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HomeMy WebLinkAboutInvestment Policy 2003 short ve Investment Policy Effective August 20, 2003 City of University Park, Texas City of University Park, Texas - Investment Policy CONTENTS Preface ................................ ................................ ................................ ....................... iv 1. PURPOSE 1. Authorization ................................ ................................ ................................ ... 1 2. Goal ................................ ................................ ................................ ................ 1 3. Scope ................................ ................................ ................................ .............. 1 4. Review and Amendment ................................ ................................ ................... 1 2. INVESTMENT OBJECTIVES 1. Preservation and Safet y of Principal ................................ ................................ .. 2 2. Maintenance of Adequate Liquidity ................................ ................................ .. 2 3. Return on Investments ................................ ................................ ...................... 2 4. Prudence and Ethical Standards ................................ ................................ ........ 3 3. INVESTMENT STRATEGY STATEMENT 1. Operating Funds ................................ ................................ ............................... 4 2. Bond Debt Service Funds ................................ ................................ ................. 4 3. Bond Reserve Funds ................................ ................................ ........................ 4 4. Capital Projects F unds ................................ ................................ ...................... 5 4. SPECIFIC INVESTMENT POLICIES 1. Eligible Investments ................................ ................................ ......................... 6 1. Obligations of the United States ................................ ............................... 6 2. Obligations of the State of Texas ................................ .............................. 6 3. Agencies of the United States and State of Texas ................................ ...... 6 4. Obligations of other States, Counties, Cities ................................ ............. 6 5. Direct Repurchase Agreements ................................ ................................ 6 6. Certificates of Deposit ................................ ................................ ............. 6 7. Share Certificates of state and federal Credit Unions ................................ . 7 8. Money Market Mutual Funds ................................ ................................ ... 7 9. Local Government Investment Pools ................................ ......................... 7 2. Ensuring Safety of Principal ................................ ................................ ............... 8 1. Protection of Prin cipal ................................ ................................ ............. 8 1. Approved Broker/Dealers/Financial Institutions/Depositories ............... 8 2. Master Repurchase Agreement ................................ ........................... 9 3. Collateralization ................................ ................................ ................. 9 i City of University Park, Texas - Investment Policy 1. Allowable Collateral ................................ ................................ . 10 1. Certificates of Deposit ................................ ....................... 10 2. Repurchase Agreements ................................ ..................... 10 2. Collateral Levels ................................ ................................ ....... 10 1. Certifi cates of Deposit ................................ ....................... 10 2. Repurchase Agreements ................................ ..................... 11 3. Monitoring Collateral Adequacy ................................ ................ 11 1. Certificates of Deposit ................................ ....................... 11 2. Repurchase Agreements ................................ ..................... 11 4. Margin Calls ................................ ................................ ............. 11 1. Certificates of Deposit ................................ ....................... 11 2. Repurchase Agreements ................................ ..................... 11 5. Collateral Substitution ................................ ............................. 12 6. Collateral Reductions ................................ ............................. 12 4. Portfolio Diversification ................................ ................................ ... 12 1. Bond Proceeds ................................ ................................ .......... 13 5. Limiting Maturity ................................ ................................ ............ 13 1. Operating Funds ................................ ................................ ....... 13 2. Bond Proceeds, Bond Reserves, Debt Service Funds .................. 13 2. Safekeeping ................................ ................................ ............................ 14 1. Safekeeping Agreement ................................ ................................ ... 14 2. Saf ekeeping of Certificate of Deposit Collateral ................................ 14 3. Safekeeping of Repurchase Agreement Collateral ............................. 14 3. Ensuring Liquidity ................................ ................................ ......................... 14 4. Achieving Investment Return Objectives ................................ ......................... 15 1. Securities Swaps ................................ ................................ ..................... 15 2. Competitive Bidding ................................ ................................ ............... 15 3. Methods of Monitoring Market Price ................................ ....................... 15 4. Benchmark Rate of Return ................................ ................................ ...... 16 5. Responsibility and Controls ................................ ................................ ............ 16 1. Authority to Invest ................................ ................................ .................. 16 2. Bonding requirements/Standard of care ................................ .................... 16 3. Establishment of Internal Controls ................................ ........................... 17 4. Standard of Ethics ................................ ................................ ................... 17 5. Training and Education ................................ ................................ ........... 17 6. Invest ment Committee ................................ ................................ ............. 18 6. Reporting ................................ ................................ ................................ ....... 18 7. Compliance Audit ................................ ................................ .......................... 19 8. Certification ................................ ................................ ................................ ... 19 5. ADOPTING CLAUSE ................................ ................................ ........................... 20 ii City of University Park, Texas - Investment Policy APPENDICES A. INVESTMENT LEGISLATION ................................ ................................ 21 B. MASTER REPURCHASE AGREEMENT ................................ .............. 48 C. BROKER/DEALER CERTIFICATION ................................ ................... 56 ATTACHMENTS 1. BROKER /DEALER QUESTIONNAIRE ................................ ................... 58 iii City of University Park, Texas - Investment Policy PREFACE The purpose of this document is to establish specific investment policy and strategy guidelines for the City of University Park, Texas (“City”) in order to achieve the goals of safety, liquidity and yield for all inve stment activity. The City shall review its investment strategies and policy not less than annually. This policy serves to satisfy the statutory requirement, specifically the Public Funds Investment Act, Chapter 2256 of the Texas Government Code (the “Act”) , to define, adopt and review a formal investment strategy and policy. It is the policy of the City that all available funds shall be invested in conformance with these legal and administrative guidelines. Effective cash management is recognized as essen tial to good fiscal management. An aggressive cash management and investment policy will be pursued to take advantage of investment interest as viable and material revenue to all operating and capital funds. The City’s portfolio shall be designed and manag ed in a manner responsive to the public trust and consistent with state and federal law. Investments shall be made with the primary considerations of: ? ? Preservation of capital and protection of principal ? ? Maintenance of sufficient liquidity to meet operati ng needs ? ? Security of City funds and investments ? ? Diversification of investments to avoid unreasonable or foreseeable risks Maximization of return on the portfolio ? ? iv SECTION 1 PURPOSE City of University Park, Texas - Investment Policy 1. Purpose 1. Authorization This Policy is to be au thorized by the City Council in accordance with Section 5 of the Public Funds Investment Act (Chapter 2256, Texas Government Code), which requires the adoption of a formal written Investment Policy. 2. Goal The primary goal of the City of University Park’s Investment Policy shall be to ensure the safety of all funds entrusted to the City; to maintain the availability of those funds for the payment of all necessary obligations of the City; and to provide for the investment of all funds, not immediately requi red, in interest - bearing securities or pooled investment products. The safety of the principal invested shall always be the primary concern. 3. Scope This Investment Policy of the City of University Park shall include all investment activities of any fund o f the City, except for the Firemen’s Relief and Retirement Fund, which is covered by a separate policy. In addition to this Policy, bond funds, including debt service and reserve funds, shall be managed by their governing resolution and federal law, includ ing the Tax Reform Act of 1986 and subsequent legislation. City funds will be pooled for investment purposes. 4. Review and Amendment This Policy may be amended from time to time as the City Council may so desire, or as State Law may require. This Policy, which includes strategies for each fund or pooled fund group, shall be adopted by resolution, rule, or ordinance by the City Council and shall be reviewed annually by the City Council. The fact that the Investment Policy has been reviewed and that any amen dments have been made must be recorded by resolution, rule or ordinance. 1 SECTION 2 INVESTMENT OBJECTIVES City of University Park, Texas - Investment Policy 2. INVESTMENT OBJECTIVES The City shall manage and invest its cash with four objectives, listed in order of priority: Preserv ation and Safety of Principal; Liquidity; Yield; and Prudence. All investments shall be designed and managed in a manner responsive to the public trust and consistent with State and Local Law. The City shall maintain a comprehensive cash management progra m that includes the prudent investment of available cash. Cash management is defined as the process of managing monies in order to increase cash availability and interest earnings on short - term investment of idle cash. 1. Preservation and Safety of Principal The primary objective of City investment activity is the preservation of principal in the overall portfolio. Each investment transaction shall be conducted in a manner designed to avoid principal losses, whether they are from securities defaults or erosi on of market value. The manner in which the City ensures safety of principal is presented in Section 4.2, “Ensuring Safety of Principal.” 2. Maintenance of Adequate Liquidity The City investment portfolio shall be structured such that the City is able to me et all obligations in a timely manner. Maintenance of adequate liquidity is described in Section 4.3, “Ensuring Liquidity.” 3. Return on Investments Consistent with State law, the City shall seek to optimize return on investments within the constraints of safety and liquidity. Investments (excluding assets managed under separate investment programs, such as in arbitrage restrictive programs) shall be made in permitted obligations at yields equal to or greater than the bond equivalent yield on United States Treasury obligations of comparable maturity. Other appropriate performance measures will be established by the Investment Committee. Specific policies regarding investment rate of return are presented in Section 4.4, “Achieving Investment Return Objectives .” For bond issues to which Federal yield or arbitrage restrictions apply, the primary objectives shall be to obtain satisfactory market yields and to minimize the costs associated with investment of such funds. 2 City of University Park, Texas - Investment Policy 4 . Prudence and Ethical Standards The sta ndard of prudence used by the City shall be the “prudent person rule” and shall be applied in the context of managing the overall portfolio within the applicable legal constraints. The prudent person rule is restated below: “Investments shall be made with judgment and care, under circumstances then prevailing, which persons 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.” In determining whether the Investment Officer(s) or Investment Advisor under contract has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration the investment of all funds over which the Officer/Advisor had responsibility rather than a consideration as to the prudence of a single investment, and whether the investment decision was consistent with the written Investment Policy of the City. The Inv estment Officers, acting in accordance with written procedures and exercising due diligence, shall not be held personally responsible for a specific security’s credit risk or market price changes, provided that these deviations are reported immediately. S pecific policies describing the City’s prudence and ethical standards are found in Section 4.5, “Responsibility and Controls.” 3 SECTION 3 INVESTMENT STRATEGY STATEMENT City of University Park, Texas - Investment Policy 3. INVESTMENT STRATEGY STATEMENT The City maintains portfolios that utilize four specific investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios. 1. The Operating Funds The investment strategy for operating funds has as its primary objective th e assurance that anticipated cash flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. This may be accomplished by purchasing quali ty, short - to medium - term securities. The dollar weighted average maturity shall be calculated in accordance with GASB requirements. The weighted average maturity of operating funds shall not exceed 548 days. Securities may not be purchased that have a fin al stated maturity date that exceeds five (5) years. 2. The Bond Debt Service Funds The investment strategy for bond debt service fund(s) has as its primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity date that exceeds the next unfunded bond debt service payment date. 3. Bond Reserve Funds The investment strategy for bond reserve fund(s) has as its primary objective the ability to generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility. Securities should be of high quality and, except as may be required by the Bond Ordinance specific to an individual issue , of short - to - intermediate - term maturities. The stated final maturity dates of securities held shall not exceed five (5) years. 4 City of University Park, Texas - Investment Policy 4. Capital Projects Funds The investment strategy for capital projects funds portfolios has as its primary objective the assuranc e that anticipated cash flows are matched with adequate investment liquidity. These portfolios should include at least 10% in highly liquid securities to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held should not exceed the estimated project completion date. To maximize the effective investment of assets, all funds needed for general obligations may be pooled into one account for investment purposes. The income derived from this account will be d istributed to the various funds based on their average balances on a periodic basis. Proceeds of bond issues shall not be pooled with other assets of the City, but shall be maintained in the fund issuing the bonds with interest earnings on these invested p roceeds recorded directly to that fund. 5 SECTION 4 SPECIFIC INVESTMENT POLICIES City of University Park, Texas - Investment Policy 4. SPECIFIC INVESTMENT POLICIES 1. Eligible Investments Investments described below are those authorized by the Public Funds Investment Act (Chapter 2256 , Texas Government Code), as amended, which is included and made a part of this Policy as Appendix A. The following list may not contain all of those securities that are authorized by state statutes, but only those that the City Council wishes to include i n their portfolios. The purchase of specific issues may at times be further restricted or prohibited because of current market conditions. City funds governed by this Policy may be invested in: 1. obligations of the United States or its agencies and instrume ntalities; 2. direct obligations of the State of Texas or its agencies; 3. other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities. 4. obli gations of states, agencies, counties, cities and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent. 5. ful ly collateralized direct repurchase agreements having a defined termination date, secured by obligations described by subdivision 1 of this subsection, pledged to the City, held in the City’s name and deposited at the time the investment is made with the C ity with a third party selected and approved by the City, and placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in Texas, and having a market value (including accrued interes t) of no less than the principal amount of the funds disbursed; 6. certificates of deposit issued by state and national banks domiciled in Texas that are: 1. guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or, 2. secured by o bligations that are described by 1 - 4 above, which are intended to include all direct federal agency or instrumentality issues that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the City. 6 City of University Park, Texas - Investment Policy 7. share certificates issued by state and federal credit unions domiciled in Texas that are: 1. guaranteed or insured by the National Credit Union Share Insurance Fund, or its successor; or, 2. secured by obligations that are descri bed by 1 - 4 above, which are intended to include all direct federal agency or instrumentality issues that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the C ity. 8. SEC - regulated, no - load money market mutual funds with a dollar - weighted average stated portfolio maturity of 90 days or less and whose investment objectives include seeking to maintain a stable net asset value of $1 per share. No more than 15% of the City’s average fund balance may be invested in money market mutual funds, and the City may not invest funds under its control in an amount that exceeds 10% of the total assets of any individual money market mutual fund. 9. Local government investment pools organized in accordance with the Interlocal Cooperation Act (Chapter 791, Texas Government Act) as amended, whose assets consist exclusively of the obligations that are allowed as a direct investment for funds subject to the Public Funds Investment Act (Ch apter 2256, Texas Government Code). A public funds investment pool must be continuously rated no lower than AAA, AAA - m or at an equivalent rating by at least one nationally recognized rating service. Eligible investment pools must be authorized by the Ci ty Council, by rule, order, ordinance, or resolution, as appropriate. The City Council has approved the Texas Local Government Investment Pool (“TexPool”), administered by the Texas State Comptroller; the Local Government Investment Cooperative (“LOGIC”), administered by Southwest Securities Group, Inc; and the Lone Star Investment Pool (“Lone Star”), administered by the Texas Association of School Boards. Investments in collateralized mortgage obligations are strictly prohibited. These securities are als o disallowed for collateral positions. The City will not be required to liquidate investments that were authorized investments at the time of purchase. 2. Ensuring Safety of Principal 7 City of University Park, Texas - Investment Policy Ensuring safety is accomplished through protection of principal an d safekeeping. 1. Protection of Principal The City shall seek to control the risk of loss due to the failure of a security issuer or guarantor. Such risk shall be controlled by: 1. investing only in the safest types of securities as defined in the Policy, 2. qua lifying the broker/dealer and financial institution with whom the City will transact, 3. collateralization as required by law, 4. portfolio diversification, and 5. limiting maturity. Settlement of all investment transactions, except those transactions involving investments in mutual funds or local government investment pools, must be made on a delivery versus payment basis. The purchase of individual securities shall be executed “delivery versus payment” (DVP) through the Federal Reserve System delivered to an a uthorized safekeeping agent or “Trustee.” By so doing, City funds are not released until the City has received, through the Federal Reserve wire, the securities purchased. The security shall be held in the name of the City by the Trustee. The Trustee’s rec ords shall assure the notation of the City ownership of or explicit claim on the securities. The original copy of the safekeeping receipts shall be delivered to the City within twenty - four (24) hours of the security’s receipt by the Trustee. 1. Approved Brok er/Dealers/Financial Institutions and Depositories Investments shall only be made with those firms and institutions who have acknowledged receipt and understanding of the City’s Investment Policy. The “qualified representative” of the business as defined in Chapter 2256 of the Texas Government Code shall execute a written certification to acknowledge receipt of the City’s Investment Policy and to acknowledge that the organization has implemented reasonable procedures and controls to preclude imprudent inve stment activities arising out of the investment transactions conducted between the entity and the City. Should the City contract with an external investment advisor to execute the investment strategy, including the negotiation and execution of investment t ransactions, a managing officer of the investment advisory firm may sign the written certification in lieu of the broker/dealer firms. This certification must be included as part of the investment advisory contract. 8 City of University Park, Texas - Investment Policy Securities and certificates of deposit shall only be purchased from those institutions included on the City’s list of broker/dealers and financial institutions as approved by the Investment Committee. All securities dealers shall provide the City with references from other public entities that they are currently serving. This list of approved investment providers must be reviewed at least annually by the City’s Investment Committee and shall be recorded in the Committee’s meeting minutes. The City’s Finance Advisory Committee shall comprise the Investment Committee. All state and national banks located in the State of Texas, which are insured by the Federal Deposit Insurance Corporation (FDIC) are to be considered as eligible depositories. The financial condition of the bank shall be considered prior to establishing any accounts with that bank. The Finance Advisory Committee shall review the bids submitted by depository candidates and make a recommendation to the City Council for final approval. 2. Master Repurchase Agreement It is the policy o f the City to require each issuer of repurchase agreements to sign a copy of the City’s Master Repurchase Agreement. An executed copy of this agreement must be on file before the City will enter into any repurchase agreement with an issuer. (See Appendix B , “Master Repurchase Agreement”.) 3. Collateralization Consistent with the requirements of State law, the City requires all bank deposits (including time deposits) to be federally insured or collateralized with eligible securities. Financial institutions se rving as City Depositories will be required to sign an Agreement with the City and its safekeeping agent for the collateral, perfecting the City’s rights to the collateral in case of default, bankruptcy or closure. The City shall not accept, as depositor y collateral, any security that is not specifically allowed to be held as a direct investment by the City portfolio (see 4.1). Repurchase agreements must also be collateralized in accordance with State law. Each issuer of repurchase agreements is required to sign a copy of the City’s Master Repurchase Agreement. An executed copy of this agreement must be on file before the City will enter into any repurchase agreements with an issuer. (See Appendix B, “Master Repurchase Agreement”.) The City considers repur chase agreements to be simultaneous purchases and sales of securities as outlined in the Master Repurchase Agreement and not as collateralized 9 City of University Park, Texas - Investment Policy loans. However, the underlying securities may be referred to as “collateral.” Evidence of the pledged collateral shall be maintained by the Finance Director or a third party financial institution. All collateral shall be subject to inspection and audit by the Finance Director or the City independent auditors. (1) Allowable Collateral 1. Certificates of Deposit Eligi ble securities for collateralization of certificates of deposit are U.S. Treasury obligations and government agency securities. The eligibility of specific issues may at times be restricted or prohibited because of current market conditions. 2. Repurchase Ag reements Collateral underlying repurchase agreements is limited to U.S. government and agency obligations, which are eligible for wire transfer (i.e. book entry) to the City’s designated safekeeping agent through the Federal Reserve System. (2) Collateral Le vels Collateral is valued at current market plus interest accrued through the date of valuation. 1. Certificates of Deposit The market value of collateral pledged for certificates of deposit must at all times be equal to or greater than 102% of the par val ue of the certificate of deposit plus accrued interest, less the amount insured by the FDIC or its successors. Investment in eligible pooled Certificate of Deposit programs is authorized under this section. 2. Repurchase Agreements The market value of colla teral required to be pledged for repurchase agreements shall be a percentage of the par value of the agreement plus accrued interest and shall be maintained at the following levels: 10 City of University Park, Texas - Investment Policy Collateral U.S. Treasury U.S. Government Maturity Securities Age ncy 1 year or less 102 % 102 % 1 year to 5 years 102 % 103 % Over 5 years 103 % 104 % (3) Monitoring Collateral Adequacy 1. Certificates of Deposit The City requires monthly reports with market values of pledged securities from all financial institutions with which the City has certificates of deposit. The City’s Investment Officer will at least weekly monitor the adequacy of collateral. 2. Repurchase Agreements Weekly monitoring by the City’s Investment Officer of all collateral underlying repurchase agr eements is required. More frequent monitoring may be necessary during periods of market volatility. (4) Margin Calls 1. Certificates of Deposit If the collateral pledged for a certificate of deposit falls below the 102% of the deposit, plus accrued interest le ss FDIC insurance, the institution will be notified by the City and will be required to pledge additional securities no later than the end of the next succeeding business day. 2. Repurchase Agreements If the value of the collateral underlying a repurchase a greement falls below the margin maintenance levels specified above, the City will make a margin call unless the repurchase agreement is scheduled to mature within five business days and the amount is deemed to be immaterial. (5) Collateral Substitution 11 City of University Park, Texas - Investment Policy Colla teralized investments and certificates of deposit often require substitution of collateral. Any broker or financial institution requesting substitution must contact the Investment Officer(s) for approval and settlement. The substituted collateral’s value w ill be calculated and substitution approved if its value is equal to or greater than the required value (See 4.2.1.3.2.2). The Investment Officer or must give immediate notification of the decision to the bank or the safekeeping agent holding the collatera l. Substitution is allowable for all transactions, but should be limited, if possible, to minimize potential administrative problems and transfer expense. The Investment Officer may limit substitution and assess appropriate fees if substitution becomes exc essive or abusive. Collateral may be substituted only with the oral authorization of the Investment Officer, followed by written confirmations within 24 hours. (6) Collateral Reductions Should the collateral’s market value exceed the required amount, any bro ker or financial institution may request approval from the Investment Officer to reduce collateral. Collateral reductions may be permitted only if the City’s records indicate that the collateral’s market value exceeds the required amount. Written confirmat ions of the collateral reduction should be received within 24 hours of the Investment Officer’s approval. 4. Portfolio Diversification Risk of principal loss in the portfolio as a whole shall be minimized by diversifying investment types according to the following limitations. 12 City of University Park, Texas - Investment Policy As discussed below, these limitations do not apply to bond proceeds. Investment Type: % of Portfolio ? ? U.S. Treasury Notes/Bonds/Bills 100% ? ? U.S. Agencies 60% ? ? Local Government Investment Pools 50% ? ? Repurchase Agreements 30% ? ? Certific ates of Deposit 30% ? ? Money Market Mutual Funds 15% It is the policy of the City to diversify its investment portfolio so that reliance on any one issuer or broker will not place an undue financial burden on the City. Generally, the City should limit its r epurchase agreement exposure with a single firm to no more than 15% of the value of the City’s overall portfolio. To allow efficient and effective placement of proceeds from any bond sales, these limits may be exceeded for a maximum of five business days f ollowing the receipt of bond proceeds. (1) Bond Proceeds Proceeds of a single bond issue may be invested in a single security or investment if the Investment Committee determines that such an investment is necessary to comply with Federal arbitrage restriction s or to facilitate arbitrage record keeping and calculation. 5. Limiting Maturity In order to minimize risk of loss due to interest rate fluctuations, investment maturities will not exceed the anticipated cash flow requirements of the funds. Maturity guide lines by funds are as follows: (1) Operating Funds The dollar weighted average days to final stated maturity shall be 548 days or less. The Investment Officer will monitor the maturity level and make changes as appropriate. (2) Bond Proceeds, Bond Reserves, Debt S ervice Funds The investment maturity of bond proceeds (including reserves and debt service funds) shall be determined considering: 1. the anticipated cash flow requirements of the funds, and; 13 City of University Park, Texas - Investment Policy 2. the “temporary period” as defined by Federal tax law during whic h time bond proceeds may be invested at an unrestricted yield. After the expiration of the temporary period, bond proceeds subject to yield restriction shall be invested considering the anticipated cash flow requirements of the funds. 3. Safekeeping 1. Safeke eping Agreement The City shall contract with a bank or banks for the safekeeping of securities either owned by the City as a part of its investment portfolio or held as collateral to secure certificates of deposits or repurchase agreements. The Safekeeping Agreement shall clearly define the procedural steps for gaining access to the collateral should the City determine that the City funds are in jeopardy. The safekeeping institution, or Trustee, shall hold all aforementioned securities in an account at the Federal Reserve Bank that specifies City ownership of the account. The Safekeeping Agreement shall include the signatures of authorized representatives of the City, the firm pledging the collateral and the Trustee. 2. Safekeeping of Certificate of Deposit Col lateral All collateral securing certificates of deposit must be held by a third party banking institution approved by the City, or collateral may be held at the Federal Reserve Bank. The City’s ownership in collateral positions must be fully perfected. 3. Saf ekeeping of Repurchase Agreement Collateral The securities that serve as collateral for repurchase agreements with dealers must be delivered to a third - party custodian with which the City has established a third - party safekeeping agreement. The City’s owne rship of all securities that serve as collateral for repurchase agreements must be fully perfected. 3. Ensuring Liquidity Liquidity shall be achieved by matching investment maturities with forecasted cash flow requirements, by investing in securities with active secondary markets, and by investing in eligible money market mutual funds (MMMF’s) and local government investment pools (LGIP’s). 14 City of University Park, Texas - Investment Policy A security may be liquidated to meet unanticipated cash requirements, to re - deploy cash into other investments expect ed to outperform current holdings, or to otherwise adjust the portfolio. 4. Achieving Investment Return Objectives Investment selection for all funds shall be based on legality, appropriateness, liquidity, and risk/return considerations. The portfolios may be actively managed to enhance overall interest income. Active management will take place within the context of the “Prudent Person Rule.” (see Section 2.4). 1. Securities Swaps The City may take advantage of security swap opportunities to improve portfolio yie ld. A swap which improves portfolio yield may be selected even if the transaction results in an accounting loss. 2. Competitive Bidding It is the policy of the City to require competitive bidding for all individual security purchases except for those transact ions with money market mutual funds (MMMFs) and local government investment pools (LGIP’s) which are deemed to be made at prevailing market rates, and for government securities purchased at issue through a primary dealer at auction price. Rather than relyi ng solely on yield, investment in MMMFs and LGIP’s shall be based on criteria determined by the Investment Committee, including adherence to Securities and Exchange Commission (SEC) guidelines for MMMFs when appropriate. At least three bidders must be cont acted in all transactions involving individual securities. Competitive bidding for security swaps is also required. Bids may be solicited in any manner provided by law. For those situations where it may be impractical or unreasonable to receive three bids for a transaction due to a rapidly changing market environment or to secondary market availability, documentation of a competitive market survey of comparable securities or an explanation of the specific circumstance must be included with the transaction b id sheet. All bids received must be documented and filed for auditing purposes. 3. Methods of Monitoring Market Price The methods/sources to be used to monitor the price of investments that have been acquired with public funds shall be from sources deemed rel iable by the Investment Officer, including primary or regional broker/dealers, established financial institutions providing portfolio Wall management/accounting services, financial publications, such as the 15 City of University Park, Texas - Investment Policy Street Journal, market information vendors such a s Bloomberg or Telerate and market pricing services. 4. Benchmark Rate of Return As a general guideline, the City’s cash management portfolio shall be designed with the objective of regularly meeting the average return on three - month U.S. Treasury Bills, or t he average rate of 90 - day Certificates of Deposit. These indices are considered benchmarks for risk - free investment transactions and therefore comprise a standard for the portfolio’s rate of return. Additional benchmarks may be developed and recommended by the Investment Committee and used as a comparative performance measures for the portfolio. Additional benchmarks that may be considered for targeting by the Investment Committee include the Constant Maturity Treasury Bill with the maturity that most close ly matches the weighted average maturity of the portfolio or a more customized index made up of blended Merrill Lynch Treasury/Agency indices. The investment program shall seek to augment rates of return above this threshold, consistent with legal restrict ions and prudent investment principles. In a diversified portfolio, measured losses are inevitable and must be considered within the context of the overall portfolio. 5. Responsibility and Control 1. Authority to Invest Authority to manage the City investment pr ogram is derived from a resolution of the City. Those authorized by said resolution are designated as Investment Officers of the City, and, in conjunction with the Investment Committee, are responsible for investment decisions and activities. The City rese rves the right to contract with an external investment advisory firm to manage the investment assets, and the resulting resolution will grant investment authorization to the contracted firm. The Finance Director shall establish written procedures for the o peration of the investment program consistent with this Investment Policy. 2. Bonding requirements/Standard of care Each of the authorized investment officers shall be a bonded employee. All participants in the investment process shall act responsibly as cus todians of the public trust and shall exercise the judgment and care, under prevailing circumstances, that a prudent person would exercise in the management of the person’s own affairs. 16 City of University Park, Texas - Investment Policy 3. Establishment of Internal Controls The Finance Director is responsibl e for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that the objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. 4. Standard of Ethics City staff involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair the ability to make impartial investment decisions. City staff shall disclos e to the City any material interests in financial institutions that conduct business with the City, and they shall further disclose positions that could be related to the performance of the City portfolio. City staff shall subordinate their personal financ ial transactions to those of the City, particularly with regard to the timing of purchases and sales. An investment officer of the City who has a personal business relationship with an organization seeking to sell an investment to the City shall file a sta tement disclosing that personal business interest. An investment officer who is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the City shall file a statement disclosing that relationship. A statement required under this subsection must be filed with the Texas Ethics Commission and the governing body of the City. 5. Training and Education In accordance with the Public Funds Investment Act (Chapter 2256, Texas Government Code), the designated Inve stment Officers, or those personnel authorized to execute investment transactions, must attend periodic investment training. State law requires that training relating to investment responsibilities must be provided by an independent source as approved by t he Investment Committee. Personnel authorized to execute or approve investment transactions must receive at least 10 hours of investment training within each two - year period. Newly appointed investment officers must attain at least 10 hours of instruction relating to the officer’s responsibility under the Act within 12 months after assuming investment duties. 17 City of University Park, Texas - Investment Policy 6. Investment Committee An Investment Committee that is comprised of the membership of the Finance Advisory Committee shall be established to determine i nvestment guidelines, general strategies, and monitor performance. The Committee shall meet quarterly to review performance, strategy and procedures. The Investment Committee shall include in its deliberation such topics as: performance reports, economic o utlook, portfolio diversification, maturity structure, potential risk to the City funds, authorized brokers and dealers, and the target rate of return on the investment portfolio. 6. Reporting Investment performance is continually monitored and evaluated by the Finance Director. The Investment Officer(s) will provide detailed reports, as re quired by the Public Funds Investment Act (Chapter 2256, Texas Government Code, Section 2256.023) for the City on a quarterly basis. The Finance Director shall submit a quarterly investment report signed by the investment officers that summarizes current m arket conditions, economic developments and anticipated investment conditions. The report shall summarize investment strategies employed in the most recent quarter, and describe the portfolio in terms of investment securities, maturities, risk characterist ics and shall explain the total investment return for the quarter. The report will outline conformance to the restrictions of the Policy in the area of diversification and term of maturity. The report will also compare the performance of City’s portfolio t o appropriate benchmarks as determined by the Investment Committee. The report shall summarize current market conditions, economic developments and anticipated investment conditions. The report shall also summarize investment strategies employed in the mos t recent quarter, and describe the portfolio in terms of investment securities, maturities and risk characteristics. Within 60 days of the end of the fiscal year, the Finance Director or the Investment Advisory firm shall present an annual report on the in vestment program and investment activity. The report may be presented as a component of the fourth quarter report to the City. The quarterly investment report shall include a succinct management summary that provides a clear picture of the status of the cu rrent investment portfolio and transactions made over the last quarter. This management summary will be prepared in a manner which will allow the City to ascertain whether investment activities during the reporting period have conformed to the Investment P olicy. The report will include the following: 18 City of University Park, Texas - Investment Policy 1. A listing of individual securities held at the end of the reporting period. 2. Unrealized gains or losses resulting from appreciation or depreciation by listing the beginning and ending book and market value of se curities for the period. 3. Additions and changes to the market value during the period. 4. Average weighted yield to maturity or total return performance of the portfolio on entity investments as compared to applicable benchmarks. 5. Listing of investments by matu rity date. 6. The percentage of the total portfolio which each type of investment represents. 7. Statement of compliance of the City investment portfolio with State Law and the investment strategy and policy approved by the City. 7. Compliance Audit In conjuncti on with its annual financial audit, the City shall perform a compliance audit of management controls on investments and adherence to the City’s established Investment Policies. The results of the audit shall be reported to the Investment Committee and the governing body of the City. 8. Certification A copy of this Investment Policy will be provided to the senior management of any bank, dealer, broker or investment advisor wishing to transact investment business directly with the City in order that it is appri sed of the investment goals of the City. Before business is transacted with the firm, a certification (Appendix C) must be signed by a senior member of a firm. Should the City contract with an external investment advisor to execute the entity’s investment strategy, including the negotiation and execution of investment transactions, a managing officer of the investment advisory firm may sign the written certification in lieu of the broker/dealer firms. This certification must be included as part of the inves tment advisory contract. 19 SECTION 5 ADOPTING CLAUSE City of University Park, Texas - Investment Policy 5. ADOPTING CLAUSE This Investment Policy for the City of University Park, Texas is hereby adopted as of the 20th day of August, 2003. Mayor Director of Finance ATTEST: City Secretary 48