United States Treasury SecuritiesINVESTMENT POLICY
HANNIBAL FREE
PUBLIC LIBRARY BOARD OF TRUSTEES
Adopted:
December 2, 2014
The purpose of this Investment
Policy for Hannibal Free Public Library is to maximize investments while keeping
safety at the highest respect. The
Library shall employ the “Prudent Person” standard.
That is: “investments shall be made with judgment and care, under
circumstances then prevailing, which a person of prudence, discretion, and
intelligence would 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.”
These policies are intended as
guidelines for the Library Board and the Library Director to follow in
structuring the investment portfolio, formulating investment strategies, and
making investment decisions. To
that end, these policies clarify roles and responsibilities, establish
parameters for permissible investments, and set forth principals of portfolio
diversification.
INVESTMENT OBJECTIVES
The Library's investments shall be actively
managed to promote the following objectives in relative order of priority: (1)
preserve the safety of capital, (2) maintain liquidity to meet anticipated cash
needs, (3) maximize return on investment, and (4) minimize reinvestment risk.
Safety:
The Library's primary objective is safety of capital.
Liquidity: The investment portfolio
will remain sufficiently liquid to enable the Library to meet
reasonably‑anticipated operating requirements. This is accomplished by
structuring the portfolio so that securities mature concurrent with cash needs
to meet anticipated demands.
Return
on Investment: The investment
portfolio shall be designed and managed to attain the highest possible return
throughout budgetary cycles, subject to the Library's statutory, investment
risk, cash flow and resource constraints.
The core of investments are limited to relatively low risk securities in
anticipation of earning a fair return relative to the risk being assumed.
Minimize Reinvestment Risk: The
investment portfolio shall be designed to minimize reinvestment risk by matching
investment maturities to the date in which funds are expected to be required for
expenditures.
Along those guidelines the
investment policy will establish and layout the following guidelines:
Delegation of
Authority
The Library Board President
shall appoint a member of the Library Board to act on the Investment Committee.
Together with the Library Director, the Investment Committee, by formal
approval of this investment policy, shall be authorized to carry out the
investment activities based on decisions made at monthly Library Board meetings.
When no quorum can be obtained at a monthly Library Board meeting, and an
investment decision is necessary, the Library Board shall delegate authority to
make the specific investment decision(s) to its Finance Committee.
The Library Board’s Treasurer shall act on the Investment Committee in
the absence of the Library Director.
The Library Director shall
maintain a computer database for all investment records and files containing key
investment data (e.g. date transaction number, copy of the sale/maturity ticket,
rationale for the purchase of the instrument and any maturity, or redemption
notices received.)
The Library Board can decide to
delegate duties to an external money manager, but authority or fiduciary
responsibility cannot be delegated.
Should there be delegation, the Investment Committee, particularly the Library
Director, should closely monitor the actions of these individuals to ensure they
are consistent with the Library’s investment policy and philosophy, and demand
that external managers provide timely reports that comply with the requirements
of the law.
Permitted Investments
In accordance with Missouri
Department of Revenue, Division 10 and Chapter 43, the following investments
will be the qualifying investments.
These investments, to the extent permitted by the law, include the following:
United States Treasury Securities
Unites States Agency Securities
Repurchase Agreements
Collateralized Public Deposits (CD’s)
Bankers’ Acceptances
Commercial Paper
US Government Agency Coupon and Zero Coupon
Securities
US Government Agency Discount Notes
US Government Agency Callable Securities
US Government Agency Step Up Securities
US Government Agency Floating Rate Securities
U S Government Mortgage Backed Securities
In addition, any depository
accounts in which the Library’s money may be held on a regular basis and happens
to bear interest may also be permitted.
Prohibited Investments
To provide for the safety and liquidity of the
Library’s funds, the investment portfolio will be subject to the following
restrictions:
Borrowing for
investment purposes (Leverage) is prohibited.
Derivative
securities that are, in effect, a leveraged bet on future movements of interest
rates or some price index.
Collateralized mortage obligations (CMO’s) because of their complexity and
prepayment rate uncertainty.
Collateralization Requirements
Collateralization will be required on two types of investments.
These are certificate of deposits (CD’s) and repurchase agreements.
In order to anticipate market changes and provide a level of security for
all funds, the market value (including accrued interest) of the collateral
should be at least 100%. For
certificate of deposits, the market value of collateral must be at least 100% or
greater of the amount of the certificate of deposit plus demand deposits with
the depository, less the amount, if any, which is insured by the Federal Deposit
Corporation, or the National Credit Unions Share Insurance Fund.
All securities, which serve as collateral against the deposits of a
depository institution, must be safe kept at a non-affiliated custodial
facility. Depository institutions
pledging collateral against deposits must, in conjunction with the custodial
agent, furnish the necessary custodial receipts within five business days from
the settlement date. Collateral
must always be kept at an independent third party location.
The following securities are hereby designated as acceptable collateral for
state funds on deposit, as required by RSMO 30.270.1:
Marketable Treasury Securities of the United
States
General obligation debt securities issued by the
State of Missouri
General obligation bonds of any city in this
state having a population of not less than two thousand
General obligation bonds of any county in this
state
General obligation bonds approved and registered,
of any school district situated in this state
General obligation bonds approved and registered,
of any special road district situated in this state
General obligation state bonds of any of the 50
states
Debt securities of the Federal Farm Credit System
or any of the banks of Cooperative, Federal Intermediate Credit Banks, or
Federal Land Banks
Debt securities of the Federal Home Loan Banks
(FHLB)
Debt securities of the Federal National Mortgage
Association (FNMA)
Debt securities of the Student Loan Marketing
Association (SLMA)
Debt securities of the Government National
Mortgage Association (GNMA).
Farmers Home Administration insured notes
Bonds of any political subdivision established
under the provisions of Section 30, Article VI, of the Constitution of Missouri
Tax anticipation notes issued by any county of
class one in Missouri
Library
Funds and Liquidity of Their Investment
The Library maintains several funds.
These currently include the Operating Fund, the Cash Flow Fund, the
Restricted Fund, the Unrestricted Fund, the Capital Outlay Fund, and the Helen
K. Garth Trust. The Library
Board may establish other funds as needs arise.
With the exception of certain accounts in the Restricted Fund, the
Library Board may move monies between funds as needs arise or the Library Board
deems such a move prudent.
1.
Maintenance of
the Operating Fund is delegated by
the Library Board to the City Collector and the City Finance Director.
The Fund is invested in a Money Market account to which revenues are
deposited and from which checks are cut to cover claims for expenditures.
This Money Market account can also be used to transfer cash to and from
the other Funds.
2.
Investment of the
Cash Flow Fund is short term.
Depending on projected operational needs, the investment may be six
months to two years. Maturities
must be laddered in such a manner that monies are available for expenditure when
needed. Interest earned is
deposited in the Operating Fund.
3.
Accounts in the
Restricted Fund were donated in
someone’s memory and/or were bequested.
The principal in some acounts is restricted by the will or testament;
other accounts are restricted by Library Board action.
Because interest on most investments in the Restricted Fund is used to
purchase books and other materials, a high rate of return should always be
sought. Also, annual, semi-annual,
or quarterly interest payments are necessary in this Fund.
Maturities should be laddered over two to five years to cushion the
Library’s Materials Budget from sudden shocks should interest rates change
dramatically.
4.
Monies in the
Unrestricted Fund have not been
designated by the Library Board for specific purposes.
The principal is held in reserve and kept for use when there are
disastrous events, calamities, or other special needs.
Although the Library Board decides annually when budgeting, interest from
the Unrestricted Fund should usually be rolled into the Unrestricted or Capital
Outlay Fund instead of transferred to the Operating Fund and used for general
purposes. This practice allows use
of the principal in the Unrestricted Fund should dire needs arise without any
impact on the Library’s operating budget.
Maturities of investments in the Unrestricted Fund should be laddered
over two to five years. Interest
may be paid quarterly, annually, or at the end of the investment term, depending
on the Library Board’s decision at the time of investment.
5.
Monies in the
Capital Outlay Fund, to date, have
derived from excess general revenue rather than from any property tax specific
to capital projects. This means
that the Library Board can decide to expend the principal and/or the interest
from this Fund on capital projects, building repairs, and/or other projects.
Maturities should be laddered over two to five years.
Interest may be paid quarterly, annually, or at the end of the investment
term, depending on the Library Board’s decision at the time of investment.
6.
The
Helen K. Garth Trust is administered
by a non-Library agent. It is
invested stocks and bonds. The
Library Board has access only to interest and dividends after fees to manage the
Trust are debited. The Library
Board decides annually how to use the interest and dividends.
In recent years, they have been transferred to the Capital Outlay Fund
and invested there.
Portfolio Diversification
The Library will diversify use of investment
instruments to avoid incurring unreasonable risks inherent in over investing in
specific instruments, individual financial institutions or maturities.
|
Diversification of Instrument |
Maximum % of Portfolio |
|
US Treasury Securities |
100% |
|
US Agency Securities |
100% |
|
Certificates of Deposits |
100% |
|
Bankers’ Acceptances |
30% |
|
Commercial Paper |
20% |
Following the guidelines set above, no more than
75% of Certificate of Deposits with one institution and no more than 50% of
Certificate of Deposits with one savings and loan institute.
Standards of Conduct
The Library's investment portfolio is subject to
public review and its investment program shall be designed and managed with a
degree of professionalism worthy of the public trust. The Library Director and
Library Board members involved in the investment program shall refrain from any
personal business activities that could impede the program's proper execution or
impair their ability to make impartial investment decisions.
They shall act responsibly as custodians of the public trust, avoid any
transaction that might impair public confidence in the Library, and disclose any
transaction or potential conflict that could be perceived to compromise the
Library's interests.
All persons authorized to place or approve
investments are prohibited from accepting meals, entertainment, or gifts from
any person employed by a firm with which the Library places or may place
investments. Exceptions to this prohibition are meals provided as part of a
meeting with the Library's depositary bank, or items of insubstantial value
which are available to the general public, such as a pen handed out at a
conference or meeting.
Reporting
The
Library Director shall generate and disseminate an Investment Report to the
Library Board monthly. The
Librarian’s Annual Narrative Report shall contain copies of the Investment
Reports issued in July and June of the Report’s fiscal year.
The report shall include a detail of the investment inventory which will
include the investment type, amount, issuing financial institution, maturity,
yield to maturity, current market value of Permitted Investments, interest rate
and income at maturity date. The
report shall also provide the collateral information for Certificate of
Deposits.
The Library Director shall generate and
disseminate a Cash Flow Needs Spreadsheet whenever reinvestment is under
consideration in Cash Flow and/or Unrestricted Funds.
This spreadsheet will show a needs projection of at least eighteen
months.
AUTHORITY
This policy expands on and replaces the pre-2007
section entitled “Investments” of the web document entitled “Financial
Policies.”
The Missouri Revised Statutes RSMO 182.800.1 (2014)
provides that
The governing board of any free
library district may invest funds of the district. The board may invest the
funds in either open time deposits for ninety days or certificates of deposit in
a depositary selected by the board, if the depositary has deposited securities
under the provisions of sections
110.010 and 110.020;
or in bonds, redeemable at maturity at par, of the state of Missouri, of the
United States, or of any wholly owned corporation of the United States; or in
other short term obligations of the United States. No open time deposits shall
be made or bonds purchased to mature beyond the date that the funds are needed
for the purpose for which they were received by the district. Interest accruing
from the investment of funds in such deposits or bonds shall be credited to the
library district fund from which the money was invested.
This policy has been adopted by the Hannibal
Free Public Library Board of Trustees under its statutory authority to invest
funds and establish rules for such investment.
Any modification made to the approved investment
policy must be approved by the Library Board.
This investment policy shall become effective upon its adoption; provided
that, the Library will not be required to dispose of any investment currently
held by the Library. Any investment
currently held that does not meet the guidelines of this policy, shall be
exempted from the requirements of this policy.
At maturity or liquidation, such investments shall be reinvested only as
provided by this policy.
The policy shall be reviewed annually by the
Investment Committee and recommended changes will be presented to the Library
Board for consideration.