HomeMy WebLinkAboutResolution No. 04-65
CITY OF THE COLONY, TEXAS
RESOLUTION NO. 04-65
A RESOLUTION AMENDING THE INVESTMENT POLICY FOR
THE CITY OF THE COLONY AS ADOPTED BY RESOLUTION
NO. 03-31 ON THE 3rd DAY OF NOVEMBER, 2003; AND
PROVIDING AN EFFECTIVE DATE
WHEREAS, the City Council must review and approve the Investment Policy within ninety
(90) days after the end of each fiscal year;
WHEREAS, this Investment Policy amendment includes an additional five broker/dealers on
Appendix A;
NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF THE
CITY OF THE COLONY, TEXAS:
Section 1. The City Council ofthe City of The Colony hereby approves an amendment to the
Investment Policy ofthe City of The Colony as adopted by Resolution No. 03-31 on the 3rd day of
November, 2003.
Section 2. That the new investment policy is attached hereto in its entirety.
Section 3. That this resolution shall become effective immediately from and after its
passage and approval.
PASSED AND APPROVED this ~ day of October 2004.
ATTEST:
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~-fAJ.-'! ' Chris ie Wilson, TRMC, City Secretary .
CITY OF THE COLONY
INVESTMENT POLICY
October 4, 2004
Prepared by the Finance Department
Approved by the City Manager
Confirmed by the City Council on October 4,2004
CITY OF THE COLONY INVESTMENT POLICY
TABLE OF CONTENTS
PAGE
I. SCOPE OF POLICY 1
A. Funds Included 1
B. Funds Excluded I
C. Pooling of Funds 1
D. Additional Requirements I
E. Review and Amendment of the Policy I
II. PRUDENCE 2
III. OBJECTIVES OF POLICY 2
A. Safety 2
B. Liquidity 2
C. Yield 3
D. Risk of Loss 3
IV. RESPONSIBILITY AND CONTROL 3
A. Delegation 3
B. Subordinates 4
C. Conflicts of Interest 4
D. Disclosure 4
E. Investment Training 4
V. AUTHORIZED INVESTMENTS 5,6
VI. INVESTMENT REPORTS 6
A. Investment Reports 6
B. Investment Officer Signatures 6
C. Summary Statement of Changes in Market Value 6
D. Book Value vs. Market Value Comparison 6
E. Duration or Average Maturity Date 7
F. Accounting Fund 7
G. Compliance With Strategies and Policy 7
H. Investment Income and Yield by Portfolio 7
I. Investment Income by Accounting Fund 7
J. Di versification 7
K. Summary of Economic and Market Conditions 7
L. Broker/Dealer Approved List 7
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS 7
A. Bidding Process for Investments 7
B. Maximum Maturities 7
CITY OF THE COLONY INVESTMENT POLICY
TABLE OF CONTENTS (CON'T)
PAGE
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS (CON'T)
C. Maximum Do llar- Weighted Maturity 8
D. Diversification 8
E. Pricing
VIII SELECTION OF DEPOSITORY, FINANCIAL INSTITUTIONS AND
BROKER/DEALERS 9
A. Bidding Process 9
B. Insurability 9
C. Authorized Depository, Financial Institutions, and
BrokerlDealers 9
IX. COLLATERALIZATION OF CITY'S DEPOSITS 10
A. Insurance or Collateral Pledged 10
B. Collateral Defined 10
C. Collateral Safekeeping Agreement 11
D. Audit of Pledged Collateral 11
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS 11
XI. MANAGEMENT AND INTERNAL CONTROLS 11,12
XII. INVESTMENT POLICY ADOPTION 13
XIII. INVESTMENT STRATEGY 13
A. Active vs. Passive 13
B. Operating Funds 13
C. Capital Project and Special Purpose Funds 14
D. Debt Service Funds 14
E. Debt Service Reserve Funds 14
APPENDIX A Authorized Broker/Dealers, Financial Institutions, and
Government Pools
APPENDIX B Public Funds: Primary Laws and Regulations
APPENDIX C Authorized Government Pools Agreements
CITY OF THE COLONY INVESTMENT POLICY
I. SCOPE OF POLICY
This investment policy shall govern the investment activities of all funds of the City of The Colony
("the City"), excluding any specific funds cited hereafter. This policy serves to satisfy the state
statute requirement to define and adopt a formal investment policy.
A. FUNDS INCLUDED:
All financial assets of all current funds of the City and any new funds created in the future, unless
specifically exempted, will be administered in accordance with the objectives and restrictions set
forth in this policy. These funds are accounted for in the City's Annual Financial Report and
include: General Fund, Enterprise Funds, Capital Project Funds, Special Revenue Funds, Trust and
Agency Funds.
B. FUNDS EXCLUDED:
This policy shall not govern funds, which are managed under separate investment programs. This
policy excludes Employee Retirement and Pension Funds administered or sponsored by the City
and excludes defeased bond funds held in trust escrow accounts. The City will maintain
responsibility for these funds as required by Federal and State law and the City Charter and Code.
C. POOLING OF FUNDS:
Except for cash in certain restricted and special funds, the City will consolidate cash balances from
all funds to maximize investment earnings. Investment income will be allocated to the various
funds based on their respective percentage participation and in accordance with generally accepted
accounting principles.
D. ADDITIONAL REQUIREMENTS:
In addition to this policy, bond funds (to include capital project, debt service, and reserve funds)
will be managed by the governing debt ordinance and the provisions of the Internal Revenue Code
applicable to the issuance of tax-exempt obligations and the investment of debt proceeds.
E. REVIEW AND AMENDMENT OF THE POLICY:
The City Council shall review this investment policy and investment strategies not less than
annually as required by state law. A resolution stating the review has been completed and recording
any changes made to either the policy or strategy statements must be adopted by the City Council.
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II. PRUDENCE
Investments shall be made with judgement 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 the capital as well as the
probable income to be derived. The standard of prudence to be used by investment officials shall
be the "prudent person" standard and shall be applied in the context of managing an overall
portfolio of funds, rather than a consideration as to the prudence of a single investment. Investment
officers acting in accordance with written procedures and this investment policy and exercising due
diligence shall be relieved of personal responsibility for an individual security's credit risk or
market price changes, provided deviations from expectations are reported in a timely fashion to the
City Manager and the City Council, and appropriate action is taken by the investment officers and
their oversight managers to control adverse developments in accordance with the terms of this
policy.
III. OBJECTIVES OF POLICY
The primary objectives of the City's investment program in order of priority shall be preservation
and safety of principal, liquidity, and yield:
A. SAFETY:
The foremost and primary objective ofthe City's investment program is the preservation and safety
of capital of the overall portfolio. Each investment transaction will seek first to ensure that capital
losses are avoided, whether the loss occurs from the default of a security or from erosion of market
value. The objectives will be to mitigate credit risk and interest rate risk. To control credit risk,
investments should be limited to the safest types of securities. Financial institutions, broker/dealers
and advisers who serve as intermediaries, shall be pre-qualified by the City. The credit ratings of
investment pools and individual securities will be monitored to assure compliance with this policy
and state law.
To control interest rate risk, the City will structure the investment portfolio so that securities mature
to meet cash requirements for ongoing operations and will monitor marketable securities daily.
Should an issuer experience a single step downgrade of its credit rating by a nationally recognized
credit rating agency within 90 days of the position's maturity, the Investment Officer may approve
the holding of the security to maturity.
B. LIQUIDITY:
The City's investment portfolio will remain sufficiently liquid to enable the City to meet operating
requirements that might be reasonably anticipated. Liquidity will be achieved by matching
investment maturities with forecasted cash flow funding requirements, by investing in securities
with active secondary markets and by diversification of maturities and call dates. Furthermore,
since all possible cash demands cannot be anticipated, the portfolio, or portions thereof may be
placed in money market mutual funds or local government investment pools, which offer same day
liquidity for short-term funds.
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C. YIELD:
The City's investment portfolio will be designed with the objective of regularly meeting or
exceeding the average rate of return on three month U.S. Treasury Bills. The investment program
will seek to augment returns above this threshold consistent with risk constraints identified herein,
cash flow characteristics of the portfolio and prudent investment principles. Investments are limited
to relatively low risk securities in anticipation of earning a fair return relative to the risk being
assumed. Marketable securities shall not be sold prior to maturity with the following exceptions:
1. A security with declining credit may be sold early to minimize loss of principal.
2. A security swap that would improve the quality, yield or target duration in the
portfolio.
3. Liquidity needs of the portfolio require that the security be sold.
4. If market conditions present an opportunity for the City to benefit fTom the sale.
Funds held for future capital projects will be invested in such a way as to try to produce enough
income to offset inflationary construction cost increases. However, such funds will never be unduly
exposed to market price risks that would jeopardize the assets available to accomplish their stated
objective, or be invested in a manner inconsistent with applicable federal and state regulations.
Yields on debt proceeds that are not exempt from federal arbitrage regulations are limited to the
arbitrage yield of the debt obligation. Investment officials will seek to preserve principal and
maximize the yield of these funds in the same manner as all other city funds. However, it is
understood that if the yield achieved by the city is higher than the arbitrage yield, positive arbitrage
income will be averaged over a five year period and netted against any negative arbitrage income
and the net amount shall be rebated to the federal government as required by current federal
regulations.
D. RISK OF LOSS:
All participants in the investment process will seek to act responsibly as custodians of the public
trust. Investment officials will avoid any transactions that might impair public confidence in the
City's ability to govern effectively. The governing body recognizes that in a diversified portfolio,
occasional measured losses due to market volatility are inevitable, and must be considered within
the context of the overall portfolio's investment return, provided that adequate diversification has
been implemented.
IV. RESPONSIBILITY AND CONTROL
A. DELEGATION:
Oversight management responsibility for the investment program has been delegated to the Director
of Finance, to establish written procedures and controls for the operation of the investment
program, consistent with this investment policy. Such procedures shall include explicit delegation
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of authority to persons responsible for the daily cash management operation, the execution of
investment transactions, overall portfolio management and investment reporting.
B. SUBORDINATES:
All persons involved in investment activities shall be referred to as "Investment Officials". No
person shall engage in an investment transaction except as provided under the terms of this policy,
the procedures established by the Director of Finance and the explicit authorization by the City
Manager to withdraw, transfer, deposit and invest the City's funds. The City Council, by
resolution, has authorized the City Manager to appoint these individuals. The Director of Finance
shall be responsible for all transactions undertaken, and shall establish a system of controls to
regulate the activities of subordinate Investment Officials.
C. CONFLICTS OF INTEREST:
Investment officials and employees involved in the investment process will refrain from personal
business activity that could conflict with proper execution and management of the investment
program, or which could impair their ability to make impartial investment decisions. Investment
officials and employees shall refrain from undertaking personal investment transactions with the
same individual with whom business is conducted on behalf of the City.
D. DISCLOSURE:
Investment officials and employees shall disclose to the City Manager any material financial
interest in financial institutions that conduct business with the City. Investment officials and
employees shall further disclose any material, personal investment positions that could be related to
the performance of the City's investment portfolio. Investment officials and employees shall
subordinate their personal investment transactions to those of this jurisdiction, particularly with
regard to the timing of purchases and sales. An investment official that is related within the second
degree by affinity or consanguinity to individuals seeking to sell an investment to the City shall file
a statement disclosing that relationship, with the Texas Ethics Commission and the City Council.
E. INVESTMENT TRAINING:
The Director of Finance and any other investment officials shall have a finance, accounting or
related degree and knowledge of treasury functions. Investment officials must attend investment
training not less than once in a two-year period and receive not less than ten hours of instruction
relating to investment responsibilities. This investment training may be from educational seminars
held by GFOA, GTOT, MTA, GFOAT, AICPA, and TML or any other training approved by the
City Council. All investment officials of the City shall attend at least one training session relating
to their cash management and investment responsibilities within 12 months after assuming these
duties for the City. Training must include education in investment controls, security risks, strategy
risks, market risks, and compliance with state investment statutes.
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V. AUTHORIZED INVESTMENTS
Funds of the City may be invested in the following investments, as authorized by Chapter 2256 of
the Government Code of the State of Texas, known as the "Public Funds Investment Act", and as
authorized by this investment policy. Investments not specifically listed below are not authorized:
A. Obligations of the United States or its agencies and instrumentalities;
B. Direct obligations of this state or its agencies;
C. Other obligations, the principal and interest of which are unconditionally guaranteed or
insured by, the State of Texas or the United States or its instrumentalities;
D. Obligations of states, agencies, counties, cities, and other political subdivisions of any state,
rated as to investment quality by a nationally recognized investment rating firm not less than
A or its equivalent;
E. Certificates of Deposit that are issued by a state or national bank or savings and loan
domiciled in the State of Texas and that are guaranteed or insured by the Federal Deposit
Insurance Corporation or are secured as to principal by obligations described in the
preceding clauses or in any other manner and amount provided by law for City deposits;
F. Fully Collateralized Repurchase or Reverse Repurchase Agreements that have a defined
termination date, are fully secured by obligations described in the preceding paragraphs
(A) through (D) of this section of the policy, allowed by the Public Funds Investment
Act or any other subsequent Texas public investment laws, and are placed through a
primary government securities dealer or a financial institution doing business in the State of
Texas. Money received by the City under the terms of a Reverse Repurchase Agreement,
by law, shall be used to acquire additional authorized investments, but may not have a term
to exceed 90 days nor be used as a leveraged transaction (proceeds used to purchase an
investment whose final maturity date exceeds the expiration date of the reverse). All
transactions shall be governed by a Master Repurchase Agreement signed by the City and
the dealer or financial institution.
G. Commercial paper that has a stated maturity of 270 days or fewer from the date of its
issuance; and is rated not less than A-lor P-1 or an equivalent rating by at least: (1) two
nationally recognized credit rating agencies; or (2) one nationally recognized credit rating
agency and is fully secured by an irrevocable letter of credit issued by a bank organized and
existing under the laws ofthe United States or any state.
H. No-Load Money Market Mutual Funds regulated by the Securities and Exchange
Commission that have a dollar-weighted average stated maturity of 90 days or less, invest
exclusively in obligations authorized by the preceding paragraphs (A) through (F) of this
section of the policy, and include in their investment objectives the maintenance of a stable
net asset value of $1 for each share. No more than an aggregate 80% of the City's monthly
average fund balance, excluding bond proceeds, reserves and debt service funds may be
invested in money market mutual funds either separately or collectively with mutual funds.
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No more than 10% of the City's funds may be invested in anyone money market mutual
fund; and
I. Local Government Joint Investment Pools of political subdivisions in the State of Texas
which comply with the guidelines described below:
(1) The requirements of Article 4413(32c), Section 4(d) ofthe Texas Revised Civil Statutes
must be met;
(2) The investment pool must be continuously rated no lower than AAA or AAA-m or an
equivalent rating by at least one nationally recognized rating service;
(3) The requirements of Section 2256.016 of the Texas Public Investment Act must be met
by the investment pool and the information required must be furnished to the
investment officer of the City;
(4) The investment pool must have a dollar-weighted average maturity of90 days or less.
(5) The investment pool may invest only in obligations listed in the preceding paragraphs
(A) through (G).
VI. INVESTMENT REPORTS
The Director of Finance shall submit quarterly an investment report including an analysis of the
status of the current investment portfolio and detailed investment transactions made over the last
quarter. This report 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 policy. The
report should be provided to the City Council and the City Manager. The City Council shall review
investment strategies, portfolio diversification, maturity structure, economic outlook, rate of return
on the portfolio, and compliance with the investment policy by reviewing these reports quarterly
and by any discussions with city staff. The reports shall be formally reviewed at least annually by
an independent auditor if there have been marketable securities in the portfolio. The result of the
review shall be reported to Council by that auditor. If there have been no marketable securities in
the portfolio, this review by an auditor is not required. The quarterly investment report must be
presented within 90 days of the end of the quarter reporting period. The report must contain the
following information:
A. Investment position ofthe City on the date ofthe report;
B. A signature of each investment official of the City;
C. A summary statement prepared in compliance with generally accepted accounting
principles, of each pooled fund or individual portfolio, sorted by type of asset, that states the
fully accrued income for the reporting period; beginning market value for the reporting
period; additions and changes to the market during the period; ending market value for the
period; and the resulting change in market value that may have occurred and a comparison
ofthe same to the previous quarter;
D. A comparison of book value vs. market value and the unrealized gain or loss at the end of
the period and the comparison to the previous period by asset type and fund type invested.
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E. State the duration or average maturity of each portfolio;
F. State the accounting fund or pooled group fund for which individual investments were
acquired, by name or number or both;
G. State the compliance of the investment portfolio as it relates to the investment strategy
expressed in the City's investment policy and compliance with all laws governing the City's
investments;
H. Disclose the investment income earned and yields, by portfolio;
I. Disclose the investment income earned, by accounting fund;
1. Demonstrate the diversification ofthe City's investments; and
K. Provide a summary of economic activity and recent financial market conditions.
L. Provide a listing of brokers and financial institutions with which the City conducts business.
The Director of Finance is responsible for the recording of investment transactions and the
maintenance of the investment records with reconciliation of the accounting records of investments
carried out by an individual reporting to the accounting manager. Information to maintain the
investment program and the reporting requirements is derived from various sources such as
broker/dealer research reports, newspapers, financial on-line market quotes, direct communication
with broker/dealers, government investment pools and financial consulting services.
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS
A. BIDDING PROCESS FOR INVESTMENTS:
Investment officials for the City may accept bids for certificates of deposit and for all marketable
securities either orally, in writing, electronically, or in any combination of these methods. The
investment official will strive to receive two to three price quotes on marketable securities being
sold, but may allow one broker/dealer to sell at a predetermined price under certain market
conditions. Investments purchased shall be shopped competitively between approved financial
institutions and broker/dealers. Security swaps are allowed as long as maturity extensions, credit
quality changes and profits or losses taken are within the other guidelines set forth in this policy.
B. MAXIMUM MATURITIES:
The City will manage its investments to meet anticipated cash flow requirements. Unless matched
to a specific cash flow, the City will not directly invest in securities maturing more than five years
from the date of purchase. The City shall adopt weighted average maturity limitations consistent
with the investment objectives.
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C. MAXIMUM DOLLAR-WEIGHTED AVERAGE MATURITY:
Under most market conditions, the composite portfolio will be managed to achieve a one-year or
less dollar-weighted average maturity. However, under certain market conditions, investment
officials may need to shorten or lengthen the average life or duration of the portfolio to protect the
City. The maximum-dollar weighted average maturity based on the stated final maturity,
authorized by this investment policy for the composite portfolio of the City shall be three years.
D. DIVERSIFICATION:
It is the policy of the City to diversify its investment portfolios. Assets held in each investment
portfolio shall be diversified to eliminate the risk of loss resulting from one concentration of assets
in a specific maturity, a specific issuer or a specific class of securities. Diversification strategies
shall be determined and revised periodically by the City Council.
In establishing specific diversification strategies, the following general policies and constraints shall
apply:
1) Portfolio maturities and potential call dates shall be staggered in a way that protects interest
income from the volatility of interest rates and that avoids undue concentration of assets in a
specific maturity or callable sector. Securities shall be selected which provide for stability
of income and reasonable liquidity.
2) Risk of market price volatility shall be controlled through maturity diversification such that
aggregate realized price losses on instruments with maturities exceeding one (1) year shall
not be greater than coupon interest and investment income received fTom the balance of the
portfolio.
3) The portfolio may be comprised of 100% of U.S. government obligations, 100%
Repurchase Agreements, or 100% in an authorized government investment pool. Other
asset types shall be limited to no more than 25% ofthe portfolio.
4) The City Council shall review diversification strategies and establish or confirm guidelines
on a quarterly basis regarding the percentages of the total portfolio that may be invested in
securities other than treasuries, agencies, repurchase agreements and investment pools. The
City Council shall review the quarterly investment reports and evaluate the probability of
market and default risk in various investment sectors as part of its consideration.
E. PRICING:
Market prices for investments acquired for the City's Investment Portfolio shall be priced using
independent pricing sources and the market value monitored at least monthly. When purchasing an
investment at least three broker quotes will be required. A complete report including market value
will be provided quarterly to the City Council.
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VIII. SELECTION OF DEPOSITORY, FINANCIAL INSTITUTIONS AND
BROKER/DEALERS
A. BIDDING PROCESS:
Depositories shall be selected through the City's banking services procurement process, which shall
include a formal request for proposal (RFP) issued not less than every five years with a typical
contract being for three (3) years with options to extend the contract for two additional years. In
selecting depositories, the credit worthiness of institutions shall be considered, and the Director of
Finance shall conduct a comprehensive review of prospective depositories credit characteristics and
financial history. No public deposit shall be made except in a qualified public depository as
established by state depository laws. The depository bank bid will not include bids for investment
rates on certificates of deposit. Certificate of deposit rates will be shopped competitively between
qualified financial institutions in accordance with the manner in which all other types of investment
assets are purchased.
B. INSURABILITY:
Banks and Savings and Loan Associations seeking to establish eligibility for the City's competitive
certificate of deposit purchase program, shall submit financial statements, evidence of federal
insurance and other information as required by the Investment Officials ofthe City.
C. AUTHORIZED DEPOSITORY, FINANCIAL INSTITUTIONS AND
BROKER/DEALERS:
The Director of Finance will maintain a list of financial institutions and broker/dealers selected by
credit worthiness, who are authorized to provide investment services to the City. These firms may
include all primary broker/dealers and those regional broker/dealers who qualify under Securities
and Exchange Commission Rule 15C3-1 (uniform net capital rule) and meet other financial credit
criteria standard in the industry. The Director of Finance shall select broker/dealers from the
approved list to conduct most daily City investment business. These firms will be selected based on
the firm's competitiveness, participation in agency selling groups and the experience and
background of the salesperson handling the account. The firms will be reviewed quarterly by the
Director of Finance and changed as appropriate.
All financial institutions and broker/dealers who desire to become qualified bidders for investment
transactions must supply the Director of Finance with the following:
1) Audited financial statements;
2) Proof of National Association of Securities Dealers (N.A.S.D.) Certification;
3) Proof of registration with the State of Texas Securities Board;
4) Resumes of all sales representatives who will purchase or sell securities or otherwise
represent the financial institution or broker/dealer firm in their dealings with the City; and
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5) Texas Public Funds Investment Act Acknowledgments from a Business Organization
"Qualified Representative" of the financial institution or broker/dealer and all sales
representatives on the City's account that they have received read, and understood and agree
to comply with the City's investment policy. The qualified representative shall execute a
written instrument acceptable to the City and the business organization.
A list of these approved financial institutions and broker/dealers shall be maintained in an appendix
of this Investment Policy document. The City Council will include the broker/dealer-approved list
as part of their annual review.
IX. COLLATERALIZATION OF CITY'S DEPOSITS
A. INSURANCE OR COLLATERAL PLEDGED:
Collateralization shall be required on depository bank deposits, certificates of deposit, and
repurchase (and reverse) agreements in accordance with the "Public Funds Collateral Act" and
depository laws. In order to anticipate market changes and provide a level of security for all funds,
the collateralization level will not be less than 102% of market value of principal and accrued
interest, less an amount of $100,000, which represents insurance by the FDIC or FSLIC on certain
types of bank deposits. Evidence of the pledged collateral shall be documented by a safekeeping
agreement or a master repurchase agreement with the collateral pledged clearly listed in the
agreement and safekeeping confirmations. The master repurchase agreement must be executed and
in place prior to the investment of funds. Collateral shall be monitored daily to ensure that the
market value of the securities pledged equals or exceeds the related deposit or investment balance.
B. COLLATERAL DEFINED:
The City shall accept only the following insurance and securities as collateral for cash deposits,
certificates of deposit, and repurchase agreements:
I) FDIC insurance coverage.
2) Obligations ofthe United States of America, its agencies and instrumentalities.
3) Other obligations, the principal of and interest on which are unconditionally guaranteed or
insured by the State of Texas or the United States of America or its agencies and
instrumentalities.
4) Obligations of states, agencies thereof, 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 no less than A or its equivalent.
5) Other securities specifically authorized by depository law or by the City's Council.
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C. COLLATERAL SAFEKEEPING AGREEMENT:
The City shall not accept, as depository collateral, any security that is not specifically allowed to be
held as a direct investment by the City's portfolio and that the maximum maturity of the collateral
securities may be no greater than ten years. Collateral will always be held by an independent third
party with whom the entity has a current custodial agreement. A clearly marked evidence of
ownership (safekeeping receipt) must be supplied to the City and retained. The safekeeping
agreement must clearly define the responsibility of the safekeeping bank. The safekeeping
institution shall be the Federal Reserve Bank or an institution not affiliated with the financial
institution or broker/dealer that is pledging the collateral. The safekeeping agreement shall include
the authorized signatories ofthe City and the firm pledging collateral.
D. AUDIT OF PLEDGED COLLATERAL:
All collateral shall be subject to verification and audit by the Director of Finance or the City's
independent auditors.
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS
All security transactions, including collateral for repurchase (reverse) agreements entered into by
the City shall be conducted using the delivery vs. payment (DVP) basis. That is, funds shall not be
wired or paid until verification has been made that the correct security was received by the
safekeeping bank. The safekeeping or custody bank is responsible for matching up instructions
from the City's investment officials on an investment settlement with what is wired from the
broker/dealer, prior to releasing the City's designated funds for a given purchase. The security shall
be held in the name of the City or held on behalf of the City in a bank nominee name. Securities
will be held by a third party custodian designated by the Director of Finance and evidenced by
safekeeping receipts. The safekeeping bank's records shall assure the notation of the City's
ownership of or explicit claim on the securities. The original copy of all safekeeping receipts shall
be delivered to the City. A safekeeping agreement must be in place, which clearly defines the
responsibilities of the safekeeping bank. Wires or ACH transactions to and from government
investment pools and money market mutual funds are the only exception to the DVP method of
settlement.
XI. MANAGEMENT AND INTERNAL CONTROLS
The Director of Finance shall establish a system of internal controls which shall be designed to
prevent losses of public funds arising from fraud, employee error, misrepresentation by third
parties, unanticipated changes in financial markets, or imprudent actions by employees or
Investment Officials ofthe City.
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Controls and managerial emphasis deemed most important that shall be employed where practical
are:
A. Control of collusion.
B. Separation of duties.
C. Separation of transaction authority from accounting and record keeping.
D. Custodian safekeeping receipts records management.
E. Avoidance of bearer-form securities.
F. Clear delegation of authority.
G. Documentation of investment bidding events.
H. Written confirmations from broker/dealers and financial institutions.
I. Reconcilements and comparisons of security receipts with the investment subsidiary
records.
1. Compliance with investment policies.
K. Accurate and timely investment reports as required by law and this policy.
L. Validation of investment maturity decisions with supporting cash flow data.
M. Adequate training and development of Investment Officials.
N. Verification of all investment income and security purchase and sell computations.
O. Review of financial condition of all broker/dealers, and depository institutions.
P. Staying informed about market conditions, changes, and trends that require adjustments in
investment strategies.
The above list of internal controls represents only a partial list of a system of internal
controls. An annual process of independent review by an external auditor shall be
established. This review will provide internal control by assuring compliance with laws,
policies and procedures. This annual compliance audit is required by the "Public Funds
Investment Act" [Section 2256.005 (m)].
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XII. INVESTMENT POLICY ADOPTION
The City's investment policy shall be adopted by resolution of the City Council. The policy and
general investment strategy statements shall be reviewed on an annual basis by the City Council and
any modifications made thereto must be approved by the City Council.
XIII. INVESTMENT STRATEGY STATEMENTS
A. ACTIVE VS. PASSIVE STRATEGY:
The City intends to pursue an active portfolio management philosophy with investment functions
carried out either by in-house City staff or by an outside portfolio manager investing the City's
funds with oversight by the Director of Finance. Active management means that the financial
markets will be monitored and investments will be purchased and sold based on the market
conditions, liquidity parameters and legal constraints. Any marketable securities that may be
purchased by the City shall have active secondary markets. Securities may be purchased as a new
issue or in the secondary markets. Securities may be sold before they mature if market conditions
present an opportunity for the City to benefit from the trade or if changes in the market warrant the
sale of securities to avoid future losses. Securities may be purchased with the intent from the
beginning, to sell them prior to maturity or with the expectation that the security would likely be
called prior to maturity under the analyzed market scenario. Market and credit risk shall be
minimized by diversification. Diversification by market sector and security types, as well as
maturity will be used to protect the City from credit and market risk in order to meet liquidity
requirements.
The portfolio will be structured to benefit from anticipated market conditions and to achieve a
reasonable return. Relative value between asset groups shall be analyzed and pursued as part of the
active investment program within the restrictions set forth by this policy. The portfolio may be
comprised of 100% of direct government obligations, 100% repurchase agreements or 100% in an
authorized government investment pool. Other asset types shall be limited to no more than 25% of
the portfolio.
SPECIFIC INVESTMENT STRATEGIES FOR EACH TYPE OF FUND GROUP OF THE
CITY ARE AS FOLLOWS:
B. OPERATING FUNDS:
Operating Funds shall have as their primary objective to assure that anticipated cash outflows are
matched with adequate investment liquidity. The secondary objective is to create a portfolio
structure, which will experience minimal volatility during changing economic cycles. These
objectives may be accomplished by purchasing money market government investment pools,
money market mutual funds or high quality, short to medium term securities in a laddered
(maturities coming due regularly and staggered to match cash outflows) or barbell (maturities that
are placed very short term and maturities that are longer term, such that the average achieves cash
flows and income similar to buying in the middle of those maturity spectrums) maturity structure
and by diversification among market sectors.
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The dollar-weighted average maturity of operating funds, based on the stated final maturity date of
each security, will be calculated and limited to one year or less. However, each of the city's
operating funds has a component classified as fund balance or reserve monies. These reserve
monies may have a dollar-weighted average maturity of two years or less.
C. CAPITAL PROJECT FUNDS AND SPECIAL PURPOSE FUNDS:
Capital Project Funds and Special Purpose Funds shall have as their primary objective to assure that
anticipated cash outflows are matched with adequate investment liquidity. These portfolios should
have liquid securities to allow for unanticipated project expenditures or accelerated project outlays
due to a better than expected or changed construction schedule. The portfolios shall be invested
based on cash flow estimates to be supplied by the City Engineer and a capital project report
completed by the accounting division. The dollar-weighted average life of the portfolio should be
matched or below the duration of the liabilities. Funds invested for capital projects may be from
bond proceeds that are subject to arbitrage rebate regulations. The City will manage these funds as
previously described, but will conduct an arbitrage rebate calculation annually to determine the
income, if any, that has exceeded the arbitrage yield of the bond. This positive arbitrage income
will be averaged over a five-year period and rebated to the federal government according to federal
arbitrage regulations. A secondary objective of these funds is to achieve a yield equal to or greater
than the arbitrage yield of the applicable bond.
D. DEBT SERVICE FUNDS:
Debt Service Funds shall have as the 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 which exceeds the debt service payment date.
E. DEBT SERVICE RESERVE FUNDS:
Debt Service Reserve Funds shall have as the primary objective the ability to generate a dependable
revenue stream to the appropriate debt service fund within the limits set forth by the bond ordinance
or debt covenants specific to each individual bond issue. Individual securities may be invested to a
stated final maturity of five years or less and no more than a three year dollar-weighted average life.
8/30/2004 14
APPENDIX A
AUTHORIZED BROKER/DEALERS, FINANCIAL INSTITUTIONS,
AND
GOVERNMENT POOLS
LIST OF BROKER/DEALERS. FINANCIAL INSTITUTIONS AND
GOVERNMENT POOLS
AUTHORIZED TO SET UP INVESTMENT ACCOUNTS WITH
THE CITY OF THE COLONY
IF THESE ENTITIES SUPPL Y THE CITY WITH THE
REQUIRED CERTIFICATIONS AND FINANCIAL DOCUMENTS
ABN AMRa Inc. Goldman, Sachs & Co.
AG Edwards Greenwich Capital Markets, Inc.
BMO Nesbitt Burns Corp. HSBC Securities (USA) Inc.
BNP Paribas Securities Corp. J.P. Morgan Securities, Inc.
Banc of America Securities LLC Lehman Government Securities, Inc.
Banc One Capital Markets, Inc. Merrill Lynch Government Securities,
Barclays Capital Inc. Inc.
Bear, Stearns & Co., Inc. Morgan Stanley & Co., Inc.
CIBC World Markets Corp. Nomura Securities International, Inc.
Credit Suisse First Boston Corp. Rauscher Pierce Refsnes, Inc.
Daiwa Securities America Inc. Salomon Smith Barney Inc.
Dean Witter/Morgan Stanley Samco Capital Markets
Deutsche Banc Alex Brown, Inc. Southwest Securities, Inc.
Dresdner Kleinwort Wasserstein UBS Paine Webber
Securities LLC UBS Warburg LLC
Duncan Williams Vining Sparks
Fuji Securities Inc. Zions First National Bank
In addition to the above named Broker/Dealers and financial institutions, the City
is also authorized to set up investment accounts with the City's Depository Bank
and may also obtain Collateralized Certificates of Deposits (CD) quotes from
local Texas banks.
LIST OF GOVERNMENT POOLS AUTHORIZED
BY CITY COUNCIL RESOLUTIONS
(TEXPOOL) Texas Local Government Investment Pool
(LOGIC) Local Government Investment Cooperative
APPENDIX B
PUBLIC FUNDS
PRIMARY LAWS AND REGULATIONS
I
I
CHAPTER 2256. PUBLIC FUNDS INVESTMENT
SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL
ENTITIES
Sec. 2256.001. SHORT TITLE.
This chapter may be cited as the Public Funds Investment Act.
SECTION 1. Sec. 2256.002. DEFINITIONS.
(1) "Bond proceeds" means the proceeds from the sale of bonds, notes, and other obligations
issued by an entity, and reserves and funds maintained by an entity for debt service
purposes.
(2) "Book value" means the original acquisition cost of an investment plus or minus the accrued
amortization or accretion.
/ (3) "Funds" means public funds in the custody of a state agency or local government that:
(A) are not required by law to be deposited in the state treasury; and
/ (B) the investing entity has authority to invest.
(4) "Institution of higher education" has the meaning assigned by Section 61.003, Education
Code.
i (5) "Investing entity" and "entity" mean an entity subject to this chapter and described by
Section 2256.003.
(6) "Investment pool" means an entity created under this code to invest public funds jointly on
behalf of the entities that participate in the pool and whose investment objectives in order of
priority are:
(A) preservation and safety of principal;
(B) liquidity; and
(C) yield.
(7) "Local government" means a municipality, a county, a school district, a district or authority
created under Section 52(b)(I) or (2), Article ill, or Section 59, Article XVI, Texas
Constitution, a fÌ'esh water supply district, a hospital district, and any political subdivision,
authority, public corporation, body politic, or instrumentality of the State of Texas, and any
nonprofit corporation acting on behalf of any of those entities.
(8) "Market value" means the current face or par value of an investment multiplied by the net
selling price of the security as quoted by a recognized market pricing source quøted on the
valuation date.
(9) "Pooled fund group" means an internally created fund of an investing entity in which one or
more institutional accounts of the investing entity are invested.
(10) "Qualified representative" means a person who holds a position with a business
organization that is stated on a written instrument, who is authorized by the business
organization to execute the written instrument on behalf of the business organization, and
who is one of the following:
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(A) for a business organization doing business that is regulated by or registered with a
securities commission a dealer representative who is registered under the roles of the
National Association of Securities Dealers;
(B) for a state or federal bank, a savings bank, or a state of federal credit union, a
member of the loan committee for the bank or branch of the bank, or a person
authorized by corporate resolution to action behalf of and bind the banking
institution; or
(C) for an investment pool. the person authorized by the elected official or board with
authority to administer the activities of the investment pool to sign the written
instrument on behalf of the investment pool.
(11) "School district" means a public school district.
(12) "Separately invested asset" means an account or fund of a state agency or local government
that is not invested in a pooled fund group.
(13) "State agency" means an office, department, commission, board, or other agency that is part
of any branch of state government, an institution of higher education, and any nonprofit
corporation acting on behalf of any of those entities.
i Sec. 2256.003. AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT TO TIDS
/ CHAPTER.
.I
I Each governing body of the following entities may purchase, sell, and invest its funds and funds
/
I
under its control in investments authorized under this subchapter in compliance with investment
policies approved by the governing body and according to the standard of care prescribed by ..."...
Section 2256.006:
(1) a local government;
(2) a state agency;
(3) a nonprofit corporation acting on behalf of a local government or a state agency; or
(4) an investment pool acting on behalf of two or more local governments, state agencies, or a
combination of these entities
SECTION 2. Sec. 2256.004. APPLICABILITY.
This subchapter does not apply to:
(1) a public retirement system as defined by Section 802.001;
(2) state funds invested as authorized by Section 404.024;
(3) an institution of higher education having total endowments of at least $95 million in book
value on May 1, 1995; or
(4) funds invested by the Veterans' Land Board as authorized by Chapter 161, 162, or 164,
Natural Resources Code; or
(5) a deferred compensation plan that qualifies under either Section 401 (K) or 457 of the
Internal Revenue Code of 1986 (26 US.C. Section I et seq.), as amended.
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SECTION 3. Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
INVESTMENT OFFICER
(a) The governing body of an investing entity shall adopt by rule, order, ordinance, or
resolution, as appropriate, a written investment policy regarding the investment of its funds
and funds under its control.
(b) The investment policies must:
(I) be written;
(2) primarily emphasize safety of principal and liquidity; and
(3) address investment diversification, yield, and maturity and the quality and
capability of investment management; and
(4) include:
(A) a list of the types of authorized investments in which the investing entity's
funds may be invested;
(B) the maximwn allowable stated maturity of any individual investment owned
by the entity;
(C) for pooled fund groups, the maximum dollar-weighted average maturity
allowed based on the stated maturity date for the portfolio;
(D) a requirement for comparative review of alternative investments to ensure.
I that a fair market price is received on the purchase or sale of any security;
and
(E) a requirement for settlement of all transactions, except investment pool
funds and mutual funds, on a delivery versus payment basis.
(c) The investment policies may provide that bids for certificates of deposit be solicited:
(I) orally;
(2) in writing;
(3) electronically; or
(4) in any combination of those methods.
(d) As an integral part of an investment policy, the governing body shall adopt a separate
written investment strategy for each of the funds or group of funds under its control. Each
investment strategy must describe the investment objectives for the particular fund using
the following priorities in order of importance:
(I) understanding of the suitability of the investment to the fmancial requirements of the
entity;
(2) preservation and safety of principal;
(3) liquidity;
(4) marketability of the investment if the need arises to liquidate the investment before
maturity;
(5) diversification of the investment portfolio; and·
(6) yield.
(e) The governing body of an investing entity shall review its investment policy and investment
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strategies not less than annually. The governing body shall adopt a written instrument by
rule, order, ordinance, or resolution stating that it has reviewed the investment policy and
investment strategies and that the written instrument so adopted shall record any changes
made to either the investment policy or investment strategies.
(f) An investing entity may not invest its operating funds in authorized investments unless the .
investments comply with the specific conditions related to that authorized investment and
have a final stated maturity within three years after the date of purchase. An investing entity
may not invest its funds for debt service in authorized investments unless the investments
comply with the specific conditions related to that authorized investment and the final state
maturities of the investments do not exceed the dates on which the funds must be available
for debt service. An investing entity may not invest its funds ffom bond proceeds and
related reserve funds in authorized investments unless the investments comply with the
specific conditions related to that authorized investment and the investments are consistent
with a letter of advice from bond counsel, the investing entity's No Arbitrage Certificate,
and the investing entity's stated investment policy.
I (g) Each investing entity shall designate, by rule, order, ordinance, or resolution, as appropriate, .
one or more officers or employees of the state agency, local government, or investment pool
as investment officer to be responsible for the investment of its funds consistent with the
investment policy adopted by the entity. Authority granted to a person to invest an entity's
funds is effective until rescinded by the investing entity or until termination of the person's
employment by the investing entity. In the administration of the duties of an investment'
officer, the person designated as investment officer shall exercise the judgement and care,
under prevailing circumstances, that a prudent person would exercise in the management of
the person's own affairs. Unless authorized by law, a person may not deposit, withdraw,
transfer, or manage in any other manner the funds of the county.
(h) Subsection (g) does not apply to a state agency, local government, or investment pool for
which an officer of the entity is assigned by law the function of investing its funds.
(i) An officer or employee of a commission created under Chapter 391, Local Government
Code, is ineligible to be designated as an investment officer under Subsection (g) for any
investing entity other than for that commission.
(j) An investment officer of an entity who has a personal business relationship with a business
organization offering to engage in an investment transaction with the entity shall file a
statement disclosing that personal business interest. An investment officer who is related
within the second degree by affinity or consanguinity, as determined under Chapter 573, to
an individual seeking to sell an investment to the investment officer's entity 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 ofthe entity. For purposes
of this subsection, an investment officer has a personal business with business organization
if;
(1) the investment officer owns 10% or more óf the voting stock or shares of the
business organization or owns $5,000 or more of the fair market value of the
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business organization;
(2) funds received by the investment officer from the business organization exceed 10%
of the investment officer's gross income for the previous year; or
(3) the investment officer has acquired from the business organization during the
previous year investments with a book value of $2,500 or more for the personal
account of the investment officer.
(k) The governing body of an investing entity may specify in its investment policy that any
investment authorized by this chapter is not suitable.
(1) A written copy of the investment policy shall be presented to any person offering to engage
in an investment transaction with an investing entity. For purposes of this subsection, a
business organization includes investment pools. Nothing in this subsection relieves the
investing entity of the responsibility for monitoring the investments made by the investing
entity to determine that they are in compliance with the Investment Policy. The qualified
representative of the business organization shall execute a written instrument in a fonn
acceptable to the investing entity and the business organization substantially to the effect
that the business organization has:
(1) received and reviewed the investment policy of the entity; and
(2) acknowledged that the business organization has implemented reasonable
/ procedures and controls in an effort to preclude investment transactions conducted
between the entity and the organization that are not authorized by the entity's
investment policy, except to the extent that this authorization is dependent on the
I portfolio over which the business organization has no control or knowledge.
(m) The investment officer of an entity may not buy fÌ'om a person who has not delivered to the
entity an instrument in substantially the form provided by Subsection (k).
(n) An investing entity, in conjunction with· its annual financial audit, shall perform a
compliance audit of management controls on investments and adherence to the entity's
established investment policies. State agencies shall report the results of the audit
perfonned under this subsection to the state auditor. The state auditor shall compile the
results of reports received under this subsection and annually report those results to the
legislative audit committee.
Sec. 2256.006. STANDARD OF CARE~
(a) Investments shall be made with judgment and care, under prevailing circumstances, that a
person of prudence, discretion, and intelligence would exercise in the management of the
person's own affairs, not for speculation, but for investment, considering the probable safety
of capital and the probable income to be derived. Investment of funds shall be governed by
the following investment objectives, in order of priority:
(1) preservation and safety of principal;
(2) liquidity; and
(3) yield.
(b) In detennining whether an investment officer has exercised prudence with respect to an
investment decision, the detennination shall be made taking into consideration:
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(1) the investment of all funds, or funds under the entity's control, over which the
officer had responsibility rather than a consideration as to the prudence of a single
investment; and
(2) whether the investment decision was consistent with the written investment policy of the
entity.
SECTION 4. Sec. 2256.007. INVESTMENT TRAINING; STATE AGENCY BOARD
MEMBERS AND OFFICERS.
(a) Each member of the governing board of a state agency and its investment officer shall
attend at least one training session relating to the person's responsibilities under this
chapter within six months after taking office or assuming duties.
(b) The governor's office shall provide training under this section for members and officers
other than members and officers of an institution of higher education. The Texas Higher
Education Coordinating Board shall provide the training for members and officers of
I institutions of higher education.
(c) Training under this section must include education in investment controls, security risks,
strategy risks, market risks, and compliance with this chapter.
(d) An investment officer shall attend a training session not less than once in a two year period
and may receive training from any independent source approved by the governing body of
the state agency. The investment officer shall prepare a report on this subchapter and
deliver the report to the governing body of the state agency not later than the I 80th day after
the last day of each regular session of the legislature.
SECTION 5. Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS.
(a) The treasurer, the chief financial officer if the treasurer is not the chief financial officer, and
the investment officer of a local government shall;
(1) attend at least one training session relating to the treasurer's or officer's
responsibilities under this subchapter within 12 months after taking office or
assuming duties; and
(2) attend an investment training session not less than once in a two-year period
and receive no less than 10 hours of instruction relating to investment
responsibilities under this subchapter from an independent source approved
by the governing body of the local government.
(b) Training under this section must include education in investment controls, security risks,
strategy risks, market risks, and compliance with this chapter.
Sec. 2256.009. AUTHORIZED INVESTMENTS: . OBLIGATIONS OF, OR
GUARANTEED BY, GOVERNMENTAL ENTITIES.
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(a) Except as provided by Subsection (b), the following are authorized investments under this
subchapter:
(1) obligations ofthe United States or its agencies and instrumentalities;
(2) direct obligations of this state or its agencies and instrumentalities;
(3) collateralized mortgage obligations directly issued by a federal agency or
instrumentality of the United States, the underlying security for which is guaranteed
by an agency or instrumentality of the United States;
(4) other obligations, the principal and interest of which are unconditionally guaranteed
or insured by, or backed by the full faith and credit of, this state or the United States
or their respective agencies and instrumentalities; and
(5) obligations of states, agencies, counties, cities, and other political subdivisions of
any state rated as to investment quality by a nationally recognized investment rating
firm not less than A or its equivalent.
(b) The following are not authorized investments under this section:
(1) obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pays no
principal;
(2) obligations whose payment represents the principal stream of cash flow from the
underlying mortgage-backed security collateral and bears no interest;
(3) collateralized mortgage obligations that have a stated final maturity date of greater,
\ than 10 years; and
(4) collateralized mortgage obligations the interest rate of which is determined by an
index that adjusts opposite to the changes in a market index.
SECTION 6. Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF
DEPOSIT.
A certificate of deposit is an authorized investment under this subchapter if the certificate is issued
by a state or national bank domiciled in this state a savings domiciled in this state, or a state or
federal credit union domiciled in this state and is:
(1) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the
National Credit Union share Insurance Fund or its successor;
(2) secured by obligations that are described by Section 2256.009(a), including mortgage
backed securities directly issued by a federal agency or instrumentality that have a market
value of not less than the principal amount of the certificates, but excluding those mortgage
backed securities of the nature described by Section 2256.009(b); or
(3) secured in any other manner and amount provided by law for deposits of the investing
entity.
Sec. 2256.011. AUTHORIZED INVESTMENTS: REPURCHASE AGREEMENTS.
(a) A fully collateralized repurchase agreement is an authorized investment under this
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subchapter if the repurchase agreement:
(1) has a defined termination date;
(2) is secured by obligations described by Section 2256.009(a)(1); and
(3) requires the securities being purchased by the entity to be pledged to the entity, held
in the entity's name, and deposited at the time the investment is made with the entity
or with a third party selected and approved by the entity; and
(4) is placed through a primary government securities dealer, as defined by the Federal
Reserve, or a financial institution doing business in this state.
(b) In this section, "repurchase agreement" means a simultaneous agreement to buy, hold for a
specified time, and sell back at a future date obligations described by Section
2256.009(a)(I) market value at the time the funds are disbursed of not less than the
principal amount of the funds disbursed. The term includes a direct security repurchase
agreement and a reverse security repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse security repurchase agreement may
not exceed 90 days after the date the reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms of a reverse security repurchase agreement
shall be used to acquire additional authorized investments, but the term of the authorized
investments acquired must mature not later than the expiration date stated· in the reverse
security repurchase agreement.
Sec. 2256.012. AUTHORIZED INVESTMENTS: BANKERS' ACCEPTANCES.
A bankers' acceptance is an authorized investment under this subchapter if the bankers' acceptance: .,,- .._~
(1) has a stated maturity of 270 days or fewer ITom the date of its issuance;
(2) will be, in accordance with its terms, liquidated in full at maturity;
(3) is eligible for collateral for borrowing fÌ'om a Federal Reserve Bank; and
(4) is accepted by a bank organized and existing under the laws of the United States or any
state, if the short-term obligations of the bank, or of a bank holding company of which the
bank is the largest subsidiary, are rated not less than A-lor P-1 or an equivalent rating by at
least one nationally recognized credit rating agency.
Sec. 2256.013. AUTHORIZED INVESTMENTS: COMMERCIAL PAPER.
Commercial paper is an authorized investment under this subchapter if the commercial paper:
(1) has a stated maturity of 270 days or fewer from the date of its issuance; and
(2) is rated not less than A-lor P-l or an equivalent rating by at least:
(A) two nationally recognized credit rating agencies; or
(B) one nationally recognized credit rating agency and is fully secured by an irrevocable
letter of credit issued by a bank organized and existing under the laws of the United
States or any state.
SECTION 7. Sec. 2256.014. AUTHORIZED INVESTMENTS: MUTUAL FUNDS.
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(a) A no-load money market mutual fund is an authorized investment under this subchapter if
the mutual fund:
(1) is registered and regulated by the Securities and Exchange Commission;
(2) provides the investing entity with a prospectus and other information required by the
Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.) Or the Investment
Company Act of 1940 (15 U.S.c. Section 80 a-1 et seq);
(3) has a dollar-weighted average stated maturity of90 days or fewer; and
(4) includes in its investment objectives the maintenance of a stable net asset value of
$1 for each share.
(b) In addition to a no-load money market mutual fund permitted as an authorized investment
in Subsection (a), a no-load mutual fund is an authorized investment under this subchapter
if the mutual fund:
(1) is registered with the Securities and Exchange Commission;
(2) has an average weighted maturity of less than two years;
(3) is invested exclusively in obligations approved by this subchapter;
(4) is continuously rated as to investment quality by at least one nationally recognized
investment rating fIrm of not less than AAA or its equivalent; and
(5) conforms to the requirements set forth in Sections 2256.016(b) and (c) relating to
the eligibility of investment pools to receive and invest funds of investing entities.
(c) An entity is not authorized by this section to:
(1) invest in the aggregate more than 80 percent of its monthly average fund balance,
J excluding bond proceeds and reserves and other funds held for debt service, in
money market mutual funds described in Subsection (a) or mutual funds described
in Subsection (b), either separately or collectively;
(2) invest in the aggregate more than 15 percent of its monthly average fund balance,
excluding bond proceeds and reserves and other funds held for debt service, in
mutual funds described in Subsection (b);
(3) invest any portion of bond proceeds, reserves and funds held for debt service, in
mutual funds described in Subsection (b); or
(4) invest its funds or funds under its control, including bond proceeds and reserves and
other funds held for debt service, in anyone mutual fund described in Subsection (a)
or (b) in an amount that exceeds 10 percent of the total assets of the mutual fund.
SECTION 8. Sec. 2256.015. AUTHORIZED INVESTMENTS FOR STATE AGENCIES:
GUARANTEED INVESTMENT CONTRACTS.
(a) A guaranteed investment contract is an authorized investment for state agencies for bond .
proceeds under this subchapter if the guaranteed investment contract:
(1) has a defined termination date;
(2) is secured by obligations described by Section 2256.009(a)(1), excluding those
obligations described by Section 2256.009(b); in an amount at least equal to the
amount of bond proceeds invested under the contract; and
(3) is pledged to the entity and deposited with the entity or with a third party selected
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and approved by the entity.
(b) Bond proceeds, other than bond proceeds representing reserves and funds maintained for
debt service purposes, may not be invested under this subchapter in a guaranteed investment
contract with a term of longer than five years from the date of issuance of the bonds.
(c) To be eligible as an authorized investment:
(1) the governing body of the entity must specifically authorize guaranteed investment
contracts as an eligible investment in the order, ordinance, or resolution authorizing
the issuance of bonds;
(2) the entity must receive bids from at least three separate providers with no material
financial interest in the bonds from which proceeds were received;
(3) the entity must purchase the highest yielding guaranteed investment contract for
which a qualifying bid is received;
(4) the price of the guaranteed investment contract must take into account the
reasonably expected drawdown schedule for the bond proceeds to be invested; and
(5) the provider must certify the administrative costs reasonably expected to be paid to
third parties in connection with the guaranteed investment contract.
, SECTION 9. Sec. 2256.016. AUTHORIZED INVESTMENTS: INVESTMENT POOLS.
I
j An entity may invest its funds and funds under its control through an eligible investment
/ (a)
/ pool if the governing body of the entity by rule, order, ordinance, or resolution, as
/ appropriate, authorizes investment in the particular pool. An investment pool shall invest
the funds it receives from entities in authorized investments permitted by this subchapter.
(b) To be eligible to receive funds from and invest funds on behalf of an entity under this
chapter, an investment pool must furnish to the investment officer or other authorized
representative of the entity an offering circular or other similar disclosure instrument that
contains, at a minimum, the following information:
(1) the types of investments in which money is allowed to be invested;
(2) the maximum average dollar-weighted maturity allowed, based on the stated
maturity date, ofthe pool;
(3) the maximum stated maturity date any investment security within the portfolio has;
(4) the objectives of the pool;
(5) the size of the pool;
(6) the names of the members of the advisory board of the pool and the dates their tenns
expIre;
(7) the custodian bank that will safekeep the pool's assets;
(8) whether the intent of the pool is to maintain a net asset value of one dollar and the
risk of market price fluctuation;
(9) whether the only source of payment is the assets of the pool at market value or
whether there is a secondary source of payment, such as insurance or guarantees,
and a description ofthe secondary source of payment;
(10) the name and address of the independent auditór of the pool;
(11 ) the requirements to be satisfied for an entity to deposit funds in and withdraw funds
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from the pool and any deadlines or other operating policies required for the entity to
invest funds in and withdraw funds from the pool; and
(12) the performance history of the pool, including yield, average dollar-weighted.
maturities, and expense ratios.
(c) To maintain eligibility to receive funds from and invest funds on behalf of an entity under
this chapter, an investment pool must furnish to the investment officer or other authorized
representative of the entity:
(1) investment transaction confirmations; and
(2) a monthly report that contains, at a minimum, the following information:
(A) the types and percentage breakdown of securities in which the pool is
invested;
(B) the current average dollar-weighted maturity, based on the stated maturity
date, of the pool;
(C) the current percentage of the pool's portfolio in investments that have stated
maturities of more than one year;
(D) the book value versus the market value of the pool's portfolio, using
amortized cost valuation;
(E) the size ofthe pool;
(F) the number of participants in the pool;
(G) the custodian bank that is safekeeping the assets of the pool;
(H) a listing of daily transaction activity ofthe entity participating in the pool;
) :1<' (I) the yield and expense ratio of the pool;
(1) the portfolio managers ofthe pool; and
(K) any changes or addenda to the offering circular.
(d) An entity by contract may delegate to an investment pool the authority to hold legal title as
custodian of investments purchased with its local funds.
(e) In this section, "yield" shall be calculated in accordance with regulations governing the
registration of open-end management investment companies under the Investment Company
Act of 1940, as promulgated from time to time by the federal Securities and Exchange
Commission.
(f) To be eligible to receive funds from and invest funds on behalf of an entity under this
chapter, a public funds investment pool created to function as a money market mutual fund
must mark its portfolio to market daily, and to the extent reasonably possible, stabilize at a
$1 net asset value. If the ratio of the market value of the portfolio divided by the book value
of the portfolio is less than 0.995 or greater than 1.005, portfolio holdings shall be sold as
necessary to maintain the ratio between 0.995 and 1.005.
(g) To be eligible to receive funds from and invest funds on behalf of an entity under this
chapter, a public funds investment pool must have an advisory board composed:
(1) equally of participants in the pool and other persons who do not have a
business relationship with the pool and are qualified to advise the pool, for a
public funds investment pool created under Chapter 791 and managed by a
state agency; or
B-11
(2) of participants in the pool and other persons who do not have a business
relationship with the pool and are qualified to advise the pool, for other
investment pools.
(h) To maintain eligibility to receive funds from and invest funds on behalf of an entity under
this chapter, an investment pool must be continuously rated no lower than AAA or AA-m or
at an equivalent rating by at least one nationally recognized rating service.
SECTION 10. Sec. 2256.017. EXISTING INVESTMENTS
An entity is not required to liquidate investments that were authorized investments at the time of
purchase.
SECTION 11. Sec. 2256.019. RATING OF CERTAIN INVESTMENT POOLS.
A public funds investment pool must be continuously rated no lower than AAA or AAA-m or at an
equivalent rating by at least one nationally recognized rating service or no lower than investment
grade by at least one nationally recognized rating service with a weighted average maturity no
greater than 90 days.
Sec. 2256.020. AUTHORIZED INVESTMENTS: INSTITUTIONS OF HIGHER
EDUCATION.
In addition to the authorized investments permitted by this subchapter, an institution of higher
education may purchase, sell, and invest its funds and funds under its control in the following:
(1) cash management and fixed income funds sponsored by organizations exempt fÌ"om federal
income taxation under Section SOI(t), Internal Revenue Code of 1986 (26 U.S.C. Section
SOl (t);
(2) negotiable certificates of deposit issued by a bank that has a certificate of deposit rating of at
least 1 or the equivalent by a nationally recognized credit rating agency or that is associated
with a holding company having a commercial paper rating of at least A-1, P-l, or the
equivalent by a nationally recognized credit rating agency; and
(3) corporate bonds, debentures, or similar debt obligations rated by a nationally recognized
investment rating firm in one of the two highest long-term rating categories, without regard
to gradations within those categories.
Sec. 2256.021. EFFECT OF LOSS OF REQUIRED RATING.
An investment that requires a minimum rating under this subchapter does not qualify as an
authorized investment during the period the investment does not have the minimum rating. An
entity shall take all prudent measures that are consistent with its investment policy to liquidate an
investment that does not have the minimum rating.
Sec. 2256.022. EXPANSION OF INVESTMENT AUTHORITY.
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Expansion of investment authority granted by this chapter shall require a risk assessment by the
state auditor or performed at the direction of the state auditor.
SECTION 12. Sec. 2256.023. INTERNAL MANAGEMENT REPORTS.
(a) Not less than quarterly, the investment officer shall prepare and submit to the governing
body of the entity a written report of investment transactions for all funds covered by this
chapter for the preceding reporting period.
(b) The report must:
(1) describe in detail the investment position of the entity on the date of the report;
(2) be prepared jointly by all investment officers of the entity;
(3) be signed by each investment officer of the entity;
(4) contain a summary statement prepared in compliance with generally accepted
accounting principles of each pooled fund group that states the fully accrued inoome
for the reporting period:
(A) beginning market value for the reporting period;
(B) additions and changes to the market value during the period; and
(C) ending market value for the period;
I .(5) state the book value and market value of each separately invested asset at the
beginning and end of the reporting period by the type of asset and fund type
invested;
(6) state the maturity date of each separately invested asset that has a maturity date;
(7) state the account or fund or pooled group fund in the state agency or local
government for which each individual investment was acquired; and
(8) state the compliance of the investment portfolio of the state agency or local
government as it relates to:
(A) the investment strategy expressed in the agency's or local government's
investment policy; and
(B) relevant provisions ofthis chapter.
(c) The report shall be presented not less than quarterly to the governing body and the chief
executive officer of the entity within a reasonable time after the end of the period.
(d) If an entity invests in other than money market funds, investment pools, or accounts oflèred
by its depository bank in the form of certificates of deposit, or money market accounts or
similar accounts, the reports prepared by the investment officers under this subsection shall
be formally previewed at least annually by an independent auditor and the results of' the
review shall be reported to the governing body auditor.
Sec. 2256.024. SUBCHAPTER CUMULATIVE.
(a) The authority granted by this subchapter is in addition to that granted by other law. Except
B-13
as provided by Subsection (b), this subchapter does not:
(1) prohibit an investment specifically authorized by other law; or
(2) authorize an investment specifically prohibited by other law.
(b) Except with respect to those investing entities described in Subsection (c), a security
described in Section 2256.009(b) is not an authorized investment for a state agency. a local
government, or another investing entity, notwithstanding any other provision of this chapter
or other law to the contrary.
(c) Mortgage pass-through certificates and individual mortgage loans that may constitute an
investment described in Section 2256.009(b) are authorized investments with respect to the
housing bond programs operated by:
(1) the Texas Department of Housing and Community Affairs or a nonprofit
corporation created to act on its behalf;
(2) an entity created under Chapter 392, Local Government Code; or
(3) an entity created under Chapter 394, Local Government Code.
SECTION 13. Sec 2256.025. SELECTION OF AUTHORIZED BROKERS
I The governing body of an entity subject to this subchapter or the designated investment committee
I
I of the entity shall at least annually, review, revise, and adopt a list of qualified brokers that are
authorized to engage in investment transactions with the entity.
I Sec. 2256.026. STATUTORY COMPLIANCE
All investments made by entities must comply with this subchapter and all federal. state and local
statutes, rules or regulations.
SUBCHAPTER B. MISCELLANEOUS PROVISIONS
Sec. 2256.051. ELECTRONIC FUNDS TRANSFER.
Any local government may use electronic means to transfer or invest all funds collected or
controlled by the local government.
Sec. 2256.052. PRIVATE AUDITOR
Notwithstanding any other law, a state agency shall employ a private auditor if authorized by the
legislative audit committee either on the committee's initiative or on request of the governing body
of the agency.
SUBCHAPTER C. PAYMENT FOR AND DELIVERY AND DEPOSIT OF
B-14
SECURITIES PURCHASED BY STATE
Sec. 2256.053. PAYMENT FOR SECURITIES PURCHASED BY STATE.
The comptroller, the state treasurer, or the disbursing officer of an agency that has the power to
invest assets directly may pay for authorized securities purchased from or through a member in
good standing of the National Association of Securities Dealers or from or through a national or
state bank on receiving an invoice fTom the seller of the securities showing that the securities have
been purchased by the board or agency and that the amount to be paid for the securities is just, due,
and unpaid. A purchase of securities may not be made at a price that exceeds the existing market
value of the securities.
Sec. 2256.054. DELIVERY OF SECURITIES PURCHASED BY STATE.
A security purchased under this chapter may be delivered to the state treasurer, a bank, or the board
or agency investing its funds. The delivery shall be made under nonnal and recognized prac6ces in
the securities and banking industries, including the book entry procedure of the Federal Reserve
Bank.
Sec. 2256.055. DEPOSIT OF SECURITIES PURCHASED BY STATE.
At the direction of the state treasurer or the agency, a security purchased under this chapter may be
deposited in trust with a bank or federal reserve bank or branch designated by the treasurer, whether
in or outside the state. The deposit shall be held in the entity's name as evidenced by a trust receipt
of the bank with which the securities are deposited.
SECTION 2. Section 51.003(b), Education Code, is amended to read as follows:
(b) The funds shall either be deposited in the depository bank or banks or invested as
authorized by Chapter 2256, Government Code Public Funds Investment Act. Funds that
are to be deposited in the depository bank or banks must be deposited within seven days
from the date of collection.
SECTION 3. Section 51.0031(a), Education Code, is amended to read as follows:
(a) A governing board may deposit funds under its control as provided in Section 51.003 ofthis
code, may invest funds under its control in accordance with Chapter 2256, Government
Code and, with regard to donations, gifts, and trusts, may establish endowment funds that
operate as trusts and are managed under prudent person standards.
Sec. 2256.056. COMPLIANCE WITH OTHER LAWS.
Notwithstanding any other law, a municipality with a population of less than 50,000 may not: issue
B-15
for any purpose or cause to be issued in its behalf any installment sale obligation or lease-purchase
obligation having the principal amount of $1 million or more without complying with the
provisions of Section 3.002, Chapter 53, Acts of the 70th legislature, 2nd Called Session, 1987
(Article 717K-8, Vernon's Texas Civil Statues), regardless of whether the obligation was issued
individually or in a series of related transactions, or whether the obligation was with no recourse to
the local government.
Sec. 51.0032. INVESTMENT REPORTS AND POLICIES.
(a) A governing board shall adopt by rule or resolution a written investment policy for the
investment of its institutional funds.
(b) Not less than quarterly, an institution of higher education shall prepare and submit to the
governing board of the institution a written report of the institution's institutional funds
investment transactions for the preceding reporting period.
(c) In addition to other information that may be required by the governing board, the report
must contain:
(1) a summary statement of each pooled fund group that states the beginning market
value for the reporting period, additions and changes to the market value during the
period, and the ending market value for the period; and
(2) the book value and market value of each separately invested asset at the beginning
and end of the reporting period by type of asset and fund type invested.
(d) In this section:
(1) "Governing board" means a governing board describedin Section 51.0031(c).
(2) "Institution of higher education" means an institution of higher education WIder the
governance of a governing board to which this section applies.
(3) "Pooled fund group" means an internally created fund of an institution of higher
education in which one or more institutional accounts are invested.
(4) "Separately invested asset" means an account of an institution of higher education
that is not invested in a pooled fund group.
SECTION 15. Sec. 2256.018. Government Code Is Repealed.
SECTION 16. This Act takes effect September 1, 1997, and applies only to investment activities
of a governmental entity subject to Chapter 2256, Governrnent Code that occurs on or after that
date.
SECTION 17. The importance of this legislation and the crowded condition of the calendars in
both houses create an emergency and an imperative public necessity that the constitutional rule
requiring bills to be read on three several days in each house be suspended, and this rule is hereby
suspended.
Passed by the House on May 6, 1997, by a non-record vote; and that the House concurred in
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Senate amendments to H.B. No. 2799 on May 28, 1997, by a non-record vote; passed by the
Senate, with amendments, on May 24,1997, by a viva-voce vote.
Approved June 20,1997.
Effective September 1, 1997.
/
/
)
I B-17
I
APPENDIX C
AUTHORIZED POOLED GOVERNMENT FUNDS
AGREEMENTS
. .
.
.
Texas LocaI Government Investment Pool
Participation Agreement
PREAMBLE
This participation agreèment (the "Ag;-~ment") is made and entered into by and between the Comptrol-
ler of Public Accounts (the Comptroller). acting by and on behalf of the Texas Treasury Safekeeping Trust
Comgany (the Trust Co~any ), Trustee of the Texas Local Government Investment Pool (TexPool). and
t e CIty of The olony, Texas (the "Participant").
WHEREAS, the Participant may have been a party to an earlier participation agreement with the Texas State
Treasurer (the Treasurer);
WHEREAS, the Treasurers office was abolisbed on September I, 1996 pursuant to Acts 1995. 74th Leg. SJ.R No.
I and the adoption of a constitutional ameodment to Article ~ § 1 of the Texas ConstitntiOD adopted by the voters on
November 7, 1995;
ì WHEREAS, the Participant and the Comptroller desire to enter into this Agreement to replace and Supersede any
~ prior participation agreement to properly reflect changes in the Public Funds Investment Act,. the abofition of the Treasurer
s office and other matters;
WHEREAS, the Interloca1 CooperaIion Act. TEX. OOV'T CODE ANN. ch. 791 aud TEX. OOV'T CODE ANN.
ch. 2256 (the "Acts") provide for the creation of public funds investment pools to which any local government may del-
egate. by contract, the authority to hold legal title as custodian and to make investments purchased with local investment
funds;
WHEREAS. the Trust Company is a limited pwpose trust company authorized pursuant to lEX. GOV'T CODE
ANN. § 404.103 to receive. ttansfer and disburse money and secwities belonging to state agencies and local political
subdivisions of the state and for which the Compaoller is the sole officer, dLrector and shareholder;
WHEREAS, TexPool is a public funds investment pool, whicb funds are ÌJM:sted in certain eligible investments as
more fully described hereafter;
WHEREAS, the Participant bas detennined that it is authorized under the Acts and other applicable law to enter
into this Agreement; and
WHEREAS. in an effon to ensure the continued availability of an investment pool as a vehicle for investment of
-, local government funds and simultaneously provide for potential enhancement in secvices and potential decreases in man-
agement and administrative fees. Participant and Trust Company desire to provide in this Agreement for the Trust Cc>mpany
to obtain professional private management services and/or a potential assignment of the Trost Company s managerial
obligations relative to TexPool.
NOW THEREFORE. for and in consideration of the mutual promises. covenants and agreements herein con-
) tained. the receipt and sufficiency of which are hereby acknowledged. the parties hereto agree with each other as follows:
,
1
ARTICLE L
DEFINITIONS
"Account" shall mean any account or accounts, including any sub accounts, established by the Participant in TexPooI in
accordance with this Agreement and the Operating Procedures (as defined herein), which Account represents an undivided
beneficial ownership in TexPool.
"Authorized InvestDJents" shall mean those investments which are authorized by the Investment Act (as herein defined)
for investment of public funds.
"Authorized Representative(s) of the Participant" shall mean any individual who is authorized to execute documents
and take such other necessary actions under this Agreement as evidenced by the duly enacted Resolution of the Participan t.
"Authorized Representative(s) of the 1ìust Company" shall mean any employee of the Comptrotler who is designated in
writing by the ComptroUer to act as the authorized Trust Company representative for purposes of the Agreement and sha11
include employees of any private entity performing the obligations of the ComptroDer under this Agreement.
"Board" shall mean the advisory board provided for in the Investment Act (as defined below).
"Investment Act" shaH mean the Public Funds Investment Act, TEX. GOV'T CODE ANN. ch. 2256, as amended from
time to time.
/ "Investment Policy" shall mean the written TexPooI Invesbnent Policy, as amended from time to time, relating to the
investment and management of funds in TexPooI as established by the Trust Company consistent with the Investment Act.
I /
/ "Letter or IDstroctions" shall mean a written authorization and direction to the Trust Company signed by an Authorized
/ Representative of the Participant.
I
"Operating Procedures" shall mean the written procedures established by the Trust Company describing the management
~ and operation ofTexPool, and providing for !he establishment of, deposits to and withdrawals from the Accounts. as amended
from time to time.
"Participant" shall mean any entity authorized by the Acts to participate in a public funds investment pool that has ex-
ecuted an Agreement pursuant to a Resolution.
"ResoIUtiOD" shall mean the resolution adopled by the governing body of a local governmental entity authorizing that
entity participation in TexPool and designating persons to serve as Authorized Representatives of the ParticipanL
ARTICLE n.
GENERAL ADMINISTRATION
Section 2.01. TcxPool Defined
(a) TcxPool is a public funds investment pool created pursuant to the Acts.
(b) Subject to Section 6.10, the Trust Company agrees to manage the Participant's Account in accordance with the
Investment Act and the lnvestmel1t Policy.
Section 2.02. Board.
(a) The Board is composed of members appointed pursuant to the requirements of the Investment Act.
,.J (b) The Board shall advise the Trust Company on the Investment Policy and on various other matters affecting
TexPool, and shall approve fee increases.
2
Section 2.03. General Administration.
(a) The Trust Company shall establish and maintain the Investment Policy specifically identifying the Authoriz.
Investments consistent with the Investment Act and the general policy and investment goals for TexPool.
(b) The Trust Company shall establish and maintain the Operating Procedures. describing the management ar
operation of TexPool and providing for procedures to be followed for the establishment of, deposits to~ aJ1
withdrawals ftom the Accounts and such other matters as are necessary to carry out the intent of this Agree
ment
(c) The Trust Company shall have the power to take any action necessary to carry out the purposes of this Agree
ment, subject to applicable law and the terms of the Agreement.
Section 2.04. Ownership Interest Each Participant shall own an undivided beneficial interest in the assets 01
TexPool in an amount proportional to the total amount of such Participant's Accounts relative IJo the total amount of alJ
Participants' Accounts in TexPooI, computed on a daily basis.
Section 2.05 Independent Audit. TexPooI is subject to annual review by an independent auditor consistent with
the Investment Act In addition, revieWs of TexPool are required to be conducted by the State Auditor's Office and by the
Internal Auditor of the Comptroller s Office. The Trust Company may obtain such legal, accounting, financial or other
professional services as it deems necessary or appropriate to assist TexPooI in meeting its goals and objectives.
Section 2.06. Uability. Any liability of the Comptroller, the Comptroller's 0fIice. the Ttust Company, represen-
tatives or agents of the Trust Company, any Comptroller employee, or any member of the Board for any loss, damage Or
claim, including losses from investments and transfers. to the Participant shall be limited to the fuU extent allowed by
applicable laws. The Trust Company's responsibilities hereunder are limited to the management and investment ofTexPool
and the providing of reports and information herein required.
----' ARTICLE m.
PARTICIPATION REQUIREMENTS
Section 3.0L The Participation AgreemenL The Participant must execute this Agreement and provide a Resolu-
tion authorizing participation in TexPool and designating persons to serve as Authorized Representatives of the Participant
and any other documents as are required under, and substantially in the form prescribed by, the Operating Procedures before
depositing any funds into TexPool.
Section 3.02. Operating Procedures.
(a) The Participant acknowledges reccipt of a copy of the Ope¡ating Procedures. The Operating Procedures
describe in detail the procedures required for the establishment of accounts. deposits to and withdrawals from
TexPool, and related information.
(b) The Operating Procedures may be modified by the Trust Company as appropriate to remain consistent with
established banking practices and capabilities and when such modification is deemed necessary to improve
the operation of TexPooI.
(c) The Participant hereby concurs with and agrees to abide by the Operating Procedures.
ARTICLE N
INVESTMENTS
,~ Section 4.01. Investments. All monies held in TexPool shan be invested and reinvested by the Trust Company or
Authorized Representatives of the Trust Company only in Authorized Investments in accordance with the Agreement, the
Investment Policy and the Investment Act. Participant hereby concurs with any such investment SO made by the Trust
3
Company. TexPool's available funds that are uninvested may be held at the Trust Company's account at the Federal
Reserve Bank of Dallas or any designated custodian account AIl investment assets and collateral will be in the possession
of the Trust Company and held in its book-entry safekeeping account at the Federal Reserve Bank or any designated
custodian account
Section 4.02. Failed Investment Transactions. In the extraordinary event that a purchase of securities results in a
failed settlement, any resulting uninvested funds shall remain in the Trust Company's Federal Reserve Bank of Dallas
account or any designated custodian account. If an alternative investment can be secured after the failure of the trade to
settle, TexPool will receive all the income earnings. including but not limited to, any compensation from the purchaser
failing in the trade and the interest income from the alternative investment.
Section 4.03. Investment Earnings and Losses Allocation. All interest earnings in TexPooI will be valued daily
and credited to the Participant's Accounts monthly, on a pro rata allocation basis. All losses, if any, resulting fiom the
investment of monies in TexPooI shall also be allocated on a pro rata allocation basis. All eanùngs and losses will be
allocated to the Participants Accounts in accordance with generally accepted accounting procedures.
Section 4.04. Commingling of Accounts. Participant agrees that monies deposited in TexPool may be com-
mingled with all other monies held in TexPooI for purposes of common investment and operational efficiency. However,
each Participant will have separate Accounts on the books and records of TexPool, as further provided for in the Operating
Procedures.
ARTICLE ~
~ EXPENSES AND REPORTS
! I
i Section 5.01. Fees and Expenses. The Participant agrees to pay the amount set forth in the fee schedule. Partici-
pant agrees that all fees shall be directly and automatically assessed and charged against the Participant·s Accounts. The
basic service fee shall be calculated as a reduction in the daily income earned, thus only the net income SbalI be credited to
the Participant's AccounL Fees for special services shall be charged to each Participant's account as they are incurred or
~ performed. A schedule of fees shall be provided to the Participant annually. Each Participant will be ootifiedthirty (30)
days prior to the effective dale of any change in the fee schedules.
Section 5.02. Reports. The Participant shall be provided a monthly stalement within the fust five (5) business
days of the succeeding month. The monthly statement shall include a detailed listing of the ba1aace in the Participant's
Accounts as of the date of the statement; all account activity, including deposits and withdrawals; the daily and monthly
yield information; and any special fees and expenses charged. Additionally, copies of the Participant's reports in physical or
computer form will be maintained for a minimum of three prior fiscal years. All records shall be available for inspection at
all reasonable hours of the business day and UDder reasonable conditions.
Section 5.03. Confidentiality_ The Trost Company and any private entity acting on behalf of the Trust Company
for purposes of this Agreement will maintain the confidentiality of the Participant's Accounts. subject to the Public Infor-
mation Act. TEX. GOV'T CODE ANN. cb. SS2. as amended.
.~
4
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Notices. Any notices, Letters of Instructions or other infonnation required or permitted to be given
hereunder shall be submitted in writing and shall be deemed duly given when deposited in the U.S. mail postage prepaid or
successfully transmitted via facsimile addressed to the parties as follows: .
. To the Participant:
Participant Name: City of The Colony
Address: 5151 N. Colony Blvd.
City, State, Zip: The Colony. Tx. 75056
Telephone: (972) 625-1756 Fax: (972) 624-2298
To the Trust Company:
Texas Treasury Safekeeping Trust Company
Ann: TexPool
P.O. Box 12608
Austin, Texas 78711- 2608
Telephone No. (512) 463-2950
FAX No. (512) 463-0823
The Participant and the Trust Company agree to notify the other of any change affecting this information and agree
that unless and until so notified. the other party shall be entitled to rely on the last information provided.
Section 6.02. Taxpayer Identification Number. The Participant's taxpayer identification Dumber assigned by the
Internal Revenue Service is: . The Participant hereby agrees to notify the Trust Company··of any
change affecting this Taxpayer Identification number and agrees that unless and until so notified. the Trust Company shaII
be entitled to rely on same in providing any and all reports or other information necessary or required by the FederaI tax
laws as amended from time to time.
~
Sedioa 6.03~ Severability.' H any provision of this Agreement shaD be held or deemed to be in fact illegal, inopera-
tive or unenforceable, the same shall not affect any other provision or provisions herein contaiaed or render the same
invalid, inoperative or unenforceable to any extent whatsoever.
Sectioa 6.04. Execution of Counterparts. This Agreement may be simultaneously executed in several separate
counterparts, eacb of which shall be an original and aD of which shall constitute but one and the same instrument.
Section 6.05. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas. Venue for any dispute under this Agreement shall be in Travis County, Texas.
SectiOD 6.06. Captions. The captions or headings in this Agreement are for CODvenience only and in no way
define, limit or describe the scope or intent of any provisions, articles or sections of this Agreement.
Sectioa 6.00. Amendments.
(a) The Trust Company sball advise the Participant in writing of any amendments to this Agreement no less than
45 days prior to the effective date of such amendment. The Participant may ratify the Proposed amendment of
this Agreement by letter to the Trust Company. In the event the Participant elects not to ratify the amendment,
the Participant may terminate this Agreement in accordance with Section 6.08. In the event the Participant
fails to respond in writing to a notice of amendment prior to the effective date of such amendment, this
Agreement shall be deemed amended.
(b) The Trust Company may periodically revise the Operating Procedures from time to time as it deems necessary
~ for the efficient operation of TexPool. The Participant will be bound by any amendment to the Operating
Procedures with respect to any transaction occurring subsequent to the time such amendment takes effect,
provided. however, that no such amendment shall affect the Participant's right to cease to be a Participant
5
,
Section 6.08. Termination. This Agreement may be terminated by either party hereto. with or without catlS(:. by
tendering 30 days prior written notice in the manner set forth in Section 6.01 hereof.
Section 6.09. Term. Unless terminated in accordance with Section 6.08, this Agreement shan be automatica11y
renewed on each anniversary date hereof. .
Section 6.10. Assignment. The Trust Company may enter into an agreement with a third party investment man-
ager to perform its obligations and services under this Agreement, provided that such third party investment manager shall
manage TexPool according to the Investment Act, Investment Policy and in a manner consistent with that directed by the
Trust Company. The Trust Company also shall have the right to assign its rights and obligations under the Agreement to a
third party investment manager if the Trust Company determines that such assignment is in the best interest of the State and
Participants. In the event a successor pool to TexPool is deemed by the Trust Company to be in the best interest of the State
and the Participant, the Trust Company may take any action it deems necessary to assign its rights and benefits under any
third party agreements and transfer the assets from TexPool to any successor pool. 1be Trost Company will provide
advance written notice to Participant before'any such assignment.
In Witness Whereo( the parties hereto have caused this Agreement to be executed as of the dates set forth below.
and the Agreement shall be effective as of the latest such date.
PARTICIPANT TEXAS TREASURY SAFEKEEPING TRUST
COMPANY
, B~¡Q MÆ V-Je,"'" ~BY. By: ComptroOer of Public Accounts
/ ~~
/
/
Name: W 11(. w: ¡.// t:1Jr/ Jt/ I J/ ~ Name: f.N¡Q .
-
1itle: ¡VI A VOle.., 1itIe: ~'
,
Date: 1/-1/-96 Date:
_J
I
I
6 I
. .
RECEIVED
FEe 2 1 1997
SAF TEX;;,;:, ~ ,
EKEE?INc;-r ';'()s1" G
CERTIFICATE OF INCUMBENCY
I. Patti A. Hicks . hereby certify that I am the
duly appointed. acting. and qualified City Secretary
of the City of The Colonv, Texas andtba.r
I am authorized to execute and deliver this Certificate, and I do hereby further certify as foUows:
INCUMBENCY
The-' following' person IS the duly appointed, acting, and qualified officer of the
- City of The Colony who, in the capacity set fortIJ
below is authorized to execute the TexPool Participation Agreement.
NAME TITLE o,SPEy~NATURE .
William W. Manning Mayor t ßQ.t ~--.
<:::
IN WIT~S WHEREOF, duly executed this certificate as of the
// - day of . 19
Signature~ . a
litle City Secretary
..~ ~127
~
, Local Government Investment Cooperative Resolution ¡Vv, D:2 - /;;
RESOLUTION APPROVING AND AUTHORIZING EXECUTION OF AN INTERLOCAL
I AGREEMENT FOR PARTICIPATION IN A LOCAL GOVERNMENT INVESTMENT
COOPERATIVE (THE "COOPERATIVE"), DESIGNATING THE BOARD OF DIRECTORS OF
~ THE COOPERATIVE AS AN AGENCY AND INSTRUMENTALITY TO SUPERVISE THE
,
. COOPERATIVE, APPROVING INVESTMENT POLICIES OF THE COOPERATIVE,
APPOINTING AUTHORIZED REPRESENTATIVES AND DESIGNATING INVESTMENT
OFFICERS.
I WHEREAS, the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, as amended (the
"Interlocal Act"), permits any "local government" to contract with one or more other "local governments" to perform
I "governmental functions and services", including investment of public funds (as such phrases are defined in the Interlocal
I Act);
~, WHEREAS, the Interlocal Act authorizes the contracting parties to any interlocal agreement to contract with
I agencies of the State of Texas, within the meaning of Chapter 771 of the Govemment Code;
, WHEREAS. the Act permits the contracting parties to any interlocal agreement to create an administrative agency
I to supervise the performance of such inter/ocal agreement and to employ personnel and engage in other administrative
activities and provide other administrative services necessary to execute the terms of such interlocal agreement;
~ WHEREAS, the Public Funds Investment Ac~ Chapler 2256 of the Texas Government Code, as amended {the
' "PFIAj, authorizes the entities described in Subsection (aJ of the PFIA to invest Iheir funds in an eligibie public funds
investment pool, and the Local Government Investment Cooperative has become and Intends to remain an eligible pUblic
funds investment pool, under the terms and conditions set forth in PF'A;
WHEREAS, CITY OF THE COLONY , (the "Government Entity").
desires to enter into that certain Participation Agreement (the "Agreement"), a copy of which is presented with this
Resolution and is incorporated herein by reference, and to become a participant in a public funds investment pool created
"'·reunder and under PFIA, to be known as Local Government Investment Cooperative (the .Cooperative");
WHEREAS, the Government Entity is a Government Entity as defined in the Agreement; and
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m WHEREAS, the Government Entity desires to cause administration of the Cooperative to be performed by a board
tf directors (the "Board"). which shall be an administrative agency created under the Interlocal Act and an advisory board
" nder PF/A; and
Wi
~ WHEREAS, the Government Entity desires to designate the Board as its agency and instrumentality with authority
supervise performance of the agreement, employ personnel and engage in other administrative activities and provide
pther administrative services necessary to execute the terms of the Agreement; and
;;
L· WH~~EAS, each capitalized term used in this Resolution and not otherwise defj~ed has the same meaning
ti signed to It In the Agreement; '.;"'.
I NOW, THEREFORE, BE IT RESOLVED:
1. The Agreement is hereby approved and adopted and, upon execution thereof by an Authorized
~epresentative (defined below) and receipt of the Government Entity's application to join the Cooperative I:w the
tministrator, the Government Entity shall become a Participant in the Cooperative for the purpose of investing its
ailable funds therein from time to time in accordance with its terms.
~ 2. The Board is hereby designated as an agency and instrumentality of the Government Entity, and the
ard shall have the authority to supervise performance of the Agreement and the Cooperative, employ personnel and
. gage in other administrative activities and provide other administrative services necessary to execute the terms of the
reement. The investment policies of the Cooperative, as set forth in the document entitled Investment Policies, as
3.
rrnmarized in the Information Statement, and as may be amended from time to time by the Board, are hereby adopted
~nvestment policies of the Government Entity with respect to money invested in the Cooperative, and any existing
stment policies of the Government Entity in conflict therewith shall not apply to investments in the Cooperative.
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I 4. The following officers, officials or employees of the Government Entity are hereby designated a:
I "Authorized Representativesn witrun the meaning of the Agreement, with full power and authority to: execute thE
Agreement, an application to join the Cooperative and any other documents required to become a Participant; deposi
money to and withdraw money from the Government Entity's Cooperative account from time to time in accordance witt
the Agreement and the Information Statement; and take all other actions deemed necessary or appropriate for the
I investment of funds of the Gover~ t)ro
Signature: ' . " l-
~
I Printed Name: Rebecca Koo
Title: Finance Director
I Signature: G:t... ~t:f) ~l5 ~
I Printed Name: Gwen Mansfield
Title: Accounting- Manager
I Signature: ~ 6vtW1~
I Printed Name: Beckv Betancourt
Title: Accounts Payable Technician
I In accordance with Cooperative procedures, an Authorized Representative shall promptly notify the Cooperative in
writing of any changes in who is serving as Authorized Representatives.
I 5. In addition to the foregoing Authorized Representatives, each Investment Officer of the Cooperative
appointed by the Board from time to time is hereby designated as an investment officer of the Government Entity and, as
f such, shall have responsibility for investing the share of Cooperative assets representing funds of the Government Entity.
Each depository and custodian appointed by the Board from time to time are hereby designated as a depository and
custodian of the Government Entity for purposes of holding the share of Cooperative assets representing funds of the
Government Entity. Cfi1
I PASSED AND APPROVED this . ~ day of m ¡e¡ Y ,20 Ð óL
ATTEST: , /
!BY: B~:Dt. '0~~~
7 ß ER\3 tn-I\. L-lr=. ¡..{ 'l"l LU:... -SHA Þ ~ á'~
Printed Name and Title m ~O ï~
SEAL (
I
I Additional Party Agreement
I The Government Entity of the State of Texas named below, acting by and
through the undersigned Authorized representative, hereby agrees to become a party to
that certain Participation Agreement to which this page is attached, and thereby
I become a Participant in the Local Government Investment Cooperative, subject to all of
the terms and provisions of such Agreement. The undersigned hereby represents that
it is a Government Entity as defined in such Agreement.
I to fVl~
Executed this day of , 20 tJ;:L,
I
CITY OF THE COLONY
I Name of Government Entity
~ ~~
I By:
Authorized Representa Ive
I REBECCA KOO
I Printed Name
FINANCE DIRECTOR
I Title
I ACCEPTED:
I Local Government Investment Cooperative
~¿~
-
, By:
LOGIC Administrator
I PATRICK S. SHINKLE i
I Printed Name
VICE-PRESIDENT ? PROGRAM ADMINISTRATOR
Title