HomeMy WebLinkAboutMIN MARCH 04 2003 (3) 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
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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
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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)
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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)
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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)
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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.
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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.
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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.
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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-party 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.
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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.
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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.
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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 .01%.
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.
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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.
Liquidity: 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.
Maturity: 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.
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Glossary
Pooled Fund Group: An interraily 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
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EXHIBITS
"Exhibit 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
B1
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.
(Finn)
Qualified Representative of the Business Organization
(Signature)
(Name)
(Title)
C1