Loading...
FY 1989-1990 -- Comprehensive Annual Financial Report City of College Station, Texas FINANCE DEPARTMENT 7., : ter- r-_ a ** :-';' ,;:"7:-T:-.--:.3.H.:*'-':.1l.:-.1.;!i:'.F-----'‘--:-7- 4..1>-.!'fr‘11:.1 Nilfs":77... 'e'r-mac. ♦. ' •• rt.r 4 ~'\\/ + \ , n P i s k — „�� -_ Investment Report For the Fiscal Year Ended September 30,1990 CITY OF COLLEGE STATION \ / P.O.BOX 9960 1101 TEXAS AVENUE COLLEGE STATION,TEXAS 77842-0690 (409)764-3500 December 5, 1990 Honorable Mayor Members of the City Council City of College Station, Texas FISCAL YEAR 1990 The City of College Station invests the great majority of its funds in government securities with maturities under three years. Interest rates for those types of securities were generally lower during fiscal year 1990 than in the prior year. We started the year with a flat yield curve, meaning that interest rates for short investments were at the same level as interest rates for long investments, just slightly above 8%. By the end of the fiscal year, the yield curve was sharply positive, with a one-year treasury note paying around 7.6% and a 30-year treasury note paying slightly above 9%. The following graph shows this major change in the yield curve: U.S. TREASURY YIELD CURVE Rio 10/10/90 —9.0 —8.8 —8.6 10/10/89 —8.4 —8.2 —8.0 —7.8 —7.6 • YEARS i t i I i 7.4 1 2 3 4 5 7 10 20 30 Barron's i Knight-Ridder Tradecenter Home of Texas A&M University Fiscal year 1990 was the second year of operation under the new investment policy approved by the City Council. This policy has allowed the city the flexibility to invest funds in government treasury and agency obligations, the recently created TexPool pooled investment agency, as well as bank liquidity accounts and certificates of deposit. This flexibility in investment options has allowed the city to earn market rates of interest. Total investment earnings for Fiscal 1990 were $2,647,418, compared to $2,622,212 in Fiscal 1989. This increase in earnings was a result of slightly higher average invested balances this year. The following graph compares investment rates of return for each of the last three fiscal years: INVESTMENT RETURN 9.00% -- 8.77% 8.54% 8.43% 7.91% 8.00% - 7.00% — 6.58% 6.00% — 5.00% - • - 4.00% — ......... . 3.00% — 2.00% — 1.00% — — — 0.00% - I .I I 1988 Actual 1989 Actual 1989 Treasury Bill 1990 Actual 1990 Treasury Bill 91-Day Yield 91-Day Yield Investment results on our portfolio are compared to the treasury bill 91-day yield. This hypothetical portfolio consists of a series of treasury bills with re-investment at maturity in the new 91-day treasury bill. This index provides a benchmark for evaluating risk-free cash management portfolios with short-term liquidity needs for payroll and Accounts Payables. In accordance with normal investment reporting, rates of return do not include unrealized capital gains; that is, year-end market values higher than the original cost of a security held at the end of a fiscal year. If these unrealized capital gains of $90,972 were added to investment income, fiscal 1990 earnings were 8.83%. LOOKING AHEAD - FISCAL YEAR 1991: Our current fiscal year begins on a note of considerable uncertainty. The crisis in the Persian Gulf brings the possibility of war at a time when the "Iron Curtain" has just crumbled, reducing tensions in that part of the world. Our domestic economy has weakened, and is either into or just on the brink of recession. The course of both short-term and long-term interest rates is uncertain, balanced between higher rates due to an outbreak of hostilities and concern over the twin deficits of budget and international trade, and the sharply lower interest rates we would expect as the country enters a recession. At the start of fiscal year 1990, concensus opinion called for stable or higher interest rates, with the economy continuing to grow and the Federal Reserve Board continuing its tight monetary policy to combat inflation. As of September 30, 1989, maturities in our portfolio were kept very short to both provide necessary liquidity and to protect against market losses (as interest rates rise, the value of securities held falls). To protect the portfolio against losses in value, 96% of investments had maturities under one year. One year later, on September 30, 1990, the concensus was for lower interest rates as we enter a recession and the Federal Reserve Board loosens monetary policy to allow rates to fall and stimulate the economy. As of that date, the city's portfolio was 64% in the one-year and under maturity range and 36% with maturities of one to three,years. These longer maturities, purchased at a time of higher interest rates, will protect the interest yields of the portfolio if interest rates drop. COMPLIANCE WITH STATE LAW: This investment report has been prepared in accordance with the law of the State of Texas, specifically the Tex. Rev. Civ. Stat Ann. Art. 4413(34c) Section 4, which states: "At least once each year, the investment officer of a state agency or political subdivision shall prepare a written report concerning the agency's or subdivision's local funds investment transactions for the preceding year and describing in detail the investment position of the agency or subdivision as of the date of the report." ACKNOWLEDGEMENTS: As part of the fiscal year 1989 budget, City Council authorized the position of Staff Assistant in the Finance Department. Toni Johnson's able assistance and growing expertise in the investment function have earned her a recent promotion to the position of Investment Analyst, a new position approved in the 1991 budget. This new position will allow us to aggressively manage the city's portfolio, maximizing yields on available balances. Technical assistance and market insights have been provided by Mr. Ned Connolly of Prudential- Bache Securities and Mr. Robert Jones of Shearson-Lehman-Hutton. Contractual agreements with NCNB-A&M Branch and First City National Bank - Houston provide both safety and convenience in the city's investment practices. TexPool, created in the past year through the State Treasurer's Office, provides professional funds management and access to full market rates of interest without brokerage commissions. Respectfully submitted, Ron Ragland Wi iam P. Harrison City Manager Executive Director, Fiscal & Human Resources "I'M NOT SO CONCERNED WITH THE RETURN ON THE INVESTMENT AS I AM WITH THE RETURN OF THE INVESTMENT." WILL ROGERS INVESTMENT AUTHORITY The funds of the City of College Station are invested in compliance with Art. 842(a-1), as amended, entitled the "Public Funds Investment Act of 1987". Section 2, regarding Authorized Investments, provides that a city may purchase, sell, and invest its funds and funds under its control in"obligations of the United States or its agencies and instrumentalities; direct obligations of the State of Texas or its agencies; other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States; obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than "A" or its equivalent; certificates of deposit issued by state or national banks domiciled in this State that are insured by FDIC or secured by obligations listed above; and fully collateralized direct repurchase agreements having a defined termination date, secured by obligations described above, pledged with a third party, and placed through a primary government securities dealer, or bank domiciled in this state." The City Council of the City of College Station has adopted Resolution number 04-12-90-5.5 as the local investment policy in compliance with the above requirements. Current legislation and the City's investment policy have been made a part of this report. INVESTMENT PORTFOLIO As of September 30, 1990, the end of the Fiscal Year, the City's investment portfolio consisted of the following: Bank Demand Accounts $ 1,601,900 5.7% Repurchase Agreements 806,400 2.9 State Investment Pool 418,400 1.5 Insured Cert. of Deposit 50,000 0.2 U.S. Gov't Obligations 17,990,300 63.7 Government Agency Notes 7,352,500 26.0 TOTAL $28,219,500 100,0% Expressed graphically: 2.90% BANK DEMAND 1990 FISCAL YEAR-END ACCOUNTS PORTFOLIO BY INVESTMENT TYPE $28,219,500 by kAf 26.00°/u GOVERNMENT AGENCY NOTES 63.70% U.S.GOVERNMENT OBLIGATIONS (BILLS&NOTES) 1.50% REPURCHASE AGREEMENTS 5.70% STATE INVESTMENT POOL(TEXPOOL) 0.20% CERTIFICATES OF DEPOSIT BANK DEMAND ACCOUNTS: With the exception of a small liquidity account maintained at First City National Bank - Houston, all demand accounts are with NCNB - A&M Branch. To protect deposits above the $100,000 FDIC insurance level, NCNB has pledged to the City $2,000,000 in Treasury Notes. These notes are held in an account at the Federal Reserve Bank of Dallas in the City's name. Through use of repurchase agreements and the recently created State of Texas Investment Pool, "TexPool", the City has been able to reduce the average investment in bank demand accounts. From an average balance of $4,000,000 in Fiscal Year 1988, we have maintained an average balance of approximately $1,000,000 in Fiscal Years 1989 and 1990. With investments outperforming interest rates on demand accounts, we have been able to increase overall yields by maintaining low demand balances. REPURCHASE AGREEMENTS: Repurchase agreements are defined as simultaneous buy-sell agreements between the City as the customer and either a "primary" government securities dealer or a state or national bank domiciled in the State of Texas. All transactions are delivery- vs-payment through a custodian bank acting as a representative of the City. During the time that the repurchase agreement is in effect, the City holds collateral securities with a value at least equal to 101% of the funds invested in the agreement. The ability to liquidate these collateral securities protects the City in the case of a default by the dealer or bank. A tri-party repurchase agreement was established in 1988 between the City, Merrill-Lynch Securities, and the Bank of New York. This agreement allow the City to periodically deposit funds from the bank demand account into the higher-yielding repurchase agreement and to disburse those funds monthly to meet obligations for power purchased from Gulf States Utilities. Collateral is safekept by the Bank of New York and all transactions and documentation of the account are handled by modem. U.S. GOVERNMENT OBLIGATIONS: As of September 30, 1990, almost two-thirds of the investment funds of the City were invested in direct obligations of the U.S. Government. With the guarantee of the full faith and credit of the government, these are considered to be the safest investments possible. All government securities are purchased on a competitive bid basis and held in safekeeping at First City National Bank - Houston. All purchases are delivery-vs.-payment to assure the safety of City funds. GOVERNMENT AGENCY NOTES: A series of government agencies have been created to make loans for specific purposes and authorized to issue debt to finance these loans. Generally, the Federal Treasury has authorized "backstop" funding to protect the principal and interest repayment on the debt issued if needed over and above loan repayments. These are also considered to be "moral obligations" of the Federal Treasury and are considered one step below direct U.S. Government obligations in terms of safety. Government agencies active in the national debt market and eligible investments under Texas State Law are the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal National Mortgage Corporation ("Fannie Mae"), the Student Loan Marketing Association ("Sallie Mae"), the Federal Farm Credit Bank, and the Government National Mortgage Association ("Ginnie Mae"). The last is the only actively-traded agency offering full faith and credit protection. CERTIFICATES OF DEPOSIT: Certificates of Deposit are legal investments for Cities as long as they carry FDIC insurance or collateral from the issuing bank. As of September 30, 1990, the only certificate of deposit in the portfolio is a small C.D. used for the purpose of investing permanent funds for the cemetery perpetual care. PORTFOLIO BY MATURITY To provide for liquidity needs and the protect the portfolio from market risk (as interest rates rise, the value of securities falls), the portfolio should be reasonably structured by maturity and re- balanced as conditions require. The portfolio should have a shorter average maturity in times of rising interest rates and a longer average maturity in times of declining rates. The current market cycle peaked in May, 1990 on concerns of recession and lower interest rates. Maturities as of September 30, 1990 have been extended to protect rates of return in the portfolio: FISCAL YEAR-END 9/30/90 PORTFOLIO BY INVESTMENT MATURITY $28,219,500 15.91% UNDER 30 DAYS 36.28% 7,94% ONE TO THREE ONE TO THREE YEARS MONTHS 21.82% THREE TO SIX MONTHS 18.05% SIX MONTHS TO ONE YEAR • ONE TO TWO FISCAL YEAR-END 9/30/89 YEARS PORTFOLIO BY INVESTMENT MATURITY 20.60% $28,898,000 SIX MONTHS 1';i `:? iii:" .'•;isi TO ONE YEAR l�iti'•?:flit Ili�li!i'iilii��ljii!i!iiiiij!i!!ii • ii 22.90% jil!iiiiiiiii 11 i 11!i!1i:!;!"'r•"!':!!:ia!�i!ii:'11111:!:!:1:::IU UNDER 30 DAYS :!i'il'.i'•.i:iiiji;i�i?!(?Illiiil iliMI !i?i.:!!:,; ii:!!!!I i �3y,:,ii3�liiiiiiii 26.10% ONE TO THREE MONTHS 26.70% THREE TO SIX MONTHS DEPOSITORY BANKING AGREEMENT Prior to October 1, 1988, the City's depository banking contract with NCNB Texas National Bank - A&M Branch linked depository services with investment services. On October 1, 1988, a new three-year agreement was signed with the bank, providing for cancellation of the contract or renegotiation on an annual basis at the request of either of the parties. the new contract separated depository services from investment services, allowing the City to invest in all securities allowable under Texas state law. The new agreement also mandated that collateral for deposit balances be held in an unaffiliated third-party bank, a significant safety enhancement not provided for in the previous contract. In February 1989, the City installed a new computer system for ail finance and personnel functions, utilizing an IBM AS/400 computer and enhanced municipal software. With the installation of that system, the City began accounting for a majority of funds on a pooled investment basis. Cost savings have been realized both through the ability to invest City funds in larger round-lot blocks of securities ($1 million) at higher yields and in eliminating many of the single-purpose bank accounts formerly used, reducing bank charges, bookkeeping expenses, and audit fees. Under the prior computer system, the City operated a total of twenty-five active bank accounts, one for each fund in the City's accounting system and several specific purpose accounts. The new software system has allowed for most of these accounts to be collapsed into one centralized "Clearing Account". The City currently operates nine bank accounts, as follows: 1. CLEARING ACCOUNT - Centralized account to handle all accounts payable disbursements and construction payments. 2. PAYROLL ACCOUNT - Handles payroll disbursement for all employees. Funds are transferred into this account from the Clearing Account at the time checks are released. 3. MUNICIPAL COURT CASH BOND ACCOUNT - Holds and releases cash bonds on the instruction of the Municipal Court Judge. 4. COMMUNITY DEVELOPMENT ACCOUNT - Specific account required by Community Development regulations to receive and disburse funds. 5. FIREMEN'S RETIREMENT ACCOUNT - A small number of retired volunteer firemen receive minor pension amounts from the City. By law, retirement funds must be segregated. 6. MEDICAL BENEFIT ACCOUNT - Account used for the disbursement of payments to employees from the City's medical and dental benefit plans. 7. FLEX BENEFIT ACCOUNT - Account used for disbursement of flex benefit checks to employees under the plan adopted under Section 125 of the Internal Revenue Code. 8. COMMUNITY DEVELOPMENT LOAN ACCOUNT - Account used to segregate activity under the loan program administered through the Community Development Office. 9. COMMUNITY DEVELOPMENT RENTAL REHABILITATION ACCOUNT - Account used to segregate activity under the loan program administered through the Community Development Office. 1989 LEGISLATION PUBLIC FUNDS INVESTMENT ACT (Art. 842a-2): The Public Funds Investment Act of 1987 was amended in the 1989 legislative session to expand legal investment options. To be included as legal investments at the local level, the College Station Investment Policy, adopted by City Council resolution, would need to be amended to include these options: 1. "Prime" domestic bankers' acceptances with a stated maturity of 270 days or less from the date of its issuance, issued by a domestic bank which has been rated at least A-1/P-1 by at least one nationally recognized rating agency. 2. Commercial paper with a stated maturity or 270 days or less from the date of its issuance and is rated not less than A-1/P-1 or the equivalent by at least two nationally recognized rating agencies or is rated at least A-1/P-1 by one nationally recognized rating agency and is fully secured by an irrevocable letter of credit from a domestic bank. 3. Investment in an SEC-registered, no-load money market mutual fund with a dollar- weighted average portfolio maturity of 120 days or less whose assets consist of investments eligible for direct ownership and maintaining a stable net asset value of$1 per share. INTERLOCAL COOPERATION ACT (Art. 4413 et seq.) Act was amended by the •1989 legislature to authorize the creation of local government investment pools in Texas. Implementation at the local level will require amendment of the Investment Policy. PUBLIC FUNDS COLLATERAL ACT (SB 1341) This legislation, adopted by the 1989 legislature, strengthened collateral requirements. The City of College Station is in compliance with these upgraded requirements. Copies of these new pieces of legislation, as well as other legislative investment summaries, are at Attachment B to this report. ATTACHMENT A PORTFOLIO TRANSACTIONS PORTFOLIO TRANSACTIONS For purposes of full disclosure of investment activity, all investment transactions for the fiscal year are reported: EXHIBIT I Year-end Portfolio Balance Operating and Debt Service Funds EXHIBIT II Year-end Portfolio Balance Bond Funds EXHIBIT III Sale and Maturity Transactions Operating and Debt Service Funds EXHIBIT IV Sale and Maturity Transactions Bond Funds EXHIBIT I CITY OF COLLEGE STATION, TEXAS YEAR-END PORTFOLIO BALANCE AS OF SEPTEMBER 30, 1990 OPERATING AND DEBT SERVICE FUNDS Alitni€> ii > >< » i` , , :; ;A::.,.,.., '<:: >€i37.0,.. ..::: VA ., imiii ":A:.::..tet.:; ....:.......................: ..........::....... R.if.F GN,.SI»._MA. 4J.... T........:..T.t?' AL.:::............. . AARIE SB :>:>:::>:: . TREASURY NOTES: Treasury Notes 1,100,000.00 8.000% 02/28/90 11/15/90 1,099,054.69 1,100,687.50 8.11% Treasury Notes 1,000,000.00 9.000% 04/27/90 01/31/91 1,002,500.00 1,004,375.00 8.62% Treasury Notes 1,100,000.00 9.000% 05/11/90 01/31/91 1,104,812.50 1,104,812.50 8.34% Treasury Notes 1,000,000.00 7.750% 01/26/90 07/31/91 992,500.00 999,688.00 8.29% Treasury Notes 1,000,000.00 8.750% 02/01/90 08/15/91 1,006,562.50 1,007,813.00 8.28% Treasury Notes 1,000,000.00 8.125% 02/08/90 01/31/92 996,015.83 1,002,188.00 8.34% Treasury Notes 1,600,000.00 8.250% 08/31/90 02/15/93 1,601,500.00 1,805,000.00 &21% Treasury Notes 1,000,000.00 8.500% 09/25/90 05/31/92 1,005,781.25 1,007,500.00 &11% AGENCY SECURITIES: Fed National Mtg Assn 1,000,000.00 N/A 07/20/90 01/18/91 961,830.56 961,830.56 7.96% Fed National Mtg Assoc 1,000,000.00 9.05096 08/01/90 10/12/93 781,539.06 780,565.00 8.7096 Student Loan Mktg Ass 500,000.00 8.65096 09/13/90 09/13/93 500,000.00 501,875.00 8.65% Fed.Home Loan Bank 875,000.00 N/A 04/03/90 10/01/90 648,189.68 648,189.68 8.34% Fed.Farm Credit Bank 1,000,000.00 8.400% 04/04/90 10/01/90 1,000,000.00 1,000,000.00 8.40% CERTIFICATES OF DEPOSIT First City-Houston 50,000.00 8.300% 11/02/88 11/02/90 50,000.00 50,000.00 8.30% TOTALS ;12,750,285.87 ;12,774,524.24 *SOURCE: Wall Street Journal EXHIBIT II CITY OF COLLEGE STATION, TEXAS YEAR-END PORTFOLIO BALANCE AS OF SEPTEMBER 30, 1990 BOND FUNDS '::r::::z!i:':::::::::;::<::;<::>i><?::?:<;:'<:::::::z:»>::sz::::<,:;>:::::::';:::>:::<:::>::::»::�::>::z::<:::::::> ;:;:;ii::<:::r<::>::>:;:=:::<::;:;: Yii:::: ::>::::::r<::$:::;:::::z :i::::i??>:::>::> ::::>::>i<::%:i`::s:::::>::::>::>:<:::>::::>i:::� f?ffT_. :><[:::PiAt:y`::>< :: "'?''::> ?':',P: ,C.,,,.,.. .. M M e :1 JRI`:::;y :;: ;< :;:":. ;,::i?: > :;k*:i.ii,i A ki s` M ;;U ,:r�: :;.;:. .....:.;:...>: .;:...;:.;:.;:.;:............::.:.;....> .:......::::..........................:::::.. .PtJflf iJISE NMA'1tfl l.'iY. :....:iii:iii:i 1T!#�..::.::::........... ?:> fiK#T4E.C.7'QR.......... .....Amill#t4"f:.::.:. :Go#.ltinH.:,:::::DATv . ......C%J.k`iv... : cosT.; :s;�l•�!b1o'...... attitA.v TREASURY NOTES: TREASURY NOTES 1,000,000.00 9.000% 04/27/90 01/31/91 1,002,500.00 1,004,375.00 8.62% TREASURY NOTES 1,050,000.00 8.125% 05/17/90 05/15/91 1,048,031.25 1,052,625.00 8.32% TREASURY NOTES 3,085,000,00 8.375% 10/02/89 09/30/91 3,078,733.59 3,102,353.12 8.49% TREASURY NOTES 2,000,000.00 7.875% 02/05/90 08/15/92 1,976,718.75 1,995,626.00 8.39% TREASURY NOTES 1,000,000.00 8.75096 02/05/90 01/15/93 1,009,218.75 1,015,000.00 8.39% TREASURY NOTES 1,000,000.00 8.500% 09/25/90 05/31/92 1,005,781.25 1,007,500.00 8.11% AGENCY SECURITIES: FED.NATIONAL MTG.ASSN. 1,125,000.00 N/A 05/11/90 11/15/90 1,078,440.63 1,078,440.63 8.37% FED.NATIONAL MTG.ASSN. 1,035,000.00 6.900% 12/29/89 02/11/91 1,022,062.50 1,022,062.50 8.08% RESOLUTION FUNDING CORP, 1,500,000.00 N/A 08/17/90 01/15/92 1,338,824,61 1,349,063.05 8.22% TOTALS $12,560,311.33 $12,627,045.30 *SOURCE: Wall Street Journal �I EXHIBIT III CITY OF COLLEGE STATION,TEXAS SALE OR MATURITY TRANSACTIONS FISCAL YEAR 1990- 10/1/89 TO 9/30/90 OPERATING AND DEBT SERVICE FUNDS UROH 5��ti�7��i < '::i m: tit;: :'::y','•'i:i}:r£'�f»> :................:::::::.:...............�J!......... ................�t'1'f....... ........ ....1lA�"Ira,.............. ::::;::;.,:.;<>:..A.; � :>:::<::;::::::::::::;: :::::::»»;::::» »>«:;» TREASURY BILLS AND STRIPS: Treasury Bill 02/06/90 05/11/90 08/02/00 8.17% $1,058,139.50 Treasury Strips 05/23/89 08/15/90 08/15/90 8.86% $1,033,505.00 TREASURY NOTES: Treasury Note 02/01/89 10/13/89 01/31/90 9.08% $984,062.50 Treasury Note 03/09/89 10/13/89 01/31/90 9.55% $981,562.50 Treasury Note 05/3t/89 10/13/89 01/31/90 9.02% $989,375.00 Treasury Note 08/11/89 10/13/89 01/31/90 8.38% $1,990,937.50 Treasury Note 06/08/88 10/31/89 10/31/89 7.87% $400,250.00 Treasury Note 06/30/89 02/28/90 05/31/90 8.42% $1,097,078.13 Treasury Note 05/16/89 04/07/90 12/31/90 8.92% $801,937.50 Treasury Note 08/17/89 06/20/90 08/15/90 8.44% $994,687.50 Treasury Note 09/01/89 08/31/90 08/31/90 8.44% $1,502,343.75 AGENCY SECURITIES: Fed.Home Loan Bank 01/19/90 07/20/90 07/20/90 8.12% $480,538.12 Fed.Home Loan Bank 12/06/89 09/25/90 09/25/90 7.93% $1,007,031.25 Fed.Home Loan Mtg.Corp. 05/15/90 07/31/90 07/31/90 8.07% $998,001.29 Fed.National Mtg.Assoc. 09/20/89 02/06/90 02/06/90 8.64% $998,437.50 Fed.National Mtg.Assoc. 09/20/89 03/28/90 03/28/90 8.62% $670,048.75 Fed.National Mtg.Assoc. 11/01/89 04/03/90 04/03/90 8.19% $504,320.83 • Student Loan Mktg.Assoc. 02/15/89 10/10/89 10/10/89 9.37% $94,206.67 Student Loan Mktg.Assoc. 07/12/89 06/28/90 06/28/90 8.15% $217,432.24 REPURCHASE AGREEMENTS: Prudential-Bache 10/31/89 11/01/89 11/01/89 8.75% $1,500,000.00 Prudential-Bache 10/13/89 02/01/90 02/01/90 8.50% $5,059,697.70 .......................................................................... ...................................... ....................................................................................................................................... 111,1t#4.111111111.10§#1.11111111110#11,111•0110111111 tANINP.N414e0Y, $1,080,319.78 $21,790.14 $390.14 8.29% $1,150,000.00 $83,881.55 8.86% $1,011,939.54 $13,195.81 $2,573.94 9.47% $1,011,939.54 $14,918.36 $3,351.39 10.13% $1,011,939.54 $8,603.30 $1,853.95 9.53% $2,023,879.08 $4,139.91 $1,487.22 8.80% $415,750.00 $2,462.50 7.87% 61,166,60.77 $37,116.14 $2,835.93 8.81% $824,401.59 $34,066.67 $2,997.42 9.32% $1,066,098.93 $60,442.22 $416.67 8.48% $1,618,595.87 $116,252.12 8.44% $500,000.00 $19,463.88 8.12% $1,088,750.00 $64,215.28 7.93% $1,015,000.00 $16,608.71 8.07% $1,041,038.89 $30,554.64 8.64% $700,000.00 $28,368.83 8.62% $521,750.00 $17,429.17 8.19% $100,000.00 $1,440.21 9.37% $237,744.31 S13,162.58 8.15% $1,500,364.58 $364.58 8.75% $5,192,303.94 $132,606.24 8.50% EXHIBIT IV CITY OF COLLEGE STATION SALE AND MATURITY TRANSACTIONS FISCAL YEAR 90-10/1/89 TO 9/30/90 BOND FUNDS . ......................................... :::::::::::>:::::»: :>::>:::::>::::>:::::::>:<;:>:::...... .......:.:.:..:.,,.ASE......SALE.... MATURITY.:.I.:.. :..... ........ ......HAYAMinii ..�wTe......::.;.DATV;:::«.:.;:.;.;;AAT�...::.;:., ��1�1�<:::: : MOCE)wOS TREASURY BILLS/STRIPS: Treasury Strips 05/23/89 08/15/90 08/15/90 8,86% $1,033,505.00 $1,150,000.00 TREASURY NOTES: Treasury Notes 10/11/88 10/02/89 11/30/89 8.13% $2,987,343.75 $3,075,254.87 Treasury Notes 05/16/89 04/07/90 12/31/90 8.92% $200,484.38 $206,100.40 AGENCY SECURITIES Fed Home Loan Mtg Corp 11/17/89 04/27/90 04/27/90 8.14% $1,448,010.42 $1,500,000.00 Fed National Mtg Assoc 05/16/89 10/31/89 10/31/89 9.39% $1,001,406.00 $1,048,479.17 Fed National Mtg Assoc 05/31/89 12/01/89 12/01/89 9.34% $955,022.22 $1,000,000.00 Fed National Mtg Assoc 08/18/89 02/23/90 02/23/90 8.59% $1,024,357.81 $1,070,000.00 Fed National Mtg Assoc 11/01/89 04/04/90 04/04/90 8.25% $966,355.28 $1,000,000.00 Fed National Mtg Assoc 12/01/89 05/11/90 06/08/90 8.10% $1,055,676.88 $1,093,172.30 Fed National Mtg Assoc 02/23/90 07/09/90 08/31/90 8.29% $1,069,048.06 $1,101,917.02 Fed National Mtg Assoc 03/27/90 09/25/90 09/25/90 8.37% $998,332.11 $1,040,000.00 • Fed Home Loan Bank 06/26/89 12/29/89 12/29/89 9.00% $1,003,941.75 $1,050,000.00 Fed Home Loan Bank 04/09/00 05/17/90 03/25/91 8.40% $1,027,242.19 $1,040,283.18 Fed Farm Credit Bank 08/01/89 11/01/89 11/01/89 8.60% $1,000,000.00 $1,021,500.00 Fed Farm Credit Bank 11/01/89 03/27/90 03/27/90 8.31% $967,839.44 $1,000,000.00 REPURCHASE AGREEMENTS Prudential-Bache 10/01/89 12/20/89 Daily 8.47% $5,061,370.60 $5,148,108.03 Prudential-Bache 11/28/89 12/20/89 Daily 8.43% $3,200,000.00 $3,216,504.44 Prudential-Bache 12/20/89 04/05/90 Daily 8.20% $6,916,602.05 $7,034,642.70 • RFRAP. l`RA R L # itANNUALIZECIP » > IELD >> $83,881.55 8.86% $11,485.20 ($428.26) 8.11% $8,516.67 $749.35 9.32% $51,989.58 8.14% $6,585.07 9.39% $15,163.29 9.34% $35,275.97 8.59% $33,644.72 8.25% $37,249.49 $245.93 8.14% $32,868.96 8.29% $41,667.89 8.37% $22,046.16 9.00% $5,809.74 $4,029.55 .9.58% $5,127.40 8.60% $32,160.56 8.31% $88,737.33 8.47% $16,504.44 8.43% $118,040.65 8.20% ATTACHMENT B 1989 LEGISLATION Art. 842a-2. Public Funds Investment Act Short Title Sec. 1. This Act may be cited as the Public Funds Investment Act of 1987. Authorized Investments Sec. 2. (a) An incorporated city or town, a county, a public school district, a district or authority created under Article III , Section 52(b)(1) or (2), or Article XVI, Section 59, Texas Constitution, an institution of higher education as defined by Section 61.003 of the Education Code, a hospital district, a fresh water supply district, or any nonprofit corporation or public funds investment pool created under The Interlocal Cooperation Act (Article 4413(32c) , Vernon's Texas Civil Statutes) acting on behalf of any of those entities may, in accordance with this Act, purchase, sell , and invest its funds and funds under its control in the following: (1) obligations of the United States or its agencies and instrumentalities; (2) direct obligations of the State of Texas or its agencies; (3) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities; (4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent; (5) certificates of deposit issued by state and national banks domiciled in this state that are: (A) guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or (B) secured by obligations that are described by Subdivisions (1)-(4) of this subsection, which are intended to include all direct federal agency or instrumentality issued mortgage backed securities that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the investing entities; (6)certificates of deposit issued by savings and loan associations domiciled in this state that are: (A) guaranteed or insured by the Federal Savings and Loan Insurance Corporation, or its successor; or (B) secured by obligations that are described by Subdivisions (1)-(4) of this subsection, which are intended to include all direct federal agency or instrumentality issued mortgage backed securities that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the investing entities; (7) prime domestic bankers' acceptances; 8) commercial paper with a stated maturity of 270 days or less from the date of its issuance that either: (A) is rated not less than A-1, P-1, or the equivalent by -1- at least two nationally recognized credit rating agencies; or (B) is rated at least A-1, P-1, or the equivalent by at least 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 thereof; and (9) fully collateralized repurchase agreements having a defined termination date, secured by obligations described by Subdivision (1) of this subsection, pledged with a third party selected or approved by the political entity, and placed through a primary government securities dealer, as defined by the Federal Reserve, or a bank domiciled in this state. (b) In addition to investment in obligations, certificates, or agreements described in Subsection (a) of this section, bond proceeds of an incorporated city or town, a county, or a public school district, or local revenue of an institution of higher education, may be invested in common trust funds or comparable investment devices owned or administered by banks domiciled in this state and whose assets consist exclusively of all or a combination of the obligations described by Subsection (a) of this section. Common trust funds of banks domiciled in this state may be used if they: (1) are available; (2) comply with the provisions of the Internal Revenue Code of 1986 and applicable federal regulations governing the investment of bond proceeds; and (3) meet the cash flow requirements and the investment needs of the political subdivision or institution. (c) In this section: (1) "Bond proceeds" includes but is not limited to proceeds from the sale of bonds and reserves and funds maintained for debt service purposes. (2) "Prime domestic bankers' acceptances" means a bankers' acceptance with a stated maturity of 270 days or less from the date of its issuance that will be, in accordance with its terms, liquidated in full at maturity, that is eligible for collateral for borrowing from a Federal Reserve Bank, and that is accepted by a bank organized and existing under the laws of the United States or any state, the short-term obligations of which (or of a bank holding company of which the bank is the largest subsidiary) are rated at least A-1, P-1, or the equivalent by at least one nationally recognized credit rating agency. (3) "Repurchase agreement" means a simultaneous agreement to buy, hold for a specified time, and then sell back at a future date, obligations described by Subsection (a)(1) of this section, the principal and interest of which are guaranteed by the United States or any of its agencies, in market value of not less than the principal amount of the funds disbursed. The term includes direct security repurchase agreements and reverse security repurchase agreements. (d) In addition to the investments described by Subsection (a) of • this section, an entity listed in that subsection may, in accordance with this Act, purchase, sell , and invest its funds and funds under its control in an SEC-registered, no-load money market mutual fund with a dollar-weighted average portfolio maturity of 120 days or less whose assets consist exclusively of the obligations that are described by Subsection (a) of this section and whose investment objectives include -2- seeking to maintain a stable net asset value of $1 per share. No entity listed in Subsection (a) of this section is authorized by this Act to invest in the aggregate more than 20 percent of its monthly average fund balance, excluding bond proceeds, in money market mutual funds described in this subsection or to invest its funds or funds under its control , excluding bond proceeds, in any one money market mutual fund in an amount that exceeds 10 percent of the total assets of the money market mutual fund. Bids Sec. 3. (a) Investments under Section 2(b) of this Act may be made only after competitive bids are solicited from at least three banks as provided by this section. The bids may be solicited orally. (b) An incorporated city or town or a public school district must attempt to solicit bids initially from banks located within its boundaries. If there are not three banks available for the investments within the city' s, town's, or public school district's boundaries, the city, town, or public school district may solicit bids from banks located within the county or counties in which the city, town, or public school district is located in addition to those banks, if any, that are located within the boundaries of the city, town, or public school district. If there are not three banks available for the investments within the boundaries of the city, town, or public school district, or of the county or counties in which it is located, the city, town, or public school district may solicit bids from any bank within the state in addition to those banks, if any, that are located within the boundaries of the city, town, public school district, county, or counties. (c) A county must attempt to solicit bids initially from banks located within its boundaries. If there are not three banks available for the investments within the county, the county may solicit bids from any bank within the state in addition to those banks, if any, that are located within the boundaries of the county. (d) An institution of higher education as defined by Section 61.003 of the Education Code must solicit bids from at least three banks located within the state. (e) A nonprofit corporation acting on behalf of an incorporated city or town, a county, a public school' district, or an institution of higher education as defined by Section 61.003 of the Education Code shall follow the procedures identified in Subsection (b), (c) , or (d) of this section, as applicable to the entity on behalf of which the nonprofit corporation is acting. (f) If a bank has notified a governmental entity or nonprofit corporation that it is unable or unwilling to bid for investments under Section 2(b) of this Act, the governmental entity or nonprofit corporation that receives the notification may presume that the bank is unable or unwilling to bid for the investments until the bank notifies the governmental entity or nonprofit corporation otherwise in writing. Standard of Care Sec. 4. Investments shall be made with judgement and care, under circumstances then prevailing, that persons of prudence, discretion, and -3- 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. Written Policies Sec. 5. (a) Investments shall be made in accordance with written policies approved by the governing body. The investment policies must address liquidity, diversification, safety of principal , yield, maturity, and quality and capability of investment management, with primary emphasis on safety and liquidity. (b) A governing body may provide in its written policies that bids for certificates of deposit be solicited orally, in writing, electronically, or in any combination of those methods. Nonapplication to Retirement Funds Sec. 6. This Act does not apply to the investment of funds under the control of a public retirement system, as defined by Section 12.001(2) , Title 1106, Revised Statutes. Authority is Additional Sec. 7. The authority granted by this Act is in addition to that granted by other law. -4- Public Funds Collateral Act (SB 1341 , 71st Legislature, Regular Session, 1989) Short Title Sec. 1. This Act may be cited as the Public Funds Collateral Act. Definitions Sec. 2. In this Act: (1) "Board" means the State Depository Board. (2) "Control" and "bank holding company" have the same meanings assigned by Article 2, Chapter I , The Texas Banking Code (Article 342-102, Vernon' s Texas Civil Statutes). (3) "Deposits of public funds" means public funds of a public entity that: (A) are not managed by the state treasurer under Chapter 404, Government Code; and (B) are held as a demand or time deposit at a bank or other depository institution expressly authorized by law to accept demand or time deposits of the public entity. (4) "Eligible security" means: (A) surety bonds; (B) investment securities; and (C) ownership or beneficial interests in investment securities but not any option contract to purchase or sell investment securities. (5) "Exempt institution" means: (A) a public retirement system, as defined by Section 802.001 , Government Code; and (B) the permanent school fund, as defined by Section 15.01, Education Code. (6) "Investment security" means: (A) a direct obligation of the United States; (B) an obligation that in the opinion of the Attorney General of the United States is a general obligation of the United States and backed by its full faith and credit; (C) an obligation, the principal of and interest on which are unconditionally guaranteed by the United States; (D) an obligation of an agency or instrumentality of the United States, including a mortgage-backed security of the agency or instrumentality; (E) a general or specific obligation issued by a public agency, payable from taxes, revenues, or a combination of taxes and revenues that has been rated as to investment quality by a nationally recognized rating agency and that has a current rating of not less than A or its equivalent; and (F) any security in which a public entity may invest under the Public Funds Investment Act of 1987 (Article 842a-2, Vernon's Texas Civil Statutes). (7) "Permitted institution" means: -1- (A) a Federal Reserve Bank; (B) a "clearing corporation" as defined in Subsection (c) , Section 8.102, Business & Commerce Code; (C) any bank eligible to be a custodian under Subsection (c) of Section 6 of this Act; and (D) any state or nationally chartered bank, which bank is controlled by a bank holding company that controls a bank eligible to be a custodian under Subsection (c) of Section 6 of this Act. (8) "Public agency" means any state or any political or governmental entity, agency, instrumentality, or subdivision of a state, including without limitation municipalities, state-supported educational institutions, junior colleges, districts established pursuant to Article XVI , Section 59, of the Texas Constitution, and public hospitals. (9) "Public entity" means any public agency in this state that is not an institution of higher education as defined by Section 61.003, Education Code. (10) "State agency" means a public entity that: (A) has authority that is not limited to a geographic portion of the state; and (B) was created by constitution or a statute of this state. (11) "Trust receipt" means evidence of receipt, identification, and recording, including but not limited to physical controlled trust receipt or written or electronically transmitted advice of transaction. Authorized Collateral Sec. 3. Deposits of public funds shall be secured by eligible security to the extent and in the manner required by this Act. Level of Collateral Sec. 4. The total of the face value of the surety bonds and the market value of the investment securities securing the deposits of public funds shall be in an amount at least equal to the amount of the deposits of public funds increased by the amount of any accrued interest and reduced to the extent that the deposits are insured by an agency or instrumentality of the United States government. Collateral Policy; Public Entity Contracts Sec. 5. (a) Investment securities eligible to secure deposits of public funds shall be determined in accordance with written policies approved by the governing body of the public entity. The written policies may address matters including security of the institution obtaining or holding investment securities, substitution or release of investment securities, and the method of valuation of investment securities used to secure deposits of public funds. (b) A public entity may contract with a bank domiciled in this state to determine the terms and conditions for securing deposits of public funds. The contract may contain terms and conditions relating to the investment securities used as security for deposits of public funds that are acceptable to the public entity, including provisions relating to the possession of the collateral , the substitution or release of investment securities, the ownership of the investment securities of the bank used to -2- secure deposits of public funds, and the method of valuation of investment securities used to secure deposits of public funds. (c) The public entity shall inform the depository for its deposits of public funds of significant changes in the amount or activity of deposits of public funds resonably in advance of such changes. Possession of Collateral Sec. 6. (a) In addition to all other authority granted by law, a depository for any public entity may deposit the securities pledged to secure deposits of public funds with a custodian as provided in this Act. At the request of the public entity, the depository shall place the pledged securities with a custodian as provided in Subsection (c) of this section. The public entity may require that the depository not be the custodian or permitted institution or a branch of either with respect to the particular securities pledged by the depository to secure deposits of public funds. (b) Notwithstanding Subsection (a) of this section, the depository of deposits of public funds for any state agency shall place the pledged securities with a custodian as provided in Subsection (c) of this section. The custodian and the state agency shall execute a written agreement to determine the terms and conditions for securing deposits of public funds. The depository for a state agency shall not be the custodian or permitted institution or a branch of either with respect to the particular securities pledged by the depository to secure deposits of public funds. (c) (1) A depository for a public entity may deposit investment securities pledged to secure deposits of public funds with a custodian that the public entity has approved as a custodian that is either: (A) a state or national bank which is domiciled within this state, which has been designated a state depository by the board, and which has a capital stock and permanent surplus of not less than $5 million; (B) the Texas Treasury Safekeeping Trust Company; or (C) a Federal Reserve Bank or its branches. (2) The securities shall be held in trust by the custodian to secure the deposits of public funds of the public entity in the depository pledging the securities. (d) On receipt of the investment securities, the custodian shall immediately, by book entry or otherwise, identify on its books and records the pledge of the securities to the public entity and shall promptly issue and deliver to the appropriate official of the public entity trust receipts for the securities pledged. The security evidenced by the trust receipts is subject to inspection by the public agency or its agents at any time. (e) A custodian holding in trust investment securities of a depository under Subsection (c) of this section may deposit the pledged securities with a permitted institution. The securities shall be held by the permitted institution to secure funds deposited by the public entity in the depository pledging the securities. On receipt of the securities, the permitted. institution shall immediately issue to the custodian an advice of transaction or other document evidencing the deposit of the securities. When the pledged securities held by a custodian are deposited, the permitted institution may apply book entry procedures to -3- the securities. The records of the permitted institution shall at all times reflect the name of the custodian depositing the pledged securities. The trust receipts the custodian issues to the public entity shall indicate that the custodian has deposited with the permitted institution the pledged securities held in trust for the depository pledging the securities. Venue Sec. 7. Any legal action or proceeding by or against the public entity, arising out of or in connection with the duties of the depository, the custodian, or a permitted institution under this Act, shall be brought and maintained as provided in the contract with the public entity. Priority Sec. 8. Any custodian under this Act and any custodian of securities pledged to an institution of higher education as defined by Section 61.003, Education Code, acting alone or through a permitted institution, shall for all purposes under state law, notwithstanding anything in Chapters 8 and 9 of the Business & Commerce Code to the contrary, be the bailee or agent of the public entity or institution depositing such public funds with the depository, and the security interest arising out of a pledge of securities to secure deposits of the public entity or institution shall be created, shall attach, and shall be perfected for all purposes under state law from the time that the custodian identifies the pledge of the securities on its books and records and issues the trust receipts and remains as of that time perfected in the hands of all subsequent custodians and permitted institutions. Records; Reports Sec. 9. (a) The depository for a public entity shall maintain separate, accurate, and complete records relating to all deposits of public funds, the pledged investment securities, and all transactions relating to the pledged investment securities. (b) The custodian for a public entity shall maintain separate, accurate, and complete records relating to the pledged investment securities and all transactions relating to the pledged investment securities. (c) The board or the public entity may examine and verify at any reasonable time all pledged investment securities and all records maintained pursuant to Subsections (a) and (b) of this section. (d) As a part of each internal or external audit or regulatory examination of the depository for a public entity and of the custodian for a public entity, the auditor or examiner shall examine and verify the pledged investment securities and the records maintained pursuant to Subsections (a) and (b) of this section and shall report any significant or material noncompliance with the provisions of this Act to the board. (e) The custodian for the public entity shall file a collateral report with the board in the manner and on the dates prescribed by the board. -4- Penalties Sec. 10. (a) The board may revoke a designation as a state depository if, after notice and a hearing, the board makes a written finding that the depository, acting in its capacity either as a depository or a custodian, as the case may be, does not maintain reasonable compliance with° this Act and has failed to remedy any violation of this Act within a reasonable period of time after written notice of such violation. Such revocation shall be effective for a period of one year. (b) If the board makes a written finding that the depository has not maintained reasonable compliance with this Act and has acted in bad faith in not remedying any violations of this Act, the board may permanently revoke the designation as a state depository. (c) If the board determines that the depository has remedied all violations of this Act and has given assurances satisfactory to the board that the depository will maintain reasonable compliance with this Act, the board may reinstate its designation as a state depository. (d) When making the findings required by Subsection (a) or (b) of this section, the board shall consider the totality of the circumstances regarding the performance of the depository or the custodian, including but not limited to the extent to which the noncompliance with this Act is minor, isolated, temporary, or nonrecurrent. The board shall not find that either the depository or the custodian does not maintain reasonable compliance with this Act if such noncompliance is a result of the failure of the public entity to comply with Subsection (c) of Section 5 of this Act. (e) Subsection (d) of this section shall not relieve the depository or the custodian of the obligation to secure deposits of public funds with eligible security in the amount and manner required by this Act within a reasonable time after the public entity deposits the deposits of public funds with the depository. Act Controlling Sec. 11. (a) To the extent of any conflict between this Act and another law relating to security for deposits of public funds, this Act prevails. (b) An exempt institution is not required to have its funds at all times fully insured or collateralized if such funds are held by a custodian of its assest pursuant to a trust agreement or held by an entity in connection with investment-related transactions and if, in the exercise of its fiduciary responsibilities, the governing body of the exempt institution determines that the exempt institution is adequately protected through the use of trust agreements, special deposits, surety bonds, substantial deposit insurance, or any other method commonly used by such institutions. This Act does not prohibit prudent investment by the exempt institution in certificates of deposit or restrict the selection of depositories by the governing body of the exempt institution in accordance with its fiduciary duties. (c) This Act does not apply to funds maintained and administered by a public entity pursuant to a deferred compensation plan the federal income tax treatment of which is governed by Section 401 or 457 of the Internal Revenue Code of 1986. -5- Effective Date Sec. 12. This Act takes effect September 1, 1989. -6- CASH MANAGEMENT CONFERENCE AUTHORIZED INVESTMENTS FOR CITIES AND COUNTIES I . Source of Investment Authority: A. General Law Cities . Under the new provisions of the Texas Local Government Code there are now three types A, B and C of general law municipalities . The source of investment authority for any general law city is found in the Texas Constitution, state statutes and local law enacted by the general law city. B. Home Rule Cities . Texas Constitution Art. 11, sec . 5 provides that certain cities may adopt home rule charters but "no charter or any ordinances passed under such charter shall contain any provision inconsistent with the Constitution or general laws of the state. " TEX. LOCAL GOV'T CODE, Title 2 , Chapter 9, Sections 9 .001 et sea sets out the statutory powers for the home rule cities . Investment authority for home rule cities therefore, is found in the Texas Constitution, state statutes and, to the extent not in conflict with the statutes, the home rule charter itself. C. Counties . The investment authority for counties is found in the Texas Constitution and the state statutes . II . Investments Authorized by Statutes : A. The Public Funds Investment Act of 1987 . The 70th Texas Legislature first enacted the Public Funds Investment Act TEX. REV. CIV. STAT. ANN. Art. 842a-2, ( "the Act" ) . It specifies that the authorized investments contained therein are in addition to that granted by other law. Thus, all other statutory law governing authorized investments for counties and cities, scattered throughout the statutes, also apply. The Act, as amended by the 71st Texas Legislature in S.B. 1342, provides that any incorporated city or town, a county, a public school district, a district or authority created under Article III, Section 52(b) ( 1) or (2 ) or Article XVI, Section 59, Texas Constitution (these are various types of reclaimation and conservation districts, MUDS, road districts, navigation districts, and port authorities) an institution of higher education, a hospital district, a fresh water supply district, or any non-profit corporation acting on behalf of any of those entities may purchase, sell, and invest its funds in the following: 1 . obligations of the United States or its agencies and instrumentalities; 2 . direct obligations of the State of Texas or its agencies; 3 . other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities; 4 . obligations of states, agencies, counties , cities, and other political subdivisions of any state having been rated as to investment quality by nationally recognized investment rating firm and having received a rating of not less than A or its equivalent; 5 . certificates of deposit issued by state and national banks and savings and loan associations domiciled in the state that are; a. guaranteed or insured by the Federal Deposit Insurance Corporation, FSLIC or its successors; or b. secured by obligations that are described by subdivisions ( 1) through (4 ) of this subsection which are intended to include all direct federal agency or instrumentality issued mortgage back securities, and that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the investing entities; 6 . prime domestic bankers ' acceptances with a stated maturity of 270 days or less, that will be liquidated in full at maturity, are eligible for collateral for borrowing from a Federal Reserve Bank, and arc accepted by a bank (or a bank holding company for which the bank is the largest subsidiary) the short-term obligations of which are rated at least A-1, P-1 or the equivalent. 7 . commercial paper with a stated maturity of 270 days or less that is either rated not less than A-1 or P-1 by two nationally recognized rating agencies or is rated at least A-i or P-i by one nationally recognized rating agency and is fully secured by a letter of credit issued by a bank. 8 . fully collateralized repurchase agreements and reverse security repurchase agreements having a defined termination date, secured by obligations described by Subdivision ( 1) of this subsection, pledged with a third party selected or approved by the political entity, and placed through a primary government securities dealer. 9 . The Act as amended further provides that these entities may invest bond proceeds in common trust funds or comparable investment devices owned or administered by banks domiciled in this state and whose assets consist exclusively of all or a combination of the obligations described by subdivisions ( 1)-(4) and (8) and who comply with the IRS Code of 1986 . 2 10 . invest up to 20% of its monthly average fund balance (excluding bond proceeds) in Security Exchange Commission registered no-load money market mutual fund with a dollar weighted average portfolio of 120 days or less whose assets consist exclusively of obligations described above and whose investment objectives include seeking to maintain a stable net asset value of $1 per share. No entity may invest funds in any one money market mutual fund in an amount that exceeds 10% of the total assets of the money market mutual fund. Written Investment Policies. The Act requires that all investments be made in accordance with "written policies approved by the governing body. " Therefore, in order to invest under the authority provided by the Act each entity must have a written investment policy addressing liquidity, diversification, safety of principal, yield, maturity, and the quality and capability of investment management, with primary emphasis on safety and liquidity. B. Public Funds Investment Pool . This 71st Legislative session also saw the enactment of S.B. 1340. This law amended the Interlocal Cooperation Act, TEX. REV. CIV. STAT. ANN. art. 4413 and the Public Funds Investment Act to authorize "local governments" (which is defined to include all cities, counties, school districts and any other legally constituted political subdivision of the State of Texas) to designate an investment officer and to delegate, by contract, the authority to act as custodian of investments purchased with local investment funds . A public funds investment pool may purchase, sell or invest its funds in the following: 1 . obligations of the U.S. or its agencies and instrumentalities, 2 . direct obligations of the State of Texas or its agencies, 3 . other obligations, the principal of and interest on which are unconditionally guaranteed or insured by Texas or the U.S. , 4 . obligations of states, agencies, counties, cities and other political subdivisions that have received a rating of not less than A, 5. certificates of deposit issued by state and national banks and savings and loan associations, domiciled in Texas that are: A. guaranteed or insured by FDIC or FSLIC, or 3 B. secured by obligations described in 1-4 above, which are intended to include all direct agency or instrumentality mortgage backed securities rated AAA and have a market value of not less than the principal amount of the certificates. 6 . fully collateralized direct repurchase agreements having a defined termination date, secured by obligations described in 1-4 above, pledged with a third party and placed through a primary government securities dealer or a bank domiciled in Texas . C. New statutory authority for counties: H.B. 1431 enacted by the 70th Texas Legislature was partly codified in sec . 116 . 112 TEX. LOC. GOV'T CODE ANN. which provides as follows: "Unless expressly prohibited by law or unless it is in contravention of any depository contract between a county and any depository bank, the commissioner ' s court may direct the county treasurer to withdraw any amount of funds of the county that are deposited in a county depository and that are not required immediately to pay obligations of the county or required to be kept on deposit under the terms of, the depository contract and to invest those funds in: [emphasis added] ( 1) direct debt securities of the United States; (2) certificates of deposit issued by state or national bank domiciled in this state or state or federal savings and loan associations domiciled in the state, the payment of which is insured in full by the federal deposit insurance corporation or the federal savings and loan insurance corporation; or (3) fully collateralized repurchase agreements purchased pursuant to a master contractual agreement which specifies the rights and obligations of both parties and which requires that securities involved in the transaction be held in a safekeeping account subject to the control and custody of the county. " 4 It is important to understand that this new investment authority is dependent upon the terms contained in the depository contract. This contract may expressly prohibit such investments, or require these funds to be kept on deposit in that depository bank. Often, too the depository contract will provide for investment of county funds y the depository bank. Therefore the terms of each county' s depository contract should also be examined for any restrictions on the county treasurer ' s and/or state auditor' s investment powers . D. Other Statutory Authorization. Scattered throughout the statutes are various laws authorizing investments for counties and cities . Some of these statutory provisions which authorize counties and cities to invest are: (i) Certificates of indebtedness issued by counties ( for sinking funds only) , Article 717n(b) ; (ii) Certificates of indebtedness for certain purposes issued by counties over 1, 000,000 ( for sinking funds only) , Article 717n-1; , ( iii) Causeway revenue bonds ( for sinking funds) , Article 795a; (iv) Bonds issued to finance toll bridges over the Rio Grande River, Article 1015g-4; (v) Refunding bonds for a city' s electric light, power and gas system (for sinking funds only) , Article 1118n-12; (vi) Bonds issued to finance cultural and related parking facilities in cities of 1,200, 000 or more ( for sinking funds only) , Article 1182j ; (vii) Bonds issued to finance parking facilities for gulf coast cities of 60,000-75, 000 or 110, 000-120, 000 ( for sinking funds only) , Article 1269j-4 . 3; (viii) Certificates of indebtedness issued to finance a sea life park and oceanarium, Article 1269j-4 .4 . ; 5 (ix) Bond or other obligations issued by a housing authority which are secured by a pledge of annual contributions to be paid by the United States government or any agency thereof, or secured or guaranteed by a pledge of the full faith and credit of the United States government or any agency thereof, Article 12691-2, 1269k-4; (x) Urban renewal. project funds may be invested in property or securities in which banks may legally invest funds subject to their control, Article 12691-3; (xi) Bonds issued pursuant to the Housing Agency Act, Article 12691-6; (xii) Bonds issued pursuant to the Housing Finance Corporations Act (for sinking funds only) , Article 12691-7 ; (xiii) Certificates of obligations ( for sinking funds only) , Section 271 . 051 TEX. LOC. GOV'T CODE ANN. ; (xiv) Contracts entered into pursuant to the Public Property Finance Act (for sinking funds only) , Section 271.001 et sec , TEX. LOC. GOV'T CODE ANN. (xv) Certificates of indebtedness issued by counties over 900,000 to finance crime detection facilities, Article 2370c-1; (xvi) Bonds issued by counties greater than 2,000, 000 or certain counties that border Mexico that are greater than 90, 000 to finance improvements to attract visitors and tourists ( for sinking funds only) , Article 2372d-6; (xvii) Bonds issued by Hospital Laundry Cooperative Associations (for sinking funds only) , Article 4437f-1; (xviii) Bonds issued pursuant to the Solid Waste Resource Recovery Financing Act ( for sinking funds only) , Article 4477-7a; 6 (xix) Bonds issued by a public agency pursuant to the Comprehensive Municipal Solid Waste Management, Resource Recovery, and Conservation Act ( for sinking funds only) , Article 4477-7b; (xx) Bonds issued to finance tideland parks by cities of 60,000 or more bordering the Gulf of Mexico (for sinking funds only) , Article 6081g; (xxi) Revenue bonds issued by a Park Board of Trustees for island parks for home rule cities or more than 60,000 bordering the Gulf of Mexico (for sinking funds only) , Article 6081g-1; (xxii) Counties may invest sinking funds accumulated for the payment of bonds issued by the county, political subdivision, road district, or defined district of the county in bonds of the United States, of Texas, or any county in this State, or any school district or road district of this State, or any incorporated city of town of this State, in bonds of the Federal Farm Loan Bank System, or in war-savings certificates or certificates of indebtedness issued by the Secretary of the Treasury of the United States, Article 6702-1 Section 4 .401; (xxiii) A political subdivision that has a balance remaining in any of its accounts at the end of the fiscal year may invest the balance in defense bonds or other obligations of the United States . Sec . 140 . 002 TEX. LOC. GOV'T CODE ANN. ; (xxiv) Bonds issued to finance causeways, bridges or tunnels by gulf coast counties of 50, 000 or more (for sinking funds only) , Article 6795b-1; (xxv) Bonds issued by a county bordering Mexico to acquire a toll bridge across the Rio Grande River (for sinking funds only) , Article 6795c; (xxvi) School district tax bonds, Education Code, Section 20 . 07; and 7 (xxvii) Bonds issued by the Veterans Land Board ( for sinking funds only) , Natural Resources Code, Section 161 . 128 . (xxviii) Bonds issued by counties greater than 2, 000, 000 or certain counties that border Mexico that are greater than 90, 000 to finance improvements to attract visitors and tourists (for sinking funds only) Article 2372d-6 . This list of authorized investments is not complete. Additional questions regarding whether a particular investment is authorized should be researched individually. III . Authorized Collateral for Depositories . It is important to distinguish the law relating to authorized investments for cities and counties from what are authorized investments for the collateral pledged by depositories . It is strongly recommended that this pledged collateral, if in the form of investment securities, be held by a third party custodian bank. Therefore it is advisable to also enter into a Custodian Bank Agreement. A. The Public Funds Collateral Act. The 71st Texas Legislature passed S.B. 1341 to be cited as the Public Funds Collateral Act (the "Collateral Act" ) . It applies to every public agency and all public funds except: 1 . funds managed by the State Treasurer 2 . repurchase agreements and reverse security repurchase agreements (by omission in the definition of "deposits of public funds" ) 3 . option contract to purchase or sell investment securities 4 . a public retirement system 5 . the permanent school fund and 6 . a public entity' s deferred compensation plan funds . Other than these exceptions, the Collateral Act applies and will control over any other law which may conflict with it. The Collateral Act provides that deposits of 8 public funds shall be secured by "Eligible Security" . The Collateral Act requires that the amount of "Eligible Securities" shall be at least equal to the amount of the deposits of public funds, plus the amount of any accrued interest, reduced to the extent of any insurance by an agency of the U.S. "Eligible Security" is defined as: 1 . surety bonds 2 . investment securities and 3 . ownership or beneficial interests in investment securities . "Investment Security" is defined as: 1. a direct obligation of the U.S. 2 . an obligation that in the opinion of U.S. Attorney General is a general obligation of, and backed by the full faith and credit of the U.S. 3 . an obligation, the principal of and interest on which are unconditionally guaranteed by the U.S. 4 . an obligation of an agency or instrumentality of the U.S. including mortgage backed securities . 5 . a general or special obligation issued by a public agency whether payable from taxes, revenue, or a combination, which has a rating of not less than A. 6 . a security authorized under the Public Funds Investment Act. • The Collateral Act provides that a depository for public entities may deposit public funds with a custodian; however at the request of a public entity, the depository must do so. Further a public entity may now require that the depository not be the custodian. This is mandatory for state agencies . The Collateral Act not only requires a depository for state agencies to place collateral with a third party custodian -- the state agency must also execute a written agreement with the custodian. The custodian must be either: 1 . a state or national bank domiciled in Texas which has been designated a state depository and has capital stock and permanent surplus of not less than $5 million, 2 . the Texas Treasury Safekeeping Trust Company or 3 . a Federal Reserve Bank or its branches . 9 Finally, the Collateral Act sets out requirements for a custodian' s duties of collateral maintenance, audit and bookkeeping. It provides that a custodian may deposit the collateral with a "permitted institution" ; defined as either: 1) a Federal Reserve Bank or 2) a "Clearing Corporation" as defined in subsection (c) Section 8 . 102 Business and Commerce Code. B. Cities . Under Sec . 105 . 031 of the TEX. LOC. GOV'T CODE ANN. qualification as a depository, within five (5) days after the day a bank(s) is selected as a municipal depository, "the bank must qualify by providing security for the municipal funds to be deposited with the bank. " The bank may secure the municipal funds at the option of the governing body of the municipality, by: " ( 1) Personal bond; surety bond; bonds, notes, or other securities; or a combination of these methods, as provided by this subchapter; or (2 ) Investment securities or interest in them as provided by ch. 726 , Acts of the 67th Leg. , Reg. Sess . 1981 (TEX. REV. CIV. STAT. ANN. art. 2529b-1) . " The requirements for a personal bond that qualifies security are set out in the Sec . 105. 032 of the TEX. LOC. GOV'T CODE ANN. The provisions for the requirements of a surety bond are contained in Sec . 105 . 033 of the TEX. LOC. GOV'T CODE ANN. The investment securities are contained in Sec . 105 .034 of the TEX. LOC. GOV'T CODE ANN. This section provides that "if approved by the aoverninq body as to the kind and value, " a municipal depository may pledge with the governing body of the municipality as security under this subchapter: 1 . A bond, certificate of indebtedness, or treasury note of the United States, or other evidence of indebtedness of the United States that is guaranteed as to the principal and interest by the United States; 2 . A bond of this state or a county, municipality, independent school district, common school district, or other school district in the state; 3 . A bond issued under the Federal Farm Loan Acts; 4 . A road district bond; 10 5 . A bond pledged or other evidence of indebtedness issued by the Board of Regents of the University of Texas System; 6 . A note or bond secured by mortgages insured and debentures issued by the Federal Housing Administration; 7 . Shares or share accounts of a savings and loan association organized under the laws of the state or of a federal savings and loan association domiciled in the state if the payment of the share or share account is insured by the federal savings and loan insurance corporation; 8. Bank acceptances of banks that have a capital stock of at least $500, 000; or 9 . A bond issued by a municipal corporation in the state. Securities pledged to secure municipal funds on deposit in a depository must be in an amount equal to an amount of those funds . The value of the securities is determined by the governing body of the municipality and that determination is final and binding on the depository. C. Counties . Under Sec. 113 . 001 et sea TEX. LOC. GOV'T CODE ANN. the county treasurer is the chief custodian of county funds which are to be kept in a designated depository. Other than certain funds held by the county tax assessor-collector, a county officer who receives funds is to deposit the funds with the county treasurer on or before the next regular business day after the date on which the funds are received. If this deadline is not met, the officer must deposit the funds without exception on or before the seventh (7 ) business day after the day on which the funds were received (the commissioner' s courts in counties with fewer than 50,000 inhabitants may extend this period to 30 days from the day after the funds are received) . The commissioner' s court of a county at its February regular term immediately following the general election shall contract with one or more banks in the county for the deposit of the county' s public funds . Under Sec . 116 .051 TEX. LOC. GOV'T CODE ANN. within 15 days after the day a bank is selected as a county depository, "the bank must qualify by providing security for the funds to be deposited by the county with the bank. " The depository may secure these funds at the option of the commissioner' s court by: 11 ( 1) personal bond; surety bond; bonds, notes and other securities, first mortgages on real property; or a combination of these methods as provided by this subchapter; or (2 ) investment securities or interest in them is provided by chapter 726 , Acts of 67th Leg. Reg. Sess . , 1981 (TEX. REV. CIV. STAT. ANN. art. 2529b-1) . (See the list for municipal depositories) (3) in addition to or in lieu of other securities that a depository bank may pledge, the depository bank may pledge certificates of derosit that are: (a) held in custody of a federal reserve bank for safekeeping and that are the subject of a valid pledge agreement designating the county as the beneficiary of the pledged agreement; (b) insured in full by the federal savings and loan insurance corporation or the federal deposit insurance corporation; (c) described in detail by a safekeeping receipt issued to the county by the federal reserve bank having custody of the certificate; and (d) registered with the county as a registered owner. A party to whom presentment of a certificate of deposit pledged to secure county funds is made may not pay or otherwise accept a certificate of deposit unless the certificate of deposit or the safekeeping receipt has been endorsed by the county and the depository bank. In addition to certificates of deposits a county depository under Sec. 116 . 054 Tex. local Gov't Code, a county depository may also pledge: ( 1) a bond, note, security of indebtedness, or other evidence of indebtedness of the United States if the evidence of indebtedness is supported by the full faith and credit of the United States or is guaranteed as to principal and interest by the United States; (2) a bond of the state or of a county, municipality, independent school district, or common school district; 12 (3) a bond issued under the Federal Farm Loan Acts; (4) a road district bond; (5) a bond, pledge, or other security issued by the Board of Regents of the University of Texas System; (6 ) bank acceptances of banks having a capital stock of at least $500, 000; (7) a note or bond secured by mortgages insured and debentures issued by the Federal Housing Administration; ( 8) shares or share accounts of a savings and loan association organized under the laws of the state or of a federal savings and loan association domiciled in the state if the payment of the share or share accounts is insured by Federal Savings and Loan Insurance Corporation; or (9 ) a bond issued by a municipal corporation in the state. Thus individual depository contracts must be carefully negotiated. Who is to have investment authority, the type and terms for the collateral which is pledged, and who is is to hold the collateral are all governed by the terms of this Agreement. 13 CshMgmt-Prst ATTACHMENT C CITY OF COLLEGE STATION INVESTMENT POLICY 1 d s!`. fir+.; �i+.+ ��..y\ �I,/�Y- / �"" --4'1 v Le•f,)yftit•iNy,/". y 0 '4;j 'i, _AUIE14' 1_ ! 1 latlea!"1.1 _3 ?0,.....tiM i VA), Mtn AN ''' elf,'0,.. ' 3 :12> PRESOLUTION NO. 4-12-90-5.5 � a1C ' ,r,_„ ,rm R. 4A RESOLUTION APPROVING AND AUTHORIZING THE IMPLEMENTA- TION OF THE CITY OF COLLEGE STATION INVESTMENT POLICY. ! .4C - l'-&-..--1:: WHEREAS, the goal of the City of College Station is to � gOs' create an investment policy to insure the safety of all )54 funds entrusted to the City, while making available §:4 those funds for the payment of all necessary obliga- tions of the City, and providing for the investment of , ...„.. all funds not immediately required in interest bearing securities; and gWHEREAS, the safety of the principal invested shall al- !!! ,,; ' ways be the primary concern of the City of College Sta- le tion; and WHEREAS, the management of monies in order to insuremaximum cash availability and maximum yields on a shortOw ( term investment is a primary goal of the City of Col-�'"'-- lege Station; 10. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF COLLEGE STATION that the attached document , "., shall be the investment policy of the City of College §li Station, providing for an active cash management policy ),. OA*( to be pursued by the City in order to maximize invest44 - . ment interest as a viable and material revenue source - ' while still providing maximum cash availability. flg) ; ' PASSED and APPROVED this the 12th day of Apri 1 , 1990. r APPROVED: . '., ', (5 !'` 1 MA • ATTEST: W 00 ' AC , IE Ar)AA „.. .-.JgC1151—iL) 9) ,s, . 0► ity Secretary ' .0 - I ,A.�y!)�. * +'.A�c )At! T'! iA\ f, , ,tiV/ �```` ��- i., INVESTMENT POLICY I. INTRODUCTION: GOAL. The goal of the City of College Station Investment Policy shall be to ensure the safety of all funds entrusted to the City (SAFETY) , the availability of those funds for the payment of all necessary obligations of the City (LIQUIDITY) , and to provide for the investment of all funds, not immediately required, in interest-bearing securities (YIELD) . The safety of the principal invested shall always be the primary concern. Cash management is defined as the process of managing monies in order to ensure maximum cash availability and maximum yields on short-term investments. It is concerned with what happens between the point that revenue is earned and an expense payment clears the bank. The City shall maintain a comprehensive cash management program which include collection of accounts receivable on a timely basis, vendor payment in accordance with invoice terms and State law, and prudent investment of its available cash. Effective cash management is recognized as essential to good fiscal management. An active cash management policy will be pursued by the City in order to maximize investment interest as a viable and material revenue source to all operating and capital funds. SCOPE. This Investment Policy of the City of College Station shall include all investment activities of any fund of the City. AMENDMENTS. This policy may be amended from time to time as the City Council may so desire, or as State law may require. II. RESPONSIBILITY: PURPOSE. The purpose of this section is to establish an Investment Officer for, the City of College Station and define the authority of the Investment Officer. RESPONSIBILITY AND DESIGNATION. The Director of Finance is the City's Investment Officer and is responsible for the City's comprehensive cash management program, including the administration of these investment policies. The Director of Finance shall maintain timely, accurate and systematic records of all securities, maturities and earnings. The investment office shall be responsible for establishing written procedures for cash management. The Investment Officer shall be responsible for the development and updating on a periodic basis of a cash forecast for the City. This cash forecast will provide information essential to properly structure investment maturities to meet required disbursement of funds. The Investment Officer is also responsible for developing and maintaining expertise in the areas of market evaluation, market timing, and economic forecasting. Professional training and outside experts will be used as appropriate to meet the overall policy goal of maximizing interest earnings within the constraints of portfolio safety and liquidity. Responsibility and authority for investment transactions resides with the Investment Officer. The Investment Officer is fully authorized to buy and sell investments in accordance with the goals and objectives of the City's investment strategy. Certain signatory responsibilities are shared by bonded officials for the purpose of providing continuity of the City's investment program in the absence of the Investment Officer. Positions authorized are: City Manager Executive Director,Fiscal & Human Resources Deputy Director of Finance/Budget Officer BONDING REQUIREMENTS. ,Each of the above-authorized positions designated to serve as the Investment Officer or designee in the absence of the City's Investment Officer shall be bonded employees. All participants in the investment process shall act responsibly as custodians of the public trust. INVESTMENT COMMITTEE. There shall be formed an investment committee consisting of the Executive Director, Fiscal & Human Resources, the Deputy Director of Finance/Budget Officer and the City Manager. That committee is charged with the responsibility of investment portfolio compliance with State statutes and these policies. ' That committee shall also have the responsibility of reviewing and approving all broker/dealer relationships on the recommendation of the City's Investment Officer. The committee shall meet at least on a quarterly basis. Any two of the three members shall constitute a quorum. The Executive Director, Fiscal & Human Resources shall serve as chairman of the committee, and written records of investment committee meetings shall be maintained. III. STATUTORY GUIDELINES: PUBLIC FUNDS INVESTMENT ACT OF 1987, AS AMENDED FROM TIME TO TIME. This legislation, adopted by the Texas Legislature in 1987 , and amended in 1989, defines the legal investment options of Texas municipalities and has included a provision requiring a written investment policy. Under terms of this legislation, legal investment options are: 1. Obligations of the United States or its agencies and instrumentalities; 2 . Direct obligations of the State of Texas or its agencies; 3 . Other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States;. 4 . Investment grade obligations of the State of Texas and political subdivision; 5. Certificates of Deposit issued by state and national banks domiciled in this state which are either insured by the F.D. I.C. or secured by legal collateral; 6. Repurchase agreements which are fully collateralized, with third-party safekeeping of collateral, purchased through a "primary" government securities dealer or state or national bank domiciled in the State of Texas. Collateral of repurchase agreements must meet certain requirements. 7 . "Prime Domestic Bankers' Acceptances", subject to certain limitations 8. Commercial paper, subject to certain limitations 9. Money-market mutual funds, subject to certain limitations PUBLIC FUNDS COLLATERAL ACT, AS AMENDED FROM TIME TO TIME. Senate Bill 1341 was amended in the 71st Legislature, regular session, 1989. This act authorized the creation of public funds investment pools and established criteria for allowable investments and collateral. NOTE: The complete text of Art. 842a-2 and S.B. 1341 are attached as Exhibit I and made a part of these investment policies. IV. INVESTMENT OBJECTIVES: The investments purchased under the provisions of this Investment Policy shall be managed to maintain liquidity for meeting the City's needs for cash and to limit potential market risks in periods of rising interest rates which depress the market value of securities. As a guideline, maturity of securities should not exceed more than two years for cash management purposes, with the optimum weighted average maturity of less than one year. Investments in securities of a longer maturity than two years are considered prudent for funds maintained for capital construction, and debt service funds, if necessary to meet projected disbursement schedules. As a general guideline, the City of College Station's cash management portfolio shall be designed with the objective of meeting, over the course of full market cycles, the average return on three-month U.S. Treasury Bills, or the average rate of federal funds, whichever is higher. These indices are considered benchmarks for riskless investment transactions and therefore comprise a standard for the portfolio's rate of return. The investment program shall seek to augment rates of return above this level . In a diversified portfolio, measured losses are inevitable and must be considered within the context of the overall portfolio. The objective in investment of construction funds is at least to match inflation increases in construction costs. Active portfolio management includes the practice of selling securities prior to maturity, using the proceeds to purchase other securities. Such "swaps" are performed for a variety of valid reasons: To lengthen maturities as interest rates rise, to secure market profits and shorten maturities as interest rates fall, and to take advantage of the differences in relative yield between different types of securities and varying maturities. "Swap" analysis is the responsibility of the City Investment Officer and the decision to execute the "swap" rests with him. 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. V. AUTHORIZED INVESTMENTS ELIGIBLE DEPOSITORIES. All state and national banks located in the State of Texas, which are insured by the Federal Deposit Insurance Corporation (F.D. I.C. ) . The financial condition of the bank shall be considered prior to establishing any accounts with that bank. The City shall subscribe to a bank rating service to obtain timely information. Bankina Services shall be maintained separately from Investment Services. At least every third year, the City shall solicit requests for proposals for banking services from state and national banks located in the City. The Director of Finance shall be responsible for recommending a written banking services agreement for approval by the City Council. That agreement shall include such provisions for transaction unit costs, account and wire transfer fees, and account reporting services. The agreement shall include provision for collateralization of demand account balances in excess of F.D.I.C. insurance and provide for independent, third-party safekeeping of that collateral. A copy of the current agreement is attached as Exhibit II to this policy. ELIGIBLE SECURITIES DEALERS. A. Securities dealers and banks which are the approved and designated dealers of the Federal Reserve Bank of New York - "Primary Dealers" . A current list of "Primary Dealers" is attached as Appendix A. B. Securities dealers and banks which are not designated as "Primary Dealers" , but which are approved individually by the City of College Station Investment Committee. C. Investment activity in repurchase agreements shall be limited to "Primary" dealers and State and national banks domiciled in the State of Texas, evidenced by a fully-executed Master Repurchase Agreement on file with the City (copy attached as Exhibit III) . D. Prior to commencing investment activity with any security dealer, a "Broker/Dealer Questionnaire and Certification" must be completed and on file with the City (copy attached as Exhibit IV) . All securities dealers must furnish annual financial reports to the City. ELIGIBLE INVESTMENTS. A. Obligations of the United States Government or its agencies including, but not limited to, the following: 1. U.S. Treasury Bills, Notes and Bonds 2 . Federal Home Loan Bank 3 . Federal National Mortgage Corporation 4 . Government National Mortgage Corporation All securities shall be purchased on a delivery-versus- payment basis throuah a third-party safekeeping account. The City shall authorize the release of its funds only after it has received notification from the safekeeping bank that a purchased security has been received in the City's safekeeping account. This notification may be oral, but shall be followed up in writing with the original safekeeping receipt within twenty-four hours. B. Repurchase agreements made in compliance with Texas State Statutes. Repurchase collateral shall be perfected and delivered to an unaffiliated third-party safekeeping account. Repurchase agreements shall be collateralized at a minimum of 101 percent of the purchase price of the repurchase agreement and marked-to-market on a weekly basis. Collateral provided must be those securities otherwise authorized by state statutes for outright purchases. Collateral may be substituted only with the oral authorization of the Investment Officer, followed by written confirmations within twenty-four hours. The City considers repurchase agreements to be simultaneous purchases and sales of securities as outlined in the Master Repurchase Agreement and not as collateralized loans. However, the underlying securities may be referred to as "Collateral" . C. Time certificates of deposit or savings accounts in state or national banks located within the State of Texas. All deposits must be insured to the level of $100,000 through the F.D. I.C. Investment in eligible pooled Certificate of Deposits programs (PAC's) is authorized under this section. All deposits in excess of $100, 000 shall be collateralized by those securities otherwise authorized by state statutes for outright purchases, deposited into an unaffiliated third-party safekeeping institution with collateral held in the City's name. All deposits will be collateralized at a -minimum of 101 percent of the purchase price and marked-to-market on a weekly basis. Collateral may be substituted only with the oral authorization of the Investment Officer, followed by written confirmations within twenty-four hours. The City shall take all prudent and necessary steps to assure the solvency of the financial institution and the adequacy of collateral for deposits in excess of $100, 000, with interest rates sufficient to warrant investment. D. Public Funds Investment Pools. Authorized by the Texas State Legislature in the 71st session, Senate Bill 1340 amended the Interlocal Cooperation Act, TEX. REV. CIT. STAT. ANN. art. 4413 and the Pubic Funds Investment Act. This legislation authorizes local governments to designate an investment officer and to delegate, by contract, the authority to act as custodian of investments purchased with local investment funds. E. Money Market Mutual Funds. Investment in mutual funds is limited to SEC-registered, no-load money market mutual funds with a dollar-weighted average portfolio maturity of 120 days of less whose assets consist exclusively of obligations eligible for direct purchase by Texas local governments and whose investment objectives include seeking to maintain a stable net asset value of $1 per share. NOTE: Commercial Paper and Banker's Acceptances, although permissible under state law, have not been made a part of this policy and are not legal investments of the City of College Station. VI. ALLOCATION OF ASSETS: Diversification of investments as to investment type and term to maturity serve to reduce both market risk and interest rate uncertainty. Asset allocation shall be: MAXIMUM MINIMUM 1. U.S. Government Treasury Securities 90% 25% 2 . U.S. Government Agency Securities 70 (1) 0 3 . Repurchase Agreements 70 0 4 . Bank Certificates of Deposit 40 0 5. Liquidity Funds: Demand Deposit Accts 10 0 6. Public Funds Investment Pools 70 0 7. Money Market Mutual Funds 20 (2) 0 (1) U.S. Government Agency Securities are authorized investments under Texas State statutes and are a "moral" obligation of the treasury. They are not, however, full faith and credit instruments as are Treasury Bills and Notes. For that reason, they carry higher interest rates than like-maturity Treasury Bills and Notes. Agency securities, with a maturity longer than six months from date of purchase, are further restricted to a maximum of 30% of the total portfolio. In addition, securities of any individual agency with maturities longer than six months are restricted to a maximum of 10% of the total portfolio. (2) Excluding the investment of bond proceeds. VII. FtIGHEST YIELD REQUIREMENT: The City's funds shall be invested in instruments or accounts that yield the highest possible rate of return while providing the desired maturity schedule, level of liquidity, and necessary protection of principal as required by these policies and State law. VIII. BIDDING REQUIREMENTS: As prescribed by State Statutes, the City shall solicit bids prior to the purchase of any investment instrument. For each such purchase, a minimum of three phone bids will be received, with bid documentation maintained on file. It is the Investment Officer's responsibility to determine prudent maturity and liquidity, and to assess the potential for market gains or losses caused by fluctuating interest rates during the term of the investment. IX. POOLING OF ASSETS: To maximize the effective investment of assets, all funds needed for general obligations of the City should be pooled into one account for investment purposes. The income derived from this account will be distributed to the various funds based on their average balances on a periodic basis. X. STANDARD OF ETHICS: Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment programs, or which could impair their ability to make impartial investment decisions. Employees and Investment Officials shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the City of College Station, and shall further disclose any large personal financial or investment positions that could be related to the performance of the City's portfolio. Employees and Investment Officers shall subordinate their personal investment transactions to those of this jurisdiction, particularly with regard to the timing of purchases and sales. XI. REPORTING: As required by law, the Director of Finance shall submit annually to the City Council an investment report (Exhibit V) outlining the City's investment transactions for the preceding year and describing the investment position of the City as of the date of the report. Earnings on investments shall be compared to benchmark indicators to indicate relative portfolio performance. Quarterly reports, in addition to the required annual report, will be provided to the City Council, City Manager, and Investment Committee. XII. AUDITING: State and local laws require an annual audit of the financial records of the City. That audit will include a review of all investment activity for the year to review compliance with these investment procedures. Included in the audit review will also be a review of internal controls as pertains to investment of City funds and appropriate investment documentation. Annual audit procedures will also include verification of collateral held by the City for both bank deposits in excess of F.D.I.C. insurance and repurchase agreement transactions. XIII. INDEMNITY: The Investment Officer and Investment Committee shall be personally indemnified in the event of investment loss provided that investments are made in full compliance with these policies.