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HomeMy WebLinkAbout1-27-2000-14.07 - Resolution - 01/27/2000RESOLUTION NO. 1-27-2000-14.07 A RESOLUTION APPROVING AND AUTHORIZING THE IMPLEMENTATION OF THE CITY OF COLLEGE STATION INVESTMENT POLICY. WHEREAS, the goal of the City of College Station is to create an investment policy to insure the safety of afl funds entrusted to the City, while making available those funds for the payment of all necessary obligations of the City, and providing for the investment of all funds not immediately required in interest bearing securities; and WHEREAS, the safety of the principal invested shall always be the primary concern of the City of College Station; and WHEREAS, the management of monies in order to insure maximum cash availability and maximum yields on a short term investment is a primary goal of the City of College Station; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF COLLEGE STATION that the attached document shaft be the investment policy of the City of College Station, providing for an active cash management policy to be pursued by the City in order to maximize investment interest as a viable and material revenue source while still providing maximum cash availability. PASSED and APPROVED this the 27th day of January, 2000. APPROVED: Ilhaney, Mayor APPROVED AS TO FORM: ATTEST: Connie HooksCity Secretary Investment Policy for the City of College Station The Public Funds Investment Act, Chapter 2256, Texas Government Code, as Amended, prescribes that each City is to adopt rules governing its investment practices and to define the authority of the investment officer. The following Investment Policy addresses the methods, procedures, and practices that must be exercised to ensure effective and judicious fiscal management of the City's funds. I. POLICY It is the policy of the City of College Station, Texas ("City") to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all state and local statutes governing the investment of public funds. II. SCOPE This investment policy applies to all the financial assets held by the City. These funds are defined in the City's Comprehensive Annual Financial Report (CAFR) and include: General Fund Debt Service Fund Enterprise Funds Trust Funds Special Revenue Funds Capital Projects Funds Internal Service Funds Any new funds created by the City will be subject to this policy unless specifically exempted by the City Council. To maximize the effective investment of assets, all funds mentioned above will pool their cash balances for investment purposes. The income derived from investing activities will be distributed to the various funds based on calculation of their average balances. III. STANDARD OF CARE Investments shall be made with the judgement and care which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. IV. OBJECTIVE The primary objectives of the City's investment activities shall be (in order of priority): Safety of Principal Safety of Principal is the foremost objective of the City. Investments of the City shall be undertaken in a manner that seeks to insure the preservation of capital in the overall portfolio. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operational requirements that might reasonably be anticipated. Yield The City's investment portfolio shall be designed with the objective of attaining the maximum rate of return throughout budgetary and economic cycles, taking into account the City's risk constraints and the cash flow characteristics of the portfolio. V. DELEGATION OF INVESTMENT AUTHORITY Authority to manage the City's investment program is derived from the City's Charter (Attachment A). This authority shall rest with the City's Investment Officer who will be designated by the Director of Finance. An investment committee consisting of the Investment Officer and at least two other staff members designated by the City Manager will also be formed. This committee will be responsible for selecting eligible broker/dealers and reviewing and updating the investment policy annually. All participants in thc investment process shall seek to act responsibly as custodians of thc public trust. The Investment Officer shall establish written procedures (Attachment B) for the operation of the investment program consistent with this investment policy. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Investment Officer. The Investment Officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. 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. Employees and investment officials shall disclose to the City Manager any material financial interest in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City, particularly with regard to the time of purchases and sales. VII. CASH FLOW ANALYSIS Supplemental to the financial and budgetary systems, the Investment Officer will maintain a cash flow forecasting process designed to monitor and forecast cash positions for investment purposes. Cash flow analysis will include the historical researching and monitoring of specific cash flow items, payables and receivables as well as overall cash position and patterns. VIII. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The Investment Officer shall maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness who are authorized to provide investment services in the State of Texas. These may include "primary" or regional dealers that qualify under SEC rule 15C3-1. No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Investment Officer with a completed Broker/Dealer Questionnaire and Certification (Attachment C) which shall include the following: ~ An audited financial statement for the most recent period. Proof of certification by the National Association of Securities Dealers (NASD). Proof of current registration with the State Securities Commission. A signed certificate stating they have read the City's investment policy. An annual review of the financial condition and registrations of qualified bidders will be conducted by the Investment Committee. A current audited financial statement is required to be on file for each financial institution and broker/dealer with which the City invests. IX. AUTHORIZED INVESTMENTS Acceptable investments under this policy shall be limited to the instruments listed below. The investments are to be chosen in a manner that promotes diversity of market sector and maturity and which conforms to the City's investment strategy (Attachment D). A. OBLIGATIONS OF, OR GUARANTEED BY GOVERNMENTAL ENTITLES (a) Except as provided by section (b), the following are authorized investments under this section: (1) obligations of the United States or its agencies and instrumentality's; (2) direct obligations of this state or its agencies and instrumentality's; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, this state or the United States or their respective agencies and instrumentality's; and (s) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent. (b) The following are not authorized investments under this section: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage backed security collateral and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity date of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. B. CERTIFICATES OF DEPOSIT AND SHARE CERTIFICATES A certificate of deposit is an authorized investment under this section if the certificate is issued by a state or national bank domiciled in this state, a savings bank domiciled in this state, or a state or federal credit union domiciled in this state and is: (1) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor; (2) secured by obligations that are described in Section A(a), including mortgage backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal amount of the certificates, but excluding those mortgage backed securities of the nature described by Section A(b); or (3) secured in any other manner and amount provided by law for deposits of the investing entity. C. REPURCHASE AGREEMENTS (a) A fully collateralized repurchase agreement is an authorized investment under this section if the repurchase agreement: (1) has a defined termination date; (2) is secured by obligations described by Section A(a)(1); and (3) requires the securities being purchased by the entity to be pledged to the entity, held in the entity's name, and deposited at the time the investment is made with the entity or with a third party selected and approved by the entity; and (4) is placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in this state. (b) In this section, "repurchase agreement" means a simultaneous agreement to buy, hold for a specified time, and sell back at a future date obligations described by Section A(a)(1), at a market value at the time the funds are disbursed of not less (c) than the principal amount of the funds disbursed. The term includes a direct security repurchase agreement and a reverse security repurchase agreement. Notwithstanding any other law, the term of any reverse security repurchase agreement may not exceed 90 days after the date the reverse security repurchase agreement is delivered. (d) Money received by an entity under the terms of a reverse security repurchase agreement shall be used to acquire additional authorized investments, but the term of the authorized investments acquired must mature not later than the expiration date stated in the reverse security repurchase agreement. D. BANKER)S ACCEPTANCES A bankers' acceptance is an authorized investment under this subchapter if the bankers' acceptance: (1) has a stated maturity of 270 days or fewer from the date of its issuance; (2) will be, in accordance with its terms, liquidated in full at maturity; (3) is eligible for collateral for borrowing from a Federal Reserve Bank; and (4) is accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A- I or P- I or an equivalent rating by at least one nationally recognized credit rating agency. E. COMMERCIAL PAPER Commercial paper is an authorized investment under this subchapter if the commercial paper: (1) has a stated maturity of 270 days or fewer from the date of its issuance; and (3) is rated not less than A- I or P- I or an equivalent rating by at least; (A) two nationally recognized credit rating agencies; or (B) one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any state. F. MUTUAL FUNDS A no-load money market mutual fund is an authorized investment under this subchapter if the mutual fund: (1) is registered with and regulated by the Securities and Exchange Commission; (2) provides the investing entity with a prospectus and other information required by the Securities Exchange Act of 1934(15 U.S.C. Section 78a et seq.) or the Investment Company Act of 1940 (15 U.s.C. Section 80a-I et seq.); (3) has a dollar-weighted average stated maturity of 90 days or fewer: and (4) includes in its investment objectives the maintenance of a stable net asset value of $1 for each share. (b) In addition to a no-load money market mutual fund permitted as an authorized investment in Subsection (a), a no-load mutual fund is an authorized investment under this subchapter if the mutual fund: (1) is registered with the Securities and Exchange Commission; (2) has an average weighted maturity of less than two years;, (3) is invested exclusively in obligations approved by this subchapter; (4) is continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent; and (5) conforms to the requirements set forth in Sections H(b) and (c) relating to the eligibility of investment pools to receive and invest funds of investing entities. (c) An entity is not authorized by this section to: (1) invest in the aggregate more than 80 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in money market mutual funds described in Subsection (a) or mutual funds described in Subsection (b), either separately or collectively; (2) invest in the aggregate more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in mutual funds described in Subsection (b); (3) invest any portion of bond proceeds, reserves and funds held for debt service, in mutual funds described in Subsection (b); or (5) invest its funds or funds under its control, including bond proceeds and reserves and other funds held for debt service, in any one mutual fund described in Subsection (a) or (b) in an amount that exceeds 10 percent of the total assets of the mutual fund G. GUARANTEED INVESTMENT CONTRACTS (a) A guaranteed investment contract is an authorized investment for bond proceeds under this section if the guaranteed investment contract: (1) has a defined termination date; (2) is secured by obligations described by Section A(a)(1), excluding those obligations described by Section A(b), in an amount at least equal to the amount of bond proceeds invested under the contract; and (3) is pledged to the entity and deposited with the entity or with a third party selected and approved by the entity. (b) Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt service purposes, may not be invested under this subchapter in a guaranteed investment contract with a term of longer than five years from the date of issuance of the bonds. (c) To be eligible as an authorized investment: (1) the governing body of the entity must specifically authorize guaranteed investment contracts as an eligible investment in the order, ordinance, or resolution authorizing the issuance of bonds; He (a) (b) (2) the entity must receive bids from at least three separate providers with no material financial interest in the bonds from which proceeds were received; (3) the entity must purchase the highest yielding guaranteed investment contract for which a qualifying bid is received; (4) the price of the guaranteed investment contract must take into account the reasonably expected drawdown schedule for the bond proceeds to be invested; and (5) the provider must certify the administrative costs reasonably expected to be paid to third parties in connection with the guaranteed investment contract. INVESTMENT POOLS An entity may invest its funds and funds under its control through an eligible investment pool if the governing body of the entity by rule, order, ordinance, or resolution, as appropriate, authorizes investment in the particular pool. An investment pool shall invest the funds it receives from entities in authorized investments permitted by this subchapter. To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, an investment pool must furnish to the investment officer or other authorized representative of the entity an offering circular or other similar disclosure instrument that contains, at a minimum, the following information: (1) the types of investments in which money is allowed to be invested; (2) the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool; (3) the maximum stated maturity date any investment security within the portfolio has; (4) the objectives ofthepool; (5) the size ofthepool; (6) the names of the members of the advisory board of the pool and the dates their terms expire; (7) the custodian bank that will safekeep the pool's assets; (8) whether the intent of the pool is to maintain a net asset value of one dollar and the risk of market price fluctuation; (9) whether the only source of payment is the assets of the pool at market value or whether there is a secondary source of payment, such as insurance or guarantees, and a description of the secondary source of payment; (10) the name and address of the independent auditor of the pool; (11) the requirements to be satisfied for an entity to deposit funds in and withdraw funds from the pool and any deadlines or other operating policies required for the entity to invest funds in and withdraw funds from the pool; and (12) the performance history of the pool, including yield, average dollar- weighted maturities, and expense ratios. (c) To maintain eligibility to receive funds from and invest funds on behalf of an entity under this chapter, an investment pool must furnish to the investment officer or other authorized representative of the entity: (1) investment transaction confirmations; and (2) a monthly report that contains, at a minimum, the following information: (A) the types and percentage breakdown of securities in which the pool is invested; (B) the current average dollar-weighted maturity, based on the stated maturity date, of the pool; (C) the current percentage of the pool's portfolio in investments that have stated maturities of more than one year; (D) the book value versus the market value of the pool's portfolio, using amortized cost valuation; (E) the size ofthepool; (F) the number of participants in the pool; (G) the custodian bank that is safekeeping the assets of the pool; (H) a listing of daily transaction activity of the entity participating in the pool; (I) the yield and expense ratio of the pool; (J) the portfolio managers of the pool; and (K) any changes or addenda to the offering circular. (d) An entity by contract may delegate to an investment pool the authority to hold legal title as custodian of investments purchased with its local funds. (e) In this section, "yield" shall be calculated in accordance with regulations governing the registration of open-end management investment companies under the Investment Company Act of 1940, as promulgated from time to time by the federal Securities and Exchange Commission. (f) To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, a public funds investment pool created to function as a money market mutual fund must mark its portfolio to market daily, and, to the extent reasonably possible, stabilize at a $1 net asset value. If the ratio of the market value of the portfolio divided by the book value of the portfolio is less than 0.995 or greater than 1.005, portfolio holdings shall be sold as necessary to maintain the ratio between 0.995 and 1.005. (g) To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, a public funds investment pool must have an advisory board composed: (1) equally of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool, for a public funds investment pool created under Chapter 791 and managed by a state agency; or (2) of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool, for other investment pools. (h) To maintain eligibility to receive funds from and invest funds on behalf of an entity under this chapter, an investment pool must be continuously rated no lower than AAA or AAA-M or at an equivalent rating by at least one nationally recognized rating service. I. EXISTING INVESTMENTS The city is not required to liquidate investments that were authorized investments at the time of purchase. J. RATING OF CERTAIN INVESTMENT POOLS A public funds investment pool must be continuously rated no lower than AAA or AAA-M or at an equivalent rating by at least one nationally recognized rating service or no lower than investment grade by at least one nationally recognized rating service with a weighted average maturity no greater than 90 days. K. EFFECT OF LOSS OF REQUIRED RATING An investment that requires a minimum rating under this policy does not qualify as an authorized investment during the period the investment does not have the minimum rating. The city shall take all prudent measures that are consistent with its investment policy to liquidate an investment that does not have the minimum rating. X. SECURITY PURCHASES/TRADES Securities will be purchased or sold after three (3) offers/bids are taken to verify that the City is receiving fair market value/price for the investment. New securities still in syndicate and priced at par may be purchased without competitive offers. XI. COLLATERALIZATION Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse) agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 102% of market value of principal and accrued interest. The City chooses to limit collateral to the following: Obligations of the United States Government, its agencies and instrumentality's, and government sponsored enterprises. Collateral will always be held by an independent third party with whom the City has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the City and retained. The right of collateral substitution is granted. XII. SAFEKEEPING AND CUSTODY All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a Delivery-Versus-Payment (DVP) basis. Securities will be held by a third party custodian designated by the Investment Officer and evidenced by safekeeping receipts. XIII. DIVERSIFICATION With the exception of U.S. Treasury securities and authorized pools, no more than 30% of the City's total investment portfolio will be invested in a single security type or with a single financial institution. Additionally, total Federal Agency securities will not exceed 70% of the total portfolio. XIV. MAXIMUM MATURITIES To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing more than five years from the date of purchase. Additionally, the City will maintain a dollar-weighted average maturity of two years or less. XV. INTERNAL CONTROL The Investment Officer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. XVI. PERFORMANCE STANDARDS The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs. Given the passive investment strategy of the City, the benchmark to be used by the Investment officer to determine whether market yields are being achieved shall be the U.S. Treasury with a maturity that most closely matches the portfolios dollar-weighted average maturity. XVII. REPORTING The Investment Officer shall provide to the City Council quarterly investment reports that provide a clear picture of the status of the current investment portfolio. The management report should include: Comments on the fixed income markets and economic conditions. Discussion regarding restrictions on percentage of investment by categories. Possible changes in the portfolio structure going forward and thoughts on investment strategies. Schedules in the quarterly report should include the following: A listing of individual securities held at the end of the reporting period. Average life and final maturity of all investments listed. Coupon, discount or earnings rate. Par value, Amortized Book Value and Market Value. Percentage of the Portfolio Represented by each investment category. XVIII. INVESTMENT TRAINING The financial officer, and investment officer shall: attend at least one training session within 12 months of assuming duties and containing not less than 10 hours of instruction from an independent source approved by the governing board or a designated investment committee. receive training which includes education in investment controls, security risks, strategy risks, market risks, diversification of the investment portfolio, and compliance with the PFIA attend a training session once every two years and receive 10 hours of training from an independent source approved by the governing board or a designated investment committee XIX. INVESTMENT POLICY ADOPTION The City's investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually by the City Council and any modifications made thereto must by approved by the City Council. Investment Procedures for the City of College Station The purpose of this Procedures Manual is to assist the investment staff with day-to-day investment operations. These procedures should be reviewed annually and any changes should be approved by the Investment Committee. I. CASH REVIEW: The Investment Officer or his/her delegate must review the cash balances daily. Items to be reviewed should include: Balances by account at the City's primary bank. Balances by account at any other banks. Balances held at any investment pool or money market fund. Deposits, withdrawals, and transfers to or from any of the above accounts. An investigation into any material unanticipated deposit, withdrawal or transfer should be made. The Investment officer or his/her delegate should maintain a cash flow schedule that is updated weekly and reviewed prior to every investment. This schedule should cover a time period to include the previous two months and go through to the last debt service payment and last investment maturity. The schedule should: Compare actual cash flow numbers with projected numbers for the previous two months. Large differences between the two should be explained. Be prepared in detail for the following two months. This time period should project all anticipated deposits and expenditures from the normal course of business as well as investment maturities/purchases and debt service payments. Be prepared using only information on investment maturities, debt service payments and any other large expenditures that may reasonably be anticipated for beyond two months. II. INVESTMENT REVIEW: The Investment Officer or his/her delegate should maintain a current schedule of all securities held. This schedule should be reviewed and adjusted daily to reflect any purchases, sells or maturities, and the schedule should include the following information for each security: The investment type, cusip number, purchase amount, price paid, coupon rate, yield to maturity and yield to call. The original purchase date, the date of maturity, the first date it is callable (if applicable) and whether it is callable continuously, quarterly, etc. The current book value, and the current market value. The market value should be updated no less than monthly and market values should be obtained by no less than two brokers and a sample of the market values provided should be verified through an independent source (ex. Wall Street Journal). The Investment Officer or his/her delegate should also maintain a schedule of all investments maturities and interest payments expected in the current month. This list should be reviewed at the beginning of each week in order to coordinate the movement of money. III. INVESTMENT SELECTION Although the investment policy allows for a maximum maturity of five years and a maximum weighted average maturity of two years, the Investment Officer will attempt to limit maturities to three years and attempt to maintain a dollar-weighted average maturity of one and a half years. The purchase of investments with maturities between three and five years should be limited to situations in which the investment can be tied directly to a known cash outflow or to situations in which the investment is callable and the current economic conditions reasonably indicate that the investment will be called. Prior to making any investment, the Investment Officer should review current cash balances and the cash flow schedule to determine the amount of cash available for investment. The investment officer should also review some of the following sources to determine whether the investment should be placed to match projected expenditures or shorter, or to take advantage of current and expected interest rate environments: Wall Street Journal or similar daily business publication. Input from approved brokers/dealers. Publications on general trends of economic statistics. Input from data services (Telerate, Bloomberg, Reuters, etc.) In determining the maturity of the investment, the Investment Officer should attempt to follow a ladder strategy to ensure that the portfolio has at least one investment maturing every month. To ensure diversification in the portfolio the Investment Officer should, prior to making an investment selection, review the percentages of each type of investment currently held. Investment Officer should attempt to maintain a portfolio that meets the following percentages: MAXIMUM U.S. Government Treasury Securities 90% U.S. Government Agency Securities 70% Repurchase Agreements 20% Bank Certificates of Deposit 20% Liquidity Funds: Primary Bank 10% Public Funds Investment Pools 40% Money Market Mutual Funds 30% MINIMUM 10% 0 0 0 0 10% 0 IV. PURCHASING AN INVESTMENT: The following must be determined prior to contacting the providers: Settlement- cash, regular (next day), corporate (3 business days) or when issued if a new issue. Amount- either par value or total dollars to be invested. Type of security to be purchased, or type to be excluded. Targeted maturity, or maturity range. Time limit to show offering - 5 minutes, 15 minutes, etc. If choosing an external pool or fund as the preferred investment vehicle, the following should be available for inspection prior to purchase and at any reasonable time thereafter: written investment policy, if a government-run investment pool. prospectus for money-market funds, mutual funds or bank-managed funds. schedule of the types of reports and the frequency of distribution. clear description of how interest rates are calculated (30/360, actual/365, etc.) schedule of when and how income is distributed. It should also be predetermined that the pool or fund only invests in those instruments allowed by the Public Funds Investment Act and that the pool or fund limits maturities to levels that match or are shorter than those allowed in the City's Investment Policy. Before concluding the transaction, the Investment Officer should validate the following: The security selected for purchase meets all criteria, including portfolio diversification, collateralization (if appropriate) and maturity. If the security has any imbedded options such as call provisions or coupon adjustments, these should be reviewed. Yield calculations should be verified. Total purchase cost (including accrued interest) does not exceed funds available for investment. V. SETTLEMENT & FOLLOW-THROUGH: The Investment Officer or his/her delegate should forward to the safekeeping agent a report of the investment transaction. The report may be verbal, but a written form should be sent and acknowledged. The report should always state that terms are Delivery- Versus-Payment, and it should also indicate if funds are to be wired for completion of the transaction. Notification should be required for any discrepancy prior to acceptance or rejection of the transaction. The Investment Officer should also require immediate notification if a fail has occurred: by the provider if they are responsible, by the safekeeping agent if they are responsible. VI. SELLING AN INVESTMENT Investments should be purchased with the intent of holding to maturity and should only be sold early under exceptional circumstances. To protect the portfolio from imprudent trading, no security may be sold until such time as the current market value of the security plus interest earned from date of purchase is at least equal to the purchase price of that security. VII. ACCOUNTING, REPORTING & AUDITING The Investment Committee should establish the following: Formats for monthly, quarterly and annual reports which will be provided to the appropriate persons. Benchmarks (in addition to those outlined in the Investment Policy) to measure the performance of the investment program. A Program to ensure: 1. Compliance with generally accepted accounting principles of the Government Accounting Standards Board. 2. Establishment of a system of written internal controls designed to detect fraud, error, misrepresentation or imprudent actions. 3. Documented review of investment activities by the appropriate supervisors. 4. Review of the investment operations by an external auditor. The Investment Officer should make available to those in their jurisdiction concerned with ethics any information about the investment program which may be of interest to them. Investment Strategy for the City of College Station The City of College Station will pursue a passive investment strategy. Investments will be purchased with the intent of holding to maturity and will only be sold early under exceptional circumstances. In purchasing investments, the investment officer will attempt to follow a ladder strategy to ensure that the portfolio will have at least one investment maturing every month. Investment priorities are as follows: o Suitability - Any investment allowed under the Investment Policy is suitable. Preservation and Safety of Principal - Investments of the City shall be undertaken in a manner that seeks to insure the preservation of capital in the overall portfolio. Liquidity - The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operational requirements which might reasonably be anticipated. Marketability - Investments should have an active and efficient secondary market to enable the City to liquidate investments prior to the maturity if the need should arise. Diversification - The Investment Officer will attempt to maintain a diversified portfolio with regard to security type, financial institution providing the security and maturities. Yield - The City's investment portfolio shall be designed with the objective of attaining the maximum rate of return throughout budgetary and economic cycles, taking into account the City's risk constraints and the cash flow characteristics of the portfolio.