HomeMy WebLinkAbout2023-017-02/07/2023-ADOPTING AMENDMENTS TO THE CITY'S FINANCIAL MANAGEMENT POLICIESRESOLUTION 2023-017
OF THE COUNCIL OF THE CITY OF FORT COLLINS
ADOPTING AMENDMENTS TO THE CITY’S FINANCIAL MANAGEMENT POLICIES
WHEREAS,City Council has adopted Financial Management Policies for the City
pursuant to Resolution 94-174,which contemplates that City Council may adopt amendments to
them,which the Council has done several times over the years (collectively,the “Financial
Policies”);and
WHEREAS,the City’s Chief Financial Officer and City Manager are recommending
amendments to three of the current Financial Policies;and
WHEREAS,the City is committed to sound and efficient financial planning and
management consistent with the best practices as established by the Government Financial
Officers Association (“GFOA”);and
WHEREAS,“Financial Management Policy 5 —Fund Balance Policy,”with its
recommended amendments,is attached and incorporated by reference as Exhibit “A”(the “Fund
Balance Policy”);and
WHEREAS,the Fund Balance Policy is being recommended for amendment to change the
minimum fund balance for the City’s Benefits Fund from 30%to 25%;and
WHEREAS,“Financial Management Policy 7 —Debt,”with its recommended
amendments,is attached and incorporated herein by reference as Exhibit “B”(the “Debt Policy”);
and
WHEREAS,the Debt Policy is being recommended for amendment to clarify in Section
7.3 when equipment leases can be used and to clarify parameters for conduit debt,to remove from
Section 7.4 language regarding capitalization of interest to comply with new accounting standard,
to include in Section 7.8 the Inter-Agency Loan Program provisions now found in Section 8.8 of
Financial Management Policy 8-Investments,and to designate in Section 7.9 additional items to
be included in future Debt Administration Policy;and
WHEREAS,“Financial Management Policy 8 —Investment”with its recommended
amendments,is attached and incorporated by reference as Exhibit “C”(the “Investment Policy”);
and
WHEREAS,the Investment Policy is being recommended for amendment to clean up
language in Section 8.1,to clarify in Section 8.6 that no split ratings will be allowed on purchased
investments,to rename the heading of Section 8.7 to eliminate duplicative heading with Section
8.6,to increase in Section 8.7 the amount allowed in local government investment pools from 20%
to 60%,and to remove the provisions for the Inter-Agency Loan Program from Section 8.8 that
are being moved to Section 7.8 of the Debt Policy;and
—1—
WHEREAS,the Council Finance Committee has reviewed the Fund Balance Policy,the
Debt Policy,and the Investment Policy,as they have been amended,and recommends that City
Council approve each of them;and
WHEREAS,the City Council wishes to amend the Financial Polices,as most recently
updated by Council on January 19,2021,in Resolution 2021-010,by adopting the Fund Balance
Policy,the Debt Policy,and the Investment Policy,to now read as shown in Exhibits “A,”“B,”
and “C,”respectively,in pursuit of the City’s objectives of sound and efficient financial planning
and management consistent with GFOA’s best practices.
NOW,THEREFORE,BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT
COLLINS,as follows:
Section 1.That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2.That the City Council hereby approves and adopts the Fund Balance Policy,
the Debt Policy,and the Investment Policy,as amended by this Resolution,to now read as shown
in Exhibits “A”,“B,”and “C,”respectively.
Section 3.That except for the amendments of the three Financial Policies as provided
in this Resolution,all other Financial Policies shall remain unchanged and in full force and effect
until the same are amended or repealed by subsequent action of the City Council.
Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 7th
day of February 7,2023.4 4
‘‘I
ATTEST:/
O.r
EXHIBIT A
Financial Management Policy 5 Issue Date:01/12/21
Version:5Ia.Issued by:City Council
Objective:
To set minimum fund balances as to mitigate risk,maintain good standing with rating agencies,and ensure
cash is available when revenue is unavailable.The policy sets minimum fund balances,not targets or
maximum balances.Each fund should be evaluated by staff to determine the apprapriateness of
maintaining fund balances above the minimums set in this policy.Contingencies for severe weather,
prolonged drought,and anticipated capital spending should be considered independently from this policy.
Applicability:
Funds—This policy applies to all City funds.It does not apply to URA,DIM,PM and Library.
Authorized by:
City Council Resolutions 1994-174,2008-038,2014-058,2017-101,2021-010,2023-xxx
5.1 Governmental Funds and Fund Balances
To set minimum fund balances so as to mitigate risks,maintain good standing with
rating agencies,and ensure cash is available when revenue is unavailable.The policy
sets minimum fund balances,not targets or maximum balances.Each fund should be
evaluated by staff to determine the appropriateness of maintaining fund balances above
the minimums set in this policy.Contingencies for severe weather,prolonged drought,
and anticipated capital spending should be considered independently from this policy.
The Equity on balance sheet of a governmental fund is called Fund Balance.The current
classifications of Fund Balance in governmental funds are primarily based on the origin
of the constraints.The following categories are in decreasing order of constraints.
Non-Spendable Permanent endowments or assets in a non-liquid form
Restricted Involve a third party:State Legislation or
Contractual Agreements
Committed Set by formal action of the City Council
Assigned By staff,and/or residual balances in a Special Revenue Fund
Unassigned Remaining balances in governmental funds
Financial Policy 5 —Fund Balance Minimums I
EXHIBITA
Minimums outlined in section .relate only to Assigned and Unassigned balances.
5.2 Proprietary Fund and Working Capital
Internal Service Funds and Enterprise Funds are accounted for nearly identical to the
private sector.The balance sheets include long term assets and long-term liabilities.
The resulting Equity section on their balance sheet called Net Position,is not always a
good measure of spendable financial resources.To get to spendable financial resources,
a common calculation is to take Current Assets and subtract Current Liabilities,with the
net result called Working Capital.
To further refine,for purposes of this policy,certain required restrictions are further
subtracted and result in Available Working CaDital.Some examples of required
restrictions are unspent monies for Art in Public Places,Water Rights,and existing
appropriations for capital projects.The minimums outlined in section 5.3 relate to
Available Working Capital.
5.3 Minimum Balances
The following Minimum Balances refers to Assigned and Unassigned Fund Balances in
governmental funds and Available Working Capital in the Internal Service Funds and
Enterprise Funds.
A.General Fund
60 Day Liquidity Goal -The Commitment for Contingency should be at least 60 days
(17%)of the subsequent year’s originally adopted budgeted expenditures and transfers
out The calculation for the minimum level shall exclude expenditures and transfers out
for large and unusual one-time items.
Important note —the 60 Day Liquidity Goal is in addition to the Emergency Reserves
required by Article X,Section 20(5)of the State Constitution.This reserve must equal
3%of non-exempt revenue and can only be used for declared emergencies.Fiscal
emergencies are specifically excluded by the State Constitution as qualifying use of this
reserve.
B.Special Revenue Funds
No minimum balance is required.
Financial Policy 5 -Fund Balance Minimums 2
EXHIBIT A
C.Debt Service Funds
No minimum balance is required.
D.Capital Project Funds
No minimum balance is required.
E.Enterprise Funds
Enterprise funds focus on working capital rather than fund balance.
Enterprise Funds shall maintain a minimum Available Working Capital equal to 25%of
Operating Expenses,less Depreciation.Exceptioni:In the case of L&P,operating
expenses will include purchased renewable energy for resale but will not include
regular purchased power for resale (i.e.Platte River Power Authority).Exception 2:In
the case of Golf,the minimum fund balance will be 12.5%.
Important note-.The Water Fund holds a balance for Restricted Water Rights.The
balance equals the amount of cash in-lieu-of water rights payments and raw water
surcharges less any expenses for acquiring water rights and water storage;
The enterprises funds should also be accumulating available working capital above
these minimums for the purposes of funding future capital projects.
F.Internal Service Funds
Each fund is a unique operation and will maintain a minimum Available Working Capital
as follows:
601 Equipment Fund 8.3%Of annual operating expenses,excluding
depreciation
602 Self-Insurance Fund *25.0%Of annual operating expenses
603 Data &Communications 0.0%N/A
Fund
604 Benefits Fund 25.0%Of annual medical and dental expenses
605 Utility Customer Service 0.0%N/A
Fund
*Self Insurance Fund will be measured against Available Unrestricted Net Position
instead of Available Working Capital.
Financial Paliq.’5 -~F~.md IJalance Minimums 3
EXHIBITA
5.4 Below Minimum
When circumstances result in balances below the minimum,staff should develop a plan
to restore minimums fund balances and present it to Council Finance Committee.
Financial Policy 5 —Fund Balance Minimums 4
EXHIBITA
Definitions
Non-Spendable Fund Balances:Applicable to governmentalfunds.Permanent endowments or assets in a
non-liquid form such as long-term inter-agency loans.
Restricted Fund Balances:Applicable to governmentalfunds.Involve a third party such as State
Legislative requirements~voter ballot language,or the Contractual Agreements with parties
external to the City.
Committed Fund Balances:Applicable to governmental funds.Involve a of formal action by the City
CounciL An example is traffic calming revenues are required to be spent on traffic calming
activities.Any unspent monies at end ofyear are classified as Committed to traffic calming in the
General Fund.
Assigned Fund Balances:Are applicable to governmental funds.Assignments can be made by senior
management They represent the intent to use the monies for a specific purpose.An example of this
it this the one-time Harmony Road monies transferred by the State to the City.Although required to
be used on Harmony Road,staff intends to use the monies only on Harmony Road improvements.
These monies are considered when measuring compliance with minimum fund balances.
Unassigned Fund Balances:Are applicable only to the governmentalfunds.These monies are considered
when measuring compliance with minimum fund balances.
Working Canital:Is a term applicable to Internal Service and Enterprise Funds.It is the difference
between Current Assets and Current Liabilities.Not all Working Capital is available.Available
Working Capital does not include Restrictions for debt,Art in Public Places,approved capital
appropriations,and other restrictions.
Unrestricted Net Position:Is a term applicable to Internal Service and Enterprise Funds.Not all
Unrestricted Net Position is available.Available Unrestricted Net Position does not include unused
Art in Public Places monies,approved capital appropriations,and other commitments.
Liquidity:Assets range from cash to land.The more easily and quickly an asset can be converted to cash
determines its relative liquidity.
Reserves:A legacy term that previously referred to fund balances,or fund balances set aside fora specific
purpose.It is no longer used on financial statements.
Fund Balance:Is a term applicable to governmental funds.Fund balance or Equity is the difference
between assets ,liabilities,deferred outflows of resources and deferred inflows of resources.Since
governmentalfunds do not have long term assets and long-term debt on their balance she et,fund
balance is similar and approximates working capital in the private sector and enterprise funds.
Financial Policy 5 -Fund Balance Minimums
EXHIBITA
I Getting Help
Please contact the Controller with any questions at 970.221,6772.
Financial Policy S —Fund Balance Minimums 6
EXHIBIT B
Financial Management Policy 7 Issue Date:XXXX
Version:2SIssuedby:City Council
Objective:
The purpose of this policy is to establish parameters and provide guidance governing the issuance
of all debt obligations issued by the City of Fort Collins (City).
Applicability:
This debt policy applies to allfunds and Service Areas of the City and closely related agencies such
as the Downtown Development Authority (DDA),Fort Collins Leasing Corporation and the Fort
Collins Urban Renewal Authority (URA).
Authorized by:
City Council Resolutions,1994-174,2013-093,2023-xxx
7.1 Authorization for Municipal Borrowing
The City Charter (Article V.Part II)authorizes the borrowing of money and the issuance of long-term
debt.The Charter and State Constitution determine which securities may be issued and when a vote
of the electors of the City and approved by a majority of those voting on the issue.
7.2 Purpose and Uses of Debt
Long term obligations should only be used to finance larger capital acquisitions and/or construction
costs that are for high priority projects.Debt will not be used for operating purposes.Debt financing
of capital improvements and equipment will be done only when the following conditions exist:
a)When non-continuous projects (those not requiring continuous annual appropriations)
are desired;
b)When it can be determined that future users will receive a significant benefit from the
improvement;
c)When it is necessary to provide critical basic services to residents and taxpayers (for
example,purchase of water rights);
d)When total debt,including that issued by overlapping governmental entities,does not
constitute an unreasonable burden to the residents and taxpayers.
Financial Policy 7—Debt I
EXHIBITA
7.3 Types of Debt and Financing Agreements
The types of debt permitted are outlined in State statute.The City will avoid derivative type
instruments.In general the following debt types are used by the City:
a)General obligation bonds—backed by the credit and taxing power of the City and not
from revenues of any specific project Colorado law limits general obligation debt to
10%of the City’s assessed valuation.Under TABOR this type of debt must be approved
by voters.
b)Revenue Bonds—issued and backed by the revenues of a specific project tax
increment district (TIF),enterprise fund,etc.The holders of these bonds can only
consider this revenue source for repayment.TABOR does not require that voters
approve these types of debt
c)Lease Purchase —issued whereby the asset acquired is used as collateral.Examples
include Certificates of Participation (COP),Assignment of Lease Payments (ALP)and
equipment leases.Equipment leases shall be limited to financing within Internal
Service Funds.TABOR does not require that voters approve these types of
agreements.
d)Moral Obligation Pledge—a pledge to consider replenishing a debt reserve fund of
another government agency if the reserve was used to make debt payments.This type
of commitment will only be used to support the highest priority projects,or when the
financial risk to the City does not increase significantly,or when the City’s overall
credit rating is not expected to be negatively impacted.Because it is a pledge to
consider replenishing,it is not a pledge of the City’s credit and as such is not a
violation of State statutes and City Charter.However,decision makers should keep in
mind that not honoring a Moral Obligation Pledge will almost certainly negatively
impact the City’s overall credit rating.TABOR does not require that voters approve
these types of agreements.
e)Interagency Borrowing—issued when the credit of an agency (DDA,URA)of the City
does not permit financing at affordable terms.Usually used to facilitate a project until
the revenue stream is established and investors can offer better terms to the agency.
Program parameters are outlined in section 7.8 of this policy.TABOR does not
require that voters approve these types of agreements.
t]Conduit Debt—Typically limited to Qualified Private Activity Bonds (PAB)defined by
the IRS and limited to the annual allocation received from the State.Low income
housing is one example of a qualified use of PAB.Program parameters are outlined
the General Financial Policy 3.6.There is no pledge or guarantee to pay by the City.
g)Any other securities not in contravention with City Charter or State statute.
7.4 Debt Structure and Terms
The following are guidelines,and may be modified by the City to meet the particulars of the
financial markets at the time of the issuance of a debt obligation:
Financial Policy 7-Debt 2
EXHIBIT A
a)Term of the Debt:The length of the financing will not exceed the useful life of the asset
or average life of a group of assets,or 30 years,whichever is less.Terms longer than
20 years should be limited to the highest priority projects.
b)Structure of Debt:Level debt service will be used unless otherwise dictated by the
useful life of the asset(s)and/or upon the advice of the City’s financial advisor.
c)Credit Enhancements:The City will not use credit enhancements unless the cost of the
enhancement is less than the differential between the net present value of the debt
service without enhancement and the net present value of the debt service with the
enhancement.
d)Variable Rate Debt:The City will normally not issue variable rate debt,meaning debt
at rates that may adjust depending upon changed market conditions.However,it is
recognized that certain circumstances may warrant the issuance of variable rate debt,
but the City will attempt to stabilize the debt service payments through the use of an
appropriate stabilization arrangement
e)Derivative type instruments and terms will be avoided.
7.5 Refinancing Debt
Refunding of outstanding debt will only be done if there is a resultant economic gain regardless of
whether there is an accounting gain or loss,or a subsequent reduction or increase in cash flows.
The net present value savings shall be at least 3%,preferably 5%or more.In an advanced
refunding (before the call date),the ratio of present value savings to the negative arbitrage costs
should be at least 2.
7.6 Debt Limitations and Capacity
Debt capacity will be evaluated by the annual dollar amount paid and the total amount outstanding
with the goal to maintain the City’s overall issuer rating at the very highest rating,AAA.Parameters
are different for Governmental Funds,Enterprise Funds,and Related Agencies.
a.Governmental Funds—Annual debt service (principal and interest)will not exceed
5%of annual revenues.For calculation,revenues will not include internal charges,
transfers and large one-time grants.Outstanding debt in relation to population and
assessed value will be monitored.
b.Enterprise Funds—Each fund is unique and will be evaluated independently.Each
fund’s debt will be managed to maintain a credit score of at least an A rating.These
funds typically issue revenue bonds and investors closely watch revenue coverage
ratio.Coverage ratios are usually published in the Statistical Section of the City’s
Comprehensive Annual Financial Statement.
c.Related Agencies—Each agency will be evaluated independently,taking into account
City Charter,State statutes,market conditions and financial feasibility.
Financial Policy 7 -Debt 3
EXHIBITA
7.7 Debt Issuance Process
When the City utilizes debt financing,it will ensure that the debt is soundly financed by:
a)Selecting an independent financial advisor to assist with determining the method of
sale and the selection of other financing team members
b)Conservatively projecting the revenue sources that will be used to pay the debt;
c)Maintaining a debt service coverage ratio which ensures that combined debt service
requirements will not exceed revenues pledged for the payment of debt.
d)Evaluating proposed debt against the target debt indicators.
7.8 Inter-agency Loan Program
1.Purpose:The purpose of the Inter-agency loan program is to support City
services,missions,and values by making loans to outside entities such as the
Urban Renewal Authority and the Downtown Development Authority while
maintaining an adequate rate of return for the City.
2.Eligible Applicants:The following are examples of situations in which City
loans to outside agencies may be appropriate:
A.An entity that was created wholly or in part by the City and is in a fledgling
stage and does not yet have an established credit history to access the
capital markets.Examples include the Urban Renewal Authority,etc.
B.An entity related to the City desires to issue debt that will be repaid over a
timeframe that would be unrealistic for a private lender.Examples include
bonds issued by the Downtown Development Authority for less than 10
years.
C.Any other situation in which the Council deems it appropriate to meet the
financing needs of an entity that is engaged in services that support the
mission and values of the City.
3.Program Guidelines:
A.The borrowing entity must have approval from its governing body.
B.The loan must be evidenced by a promissory note.
C.There must be a reasonable probability of repayment of the loan from an
identifiable source such as TIF revenues.
Financial Policy 7 —Debt 4
EXHIBIT A
D.The interest rate assigned to the loan must be the higher of the Treasury
Note or Municipal Bond of similar duration (3 year,5 year,etc.),plus 0.5%,
subject to the following minimum (floor).
FLOOR -Minimum Loan Rates
Term Rate
0 —5 years 2.75%
6—loyears 3.25%
11—lsyears 3.75%
16—25 years 4.00%
E.The loans must be limited to 25 years.
F.City Council must review the request and approve the amount and terms
and conditions of the loan.
G.Loans of Utility reserves must be reviewed by either the Energy Board or
Water Board,as applicable,in advance of City Council or Council
committee consideration,and must meet the following additional criteria:
a.the City Council must make a formal finding that the funds will not
be needed for utility purposes during the term of the loan,and that
the terms and conditions of the loan represent a reasonable rate of
return to the Utility;and
b.utility rates must not be increased for the purposes of funding the
loan.
4.Limit on Funds available for Loan Program
A.Governmental Funds:Total loans shall not exceed 25%of the aggregate
cash and investments balance of the governmental funds (i.e.,General
Fund and Special Revenue Funds).
B.Enterprise Funds:Total loans shall not exceed 5%of the aggregate cash
and investments balance in the enterprise funds (i.e.Utility Funds and
Golf Fund).
C.Operating and capital needs of the loaning funds shall not be significantly
impaired by these loans.
Financial Policy 7 -Debt S
EXHIBIT A
D.Loans should not impact the loaning funds compliance with minimum fund
balance policies,timing of intended uses,etc
7.9 Other
Debt Management -The City will also have an administratively approved Debt
Administration Policy and Procedure 53 that includes guidance on:
a)Investment of bond proceeds
b)Market disclosure practices to primary and secondary markets,including annual
certifications,continuing disclosures agreements and material event disclosures
c)Arbitrage rebate monitoring and filing
d)Federal and State law compliance practices
e)Ongoing Market and investor relations efforts
I)IdentifS’a Chief Compliance Officer
g)System of actions and deadlines
h)Records to be maintained
Getting Help
Please contact the Director ofAccounting with any questions at 970.221.6784.
Related Policies/References
-The City of Fort Collins Charter (Article V.,Part II)
-Investment Policy
-Debt Administration Policy and Procedures 53
Financial Policy 7 —Debt 6
EXHIBITA
Definitions
Conduit Debt:1-An organization,usually a government agency,that issues municipal securities to raise
capital for revenue-generating projects where the funds generated are used by a third party
(known os the “conduit borrower’9 to make payments to investors.The conduit financing is
typically backed by either the conduit borrower’s credit or funds pledged toward the project by
outside investors.If a project fails and the security goes into default,it falls to the conduit
borrower’s financial obligation,not the conduit issuer (City).2-Common types of conduit financing
include industrial development revenue bonds (IDRB5),private activity bonds and housing revenue
bonds (both for single-family and multifamily projects).Most conduit-issued securities are for
projects to benefit the public at large (i.e.airports,docks,sewage facilities)or specific population
segments (i.e.students,low-income home buyers~veterans).3-In some cases,a governmental entity
issues municipal bonds for the purpose of making proceeds available to a private entity in
furtherance of a public purpose,such as in connection with not-for-profit hospitals,affordable
housing,and many other cases.These types of municipal bonds are sometimes referred to as
“conduit bonds.”One common structure is for the governmental issuer to enter into an
arrangement with the private conduit borrower in which the bond proceeds are loaned to the
conduit borrower and the conduit borrower repays the loan to the issuer.For most conduit bonds,
although the governmental issuer of the bonds is legally obligated for repayment~that obligation
usually is limited to the amounts of the loan repayments from the conduit borrower.If the conduit
borrower fails to make loan repayments,the governmental issuer typically is not required to make
up such shortfalls.Thus,unless the bond documents explicitly state otherwise,investors in conduit
bonds should not view the governmental issuer as a guarantor on conduit bonds.
Credit Enhancements:the requirement that a certain percentage or amount of non-federal dollars or in-
kind services be provided in addition to the grant funds.
Interagency:the individual responsibleforfiscally managing the grant award and the person who
maintains the records in the City’sfinancial system.
Debt Service Coverage Ratio:is a common measure of the ability to make debt service payments.The
formula is net operating income (operating revenue —operating expense)divided by debt service
(annual principal and interest)
Financial Policy 7 -Debt 7
EXHIBIT C
Financial Management Policy 8 Issue Date:XXXX
Version:S
Issued by:City Council
Objective:
This policy is to establish guidelines for the efficient management of City funds and for the purchase and sale
of investments.The Cit/s principal investment objectives,in priority order are:legal conformance,safety,
liquidity and return on investment All investments shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio.
Applicability:
This investment policy applies to the investment of all general and specific funds over which the City
exercises financial control,including operating funds,Poudre Fire Authority,the Downtown Development
Authority,Poudre River Public Library District,Fort Collins Leasing Corpora don and the Fort Collins Urban
Renewal Authority.
Authorized by:
City Council,Resolutions 90-44,2008-121,2009-109,2010-065,2012-119.2023-xxx.
8.1 Policy
The City of Fort Collins,Colorado (the “City”)is a home rule municipality operating under
the City Charter.Article V.Part III of the City Charter assigns to the Financial Officer the
responsibility of investing City funds.Funds must be placed in investments authorized by
the City Council (“Council”).The Financial Officer will administer the investment program
to ensure effective and sound fiscal management.
It is the policy of the City to invest public funds in a manner which will protect capital and
meet liquidity needs while providing the highest investment return.
8.2 Scope
This policy is to establish guidelines for the efficient management of City funds and for the
purchase and sale of investments.This investment policy applies to the investment of all
general and special funds over which the City exercises financial control,including
operating funds,Poudre Fire Authority,the Downtown Development Authority,Poudre
Financial Policy 8 —Investments
EXHIBIT C
River Public Library District Fort Collins Leasing Corporation and the Fort Collins Urban
Renewal Authority.For purposes of this policy,operating funds include:
General Fund;
Special Revenue Funds;
Debt Services Funds (unless prohibited by bond ordinance);
Capital Projects Funds;
Enterprise Funds;
Internal Service Funds;
Trust and Agency Funds;and
Any newly created Fund,unless exempted by Council.
Unless specifically provided for in the bond ordinance,all bond proceeds,bond reserve
funds and pledged revenues must be invested in accordance with the operating funds
guidelines set forth in this Investment Policy.Guidelines for investing the funds of the City’s
defined benefit plan shall be included in the Investment Policy for the General Employees’
Retirement Plan,which is monitored and approved by the General Employees’Retirement
Committee.
8.3 Investment Objectives
The City’s principal investment objectives,in priority order,are:legal conformance,safety,
liquidity,and return on investment.All investments shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio.
1.Legal conformance:The investment portfolio will conform to all legal and
contractual requirements.
2.Safety:Safety of investment principal and the preservation of capital are
primary objectives of the investment program.When making investment
decisions,the Financial Officer will seek to ensure the preservation of capital
in the overall portfolio by mitigating credit risk and interest rate risk.
A.Credit Risk:The Financial Officer will minimize the risk of loss of principal
and/or interest due to the failure of the security issuer or backer by:
a.Limiting investments to the safest types of securities.
b.Pre-qualifying financial institutions,securities brokers and dealers,
and advisors.
c.Diversifying the investment portfolio to reduce exposure to any
one security type or issuer.
Interest Rate Risk:The Financial Officer will minimize the risk that the market value of
securities in the portfolio will fall due to changes in market interest rates by:
Financial Policy 8—Investments 2
EXHIBITC
a.Whenever possible,holding investments to their stated maturity
dates.
b.Investing a portion of the operating funds in shorter-term
securities,money market mutual funds,or local government
investment pools.
3.Liquidity:The investment portfolio must be sufficiently liquid so as to meet all
reasonably anticipated operating cash flow needs.This is accomplished by
structuring the portfolio so that securities mature to meet cash requirements
for ongoing operations.Investments shall be managed to avoid,but not
prohibit,sale of securities before their maturities to meet foreseeable cash
flow requirements.Since all possible cash needs cannot be anticipated,the
portfolio must consist largely of securities with active secondary or resale
markets.
4.Return on Investment:The investment portfolio will be designed with the
objective of maximizing the rate of return on investment while maintaining
acceptable risk levels and ensuring adequate liquidity.Return on investment
is of secondary importance compared to the safety and liquidity objectives
described above.Investment pooling may be used to maximize the City’s
investment income.Interest income,from pooling,will be distributed to the
participating funds in proportion to each fund’s level of contribution.
The Financial Officer will determine whether a security will be sold prior to
maturity.The following are examples of when a security might be sold:
a.A security with a declining credit rating may be sold early to minimize loss
of principal;
b.A security swap would improve the quality,yield,return,or maturity
distribution of the portfolio;
c.Liquidity needs of the portfolio require that the security be sold;or
d.The Financial Officer will obtain the best rate of return on investments by
taking advantage of market volatility and recognizing gains on a portion of
the portfolio.
8.4 Standards of Care
Prudence:The City has a fiduciary responsibility to protect the assets of the
City and to invest funds appropriately.The standard of care to be used by City
officials is the “prudent person”rule as specified by CR5 15-1-304,which
reads:
‘Standard for investments:In acquiring,investing,reinvesting,
exchanging,retaining,selling,and managing property for the benefit of
Financial Policy 8—Investments 3
EXHIBITC
others,fiduciaries shall be required to have in mind the responsibilities
which are attached to such offices and the size,nature,and needs of the
estates entrusted to their care and shall exercise the judgment and care,
under the circumstances then prevailing,which men of prudence,
discretion,and intelligence exercise in the management of the property of
anothen not in regard to speculation but in regard to the permanent
disposition offunds,considering the probable income as well as the
probable safety of capitaL Within the limitations of the foregoing
standard,fiduciaries are authorized to acquire and retain every kind of
property real,personal,and mixed,and every kind of investment
specifically including,but not by way of limitation,bonds,debentures,
other corporate obligations,stocks,preferred or common,securities of any
open-end or closed-end management type investment company or
investment trust and participations in common trust funds,which men of
prudence,discretion,and intelligence would acquire or retain for the
account of another.”
The Financial Officer and designees,acting within the guidelines of this
investment policy and written procedures,the City Charter and Code,all
applicable state and federal laws and after exercising due diligence,will not be
held personally liable and will be relieved or personal responsibility for an
individual security’s credit risk or market price changes,or for losses incurred
as a result of specific investment transactions or strategies.(CRS 24-75-601.4,
etseq.)
2.Ethics and Conflicts of Interest:City officers and employees involved in the
investment process will refrain from personal business activity that could
conflict with the proper execution and management of the investment
program,or that could impair their ability to make impartial decisions.
Employees and investment officials must disclose any material interests in
financial institutions with which they conduct business.They must further
disclose any personal financial and investment positions that could be related
to the performance of the City’s investment portfolio.In addition they must
adhere to the rules of conflicts of interest as stated in Art.IV,Section 9(b)of
the Charter of the City of Fort Collins,Colorado.
3.Delegation ofAuthority:The City Charter assigns the responsibility for the
collection and investment of all city funds to the Financial Officer,subject to
direction from Council by ordinance or resolution.The Financial Officer,
subject to City Manager approval,may appoint other members of the Finance
Department to assist in the investment function.
Administrative Procedures
Financial Policy B —investments 4
EXHIBIT C
a.The Financial Officer is responsible for all investment decisions
and activities,and must regulate the activities of subordinate
employees for the operation of the City’s investment program
consistent with this investment policy.
b.No person may engage in an investment transaction except as
provided under the terms of this Investment Policy and the
procedures established by the Financial Officer.
A.Authorized Designees
a.The Financial Officer will maintain a list of individuals and
institutions that are authorized to transfer,purchase,sell and wire
securities or funds on behalf of the City.
b.This list will be provided to the securities broker or dealer or
financial institution prior to the City conducting any investment
transactions with the institution.
B.Investment Advisors
a.The Financial Officer has the discretion to appoint one or more
investment advisors,registered with the Securities and Exchange
Commission under the Investment Advisors Act of 1940,to assist
in the management of all or a portion of the City’s investment
portfolio.
b.All investments made through such investment advisors shall be
within the guidelines of this Investment Policy.
4.Investment Committee:The Investment Committee consists of the Financial
Officer and at least 2 other employees of the City that are knowledgeable in
the area of governmental investments.The Investment Committee,at the
discretion of the Financial Officer,may also include up to 2 private sector
investment or banking professionals.The purpose of the Investment
Committee shall be to provide advice to the Financial Officer regarding the
operation of the investment program.
8.5 Safekeeping and Custody
1.Authorized Securities Brokers and Dealers and Financial institutions
A.The Financial Officer will maintain a list of financial institutions authorized
to provide investment services.The Financial Officer will also maintain a
list of approved securities brokers and dealers.This list may include
“primary”dealers or regional dealers that qualif~’under Securities and
Exchange Commission (SEC)Rule 15C3-1.
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EXHIBIT C
B.All financial institutions and securities brokers and dealers who wish to
provide investment services to the City must supply the following (as
appropriate):
a.Current audited financial statements;
b.Completed securities broker and dealer questionnaire;
c.Proof of National Association of Securities Dealers certification and
registration in the State of Colorado;and
d.Certification of their review,understanding and agreement to
comply with the City’s Investment Policy.
C.Ifa financial institution or securities broker or dealer wishes to enter into
a repurchase agreement with the city,the institution must sign a Master
Repurchase Agreement approved as to form and content by the City
Attorney’s Office.
D.The Financial Officer must conduct an annual review of the financial
condition of authorized financial institutions and securities brokers and
dealers.
E.Investment transactions must be executed with an authorized financial
institution or securities broker or dealer except in the following
circumstances:
a.Commercial paper,banker acceptances and guaranteed investment
contracts maybe purchased and sold directly from the issuer;
b.Mutual funds and money market funds may be purchased,sold and
held directly with the funds;
c.Investments in local government investment pools may be
transacted directly with the pool;and
d.Bond refunding and lease escrow agreements will be executed as
provided in the bond and lease documents.
F.The Financial Officer will establish a safekeeping agreement with an
approved financial institution to act as a third party custodian.Investment
securities will be held for the City by the custodian.When applicable,the
Financial Officer shall establish a separate securities lending agreement
with the custodian bank.The selection of the City’s primary depository
and primary custodian will be made through the Citys competitive
Request for Proposals process.
2.Delivery versus Payment:All trades will be executed by delivery versus
payment to ensure that securities are deposited in an eligible financial
institution prior to the release of funds.Securities will be held by the City’s
third-party custodian as evidenced by safekeeping receipts.
Financial (‘011ev 8 —investments 6
EXHIBIT C
3.Internal Controls:The Financial Officer is responsible for establishing and
maintaining an internal control structure designed to provide reasonable
assurance that the assets of the city are protected from loss,theft or misuse.
8.6 Suitable and Authorized Investments
As a home rule city,the City may adopt a list of acceptable investment instruments differing
from those outlined in CR5 24-75-601.1.Pursuant to Article V of the City’s Charter the
Council has adopted the following Ordinances and Resolutions establishing the framework
under which the Financial Officer must conduct his duties:Ordinance 90,1993;Ordinance
108,1988,Resolution 85-134;and Resolution 82-70.Council may adopt additional
Ordinances or Resolutions that require modification of these investment tools.
1.Eligible Investments:City funds may be invested in the following:
A.Any securities now or hereafter designed as legal investment for
municipalities in any applicable statute of the State of Colorado;
B.Interest-bearing accounts or time certificates of deposit including
collateralized certificates of deposit and certificates of deposit through the
Account Registry Service,of financial institutions designated as
depositories for public moneys by the State of Colorado;
C.United States Treasury obligations for which the full faith and credit of the
United States are pledged for payment of principal and interest Such
securities will include but not be limited to:Treasury bills,Treasury notes,
Treasury bond and Treasury strips with maturities not exceeding five
years from the date of purchase;
D.Obligations issued by any United States government-sponsored agency or
instrumentality.Maturities may not exceed five years from the date of
purchase;
E.Obligations issued by or on behalf of the City;
F.Obligations issued by or on behalf of any state of the United States,
political subdivision,agency,or instrumentality thereof.At the time of
purchase the obligation shall have an investment grade rating of not less
than AA-from Standard &Poor’s,Aa3 from Moody’s Investors Service or
AA-from Fitch Ratings Service.The ratings must be not less than above for
all agencies rating the debt no split ratings are allowed;
G.Prime-rated bankers acceptances with a maturity not exceeding six
months from the date of purchase,issued by a state or national bank
which has a combined capital and surplus ofat least 250 million dollars,
whose deposits are insured by the FDIC and whose senior long-term debt
Financial Policy S —Investments 7
EXHIBIT C
is rated at the time of purchase at least AA-by Standard and Poor’s,Aa3 by
Moody’s Investors Service,or AA-by Fitch Ratings Service.The ratings
must be not less than above for all agencies rating the debt no split ratings
are allowed;
H.U.S.dollar denominated corporate notes or bank debentures.Authorized
corporate bonds shall be U.S.dollar denominated,and limited to
corporations organized and operated within the United States with a net
worth in excess of 250 million dollars.At the time of purchase the
debenture or corporate note shall have an investment grade rating of not
less than AA-from Standard &Poor’s,Aa3 from Moody’s Investors Service
or AA-from Fitch Ratings Service.The ratings must be not less than above
for all agencies rating the debt,no split ratings are allowed;
Prime-rated commercial paper with a maturity not exceeding six months
issued by U.S.corporations.At the time of purchase the paper shall be
rated Al by Standard and Poor’s and P1 by Moody’s Investors Service.If
the commercial paper issuer has senior debt outstanding,the senior debt
must be rated at the time of purchase at least AA-by Standard and Poor’s
or Aa3 by Moody’s Investors Service;
J.Guaranteed investment contracts of domestically-regulated insurance
companies having a claims-paying ability rating ofAA-or better from
Standard &Poor’s at the time of purchase;
K.Repurchase and reverse repurchase agreements.The structure of the
agreements (including margin ratios and collateralization)shall be
contained in the Master Repurchase Agreements.Repurchase agreements
shall include but are not limited to delivery-versus-payment,tn-party and
flexible repurchase agreements;
L.Local government investment pools authorized under the laws of the State
of Colorado with a rating of AAAm;and
M.Money market mutual funds regulated by the Securities and Exchange
Commission and whose portfolios consist only of dollar denominated
securities.
2.Repurchase Agreements
A.Before any repurchase agreements shall be executed with an authorized
securities broker or dealer or financial institution,a Master Repurchase
Agreement approved as to form and content by the City Attorney’s Office
must be signed between the City and the securities broker or dealer or
financial institution.
B.The Financial Officer will maintain a file of all Master Repurchase
Agreements.
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EXHIBIT C
C.In addition to the straight forward repurchase agreement wherein the
financial institution or securities broker or dealer delivers the collateral
versus payment to the City’s custodian for a fixed term at a fixed rate,the
City may enter into other types of repurchase agreements which may
include but not be limited to flexible repurchase agreements,tn-party
agreements and reverse repurchase agreements.
D.Repurchase agreements must be collateralized as provided in individually
executed Master Repurchase Agreements at a minimum of 102 percent.
B.Zero coupon instruments will not be accepted as collateral.
F.The collateralized securities of the repurchase agreement can include but
are not limited to:U.S Treasuries,Collateralized Mortgage Obligations or
Agency securities.
8.7 Diversification and Liquidity
1.Diversification andAsset Allocation:It is the intent of the City to diversify its
investment portfolio.Investments shall be diversified to eliminate the risk of
loss resulting from over-concentration of assets in a specific maturity,issuer
or class of securities.Diversification strategies and guidelines shall be
determined and revised periodically by the Financial Officer.The investments
may be diversified by:
A.Limiting investments to avoid over-concentration in securities from a
specific issuer or business sector (excluding U.S.Treasury securities);
B.Limiting investment in securities that have higher credit risks;
C.Investing in securities with varying maturities;and
D.Maintaining a portion of the portfolio in readily available funds such as
local government investment pools,money market funds or short term
repurchase agreements to ensure that City liquidity needs are met
The maximum investment allowable for each investment category as a
percentage of the entire portfolio is as follows (excluding collateral for
repurchase agreements):
CASH AND CASH EQUIVALENTS 100%
TREASURY SECURITIES 90%
GOVERNMENT-SPONSORED AGENCY SECURITIES 90%
REPURCHASE AGREEMENTS 70%
LOCAL GOVERNMENT INVESTMENT POOLS 60%
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EXHIBIT C
CORPORATE NOTES OR BONDSt 40%
BANK DEBENTURES*25%
COMMERCIAL PAPERt 25%
BANKER’S ACCEPTANCESt 25%
MONEY MARKET FUNDS
AND MUTUAL FUNDS 15%
CD ACCOUNT REGISTRY SERVICE
(MAXIMUM SO MILLION)15%
CERTIFICATES OF DEPOSIT 15%
GUARANTEED INVESTMENT CONTRACTS 5%
tA maximum of 10 percent of the portfolio maybe invested in any one
provider or issuer.
2.Investment Maturity and Liquidity
A.A portion of the portfolio should be continuously invested in readily
available funds such as local government investment pools,money market
funds,or short-term repurchase agreements to ensure that appropriate
liquidity is maintained to meet ongoing obligations.The City must at all
times maintain 5 percent of its operating investment portfolio in
instruments maturing in 120 days or less.
B.Reserved funds may be invested in securities exceeding 5 years if the
maturities of such investments are made to coincide as closely as possible
with the expected use of funds.
C.The weighted average final maturity limitation of the total portfolio,
excluding pension funds and long-term reserve funds,will not exceed 3
years.
D.The City may collateralize repurchase agreements with longer-dated
investments,final maturity not to exceed 30 years.
8.8 Reporting
1.Methods:The Financial Officer will prepare an investment report on a
quarterly basis.In addition,a comprehensive investment report may be
published on the City’s website on an annual basis.All investment reports will
be submitted in a timely manner to the City Manager.
2.Performance Standards:The investment portfolio will be managed in
accordance with the parameters specified within this Investment Policy.The
Financial Officer will establish a benchmark yield for the City’s investments
Financial Policy 8 —Investments JO
EXHIBITC
equal to the average yield on the U.S.Treasury security which most closely
corresponds to the portfolio’s actual weighted average maturity.In order to
determine the actual rate of return on any portion of the portfolio managed by
an investment advisor,the Financial Officer must include all of the advisor’s
expenses and fees in the computation of the rate of return.
3.Marking to Market:The market value of the portfolio will be calculated at
least quarterly and a statement of the market value will be included in the
quarterly investment report.
8.9 Policy Adoption
This Investment Policy will be reviewed at least every three years by the Investment
Committee,City Manager and the Financial Officer and may be amended by Council as
conditions warrant The Investment Policy may be adopted by Resolution of the Council.
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EXHIBIT C
Definitions
Agency:A bond,issued by a U.S.government-sponsored agency.The offerings of these agencies are backed
by the U.S.government,but not guaranteed by the government since the agencies are private
entities.Such agencies have been set up in order to allow certain groups af people to access low cost
financing,especially students and first-time home buyers.Same prominent issuers of agency bonds
are Student Loan Marketing Association (Sallie Mae),Federal National Mortgage Association (Fannie
Mae)and Federal Home Loan Mortgage Corparatian (Freddie Mac).Agency bonds are usually exempt
from state and local taxes,but not federal tax.
Avera2e Life:The length of time that will pass before one-ha If of a debt obligation has been retired.
Bankers’Acceptance:A short-term credit investment which is created by a nan-financial firm and whose
payment is guaranteed by a bank.Often used in importing and exporting,and as a money market
fund investment.
Benchmark:A comparative base far measuring the perfarmance or risk tolerance of the investment
portfolio.A benchmark should represent a close correlation to the level of risk and the average
duration of the portfolio’s investments.
Book Value:The value at which a security is carried on the inventory lists or other financial records of an
investor.The book value may differ significantly from the security’s current value in the market
Broker:An individual who brings buyers and sellers together for a commission.
Cash Sale/Purchase;A transaction which calls for delivery and payment of securities on the same day that
the transaction is initiated.
Certificate of Deposit ICD1:A time deposit with a specific maturity evidenced by a certificate.
Collateralization:Process by which a borrower pledges securities,property,or other deposits for the
purpose of securing the repayment of a loan and/or security.
Commercial Paper:An unsecured short-term promissory note issued by corporations,with maturities
ranging from 2 to 270 days.
Counon Rate;The annual rate of interest received by an investor from the issuer of certain types offixed
income securities.Also known as the “interest rate’
Credit Ouality:The measurement of the financial strength of a bond issuer.This measurement helps an
investor to understand an issuer’s ability to make timely interest payments and repay the loan
principal upon maturity.Generally,the higher the credit quality of a bond issuer,the lower the
interest rate paid by the issuer because the risk of default is lower.Credit quality ratings are
provided by nationally recognized rating agencies.
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EXHIBIT C
Credit Risk:The risk to an investor that an issuer will default on the payment of interest and/or principal
on a security.
Current Yield (Current Returnl:A yield calculation determined by dividing the annual interest received
on a security by the current market price of that security.
Debenture:A bond secured only by the general credit of the issuer.
Delivery versus Pavnient (DVPI:A type of securities transaction in which the purchaser pays for the
securities when they are delivered either to the purchaser or to their custodian.
Diversification:A process of investing assets among a range of security types by sector,maturity,and
quality rating.
Duration: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.
Federal DeDosit Insurance Cornoration (FDIC):A federal agency that insures deposits in member banks
and thrifts up to $100,000 ($250,000 through 12/31/2013).
Federal Funds:Funds placed in Federal Reserve banks by deposito~y 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.
Federal Funds Rate:The interest rate that banks charge each other for the use of Federalfunds.
Government Securities:An obligation of the 11.5.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 U.S.securities market
Green Investments:Mutualfunds that are considered ‘ethical investments.”These funds screen
companies to ensure that they have sound environmental practices such as:maintaining or
improving the environment,industrial relations,racial equality community involvement,education,
training,healthcarc and various other environmental criteria.Negative screens include but are not
limited to:alcohol,gambling,tobacco,irresponsible marketing,armaments,pornography,and
animal rights.
Interest Rate Risk: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.
Investment-grade Oblieations:An investment instrument suitable for purchase by institutional investors
under the prudent person rule.Investment-grade is restricted to those obligations rated BBB or
higher by a rating agency.
Financial Policy 8 —Investments 13
EXHIBIT C
Liquidity:An asset that can be converted easily and quickly into cash without a substantial loss of value.
Local Government Investment Pool (LGIfl:An investment by local governments in which their money is
pooled as a method for managing localfunds.
Mark-to-Market:The process whereby the boak value or collateral value of a security is adjusted to reflect
its current market value.
Market Value:Current market price of a security.
Master Renurchase Agreement:A written contract covering allfuture transactions between the parties
to repurchase and reverse repurchase.Establishes each part/s rights in the transaction.
Maturity:The date on which payment of a financial obligation is due.The final state maturity is the date
on which the issuer must retire a bond and pay the face value to the bondholder.
Money Market Mutual Fund:Mutualfunds that invest solely in money market instruments (short-term
debt instruments,such as Treasury bills,commercial paper,bankers’acceptances,repurchase
agreements,and federalfundsj.
Mutual Fund:An investment company that pools money and can invest in a variety of securities,including
fixed-income securities and money market instruments.Mutual funds are regulated by the
investment company Act of 1940 and must abide by the Securities and Exchange Commission (SEC)
disclosure guidelines.
National Association of Securities Dealers INASEY1:A self regulatory organization of brokers and
dealers in the over-the-counter securities business.Its regulatory mandate includes authority over
firms that distribute mutualfund shares as well as other securities.
Net Asset Value:The market value of one share ofan investment company,such as a mutual fund.This
figure is calculated by totaling a fund’s assets which includes securities,cash,and any accrued
earnings,subtracting this from the fund’s liabilities and dividing this total by the number of shares
outstanding.This is calculated once a day based on the closing price for each security in the fund’s
portfolio.
No Load Fund:A mutualfund which does not levy a sales charge on the purchase of its shares.
Portfolio:Collection of securities held by an investor.
Primary Dealer:A group ofgovernment securities dealers who submit daily reports of market activity and
positions and monthly financial statements to the Federal Reserve Bank of New York and are
subject to its informal oversight
Real Estate Investment Trust (RElT~:A company that buys,develops,manages and sells real estate
assets.Allows participants to invest in a professionally monaged portfolio of real-estate properties.
The main function is to pass profits on to investors;business activities are generally restricted to
generation of property rental income.
Financial Policy 8 —Investments 14
EXHIBIT C
Repurchase Mreement (Renol: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.
Reverse Renurchase Agreement:An agreement of one party to purchase securities at a specified price
from a second party and a simultaneous agreement of the first party to resell the securities at a
specified price to the second party on demand or at a specified date.
Rule Za-7 of the Investment Company Act:Applies to all money market mutualfunds and mandates
such funds to maintain certain standards,including a 13-month maturity limit and a 90-day
average maturity on investments,to help maintain a constant net asset value of one dollar ($1.00).
Securities and Exchanee Commission (SEC):Agency created by Congress to protect investors in
securities transactions by administering securities legislation.
Total Return:The sum of all investment income plus changes in the capital value of the portfolio.For
mutual finds,return on an investment is composed of share price appreciation plus any realized
dividends or capital gains.This is calculated by taking the following components during a certain
time period.(Price Appreciation)+(Dividends Paid)+(Capital Gains)=Total Return
Treasury Bills:Short-term U.S.government non-interest-bearing debt securities with maturities of
no longer than one year.
Treasury Bonds:Long-term U.S.government debt securities with maturities of more than ten years.
Currently,the longest outstanding maturity is 30 years.
Treasury Notes:Intermediate U.S.government debt securities with maturities of two to ten years.
Tn-party Repurchase Agreement:In a ‘normal repurchase’transaction there are two parties,the buyer
and the seller.A tn-party repurchase agreement adds a custodian as the third party to act as an
impartial entity to the repurchase transaction to administer the agreement and to relieve the buyer
and seller of many administrative details.
Weiehted Averne Maturity (WAM~:The average maturity of all the securities that comprise a portfolio.
Yield:The current rate of return on an investment security.Generally expressed as a percentage of the
security’s current price.
Yield Curve:A graphical representation that depicts the relationship at a given point in time between
yields and maturity for bonds that are identical in every way except maturity.A normal yield curve
may be alternatively referred to as a positive yield curve.
Yield-to-Maturity:The rate of return yielded by a debt security held to maturity when both interest
payments and the investor’s potential capital gain or loss are included in the calculation of return.
Zero-Coupon Securities:A security that is issued at a discount and makes no periodic interest payments.
The rate of return consists of a gradual accretion of the principal of the security and is payable at
par upon maturity.
Financial Policy8 —Investments 15