[Adopted 12-13-1999 by Ord. No. 99-32; amended in its entirety 4-9-2018 by Ord. No. 2018-10]
A.Â
ACCRUED INTEREST
AGENCY
AMORTIZATION
ARBITRAGE
ARBITRAGE BONDS
ASKED
ASSESSED VALUE
AVERAGE LIFE
BANKERS' ACCEPTANCE (BA)
BASIS POINT
BID
BOND
BOND ANTICIPATION NOTES (BANS)
BROKER
CALLABLE BOND
CASH SALE/PURCHASE
CERTIFICATE OF DEPOSIT (CD)
COLLATERALIZATION
COMMERCIAL PAPER
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)
(1)Â
(2)Â
(3)Â
(4)Â
CONVEXITY
COUPON
COUPON RATE
CREDIT RISK
CURRENT YIELD (CURRENT RETURN)
DEALER
DEBENTURE
DELIVERY VERSUS PAYMENT
DERIVATIVE SECURITY
DISCOUNT
DISCOUNT SECURITIES
DIVERSIFICATION
DURATION
ENTERPRISE FUNDS
FEDERAL CREDIT AGENCIES
FEDERAL DEPOSIT INSURANCE CORPORATION
FEDERAL FUNDS (FED FUNDS)
FEDERAL FUNDS RATE
FEDERAL HOME LOAN BANK
FEDERAL NATIONAL MORTGAGE ASSOCIATION
FEDERAL RESERVE SYSTEM
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GOVERNMENT SECURITIES
INTEREST RATE
INTEREST RATE RISK
LIQUIDITY
LOCAL GOVERNMENT INVESTMENT POOL (LGIP)
MARKET RISK
MARKET VALUE
MARKET-TO-MARKET
MATURITY
NET ASSET VALUE
NET INTEREST COST (NIC)
PAR VALUE or FACE AMOUNT
PRINCIPAL
PRUDENT PERSON RULE
RATINGS
REPURCHASE AGREEMENT (RP or REPO)
SAFEKEEPING
SEC RULE 15C3-1
SECONDARY MARKET
SECURITIES AND EXCHANGE COMMISSION
SHORT-TERM DEBT
SWAP
TERM BONDS
TOTAL RETURN
TREASURY BILLS
TREASURY BOND
TREASURY NOTES
UNIFORM NET CAPITAL RULE (NET CAPITAL RULE AND NET CAPITAL RATIO)
VOLATILITY
WEIGHTED AVERAGE MATURITY (WAM)
YIELD
(1)Â
(2)Â
YIELD TO MATURITY
ZERO COUPON BOND
Glossary of terms. As used in this article, the following terms shall
have the meanings indicated:
The accumulated interest due on a bond as of the last interest
payment made by the issuer.
A debt security issued by a federal or federally sponsored
agency. Federal agencies are backed by the full faith and credit of
the United States government. Federally sponsored agencies (FSAs)
are backed by each particular agency with a market perception that
there is an implicit government guarantee. An example of a federal
agency is the Government National Mortgage Association (GNMA). An
example of an FSA is the Federal National Mortgage Association (FNMA).
The process of paying the principal amount of an issue of
bonds by periodic payments either directly to bondholders or to a
sinking fund for the benefit of bondholders.
Usually refers to the difference between the interest paid
on the tax-exempt securities and the interest earned by investing
the proceeds in higher-yielding taxable securities. Internal Revenue
Service regulations govern arbitrage (reference I.R.S. Reg. 1.103-13
through 1.103-15).
Bonds which are deemed by the I.R.S. to violate federal arbitrage
regulations. The interest on such bonds becomes taxable, and the bondholders
must include this interest as part of gross income for federal income
tax purposes (I.R.S. Reg. 1.103-13 through 1.103-15).
The price at which securities are offered.
An annual determination of the just or fair market value
of property for purposes of ad valorem taxation.
The average length of time that issues of serial bonds and/or
term bonds with a mandatory sinking fund feature is expected to be
outstanding.
A draft or bill or exchange accepted by a bank or trust company.
The accepting institution guarantees payment of the bill, as well
as the issuer.
1/100 of 1%.
The indicated price at which a buyer is willing to purchase
a security or commodity.
Written evidence of the issuer's obligation to repay a specified
principal amount on a date certain, together with interest at a stated
rate, or according to a formula for determining that rate.
Short-term, interest-bearing notes issued by a government
in anticipation of bonds to be issued at a later date. The notes are
retired from proceeds of the bond issue to which they are related.
A broker brings buyers and sellers together for a commission
paid by the initiator of the transaction or by both sides; he does
not position (take ownership of securities). In the money market,
brokers are active in markets in which banks buy and sell money in
interdealer markets.
A bond which permits or requires the issuer to redeem the
obligation before the stated maturity date at a specified price, the
call price, usually at or above par value.
A transaction which calls for delivery and payment of securities
on the same day that the transaction is initiated.
A time deposit with a specific maturity evidenced by a certificate.
Process by which a borrower pledges securities, property,
or other deposits for the purpose of securing the repayment of a loan
and/or security. Also, refers to securities pledged by a bank to secure
deposits of public monies.
Very short-term, unsecured promissory notes issued in either
registered or bearer form, and usually backed by a line of credit
with a bank.
The official annual report for the Village of Bannockburn.
In addition to a combined, combining (assembling of data for all funds
within a type), and individual balance sheet, the following are also
presented as appropriate on a combined, combining, and individual
basis:
Statement of revenues, expenditures, and changes in fund balance
(all funds);
Statement of revenues, expenditures, and changes in fund balances,
budget and actual (for government fund types);
Statement of revenues, expenses, and changes in retained earnings
(for proprietary funds); and
Statement of changes in financial position (for proprietary
funds).
A measure of a bond's price sensitivity to changing interest
rates. A high convexity indicates greater sensitivity of a bond's
price to interest rate changes.
The annual rate of interest payable on a coupon bond (a bearer
bond or bond registered as to principal only, carrying coupons evidencing
future interest payments), expressed as a percentage of the principal
amount.
The risk to an investor that an issuer will default in the
payment of interest and/or principal on a security.
A yield calculation determined by dividing the annual interest
received on a security by the current market price of that security.
A dealer, as opposed to a broker, acts as a principal in
all transactions, buying and selling securities from an inventory
on hand.
A bond secured only by the general credit of the issuer.
When the Village issues bonds of this, they are termed "general obligation"
(G.O.).
There are two methods of delivery of securities: delivery
versus payment and delivery versus receipt (also called "free"). "Delivery
versus payment" is delivery of securities with an exchange of money
for the securities. "Delivery versus receipt" is delivery of securities
with an exchange of signed receipt for the securities.
Financial instrument created from, or whose value depends
upon, one or more underlying assets or indexes of asset values.
The amount by which the par value of a security exceeds the
price paid for the security.
Non-interest-bearing money market instruments that are issued
at a discount and redeemed at maturity for full face value: e.g.,
United States Treasury bills, zero coupon bonds.
A process of investing assets among a range of security types
by sector, maturity, and quality rating. The purpose of diversification
is to minimize risk from default or market fluctuations.
A measure of the timing of the cash flows, such as the interest
payments and the principal repayment, to be received from a given
fixed-income security. This calculation is based on three variables:
term to maturity, coupon rate and yield to maturity. The duration
of a security is a useful indicator of its price volatility for given
changes in interest rates.
Funds that are financed and operated in a manner similar
to private business, in that goods and services provided are financed
primarily through user charges.
Agencies of the federal government set up to supply credit
to various classes of institutions and individuals; e.g., S&Ls,
small business firms, students, farmers, farm cooperatives, and exporters.
A federal agency that insures deposits and retirement accounts
in member accounts for up to $250,000, protecting depositors in the
event of bank failure.
Funds placed in Federal Reserve banks by depository institutions
in excess of current reserve requirements. These depository institutions
may lend fed funds to each other overnight or on a longer basis. They
may also transfer funds among each other on a same-day basis through
the Federal Reserve banking system. Fed funds are considered to be
immediately available funds.
Interest rate charged by one institution lending federal
funds to the other.
The FHLB system now primarily focuses on increasing the amount
of loanable funds available for affordable housing and community development
projects. It continues to have a material impact on housing and development
financing, offering funds to member institutions at rates that are
usually lower than commercially competitive prices.
The FNMA, commonly known as "Fannie Mae," is a government-sponsored
enterprise that is the largest purchaser and guarantor of home mortgages
in the country. Headquartered in Washington, D.C., Fannie Mae buys
mortgages from such lenders as banks and savings and loans, packages
them, and resells them on the open market, thus creating fluidity
and lessening lenders' risk. Fannie Mae's creation of this secondary
mortgage market enables low- and middle-income individuals and families
to obtain mortgages and purchase homes. The corporation was founded
(1938) by the federal government to buy and sell mortgages insured
by the Federal Housing Administration or guaranteed by the Veterans
Administration (now the Veterans Affairs Department).
The seven-member Board of Governors of the Federal Reserve
System determines the reserve requirements of the member banks within
statutory limits, reviews and determines the discount rates established
by the 12 Federal Reserve banks, with each one serving member banks
in its own district. This system, supervised by the Federal Reserve
Board, has broad regulatory powers over the money supply and the credit
structure.
GNMA or "Ginnie Mae," which is administered by the Department
of Housing and Urban Development and helps to finance public housing.
Fannie Mae's corporate credibility was damaged by revelations (2004)
that it manipulated its earnings from 1998 to 2004, in part to maximize
bonus payments to its corporate executives. Problems in the housing
and mortgage industry that began in 2007 led in 2008 to increasing
losses at and concern about a possible bankruptcy of Fannie Mae and
especially Freddie Mac (the Federal Home Loan Mortgage Corporation),
and resulted in a federal takeover of the two mortgage guarantors.
An obligation of the United States government, backed by
the full faith and credit of the government. These securities are
regarded as the highest quality of investment securities available
in the United States securities market.
See "coupon rate."
The risk associated with declines or rises in interest rates
which cause an investment in a fixed-income security to increase or
decrease in value.
An asset that can be converted easily and quickly into cash.
An investment by local governments in which their money is
pooled as a method for managing local funds.
The risk that the value of a security will rise or decline
as a result of changes in market conditions.
The current market price of a security.
The process whereby the book value or collateral value of
a security is adjusted to reflect its current market value.
The date upon which the principal of a municipal bond becomes
due and payable to bondholders.
The market value of one share of an investment company, such
as a mutual fund. This figure is calculated by totaling a fund's assets,
which include securities, cash, and any accrued earnings, subtracting
this from the fund's liabilities, and dividing this total by the number
of shares outstanding.
The traditional method of calculating bids for new issues
of municipal securities. The total dollar amount of interest over
the life of the bonds is adjusted by the amount of premium or discount
bid, and then reduced to an average annual rate. The other method
is known as the "true interest cost" (see "true interest cost").
In the case of bonds, the amount of principal which must
be paid at maturity.
The face amount or par value of a bond or issue of bonds
payable on stated dates of maturity.
An investment standard outlining the fiduciary responsibilities
of public funds investors relating to investment practices.
Evaluations of the credit quality of notes and bonds, usually
made by independent rating services, which generally measure the probability
of the timely repayment of principal and interest on municipal bonds.
An agreement of one party to sell securities at a specified
price to a second party and a simultaneous agreement of the first
party to repurchase the securities at a specified price or at a specified
later date. The security "buyer" in effect lends the "seller" money
for the period of the agreement, and terms of the agreement are structures
to compensate him. Dealers use RP extensively to finance their positions.
Exception: When the Fed is said to be doing RP, it is lending money;
this is, increasing bank reserves.
A service to customers rendered by banks for a fee, whereby
securities and valuables of all types and descriptions are held in
the bank's vaults for protection.
See definition of "uniform net capital rule" in this subsection.
A market made for the purchase and sale of outstanding issues
following the initial distribution.
Any debt incurred whose final maturity is three years or
less.
Trading one asset for another.
Bonds coming due in a single maturity.
The sum of all investment income plus changes in the capital
value of the portfolio.
A short-term obligation of the United States Treasury having
a maturity period of one year or less and sold at a discount from
face value. The return to the investor who holds it to maturity is
the difference between the price paid and the face value at maturity.
A long-term obligation of the United States Treasury having
a maturity period of more than 10 years and paying interest semiannually.
An intermediate-term obligation of the United States Treasury
having a maturity period of one to 10 years and paying interest semiannually.
Securities and Exchange Commission requirement that member
firms as well as nonmember broker/dealers in securities maintain a
maximum ratio of indebtedness to liquid capital of 15:1. Indebtedness
covers all money owed to a firm, including margin loans and commitments
to purchase securities, one reason new public issues are spread among
members of underwriting syndicates. Liquid capital includes cash and
assets easily converted into cash.
A degree of fluctuation in the price and valuation of securities.
The average maturity of all the securities that comprise
a portfolio.
The current rate of return on an investment security generally
expressed as a percentage of the security's current price.
"Income yield" is obtained by dividing the current dollar income
by the current market price for the security;
"Net yield" or "yield to maturity" is the current income yield
minus any premium above par or plus any discount from par in purchase
price, with the adjustment spread over the period from the date of
purchase to the date of maturity of the bond.
The rate of return to the investor earned from payments of
principal and interest, with interest compounded semiannually and
assuming that interest paid is reinvested at the same rate.
A bond which pays no interest, but is issued at a deep discount
from par, appreciating to its full value at maturity.
B.Â
Policy.
(1)Â
The intent of the investment policy of the Village of Bannockburn
is to define the policies for maximizing the efficiency of the Village's
cash management system and for prudent investment of the Village's
funds, and to provide guidelines for suitable investments.
(2)Â
The ultimate goal is to enhance the economic status of the Village
while protecting its funds.
(3)Â
The Village's cash management system is designed to monitor and forecast
expenditures and revenues accurately, thus enabling the Village Board
(through the Village Manager, Finance Commissioner, and Assistant
Finance Director) to invest funds to the fullest extent possible.
The Village Manager, Finance Commissioner, and Assistant Finance Director
shall attempt to obtain the highest investment return using authorized
instruments that meet the criteria established for safety and liquidity
while meeting the Village's daily cash flow demands in conformance
with the Municipal Code.
[Amended 4-12-2021 by Ord. No. 2021-06]
(4)Â
The investment policies and practices of the Village of Bannockburn
are based upon federal, state, and local law and prudent money management.
The policy has been prepared in accordance with the Public Funds Investment
Act (30 ILCS 235/2.5). The primary goals of these policies are:
(a)Â
To assure compliance with all federal, state and local laws
governing the investment of monies under the control of the Village;
(b)Â
To protect the principal monies of the Village; and
(c)Â
To generate the maximum amount of investment income within the
parameters of this investment policy and the guidelines for suitable
investments.
(5)Â
All participants in the Village's investment process (including without
limitation the Village Manager, Finance Commissioner, and Assistant
Finance Director, the "investment officials") shall act responsibly
as custodians of the public trust. Investment officials shall recognize
that the investment portfolio is subject to public review and evaluation.
The overall program shall be designed and managed with a degree of
professionalism that is worthy of the public trust.
[Amended 4-12-2021 by Ord. No. 2021-06]
C.Â
Scope.
(1)Â
This investment policy applies to the investment of available assets
of all Village funds under the direct management of the Village Board
of Trustees and investment officials.
(2)Â
The policy for the Illinois Municipal Retirement Fund (IMRF) will
be as determined by the appropriate boards of administration and not
covered by this policy.
(3)Â
Funds set aside to decrease Village debt in conjunction with an advance
refunding agreement will be invested in accordance with appropriate
bond documents.
(4)Â
Should bond covenants be more restrictive than this policy, funds
will be invested in full compliance with those restrictions.
(5)Â
Funds held by the County Treasurer during tax collection periods
shall be governed by the county's investment policies to the extent
that they do not conflict with this policy and should be invested
by the County Treasurer for the benefit of the Village of Bannockburn
as stipulated by the Village in accordance with 55 ILCS 5/3-11006.
(6)Â
All investments of the Village of Bannockburn must be made in compliance
with applicable federal and state law and in accordance with applicable
legal interpretations. Investment of any tax-exempt borrowing proceeds
and of any debt service funds must comply with the 1986 Tax Reform
Act,[3] if the Act applies to the debt issued.
[3]
Editor's Note: See 26 U.S.C. § 1 et seq.
D.Â
Prudence.
[Amended 4-13-2020 by Ord. No. 2020-12]
(1)Â
Investments shall be made with judgment and care, under circumstances
then prevailing, that persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation,
but for investment, considering the probable safety of their capital
as well as the probable income to be derived.
(2)Â
The standard of prudence to be used by investment officials shall
be the "prudent person" standard and shall be applied in the context
of managing an overall portfolio. Investment officials acting in accordance
with written procedures and the investment policy and exercising due
diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided that deviations
from expectations are reported in a timely fashion and appropriate
action is taken to control adverse developments.
(3)Â
The Board recognizes that material, relevant, and decision-useful
sustainability factors have been or are regularly considered by the
Board, within the bounds of financial and fiduciary prudence, in evaluating
investment decisions. Such factors include, but are not limited to:
1) corporate governance and leadership factors; 2) environmental factors;
3) social capital factors; 4) human capital factors; and 5) business
model and innovation factors, as provided under the Illinois Sustainable
Investing Act (40 ILCS 5/1-113.6 and 1-113.17).
E.Â
Objective. The primary objective in the investment of Village funds
under control of the Village Board of Trustees and investment officials
is to ensure the safety of principal, while managing liquidity requirements
of debt service and other financial obligations of the Village and
providing the highest investment return using authorized investment
instruments.
(1)Â
The primary objectives of the Village of Bannockburn investment activities
are as follows:
(a)Â
Legality. The Village's investments will be in compliance with
all statutes governing the investment of public funds.
(b)Â
Safety. Investments of the Village will be undertaken in a manner
that seeks to ensure the preservation of capital in the overall portfolio.
To attain this objective, diversification is required in order that
the Village investment officials prudently manage market interest
rate and credit risk.
(c)Â
Liquidity. The Village's investments will remain sufficiently
liquid to enable the Village to meet all operating requirements that
might be reasonably anticipated.
(d)Â
Return on investments/yield. The Village's investment portfolio
shall be designed to obtain the highest available return, taking into
account the Village's investment risk constraints and cash flow needs.
The investment officials shall seek to obtain the highest available
return using authorized investments.
F.Â
Ethics and conflict of interest.
(1)Â
It is the policy of the Village that no person acting on behalf of
the investment function shall, in any manner, have any interest, either
directly or indirectly, in any investments in which the Village is
authorized to invest, or receive, in any manner, compensation of any
kind, from any investments from the sellers, sponsors, or managers
of such investments. All persons authorized to trade on behalf of
the Village must refrain from personal business activity that could
potentially conflict with proper execution of this investment policy
or impair their ability to make impartial decisions.
(2)Â
Investment advisors and money managers must adhere to a minimum level
of standards consistent with the Association for Investment Management
and Research Code of Ethics. If a more stringent regulation applies
under an advisor's or manager's certification standard, then this
policy dictates as the ethical benchmark.
G.Â
Delegation of authority. Management responsibility for the investment
program is hereby delegated to the investment officials who shall
establish written procedures for the operation of the investment program
consistent with this investment policy and approved by the Village
Board (the "investment procedures"). Such procedures shall include
explicit delegation of authority to persons responsible for investment
transactions. No person may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the investment officials and approved by the Village Board. The
Finance Commissioner shall be responsible for all transactions undertaken
and shall establish a system of controls to regulate the activities
of subordinate investment officials.
H.Â
Authorized financial dealers and institutions.
(1)Â
The Village investment officials will maintain a list of financial
institutions authorized to provide investment services in the Village.
The selection process for inclusion on this list will be detailed
in the written administrative procedures for investments. No public
deposits shall be made except in municipal depositories approved by
the Village Board.
(2)Â
Depositories. The Village has allowed only regularly organized state
or national banks insured by the Federal Deposit Insurance Corporation
("FDIC") and federal and state savings and loan associations insured
by the Savings Association Insurance Fund of the FDIC to be designated
as possible municipal depositories. Depository institutions should
be economically viable and have practices that would not impair the
safety of investments.
(3)Â
Broker/dealer. The Village investment officials shall evaluate interested
broker/dealers on the basis of criteria set by the Village investment
officials, including the firm's prior experience, financial stability,
and other requirements deemed necessary. All financial institutions
and broker/dealers who desire to become qualified bidders for investment
transactions must supply the Assistant Finance Director with the following:
audited financial statements, proof of National Association of Security
Dealers certification, and proof of state registration. An annual
review of the financial condition and registrations of qualified bidders
will be conducted by the Assistant Finance Director.
[Amended 4-12-2021 by Ord. No. 2021-06]
(4)Â
Authorized advisors/money managers. This policy requires that investment
advisors possess the following qualifications:
I.Â
Authorized investments. The Village of Bannockburn is empowered to
invest in certain types of securities as detailed in the Public Funds
Act (30 ILCS 235). Among the authorized investments are:
(1)Â
Bonds, notes, certificates of indebtedness, treasury bills or other
securities now or hereafter issued, which are guaranteed by the full
faith and credit of the United States of America as to principal and
interest;
(2)Â
United States agency and instrumental obligations which are limited
to the following issuers:
(a)Â
Federal Home Loan Bank (FHLB).
(b)Â
Federal Home Loan Mortgage Corporation (FHLMC).
(c)Â
Federal Farm Credit Bank (FFCB).
(d)Â
Government National Mortgage Association (GNMA).
(e)Â
Federal Agricultural Mortgage Corporation (FarmerMac).
(f)Â
Tennessee Valley Authority (TVA).
(g)Â
Federal National Mortgage Association (FNMA).
(h)Â
Any other agency created by an act of Congress.
(3)Â
Institutional-size depository investments such as interest-bearing
savings accounts, interest-bearing certificates of deposit or interest-bearing
time deposits or any other investments constituting direct obligations
of any bank as defined by the Illinois Banking Act,[4] including bankers' acceptance and bank notes.
(a)Â
The instruments or issuers shall have short-term ratings in
one of the highest two classifications without regard to gradation
by at least two rating agencies, one of which must be Standard and
Poor's ("S&P") or Moody's, and long-term rating in one of the
highest three classifications without regard to gradation by at least
two rating agencies, one of which must be S&P or Moody's.
(b)Â
Investments may be made only in banks which are insured by the
Federal Deposit Insurance Corporation. Any amount of the deposit in
excess of the federal deposit insurance shall be either:
[1]Â
Fully collateralized at least 105% by:
[a]Â
Marketable United States government securities marked to market
at least monthly;
[b]Â
Bonds, notes, or other securities constituting the direct and
general obligation of any agency or instrumentality of the United
States; or
[c]Â
Bonds, notes or other securities constituting a direct and general
obligation of any county, township, Village, village, incorporated
town, municipal corporation, or school district of the State of Illinois
or of any other state, or of any political subdivision or agency of
the State of Illinois or any other state which is rated in either
the AAA or AA rating categories by at least two accredited ratings
agencies and maintaining such rating during the term of such investments;
or
[2]Â
Secured by a corporate surety bond issued by an insurance company
licensed to do business in Illinois and having a claims-paying rating
in the top rating category as rated by a nationally recognized statistical
rating organization and maintaining such rating during the term of
such investment.
[4]
Editor's Note: See 205 ILCS 5/1 et seq.
(4)Â
Short-term obligations of corporations organized in the United States
with assets exceeding $500,000,000 if:
(a)Â
Such obligations are rated at the time of purchase in either
the AAA or AA rating categories by at least two standard rating services
and which mature not later than 180 days from the date of purchase,
(b)Â
Such purchases do not exceed 10% of the corporation's outstanding
obligations and
(c)Â
No more than 5% of the public agency's funds may be invested
in short-term obligations of corporations; or
(5)Â
Money market mutual funds registered under the Investment Company
Act of 1940,[5] provided that the portfolio of any such money market mutual fund is limited to obligations described in Paragraph (1) or (2) of this Subsection I and to agreements to repurchase such obligations and that such fund has a short-term rating of "AAAm" by S&P or Aaa by Moody's.
[5]
Editor's Note: See 15 U.S.C. § 80a-1 et seq.
(6)Â
Interest-bearing bonds of any county, township, Village, village,
incorporated town, municipal corporation, or school district. The
bonds shall be registered in the name of the Village or held under
a custodial agreement at a bank. The bonds shall be rated at the time
of purchase within the four highest general classifications established
by at least two accredited rating agencies of nationally recognized,
expertise in rating bonds of states and their political subdivisions.
(7)Â
Bond funds registered under the Investment Company Act of 1940, as
amended from time to time, provided that the portfolio is limited
to bonds, notes, treasury bills, or other securities which are guaranteed
by the United States government or agreements to repurchase these
same types of obligations, and qualified United States agencies under
30 ILCS 235 et seq.
(9)Â
Repurchase agreements pursuant to the Investment Act. The securities,
unless registered or inscribed in the name of the Village, shall be
purchased through banks or trust companies authorized to do business
in the State of Illinois. The term "repurchase agreements" as used
herein shall include flexible repurchase agreements that permit the
Village to withdraw funds as needed and master repurchase agreements
that permit the deposit, withdrawal and redeposit of funds over time.
(10)Â
The securities described in Paragraph I(1) and (2) above, or any
other securities that the Village is authorized to acquire under law,
may be acquired pursuant to agreements entered into between the Village
and suppliers of such securities under which agreements suppliers
agree to sell to the Village specified securities on specific dates
at specific prices, all as established at the time of execution and
delivery of any such agreements and as set forth in such agreements.
J.Â
Investment restrictions. The Village investment officials will not
utilize investment of leveraged transactions, financial forwards,
futures, hedged investments, index amortizing notes, dual index notes,
deeveraged bonds, range bonds, inverse floaters, interest-only, principal-only
bonds and any other financial derivative. The Village investment officials
are not authorized, without the approval of the Village Board, to:
K.Â
Collateralization.
(1)Â
In order to protect the Village public funds deposits, collateralization
shall be required on all deposits, certificates of deposit, investments
and repurchase agreements. So as to anticipate market changes and
provide an adequate level of security for all funds, the collateralization
level will be at least 105% of market value of principal and accrued
interest. Collateral is required as security for any amount in excess
of the federal deposit insurance limit. Collateral is limited to government
or approved securities or surety bonds issued by top-rated insurers.
(2)Â
Collateral will always be held by an independent third party with
whom the entity has a current custodial agreement. A clearly marked
evidence of ownership (safekeeping receipt) must be supplied to the
entity and retained. The bank will provide the Village a copy of the
board minutes that approved the collateralization. Each time collateral
is changed, it must be approved by the Village. The change must be
recorded in the next bank board minutes, and a copy of the minutes
must be furnished to the Village.
L.Â
Safekeeping and custody.
(1)Â
To protect against potential fraud, embezzlement, or losses caused
by collapse of individual securities dealers, all investment securities
purchased by the Village, including collateral on repurchase agreements,
shall be held by the Village or in safekeeping by the Village's custodian
bank or a third-party bank trust department, acting as agent for the
Village under the terms of a custody or trustee agreement executed
by the bank and by the Village. The primary agent shall issue a safekeeping
receipt to the Village listing the specific instrument, rate, maturity,
and other pertinent information.
(2)Â
All securities transactions conducted by the custodian on behalf
of the Village are to be on a delivery-versus-payment (DVP)-only basis.
(3)Â
Investment officials shall be bonded to protect the Village against
loss due to possible embezzlement and malfeasance.
M.Â
Diversification. A variety of financial instruments and maturities,
properly balanced, will help to ensure liquidity and reduce risk or
interest rate volatility and loss of principal. Diversifying investments
and maturities will avoid incurring unreasonable risks in the investment
portfolio regarding specific security types, issuers or individual
financial institutions. With the exception of United States Treasury
securities and authorized pools, no more than 50% of the Village's
total investment portfolio will be instead in a single security type
or with a single financial institution.
N.Â
Maturities.
(1)Â
To the extent possible, the Village will attempt to match its investments
with anticipated cash flow requirements. Unless matched to a specific
cash flow, the Village will not directly invest in securities maturing
more than three years from the date of purchase. However, the Village
may collateralize its repurchase agreements using longer-dated investment.
(2)Â
Reserve or capital improvement project monies may be invested in
securities not to exceed three years. The maturity of such investments
is made to coincide as nearly as possible with the expected use of
the funds.
O.Â
Risk management.
(1)Â
Market risk, credit risk, and liquidity risk are typically associated
with fixed-income portfolio management. Their definition and the techniques
used to control, evaluate and manage them are also discussed below:
(a)Â
Market risk: the risk that the value of a security will rise
or decline as a result of changes in market conditions.
[1]Â
Control technique: The Village investment officials shall provide
for market-to-market valuations on a monthly basis.
(b)Â
Credit risk: The risk that an issuer will default in the payment
of interest and/or principal on a security.
[1]Â
Control technique: The Village investment officials will limit
investments to the safest types of securities, prequalify the financial
institutions, broker/dealers, intermediaries and advisers with which
the Village will do business, and diversify the investment portfolio
so that potential losses on individual securities will be minimized.
The Assistant Finance Director shall provide ongoing evaluation and
monitoring of creditworthiness of all counterparties.
[Amended 4-12-2021 by Ord. No. 2021-06]
(c)Â
Liquidity risk: The risk that an asset cannot be converted quickly
and easily into cash.
[1]Â
Control technique: The Village investment officials shall create
and maintain cash flow forecasts and will select securities and maturities
that meet cash flow needs and provide for diversification within the
portfolio to ensure compliance with established policy limits.
(2)Â
In addition to the aforementioned control techniques, any investment
manager who is retained to manage assets on behalf of the Village
is also required to participate in the risk management process and
adhere to the Village's investment policy.
P.Â
Internal controls.
(1)Â
The Village investment officials shall maintain a system of internal
controls and written operational procedures that shall be documented.
The Village is subject to annual independent review of its internal
controls by an independent accounting firm. This review will provide
assurance that policies and procedures are being complied with. Such
review also may result in recommendations to change operating procedures
to improve internal control. The controls shall be designed to prevent
loss of public funds due to fraud, error, misrepresentation by third
parties, unanticipated market changes, or imprudent actions by employees
or officers of the Village.
(2)Â
In addition, the Village investment officials have established a
system of internal controls to ensure that staff positions and functional
duties are adequately segregated for separation of duties between
investment and accounting operations.
Q.Â
Performance standards.
(1)Â
The Village's investment portfolio will be designed to obtain a market-average
rate of return during budgetary and economic cycles, taking into account
the Village's investment risk constraints and cash flow needs.
(2)Â
The Village's Assistant Finance Director will utilize the average
three-month treasury bill return or other appropriate benchmarks to
determine whether average yields are being achieved.
[Amended 4-12-2021 by Ord. No. 2021-06]
R.Â
Accounting. All investment transactions shall be recorded in the
various Village funds in accordance with generally accepted accounting
principles as promulgated by the Government Accounting Standards Board.
S.Â
Reporting. The Village's Assistant Finance Director shall submit
quarterly an investment report to the Village Board that summarizes
recent market conditions, economic developments and anticipated investment
conditions. The report shall summarize the investment strategies employed
in the most recent quarter, description of the portfolio in terms
of investment securities, maturities, risk characteristics and other
features. The report shall explain the quarter's total investment
return and compare the return with target rate of return projections
and budgetary expectations.
[Amended 4-12-2021 by Ord. No. 2021-06]
T.Â
Correction of noncompliance. In the event of changes in market, the
Investment Act or other applicable law, current holdings could fail
to meet the guidelines of this policy. Whenever that occurs, the Village's
Assistant Finance Director will immediately notify the Village Manager,
and appropriate action will be taken.
[Amended 4-12-2021 by Ord. No. 2021-06]
U.Â
Investment policy adoption.
