internal controls should address die
followingpoints:
1.Control of collusion -Collusion isa situation
wheretwoormore employees arcworkingin
conjunctionto defraud their employer.
2.Separation of transaction audiority from
accounting and record keeping -by separating
die person who authorizes or j>crforms die
transactionfrom die people whorecordor
odierwise account for the transaction,a
separation of dutiesis achieved.
3.Custodialsafekeeping-Securities purchased
fromanybankor dealer including appropriate
collateral(as defined bystatelaw)shall l)c placed
widi an independent diird party of custodial
Revised 3/13/2003
safekeeping.
4.Avoidanceofphysicaldeliverysecurities-Book-
entry securities are much easier to transfer and
accountforsinceactualdeliveryofadocument
never takesplace.Delivered securities must be
properly safeguarded againstlossor destruction.
The i>otential forfraudandlossincreases widi
physically delivered securities.
5.Cleardelegationofaudioritytosubordinatestaff
members -subordinate staff members must have
aclearunderstandingofdicirauthorityand
responsibilitiestoavoid improper actions.Clear
delegationofaudiorityalsopreserves die internal
controlstructure diat iscontingentonthevarious
staffpositionsand dieir respective res]x>nsibilities.
6.Written confirmation of transactions for
investments and wire transfers -due to die
{X)tcntial forerrorandimproprietiesarisingfrom
telephone and electronic transactions,all
transactionsshouldbesupportedbywritten
communications and approved bythe
appropriate person.Written communications
maybeviafaxifon letterhead andifthe
safekeeping institutionhasalistof audiorized
signatures.
7.Development of awiretransferagreement widi
die lead bank anddiird-partycustodian-die
designated official should ensure diat an
agreement willbe entered intoandwill address
die following points:controls,securityprovisions,
and responsibilities ofeachpartymakingand
receivingwiretransfers.
LIQUIDrTY:Aliquidassetisone diat canbeconverted
easilyandrapidlyintocashwidioutasubstantialloss of
value.In die money market,asecurityissaidtobeliquidif
die spread betweenbidandaskedpricesisnarrowand
reasonablesizecanbedoneatthosequotes.
LOCAL GOVERNMENT INVESTMENT POOL
(LGIP):The aggregate ofallfundsfrompolitical
subdivisionsthatarcplacedin die custodyoftheState
Treasurer for investment and reinvestment.
MARKET VALUE:The priceat wliich asecurityis
tradingandcould presumably be purchased orsold.
MASTER REPURCHASE AGREEMENT:A written
contractcoveringallfuturetransactionsbetween die parties
to rcpurchase-reverse repurchase agreementsthat
establishes each party'srightsin die transactions.A master
agreement willoftenspecify,among odier tilings,die right
of die buyer-lender toliquidate die underlyingsecuritiesin
die eventofdefaultby die scllcr-lx>rrowcr.
MATURITY:The date upon wliich die principal or stated
Page 8 of 9
valueofaninvestment becomes dueandpayable.
MONEY MARKET:The market in wliich short-term
debtinstruments(bills,commercial paper,bankers'
acceptances,etc.)arcissuedandtraded.
NATIONAL ASSOCIATION OF SECURITIES
DEALERS (NASD):A self-regulatory organization(SRO)
of brokers and dealers in die over-the-counter securities
business.Itsregulatory mandate includesaudiorityover
firms that distribute mutual fund shares as well as odier
securities.
OFFER:The priceaskedbyaseller of securities.(When
youarebuyingsecurities,youaskforanoffer.)SeeAsked
and Bid.
OPEN MARKET OPERATIONS:Purchases and sales
of government andcertain other securitiesin die open
market bytheNew York Federal Reserve Bank as directed
bythe FOMC in order to influence the volume of money
and credit inthe economy.Purchases inject reserves into
thebanksystemandstimulategrowth of money and credit;
saleshavetheopposite cffecL Open market operationsare
the Federal Reserve's most important and most flexible
monetary policytool.
PORTFOLIO:Collection of securitiesheldbyaninvestor.
PRIMARY DEALER:A group of government securities
dealerswhosubmitdailyreports of market activityand
positionsandmonthlyfinancial statements totheFederal
ReserveBankofNewYork and aresubjecttoitsinformal
oversight.PrimarydealersincludeSecuritiesandExchange
Commission (SEC)-registeredsecurities broker-dealer,
banks,andafewunregulatedfirms.
PRUDENT PERSON RULE:An investment standard.
Insomestatesthelawrequiresthatafiduciary,suchasa
trustee,mayinvest money onlyinalist of securities selected
bythecustody state-the so-calledlegallist.In odier states
thetrusteemayinvestinasecurityifitisonewhichwould
beboughtbya prudent person of discretionand
intelligencewhoisseekinga reasonable incomeand
preservationofcapital.
QUALIFIED PUBLIC DEPOSITORIES:Afinancial
institutionwhich does not claim exemption from die
paymentofanysalesor compensation useoradvalorem
taxes under die laws of diis state,which has segregated for
die benefit of die commission eligiblecollateralhavinga
value of notless dian its maximum liabilityandwliichhas
been approved by die Public Deposit Protection
Commission toholdpublic deposits.
RATE OF RETURN:The yield obtainable on asecurity
Revised 3/13/2003
basedonit purchase price oritscurrent market price.This
maybe die amortizedyieldto maturity onabond die
current income return.
REPURCHASE AGREEMENT (RP OR REPO):A
holder of securities sells diesc securities toan investor widi
anagreementtorepurchase diem atafixedpriceona fixed
date.The security "buyer"in effect lends die "seller"money
for die periodof die agreement,and tiie termsof die
agreement arcstructuredto compensate liim for diis.
DealersuseRP extensively tofinancedicir positions.
Exception:When die FedissaidtobedoingRP,itis
lendingmoney,diat is,increasingbankreserves.
SAFEKEEPING:Aservicetocustomersrenderedby
banksforafeewhereby securities and valuables ofalltypes
anddescriptionsareheldinthebank'svaultsforprotection.
SECONDARY MARKET:A market made for the
purchaseandsaleofoutstandingissues following die initial
distribution.
TOTAL RETURN:The sum of all investment income
pluschangesinthecapitalvalueof die portfolio.For
mutualfunds,returnonaninvestmentiscomposedof
sharepriceappreciationplusanyrealizeddividendsor
capitalgains.Thisiscalculatedbytakingthe following
components duringacertaintimeperiod.(Price
Appreciation)+(Dividendspaid)+(CapitalGains)-Total
Return.
TREASURY NOTES:IntermediateU.S..government
debtsecuritieswithmaturitiesofoneto10yearsandissued
in denominations rangingfrom$1,000to$1millionor
more.
TREASURY BONDS:Long-termU.S.government debt
securitieswithmaturities of tenyears or longer andissued
in minimum denominations of$1,000.Currendy,the
longest outstanding maturityforsuchsecuritiesis30years.
YIELD:The current rate of return on an investment
securitygenerallyexpressedasapercentage of thesecurity's
current price.
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