HomeMy WebLinkAboutResolution No. 06-094
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CITY OF THE COLONY
RESOLUTION NO. 06-/)QI.)
A RESOLUTION APPROVING THE INVESTMENT POLICY FOR THE
CITY OF THE COLONY AS ADOPTED BY RESOLUTION 05-100 ON
THE 7TH DAY OF NOVEMBER, 2005 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.
NOW, THEREFORE, BE IT HEREBY RESOL VED BY THE CITY
COUNCIL OF THE CITY OF THE COLONY, TEXAS:
SECTION 1: That the City Council of the City of The Colony hereby approves
the Investment Policy of the City of The Colony as adopted by Resolution No. 05-100 on
the 7th day of November, 2005.
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 by the City Council of the City of The Colony,
Texas this 6th day of November, 2006.
ATTEST: '.
CtdAL W~-f~
istIe Wilson, TRMC, City Secretary
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CITY OF THE COLONY
INVESTMENT POLICY
November 1, 2006
Prepared by the Finance Department
Approved by the City Manager
Confirmed by the City Council on November 6,2006
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CITY OF THE COLONY INVESTMENT POLICY
TABLE OF CONTENTS
PAGE
I. SCOPE OF POLICY 1
A. Funds Included 1
B. Funds Excluded 1
C. Pooling of Funds 1
D. Additional Requirements 1
E. Review and Amendment ofthe Policy 1
II. PRUDENCE 2
III. OBJECTIVES OF POLICY 2
A. Safety 2
B. Liquidity 2
C. Yield 3
D. Risk of Loss "
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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 of 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
1. Diversification 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 Dollar- Weighted Maturity 8
D. Diversification 8
E. Pricing 8
VIII. SELECTION OF DEPOSITORY, FINANCIAL INSTITUTIONS AND
BROKERJDEALERS 9
A. Bidding Process 9
B. Insurability 9
C. Authorized Depository, Financial Institutions, and
Broker/Dealers 9
IX. COLLA TERALIZATION OF CITY'S DEPOSITS 10
A. Insurance or Collateral Pledged 10
B. Collateral Defined lO
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 the 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 theissuance 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
ammally 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.
II. PRUDENCE
Investments shall be made with judgment and care, under circumstances then prevailing, which
persons of prudence, discretion and intelligence exercise in the management of their own affairs,
not for speculation, but for investment, considering the probable safety of 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 of the 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 from 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
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delegation of authority to persons responsible for the daily cash management operation, the
execution of investment transactions, overall portfolio management and investmen( 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, MT A, GFOA T, AICP A, 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-I or P-l 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 of the 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
1. 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) of the 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 of 90 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 of the City on the date of the 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
of the 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;
1. Disclose the investment income earned, by accounting fund;
J. Demonstrate the diversification of the 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 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 ailow 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. DIVERSIFICA TION:
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.
fn establishing specific diversification strategies, the following general policies and constraints
shall apply:
1) Portfolio matuntIes 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 from 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% of the 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 of the 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 secuntIes 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 Acknowledgements from a Business Organization
"Qualified Representative" of the financial institution or broker/deale~ 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 $1 00,000, 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:
1) FDIC insurance coverage.
2) Obligations of the 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 of 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 of the 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 of the 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. A voidance of bearer- form securities.
F. Clear delegation of authority
G. Documentation of investment bidding events.
H. Written confirmations from broker/dealers and financial institutions.
1. Reconcilements and comparisons of security receipts with the investment subsidiary
records.
J. 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, ea~h 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.
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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 SUPPLY THE CITY WITH THE
REQUIRED CERTIFICATIONS AND FINANCIAL DOCUMENTS
ABN AMRa Inc.
AGEdwards
BMO Nesbitt Burns Corp.
BNP Paribas Securities Corp.
Bane of America Securities LLC
Bane One Capital Markets, Inc.
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
CIBC World Markets Corp.
Credit Suisse First Boston Corp.
Daiwa Securities America Inc.
Dean Witter/Morgan Stanley
Deutsche Bane Alex Brown, Inc.
Dresdner Kleinwort Wasserstein
Securities LLC
Duncan Williams
Fuji Securities Inc.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J.P. Morgan Securities, Inc.
Lehman Government Securities, Inc.
Merrill Lynch Government Securities,
Inc.
Morgan Stanley & Co., Inc.
Nomura Securities International, Inc.
Rauscher Pierce Refsnes, Inc.
Salomon Smith Barney Inc.
Samco Capital Markets
Southwest Securities, Inc.
UBS Paine Webber
UBS Warburg LLC
Vining Sparks
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
CHAPTER 2256. PUBLIC FUND INVESTMENT
SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNEMNT AL
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.
(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)(1) or (2), Article III, or Section 59, Article XVI,
Texas Constitution, a fresh 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 quoted 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 unde~ 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 act on 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.
Sec. 2256.003.
CHAPTER.
AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT TO THIS
Each governing body of the following entities may purchase, sell, and invest its funds and funds
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 D.S.C. Section 1 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:
(l) 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 maximum 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
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:
(1) 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:
(l) understanding of the suitability of the investment to the financial requirements of
the entity;
(2) preservation and safety of principal;
(3) li9uidity;
(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 in,::estment 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 from
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.
(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 govermnent,
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 judgment 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.
U) 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
of the 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 of the voting stock or shares of the
business organization or owns $5,000 or more of the fair market value of the
business organization;
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(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.
(I) A written copy of this investment policy shall be presented to any person offering to
engage in an investment transaction with an investing entity. F or 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 form 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 portfolio over which the business organization has no control
or knowledge.
(m) The investment officer of an entity may not buy from 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
performed 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:
(I) preservation and safety of principal
(2) liquidity; and
(3) yield
(b) In determining whether an investment officer has exercised prudence with respect to an
investment decision, the determination 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 prud~nce of a single
investment; and
(2) whether the investment decision was consistent with the written investment policy
of the entity.
SECTION 4. 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
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 180th 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:
GUARANTEED BY GOVERNMENTAL ENTITIES.
OBLIGATIONS OF, OR
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(a) Except as provided by Subsection (b), the following are authorized investments under
this subchapter:
(1) obligations of the United States or its agencies and instrumentalities;'
(2) direct obligations of this state or its agencies and instrumentalities;
(3) collateralized mOligage 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 its 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
subchapter if the repurchase agreement:
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(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)(1) 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 of270 days or fewer from 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 from 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-I or P-I 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-I or an equivalent rating by at least:
(A) two nationally recognized credit rating agencies; or
(8) 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.
8-8
(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 D.S.C. Section 78a et seq.): or the
Investment Company Act of 1940 (15 U.S.c. Section 80 a-I et seq.);
(3) has a dollar-weighted average stated maturity of 90 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,
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
and approved by the entity.
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(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 o(lssuance 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.
(a) An entity may invest its funds and funds under its control through an eligible investment
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, of the pool;
(3) the maximum stated maturity date any investment security within 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
terms 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 of the secondary source of payment;
(10) the name and address of the independent auditor of the pool;
(11) the requirements to be satisfied for an entity to deposit funds in and withdraw funds
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
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(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 oran 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 pOlifolio 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 of the pool;
(F) the number of participants in the pool;
(0) the custodian bank that is safekeeping the assets of the pool;
(H) a listing of daily transaction activity of the entity participating in the pool;
(I) the yield and expense ratio of the pool;
(1) the portfolio managers of the 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
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(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
AAA-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:
EDUCATION
INSTITUTIONS OF HIGHER
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 from federal
income taxation under Section 501 (f), Internal Revenue Code of 1986 (26 U.S.c. Section
50l(f));
(2) negotiable celiificates of deposit issued by a bank that has a certificate of deposit rating of
at least I 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-I,
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 income 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;
(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 of this 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
offered 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
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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. See 2256.025. SELECTION OF AUTHORIZED BROKERS
The governing body of an entity subject to this subchapter or the designated investment committee
of the entity shall at least mIDually, review, revise, and adopt a list of qualified brokers that are
authorized to engage in investment transactions with the entity.
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
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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 from 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 normal and recognized
practices 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 of
this 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 Statutes), regardless of whether the obligation was issued
individually or in a series of related transaction, or whether the obligations 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 boards 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 described in Section 51.0031 (c).
(2) "Institution of higher education" means an institution of higher education under 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, Govermnent 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.
IUfective September 1, 1997.
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APPENDIX C
AUTHORIZED POOLED GOVERNMENT FUNDS
AGREEMENTS
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Texas Local Govenunent Investment Pool
Participation Aareement
PREAMBLE
This participation aareemeat (the "Aareemeotn) is made ud entered iato by ud betweeD the CompcroJ.
lor of Public Accouul$ (the Co1Apttollu). acuDI by aId 08 bebalf of Lbe Texu Treasury Safebepills Trust
Company (the Trult Com-PID)' ), TruJt= of tbe Tc:~a$ Local GovUDnseat Investment Pool (TexPool), and
the City of The Colony. .... Texas (&be llPar1iciput").
WlIEREAS. the Participant may have beer! a party to ID earliet participatioa ap'eOmeot \Jrith Cbe TCU$ State
'neasuret (1be T1US1nf);
WlfBRBAS. the Treasl:ll'elSomce was abolisbed 011 September 1, 1996 pwwaat IOAcU 1995, 74dJ J..es. SJ.R. No.
t .. the adopIioft of a coascitutioaaJ amenc:lmeftt to Article Iv. . 1 of the Texas CoucitutiOJl adopkld by 1bc WIttn on
NOYaIlbe:r 7. 1995:
WHEREAS. Ib.e Partic.ipul ad Cbe ComptroUer cIeaite 10 ealer nuo this Apeemen.t to replace and supersede IJly
prior plfticipalioe apemeat to properly reflect clwtses in the PlIbIic Funds Jnvescmeal Act. !be abolition of the 'Iftasuftt
s amce aDd 0Iber 1IlIIIeI'S;
WHBREAS, me Iauer10cal Coopendoo Act. TEX. GOV'T CODBANN. ch. 191 and TEX. GOVAT CODBANN.
a:b. 22S6 (die ~~, provide for 1be CftlatioD of public: funds ial~t pooli CO which eny local govemmw may del-
... by CO.D1l8Ct, the aurhority to hold.Jep1litk as custodian and to make inveslmCllts plllcllased with local iJMsImeat
fUDc1s;
WHEREAS, cbe 1Nat Compeny is a limited purpose trust company autborited ~t to TEX. GOV'T CODE
ANN. f 404.103 to n:ceive, tran.sfcr and disburse mODeY aod scgurilie& bel0Dpg to Stale apn.cics aDd local: poli1ic:al
subdivisions of die Slate and for wbicb &be Compaou.r is rbe aole ofticet. director tad shateboldtr;
WHEREAS, TexPool is a pubUc fUIIds btve&tment pool, which fuads are iR'tIested ill c:enain cUpble iavcstmelt.ts as
more fully described bereaftet;
WHEREAS, the Participant bas ddctmined Cbat it is authorized. under the Acts and other applicable law to eater
iftro rbis Agreemeat; Iftd
WHEltBAS, in ao effort to ensure the contiDued availabiJity of an in~t pool as a \lebicle for im'estmeDt of
local govemmeut fu.Dds Md simul1Uf:Ously provide for potential enhaac:ement in services IIDd poleftlial dec:reases ia 1IWl-
apmeutand admiaistradve fees., PIl1icipant and Trust Company de&in.., provide iQ this ~t for !be 1nast Company
to obtain ~anal pri... lNIIagecnent servic:es audlor a potcndaJ assigaDlCDt of Ihe 1hlSt Campauy & ~
abUptioas muive 10 'lUPool.
NOW 'l1IBR.EfOltB. for aDd i:ft consid<<ation of the tnutIW. PfOmisc:s. ggvcauts and ~ts __ CIOn-
1aiDed. the receipt ud sufticjeDC)' of whicb Bre hereby acknowleds~ the paniel$ bI:nW I8RO with elK;b other as fonows:
1
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,l~
ARTIa..E L
DEFJNlTIONS
"Accoaat" ahaU Il1ClUJ any account or accounts. htcludiog uy sub 1CC01QU8. establisbed by the hzticipaal in TaPooJ in
accocdaDce with this Asreement and the Operating Procedures (as defioed homo), which Account ~ ID undivided
beM6cial OWMnhip in TelPool.
"Aadaorized ~ sbaU mean d10se investments which ate aulborizecl by the lnYUtmenl Act (as bc:cin defined)
for iJIYeS!meGt of public funds.
"AIdborIzed ......tatm(e) of h PuIt.dpaf, shaJl DlUIl any individual who is I.1Itboriad to ~ documents
aad tab such orhm' necessary actions Imdet thia A.p:fment as evidenced by &be duly eaacted Resolution of the Participant.
~AatborI:raI.Jmll-oIatf~s) otb TrastColllpaay" shall meanaDY employee oftbe Comptroller who is de$ip8U:d in
wriliDg by tbe CompcroUer to act as the .1Uborir.ed TrusI Coalpany repI'eSe&'\radw for purposes of the Agreement and shall
blclude employees of 8I1Y piYlk: CIltity pafcmniDg &be obliS.riollS oldie ComplrOllet uder this A......
"8aInP sbd IDI8IlIbe advisory board pro\'icled tor in tbc ~Act Cu tWiHd bcJ01If).
"Ia~.R:Ut Acr shall tnearI the Public fuads IJM:sIment ~ 'lEX. GOV'T CODE ANN. dl. 2256. u amended Dvm
time to tiaac.
.,.,..... PeliqD sball mean the wriuen TexPoollavesaneDt Policy. as aunmded from time to time, !elating to the
dYeSt:lDeat ad mallgemeat of fuuds iD TexPoot as established by the 1'Mt Company coaaisrent with Ibc ~ Act.
"Letter otlllStl. ....as" sba11 mean a wriuen autbori2ation and dimction to the Trust ~ sipIXI by an Autborizcd
Rtpaaacaciw ofd1e PaniciPUL
<<0,.................. shall !Dean b wriuen ~ estabJi&bed by b nust Cmnprmy dcsaibing Ibe maftllpmeoc
and opa'ICioIt ofTexPoot. and prcMdiug for d1eestablishmmof, deposits to and witbdrawals &om IbcACCOUDts, as 3.'ONed
fJum lime to time.
"P8rCIcIpnf' shall meaD .." entity aut:IxJri=f by the Acts to pan:idpIte ill a pllb1ic fWIds iaveslmeDl poollbat has ex-
ecur.ed. AIR:aaem pursuaallO a Resolutioo.
~ &baD mean the resolution adopted by the govcming body of a local govem:meotal entity auttUlriziDg that
eIltiry perdcipatioa in TaPool and dosipariog petSOUIO serve as Autbcrizecl ~tadves of r.be PuticipaL
AR'DCLE D.
GENBRA.LADMINJSTJlAnON
Seetaa .z.Ol. ""001 D,fined.
<a> TaPooJ is I public fuads investmel1t pool created parsuant to the AcIs.
(b) Subject to Section 6.10. the TNst Compaoy agrees to manage the P.niciput.s Ac:counlht accordance with the
~tAc:tlDd m. ~tPolioy.
.... 2.OZ. Board.
(a) ne Board is composed of tneJ1\ben appointed Put'SWUll to the requiIemeats of the IDvestmeDI Act
(b) '!he Board 5ball advise dJe 'l'Nst Company on the lavescmedt PoliCy ad on various olber owtcrs affccliDg
TexPool, &ad shalllppraw fee iDaas&s.
2
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SecIIoII:a..G3. General AdministndoR.
(a) The Trust Coanpaay w.)) establisb and maintain tho &~t Polk:y specifiColllly ideotifyins tht: A.u1tIori.f.ed
InVestmenllS COJl8isat with rhe Investment Act and cbCl pneraJ policy and icwcstmeat goals for TexPooI.
J ..
"-'"
(b) The Trust Company shall eatabUsh and maintaia the Operating Ptocedurcs~ describiD, the lD8~ lad
operalioD of TexPoollIad providing for procedura CO be follow.,d for the esrabUshmelt of, deposits to. aod
widldlawals froJn the Ac:cowUs ud sueb other matters as are. neceswy to ClIIJ")' out Ihe intaut of tbi5 At;1:eto-
meDt.
('1 Tho Trust Company shaJ1 have the pD'Ner to cake any lCUon necessary 10 oany our the pmposcs of Ibis Aaree-
DIal, s.&bjed r.o lIpplicable Jaw md the rerms of tbe ~t
Sec:tia-. 2.04. ~p Jm.tm:st. Each Panic:ipalt shall CIWII 811 uadMded beoeficW iGtetes1 ia cbc __ of
1bPool in an IIDOWlt pruportioaa) to ... total amousn ot such Pwcicipaat's Accouats .elative to the coralllllOUDt of aD
ParcicipudS' ADcouats ill TexPool, eompured OD a daily buis.
SedMa 2.OS bdcpeDdeat Adl ~ool ili subjecc to IIlIIual review by 1ft iadependcnt auditor cousiscmtt widr
the JawsmIan,\gt. In addiCioIlt reviews of Te.xPooJ .. JCqUired to be eondacced by the State Auditor's Office.. by the
IDtcma1 Auditor of die Compboller s Oftjr;e. The Trost Companf may obtaia sucb lepl, ~ baaciat or ocber
profasioDal scrviocs as 1t __ necessary Of "'piopdate to assist ~1 iD IM8ting its goals and objectiwl.
~ 2.06. Liability. Azrt liabilUy of the CompcroJJII', the Compau1ler's ~ the TI1l$l CompaDy, NplfSeu-
WiVII or apacs of the Trust Company, uy CompuoUef aqplO)'ee. or any member of the Bomt for 811)' loss. dlaIp or
claim, iacludi-. tOS5eS from iA\'CSbDCaIS ad 1nn5fms. to me P1a1iciplltt sbaU be limited to Ibe full ~ 8lIoMd by
IIppJiQble laws. 1b& nuscCompeay's RGpOUibiliCiee btmmdcr... Um.ital to the ~ aDd mwsb:De:m of1exPooJ
BDd cbe providiag of Iq)QlU AD4 iDlonnacion berein Rqw.t.
ARDCUDL
PARTIClPA110N I.EQUIRDfENTS
SedioD 3.8L Tbe Panie.1plliOft ~t. 1bo Plnk:ipat must CUCUfe this Asreea:ot ad proviclc alaolu-
IioR ~ panic:ipatioa in Ted'oot and de.signatias penons to ~ as Authori7.ed Rep'es8lllalhea of... Parlitipmt
1tId~ GIber doeumeftlS IS lIl'CreqWred UJl~ and subSlaDtWly ill tho form pescribcd by. the Open.dnc ~ befom
depositiq aD)' fUIIds ia10 TexPool.
SedioD 3.02. Operatiag PmcedUleS.
(a) 'Jbc Patici.paat lelmowledses receipt of I ~ of die ()pIn1idg PIoceduIes. The Opera!iD, I'IocedI.zm
cbc:ribe ill detail tbe procedures requind for the eatabUsbment of ICCOIDIts, deposits to aftd witbdrAwals Dvm
TezPool, IDd !elated iDfonnatiOD.
(h) 'I1Is OperatiDg PmcecIutes may be modified by !be Trust CompaDy as appropriate to ranaUl collSialeat with
CSlabUsbed \HPdDg pncd.c:es IDd capabilities Md vmen such modUicatioD is deemed oeeesmy to imp:o\'e
the operation at TexPool.
(e) Tbe PIlnicipanl bceby c:oocurs with and agrw.s lD abide by the ()pc:rating Pmcedure.s.
ARTICLE N
INVBftMENTS
Sec:tiaa 4.01. InvcstmenIS. AU 1nOIIiei held in TexPool sball be ilM:Sted and rei.nYe$led by Ibe Trust CGalpu)' or
Aqbxized bpreseDtalivos of tbc 1\'ust Company oat, In Authorized Javestmcnts m. accardaace with the A....t. Ibe
IDYaImImt f'oHcy and ~ ~t Aol. Plriioiput ~ eolOun Widt M)' IUCls ~t GO made h11be Trust
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CompaQ)'. fedtool'. available funds k In uDiDYeSted IllaY be beId lU 1be 1hIst CGmpIDy's ~ II lite Federal.
Referve Bank of Dallas or .III1Y designared CUSUldian ICCOIUU. All im.res=eot .. lad ~ wil1 be ill die possIIIion
af 1M Tnlst CompaII)' aM held in irs book-Alr)r safekeeping accoum at die Peden! R.esarve lank at ay dcsipatCd
c:astadian Ie'C:aUiil
SedIoa 4.02. Pailed Investment transacliofts. In the: atraordiJluy ewmt drat a prn:hase of sec.uritia raults in .
failed seulemeot, uy resuJrinS lIninvared fufid& sball remUI in Ibe 'nvst Companylll PcderaJ Raerve Baak of DalIa&
accouat or 8ft)' designated CUStodio accoUDt. It 8ft alterutfve invesbDe4t C8Il be secumd .. the faihue of Ibe 1rIIck CO
seale. 1'exPoo[ \ViIl ncelve aD rhe income eanbDg&. includin, but oot limited 10, any c:amp8Jlsalion from <<be purchaser
failiAg in the trade IIId the iaraat illCOme from the alrematiVl mvesbDat.
Secdoa 4.83. mvestmell.t Eamiags ... r..oss.s AUocabo.ft. AU iaf&rf.8t eanUDp iD Te.xPool wiD be wlued daily
lUId credited to tbo Plztidpw's Acc:owus DlOIlcb1)', on . pm ... aUocadoD basia. All losses, if .y, NSOlliog &om tI>>
ilMSCmeDt of maaies iD ~. shall eo be aUocated OG a pro rata aUocaIioa basis. All emuinp _ losses wiD be
8~ CO the Puticipeats AtcouDts in accordance with aeneraJly aoc:epted ICCOUACing procedurm.
~ 4.04. CommiJaalin8 of Aec:ocmu. Participaat... dwt IDOIlies deposited in ~ may be com-
Dliagled with aD ocber moaiea beld in ~ for pIJJpCIISeS of commoa inw:s~t" opcntioDal ef6cioacy. ~,
each Participant wiD have separate Acc:owrs OG the boob and I'C!ICOnts of~ II funhrt JIIOVldcd for in Ibe Operariag
~
UTlCLE~
FBI'8. EXPENDS AND REPORTS
SeetIoII ,.oL Fees Md Blpcmses. 1b& PJu1iciput ltpIeS to pay the 8QUJUDt set bth in the fee scbeduk PIrtici-
paDl.... dIU aU fees sbaU be directly 8Dd lIItOIrIaIically .~ aDd cbarpl against the Particlp&ftO A-iS. 1be
basic semce f_ SbaU t.l!Ilcalated as a 1edudi0D ill the dail)' illCOJM ~ Ibus only Ihe Del iacome sball be aedilOd to
!be PIttic:i.]1aDtl$ Account. ... for special lelVices shall be ~ to CIl::b Paniciput.s eeeount u Cbey arc iacum:cI or
perf'onDed. A scbedaJe of fees sba1l be JnVided to !be Paniclput 8Mually. Each PInicipant will be DGtified Ibirt)' (SO)
days prior to the effective date of any chaDp in die f!lle scbedules.
~ 5.02. Reports. Tbe PartiQpaDt shall be provided a montbly staIemal wiIbin IDe first five (5) .aas
days of the lut'~B month. n.1DClaIbly ~ shall metude . derIiled JistiDg of!be balance iD ct. Pa1icipmt"s
AecouDlS as of the elate of tbs staraMat; aD accotmt ICtiYity. iDcludiq deposics lAd wilhdraMls; Ibc. daily end moDtbly
yield Womwioa: ad Ill)' special fees. &Jut expenses c:baJgecl AddiliouDy, c:opia ofrhePanicipant's RlpC:m iD plwsic:al or
CDIIlputer fmm will be maiJltaiDed for a I'ftl.~lqn of three prior fisea) fC8I'S. AU ~ sbdl be available for inspecdoI at
aU JasOnabJe bour& of the business day IIId wuJer reasoDable COlldidOll8.
Seecion 5.03. CoDfideJltiality. Tbe. 1'nIIit Company and any,.mte entity 1CIiD10Il behalf of!be lNst ~
for pattpO$e8 of Chis Agrwmeat win 'Uiaraln the confiden1iality of the Participlflc-.s ANftMh:, subject to !be Public Iafof.
JUlioa Aer. TEX.. GOV'T CODBANN. ch. S52. IS ~
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ARnCLE VI.
MISCELLANEOUS
Sediou 6.01. NouQeS. Any notiCGi, Letttn of Insuuctiol$ or orher infotmation requiRld or permitted ~ be sWn
I!Immdef shaD be IUbmined in writing and shall be deemed eMy given wben deposited in me U.S. mail postage psepaid Of
successfulI)' traftsmiaed Yia mcsimiJe addIessed to the panies as follows:
'1b the Participant:
Participant NIlme: .., Citl 9' ThO _Colony
Address: 11 5151 N. Colony Blvd.
City. Stale, Zip: The COlon:, Tx. '15056
Telepbope: ..1972(625"'lj:56 ~ ~ Fax: (972) 624-2298
To the TNst Compuy:
Texas Treasury Sd'ekeepiDg TfUSt Company
Aun: TexPool
P.O. Box 12608
Austin, reus 18711..1608
Telephone No. (512) 463-2950
PAX No. (512) 463-4823
. 1bc Participaat and &be TlUst Compaay apee to notify rbe.otbet of any cbaQgc affecting Ibis information and ISIte
dlat unless add ad) so nod1ied, the other party sbaU be catided to Jety aD the last informatioD provided.
Sedicna 6.02. Tapay.. IdeotiDcatiou Number. Tho Participant's taxpayer idcDtiticatioD number &$Iiped by the
IDIaual Revalue Service is: , . The Participant hereby agrees to DOtify the 'l'JUst CoDlpID)' of IOY
chaDge aftea:iDg this Taxpayer Mentlficatiollllumba' .d agreei &bat U!lJc:ss and uatillO notified., die hi ~ shaD
be eatided to ntly on sam~ in ~I.IDY 8dd all a:ports or other infonnaticnt Decessary at roquiRd by the Federal tax
laws as tmeGded tram time 10 time. '" .. . I , I
~ '-03. Scw:rabilhy.: It any puviaioa oflbis Apcmeat sball be held Of deemed to be in flCClllepl. iaopaa-
eM or aaeaforccablc. Ibe same &baD QOt affect aay olber provision or provisiou hc:reiD CODlaiDed or nmder cbe same
jqyatid, iaopcIIIive or llJRforceable to aD)' extont wbablaeYer.
SedioIl 6.04. Execution of Coun.terparts. 'Ibis A,greement may be simalranaously t.m:'Ured in 8e\Ia:8l separate
cowterparts, C*:h of wbic:b ahaII be an original and 1111 of which sball CQDsa.tvtc but one aod the same inS1J1DDtJllt.
Seedcm 6.05. Applicable Law. 1bis~t shalt be govemed by and con.stlUed ill acaxdanc:e with the Jaws of
the SWe of Tcx.as. Venue for any d:iapg&e UDder this A..-ment sbaU be in Tn~ County, Texas.
... 6.06. Q1ptions. The captions Of he8dings 1ft rbis A~t lie for coD"mUem:e oaly aDd, iA DO MY
defile, 1i1ail or describe the scope or i1neat of any pro\'isions. erdcles or secrions of this Apemcal
Seaioa "frI. An:1mtdmcnts.
<a) 1be Trust Compuy aball advise rbe Panicipun in writinC of lIlY ameJtdments to Ibis Apeement no lea than
"S days prior to cbe effective cIatc of such amcndmeaL The Participant may ratify tile pt'OpOscd ~tof
this Agn:emenl by letter to the 'I"rust Company. lit the evcot the Participant elects not 10 ratify lbe lUDeDcImlmt.
the Patticipant may terminate 1bis Apeemeat ill accordanu with Section 6.08. In the event 1be Pan:icipant
fails CO mpond in writing In ,. notice of amendment prior to the effective dale of such lIIl.eadmc!lt, this
~t shaD be deemed amended.
(b) The Trust Company may pcriodioaUy ~ Ihe OperadnS Procedures from time to time IS it deems DeCeSSaI)'
for 1M ,fticlCJI~ operation of TeU>>ool. The ParticipMt wUJ be bound by any amendment to the Opc:ratmg
Proccclurei with respect to &1tY Q'lUtsaCtiOft occunina subsequent 10 ~ lime such &mcDdmeIlt 1abs dfect,
provided. bowever. that no such lUICI'ld.rncnt .baIl Uicct tho Participmt's rigbt to c:ea&e to be a PatticipBDt.
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SecltIoa.... Tennin8doa. This Apeement may be tamiDaced by eithrt put)' bento. wjth Of wilhout cauc.. by
lCaderiaS 30 days prior,mUM! DOtice in the manner set fordl in Section 6.01 baof.
Sectioa 6.". Term. Unless terminated m acoordaN:e wjlh Section 6J~1 tbjs Agreement sbaU be 8Jlt.OmaticaIly
~ on each anDivasary clare bereof.
Sedioa 6..10. Assipmcnt 11u: 'Iiust Company may ca_ uno aD qreemont with a tbJnJ patty invesannt man-
ager 10 perform its obligation! an.d setVices uDder 1hia Aareemcnt. provided that &uch thin:! peny iDvcsImmt IDlIQpl sb811
m.uase 1blcPooI1Clf:lOntin11O die IJSvesCmcrf.l A.c:l. IawstlPaat Policy IDd in a marmer eonsiscmt with that diIecfed by die
Trusr CampID)'. 1'be 'n'ust CompaD)' also .ball baw Ibe riabt to _p its risJrts ad ob1i.ptiou wdel Ibe ~t to.
Cbird paR)' invescment mini" if Ihe Trust Cotnpqay detemaines 1hat such assignmau is in the best interest of the Stare aad
Pafticipal$. In the..t a ~ pool to TexPooJ i$ d~ by ....In. Company 10 be in the best iateJtaof1be sw.e
aad the ParriciPlIlt. me 'Dust CoInpail)' may tab aD)' actiOD it deems DeCe8S8r)' to assip ilS riJhls and beae&a ODder lIlY
thin! party IlfeeDleDII ad ausfer Ihe assets from '&xPooI to U)' successor pool. '!be Trust ('.omPanf will provide
adYaace 'Mi1rea DOCic:e 10 Participanc before aay such assi,pmem.
III Witness WIIenot. the parties hcrero have QUsed Ibis Ageement to be cxecuI.BCIas of !be data Set forth below,
and Cbe A&n=meat 8haU bo effec1ive as of the ..... such date.
PAlmCIPANT
TEXAS TUASURY SA1lEKEEPING mUST
COMPANY
.y: CampDvJler oIPa1d1c A.clcoaats
By:
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Name: Y{M . HI. 11/ J:llrlAlI Y 6-
'mIe: #l4.yDL
Dale: 11./1- 9f;
Name:
nde:
Date:
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RECEIVED
rES 2 1 1997
~uJcl"ifi"~'" .
~TCO
CERTIFICATE OF INCUMBENCY
I.
p.tti A. Hicks
. bereby certify dw I am tile
duly appointed. acting, and qualified
Ciu S~cretuy
of the "-
-'ity of Thf, Colot1Y',f leys
and that
J am authorized to execute and deUver this Certificate. and I do bereby further certify as follows:
INCUMBENCY
Tne-' following' person is the duly appointed. aClins. .IId qualified officer of tbe
City of ~he Colollt
below is authorized to execute the TexPool '-tieipacion Agreement.
who, in lhe capacity set forth
NAME
TITLE
Ih~GNKroRE .
10.t;. IL-oho
WUliam W. Manning
Mayor'
IN WIT~S WHEREOF,
II - day of
tbis
'ntle
Q,tb! Secretary
..117
IN8l
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LOCal' Government Investment Cooperative ResoButioll1l
/IIv. D:2 - / S-
RESOLUTION APPROVING AND AUTHORIZING EXECUTION OF AN INTERLOCAL
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.
WHEREAS, the Interloca/ 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
"governmental functions and services", including investment of public funds (as such phrases are defined in the Interlocal
Act);
WHEREAS, the InterlObar Act authorizes the contracting parties to any interlocal agreement to contract with
agencies of the State of Texas, within the meaning of Chapter 771 of the Government Code;
WHEREAS, the Act permits the contracting parties to any inter/ocal agreement to create an administrative agency
to supervise the performance of such interlocal 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 Act, Chapter 2256 of the Texas Government Code, as amended (the
"PF/A"), authorizes the entities described in Subsection (a) of the PFIA to invest their funds in an eligible 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 PF/A, to be known as Local Government Investment Cooperative (the "Cooperative");
WHEREAS, the Government Entity is a Government Entity as defined in the Agreement; and
WHEREAS, the Government Entity desires to cause administration of the Cooperative to be performed by a board
of directors (the "Board"). which shall be an administrative agency created under the Interlocal Act and an advisory board
under PFIA; and
WHEREAS, the Government Entity desires to designate the Board as its agency and instrumentality with authority
to supervise performance of the agreement, employ personnel and engage in other administrative activities and provide
other administrative services necessary to execute the terms of the Agreement; and
WHEREAS. each capitalized term used in this Resolution and not otherwise defined has the same meaning
assigned to it in the Agreement; .'
NOW, THEREFORE, BE IT RESOLVED:
1. The Agreement is hereby approved and adopted and, upon execution thereof by an Authorized
Representative (defined below) and receipt of the Government Entity's application to join the Cooperative by the
Administrator, the Government Entity shall become a Participant in the Cooperative for the purpose of investing its
available 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
Board shall have the authority to supervise performance of the Agreement and the Cooperative, employ personnel and
engage in other administrative activities and provide other administrative services necessary to execute the terms of the
Agreement.
3. The investment policies of the Cooperative, as set forth in the document entitled Investment Policies, as
~u,nmarized in the Information Statement, and as may be amended from time to time by the Board, are hereby adopted
I 3S investment policies of the Government Entity with respect to money invested in the Cooperative, and any existing
nvestment policies of the Government Entity in conflict therewith shall not apply to investments in the Cooperative.
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4. The following officers, officials or employees of the Government Entity are hereby designated as
"Authorized Representatives" within 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; deposit
money to and withdraw money from the Government Entity's Cooperative account from time to time in accordance with
the Agreement and the Information Statement; and take all other actions deemed necessary or appropriate for the
investment of funds of the Goven~
Signature: ~.!.- f:) t:D
Printed Name: Rebecca Koo
Title:
Finance Director
Signature:
G::t -' )U'\ 7l)~ c'5 ~
Gwen Mansfield
Printed Name:
Title:
Accounting- Manager
Signature:
~~ 6vtCu\~
Printed Name:
Beckv Betancourt
Title:
Accounts Payable Technician
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.
ATTEST:
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
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. W
PASSED AND APPROVED this '-=- day of mil Y' , 20 D Q..,
/
B~:xr.. ~~@~
B ER13 E:\rf\ l-l IE. NY l L LE.. -SH A IJ /J Q iJ
Printed Name and Title IYl ~D "R-
7
By:
SEAL
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Additional Party Agreement
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
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.
Executed this G
day of M~
, 20 1J;2...-
By:
CITY OF THE COLONY
Name of Government Entity
V2r- ~ <U
Authorized Representa Ive
REBECCA KOO
Printed Name
FINANCE DIRECTOR
Title
ACCEPTED:
By:
Local Government Investment Cooperative
liid. ~
LOGIC Administrator
PATRICK S. SHINKLE
Printed Name
VICE-PRESIDENT ? PROGRAM ADMINISTRATOR
Title