HomeMy WebLinkAboutRES 09-187 RESOLUTION NO. 09-187
BE IT RESOLVED BY THE CITY COUNCIL
OF THE CITY OF BEAUMONT:
THAT the City of Beaumont Investment Policy, substantially in the form attached hereto
as Exhibit "A," has been reviewed and is hereby in all things adopted. All changes to the
policy are reflected therein.
PASSED BY THE CITY COUNCIL of the City of Beaumont this the 16th day of
June, 2009.
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�1y - Mayor Pro Tern Audwin Samuel -
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Beaumont
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RICH WITH OPPORTUNITY
IIEA,IIMON*
T • E * X • A • S
Investment Policy
Adopted Resolution of
City Council
on June 16, 2009
I
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
D. Public Trust ...............................................................................................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 ....................4
A. Broker/Dealers...........................................................................................4
B. Public Depositories.....................................................................................4
C. Investment Pools........................................................................................5
IX. Authorized and Suitable Investments.............................................. 5
.....................
X. Marking to Market................................................................................................7
XI. Collateralization....................................................................................................7
XII. Safekeeping and Custody......................................................................................8
XIILDiversification........................................................................................................8
XIV. Investment Strategies ...........................................................................................9
A. Pooled Fund Groups ...................................................................................9
B. Debt Service Funds ...................................................................................10
C. Debt Service Reserve Funds ..................................................................... 11
XV. Internal Control.................................................................................................. 12
XVI. Performance Standards .....................................................................................12
WILLReporting............................................................................................................ 12
XVHLInvestment Policy Adoption...............................................................................12
Exhibits
Exhibit A-Approved List Broker/Dealers.......................................................................A1
Exhibit B- Certification By Business Organization ........................................................B1
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 optimum 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.
M. 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.
Investment Officers 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.
W. Objectives
The primary objectives, in priority order, of the City's investment activities shall be
preservation and safety of principal, liquidity, yield and public trust.
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A. Safety of Principal
The City has as its foremost objective to ensure the 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. To attain this objective, diversification is required in
order to eliminate an over-concentration of assets in one institution, maturity or type
of security.
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.
D. Public Trust
Investment Officers shall seek to act responsibly as custodians of the public trust.
Investment Officers shall avoid any transaction that might impair public confidence
in the City's ability to govern effectively.
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.
The City Manager, the Chief Financial Officer and the City Controller are currently
approved as Investment Officers of the City. Each Investment Officer shall be approved
by resolution of City Council to invest the City's funds. 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. Investment Officers shall not deposit, withdraw,
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transfer or manage the funds of the City in a manner that is not consistent with the
"prudent person" standard as described in section III of this Policy.
The City Council maintains the right to hire Investment Advisers to assist City staff in
the investment of funds. Investment Advisers shall adhere to the spirit, philosophy and
specific terms of this Policy and shall invest within the same objectives. The City
Manager shall establish criteria to evaluate Investment Advisers, including:
1. Adherence to the City's policies and strategies;
2. Investment strategy recommendations within accepted risk constraints;
3. Responsiveness to the City's request for services and information;
4. Understanding of the inherent fiduciary responsibility of investing public funds;
and
5. Similarity in philosophy and strategy with the City's objectives.
Selected Investment Advisors must be registered under the Investment Advisers Act of
1940 or with the State Securities Board. A contract with an Investment Adviser may
not be for a term longer than two years and any contract, renewal or extension must be
approved by the City Council.
VI. Ethics and Conflicts of Interest
Investment 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 Officers shall disclose any personal business relationships with business
organizations approved to conduct investment transactions with the City. They shall also
disclose any specific individuals who seek to sell investments to the City and are related
to the Investment Officer 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.
VII. Training
In order to ensure qualified and capable investment management, each Investment
Officer of the City shall attend at 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. The approved "independent sources" to provide such training
are: the Government Treasurers Organization of Texas, the Government Finance Officers
Association of Texas, the Texas Municipal League, and the University of North Texas.
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VIII. Selection of Broker/Dealers,Financial Institutions and Investment Pools
Authorized investments shall only be purchased from those institutions selected and
approved in accordance with this Policy.
Any business organization which seeks to execute investment transactions with the City
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 an effort to preclude investment transactions that are not authorized by this
Policy. The certification, as shown by example in Exhibit B, must be signed by a
qualified representative of the business organization. Investment Officers shall not buy
any securities from a firm or make deposits with a fund, pool or financial institution
which has not filed this instrument. Each time City Council approves a material
revision to the Investment Policy, the certification should be sent to the approved
business organizations along with the newly revised Investment Policy.
A. Broker/Dealers
The City shall select broker/dealers by the ability to provide effective market access
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
Financial Institution Regulatory Authority("FIlVRA"), and be licensed by the State of
Texas. Each broker/dealer will be reviewed by Investment Officers and a
recommendation made for approval by City Council.
An "approved broker/dealer list", as shown in Exhibit A, shall be maintained by the
Investment Officers at all times and reviewed by the City Council on an annual basis.
The City shall not enter into transactions with a broker/dealer until official City
Council approval.
B. Public Depositories/Financial Institutions
The City Council shall select a primary depository as required by law. 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 primary depository shall be selected through the City's banking services
procurement process, including a formal Request for Proposal (RFP) issued in
compliance with applicable State law, and offers the most favorable terms and
conditions for the handling of City funds.
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The City may also establish agreements with other financial institutions under
separate contract for additional services which are necessary in the administration,
collection, investment, and transfer of municipal funds. Such deposits will only be
made after the financial institution has completed and returned the required written
instruments and depository pledge agreements.. No deposit shall be made except in a
qualified public depository as established by State Law.
C. Investment Pools
Investment Officers may invest funds of the City 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, investment transaction confirmations, and 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. Before selection, pools shall be
thoroughly reviewed and evaluated by Investment Officers.
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. Suitable investments for the City are
limited to the following:
♦ Direct Obligations of the United States or its agencies and instrumentalities which
have a maximum stated maturity date of 5 years or less. Federal agencies and
instrumentalities which do not carry the explicit U.S. Government guarantee must
be continuously rated no lower than AAA/AA or an equivalent rating by at least
one nationally recognized rating agency.
♦ Financial institution deposits placed with approved 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 as
described in section XI Collateralization. Additionally, the City may execute
certificates of deposit through a depository institution that has its main office or a
branch office in Texas that participates in the Certificate of Deposit Account Registry
Service(CDARS) and meets the requirements of Section 2256.009(b).
♦ 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 Officers 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. For flexible repurchase agreements
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executed with bond proceeds, the defined termination date of 90 days or less may be
waived to allow the term of the flexible repurchase agreement to more closely match
the expected term of the bond project.
♦ 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 maintain a AAAm, or equivalent rating
from at least one nationally recognized rating agency; and provide the City with a
prospectus and other information required by the Securities and Exchange Act of
1934 and be specifically approved by City Council or purchased through the City's
primary depository as an overnight investment tool. The City may not own more than
10% of the money market mutual fund's total assets.
♦ 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.
Investments Not Authorized - The following investments are not authorized under this
section:
a. Obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pay no
principal;
b. Obligations whose payment represents the principal stream of cash flow from the
underlying mortgage-backed security collateral and bears no interest;
c. Collateralized mortgage obligations that have a stated final maturity date of greater
than ten years; and
d. Collateralized mortgage obligations the interest rate of which is determined by an
index that adjusts opposite to the changes in a market index.
Prudent measures will be taken to liquidate an investment that is downgraded to less than
the required minimum rating. The City is not required to liquidate investments that were
authorized investments at the time of purchase.
The purchase of stock is not an authorized investment for municipal governments.
However, stock may be accepted as a donation, provided that it is held in accordance
with the terms of the donation and sold as soon as it is advantageous to do so.
Reinvestment of proceeds must be in accordance with authorized and suitable
investments for the City as listed above.
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X. Marking to Market
All securities and certificates of deposit will be purchased or sold after at least three (3)
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
independent market pricing source. The City shall not obtain market pricing from
business organizations who may engage in investment transactions with the City.
XL Collateralization
Colaateralization will be required on all deposits, certificates of deposit and repurchase
agreements. With the exception of deposits secured with irrevocable letters of credit at
100% of amount, 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. Collateral underlying repurchase agreements is
limited to direct obligations of the United States or its agencies and instrumentalities.
The City 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. 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.
♦ No more than thirty percent (30%) par of the portfolio may be invested with any
one U.S. Agency or Instrumentality.
♦ No more than eighty percent (80%) par of the portfolio may be invested in
certificates of deposit or repurchase agreements.
♦ Up to one hundred percent (100%) par of the portfolio may be invested in
investment pools for liquidity purposes with no more than eighty percent (80%) par
of the portfolio invested in any one pool.
♦ No more than fifty percent (50%) par of the portfolio may be invested in 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 shall maintain a separate investment strategy for each of the three fund types
represented in the portfolio.
A. Pooled Fund Groups
Suitability-Any investment eligible in the Investment Policy is suitable for Pooled
Fund Groups.
Safety of Principal - All investments shall be of high quality securities with no
perceived default risk. Market price fluctuations will occur. However, managing the
weighted average days to maturity of each fund's portfolio to less than 365 days
and restricting the maximum allowable maturity to two years using the final stated
maturity dates of each security will minimize the price volatility of the portfolio.
Marketability - Securities with active and efficient secondary markets are
necessary in the event of an unanticipated cash flow requirement. Historical market
"spreads" between the bid and offer prices of a particular security-type of less than
a quarter of a percentage point will define an efficient secondary market.
Li uidi Pooled Fund Groups require the greatest short-term liquidity of any of
the fund-types. Short-term investment pools and money market mutual funds will
provide daily liquidity and may be utilized as a competitive yield alternative to
fixed maturity investments.
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Diversification - Investment maturities should be staggered throughout the budget
cycle to provide cash flow based on the anticipated operating needs of the City.
Diversifying the appropriate maturity structure up to the two-year maximum will
reduce interest rate risk.
Yield - Attaining a competitive market yield for comparable security-types and
portfolio restrictions is the desired objective. The yield of an equally weighted,
rolling three-month Treasury Bill portfolio will be the minimum yield objective.
B. Debt Service Funds
Suitability - Any investment eligible in the Investment Policy is suitable for Debt
Service Funds.
Safety of Principal - All investments shall be of high quality securities with no
perceived default risk. Market price fluctuations will occur. However, by
managing Debt Service Funds to not exceed the debt service payment schedule the
market risk of the overall portfolio will be minimized. 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.
Marketability - Securities with active and efficient secondary markets are not
necessary as the event of an unanticipated cash flow requirement is not probable.
Li uidi - Debt Service Funds have predictable payment schedules. Therefore
investment maturities should not exceed the anticipated cash flow requirements.
Investments pools and money market mutual funds may provide a competitive yield
alternative for short-term fixed maturity investments. A singular repurchase
agreement may be utilized if disbursements are allowed in the amount necessary to
satisfy any debt service payment. This investment structure is commonly referred to
as a flexible repurchase agreement.
Diversification - Market conditions influence the attractiveness of fully extending
maturity to the next "unfunded" payment date. Generally, if investment rates are
anticipated to decrease over time, the City is best served by locking in most
investments. If the interest rates are potentially rising, then investing in shorter and
larger amounts may provide advantage. At no time shall the debt service schedule
be exceeded in an attempt to bolster yield.
Yield - Attaining a competitive market yield for comparable security-types and
portfolio restrictions is the desired objective. The yield of an equally weighted,
rolling three-month Treasury Bill portfolio shall be the minimum yield objective.
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C. Debt Service Reserve Funds
Suitability - Any investment eligible in the Investment Policy is suitable for Debt
Service Reserve Funds. Bond resolution and loan documentation constraints and
insurance company restrictions may create specific considerations in addition to the
Investment Policy.
Safety of Principal - All investments shall be of high quality securities with no
perceived default risk. Market price fluctuations will occur. However, by
managing Debt Service Reserve Fund maturities to not exceed the call provisions of
the borrowing will reduce the investment's market risk if the City's debt is
redeemed and the Reserve Fund liquidated. No stated final investment maturity
shall exceed the shorter of the final maturity of the borrowing or five years. Annual
mark-to-market requirements or specific maturity and average life limitations
within the borrowing's documentation will influence the attractiveness of market
risk and influence maturity extension.
Marketability - Securities with less active and efficient secondary markets are
acceptable for Debt Service Reserve Funds.
Li uidi — Debt Service Reserve Funds have no anticipated expenditures. The
Funds are deposited to provide annual debt service payment protection to the City's
debt holders. The funds are"returned" to the City at the final debt service payment.
Market conditions and arbitrage regulation compliance determine the advantage of
security diversification and liquidity. Generally, if investment rates exceed the cost
of borrowing, the City is best served by locking in investment maturities and
reducing liquidity. If the borrowing cost cannot be exceeded, then concurrent
market conditions will determine the attractiveness of locking in maturities or
investing shorter and anticipating future increased yields.
Diversification - Market conditions and the arbitrage regulations influence the
attractiveness of staggering the maturity of fixed rate investments for Debt Service
Reserve Funds. At no time shall the final debt service payment date of the bond
issue be exceeded in an attempt to bolster yield.
Yield - Achieving a positive spread to the applicable borrowing cost is the desired
objective. Debt Service Reserve Fund portfolio management shall operate within
the limits of the Investment Policy's risk constraints.
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XV. Internal Control
The City, in conjunction with its annual financial audit, shall perform a compliance audit
of management controls on investments and adherence to the City's investment policy.
XVI. Performance Standards
The City intends to pursue an active versus a passive portfolio management philosophy.
That is, investments 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 Officers to
determine whether market yields are being achieved shall be the average return on 90 day
U.S. Treasury Bills. "Weighted average yield to maturity" shall be the portfolio
performance measurement standard.
XVII. Reporting
Investment Officers 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. The report shall be jointly prepared and signed by
all Investment Officers. 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 Officers shall report on
adherence to the City's investment strategies as expressed in this Policy.
In conjunction with the annual audit, the quarterly reports hall 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.
XVHL Investment Policy Adoption
The City's Investment Policy is hereby adopted by resolution of the City Council. The
City Council shall review and approve the Policy on an annual basis. This Policy serves
to satisfy the statutory requirement to define and adopt a formal investment policy.
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EXHIBITS
Exhibit A
CITY OF BEAUMONT
Approved List
Broker/Dealers
Business/Orp-anization
Broker/Dealers:
JP Morgan/Chase Securities
Coastal Securities
Duncan-Williams, Inc.
Wells Fargo Brokerage Services, LLC
Rice Financial Products Company
Morgan Keegan& Company, Inc.
Al
Exhibit B
City of Beaumont, Texas
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)
(Name)
(Title)
(Date)
B1
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