R2023-229 2023-09-25RESOLUTION NO. R2023-229
A Resolution of The City Council of the City of Pearland, Texas, adopting an
Amended Investment Policy, Investment Strategy and approved Brokers in
accordance with Chapter 2256 of the Government Code (“Public Funds
Investment Act”).
WHEREAS, the Public Funds Investment Act codified in Government Code Chapter 2256
governs local government investment; and
WHEREAS, the Public Fund Investment Act (Section 2256.005a), as amended, requires the
City to adopt an Investment Policy and Investment Strategy by rule, order, ordinance or resolution
governing the investment of funds under its control; and
WHEREAS, the Public Fund Investment Act (Section 2256.005e), requires the governing
body to review and adopt that Investment Policy and Investment Strategy by rule, order, ordinance
or resolution not less than annually, recording any changes made thereto; now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS:
Section 1. That the City of Pearland has complied with the requirements of the Public
Funds Investment Act and the Investment Policy. The modified Investment Policy, Investment
Strategy and approved Brokers, attached hereto as Exhibit “A,” is hereby adopted and approved.
PASSED, APPROVED and ADOPTED this the 25th day of September, A.D., 2023.
________________________________
J. KEVIN COLE
MAYOR
ATTEST:
________________________________
FRANCES AGUILAR, TRMC, MMC
CITY SECRETARY
APPROVED AS TO FORM:
________________________________
DARRIN M. COKER
CITY ATTORNEY
DocuSign Envelope ID: 9B4B004F-F6BC-43DC-A994-EF092B76B63B
CITY OF PEARLAND, TEXAS
INVESTMENT POLICY
AND
INVESTMENT STRATEGY
Adopted:
February 12, 2007
Most Recent Revision:
August 23, 2023
Exhibit A
TABLE OF CONTENTS
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
1.02 Policy
1.03 Scope
1.04 Delegation of Responsibility
1.05 Ethics & Conflict of Interest
1.06 Investment Committee
2.0 INVESTMENT OBJECTIVES
2.01 Objective
2.02 Safety of Principal
2.03 Liquidity
2.04 Diversification
2.05 Yield
2.06 Maturity
2.07 Investment Training
2.08 Quality and Capability of Investment Management
2.09 Investment Strategy
2.10 Cash Management
3.0 AUTHORIZED INVESTMENT
3.01 Authorized Investments
3.02 Certificates of Deposit
3.03 Unauthorized Investments
3.04 Investments with Required Ratings
3.05 Exemption for Existing Investments
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker/Dealers
4.02 Certification
4.03 Delivery vs. Payment
4.04 Internal Control and Annual Audit
4.05 Standard of Care
4.06 Competitive Bidding
4.07 Portfolio Diversification
4.08 Electronic Funds Transfer
4.09 Selling of Securities before Maturity
5.0 ARBITRAGE
6.0 INVESTMENT REPORTING
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Depository Collateral Pledged to the City
7.02 Collateral Owned by the City
7.03 Safekeeping of City Owned Securities
8.0 INVESTMENT POLICY ADOPTION
GLOSSARY
ATTACHMENT A – Business Organization Certification
ATTACHMENT B – Approved List of Broker/Dealers & Investment Pools
CITY OF PEARLAND
INVESTMENT POLICY
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
To establish and provide specific policy and guidelines for the conduct of the investment
program of the City of Pearland.
1.02 Policy
It is the policy of the City of Pearland (the “City”) to invest public funds in a manner, which
will provide safety of principal while earning the highest reasonable market return in meeting
the daily cash flow demands of the City. All funds will be invested in compliance with all
state and local statutes and all Governmental Accounting Standards Board Statements, and
related financial accounting standards.
This policy satisfies the requirement of the Public Funds Investment Act (PFIA), Texas
Government Code 2256.
1.03 Scope
This Investment Policy shall apply to all the funds and investments of the City as well as any
other funds held in custody by the City, and include the following funds:
1. General Fund
2. Special Revenue Funds
3. Capital Project Funds
4. Enterprise Funds
5. Trust & Agency Funds
6. Debt Service Funds
7. Internal Service Funds
8. Component Units, excluding those that have adopted a separate investment policy.
Current component units include:
a. Pearland Economic Development Corporation
b. Tax Increment Reinvestment Zone #2
c. Development Authority of Pearland
9. Any other funds or component units as created by the City.
These funds, as well as funds that may be created from time-to-time, shall be administered
in accordance with the provisions of this policy. All funds invested under this policy shall be
considered as a pooled group for investment purposes.
Deferred compensation and the retirement system assets the City sets aside or holds for its
employees are not subject to this policy.
1.04 Delegation of Investment Authority
The Chief Financial Officer, Deputy Director of Finance, and Treasury Manager are hereby
designated as Investment Officers for the City. The City may use other employees or the
services of a contractor to aid the investment officer(s) in the execution of their duties.
Otherwise, unless authorized by law, no other individual(s) has the authority to deposit,
withdraw, transfer or manage the investments of the City. The City may designate a
registered investment advisor to invest for the City and act as an additional Investment
Officer. Authority granted to a person(s) to deposit, withdraw, invest, transfer or manage the
City’s investments is effective until rescinded by City Council or until termination of the
person’s employment or contract.
The Chief Financial Officer is responsible for the management of the investment program.
The Investment Officers are responsible for the daily operations of the investment function.
The Chief Financial Officer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials.
1.05 Ethics and Conflict of Interest
Investment Officers shall refrain from personal business activities that could conflict with the
proper execution of the investment program, or which could impair their ability to make
impartial investment decisions.
Investment Officers who have a personal business relationship with a business organization
seeking to sell an investment to the City and who have anyone related within the second
degree by affinity or consanguinity to an individual seeking to sell an investment to the City
shall file a statement disclosing that personal interest to the Chief Financial Officer, City
Manager, the City Council and the Texas Ethics Commission.
An Investment Officer has a personal business relationship with a 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;
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.
1.06 Investment Committee
The City shall establish an Investment Committee for the purpose of reviewing investment
policies and procedures, investment strategies, and investment performance. The members
of the Committee shall consist of the City Manager, Chief Financial Officer, Deputy Director
of Finance, and Treasury Manager. The City Manager shall be the Chairman of the
Committee.
The Investment Committee shall review quarterly investment reports and annually review the
recommended changes to the Investment Policy and Investment Strategy and review the list
of brokers authorized to engage in investment transactions with the City.
2.0 INVESTMENT OBJECTIVES AND STRATEGY
2.01 Objective
City investments shall be made in accordance with federal and state laws, this Investment
Policy and ordinances of the City. The City’s investment portfolio shall be designed with the
objective of attaining a reasonable market rate of return in accordance with its designated
benchmark based on the City’s cash flow requirements throughout budgetary and economic
cycles, commensurate with the City’s investment risk constraints and the cash flow
characteristics of the portfolio.
2.02 Safety of Principal
The primary objective of the City’s investment program is to ensure the safety of all funds.
To attain this objective, it is the City’s intent to invest in the safest types of securities, pre-
qualify broker/dealers and advisors, and to hold all investments until maturity in order to
ensure the return of all invested principal unless as stipulated in Section 4.09 of the policy.
2.03 Liquidity
The City’s investments must be based on a cash flow analysis, which will provide the
estimated liquidity necessary to pay the City’s expected obligations. Liquidity shall be
achieved by matching investment maturities with budgetary and economic cycles. A portion
of the portfolio will be maintained in liquid short-term investments that can be converted to
cash if necessary to meet disbursement requirements. Investment pools, money market
accounts and no-load money market mutual funds provide daily liquidity and may be utilized
as a competitive yield alternative to fixed maturity investments.
2.04 Diversification
The City of Pearland shall diversify its portfolio to eliminate the risk of loss resulting from over
concentration of assets in a specific maturity, a specific issuer or a specific class of
investments. Investment shall always be selected that provide for stability of income and
reasonable liquidity.
2.05 Yield
It will be the objective of the City to earn a reasonable market yield throughout budgetary
and economic cycles within the parameters imposed by its safety and liquidity objectives,
investment strategies, and state and federal law. Return on investment is of secondary
importance to safety and liquidity objectives. The yield and level of risk for the portfolio will
be benchmarked against the yield of the one-year Treasury Bill during the comparable period
as well as other appropriate comparisons.
2.06 Maturity
The portfolio shall be structured primarily to meet City obligations and secondly to achieve a
reasonable return of interest. The maximum allowable stated maturity of any individual
investment owned by the City shall be five (5) years from date of purchase. The settlement
date is considered the date of purchase. However, the City may collateralize its demand
deposit accounts, certificates of deposits, and repurchase agreements using longer-dated
investments not to exceed thirty (30) years.
The maximum weighted average maturity based on the overall portfolio shall be 30 months,
or 900 days.
2.07 Investment Training
Investment Officers shall accumulate (a) 10 hours of training within 12 months after taking
office or assuming duties and (b) not less than 8 hours of training in a two-year period that
begins on the first day of the fiscal year and consists of the two consecutive fiscal years after
that date. Training shall include education in investment controls, security risks, strategy
risks, market risks, diversification, and compliance. Training must be provided by an
independent source approved by the governing body or designated Investment Committee.
For these purposes, courses or seminars offered by the Government Finance Officers
Association, Government Finance Officers Association of Texas, Texas Municipal League,
University of North Texas, Texas Association of Counties, Association for Finance
Professionals, or the Government Treasurers’ Organization of Texas will satisfy the training
requirements. An external auditor shall review documentation of training hours annually.
2.08 Quality and Capability of Investment Management
Investment Officers shall always be cognizant of the standard of care and the investment
objectives as set forth in the PFIA and the City’s Investment Policy.
The City shall provide investment training as required by the PFIA to ensure the quality and
capability of investment management. Staff sets the standard of training required, which may
be over the hours required by the PFIA.
2.09 Investment Strategy
In accordance with the PFIA (2256.005(d)) a separate written investment strategy shall be
developed for each portfolio/fund or pooled group of funds under the City’s control. The
strategy shall be reviewed on an annual basis with formal action by the City Council stating
that the strategy has been reviewed and recording any changes made.
2.10 Cash Management
Effective cash management is recognized as essential to good fiscal management. Cash
management is defined as the process of managing monies in order to ensure maximum
cash availability to the City for investment use. The City shall maintain a comprehensive
cash management program that includes collection of accounts receivable, prudent
investment of its available cash, disbursement of payments in accordance with invoice terms
and the management of banking services.
3.0 AUTHORIZED INVESTMENTS
3.01 Authorized Investments
Authorized investments under this policy shall be limited to the instruments listed below as
authorized and defined by the Public Funds Investment Act.
A. Obligations, including letters of credit, of the United States or its agencies and
instrumentalities, including the Federal Home Loan Banks.
B. Obligations of the State of Texas or its agencies and instrumentalities
C. Other obligations, the principal and interest of which are unconditionally guaranteed or
insured by, or backed by the full faith and credit of the State of Texas or the United States
or their respective agencies and 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, and other forms of deposit, placed with financial institutions
insured by the Federal Deposit Insurance Corporation or its successor, or collateralized
in compliance with section 7.01 Collateralization.
F. Constant dollar local government investment pools as defined by the PFIA (2256.016
and 2256.019) and approved by City Council resolution.
G. AAA-rated, SEC registered no-load money market mutual funds and no-load mutual fund
including funds that invest in commercial paper and as further defined in Sections
2256.013 and 2256.014 of the Act.
H. Collateralized repurchase agreements as defined by the PFIA placed through a primary
government securities dealer or a financial institution doing business in this state with a
defined maturity date and as further defined in Section 2256.011 of the Act.
3.02 Certificates of Deposit
A. Depository certificates of deposit (CD) may be purchased from any financial institution
with a main or branch office in the State of Texas. It is not necessary for a Texas financial
institution to be on the City’s approved broker/dealer list as CD’s are considered
depository in nature. However, all agreements with the financial institution must be
completed prior to the purchase of a CD from the financial institution.
B. Bids for CD’s, whether purchased from a brokerage firm or a financial institution, may be
solicited orally, in writing, electronically or any combination of those methods.
C. Amounts purchased over the FDIC limit must be protected as per section 7.01
Collateralization.
3.03 Unauthorized Investments
Specifically prohibited investments are:
1. Collateralized mortgage obligations
2. Commercial Paper, excluding Pools which invest in Commercial Paper
3. All swaps including but not limited to even-basis swaps, interest rate swaps
4. Forwards and futures
5. Options
6. Foreign Exchange
7. Planned amortization classes (PAC)
8. Regular floaters tied to government securities
9. Investments with various interest rate caps, floors, and collars
10. Investment pools in which the City would own more than 10% of the market value of the
pool
11. Any other investments that are not on the authorized investment list
3.04 Investments with Required Ratings
Investments with minimum required ratings do not qualify as authorized investments during
the period the investment does not have the minimum rating. Investment ratings shall be
checked routinely by an Investment Officer to ensure that the ratings have not been
downgraded. The City shall take all prudent measures that are consistent with its investment
policy to liquidate investments that do not have the minimum rating.
3.05 Exemptions for Existing Investments
Any investment currently held that does not meet the guidelines of this policy, but were
authorized investments at the time of purchase, is not required to be liquidated; however,
the City shall take all prudent measures consistent with this Investment Policy to liquidate an
investment that does not or no longer qualifies as an authorized investment.
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker/Dealers
The Investment Officers will maintain a list of broker/dealers and local government
investment pools authorized by the City Council to provide investment services to the City.
Annually, the City Council will approve the list of broker/dealers authorized to conduct
business with the City. Investment Officers shall not conduct business with any firm not
approved by City Council.
In accordance with the PFIA (2256.005(k)) a written copy of the investment policy shall be
presented to any business organization offering to engage in an investment transaction with
the City. The PFIA defines “business organization” as an investment pool or investment
management firm under contract with an investing entity to invest or manage the entity’s
investment portfolio. The investment pools and/or investment management firms shall certify
receipt of the investment policy by utilizing Attachment A – Certification by Business
Organization or executing a written instrument in a form acceptable to the City in accordance
with the PFIA. A written copy of the investment policy shall also be presented to all approved
broker/dealers. The PFIA does not require broker/dealers to certify receipt of the City’s
investment policy, however, Securities and Exchange Commission (SEC) regulations require
that registered broker/dealers receive a copy of a customer’s investment policy.
All broker/dealers who desire to become qualified bidders for investment services must fill
out an application and return it to one of the City’s Investment Officers listed in the Policy.
After review of all applicants, a list of selected broker/dealers will be prepared by the
Investment Officers and reviewed by the Investment Committee. The following may be
required with the application: most recent audited financial statement, list of local government
clients, and statements of qualifications.
Criteria used in the selection of the authorized broker/dealers will include, but are not limited
to material litigation against the firm, regulatory status of the dealer, completed packet,
references from local government clients, background and expertise in investment of public
funds.
Up to five firms shall be selected to appear on the City’s approved list. If, after a firm is
selected, they no longer qualify to appear on the City’s approved dealer list, or provide
services inconsistent with acceptable levels, the Investment Officers may recommend City
Council remove the firm from the approved list and replace it with a qualified firm.
4.02 Certification
A written copy of this Investment Policy shall be presented to any investment pool or
discretionary investment management firm seeking to engage in a financial transaction with
the City. The authorized representative of the business organization shall execute a written
instrument substantially in the form of Attachment A of this Policy and to the effect that the
representative has:
1. received and thoroughly reviewed the investment policy of the City; and
2. acknowledged that the organization has implemented reasonable procedures and
controls in effort to preclude investment transactions that are not authorized by the City’s
Investment Policy except to the extent that the authorization is dependent on an analysis
of the makeup of the City’s entire portfolio or requires interpretation of subjective
investment standards, or relates to investment transactions of the City that are not made
through accounts or other contractual arrangements over which the business
organization has accepted discretionary investment authority.
The Investment Officer(s) may not transact business with any firm that has not executed and
returned this certification. (2256.005(l)).
The City may contract with a registered investment advisor for the management of the City’s
portfolio. The advisor shall review the Policy and execute all transactions in accordance with
the provisions and controls of the Policy.
4.03 Delivery vs. Payment Settlement
It shall be the policy of the City that all securities shall be purchased on a “Delivery vs.
Payment” (DVP) basis, except for investment pools and mutual funds. By so doing, City
funds are not released until the City or its approved custodian has received the securities
purchased or pledged.
4.04 Internal Control and Annual Audit
The Chief Financial Officer or designee shall establish a system of internal controls. The
controls shall be designed to prevent losses of public funds arising from fraud, employee
error, misrepresentation of third parties, or imprudent actions by employees or Investment
Officers of the City. Controls and managerial emphasis deemed most important include the
following:
Imperative Controls:
A. Safekeeping receipts and record management
B. Documentation of investment bidding
C. Written confirmations
D. Reconciliation and comparisons of security receipts with investments and bank
records
E. Compliance with investment policies
F. Accurate and timely reporting
G. Adequate training and development of Investment Officers
Controls Where Practical
A. Control of collusion
B. Segregation of duties
C. Clear delegation of authority
D. Staying informed about market conditions, changes and trends that require
adjustments in investment strategies
The City, in conjunction with its annual financial audit, shall perform a compliance audit of
management controls on investments and adherence to the City’s established investment
policies. This annual audit shall be performed by an external auditor and will include formal
review of the quarterly reports.
4.05 Standard of Care
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.
In determining whether an investment officer has exercised prudence with respect to an
investment decision, the determination shall be made taking into consideration:
1. the investment of all funds over which the officer had responsibility rather than a
consideration as to the prudence of a single investment; and
2. whether the investment decision was consistent with the City’s Investment Policy.
The Chief Financial Officer and the Investment Officers are not personally responsible for
changes in the market.
4.06 Competitive Bidding
The investment officer shall obtain competitive bids from at least three brokers or financial
institutions on all purchases and sales of investment instruments transacted on the
secondary market. The requirement for competitive bids shall not apply to a) transactions
with money market funds and local government investment pools (which are deemed to be
made at prevailing market rates) and b) treasury and agency securities purchased at
issuance through an approved broker/dealer. In situations where the exact security being
offered is not offered by other dealers, offers on the closest comparable investment may be
used to establish a fair market price for the security. Quotes will be accepted either written
or electronically, or a combination thereof. An exception to this rule may be made when time
limitations preclude the bidding process.
The investment will be made with the broker/dealer offering the optimum risk/return
investment option to the City. If three bids/offers are solicited but three responses are not
received within the time frame specified in the solicitation of the bid/offer, the Investment
Officer may act based on the responses received as long as the solicitation of and failure to
receive the bids/offers is documented. Any investments purchased must have the signature
of at least two Investment Officers.
4.07 Portfolio Diversification
The City will diversify its investments by security type and institution, as appropriate for
prudent risk management.
With the exception of U.S. Treasury Securities and interest bearing checking accounts that
are fully collateralized, no more than 75% of the City’s total investment portfolio will be
invested in a single security type. If the City elects to participate in more than one investment
pool, the total percent invested in all pools shall not exceed the maximum percent allowed.
Diversification requirements are as follows:
Investment Type Maximum Investment %
Repurchase Agreements Up to 50%
Certificates of Deposit** Up to 75%
US Treasury Bills/Notes Up to 100%
Other US Government Securities Up to 50%
Authorized Investment Pools Up to 75% in total
No-Load MM Mutual Funds Up to 50%
No-Load Mutual Funds Per PFIA
Sweep Accounts/DDA** Up to 100%
** FDIC coverage or fully collateralized
4.08 Electronic Funds Transfer
The City may use electronic means to transfer or invest all funds collected or controlled by
the City.
4.09 Selling Of Securities Before Maturity
While it is the City’s intent to hold securities to maturity to ensure safety of principal, if the
City needs to sell securities in order to meet disbursement needs or to take advantage of
interest rates, the City Manager and the Chief Financial Officer must both approve the sale
of the security.
5.0 ARBITRAGE
Arbitrage rebate provisions require that the City compute earnings on investments from each
issue of tax exempt bonds on an annual basis to determine if a rebate to the IRS is required.
The City is required to perform specific calculations relative to the actual interest income
earned on the investment of the funds and the income that could have been earned if the
funds had been invested at a rate equal to the yield on the bonds sold by the City. The
regulations require extreme precision in the monitoring and recording facets of the
investments as a whole, and particularly as it relates to yields and computations to ensure
compliance. Failure to comply can dictate that the bonds become taxable, retroactively from
the date of issuance, or subject the City to severe penalties.
The City’s investment position as it relates to arbitrage regulations is as follows: Investments
on bond proceeds will be made with safety of principal and liquidity in mind, but with a
competitive rate of return. When project timing and cash flows allow, bond proceeds may
be invested in instruments allowed under Section 3.0. All investments purchased with bond
funds shall be documented clearly and reported to the City’s arbitrage consultant for tracking
and review. Arbitrage rebate calculations will be performed annually, when necessary, on
all debt issues and funds set aside annually for any positive arbitrage. Arbitrage will be
rebated to the IRS, as necessary.
6.0 INVESTMENT REPORTING
The Investment Officers shall report to City Council on no less than a quarterly basis in
accordance with the PFIA (2256.023). The report shall include a detailed listing of all
purchases, sales, and payments and a description of each security held, as well as
management summary information.
The report must be prepared and signed by all Investment Officers and contain a statement
of compliance with regard to the City’s Investment Policy and the PFIA (2256.023).
Market prices used to determine market value in the investment reports shall be obtained
from an independent source.
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Depository Collateral Pledged to the City
The Investment Officer(s) or Investment Advisor shall ensure that time and demand deposits
are insured or collateralized consistent with the PFIA, Public Funds Collateral Act (Texas
Government Code 2257) and federal law. The City chooses to accept the following as
collateral based on the list of investments authorized under the PFIA.
A. Obligations of the US Treasury
B. Obligations of any US agency or instrumentality including mortgage-backed securities
and collateralized mortgage obligations passing the Federal Reserve’s bank test
C. Bonds of any US state or its subdivisions if rated A or better by at least one nationally
recognized rating agency
D. FHLB letters of credit
E. Preference will be given to pledged securities.
The right of collateral substitution may be granted with the approval of the Chief Financial
Officer or Deputy Director of Finance. The Chief Financial Officer or Deputy Director of
Finance must approve and release pledged collateral. The bank is responsible for
monitoring and maintaining the required 102% margin daily. The City shall request additional
collateral in the event the Investment Officer(s) deems that deposits or investments are not
sufficiently protected by the pledged collateral.
The market value of the pledged securities used as collateral will be greater than or equal to
102% of the principal and accrued interest of all deposits (less applicable FDIC insurance)
and be held by an independent party outside the holding company of the pledging bank
approved by the City. Pledged collateral will be evidenced by original safekeeping receipts
and monthly statements sent to the City.
Irrevocable FHLB Letters of Credit (LOC) must have a value of no less than 102% of all
principal and anticipated accrued interest (less applicable FDIC insurance). The financial
institution will be responsible for monitoring and maintaining the 102% margin with the LOC.
7.02 Collateral Owned by the City
Collateral underlying a repurchase agreement is owned by the City through that buy/sell
transaction. The counter-party will be responsible for monitoring and maintaining the
required 102% margin in market value daily. Collateral will be safekept at an independent
institution approved by the City.
7.03 Safekeeping of City Owned Securities
Securities will be held by an independent third-party custodian selected by the City, with all
securities held in an account in the City of Pearland’s name. The safekeeping institution
shall annually provide a copy of their most recent report on internal controls (Statement of
Auditing Standards No. 70, or SAS 70). Safekeeping receipts shall be maintained by the
Investment Officer(s), and shall be available for review upon request.
8.0 INVESTMENT POLICY ADOPTION
The City’s Investment Policy shall be adopted by resolution annually by the City Council. The
policy shall be reviewed annually by the Investment Committee. Any modifications made
thereto must be approved by the City Council and documented by formal action.
GLOSSARY
Accrued Interest: Term designating the interest due on a bond or other fixed income security that
must be paid by the buyer of a security to its seller.
Agency: A security, almost always debt, issued by a corporation sponsored by the U.S.
Government. Examples: bonds of the Tennessee Valley Authority.
Agency Notes: One to two year obligations offered at a discount from par by U.S. Government
Agencies, such as the Federal National Mortgage Association, the Federal Home Loan Bank, and
the Farm Credit System.
Bid: The price offered by a buyer of securities – when you are selling securities, you ask for a bid.
Broker: A broker brings buyers and sellers together for a commission.
Certificate of Deposit (CD): A time deposit with a specific maturity evidenced by a certificate.
Collateral: Evidence of deposit or other property, which a borrower pledges to secure repayment
of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
Component Unit: Based on generally accepted account principles, the Pearland Economic
Development Corporation, TIRZ #2, and the Development Authority of Pearland are considered
component units of the City, and as such are included in the City’s annual financial reports.
Confirmation: Commonly called a “confirm.” The confirmation is a notice to a customer that
payment is due on a purchase, or that net proceeds are available on a sale of securities. Federal
securities law requires that a confirmation be sent promptly following each purchase and sale.
Conflict of Interest: Term used to describe a financial situation where a person prejudicially places
personal affairs before those of constituents that the person is supposed to serve or represent.
Coupon: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the
bond’s face value. (b) A certificate attached to a bond evidencing interest due on a payment date.
Current Maturity: Used to designate the remaining lifetime of an already outstanding bond.
Dealer: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling
for his own account.
Delivery versus Payment: Delivery of securities first, with an exchange of money for the securities
after delivery.
Derivatives: (a) Financial instruments whose return profile is linked to, or derived from, the
movement of one or more underlying indices or securities, and may include a leveraging factor, or
(b) financial contracts based upon notional amounts whose value is derived from an underlying index
or security.
Discount: The difference between the cost price of a security and its maturity value when quoted
at lower than face value. A security selling below original offering price shortly after sale also is
considered to be at a discount.
Discount Securities: Non-interest bearing money market instruments that are issued at a discount
and redeemed at maturity for full face value. Example: U.S. Treasury Bills.
Discount Yield: Measurement of return that computes interest on face value of security rather than
on the dollar amount invested. Used in figuring yield on U.S. Treasury Bills.
Diversification: Dividing investment funds among a variety of securities offering independent
returns.
Equivalent Bond Yield: Used to compare the discount yield on money market securities to the
coupon yield on government bonds.
Face Value: The dollar amount that appears on the face of the bond certificate. It is the dollar
amount the issuer promises to pay to the holder at maturity. Also called par value.
Federal Credit Agencies: Agencies of the Federal government set up to supply credit to various
classes of institutions and individuals. Examples: S&L’s, small business firms, students, farmers,
farm cooperatives.
Federal Deposit Insurance Corporation (FDIC): A federal agency that insures bank deposits,
currently up to $250,000 per depositor.
Federal Funds Rate: The rate of interest at which Fed funds are traded. This rate is currently
pegged by the Federal Reserve through open-market operations.
Federal Farm Credit Bank (FFCB): Fiscal agent for the Farm Credit System, a public government
sponsored enterprise (GSE) created in 1916 to lend to agricultural and rural America. Funds for
loans are obtained through the issuance of Farm Credit Debt Securities.
Federal Home Loan Bank (FHLB): Government sponsored wholesale banks (currently 11 regional
banks), which lend funds and provide correspondent banking services to member commercial
banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLB is to
liquefy the housing related assets of its members who must purchase stock in their district Bank.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac): Public government
sponsored enterprise (GSE) created in 1970 to expand the secondary market for mortgages in the
US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them,
and sells them as a mortgage-backed security to investors on the open market. This secondary
mortgage market increases the supply of money available for mortgage lending and increases the
money available for new home purchases.
Federal National Mortgage Association (FNMA or Fannie Mae): FNMA is a federal corporation
working under the auspices of the Department of Housing and Urban Development (HUD). It is the
largest single provider of residential mortgage funds in the United States. The corporation
purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate
mortgages. FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and
guarantees that all security holders will receive timely payment of principal and interest.
Federal Open Market Committee (FOMC): Consists of the seven members of the Federal Reserve
Board and five of the twelve Federal Reserve Bank Presidents. The Committee periodically meets
to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the
open market as a means of influencing the volume of bank credit and money.
Federal Reserve System: The central bank of the United States created by Congress and
consisting of a seven member Board of Governors in Washington D.C., 12 regional banks and about
5,700 commercial banks that are members of the system.
Financial Assets: Cash and other assets that, in the normal course of operations, will become
cash.
Government National Mortgage Association (GNMA or Ginnie Mae): A fixed income security
that represents an undivided interest in a pool of federally insured mortgages put together by GNMA.
GNMA securities are commonly backed by FHA or VA mortgages.
Liquidity: A liquid assets is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread between
bid and asked prices is narrow and reasonable sizes can be done at those quotes.
Local Government Investment Pool (LGIP): An entity created under the public funds investment
act to invest public funds jointly on behalf of the entities that participate in the pool and whose
investment objectives in order of priority are (1) preservation and safety of principal, (2) liquidity, and
(3) yield.
Market Value: The price at which a security is trading and could presumably be purchased or sold.
Master Repurchase Agreement: A written contract covering all future transactions between the
parties to repurchase-reverse repurchase agreements that establishes each party’s rights in the
transactions.
Maturity: The date upon which the principal or stated value of an investment becomes due and
payable.
Money Market: The market in which short-term debt instruments (bills, commercial paper, etc.)
with a one-year maturity or less, and often 30-days or less, are issued and traded.
Offer: The price asked by a seller of securities.
Overnight Repo: A repurchase agreement with expiration set for the following business day.
Par Value: The dollar amount that appears on the face of the bond certificate. It is the dollar amount
the issuer promises to pay to the holder at maturity. Also, called face value.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A designation given by the Federal Reserve System to commercial banks or
broker/dealers who meet specific criteria, including capital requirements and participation in
Treasury auctions.
Principal: The face amount (par value) of a debt security.
Rate of Return: The yield obtainable on a security based on its purchase price or its current market
price. For bonds and notes, it is the coupon rate divided by the price.
Repurchase Agreement (REPO): A holder of securities sells these securities to an investor with
an agreement to repurchase them at a fixed price on a fixed date.
Safekeeping: A services to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank’s vault for protection.
Secondary Market: A market made for the purchase and sale of outstanding issues following the
initial distribution.
Securities and Exchange Commission: Agency created by Congress to protect investors in
security related transactions by administering securities legislation.
Sell: To transfer ownership for a monetary consideration. The term is used in conjunction with the
disposition of stocks, bonds, or other financial assets.
Structured Notes: Notes issued by Government Sponsored Enterprises (FFCB, FHLB, FHLMC,
FNMA, etc.) and Corporations that have imbedded options (e.g.: call features, step-up coupons,
floating rate coupons, derivative based returns) into their debt structure. Their market performance
is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the
shape of the yield curve.
Treasury Bills: A non-interest bearing discount security issued by the U.S. Treasury to finance the
national debt. Most bills are issued to mature in three months, six months, or one year.
Treasury Bonds: Long-term coupon bearing U.S. Treasury Securities issued as direct obligations
of the U. S. Government and having initial maturities of more than 10 years.
Treasury Notes: Medium-term coupon-bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities from two to ten years.
Uniform Net Capital Rule: Securities and Exchange Commission requirement that member firms
as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to
liquid capital of 15 to 1; also called net capital rule and net capital ratio.
ATTACHMENT A
CERTIFICATION BY BUSINESS ORGANIZATION
This certification is executed on behalf of City of Pearland (the Investor) and
_____________________________ (the Business Organization) pursuant to the Public Funds
Investment Act, Chapter 2256, Texas Government Code (the Act) in connection with investment
transactions conducted between the Investor and the Business Organization.
The undersigned Qualified Representative of the Business Organization hereby certifies on behalf
of the Business Organization that:
1. The undersigned is a Qualified Representative of the Business Organization offering to enter
into an investment transaction with the Investor as such terms are used in the Public Funds
Investment Act, Chapter 2256, Texas Government Code and
2. The Qualified Representative of the Business Organization has received and reviewed the
Investment Policy furnished by the Investor and
3. The Qualified Representative of the Business Organization has implemented reasonable
procedures and controls in an effort to preclude imprudent investment transactions
conducted between the Business Organization and the Investor that are not authorized by
the Investor’s investment policy, except to the extent that this authorization is dependent on
an analysis of the makeup of the Investor’s entire portfolio or required an interpretation of
subjective investment standards, or relates to investment transactions of the Investor that
are not made through accounts or other contractual arrangements over which the business
organization has accepted discretionary investment authority.
4. The Business Organization will rely upon instructions from only the persons authorized on
behalf of the Investor as stated in the Investment Policy and Investor's resolution designating
investment officers.
Qualified Representative of the Business Organization
Signature: ____________________________________
Name: ____________________________________
Title: ____________________________________
Date: ____________________________________
ATTACHMENT B
APPROVED/AUTHORIZED LIST OF BROKER/DEALERS & INVESTMENT POOLS
BROKER/DEALERS
Hilltop Securities, Inc.
Wells Fargo Securities
National Alliance Securities
FHN Financial
INVESTMENT POOLS
Texas CLASS
TexSTAR
LOGIC
Certificates of deposit may be purchased from Texas depository institutions, which are not on the
approved broker/list, as they are considered depository in nature. Certificates of deposit purchased
from brokerage firms, however, must be on the approved broker/dealer list as they fall under the
Public Funds Investment Act. All deposits over the FDIC limit must be collateralized.
CITY OF PEARLAND
INVESTMENT STRATEGY
The City of Pearland shall adopt by resolution a separate written investment strategy for each of the
funds under its control. For Investment purposes, the City shall use a “Pooled Fund Group” which
means that all funds under the City’s control shall be treated as one fund.
INVESTMENT STRATEGY
I. Suitability
Investments are to be purchased based on the financial requirements of the City. The City of
Pearland shall strive to maintain the level of investment of all fund balances, reserves and bond
funds as close as possible to 100%. Any investment eligible in the Investment Policy is suitable for
all City funds, including component units.
II. Safety of Principal
Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. All investments shall be of high quality with no perceived default risk.
It is the City’s full intent, at the time of purchase, to hold all investments until maturity in order to
ensure the return of all invested principal.
III. Liquidity
The City’s investment portfolio will remain sufficiently liquid to enable the City to meet all operating
requirements that might be reasonably anticipated. Liquidity shall be achieved by matching
investment maturities with budgetary and economic cycles, and forecasted cash flow requirements.
A portion of the portfolio will be maintained in liquid short-term securities that can be converted to
cash if necessary to meet disbursement requirements. Investment pools and money market mutual
funds provide daily liquidity and may be utilized as a competitive yield alternative to fixed maturity
investments.
IV. Marketability
The City shall invest in securities that, if the need arises, can be liquidated before maturity.
Investments will never be prematurely sold at less than book value plus accrued interest, without
the approval of the Chief Financial Officer and the City Manager.
V. Diversification
The City will diversify its investments by security type and by institution. With the exception of U.S.
Treasury securities and fully collateralized demand deposit accounts, no more than 75% of the City’s
total investment portfolio will be invested in a single security type.
VI. Yield
The investment portfolio shall obtain a reasonable rate of return throughout budgetary and economic
cycles, commensurate with the investment risk constraints and the cash flow needs. The City shall
attempt to obtain an acceptable return provided that the requirements of safety and liquidity are first
met. The yield of the one-year U.S. Treasury Bill shall be a yield objective or benchmark as well as
other appropriate comparisons