RDAP-2010-07 - 2010-05-03 RESOLUTION NO. RDAP- 2010 -7
A RESOLUTION OF THE DEVELOPMENT AUTHORITY OF PEARLAND
(DAP), 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 DAP 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 DAP BOARD OF DIRECTORS:
Section 1. That the DAP has complied with the requirements of the Public Funds
Investment Act and the Investment Policy. The modified Investment Policy, Invest Strategy
and approved Brokers are attached hereto as Exhibit "A Exhibit "B" and Exhibit "C" and
are hereby adopted effective immediately.
RESOLUTION NO. RDAP- 2010 -7
PASSED, APPROVED, AND ADOPTED this 3 rd day of May, A.D., 2010.
TOM REID
DAP CHAIRMAN
ATTEST:
ED BAKER
DAP SECRETARY
2
Exhibit "A"
Resolution No. RDAP 2010 -7
DEVELOPMENT AUTHORITY
OF PEARLAND, TEXAS
INVESTMENT POLICY
AND
INVESTMENT STRATEGY
ADOPTED FEBRUARY 12, 2007
Revised February 2008
Revised April 2009
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 Unauthorized Investments
3.03 Investments with Required Ratings
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 Collateral or Insurance
7.02 Safekeeping of Securities
8.0 INVESTMENT POLICY ADOPTION
GLOSSARY
ATTACHMENT A Broker /Dealer Certification
ATTACHMENT B Approved List of Broker /Dealers
DEVELOPMENT AUTHORITY 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 Development Authority of Pearland.
1.02 Policy
It is the policy of the Development Authority of Pearland (the "DAP 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 DAP. 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
DAP as well as any other funds held in custody by the DAP, and include
the following funds:
1. Development Authority of Pearland
2. Any other funds as created by the DAP.
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 DAP sets
aside or holds for its employees are not subject to this policy.
1.04 Delegation of Investment Authority
The Director of Finance, Assistant Director of Finance, and Senior
Accountant are hereby designated as Investment Officers for the DAP.
The DAP 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 DAP. The
DAP may designate a registered investment advisor to invest for the DAP
and act as an additional Investment Officer. Authority granted to a
person(s) to deposit, withdraw, invest, transfer or manage the DAP's
investments is effective until rescinded by DAP board or until termination
of the person's employment or contract.
The Director of Finance is responsible for the management of the
investment program. The Investment Officers are responsible for the
daily operations of the investment function. The Director of Finance 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 DAP and who
have anyone related within the second degree by affinity or
consanguinity to an individual seeking to sell an investment to the DAP
shall file a statement disclosing that personal interest to the Director of
Finance, 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, Assistant City Manager as designated by the
City Manager, Director of Finance, and Assistant Director of Finance.
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 DAP.
2.0 INVESTMENT OBJECTIVES AND STRATEGY
2.01 Objective
DAP investments shall be made in accordance with federal and state
laws, this Investment Policy and ordinances of the DAP. The DAP's
investment portfolio shall be designed with the objective of attaining a
market rate of return in accordance with its designated benchmark
based on the DAP's cash flow requirements throughout budgetary and
economic cycles, commensurate with the DAP's investment risk
constraints and the cash flow characteristics of the portfolio.
2.02 Safety of Principal
The primary objective of the DAP's investment program is to ensure the
safety of all funds. To attain this objective, it is the DAP's intent to invest
in the safest types of securities, pre qualify broker /dealers, financial
institutions, 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 DAP's investment must be based on a cash flow analysis, which will
provide the liquidity necessary to pay all expected and unexpected
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 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 Development Authority 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 DAP 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 against an agency note with
approximately the same maturity as the weighted average maturity of
the portfolio.
2.06 Maturity
The portfolio shall be structured primarily to meet DAP obligations and
secondly to achieve a reasonable return of interest. The maximum
allowable stated maturity of any individual investment owned by the DAP
shall be three (3) years from date of purchase. The settlement date is
considered the date of purchase. However, the DAP may collateralize its
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 18 months, or 547.5 days.
2.07 Investment Training
Investment Officers shall take (a) 10 hours of training within 12 months
after taking office or assuming duties and (b) not less than 10 hours of
training every 2 years. 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, Southwest School of Government
Finance, University of North Texas, Texas Association of Counties,
Treasury Management Association, 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 at all times be cognizant of the standard of
care and the investment objectives as set forth in the Public Funds
Investment Act and the DAP's Investment Policy.
The DAP shall provide investment training as required by the Act to
ensure the quality and capability of investment management. Staff sets
the standard of training required, which may be over the 10 hours as
required by the Act.
2.09 Investment Strategy
In accordance with the Act (2256.005(d)) a separate written investment
strategy shall be developed for each portfolio /fund or pooled group of
funds under the DAP's control. The strategy shall be reviewed on an
annual basis with formal action by the DAP 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 DAP for
investment use. The DAP 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 of the United States or its agencies and instrumentalities.
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. Collateralized certificates of deposit of banks or savings banks doing
business in Texas, collateralized to 102 and guaranteed or insured
by the Federal Deposit Insurance Corporation or its successor; or
secured by obligations of the United State Government, including
mortgage backed securities, which pass the bank test, but excluding
those mortgage backed securities defined in Section 2256.009(b) of
the Act.
E. Constant dollar local government investment pools as defined by the
Act (2256.016 and 2256.019) and approved by DAP board resolution.
F. AAA rated, SEC registered no -load money market mutual funds and
no -load mutual fund and as further defined in Section 2256.014 of
the Act.
G. Collateralized repurchase agreements as defined by the Public Funds
Investment Act 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.
H. Interest bearing checking accounts that are fully collateralized at
102% of the ledger balance.
3.02 Unauthorized Investments
Specifically prohibited investments are:
1. Collateralized mortgage obligations
2. Commercial Paper, including 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 DAP would own more than 10% of the
market value of the pool
11. Any other investments that are not on the authorized investment list
3.03 Investments with Required Ratings
Investments with minimum required ratings such as investment pools
and no -load mutual funds do not qualify as authorized investments
during the period the investment does not have the minimum rating.
The DAP shall take all prudent measures that are consistent with its
investment policy to liquidate investments that do not have the
minimum rating.
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker /Dealers
The Investment Officers will maintain a list of financial institutions,
primary broker /dealers, and local government investment pools
authorized by the DAP to provide investment services. Annually, the
DAP will approve the list of financial institutions and broker /dealers
authorized to conduct business with the DAP. Investment Officers shall
not conduct business with any firm not approved by DAP.
The City will prepare a Request for Investment Services every two years
at a minimum and notice of said request will be published in the City's
official paper. All financial institutions and broker /dealers who desire to
become qualified bidders for investment services must fill out the
application and return it to the City by the stated day and time. After
review of all applicants, a list of selected financial institutions and
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.
The top six to seven firms shall be selected to appear on the DAP's
approved list. If, after a firm is selected, they no longer qualify to
appear on the DAP's approved dealer list, or provide services
inconsistent with acceptable levels, the Investment Officers may
recommend DAP board to remove the firm from the approved list and
replace it with the next qualified candidate based on the previous
Request for Investment Services ranking. Should an approved bank
merge with or be acquired by another bank while on the DAP's approved
list, the new bank must agree to meet the same collateralization and
certification requirements, or the bank shall be removed from the
approved list.
4.02 Certification
A written copy of this Investment Policy shall be presented to any firm
seeking to engage in a financial transaction with the DAP. The authorized
representative of the firm 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 DAP;
and
2. acknowledged that the organization has implemented reasonable
procedures and controls in effort to preclude investment transactions
that are not authorized by the DAP's Investment Policy except to the
extent that the authorization is dependent on an analysis of the
makeup of the DAP's entire portfolio or requires interpretation of
subjective investment standards.
The Investment Officer(s) may not transact business with any firm that
has not executed and returned this certification. (2256.005(1).
The DAP may contract with a registered investment advisor for the
management of the DAP'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 DAP that all securities shall be purchased on
a "Delivery vs. Payment" (DVP) basis, except for investment pools and
mutual funds. By so doing, DAP funds are not released until the DAP or
its approved custodian has received the securities purchased or pledged.
4.04 Internal Control and Annual Audit
The Director of Finance 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 of Investment Officers of the DAP.
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 DAP, in conjunction with its annual financial audit, shall perform a
compliance audit of management controls on investments and adherence
to the DAP'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 DAP's
Investment Policy.
The Director of Finance and the Investment Officers are not personally
responsible for changes in the market.
4.06 Competitive Bidding
All purchases of investments will be placed after receiving competitive
quotes from at least three financial institutions, broker /dealers,
investment pools or any combination thereof. 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 greatest
return and quality to the DAP. 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, when both are present.
4.07 Portfolio Diversification
The DAP will diversify its investments by security type, institution, and
broker /dealer. Requests for bids /offers from broker /dealers shall rotate
among approved broker /dealers to ensure that the same brokers are not
solicited for every bid /offer request, and to ensure competition among
broker /dealers.
With the exception of U.S Treasury Securities and interest bearing
checking accounts that are fully collateralized, no more than 75% of the
DAP's total investment portfolio will be invested in a single security type.
If the DAP 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 °A)
Repurchase Agreements Up to 50%
Certificates of Deposit Up to 50%
US Treasury Bills /Notes Up to 100%
Other US Government Securities Up to 75%
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 °A)
Fully collateralized at 102% of value
4.08 Electronic Funds Transfer
The DAP may use electronic means to transfer or invest all funds
collected or controlled by the DAP.
4.09 Selling Of Securities Before Maturity
While it is the DAP's intent to hold securities to maturity to ensure safety
of principal, if the DAP needs to sale securities in order to meet
disbursement needs or to take advantage of interest rates, the City
Manager and the Director of Finance must both approve the sale of the
security.
5.0 Arbitrage
Arbitrage rebate provisions require that the DAP compute earnings on
investments from each issue of bonds on an annual basis to determine if
a rebate to the IRS is required. The DAP is required to perform specific
calculations relative to the actual yield earned on the investment of the
funds and the yield that could have been earned if the funds had been
invested at a rate equal to the yield on the bonds sold by the DAP. 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 insure compliance. Failure to comply can
dictate that the bonds become taxable, retroactively from the date of
issuance, or subject the DAP to severe penalties.
The DAP'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, if the investment can
be purchased solely with the individual bond proceeds, and not
commingled with operating funds or multiple issues. All investments
purchased with bond funds shall be documented clearly and reported to
the DAP's arbitrage consultant for tracking and review. Arbitrage rebate
calculations will be performed annually 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 the DAP no less than a quarterly
basis in accordance with the Act (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 DAP's Investment
Policy and the Act (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 Collateral
The Investment Officer(s) or Investment Advisor shall ensure that all
DAP funds in time and demand deposits, certificates of deposits and /or
repurchase agreements are insured or collateralized consistent with the
Public Funds Collateral Act (Texas Government Code 2257) and federal
law as well as the then current bank depository contract. The DAP
chooses to accept collateral based on the list of investments authorized
under the Public Funds Investment Act. The right of collateral
substitution is granted with the approval of the Director or Assistant
Director of Finance. The Director or Assistant Director of Finance may
approve and release pledged collateral. The DAP shall request additional
collateral in the event Investment Officer(s) deems that deposits or
investments are not sufficiently protected by the pledged collateral.
Collateral will equal 102% of the ledger balance of time and demand
deposits, plus principal and accrued interest on certificates of deposit,
and repurchase agreements and be held by an independent party
outside the bank's or counter parties' holding company. Pledged
collateral will be evidenced by original safekeeping receipts, which are
held at the Federal Reserve Bank and readily available to the DAP. The
bank and /or counter -party will be responsible for the monitoring and
maintaining of margin levels at all times.
7.02 Safekeeping
All DAP securities shall be held in independent safekeeping by the DAP,
the DAP's depository bank or a DAP approved custodian in a third party
financial institution. All safekeeping will be evidenced by original
safekeeping receipts. Safekeeping receipts shall be maintained by the
Investment Officer(s), and shall be available for review upon request.
8.0 INVESTMENT POLICY ADOPTION
The DAP's Investment Policy shall be adopted by resolution annually by
the DAP board. The policy shall be reviewed annually by the Investment
Committee. Any modifications made thereto must by approved by the
DAP board 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 Administration, 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 (2) 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 $100,000 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 Home Loan Bank (FHLB): Government sponsored wholesale banks
(currently 12 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 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. FNMA, is a private
stockholder -owned corporation. The corporation's 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 Tess, 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
(FHLB, FNMA, SLMA, 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 entity's
investment policy, except to the extent that this authorization is
dependent on an analysis of the makeup of the entity's entire portfolio or
required an interpretation of subjective investment standards.
4. The Business Organization will rely upon instructions from only the
persons authorized on behalf of the City of Pearland as stated in the
Investment Policy and City's resolution designating investment officers.
Qualified Representative of the Business Organization
Signature:
Name:
Title:
Date:
ATTACHMENT B
APPROVED /AUTHORIZED LIST OF BROKER /DEALERS
Coastal Securities, LP
Duncan Williams, Inc.
Frost Bank
Wells Fargo Bank
Pearland State Bank
Comerica Securities
First Southwest Company
Exhibit "B"
Resolution No. RDAP- 2010 -7
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 Director of Finance and the City Manager.
V. Diversification
The City will diversity its investments by security type and by
broker /dealer. 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 competitive 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
benchmarked against an agency note with maturity, which
approximates the weighted average maturity of the portfolio.
Exhibit "C"
Resolution No. RDAP- 2010 -7
ATTACHMENT B
APPROVED /AUTHORIZED LIST OF BROKER /DEALERS
Coastal Securities, LP
Duncan Williams, Inc.
Frost Bank
Wells Fargo Bank
Pearland State Bank
Comerica Securities
First Southwest Company