Loading...
MIN MARCH 04 2003 (2) EXHIBIT "A" City of Beaumont, Texas �h • • • Investment Policy City of Beaumont, Texas Investment Policy Adopted by Resolution of City Council on September 26, 1995 Amended October 29, 1996 October 28, 1997 November 3, 1998 November 9, 1999 November 21, 2000 January 29, 2002 March 4, 2003 City of Beaumont - Investment policy Table of Contents I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 H. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 M. Prudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 IV. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Safety of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 C. Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 V. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 VI. Ethics and Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 VII. Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 VIII. Selection of Financial Dealers, Institutions and Investments Pools . . . . . . . . . 3 A. Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B. Public Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. Investment Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 IX. Authorized and Suitable Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 X. Marking to Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XI. Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XII. Safekeeping and Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 XHI. Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 XIV. Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 i Table of Contents A. Pooled Fund Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 B. Debt Service Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Debt Service Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 XV. Internal Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVI. Performance Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVII. Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVIII. Investment Policy Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Exhibits Exhibit A-Authorized Investment Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Al Exhibit B -Approved List Broker/Dealers, Financial Institutions and Inv. Pools . . . . B1 Exhibit C- Certification By Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . Cl. ii City of Beaumont Investment Policy I. Introduction It is the policy of the City of Beaumont to invest public funds in a manner which will ensure that the investments are duly authorized, properly managed, adequately protected and fully collateralized. The City shall seek the highest investment return with the maximum security while meeting daily cash needs and conforming to the City Charter, the Public Funds Investment Act (Chapter 2256, Government Code as amended) and all other state and local statutes governing the investment of public funds. II. Scope This investment policy applies to all financial assets of the City as accounted for in the City's Comprehensive Annual Financial Report. These include General, Special Revenue, Debt Service, Capital Projects, Enterprise, Internal Service and Fiduciary Funds. All are pooled for investment purposes except debt service and debt service reserve funds. Interest is allocated monthly to each fund based on its individual cash balance. III. Prudence 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. The "prudent person" standard shall be applied in the context of managing the total portfolio rather than a single investment providing that the decision was consistent with this investment policy. (Section 2256.006, Government Code) Investment officials acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of responsibility for an individual security's credit risk or market price changes provided that deviations from exceptions are reported in a timely fashion and appropriate action is taken to control adverse developments. IV. Objectives The primary objectives, in priority order, of the City's investment activities shall be preservation and safety of principal, liquidity and yield. (Section 2256.006, Government Code) 1 City of Beaumont- Investment Policy A. Safety of principal The City of Beaumont has as its foremost objective to ensure the safety of principal. Investments of the City shall be undertaken in a manner that seek to ensure the preservation of capital in the overall portfolio. To attain this objective diversification is required in order to eliminate an over-concentration of assets in one institution, maturity or type of securities. B. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. The portfolio shall be constructed so that investment maturities are matched with forecasted cash flow requirements and limited by investments in securities with an active secondary market. C. Yield The City's investment portfolio shall be designed with the objective of attaining a rate of return which is consistent with risk limitations and cash flow characteristics of the City's investments. V. Delegation of Authority Authority to manage the City's investment program is derived from the City Charter (article VII, section 1-2). The Charter designates the City Manager as Director of Finance who shall have custody of all, public funds, investments, bonds and notes of the City and be responsible for their safekeeping. The City Manager shall establish written procedures for the operation of the investment program consistent with this investment policy which include explicit delegation of authority to persons responsible for investment transactions. The City Manager shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Each "investment official" shall be approved by resolution of City Council to invest the City of Beaumont's funds. As shown in exhibit "A", the City Manager, the Finance Officer and the City Treasurer are currently approved as investment officials of the City of Beaumont. Such approval of specific persons shall remain in-effect until rescinded by the City Council or until termination of the person's employment by the City of Beaumont. Investment officials shall not deposit, withdraw, transfer or manage the funds of the City of Beaumont in a manner that is not consistent with the "prudent person" standard as described in section III of this policy. (Section 2256.005 (f)-(h), Government Code) 2 City of Beaumont- Investment Policy VI. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment officials shall disclose any personal business relationships with business organizations approved to conduct investment transactions with the City of Beaumont as described in Section 2256.005 (i)(1-3) of the Government Code. They shall also disclose any specific individuals who seek to sell investments to the City and are related to the employee within the second degree by affinity or consanguinity, as determined under Chapter 573. Disclosure shall be filed with the Texas Ethics Commission and the City Council of the City of Beaumont. An ethics statement signed by each investment official is attached as exhibit"B". VII. Training Each investment official of the City of Beaumont shall attend as least ten (10) hours of training relating to investment responsibilities within 12 months after assuming such duties and shall continue to attend an investment training session not less than once every two years thereafter consisting of at least ten (10) hours of instruction. Training shall be in accordance with the Public Funds Investment Act and include education in investment controls, security risks, strategy risks, market risks, and compliance with state statutes governing the investment of public funds. All training shall be conducted by an independent source which has been approved by City Council. (Section 2256.008, Government Code) The Government Treasurers Organization of Texas, the Government Finance Officers Association of Texas, the Texas Municipal League and the University of North Texas are hereby approved as "independent sources" who may provide such training to investment officials. VIII. Selection of Financial Dealers, Institutions and Investment Pools Authorized investments shall only be purchased from those institutions included on the City's list of broker/dealers, financial institutions and investment pools as approved by the City Council. An "approved list", as shown in exhibit "C", shall be maintained by investment officials at all times and reviewed by the City Council on an annual basis. (Section 2256.025, Government Code) 3 City of Beaumont- Investment Policy Any business organization which seeks to execute investment transactions with the City of Beaumont shall provide a written instrument certifying that they have received and thoroughly reviewed the City's investment policy and have implemented reasonable procedures and controls in a effort to preclude investment transactions that are not authorized by this policy. The certification, as shown in exhibit"D", must be signed by a qualified representative of the business organization. Investment officials shall not buy any securities from a firm which has not filed.this instrument. (Section 2256.005 (k)-(1), Government Code) A. Broker/Dealers The City shall select broker/dealers by creditworthiness and may include "Primary Government Securities Dealers" or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 150-1 (uniform net capital rule). Broker/dealers selected must be members in good standing of the National Association of Securities Dealers, Inc. (NASD) and be licensed by the State of Texas. The minimum net capital requirement is $ 5,000,000 and the business must have been in operation for at least five years. Firms who desire to become approved bidders for investment transactions must supply the City with audited financial statements, a trading agreement and other information regarding their capabilities, experience, general reputation, size and capitalization. Each firm will be reviewed by investment officials and a recommendation made for approval by City Council. B. Public Depositories The City Council shall select a primary depository every three years. The primary depository as authorized by the City Council shall meet all requirements of the state law concerning depositories for municipal funds. (Chapter 105, Government Code) The institution offering the most favorable terms and conditions for the handling of City funds shall be selected as the depository. The City Council may also establish agreements with financial institutions under separate contract for additional services which are necessary in the administration, collection, investment, and transfer of municipal funds. (Section 105.018, Government Code) Financial institutions who desire to become approved bidders for investment transactions shall .submit information similar to that of a broker/dealer as described above (section VIII-A). No deposit shall be made except in a qualified public depository as established by State Law. The City of Beaumont shall not place deposits or investments with Saving and Loan Associations or Credit Unions. 4 City of Beaumont- Investment Policy C. Investment Pools Investment officials may invest funds of the City of Beaumont through an eligible investment pool with specific approval by resolution of City Council and execution of a written agreement. To become eligible, investment pools must first meet all requirements of State Law. They shall provide the City with an offering circular which contains specific and detailed information and provide detailed monthly transaction and performance reports. Pools shall have advisory boards composed of qualified members representing participants and non-participants who do not have a business relationship with the pool. (Section 2256.016 - 2256.019, Government Code) Before selection, pools shall be thoroughly reviewed and evaluated by investment officials. Annually, a review of the financial condition and registrations of approved bidders will be conducted by investment officials. A current audited financial statement is required to be on file for each financial institution, broker/dealer or investment pool in which the City of Beaumont invests. IX. Authorized and Suitable Investments Authorized investments for municipal governments in the state of Texas are set forth in the Public Funds Investment Act, as amended. (Section 2256.009-2256.019, Government Code) Suitable investments for the City of Beaumont are limited to the following: ♦ Direct Obligations of the United States or its agencies and instrumentalities which are non-callable and have a maximum stated maturity date of 5 years or less. ♦ Certificates of deposit issued by approved depository banks as described above (section VIII-B) which have a maximum stated maturity date of 5 years or less and are insured by the Federal Deposit Insurance Corporation, or their successors; or secured by obligations that are described in Section 2256.009(a) of the Government Code. ♦ Fully collateralized direct repurchase agreements with a defined termination date of 90 days or less which are secured by obligations of the United States or its agencies and instrumentalities and pledged with a third party other than an agent for the pledgor. Investment officials may invest in repurchase agreements through an approved primary government securities dealer or an approved depository bank as described above (section VIII-A, B). Each issuer of repurchase agreements shall be required to sign a master repurchase agreement. 5 City of Beaumont- Investment Policy ♦ No load money market mutual funds registered with and regulated by the Securities and Exchange Commission with a dollar weighted average stated maturity of 90 days or less whose assets consist exclusively of direct obligations of the United States and whose investment objectives include the maintenance of a stable net asset value of$1 per share. Money market mutual funds must provide the City with a prospectus and other information required by the Securities and Exchange Act of 1934 (Section 2256.014 (a), Government Code) and be specifically approved by City Council or purchased through the City's primary depository as an overnight investment tool. ♦ Approved investment pools as described above (section VIII-C) which are continuously rated no lower than AAA, AAA-m or an equivalent rating by at least one nationally recognized rating agency . X. Marking to Market All securities and certificates of deposit will be purchased or sold after at least two (2) offers or bids are taken to verify that the City is receiving a fair market value or price for the investment. The market value shall continue to be monitored at least quarterly through on-line investment software to which the City subscribes, the wall street journal or some other recognized market pricing source. The City of Beaumont shall not obtain market pricing from business organizations who may engage in investment transactions with the City. XI. Collateralization Collateralization will be required on all deposits, certificates of deposit and repurchase agreements. The collateralization level shall be equal to at least one hundred two percent (102%) of the aggregate market value of the deposit or investment including accrued interest less an amount insured by the Federal Deposit Insurance Corporation. Evidence of the pledged collateral shall be documented by a tri-party custodial or a master repurchase agreement with the collateral pledged clearly listed in the agreement. Collateral shall be reviewed monthly to assure that the market value of the securities pledged equals or exceeds the related deposit or investment balance. Collateral requirements shall be in accordance with both the Public Funds Investment Act and the Public Funds Collateral Act (Chapter 2256 and 2257, Government Code). Collateral underlying repurchase agreements is limited to direct obligations of the United States or its agencies and instrumentalities. The City of Beaumont shall accept a surety bond or the following investment securities as collateral on deposits and certificates of deposit: ♦ Direct obligations of the United States or its agencies and instrumentalities. 6 City of Beaumont- Investment Policy ♦ Direct obligations of this state or its agencies and instrumentalities. ♦ Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States and excluding those mortgage backed securities considered a high-risk mortgage security as described by Section 2257.0025 of the Government Code as well as those of the nature described by section 2256.009 (b)of the Government Code. ♦ Other obligations which are guaranteed or backed by the full faith and credit of this state or the United States or their respective agencies and instrumentalities. ♦ Obligations of states, agencies, counties, cities and other political subdivisions rated not less than A or its equivalent. ♦ Letters of credit issued by the United States or its agencies and instrumentalities. XII. Safekeeping and Custody Collateral shall be placed for safekeeping in a custodial account at the Federal Reserve Bank or at an institution not affiliated with a firm pledging collateral. All safekeeping arrangements shall be in accordance with a tri-parry custodial agreement which clearly defines the responsibilities of each party and outlines the steps to be taken in order for the City to gain access to the collateral in the event of a "failure". The custodial agreement shall be executed between the City, the firm pledging the collateral and the custodial institution. All safekeeping receipts shall be delivered to the City and all collateral (whether a pledge or substitution) shall be formally accepted and released by City Council. All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery-versus-payment (DVP) basis. That is, funds shall not be wired or paid until verification has been made that the correct security was received by the safekeeping.institution. Pool funds and mutual funds are excluded from this requirement. The security shall be held in the name of the City or on behalf of the City. The City shall not purchase securities from the firm or banking institution designated as the safekeeping institution. XIII. Diversification The City of Beaumont will diversify its investments to eliminate an over-concentration of assets in any one security type or institution. ♦ Up to ninety percent (90%) par of the portfolio may be invested in direct obligations of the United States or its agencies and instrumentalities. 7 City of Beaumont- Investment Policy O No more than fifty percent (50%) par of the portfolio may be invested in certificates of deposit or repurchase agreements. ♦ No more than eighty percent (80%) par of the portfolio may be invested in investment pools or money market mutual funds. ♦ No more than twenty five percent (25%) par of the portfolio may be invested with any one institution in certificates of deposit and/or repurchase agreements. Additionally, these investments shall not exceed ten percent (10%) of the capitalization of the financial institution. XIV. Investment Strategies The City of Beaumont shall maintain a separate investment strategy for each of the three fund types represented in the portfolio. (Section 2256.005,(d), Government Code) A. Pooled Fund Groups Investment strategies for pooled fund groups containing operating funds have as their primary objective to ensure that anticipated cash flows are matched with adequate investment liquidity. Securities purchased shall not have a final stated maturity date which exceeds two (2) years from the date of purchase without specific approval by the City Council. The dollar weighted average maturity of the portfolio shall not exceed 365 days as calculated using the stated final maturity dates of each security. B. Debt Service Funds Investment strategies for debt service funds shall have as their primary objective to ensure that investments mature as necessary to cover the debt service obligation on the required payment date. The stated final maturity date on securities purchased shall not exceed the debt service payment date unless excess funds are available. In that case, maximum maturities shall not exceed two (2) years from the date of purchase and the dollar weighted average maturity of the portfolio shall not exceed 365 days as is consistent with investment strategies for operating funds. C. Debt Service Reserve Funds Investment strategies for debt service reserve funds shall have as their primary objective to seek the highest investment return with maximum security in order to produce a dependable revenue stream to the appropriate fund. Securities shall be invested in accordance with specific bond ordinances and shall not have a stated maturity date which exceeds the final maturity date of the bonds. At no time shall maximum maturities exceed five (5) years from the date of purchase. 8 City of Beaumont-Investment Policy XV. Internal Control The City of Beaumont, in conjunction with its annual financial audit shall perform a compliance audit of management controls on investments and adherence to the City's investment policy. (Section 2256.005(m), Government Code) XVI. Performance Standards The City intends to pursue an active versus a passive portfolio management philosophy. That is, securities may be sold before they mature if market conditions present an opportunity for the City to benefit from the trade. The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles which is consistent with risk limitations and cash flow needs of the City . Given this strategy, the basis used by investment officials to determine whether market yields are being achieved shall be the average return on 90 day U.S. Treasury Bills. XVII. Reporting Investment officials shall submit a monthly report to City Council summarizing the results of the City's investment activity. This report shall include the status of the current portfolio position, performance, trading activity, interest earnings and collateral. A quarterly report shall be submitted to the City Manager, as Chief Executive Officer, and the City Council detailing investment transactions and performance for the reporting period in accordance with state law. (Section 2256.023, Government Code) The report shall be jointly prepared and signed by all investment officials. It shall include a summary statement prepared in compliance with generally accepted accounting principles for each fund type and a detailed listing that states the beginning market value, changes to the market value, ending market value and fully accrued interest for the period. In addition, investment officials shall report on adherence to the City's investment strategies as expressed in this policy. The quarterly reports shall be formally reviewed by the City's independent auditor on an annual basis and the results of the review shall be reported to City Council. (Section 2256.023, (d), Government Code) XVIH.Investment Policy Adoption The City's investment policy is hereby adopted by resolution of the City Council on September 26, 1995. The City Council shall review and approve any modifications to the policy on an annual basis. This policy serves to satisfy the statutory requirement to define and adopt a formal investment policy as set forth in Section 2256.005 of the Government Code. 9 Glossary Accretion: Adjustment of tl.e. difference between the price of a bond bought at a discount and the par value of the bond. Accrued Interest: Interest due from the last interest payment to the present day. Amortization: The reduction of principal (of debt) at regular intervals. Basis Point: 1/100th of 1% or .O1%. Book Value: The original acquisition cost of an investment plus or minus the accrued amortization or accretion. Broker: A broker brings buyers and sellers together for a commission. Cash Forecasting: Longer-term (one month or longer) prediction of cash flows, typically focusing on the aggregate cash position. In contrast, cash scheduling focuses on shorter-term predictions, emphasizing cash position management. Certificate of Deposit (CD): A time deposit with a specific maturity evidenced by a certificate. Collateral: Assets pledged to secure deposits, investments or loans. Collateral Mortgage Obligation (CMO): Multi-class security collateralized by whole loans or regular mortgage securities whose cash flows are paid through to meet debt service on the CMO bond. Comprehensive Annual Financial Report (CAFR): The official annual report for the City of Beaumont. Credit Risk: The risk that a counterparty to an investment transaction will not fulfill its obligations. Credit risk can be associated with the issuer of a security, with a financial institution holding deposits or with parties holding securities or collateral. Credit risk exposure can be affected by a concentration of deposits or investments in any one investment type or with any one counterparty. 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 (DVP): There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is a delivery of securities with an exchange of a signed receipt for the securities. 10 Glossary Discount: The difference between the cost price of a security and its maturity value when quoted at lower than face value. Diversification: Dividing investment funds among a variety of securities offering independent returns. Dollar Weighted Average Maturity: Represents the average number of days remaining until the final maturity date, appropriately weighted by the dollar amount of each security in the portfolio. Federal Agency Securities (agencies): Discount and coupon obligations of the federal agencies that were established by Congress to provide credit to specific sectors of the economy. Federal Deposit Insurance Corporation (FDIC): A federal institution that insures deposits of federally chartered banks, currently up to $100,000 per deposit. Federal Reserve Bank: 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. Investment Pool: An entity created to invest public funds jointly on behalf of the entities that participate in the pool. Li uidi : A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. Market Risk: The risk that the market value of an investment, collateral protecting a deposit or securities underlying a repurchase agreement will decline. Market risk is affected by the length to maturity of a security, the need to liquidate a security before maturity, the extent to which collateral exceeds the amount invested and how often the amount of collateral is adjusted for changing market values. Market Value: The current face or par value of an investment multiplied by the net selling price of the security as quoted by a recognized market pricing source quoted on the valuation date. It is 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. Maturi : The date upon which the principal or stated value of an investment becomes due and payable. Par Value: Face amount or 100% of the principal amount of a security at original issue. 11 Glossary Pooled Fund Group: An internaily created fund of an investing entity in which one or more institutional accounts of the investing entity are invested. Portfolio: Collection of securities held by an investor. Premium: The difference between the price of a bond and its value at maturity when the price is higher than the maturity value. Primary Dealer: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission(SEC) -registered securities broker-dealers, banks, and a few unregulated firms. Principal: The amount of debt remaining on a loan. On the date a loan is originated, or issued, the total amount equals the initial principal balance. Prudent Person Rule: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state -the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. Qualified Public Depositories: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. Qualified Representative: A person who holds a position with a business organization who is authorized to act on behalf of the business organization. If the business organization is regulated by or registered with a securities commission then the qualified representative must be a person who is registered under the rules of the National Association of Securities Dealers. If the business organization is a banking institution then the person must be a member of the loan committee or a person authorized by corporate resolution to act on behalf of and bind the banking institution. For an investment pool, the person must be authorized by the elected official or board with authority to administer the activities of the investment pool and to sign the written instrument on behalf of the investment pool. Rate of Return: The yield obtainable on a security based on its purchase price or its current market price. See yield. 12 Glossary Repurchase Agreement (RP or 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. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. Safekeeping: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. Secondary Market: A market made for the purchase and sale of outstanding issues following the initial distribution. Securities & Exchange Commission (SEC): Agency created by Congress to protect investors insecurities transactions by administering securities legislation. Sec Rule 15C3-1: See Uniform Net Capital Rule. Settlement Date: The date agreed upon by the parties to a transaction for the payment of funds and the delivery of securities. Stated Maturity: A predetermined final maturity date that cannot be altered by prepayments. 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 Notes: An interest bearing security issued by the U.S. Treasury to finance the national debt. Most notes are issued to mature in one to ten years. Interest is paid semi-annually. Treasury Securities: "Full faith and credit" obligations of the U.S. Government issued by sale at periodic auctions, delivered and cleared electronically. 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. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. Yield: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 13 ' 3w h 3 y EXHIBITS Lxhibit A City of Beaumont Authorized Investment Officials Approved by City Council on November 5, 2002, resolution number 02-260 Kyle Hayes, City Manager Max S. Duplant, Finance Officer Kandy Daniel, Treasurer Al Exhibit B City of Beaumont Approved List Broker/Dealers, Financial Institutions and Investment Pools March 4, 2003 Business Organization Approval Date Resolution Number Broker/Dealers: JP Morgan/Chase Securities March 19, 1996 96-64 Coastal Securities November 21, 2000 00-292 Duncan-Williams, Inc. May 11, 1999 99-146 Wachovia Securities Financial Network November 21, 2000 00-292 (Formerly First Union Securities) Prudential Securities February 13, 1996 96-44 Wells Fargo Brokerage Services, LLC November 21, 2000 00-292, Public Depositories: Primary Depository Hibernia National Bank August 15, 2000 00-193 (Contract Period 10/1/2000 - 9/30/2003) Investment Pools: Logic Investment Pool March 4, 1997 97-45 Texas TERM November 21, 2000 00-292 Texpool November 6, 1996 96-273 BI Exhibit C City of Beaumont Certification By Business Organization This certification is executed on behalf of the City of Beaumont (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 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 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 requires and interpretation of subjective investment standards. (Firm) Qualified Representative of the Business Organization (Signature) (1Vame) (Title) C1 EXHIBIT "A" City of Beaumont, Texas BEAUMONT, Investment Policy City of Beaumont, Texas Investment Policy Adopted by Resolution of City Council on September 26, 1995 Amended October 29, 1996 October 28, 1997 November 3, 1998 November 9, 1999 November 21,2000 January 29, 2002 March 4, 2003 City of Beaumont - Investment policy Table of Contents I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 H. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Prudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 IV. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Safety of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 C. Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 V. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 VI. Ethics and Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 VII. Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 VIII. Selection of Financial Dealers, Institutions and Investments Pools . . . . . . . . . 3 A. Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B. Public Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. Investment Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 IX. Authorized and Suitable Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 X. Marking to Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XI. Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XII. Safekeeping and Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 XIII. Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 XIV. Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 i Table of Contents A. Pooled Fund Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 B. Debt Service Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Debt Service Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 XV. Internal Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVI. Performance Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVII. Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XVIII. Investment Policy Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Exhibits Exhibit A-Authorized Investment Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Al Exhibit B -Approved List Broker/Dealers, Financial Institutions and Inv. Pools . . . . B1 Exhibit C - Certification By Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . C1 ii