As a service to our clients we have provided sample document language that may be useful when preparing indentures and investment policies. Simply click on the links below to view the samples.

Click here to view sample Permitted Investments language

Click here to view sample Application of Reserve and Investment of Funds

Click here to view sample Investment Policy

Sample Permitted Investments Language: 
• Includes “rebate-exempt” Qualified Municipal Securities.
• Includes AAA rated non full faith and credit US Government Agency Securities.
• Includes commercial paper.

“Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Trustee is entitled to conclusively rely upon any direction of the Obligor as a certification that such investment constitutes a Permitted Investment):

A. Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. U.S. Export-Import Bank (Eximbank)
Direct obligations or fully guaranteed certificates of beneficial ownership
2. Farmers Home Administration (FmHA)
Certificates of Beneficial Ownership
3. Federal Financing Bank
4. Federal Housing Administration Debentures (FHA)
5. General Services Administration
Participation Certificates
6. Government National Mortgage Association (GNMA or Ginnie Mae)
GNMA - guaranteed mortgage-backed bonds
GNMA - guaranteed pass-through obligations
7. U.S. Maritime Administration
Guaranteed Title XI financing
8. U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Authority Bonds
New Communities Debentures - U.S. government guaranteed debentures
U.S. Public Housing Notes and Bonds - U.S. government guaranteed
public housing notes and bonds
 
C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any federal agencies which are not backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself) including but not limited to the following:

1. Federal Home Loan Bank System
Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
Participation Certificate
Senior debt obligations
3. Federal National Mortgage Association (FNMA or Fannie Mae)
Mortgage-backed securities and senior debt obligations
4. Student Loan Marketing Association (SLMA or Sallie Mae)
Senior debt obligations
5. Resolution Funding Corp. (REFCORP) obligations
6. Farm Credit System
Consolidated system wide bonds and notes

D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA-m; or AA-m and if rated by Moody’s rated Aaa, Aal, or Aa2.

E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks.  The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral.

F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF, or fully collateralized with securities in categories (A) and/or (B), above.

G. Investment Agreements, including GIC’s, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Insurer.

H. Commercial paper rated, at the time of purchase, “Prime -1” by Moody’s and “A-1” or better by S&P.

I. Bonds or notes issued by any state or municipality which are rated by Moody’s and S&P in one of the two highest rating categories assigned by such rating agencies.

J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of “Prime - 1” or “A3” or better by Moody’s and “A-l” or “A” or better by S&P.
K. Repurchase Agreements (“Repos”) for 30 days or less must follow the following criteria. Repos which exceed 30 days must be acceptable to the Insurer (criteria available upon request).

Repos provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date.

1. Repos must be between the municipal entity and a dealer bank or securities firm.
a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by S&P and A2 or better by Moody’s, or
b. Banks rated “A” or better by S&P and A2 or better by Moody’s.
2. The written repurchase agreement must include the following:
a. Securities which are acceptable for transfer are:
(1) Direct obligations of the United States of America referred to in Section A above, or
(2) Obligations of federal agencies referred to in Section B above
(3) Obligations of FNMA and FHLMC
b.   The term of the Repos may be up to 30 days.
c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee is (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities).
d.   Valuation of Collateral.
(1) The securities must be valued weekly, marked-to-market at current market price plus accrued interest.
(2) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by the municipal entity, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%.
3. A legal opinion which must be delivered to the municipal entity that states that the Repo meets guidelines under state law for legal investment of public funds.

Application of Moneys in Debt Service Reserve Fund 

Moneys held for the credit of the Debt Service Reserve Fund shall be used for the purposes first, of paying interest on the Bonds as the same becomes due, and second, of paying maturing principal of the Bonds, whether at the stated payment date or by mandatory redemption as aforesaid, whenever and to the extent that the moneys held for the credit of the Bond Fund and the Capital Replacement Fund, shall be insufficient for such purposes.

Moneys in the Debt Service Reserve Fund in an amount equal to the Debt Service Reserve Fund Requirement attributable to the Bonds shall be used in the final maturity of the outstanding bonds to pay the principal of and interest on the Bonds, unless otherwise required by the preceding paragraph.  Any balance remaining in the Debt Service Reserve Fund upon final payment of all Bonds shall be applied in accordance with the Indenture.

After valuation balances in the Reserve Fund in excess of the Reserve Requirement may, at the direction of the Obligor, be applied to the Bond Fund or transferred to the Obligor.

Investment of Moneys

Money held for the credit of the Project Fund shall, as nearly as may be practicable, be continuously invested and reinvested at the verbal authorization, followed by written direction of the Corporation in Qualified Investments, which shall mature, or which shall be subject to redemption by the holder or owner thereof at the option of such holder or owner, not later than the respective dates, as estimated by the Construction Manager from time to time, when the moneys held for the credit of the Project Fund will be required for the purpose intended.

Money held for the credit of the Bond Fund, the Debt Service Reserve Fund and the Capital Replacement Fund shall, as nearly as may be practicable, be invested and reinvested at the verbal authorization, followed by written direction of the Corporation in Permitted Investments.  Such obligations shall mature, or shall be subject to redemption by the holder or owner thereof at the option of such holder or owner, not later than the respective dates when the money held for the credit of such Funds will be required for the purposes intended. 

All income derived from the investment of moneys on deposit in the Project Fund and the Debt Service Reserve Fund shall be deposited in the Project Fund until receipt of the Completion Certificate with respect to any Improvements, and thereafter shall be deposited in the Interest Account.  All income derived from the investment of moneys on deposit in the Bond Fund shall be retained in the Bond Fund, and all income derived from the investment of moneys in the Capital Replacement Fund shall be retained in the Bond Fund, and all income derived from the investment of moneys in the Capital Replacement Fund shall be retained in the Capital Replacement Fund.

In computing the assets of any Fund or Account, investments and accrued interest theron shall be deemed a part thereof.  Such investments, other than in the Debt Service Reserve Fund, shall be valued at the lower of amortized cost or current market value as calculated on the last day of each June.

In computing the amount of the Debt Service Reserve Fund, obligations purchased as an investment of moneys therein shall be valued at fair market value.  Valuation of the Debt Service Reserve Fund shall be made as of the last day of each Bond Year.

If after valuation the balance is in the Reserve Fund is less than 90 percent of the Reserve Requirement investment earnings from Reserve Fund investments shall be retained until the Reserve Fund is restored to the Reserve Requirement.

SAMPLE INVESTMENT POLICY 

I. OBJECTIVE

To ensure that excess funds of the Hospital Commissioners are invested in a manner to maximize yield and at the same time minimize risk, maintain liquidity and demonstrate legal compliance.

II. DIRECTIVES

A. SCOPE

These investment policies apply to all financial assets of the Hospital which are under the direct control of the Board of the Hospital. These policies do not include any financial assets under the direct control of any of the Constitutional Officers of the Hospital.

B. AUTHORITY

These investment policies are established to supplement the existing Colorado State Statutes. The Board shall establish overall investment policies, the implementation of which is a constitutional responsibility of the Finance Department, as well as the Chief Financial Officer to the Hospital. The Chief Financial Officer is herewith delegated the responsibility of establishing detailed investment and accounting procedures to govern the day to day investment activities necessary to carry out these investment policies.

III. INVESTMENT OBJECTIVES

A. SAFETY OF CAPITAL

Safety of capital is regarded as the highest priority in the handling of investments for the Hospital. All other investment objectives are secondary to the safety of capital. Each investment transaction shall seek to first ensure that capital losses are avoided.

From time to time, however, securities may be traded for other similar securities to improve yield, maturity or credit risk. For these transactions, a loss may be incurred for accounting purposes, provided any of the following occurs with respect to the replacement   security:

   • The yield has been increased, or
   • The maturity has been reduced, or
   • The quality of the investment has been improved

B. MAINTENANCE OF ADEQUATE LIQUIDITY

The investment portfolio must be structured in such a manner that will provide sufficient liquidity to pay obligations as they become due.

C. RETURN ON INVESTMENTS

The Hospital seeks to optimize return on investments within the constraints of safety and liquidity. The investment portfolio shall be designed with the annual objective of exceeding the weighted average return earned on investments within money market accounts.

D. DIVERSIFICATION

The investment portfolio must be diversified to avoid incurring unreasonable risks regarding specific security types or individual financial institutions.

E. COMPLIANCE WITH LEGAL REQUIREMENTS

The investments purchased by the Hospital must demonstrate compliance with legal requirements. In addition, the Hospital may authorize additional investments through the adoption of an ordinance.

IV. AUTHORIZED INVESTMENTS

Authorized investments include:

A. Colorado Surplus Asset Fund Trust (C SAFE).

B. Colorado Local Government Liquid Asset Trust (ColoTrust).

C. U.S. Treasury Money Market Fund (FGIC Public Trust).

D. Direct obligations of the U.S. Government, such as U.S. 
Treasury obligations.

E. Obligations guaranteed by the U.S. Government as to principal 
and interest.

F. Time deposits and savings accounts in banks and savings and 
loan associations, organized under the laws of Colorado or the 
United States, doing business in the State of Colorado.  All such    deposits shall be collateralized as provided for by Colorado State    Statutes.

G. Obligations of the (Agencies of the United States):
   • Federal Farm Credit Banks (FFCB)
   • Federal Home Loan Bank Mortgage Corporation
    (FHLMC)  (participation certificates)
   • Federal Home Loan Bank (FHLB) or its banks
   • Government National Mortgage Association (GNMA)
   • Federal National Mortgage Association (FNMA)
   • Student Loan Marketing Association

In addition to the above, the following types of investments are authorized  by ordinance:
 
a. Repurchase agreements comprised only of those investments as authorized in Sections D, E and F.

b. Commercial Paper of U.S. Corporations rated, at the time of purchase, “Prime-1” by Moody’s and “A-1” by Standard & Poor’s.

c. State and/or local government taxable and tax exempt debt, general obligation and/or revenue bonds rated at least “Aa” by Moody’s and “AA” by Standard & Poor’s for long-term debt or rated at least MIG-2 by Moody’s and SP-2 Standard & Poor’s for short-term debt.

d. Fixed income mutual funds comprised of only those investment instruments as authorized in Sections D, E, 
G and J.

V. PRUDENCE AND ETHICAL STANDARDS

The “prudent person” standard shall be used by investment officials in the
management of the overall investment portfolio.

The persons performing the investment functions, acting as a “prudent  person” in accordance with these written policies and procedures, and exercising due diligence, shall not be responsible for an individual  security’s credit risk or market price changes provided that appropriate  monitoring efforts are performed.

The “prudent person” standard is herewith understood to mean the   following:  Investments shall be made with judgment 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 be derived.

Officers and employees involved in the investment process shall refrain
from personal business activity that could conflict with State Statutes, Hospital Ordinances, proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment officials shall disclose to the Board any material financial  interests in financial institutions that conduct business within this  jurisdiction, and they shall further disclose any large personal  
financial/investment positions that could be related to the performance of  the Hospital’s investment portfolio.  Investment Officials shall subordinate  their personal investment transactions to those of the County, particularly  with regard to the timing of purchases and sales.

VI. INTERNAL CONTROLS

The Chief Financial Officer - Finance, Audit and Budgets shall establish a  system of internal controls to ensure the integrity of the investment process.
All investment transactions shall be supported by written evidence such as a
confirmation ticket issued by the broker/dealer.  In addition, an independent
auditing firm (in conjunction with the required fiscal year audit) shall  perform a review of the controls on at least an annual basis. The controls shall be designed to prevent loss of public funds because of fraud, error, misrepresentation by another party or imprudent actions by an employee of  the Clerk.

VII. INVESTMENT COMMITTEE

Since the Hospital does not have a full-time portfolio manager, there is  hereby established an Investment Committee for the purpose of formulating
alternative investment strategies and short-range directions and for  monitoring the performance and structure of the portfolio within established  policies.  The committee will act as an advising committee to the Clerk or  his designee, who will give final approval for all investments purchased. The committee will formulate and recommend change, if necessary, to the  investment policies. Members of the committee shall include the Chief  Deputy Clerk - Finance, Audit and Budgets (serving as chairman), Chief  Deputy Clerk - Administrative Services, Accounting Director, Budget  Director, County Manager and County Attorney.  The Investment  Committee will meet on an as needed basis.  Due to the limitation in  staffing, the intention behind investment decisions will be to hold  investments until mature.

VIII. CASH FORECASTING

The investment portfolio will be structured in a manner to provide sufficient
liquidity to pay obligations when due. To that end, the investment  procedures shall include cash forecasting techniques in order to match  investment maturities with known cash needs and anticipated cash flow requirements.

IX. COLLATERALIZATION AND SAFEKEEPING REQUIREMENTS

Collateral for public deposits is controlled by the State of Colorado through
the Colorado State Statute. The Hospital shall not be under any obligation to secure additional collateral beyond the provision set forth in the Colorado State Statutes, except in the case of Repurchase Agreements. Collateral requirements for Repurchase Agreements will be contained in the  Master Repurchase Agreement, executed between the Hospital and the  broker/dealer or bank.

All investment securities purchased, except Certificates of Deposit, shall be  held in safekeeping at an institution designated by the Chief Financial  Officer. The  institution shall issue a safekeeping receipt to the Hospital’s  Finance Department listing the specific instrument, par value, rate, maturity  and any other pertinent information. In addition, the safekeeping institution  shall send a report on at least a quarterly basis listing all securities held in  each safekeeping account which shall be verified by the Hospital’s Finance  Department.

Certificates of Deposit issued by a local bank may be held in safekeeping at  that Institution.  The institution shall issue a copy of the Certificate of  Deposit, a safekeeping receipt, or some other confirmation of the purchase  which is satisfactory to the Clerk, to be kept on file in the Clerk’s Office  and which indicates the amount, interest rate, issue date and maturity date  of the Certificate of Deposit.

X. DIVERSIFICATION OF PORTFOLIO

 Prudent investing necessitates that the portfolio be diversified as to  instruments and dealers.  The following maximum limits are guidelines  established for diversification by instrument.  These guidelines may be  revised by the Chief Financial Officer for specific circumstances.

  Repurchase Agreements    10 %
  Certificates of Deposit    25 %
  U.S. Treasury Bills/Notes            100 %
  Other U.S. Government Agencies           100 %
  Commercial Paper     20 %

XI. LIQUIDITY

A. Maintenance of Liquidity Base

A liquidity base of approximately two months of anticipated disbursements, excluding bond construction payments made from escrow or trust accounts, will be kept in relatively short-term investments. These would include the State Investment Pool/Money Markets, Repurchase Agreements and U.S. Treasury Obligations.

B. Maximum Maturity on Repurchase Agreement

The maximum maturity for any single Repurchase Agreement, except for the daily repurchase agreement with the concentration    bank, will be one (1) year.

C. Purchase Securities with Active Secondary Market

Although many securities are acceptable for investment using the legal authorized list, some are not desirable from a liquidity standpoint. Accordingly, although investments may be on the authorized list, only those securities with an active secondary market may be purchased from that list.

XII. INTEREST RATE RISK

Generally, the longer the maturity of a particular investment, the greater its  price volatility.  Accordingly, the Hospital seeks to limit its risk by  maintaining an investment portfolio with limited volatility.  Procedures are  established below.

Pooled Cash and Investments (no restriction):

No security shall have an estimated average return of principal    exceeding five (5) years.  The weighted average duration of principal return for the portfolio shall be less than two years.  These restrictions shall be modified for adjustable rate securities, whose maturities could be as much as 30 years. The total adjustable rate securities purchased shall not be more than 25% of the total portfolio.

Restricted Accounts:

Securities will have a maximum maturity consistent with the nature of the restricted accounts.

When structuring the maturity composition of the portfolio, it is the policy  of the Hospital to evaluate current and expected interest rate yields, by  evaluating the general economic conditions. Whenever interest rates are  expected to increase in the near future, actions will be taken on the portfolio  to shorten the maturities. Accordingly, whenever interest rates are expected  to decrease, the maturities of the portfolio will be lengthened, as  appropriate.