HomeMy WebLinkAboutResolution No. 09-076
CITY OF THE COLONY, TEXAS
RESOLUTION NO. 09-457~0
A RESOLUTION APPROVING THE INVESTMENT POLICY AS
AMENDED, FOR THE CITY OF THE COLONY; AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, the City Council must annually review and approve an Investment
Policy; and
WHEREAS, the City Council has previously adopted the Investment Policy by
Resolution 08-083 on the 15t day of September, 2008; and
WHEREAS, the City Council desire to amend said Investment Policy;
NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY
COUNCIL OF THE CITY OF THE COLONY, TEXAS that:
SECTION 1: The City Council of the City of The Colony hereby approves the
Investment Policy of the City of The Colony as amended, which is attached hereto and
incorporated by reference as if set forth in full as Exhibit A.
SECTION 2: That the Investment Policy as adopted herein shall govern the
investment decisions and strategies for the city of The Colony.
SECTION 3: That this resolution shall become effective immediately from and
after its passage and approval.
PASSED AND APPROVED this 20th day of October, 2009.
G~i G
e McCou, Mayor
ATTEST: w_
Christie Wilson, City Secretary
Exhibit A
CITY OF THE COLONY
THE COLONY ECONOMIC DEVELOPMENT CORPORATION
THE COLONY COMMUNITY DEVELOPMENT CORPORATION
INVESTMENT POLICY
October 20, 2009
Prepared by the Finance Department
Approved by the City Manager
Confirmed by the City Council on October 20, 2009
THE COLONY INVESTMENT POLICY
TABLE OF CONTENTS
PAGE
1. SCOPE OF POLICY I
A. Funds Included I
B. Funds Excluded 1
C. Pooling of Funds 1
D. Additional Requirements 1
II. PRUDENCE 1
III. OBJECTIVES OF POLICY 2
A. Safety 2
B. Liquidity 2
C. Yield 2
D. Public Trust 3
IV. RESPONSIBILITY AND CONTROL 3
A. Delegation 3
B. Investment Officers 3
C. Conflicts of Interest 3
D. Disclosure 3
E. Investment Training 3
V. AUTHORIZED INVESTMENTS 4
VI. INVESTMENT REPORTS 5
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS 5
A. Bidding Process for Investments 5
B. Maximum Maturities 6
C. Maximum Dollar-Weighted Maturity 6
D. Diversification 6
E. Performance Standards 6
VIII. SELECTION OF DEPOSITORY, BROKER/DEALERS, AND
INVESTMENT ADVISORS 6
A. Depository Solicitation Process 7
B. Insurability 7
C. Authorized Broker/Dealers 7
D. Investment Advisors 7
IX. COLLATERALIZATION g
A. Insurance or Collateral Pledged g
B. Collateral Defined g
C. Collateral Custodian Agreement 9
D. Audit of Pledged Collateral 9
PAGE
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS 9
XI. MANAGEMENT AND INTERNAL CONTROLS 9
XII. INVESTMENT POLICY ADOPTION 10
XIII. INVESTMENT STRATEGY 10
A. Operating Funds 11
B. Capital Project and Special Purpose Funds 12
C. Debt Service Funds 12
D. Debt Service Reserve Funds 12
APPENDIX A Authorized Broker/Dealers and Government Pools 13
THE COLONY INVESTMENT POLICY
1. SCOPE OF POLICY
This Investment Policy shall govern the investment activities of all funds of the City of The Colony, Th(
Colony Economic Development Corporation, and The Colony Community Development Corporatioi
(collectively herein referred to as "THE COLONY"), excluding any specific funds cited hereafter. Thi
Policy serves to satisfy the state statutory requirement to define and adopt a formal investment policy.
A. FUNDS INCLUDED:
All financial assets of all current funds of THE COLONY and any new funds created in the future, unless
specifically exempted, will be administered in accordance with this Policy. These funds are accounted fo;
in the City's Annual Financial Report and may include: General Fund, Enterprise Funds, Capital Projec
Funds, Special Revenue Funds, Trust and Agency Funds.
B. FUNDS EXCLUDED:
This Policy excludes Employee Retirement and Pension Funds administered or sponsored by THI
COLONY and excludes defeased bond funds held in trust escrow accounts. THE COLONY will maintair
responsibility for these funds as required by Federal and State law and Charters and Codes.
C. POOLING OF FUNDS:
Except for cash in certain restricted and special funds, THE COLONY will consolidate cash balance.,
from all funds to optimize potential investment earnings. Investment income will be allocated to the
various funds based on their respective percentage participation and in accordance with the generall}
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 tc
the issuance of tax-exempt obligations and the investment of debt proceeds.
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 Officers shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio of funds, rather than e
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.
Page 1
111. OBJECTIVES OF POLICY
The primary objectives of THE COLONY's investment program in order of priority shall be preservatioi
and safety of principal, liquidity, yield, and public trust.
A. SAFETY:
The foremost and primary objective of THE COLONY's investment program is the preservation an(
safety of capital. 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 wil
be to mitigate credit risk and interest rate risk. To control credit risk, investments should be limited to thf
safest types of investments. Financial institutions, broker/dealers and advisors who serve a:
intermediaries, shall be pre-qualified by THE COLONY. The credit ratings of investment pools anc
individual securities will be monitored to assure compliance with this Policy and State law.
To control interest rate risk, THE COLONY will structure the investment portfolio so that investment:
mature to meet cash requirements for ongoing operations and will regularly monitor marketable securities
Should an issuer experience a downgrade of its credit rating by a nationally recognized credit rating
agency below the required minimum rating, all prudent measures will be taken to liquidate the
investment.
B. LIQUIDITY:
THE COLONY's investment portfolio will remain sufficiently liquid to enable THE COLONY to meel
operating requirements that might be reasonably anticipated. Liquidity will be achieved by maintaining
adequate cash equivalent balances, matching investment maturities with forecasted cash flow funding
requirements, by investing in securities with active secondary markets, and by diversifying maturities and
call dates. Furthermore, since all possible cash demands cannot be anticipated, the portfolio, or portions
thereof may be placed in bank accounts, money market mutual funds or local government investment
pools, which offer same day liquidity.
C. YIELD:
THE COLONY's investment portfolio will be designed with the objective of regularly meeting or
exceeding the optimum rate of return of a reasonable benchmark considering the risk constraints. 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.
Yields on debt proceeds that are not exempt from federal arbitrage regulations must rebate earnings in
excess of the arbitrage yield of the debt obligation. Investment Officers will seek to preserve principal and
optimize the yield of these funds. However, it is understood that if the yield achieved by THE COLONY
is higher than the arbitrage yield, positive arbitrage income will be rebated to the federal government as
required by current federal regulations.
Page 2
D. PUBLIC TRUST:
Investment Officers shall seek to act responsibly as the custodians of public trust. Investment Offices
shall avoid any transaction that might impair public confidence in THE COLONY's ability, to gover
effectively.
IV. RESPONSIBILITY AND CONTROL
A. DELEGATION:
The Director of Finance has oversight management responsibility to establish written procedures an
controls for the operation of the investment program, consistent with this Investment Policy. Suc:
procedures shall include explicit delegation of authority to persons responsible for the daily cas:
management operation, execution of investment transactions, overall portfolio management, an,
investment reporting. The Director of Finance shall be responsible for all transactions undertaken, an
shall establish a system of controls to regulate the activities of the Investment Officers.
B. INVESTMENT OFFICERS:
The Director of Finance and Accounting Manager are the "Investment Officers" of THE COLONY. N1
person shall engage in an investment transaction except as provided under the terms of this Policy and the
procedures established by the Director of Finance.
C. CONFLICTS OF INTEREST:
Investment Officers 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 whicl
could impair their ability to make impartial investment decisions. Investment Officers and employee;
involved in the investment process shall refrain from undertaking personal investment transactions witl
the same individual with whom business is conducted on behalf of THE COLONY.
D. DISCLOSURE:
Investment Officers shall disclose to the City Manager, City Council, Boards of Directors, and the Texa:
Ethics Commission any financial interests in financial institutions or any relationship within the seconc
degree by affinity or consanguinity to an individual that conducts business with THE COLONY. At
Investment Officers shall further disclose any large personal financial investment positions that could be
related to the performance of THE COLONY's portfolio. Investment Officers shall subordinate their
personal investment transactions to those of this jurisdiction, particularly with regard to the timing of
purchases and sales.
E. INVESTMENT TRAINING:
In order to ensure qualified and capable investment management, the Director of Finance, the Accounting
Manager, and any other Investment Officers shall have a finance, accounting, or related degree and
knowledge of treasury functions. Additionally, Investment Officers 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 Government Finance
Officers Association (GFOA), Government Treasurers Organization of Texas (GTOT), Government
Page 3
Finance Officers Association of Texas (GFOAT), American Institute of Certified Public Accountant
(AICPA), University of North Texas (UNT), North Central Texas Council of Governments (NCTCOG,'
and Texas Municipal League (TML). All Investment Officers of THE COLONY shall attend at least on
training session relating to their cash management and investment responsibilities within 12 months afte
assuming these duties for THE COLONY. Training must include education in investment controls
security risks, strategy risks, market risks, and compliance with state investment statutes.
V. AUTHORIZED INVESTMENTS
Funds of THE COLONY may be invested in the following investments, as authorized by Chapter 2256 o
the Government Code of the State of Texas, known as the "Public Funds Investment Act", and a
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, rate(
as to investment quality by a nationally recognized investment rating firm not less than A or it!
equivalent;
E. Certificates of Deposit, and other financial institution deposits, that are issued by a state o;
national bank or savings and loan that has its main office or branch office in the State of Texas an(
that a) are guaranteed or insured by the Federal Deposit Insurance Corporation, b) are secured it
compliance with Section IX Collateralization, or c) are executed through a depository institutior
that has its main office or a branch office in this state that participates in the Certificate of Deposi
Account Registry Service (CDARS) and meet the requirements of the Public Funds Investmen
Act;
F. Fully Collateralized Repurchase Agreements as allowed by the Public Funds Investment Act, anc
are placed through a primary government securities dealer or a financial institution doing business
in the State of Texas. Repurchase agreements include "flexible repurchase agreements" designee
to invest bond proceeds.
G. Commercial paper is only an authorized investment when purchased by THE COLONY through
Money Market Mutual Fund or Local Government Joint Pool.
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, fully invest dollar-for-dollar all
funds without sales commissions or loads, are categorized as a "Treasury" or "Government"
money market fund, are continuously rated no lower than AAAm or an equivalent rating by al
least one nationally recognized rating service, and include in their investment objectives the
maintenance of a stable net asset value of $1 for each share.
THE COLONY shall not invest funds in excess of 10% of the total assets of any one money
market mutual fund.
Page 4
I. Local Government Joint Investment Pools established and operating in compliance with the Publi
Funds Investment Act, and that are continuously rated no lower than AAA-m or an equivaler
rating by at least one nationally recognized rating service, have a dollar-weighted average maturit
of 90 days or less, and invest only in obligations listed in the Public Funds Investment Act.
Only those investments specifically listed in this Policy are authorized. THE COLONY is not required t
liquidate investments that were authorized investments at the time of purchase and later downgraded t
less than the required minimum credit rating.
Investments Not Authorized - The following investments are not authorized under this section:
a. Obligations whose payment represents the coupon payments on the outstanding principa
balance of the underlying mortgage-backed security collateral and pay no principal;
b. Obligations whose payment represents the principal stream of cash flow from the underlyin;
mortgage-backed security collateral and bears no interest;
c. Collateralized mortgage obligations that have a stated final maturity date of greater than tei
years; and
d. Collateralized mortgage obligations the interest rate of which is determined by an index tha
adjusts opposite to the changes in a market index.
VI. INVESTMENT REPORTS
The Director of Finance shall submit quarterly an investment report in compliance with the Public Fund
Investment Act. This report will be prepared in a manner, which will allow THE COLONY to ascertaii
whether investment activities during the reporting period have conformed to the Investment Policy. Th4
report should be provided to the City Council, Boards of Directors, and the City Manager. The report!
shall be formally reviewed at least annually by an independent auditor in conjunction with the annua
audit. The result of the review shall be reported to the City Council and Boards of Directors by tha
auditor. The quarterly investment report must be presented within 90 days of the end of the quartet
reporting period.
The Director of Finance is responsible for the recording of investment transactions and the maintenanc(
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 i;
derived from various sources such as broker/dealer research reports, newspapers, financial on-line marke
quotes, communication with broker/dealers, government investment pools, and financial consultin€
services.
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS
A. BIDDING PROCESS FOR INVESTMENTS:
Investment Officers for THE COLONY shall solicit bids or quotes for certificates of deposit, other
financial institution deposits, and for all marketable securities either orally, in writing, electronically, or in
any combination of these methods. The Investment Officers will strive to create a competitive pricing
environment for all portfolio transactions, including long-term investment pool selection
Page 5
B. MAXIMUM MATURITIES:
THE COLONY will manage its investments to meet anticipated cash flow requirements. THE COLON
will not directly invest in securities maturing more than five years from the date of purchase.
C. MAXIMUM DOLLAR-WEIGHTED AVERAGE MATURITY:
Under most market conditions, the composite portfolio will be managed to achieve a nine month or les
dollar-weighted average maturity. The maximum dollar-weighted average maturity based on the state
final maturity, authorized by this Investment Policy for the composite portfolio of THE COLONY, shal
be twelve months.
D. DIVERSIFICATION:
It is the Policy of THE COLONY to diversify its investment portfolios. Assets held in each investmen
portfolio shall be diversified to eliminate the risk of loss resulting from concentration of assets in
specific maturity, a specific issuer, or a specific class of securities.
In establishing specific diversification strategies, the following general policies and constraints shal
apply:
1) Portfolio maturities and potential call dates shall be staggered in a way that protects interes
income from the volatility of interest rates and that avoids undue concentration of assets in <
specific maturity or call sector. Investments shall be selected which provide for stability of incom(
and adequate liquidity.
2) Risk of market price volatility shall be controlled through maturity diversification such tha
aggregate realized price losses on instruments with maturities exceeding one (1) year shall not bf
greater than coupon interest and investment income received from that portion of the portfolio.
E. PERFORMANCE STANDARDS:
The investment portfolio will be managed in accordance with the parameters specified within this Policy
The portfolio should obtain a market average rate of return during a market/economic environment o]
stable interest rates. A series of appropriate benchmarks shall be established against which portfolic
performance shall be compared on a regular basis. "Weighted average yield to maturity" shall be the
portfolio performance measurement standard.
VIII. SELECTION OF DEPOSITORY, BROKER/DEALERS, AND INVESTMENT ADVISORS
A. DEPOSITORY SOLICITATION PROCESS:
Primary depositories shall be selected through THE COLONY's banking services procurement process,
which shall include a formal request for proposal (RFP) issued not less than every five years. In selecting
primary depositories, the credit worthiness of institutions shall be considered. No public deposit shall be
made except in a qualified public depository as established by state depository laws.
THE COLONY may also establish agreements with other financial institutions under separate contract for
additional services which are necessary in the administration, collection, investment, and transfer of
Page 6
municipal funds. Such deposits will only be made after the financial institution has completed an(
returned the required written instruments and depository pledge agreements.
B. INSURABILITY:
Banks and Savings and Loan Associations seeking to establish eligibility for THE COLONY's deposits
shall submit financial statements, evidence of federal insurance, and other information as required by the
Investment Officers of THE COLONY.
C. AUTHORIZED BROKER/DEALERS:
The Director of Finance will maintain a list of broker/dealers who are authorized to provide investmen
services to THE COLONY. These firms may include all primary broker/dealers and those regiona
broker/dealers who qualify under Securities and Exchange Commission Rule 150-1 (uniform net capita
rule) and meet other criteria established by the Director of Finance. The Director of Finance will reviem
each firm at least annually.
All broker/dealers who desire to become qualified for investment transactions must supply the Director of
Finance with the following:
1) Audited financial statements;
2) Proof of Financial Institution Regulatory Authority (FINRA) Certification;
3) Proof of registration with the State of Texas Securities Board;
4) Resumes of all sales representatives who will purchase or sell securities or otherwise represent the
broker/dealer firm in their dealings with THE COLONY; and
5) Texas Public Funds Investment Act Acknowledgements from a "Qualified Representative" of the
broker/dealer that they have received, read, understood, and agree to comply with THE
COLONY's Investment Policy. The qualified representative shall execute a written instrument
acceptable to THE COLONY and the business organization.
A list of these approved broker/dealers shall be maintained in an appendix of this Investment Policy
document. The City Council and Boards of Directors will include the broker/dealer-approved list as part
of their annual review.
D. INVESTMENT ADVISORS:
Investment Advisors shall adhere to the spirit, philosophy and specific term of this Policy and shall advise
within the same "Standard of Care". Selected Investment Advisors must be registered under the
Investment Advisors Act of 1940 or with the State Securities Board. A contract with an Investment
Advisor may not be for a term longer than two years and must be approved by the City Council, including
any renewals or extensions.
Page 7
IX. COLLATERALIZATION
A. INSURANCE OR COLLATERAL PLEDGED:
Collateralization shall be required on depository bank deposits, certificates of deposit, and repurchase
agreements in accordance with the "Public Funds Collateral Act" and depository laws. With the exceptioi
of deposits secured with irrevocable letters of credit at 100% of amount, the collateralization level will no
be less than 102% of market value of principal and accrued interest, less any FDIC insurance. Evidence o
the pledged collateral shall be documented by a tri-party custodial or a master repurchase agreement witl
the eligible collateral pledged clearly listed in the agreement. Collateral shall be monitored at leas
monthly to ensure that the market value of the securities pledged equals or exceeds the related deposit o:
investment balance.
B. COLLATERAL DEFINED:
THE COLONY shall only accept, as depository collateral, any security that is specifically allowed to be
held as a direct investment by THE COLONY's portfolio and that the maximum maturity of the collatera:
securities may be no greater than ten years. THE COLONY shall accept only the following insurance anc
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 of
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 and by the City Council and Boards of
Directors.
6) Letters of credit issued by the United States or its agencies and instrumentalities.
Financial institutions serving as depositories will be required to sign a depository agreement with THE
COLONY. The collateralized deposit portfolio of the agreement shall define THE COLONY's rights to
the collateral in case of default, bankruptcy or closing and shall establish a perfected security interest in
compliance with Federal and State regulations, including:
1. The agreement must be in writing;
2. The agreement has to be executed by the Depository and THE COLONY
contemporaneously with the acquisition of the asset:
3. The agreement must be approved by the Board of Directors or designated committee
of the Depository and a copy of the meeting minutes must be delivered to THE
COLONY; and
4. The agreement must be part of the Depository's "Official Record" continuously since
its execution.
Page 8
C. COLLATERAL CUSTODIAN AGREEMENT:
Deposit and repurchase agreement collateral will always be held by an independent third parry with whor
THE COLONY has a current custodial agreement. A clearly marked evidence of ownership (safekeepin,
receipt) must be supplied to THE COLONY and retained. The custodial agreement must clearly define th
responsibility of the custodian bank. The custodian institution shall be the Federal Reserve Bank or a
institution not affiliated with the financial institution or broker/dealer that is pledging the collateral. Th
custodial agreement shall include the authorized signatories of THE COLONY and the firm pledgin;
collateral.
D. AUDIT OF PLEDGED COLLATERAL:
All collateral shall be subject to verification and audit by the Director of Finance or THE COLONY'
independent auditors.
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS
All security transactions, including collateral for repurchase agreements, entered into by THE COLON)
shall be conducted using the delivery vs. payment (DVP) basis. That is, funds shall not be wired or paic
until verification has been made that the correct security has been received by the safekeeping bank. Thy
safekeeping bank is responsible for matching up instructions from THE COLONY's Investment Officer;
on an investment settlement with what is wired from the broker/dealer, prior to releasing THI
COLONY's designated funds for a given purchase. The security shall be held in the name of THI
COLONY or held on behalf of THE COLONY in a bank nominee name. Securities will be held by a thin
parry custodian designated by the Director of Finance and evidenced by safekeeping receipts. The
safekeeping bank's records shall assure the notation of THE COLONY's ownership of or explicit clain
on the securities. The original copy of all safekeeping receipts shall be delivered to THE COLONY. 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, financial institution deposits
and money market mutual funds are the only exceptions 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, unanticipatec
changes in financial markets, or imprudent actions by employees or Investment Officers of THE
COLONY.
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.
Page 9
D. Custodian safekeeping receipts records management.
E. Avoidance of bearer-form securities.
F. Clear delegation of authority.
G. Documentation of investment bidding events.
H. Written confirmations from broker/dealers and financial institutions.
1. Reconcilements and comparisons of security receipts with the investment 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 Officers.
N. Verification of all investment income and security purchase and sell computations.
0. Review of financial condition of all broker/dealers, and depository institutions.
P. Information 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. Ir
conjunction with the annual audit, a process of independent review by an external auditor shall be
established.
XII. INVESTMENT POLICY ADOPTION
THE COLONY's Investment Policy shall be adopted by resolution of the City Council and Boards of
Directors. The Policy and general investment strategy statements shall be reviewed on an annual basis by
the City Council and Boards of Directors, and any modifications made thereto must be approved by them.
XIII. INVESTMENT STRATEGY
Effective investment strategy development coordinates the primary objectives of THE COLONY's
Investment Policy and cash management procedures. Cash management to increase the available
"investment period" will be employed when necessary to enhance the ability of THE COLONY to earn
interest income. Maturity selections shall be based on cash flow and market conditions to take advantage
of interest rate cycles. THE COLONY's portfolio shall be designed and managed in a manner responsive
to the public trust and consistent with the Investment Policy.
Page 10
Each major fund type has varying cash flow requirements and liquidity needs. Therefore specific
strategies shall be implemented considering the Fund's unique requirements. THE COLONY funds shal
be analyzed and invested according to the following major fund types:
A. Operating Fund
B. Capital Project Funds and Special Purpose Funds
C. Debt Service Funds
D. Bond Reserve Funds
OVERALL STRATEGY:
THE COLONY's basic investment strategy is to utilize investment options that represent suitabl(
risk/return alternatives. Therefore, all financial assets shall seek to preserve principal by restricting the
authorized investment instruments to those investments with suitable and limited credit and market risk.
Liquidity will be maintained by utilizing projected cash flow needs to limit investment maturities an(
targeting minimum cash balances. Investment marketability will be maintained based on the fund-typ(
strategies to sufficiently and reasonably assure that investments could be liquidated prior to the maturity
if cash needs dictate.
THE COLONY shall also diversify its investment portfolio. Whenever practical, assets held in thf
investment portfolio shall minimize the risk of loss resulting from concentration of assets in a specific
maturity, a specific issuer, or a specific class of investment. THE COLONY will group investmen
instruments into "fund-type investment groups." These groups will reflect similar needs as to maturit
limits, diversity, and liquidity.
THE COLONY funds shall seek to achieve a competitive yield appropriate for each strategy. Yielc
objectives shall at all times be subordinate to the objectives of safety and liquidity. Tax-exempt deb
proceeds shall be invested to optimize the interest earnings retained by THE COLONY, while at the sam(
time fully complying with all applicable State laws and federal regulations, including the arbitrage rebat(
regulations.
A. OPERATING FUNDS:
Operating Funds shall have as their primary objective to assure that anticipated cash outflows are matchec
with adequate investment liquidity. The secondary objective is to create a portfolio structure, which wil
experience minimal volatility during changing economic cycles. These objectives may be accomplishec
by investing in bank deposits, money market government investment pools, money market mutual funds
or high quality, short to medium term investments in a laddered (maturities coming due regularly anc
staggered to match cash outflows) maturity structure, and by diversification among market sectors.
The dollar-weighted average maturity of operating funds, based on the stated final maturity date of eacl
security, will be calculated and limited to one year or less. Stated final maximum maturity shall be twc
years.
Page 11
B. CAPITAL PROJECT FUNDS AND SPECIAL PURPOSE FUNDS:
Capital Project Funds and Special Purpose Funds shall have as their primary objective to assure th,,
anticipated cash outflows are matched with adequate investment liquidity. These portfolios should hav
liquid securities to allow for unanticipated project expenditures or accelerated project outlays. Th
portfolios shall be invested based on cash flow estimates Funds invested for capital projects may be fror
bond proceeds that are subject to arbitrage rebate regulations. THE COLONY will conduct an arbitrag
rebate calculation annually to determine the income, if any, that has exceeded the arbitrage yield of th
bond. This positive arbitrage income will be rebated to the federal government according to federz
arbitrage regulations. A secondary objective of these funds is to achieve a yield equal to or greater tha
the arbitrage yield of the applicable bond issue.
C. DEBT SERVICE FUNDS:
Debt Service Funds shall have as the primary objective to assure investment liquidity adequate to cove
the debt service obligation on the required payment date. Investments purchased shall not have a state
final maturity date which exceeds a debt service payment date cash requirement.
D. DEBT SERVICE RESERVE FUNDS:
Debt Service Reserve Funds shall have as the primary objective the ability to generate a dependabl
revenue stream, to the appropriate debt service fund, within the limits set forth by the bond ordinance o
debt covenants specific to each individual bond issue. Individual investments may be invested to a state(
final maturity of five years or less, and no more than a three year dollar-weighted average life.
Page 12
APPENDIX A
LIST OF BROKER/DEALERS AND LOCAL GOVERNMENT INVESTMENT POOL;
AUTHORIZED TO SET UP INVESTMENT ACCOUNTS WITH THE COLONY IF THESE ENTITIE!
SUPPLY THE COLONY WITH THE REQUIRED CERTIFICATIONS AND FINANCIAL
DOCUMENTS.
AUTHORIZED BROKER/DEALERS
AG Edwards & Sons, Inc.
Duncan Williams
FTN Financial
SAMCO Capital Markets
UBS Paine Webber
Vining-Sparks
Coastal Securities, Inc.
AUTHORIZED LOCAL GOVERNMENT INVESTMENT POOLS
TEXPOOL/TEXPOOL PRIME (Texas Local Government Investment Pools)
LOGIC (Local Government Investment Cooperative)
TEXASTERM/TEXASDAILY (Local Government Investment Pools)
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