The Board authorizes and appoints the superintendent [or business officer or treasurer] to serve
as investment officer of the school district ("district") to invest such surplus school district moneys
which are determined as not being immediately needed for operation of the district. The
superintendent shall follow procedures adopted by the Board in making investments and obtaining
the best interest rates possible. Collateralized investments will comply with the requirements of
the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.
This policy applies to the investment of all operating funds of the district.
1. Pooling of Funds
Except for cash in certain restricted and special funds, the district will consolidate
cash balances from all funds to maximize investment earnings. Investment income
will be allocated to the various funds based on their respective participation and in
accordance with the generally accepted accounting principles.
2. External Management of Funds
Investment through external programs, facilities and professionals operating in a
manner consistent with this policy will constitute compliance.
II. General Objectives
Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation
of capital in the overall portfolio. The objective will be to mitigate credit risk and
interest rate risk.
a. Credit Risk
The district will minimize credit risk, the risk of loss due to the failure of
the security issuer or backer, by:
► Pre-qualifying the financial institutions, brokers/dealers,
intermediaries, and advisors with which the district will do
► Diversifying the portfolio so that potential losses on individual
securities will be minimized.
b. Interest Rate Risk
The district will minimize the risk that the market value of securities in the
portfolio will fall due to changes in general interest rates, by:
► Structuring the investment portfolio so that securities mature to meet
cash requirements for ongoing operations, thereby avoiding the need
to sell securities on the open market prior to maturity.
► Investing operating funds primarily in shorter-term securities.
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
structuring the portfolio so that securities mature concurrent with cash needs to
meet anticipated demands (static liquidity). Furthermore, since all possible cash
demands cannot be anticipated, the portfolio should consist largely of securities
with active secondary or resale markets (dynamic liquidity). A portion of the
portfolio also may be placed in bank deposits or repurchase agreements that offer
same-day liquidity for short-term funds.
The investment portfolio shall be designed with the objectives of attaining a market
rate of return throughout budgetary and economic cycles, taking into account the
investment risk constraints and liquidity needs. Return on investment is of
secondary importance to the safety and liquidity objectives described above. The
core of investments are limited to relatively low risk securities in anticipation of
earning a fair return relative to the risk being assumed. Securities shall not be sold
prior to maturity with the following exceptions:
► A security with declining credit may be sold early to minimize loss of
► A security swap would improve the quality, yield, or target duration in the
► Liquidity needs of the portfolio require that the security be sold.
III. Standards of Care
The standard of care 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 officers acting in accordance with written procedures and
this investment policy and exercising due diligence shall be relieved of personal
liability for an individual security's credit risk or market price changes, provided
deviations from expectations are reported in a timely fashion to the governing body
and the liquidity and the sale of securities are carried out in accordance with the
terms of this policy.
Investments shall be made with moneys and care, under circumstances then
prevailing, which 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
2. Ethics and Conflicts of Interest
Officers and employees of the district involved in the investment process shall
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 shall disclose any
material interests in financial institutions in which they conduct business. They
shall further disclose any personal financial/investment positions that could be
related to the performance of the investment portfolio. Employees and officials
shall refrain from undertaking personal investment transactions with the same
individual with which business is conducted on behalf of the district.
3. Delegation of Authority
Authority and responsibility for management of the day-to-day operations of the
investment program may be granted to the superintendent or designee and/or an
external professional organization, including Missouri Securities Investment
Program ("MOSIP"). The investment officer shall ensure that the investment
program's operations are in accordance with the established written procedures and
internal controls for the operation of the investment program consistent with this
investment policy. Procedures should include references to: safekeeping, delivery
vs. payment, investment accounting, repurchase agreements, wire transfer
agreements, and collateral/depository agreements. No person may engage in an
investment transaction except as provided under the terms of this policy and the
procedures established by the investment officer.
IV. Investment Transactions
1. Authorized Financial Dealers and Institutions
A list will be maintained of financial institutions authorized to provide investment
transactions. In addition, a list also will be maintained of approved security
brokers/dealers selected by creditworthiness. These may include "primary" dealers
or regional dealers that qualify under Securities and Exchange Commission (SEC)
Rule 15C3-1 (uniform net capital rule).
All financial institutions and broker/dealers who desire to become qualified for
investment transactions must supply the following as appropriate:
► Audited financial statements.
► Proof of National Association of Securities Dealers, Inc. (NASD)
► Completed broker/dealer questionnaire.
► Certification of having read and understood and agreeing to comply with
the district's investment policy.
An annual review of the financial condition and registration of qualified financial
institutions and broker/dealers will be conducted by the superintendent or designee
and/or the designated external professional organization.
[Optional: From time to time, the investment officer may choose to invest or cause
or permit investments to be made in instruments offered by emerging or minority
firms and community financial institutions. In such situations, a waiver to the
criteria under Paragraph 1 may be granted by the governing body. All terms and
relationships will be fully disclosed prior to purchase and will be reported to the
governing body of the district on a consistent basis. The governing body of the
district should approve these types of investment purchases in advance.]
2. Internal Controls
The investment officer is responsible for establishing and maintaining an internal
control structure that will be reviewed annually with the district's independent
auditor. The internal control structure shall be designed to ensure that the assets
of the district are protected from loss, theft or misuse and to provide reasonable
assurance that these objectives are met. The concept of reasonable assurance
recognizes that (1) the cost of control should not exceed the benefits likely to be
derived and (2) the valuation of costs and benefits require estimates and moneys by
The internal controls shall address the following points:
► Control of collusion.
► Separation of transaction authority from accounting and record keeping.
► Custodial safekeeping.
► Avoidance of physical delivery securities.
► Clear delegation of authority to subordinate staff members.
► Written confirmation of transactions for investments and wire transfers.
► Development of a wire transfer agreement with the lead bank and third
3. Delivery vs. Payment
All trades where applicable will be executed by delivery vs. payment (DVP) to
ensure that securities are deposited in eligible financial institutions prior to the
release of funds. All securities shall be perfected in the name or for the account
of the district or MOSIP or other designated external professional organization and
shall be held by a third-party custodian as evidenced by appropriate safekeeping
V. Suitable and Authorized Investments
1. Investment Types
In accordance with and subject to restrictions imposed by current statutes, the
following list represents the entire range of investments that district will consider
and which shall be authorized for the investments of funds by the district.
a. Securities issued by State of Missouri -- The district may invest in
obligations of the Missouri State government for which the full faith and
credit of the State of Missouri are pledged for the payment of principal and
b. United States Treasury Securities -- The district may invest in obligations
of the United States government for which the full faith and credit of the
United States are pledged for the payment of principal and interest.
c. United States Agency Securities -- The district may invest in obligations
issued or guaranteed by any agency or any wholly owned corporation of the
United States Government as described in V (2).
d. Repurchase Agreements -- The district may invest in contractual agreements
between the district and commercial banks or primary government
securities dealers. The purchaser in a repurchase agreement (repo) enters
into a contractual agreement to purchase Treasury and government agency
securities while simultaneously agreeing to resell the securities at
predetermined dates and prices.
e. Collateralized Public Deposits (Certificates of Deposit) -- Instruments
issued by financial institutions which state that specified sums have been
deposited for specified periods of time and at specified rates of interest.
The certificates of deposit are required to be backed by acceptable collateral
securities as described in §§ 110.010 - .020, RSMo.
f. Bankers' Acceptances -- Time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers' acceptances. The district
may invest in bankers' acceptances issued by domestic commercial banks
possessing the highest rating issued by Moody's Investor Services, Inc. or
Standard and Poor's Corporation.
g. Commercial Paper -- The district may invest in commercial paper issued by
domestic corporations, which has received the highest rating issued by
Moody's Investor Services, Inc. or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that have total assets
in excess of five hundred million dollars ($500,000,000).
2. Security Selection: The following list represents the entire range of United States
Agency Securities that district will consider and which shall be authorized for the
investment of funds by the district. Additionally, the following definitions and
guidelines should be used in purchasing the instruments:
a. U.S. Govt. Agency Coupon and Zero Coupon Securities -- Bullet coupon
bonds with no embedded options.
b. U.S. Govt. Agency Discount Notes -- Purchased at a discount with
maximum maturities of one (1) year.
c. U.S. Govt. Agency Callable Securities -- Restricted to securities callable at
par only with final maturities of five (5) years.
d. U.S. Govt. Agency Step-Up Securities -- The coupon rate is fixed for an
initial term. At coupon date, the coupon rate rises to a new, higher fixed
term. Restricted to securities with final maturities of five (5) years.
e. U.S. Govt. Agency Floating Rate Securities -- The coupon rate floats off
one index restricted to coupons with no interim caps that reset at least
f. U.S. Govt. Mortgage Backed Securities -- Restricted to securities with final
maturities of five (5) years.
3. Investment Restrictions and Prohibited Transactions
To provide for the safety and liquidity of the district's funds, the investment
portfolio will be subject to the following restrictions:
a. Borrowing for investment purposes ("Leverage") is prohibited.
b. Instruments known as Structured Notes (e.g. inverse floaters, leveraged
floaters, and equity-linked securities) are not permitted. Investment in any
instrument, which is commonly considered a "derivative" investment (e.g.
options, futures, swaps, caps, floors and collars) is prohibited.
c. Contracting to sell securities not yet acquired in order to purchase other
securities for purposes of speculating on developments or trends in the
market is prohibited.
d. No more than 5% of the total market value of the portfolio may be invested
in bankers' acceptances issued by any one commercial bank and no more
than 5% of the total market value of the portfolio may be invested in
commercial paper of any one issuer.
Collateralization will be required on two (2) types of investments: certificates of
deposit 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 certificates of deposit, the
market value of collateral must be at least 100% or greater of the amount of
certificates 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 safekept 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 (5) business
days from the settlement date.
5. Repurchase Agreements
The securities for which repurchase agreements will be transacted will be limited
to Treasury and government agency securities that are eligible to be delivered via
the Federal Reserve's Fedwire book entry system. Securities will be delivered to
the district's designated Custodial Agent. Funds and securities will be transferred
on a delivery vs. payment basis.
VI. Investment Parameters
The investments shall be diversified to minimize the risk of loss resulting from over
concentration of assets in specific maturity, specific issuer, or specific class of
securities. Diversification strategies shall be established and periodically reviewed.
At a minimum, diversification standards by security type and issuer shall be:
a. U.S. treasuries and securities having principal and/or interest guaranteed
by the U.S. government -- 100%
b. Collateralized time and demand deposits -- 100%
c. U.S. Government agencies, and government sponsored enterprises -- No
more than 60%
d. Collateralized repurchased agreements -- 50%
e. U.S. Government agency callable securities -- No more than 30%
f. Commercial Paper and Bankers' Acceptances -- No more than 50%
2. Maximum Maturities
To the extent possible, the district shall attempt to match its investments with
anticipated cash flow requirements. Investments in bankers' acceptances and
commercial paper shall mature and become payable not more than 180 days from
the date of purchases. All other investments shall mature and become payable not
more than five (5) years from the date of purchase. The district shall adopt
weighted average maturity limitations that should not exceed three (3) years and is
consistent with the investment objectives.
Because of inherent difficulties in accurately forecasting cash flow requirements,
a portion of the portfolio should be continuously invested in readily available funds
such as in bank deposits or overnight repurchase agreements to ensure that
appropriate liquidity is maintained to meet ongoing obligations.
The investment officer shall prepare or cause to be prepared an investment report
at least quarterly, including a management summary that provides an analysis of
the status of the current investment portfolio and transactions made over the last
quarter. This management summary will be prepared in a manner that will allow
the district to ascertain whether investment activities during the reporting period
have conformed to the investment policy. The report should be provided to the
governing body of the district. The report will include the following:
► Listing of individual securities held at the end of the reporting period.
► Realized and unrealized gains or losses resulting from appreciation or
depreciation by listing the cost and market value of securities over one-year
duration (in accordance with Government Accounting Standards Board
(GASB) 31 requirements). [Note: This is only required annually.]
► Average weighted yield to maturity of portfolio on investments as compared
to applicable benchmarks.
► Listing of investment by maturity date.
► Percentage of the total portfolio which each type of investment represents.
2. Performance Standards
The investment portfolio will be managed in accordance with the parameters
specified within this policy. The portfolio should obtain a market average rate of
return during a market/economic environment of stable interest rates. A series of
appropriate benchmarks may be established against which portfolio performance
shall be compared on a regular basis.
Commercial paper and bankers' acceptances must be reviewed not less often than
monthly by the investment officer to determine if the rating level has changed. The
commercial paper and bankers' acceptances should be reviewed for possible sale
if the securities are downgraded below the minimum acceptable rating levels.
3. Marking to Market
The market value of the portfolio shall be calculated at least quarterly and a
statement of the market value of the portfolio shall be issued at least annually to the
Board. This will ensure that review of the investment portfolio, in terms of value
and price volatility, has been performed.
VIII. Policy Considerations
Any investment currently held that does not meet the guidelines of this policy shall
be exempt from the requirements of this policy. At maturity or liquidation, such
moneys shall be reinvested only as provided by this policy.
The policy shall be reviewed annually by the investment officer and recommended
changes will be presented to the Board for consideration.
* * * * * * *
Note: The reader is encouraged to check the index located at the beginning of this
section for other pertinent policies and to review administrative procedures
and/or forms for related information.
Legal Refs: §§ 30.260, 165.051, .091, 110.010 - .020, RSMo.
Mo. Const., Art. IV, § 15
12 U.S.C. § 1823(e)
St. Charles School District, St. Charles, Missouri
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