HomeMy WebLinkAboutRes 2023-08-1524 Revisions to Investment PolicyCITY OF ANNA, TEXAS
RESOLUTION NO. 2Q,23- 08 - 1 52L1
A RESOLUTION REVIEWING AND AMENDING THE INVESTMENT POLICY OF THE
CITY OF ANNA.
WHEREAS, the City of Anna, Texas ("the City") is committed to principles and
practices of open and fair government that honors the public trust; and
WHEREAS, the City of Anna, Texas City Council ("City Council") has determined that
it is in the interests of the citizens of Anna to adopt an Investment Policy that
establishes policies and procedures to govern the management and care of public
funds: and
WHEREAS, the Public Funds Investment Act ("the Act") requires annual review of the
City's Investment Policy; and
WHEREAS, the most recent annual review of the City's Investment Policy has
prompted an amendment to the existing policy attached hereto as Exhibit 1;
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
ANNA, TEXAS, THAT:
Section 1. Recitals Incorporated.
The above -referenced recitals are incorporated herein as if set forth in full for all
purposes.
Section 2. Investment Policy Reviewed
The City Council has reviewed the City's Investment Policy and investment strategies
and approves the amended Investment Policy attached hereto as Exhibit 1.
PASSED by the City Council of the City of Anna, Texas, on this the 22"d day of August,
2023.
City of Anna, Texas
Investment Policy
THE CITY OF
August 220ewber -, 20232
TABLE OF CONTENTS
I.
Policy..........................................................................................................................3
ILScope
.........................................................................................................................3
III.
Investment Objective and Strategy............................................................................4
A. Preservation and Safety of Principal.....................................................................4
B. Liquidity.................................................................................................................4
C. Public Trust...........................................................................................................4
D. Yield......................................................................................................................5
E. Strategy................................................................................................................5
IV.
Standards of Care......................................................................................................7
A. Prudence..............................................................................................................7
B. Ethics and Conflict of Interest.. ................................................
7
C. Delegation of Authority.........................................................................................8
D. Internal Control.....................................................................................................8
V.
Authorized Investments and Parameters...................................................................9
A. Authorized Investments........................................................................................9
B. Prohibited Investments.......................................................................................10
C. Investments with Required Ratings....................................................................10
D. Exemption for Existing Investments....................................................................10
VI.
Primary Depository and Broker/Dealers...................................................................10
A. Primary Depository.............................................................................................10
B. Authorized Broker/Dealers..................................................................................10
C. Competitive Environment...................................................................................11
D. Delivery versus Payment....................................................................................11
E. Investment Policy Certification............................................................................11
VII.
Safekeeping and Custody.......................................................................................11
A. Safekeeping and Custodial Agreements............................................................11
B. Collateral Policy..................................................................................................11
VIII.
Reporting.................................................................................................................12
A. Reporting Method...............................................................................................12
B. Compliance Audits..............................................................................................13
IX.
Investment Policy and Adoption...............................................................................13
2 1 P a g e
INVESTMENT POLICY
POLICY
The City will conform to all federal, state, and local statutes, rules, and regulations
governing the linvestment Ppolicy of the City of Anna (the "City"). It is the City's policy
to administer and invest its funds in a manner that will preserve the principal, maintain
liquidity, and optimize earnings while meeting the daily cash flow requirements efthe
of the City and the guidelines to be followed in achieving its objectives.
The City's policy is to hold investments to maturity; however, securities may be sold
in order to minimize the potential loss of principal and interest whose credit quality has
declined; or to meet unanticipated liquidity needs of the City.
The Ppolicy and strategy shall be reviewed by the Investment Committee and City
Council at least annually. Any modifications will be formally approved by the City
Council. The (investment Ppolicy, as approved, is in compliance with the provisions
of the Public Funds Investment Act of the Texas Government Code Chapter 2256 the
"PFIA" . The linvestment ?policy addresses the methods, procedures and practices
that must be exercised to ensure effective and judicious fiscal management of the
City's funds.
II. SCOPE
This policy applies to all financial assets and investment activities of all current funds
of the City end any new funds created in the future, unless specifically
exempt or excluded hereafter, will be administered in accordance with the objectives
and restrictions set forth in this Investment Policy. These funds are accounted for in
the City's Annual Comprehensive Ann, -al Report and includea General Fund,
Special Revenue Funds, Grant Funds, Debt Service Funds, Capital Project Funds,
Enterprise Funds, Trust Funds, and the City's component units.
This policy does not apply to the assets administered for the benefit of the City by
outside agencies under deferred compensation programs, retirement programs, or
defeased bonds held in trust escrow accounts.
Except for cash in certain restricted and special funds, the City-ef-ApAa will combine
cash balances from all funds in a pooled fund group to maximize investment earnings.
Investment income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles. In
addition, all the bond fund proceeds (to include capital projects, debt service and
reserve funds) will be managed by the governing debt ordinance and the provisions
of the Internal Revenue Code -ef18666 applicable to the issuance of tax-exempt
obligations and the investment of debt proceeds.
3 1 P a g e
III. INVESTMENT OBJECTIVE AND STRATEGY
The primary objectives of the City ef�rAnnc^is investment activities, listed in priority
order, shall be as follows:
A. Preservation and Safety of Principal
Preservation and safety of principal is the foremost objective of the City. Each
investment transaction shall seek first to ensure that capital losses are avoided,
whether they are from issuer defaults, erosion of market value, or other risks. The
objectives will be to mitigate credit and interest rate risk.
i. Credit Risk and Concentration of Credit Risk — The City will minimize credit risk,
which is the risk of loss due to the failure of the sesur+ty issuer or backer, and
concentration of credit risk, the risk of loss attributed to the magnitude of
investment in a single issuer, by:
• Limiting investments to the types listed in safest types of investments,
• Pre -qualifying the financial institutions, broker/dealers, intermediaries, and
advisers with which the City will do business, and
• Diversifying the investment portfolio so that potential losses on individual
securities will be minimized, as appropriate.
ii. Interest Rate Risk — The City will minimize interest rate risk, which is the risk
that the market value of securities in the portfolio will fall due to changes in
market interest rates, by:
• Limiting investments to the safest types of investments,
I'''mitiRg maximum weighted average maturity of the ' ecfmono portf8il6-t9
36d days,
• Structure the investment portfolio so that investments mature to meet cash
requirements for ongoing operations, thereby avoiding the need to liquidate
investments prior to maturity, and
• Diversify maturities and staggering purchase dates to minimize the impact
of market movements over time.
B. Liquidity
The City's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements that can be reasonably anticipated. This is
accomplished by structuring the portfolio so that securities investments mature
concurrent with cash needs to meet anticipated demands. Furthermore, since all
possible cash demand cannot be anticipated, a portion of the portfolio will be
invested in money market funds that eel, . table $1 nn NAV or local government
investment pools that offer same -day liquidity and seek a stable $1.0000 NAV for
short-term needs.
4 1 P a g e
C. Public Trust
All employees involved in the City's investment program shall seek to act
responsibly as custodians of the public trust. Investment Officers shall at all times
be cognizant of the standard of care and investment objectives and shall avoid any
transaction that might impair public confidence in the City's ability to govern
effectively.
D. Yield
The investment portfolio of the City shall be designed to attain a market rate of
return throughout budgetary and economic cycles taking into account risk
constraints and liquidity needs. Return on investment, while important, is of less
importance than safety and liquidity. The investment portfolio shall be designed
with the objective of regularly exceeding the average rate of return on a rolling six-
month U.S. Treasury Bill average yield.
Funds held for future capital projects will be invested in sesaraties investments that
can reasonably be expected to produce enough income to offset inflationary costs
increases. However, such funds will never be unduly exposed to market price risks
that will jeopardize that asset's availability to accomplish their stated goal or be
invested in a manner#eF inconsistent with applicable federal and state regulations.
Yields on debt proceeds that are Piet exempt from federal arbitrage regulations are
limited —subject to the arbitrage rebate regulationsI'meld of the debt ebliqati9R.
The City will seek to preserve principal and Fna o to imize
the yield of these funds in compliance with those regulations
all etheFSity (cads. However, it is understood that if the yield achieved by the City
is higher than the arbitrage yield, positive arbitrage '
positive aFbitfage-amounts shall be rebated to the federal government as required
by current regulations.
E. Strategy
The City maintains pooled investments which are an aggregation of the majority of
City funds including, but not limited to: tax receipts, enterprise funds, fine and fee
revenues, special revenues, grants, and non -bond capital project funds._- This
PoFtfe"e is ma nt;;inpd to meet AntiGipated daily Gash needs fer Gity eperatieRs and
ensuFe adequate investmAnt liquidity; lifnit Fnarket and n_.M_d_it Fisk through
2Rd- rpstrontann.,; sat for thag PGIOGY. All investments will be of high quality with Re
1. Operating Funds-
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• Suitability - Any investment eligible in the Investment Policy is suitable for
Operating Funds.
managing the weighted average days to maturity for the Operating Fund's
portfolio to less than 270 days and restricting the maximum allowable
maturity to two years, the price volatility of the overall portfolio will be
managed.
and may be utilized as a competitive yield alternative to fixed maturity
investments.
• Marketability - Securities with active and efficient secondary markets are
necessary in the event of an unanticipated cash flow requirement.
• Diversification - Investment maturities should be staggered throughout the
budget cycle to provide cash flow based on the anticipated operating needs
of the City. Market cycle risk will be reduced by diversifying the appropriate
maturity structure out through two years.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio restrictions is the desired objective. The yield of an
equally weighted, rolling six-month Treasury bill portfolio will be the
ii. Debt Service Funds —
• Suitability - Any investment eligible in the Investment Policy is suitable for
the Debt Service Funds.
• Safety of Principal - All investments shall be of high quality with no
perceived default risk. Market price fluctuations may occur. However, by
managing Debt Service Funds to not exceed the debt service payment
schedule the market risk of the overall portfolio will be minimized.
• Liquidity - Debt Service Funds have predictable payment schedules.
Therefore, investment maturities should not exceed the anticipated cash
flow requirements. Cash equivalent investments may provide a competitive
yield alternative for short-term fixed maturity investments.
• Marketability - Securities with active and efficient secondary markets are
not necessary as the event of an unanticipated cash flow requirement is not
probable.
6 1 P a g e
• Diversification - Market conditions influence the attractiveness of fully
extendinq maturity to the next "unfunded" payment date. Generally, if
investment rates are anticipated to decrease over time, the City is best
served by locking in most investments. If the interest rates are potentially
rising, then investing in shorter and larger amounts may provide an
advantage. At no time shall the debt service schedule be exceeded in an
attempt to bolster yield.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio restrictions is the desired objective. The yield of an
have as :ram -eras: • . e e srrr MOM
GR OR the Fequire
SeGUFitiGS PLIFGhased- shall not have A stated final rnatuF'
seFViGe dates will be .'RVenStP-d anreFding to the investment guideliRe
operatiRg funds.
Capital Proiect Funds. Special Purpose
maximum maturity to two years and by managing the Capital Project Funds
and Special Purpose Funds to balance the short term and long-term
anticipated cash flow requirements, the market risk of the portfolio will be
managed.
• Liquidity - Selecting investment maturities that provide greater cash flow
than the anticipated needs and maintaining appropriate cash -equivalent
balances will reduce the liquidity risk of unanticipated expenditures.
• Marketability - The uncertainly of Capital Project Funds and Special
Purpose Funds outflows requires securities with active and efficient
secondary markets.
• Diversification - Investment maturities should blend the short-term and long-
term cash flow needs to provide adequate liquidity, yield enhancement, and
stability.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio structures is the desired objective however this portfolio
maintains an investment strategy is comply with any applicable arbitrage or
yield restriction regulations. The ' ^^+.. ^^t ^h'^^*iVe Of ^ ^ital PFGjeG
4h e'er ^^4m^n4^ in highly liquid c r't'eG. The L^v 4n ^ ^fie^F6... Gtr-,4.,.,.. ^ f.. h.. RWAM Of .. eGt Reeds and .. RtAh .. RWNtieS tO the n r.rl Fu^r!c
7 1 P a g e
IV. STANDARDS OF CARE
A. Prudence
The standard of prudence to be used by the Investment Oefficers shall be the
"prudent person" rule. This rule states that "Investments shall be made with
judgement and care, under prevailing circumstances then wMiskrthat a
persons of prudence, discretion and intelligence exercise in the management of
the# person's own affairs, not for speculation, but for investment, considering the
probable safety of their capital ands weµas the probable income to be derived".
The determination of whether an linvestmenting Oefficer has exercised prudence
with respect to an investment decision shall be applied in the context of managing
an overall portfolio rather than a consideration as to the prudence of a single
transaction.
Investment Oefficers acting in accordance with written procedures and this
[investment Ppolicy and exercising due diligence shall be relieved of personal
responsibility for an individual sesur+ty's-investment's credit risk or market price
changes, provided deviations from expectations are reported in a timely fashion
and appropriate action is taken to control unfavorable developments.
B. Ethics and Conflict of Interest
Each Investment Officer shall act as custodian of the public trust avoiding any
transaction which might involve a conflict of interest, the appearance of a conflict
of interest, or any activity which might otherwise discourage public confidence. An
Investment Officer shall refrain from personal business activity that could conflict
with proper execution of the investment program, or which could impair his/her
ability to make impartial investment decisions.
They shall further disclose any personal financial/investment positions that could
be related to the performance of the investment portfolio and shall refrain from
undertaking personal investment transactions with any individual with whom
business is conducted on behalf of the City-e€,A . Additionally, an Investment
Officer shall file with the Texas Ethics Commission and the City Council a
statement disclosing any material interest they hold in financial institutions with
which they conduct business witk-on behalf of the City or any relationship with an
entity seeking to sell investments to the City or any relationship within the second
degree by affinity or consanguinity to an individual seeking to sell investments to
the City as determined under Chapter 573 of the Texas Government Code.
C. Delegation of Authority
8 1 P a g e
i. Investment Officers and Training - The Assistant City Manager, Finance
Director, and Assistant Finance Director shall be the Investment Officers. The
Investment Officers shall oversee and approve any deposit, withdrawal,
investment, transfer, documentation, and otherwise manage City funds
according to this Policy. No person may engage in an investment transaction
or the management of funds except as provided under the terms of the
Investment Policy, the StaterneRt 4iinvestment sStrategiesy, and other
operational procedures established by the Finance Director.
As stipulated in the PFIA Chapter 2256 nnQ in order to ensure qualified and
capable investment management, within twelve (12) months after taking office
or assuming duties, each Investment Officer shall attend training relating to
his/her investment responsibilities and accumulate not less than ten (10) hours
of instruction. On an ongoing basis, all Investment Officers shall receive not
less than eight (8) hours of instruction in each subsequent two-year period that
begins on the first day of the City's fiscal year and consists of the two
consecutive fiscal years after that date. Training will be conducted by an
independent source approved by the Investment Committee and must include
education in investment controls, security risks, strategy risks, market risks,
diversification of investment portfolio, and compliance with the Public Funds
Investment Act.
ii. Investment Committee - The Investment Committee will consist of the
designated Investment Officers and -shall monitor the investment activities;
assist in the development of investment policies, strategies and procedures;
and annually review and approve the City's broker/dealers and independent
training sources.
D. Internal Control
The Finance Director will establish and maintain a system of internal controls to
ensure that the assets are protected from loss, theft, or misuse. The internal
control structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that the cost
of a control should not exceed the benefits likely to be derived and the valuation of
costs and benefits requires estimates and judgement by management.
are not ..
• Avoidance 6entFGI-of collusion
• Separation of duties
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• Separating transaction authority from accounting and record -keeping
• Custodial safekeeping
• Clear delegation of authority
• Documentation of transactions
• Dual authorization of fed wire transfers
• Compliance with investment policies
• Accurate and timely investment reports
• Documentation of investment bidding
V. AUTHORIZED INVESTMENTS AND PARAMETERS
A. Authorized Investments
Funds of the City may be invested in the following instruments described below
consistent with Chapte• 2256 of the State of Texas (]....e.RrnPRt r de knO n as
thA "o, hlmA Fm,,...+c 1..YAE;tme..t nG the PFIA) and as authorized by this P Jlicy.
Investments not specifically listed below will not be permitted by this Ppolicy.
1. Obligations of the United States government or its agencies and
instrumentalities, including the Federal Home Loan Banks.
2. Other obligations, the principal and interest of which are unconditionally
guaranteed or insured by, or backed by the full faith and credit of, this State or
the United States or their respective agencies and instrumentalities, including
obligations that are fully guaranteed or insured by the Federal Deposit
Insurance Corporation or by the explicit full faith and credit of the United States.
3. Direct obligations of this State or its agencies and instrumentalities.
4. Obligations of Texasstates, agencies, counties, cities, and other political
subdivisions of any state rated as to investment quality by at least one
nationally recognized rating firm not less than A or its equivalent.
5. Certificates of Deposit, and other forms of deposit, issued in compliance with
the PFIA, and insured by the Federal Deposit Insurance Corporation (FDIC) or
the National Credit Union Share Insurance Fund (NCUSIF) or their respective
successorst p FDIC, or when applicable, collateralized in accordance with this
Policy and the Public Funds Collateral Act that are issued by a depository
institution that has its main office or a branch office in the state of Texas.
6. Repurchase agreements, with the execution of a Master Repurchase
Agreement, placed and secured in compliance with the PFIA and, collateralized
with a minimum market value of 102% of the dollar value of the transaction plus
accumulated accrued interest.
7. SEC -registered, AAAm, or its equivalent, (as rated by Fitch, Moody's or
Standard & Poor's), no-load money market mutual funds. The investment
objective of the fund must be to maintain a stable dollar net asset value of
$1.0000. The City may not invest funds under its control in an amount that
exceeds 10% of total assets of any individual money market mutual fund. A
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priorfund prospectus shall be reviewed for compliance with this Policy
depositing monies.
thp
._
9.8_Local government investment pools which meet the requirements of the
PFIAChapter 2256.016 ..r rhp D hl'n nds In„estm Rt A.+ are rated no lower
than AAA or an equivalent rating by at least one nationally recognized rating
service, seek to maintain a $1.00 net asset value, and are authorized by
resolution or ordinance by the City Council.
B. Prohibited Investments
The Investment Officers shall not knowingly permit City funds to be invested with
any of the following investment instruments that are strictly prohibited:
1. Options trading or futures contracts
2. Hedging or purchasing any security that is not authorized by Texas State law
3. Any investment in asset backed or mortgage -backed securities
4. Any other restricted instruments or limitations that involve outright speculation.
C. Investments with Required Ratings
If an investment is downgraded below minimum required ratings, the Csity will take
all prudent measures to liquidate the investment.
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rr_r..rrrnr. ......... rt[enu:ZerrsSrrnnarr. Eltr_ezTr.�-es mx9rsaereLy:emsrarrsf �.
Any investment currently held that does not meet the guidelines of this Ppolicy, but
was authorized at the time of purchase, shall be exempted from the requirements
of this Ppolicy and Investment Oefficers shall not be required to liquidate the
investment. At mMaturity or liquidation, such monies shall be reinvested only as
provided by this Ppolicy.
VI. SELECTION OF -RANKS PRIMARY DEPOSITORY AND BROKER/DEALERS
A. Primary Depository
In compliance with Chapter 105, aAt least once every five years, a qualified
depository shall be selected through the City's banking services procurement
process, which shall include a formal request for proposal and be consistent with
state law. In evaluating sekwAiag-{Depositories on the basis of the "most
advantageous" for the City criteria, the service cost, hours of operation, yield on
deposits, credit worthiness, location of depository, ability to meet service
requirements and banking relationship of the institutions shall be considered.
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00
MON
B. Authorized Brokers/Dealers
Broker/& -a dealers are approved by the Investment Committee. At least once
annually, the Investment Committee will review, revise, and adopt a list of
authorized gaaGf+ed-banks-broker/s; and -dealers that are a-Ahnr;,nrl to engage in
security 'nwnTtransactions with the City. Those firms that become qualified
maV be required to provide information regarding creditworthiness, experience and
reputation. Authorized firms may include primary dealers or regional dealers that
qualify under Securities & Exchange Commission Rule 15C3-1 (Uniform Net
Capital Rule).
C. Competitive EnvironmentBW
' # + Peals, Whinh .,r hnn., n deemed +n n made at ailing mnrLet rates All
r
+h E;BGUF't' Will be n +it'hbid with at least three n+i+'v ffnro n
mm�nvn. ree n n n
bids. The City requires a competitive environment for all individual security
purchases and sales, financial institution time deposit and transaction accounts,
and money market mutual fund and local government investment pool selections.
The Finance Director shall develop and maintain procedures for ensuring a
competitive environment in the investment of the City's funds.
D. Delivery Versus Payment
All nit security transactions, eXGept Innnl government in,,PstmeRt .,nnlo
and mutual fufds-, must be settled on a delivery versus payment basis. That is,
funds shall not be released or paid until verification has been made that the
^nll� atera;rsecurity was received by the Citv's safekeeping agentTr��or
sustadian.
E. Investment Policy Certification
All local government investment pools and discretionary investment management
firms must sign a certification acknowledging that the organization has received
131Page
and reviewed the City's Investment Policy, and that reasonable procedures and
controls have been implemented to preclude investment transactions that are not
authorized by the City's Policy.
VII. CUSTODIAL CREDIT RISK MANAGEMENT SAFEKEEPING AND CUSTODY
A. Safekeeping and Custodial Agreementsy
state-Iaw—.The City shall contract with a e hank er hanks for the safekeeping agent
for the safekeepinq of securities either owned by the City as part of its investment
portfoli
Securities owned by the City shall be held in the City's account as evidenced by
safekeeping receipts of the institution holding the securities. Safekeeping
institutions shall be independent from the parties involved in the investment
transaction.
Collateral to secure financial institution deposits will be held by a third -party
custodian designated by the City, the Federal Reserve Bank, branch of the Federal
Reserve Bank, or a Federal Home Loan Bank and pledged to the City as evidenced
by pledge receipts of the institution with which the collateral is deposited. The
original GOPY of the safekeeping F8GeiPt shall be deliveredto the G
B. Collateralizatien Policy
The City has established a collateral policy in compliance with Public Funds
Collateral Act. Deposits secured with irrevocable letters of credit shall have 100%
of principal plus anticipated interest of the deposit, less any amount insured by the
FDIC or NCUSIF. Deposits
aweeMeRtG shall he secured by pledged marketable securities shall have
sellateral with_a market value equal to greater than Ar net 'Arc; than 102% of the
deposits plus accrued interest less an amount insured by the FDIC or NCUSIF-and
Evidence of the pledged collateral
shall be maintained by the Finance Director or designee and held by an
independent party with whom the City has a current custodial agreement with.
financial institution deposits shall be insured or
collateralized in compliance with applicable State law. The City reserves the right,
in its sole discretion, to accept or reiect any form of insurance or co]lateralization
pledged towards financial institution deeesAQBLv deposits. Acceptable forms of
collateral are limited to those authorized in the Public Funds Collateral Act.
Any substitution of collateral must meet the requirements of the Public Funds
Collateral Act, Public Funds Investment Act and this Investment Policy.
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Substitution of collateral must be approved by at least one Investment Officer of
the City. Written notice must be provided to the bank or safekeeping agent prior to
any security release.
Collateral shall be reviewed on a regular basis to ensure the market value of the
securities pledged equals or exceeds financial institution deposits.
-Financial institutions serving as City dDepositories will be required to sign a
d epository aAgreement with the City. The— aAgreement shall address any
concerns in relation to acceptable collateral. levels of collateral. substitution and
addition of collateral. and reporting and monitoring of collateral. The collateralized
deposit portion of the- aAgreement shall define the City's rights to the collateral in
case of default, bankruptcy. or closing and shall establish a perfected security
interest in compliance with Federal and State regulations. including.
• The- aAgreement must be in writing,
• The— aAgreement must be executed by the dDepository and the City
contemporaneously with the acquisition of the asset.
• The aAgreement must be approved by the Board of Directors or Designated
Committee of the d9epository and a copy of the meeting minutes must be
delivered to the City, and
The aAgreement must be part of the dDepositorv's "official record" continuously
since its execution.
Ana s. hst? t'o of collateral Must meet the rPq6lmFeFRBRtS of the Rihlie Funds
Gellateral Ant hl'c C nrls Investment Ant and this iRvestmeRt nelica Substitution
of collateral must he a ierl by at Iea64 n e Investment QfFiner of the City.
Written not'r must he ny;dp- l 4o the hank n safekeen'n agent n r to aRy
cen rr'ta rv- ele
ocom�c�ov&e-.
Gn"a-taral s,hall be reviewed en a monthly basis to ensure the market value Gf the
cen irities pledger) equals OF ee.Js the relater) time and deposit a ants o
The fai4v of Anna shall a ent enly the felleviino a cella4nml
F_DIG Inc ,r
Y
r g r'n al and intemst ofyihich a n.t iiien-,IL. nteed O ORSUFed by,
haGked by the full faith and credit of the I Initpd States
Doroot dph4 obligations of an agenGy nsb� �menMl't.� of the United States
any state rate aG tg in eStment quaky by a atiG au., r ed in er.+ment rat'n
151Page
0nUTIC
A. Reporting Method
The Investment Officers shall prepare and sign an investment report each at least
quarterly in compliance with the PFIA. This report will be prepared in a manner
that will allow the City to ascertain whether investment activities during the
reporting period have conformed to this Policy. The report will be provided to the
City Council
Oeuflsilwill include the followin
• A listing of individual investments held at the end of the reporting period,
• Unrealized gains or losses resulting from appreciation or depreciation, by listing
the beginning and ending book and market value of investments for the period,
• Additions and changes to the market value during the period,
• Average weighted yield to maturity of the portfolio,
• Listing of investment by maturity date,
• Fully accrued interest for the reporting period,
• The percentage of the total portfolio that each type of investment represents,
and
• Statement of compliance of the City's investment portfolio with State law and
the Investment Policy (and incorporated Strategy) approved by the City
Council.
In coniunction with the auarterly investment report, the Investment Officers will
B. Compliance Audits
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In conjunction with the annual audit, the external auditor will perform a formal
review of the quarterly reports with the results reported to the City Council.
Also, in conjunction with the annual audit, the City will require the audit firm to
conduct a compliance audit of the management controls on investments and
adherence to investment policies.
IX. INVESTMENT POLICY AND ADOPTION
The linvestment Ppolicy and investment strategies shall be adopted by Resolution of
the City Council. The Resolution so adopted shall record any changes made to either
the Ppolicy or the strategies. The City Council shall review the Investment Ppolicy not
less than annually. The I'n es+men+ Fnnl'r straten'e shall he rP,,iP1A1Pd at least
annually by the lnvA-F-#.FRRRt G-0-FnFAMP-P—
. l�SSt.
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City of Anna, Texas
Investment Policy
THE CITY OF
August 22, 2023
TABLE OF CONTENTS
I. Policy........................................................................................................................3
II. Scope....................................................................................................................... 3
III. Investment Objective and Strategy........................................................................... 4
A. Preservation and Safety of Principal................................................................... 4
B. Liquidity...............................................................................................................4
C. Public Trust......................................................................................................... 4
D. Yield.................................................................................................................... 5
E. Strategy...............................................................................................................5
IV. Standards of Care.................................................................................................... 7
A. Prudence.............................................................................................................7
B. Ethics and Conflict of Interest.............................................................................. 7
C. Delegation of Authority........................................................................................ 8
D. Internal Control.................................................................................:.................. 8
V. Authorized Investments and Parameters.................................................................. 9
A. Authorized Investments.......................................................................................9
B. Prohibited Investments......................................................................................10
C. Investments with Required Ratings...................................................................10
D. Exemption for Existing Investments..................................................................10
VI. Primary Depository and Broker/Dealers.................................................................10
A. Primary Depository ............................................................................................10
B. Authorized Broker/Dealers................................................................................
10
C. Competitive Environment.................................................................................11
D. Delivery versus Payment...................................................................................11
E. Investment Policy Certification..........................................................................11
VII. Safekeeping and Custody.....................................................................................11
A. Safekeeping and Custodial Agreements...........................................................11
B. Collateral Policy................................................................................................11
VIII. Reporting...............................................................................................................12
A. Reporting Method..............................................................................................12
B. Compliance Audits............................................................................................13
IX. Investment Policy and Adoption.............................................................................13
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INVESTMENT POLICY
The City will conform to all federal, state, and local statutes, rules, and regulations
governing the Investment Policy of the City of Anna (the "City"). It is the City's policy
to administer and invest its funds in a manner that will preserve the principal, maintain
liquidity, and optimize earnings while meeting the daily cash flow requirements of the
City and the guidelines to be followed in achieving its objectives.
The City's policy is to hold investments to maturity; however, securities may be sold
in order to minimize the potential loss of principal and interest whose credit quality has
declined; or to meet unanticipated liquidity needs of the City.
The Policy and strategy shall be reviewed by the Investment Committee and City
Council at least annually. Any modifications will be formally approved by the City
Council. The Investment Policy, as approved, is in compliance with the provisions of
the Public Funds Investment Act of the Texas Government Code Chapter 2256 (the
"PFIA" ). The Investment Policy addresses the methods, procedures and practices that
must be exercised to ensure effective and judicious fiscal management of the City's
funds.
This policy applies to all financial assets and investment activities of all current funds
of the City and any new funds created in the future, unless specifically exempt or
excluded hereafter, will be administered in accordance with the objectives and
restrictions set forth in this Investment Policy. These funds are accounted for in the
City's Annual Comprehensive Financial Report and include General Fund, Special
Revenue Funds, Grant Funds, Debt Service Funds, Capital Project Funds, Enterprise
Funds, Trust Funds, and the City's component units.
This policy does not apply to the assets administered for the benefit of the City by
outside agencies under deferred compensation programs, retirement programs, or
defeased bonds held in trust escrow accounts.
Except for cash in certain restricted and special funds, the City will combine cash
balances from all funds in a pooled fund group to maximize investment earnings.
Investment income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles. In
addition, all the bond fund proceeds (to include capital projects, debt service and
reserve funds) will be managed by the governing debt ordinance and the provisions
of the Internal Revenue Code applicable to the issuance of tax-exempt obligations
and the investment of debt proceeds.
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III. INVESTMENT OBJECTIVE AND STRATEGY
The primary objectives of the City's investment activities, listed in priority order, shall
be as follows:
A. Preservation and Safety of Principal
Preservation and safety of principal is the foremost objective of the City. Each
investment transaction shall seek first to ensure that capital losses are avoided,
whether they are from issuer defaults, erosion of market value, or other risks. The
objectives will be to mitigate credit and interest rate risk.
i. Credit Risk and Concentration of Credit Risk — The City will minimize credit risk,
which is the risk of loss due to the failure of the issuer or backer, and
concentration of credit risk, the risk of loss attributed to the magnitude of
investment in a single issuer, by:
• Limiting investments to the types listed in safest types of investments,
• Pre -qualifying the financial institutions, broker/dealers, intermediaries, and
advisers with which the City will do business, and
• Diversifying the investment portfolio so that potential losses on individual
securities will be minimized, as appropriate.
ii. Interest Rate Risk — The City will minimize interest rate risk, which is the risk
that the market value of securities in the portfolio will fall due to changes in
market interest rates, by:
• Limiting investments to the safest types of investments,
• Structure the investment portfolio so that investments mature to meet cash
requirements for ongoing operations, thereby avoiding the need to liquidate
investments prior to maturity, and
• Diversify maturities and staggering purchase dates to minimize the impact
of market movements over time.
B. Liquidity
The City's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements that can be reasonably anticipated. This is
accomplished by structuring the portfolio so that investments mature concurrent
with cash needs to meet anticipated demands. Furthermore, since all possible
cash demand cannot be anticipated, a portion of the portfolio will be invested in
money market funds or local government investment pools that offer same -day
liquidity and seek a stable $1.0000 NAV for short-term needs.
C. Public Trust
All employees involved in the City's investment program shall seek to act
responsibly as custodians of the public trust. Investment Officers shall at all times
be cognizant of the standard of care and investment objectives and shall avoid any
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transaction that might impair public confidence in the City's ability to govern
effectively.
D. Yield
The investment portfolio of the City shall be designed to attain a market rate of
return throughout budgetary and economic cycles taking into account risk
constraints and liquidity needs. Return on investment, while important, is of less
importance than safety and liquidity. The investment portfolio shall be designed
with the objective of regularly exceeding the average rate of return on a rolling six-
month U.S. Treasury Bill average yield.
Funds held for future capital projects will be invested in investments that can
reasonably be expected to produce enough income to offset inflationary costs
increases. However, such funds will never be unduly exposed to market price risks
that will jeopardize that asset's availability to accomplish their stated goal or be
invested in a manner inconsistent with applicable federal and state regulations.
Yields on debt proceeds that are exempt from federal arbitrage regulations are
subject to the arbitrage rebate regulations. The City will seek to preserve principal
and optimize the yield of these funds in compliance with those regulations.
However, it is understood that if the yield achieved by the City is higher than the
arbitrage yield, positive arbitrage amounts shall be rebated to the federal
government as required by current regulations.
E. Strategy
The City maintains pooled investments which are an aggregation of the majority of
City funds including, but not limited to: tax receipts, enterprise funds, fine and fee
revenues, special revenues, grants, and non -bond capital project funds.
i. Operating Funds
• Suitability - Any investment eligible in the Investment Policy is suitable for
Operating Funds.
• Safety of Principal - All investments shall be of high quality with no
perceived default risk. Market price fluctuations may occur. However, by
managing the weighted average days to maturity for the Operating Fund's
portfolio to less than 270 days and restricting the maximum allowable
maturity to two years, the price volatility of the overall portfolio will be
managed.
• Liquidity - Operating Funds require the greatest short-term liquidity of any
of the Fund types. Cash equivalent investments will provide daily liquidity
and may be utilized as a competitive yield alternative to fixed maturity
investments.
• Marketability - Securities with active and efficient secondary markets are
necessary in the event of an unanticipated cash flow requirement.
• Diversification - Investment maturities should be staggered throughout the
budget cycle to provide cash flow based on the anticipated operating needs
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of the City. Market cycle risk will be reduced by diversifying the appropriate
maturity structure out through two years.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio restrictions is the desired objective. The yield of an
equally weighted, rolling six-month Treasury bill portfolio will be the
minimum yield objective.
ii. Debt Service Funds —
• Suitability - Any investment eligible in the Investment Policy is suitable for
the Debt Service Funds.
• Safety of Principal - All investments shall be of high quality with no
perceived default risk. Market price fluctuations may occur. However, by
managing Debt Service Funds to not exceed the debt service payment
schedule the market risk of the overall portfolio will be minimized.
• Liquidity - Debt Service Funds have predictable payment schedules.
Therefore, investment maturities should not exceed the anticipated cash
flow requirements. Cash equivalent investments may provide a competitive
yield alternative for short-term fixed maturity investments.
• Marketability - Securities with active and efficient secondary markets are
not necessary as the event of an unanticipated cash flow requirement is not
probable.
• Diversification - Market conditions influence the attractiveness of fully
extending maturity to the next "unfunded" payment date. Generally, if
investment rates are anticipated to decrease over time, the City is best
served by locking in most investments. If the interest rates are potentially
rising, then investing in shorter and larger amounts may provide an
advantage. At no time shall the debt service schedule be exceeded in an
attempt to bolster yield.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio restrictions is the desired objective. The yield of an
equally weighted, rolling three-month Treasury bill portfolio shall be the
minimum yield objective.
Capital Project Funds and Special Purpose Funds
• Suitability - Any investment eligible in the Investment Policy is suitable for
the Capital Project Funds and Special Purpose Funds.
• Safety of Principal - All investments will be of high quality with no perceived
default risk. Market fluctuations may occur. However, by restricting the
maximum maturity to two years and by managing the Capital Project Funds
and Special Purpose Funds to balance the short term and long-term
anticipated cash flow requirements, the market risk of the portfolio will be
managed.
• Liquidity - Selecting investment maturities that provide greater cash flow
than the anticipated needs and maintaining appropriate cash -equivalent
balances will reduce the liquidity risk of unanticipated expenditures.
• Marketability - The uncertainly of Capital Project Funds and Special
Purpose Funds outflows requires securities with active and efficient
secondary markets.
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• Diversification - Investment maturities should blend the short-term and long-
term cash flow needs to provide adequate liquidity, yield enhancement, and
stability.
• Yield - Attaining a competitive market yield for comparable investment -
types and portfolio structures is the desired objective, however this portfolio
maintains an investment strategy is comply with any applicable arbitrage or
yield restriction regulations.
IV. STANDARDS OF CARE
A. Prudence
The standard of prudence to be used by the Investment Officers shall be the
"prudent person" rule. This rule states that "Investments shall be made with
judgement and care, under prevailing circumstances, that a person of prudence,
discretion and intelligence exercise in the management of the person's own affairs,
not for speculation, but for investment, considering the probable safety of their
capital and the probable income to be derived". The determination of whether an
Investment Officer has exercised prudence with respect to an investment decision
shall be applied in the context of managing an overall portfolio rather than a
consideration as to the prudence of a single transaction.
Investment Officers acting in accordance with written procedures and this
Investment Policy and exercising due diligence shall be relieved of personal
responsibility for an individual investment's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion and
appropriate action is taken to control unfavorable developments.
B. Ethics and Conflict of Interest
Each Investment Officer shall act as custodian of the public trust avoiding any
transaction which might involve a conflict of interest, the appearance of a conflict
of interest, or any activity which might otherwise discourage public confidence. An
Investment Officer shall refrain from personal business activity that could conflict
with proper execution of the investment program, or which could impair his/her
ability to make impartial investment decisions.
They shall further disclose any personal financial/investment positions that could
be related to the performance of the investment portfolio and shall refrain from
undertaking personal investment transactions with any individual with whom
business is conducted on behalf of the City. Additionally, an Investment Officer
shall file with the Texas Ethics Commission and the City Council a statement
disclosing any material interest they hold in financial institutions with which they
conduct business on behalf of the City or any relationship with an entity seeking to
sell investments to the City or any relationship within the second degree by affinity
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or consanguinity to an individual seeking to sell investments to the City as
determined under Chapter 573 of the Texas Government Code.
C. Delegation of Authority
i. Investment Officers and Traininq - The Assistant City Manager, Finance
Director, and Assistant Finance Director shall be the Investment Officers. The
Investment Officers shall oversee and approve any deposit, withdrawal,
investment, transfer, documentation, and otherwise manage City funds
according to this Policy. No person may engage in an investment transaction
or the management of funds except as provided under the terms of the
Investment Policy, the investment strategies, and other operational procedures
established by the Finance Director.
As stipulated in the PFIA, in order to ensure qualified and capable investment
management, within twelve (12) months after taking office or assuming duties,
each Investment Officer shall attend training relating to his/her investment
responsibilities and accumulate not less than ten (10) hours of instruction. On
an ongoing basis, all Investment Officers shall receive not less than eight (8)
hours of instruction in each subsequent two-year period that begins on the first
day of the City's fiscal year and consists of the two consecutive fiscal years
after that date. Training will be conducted by an independent source approved
by the Investment Committee and must include education in investment
controls, security risks, strategy risks, market risks, diversification of investment
portfolio, and compliance with the Public Funds Investment Act.
ii. Investment Committee - The Investment Committee will consist of the
designated Investment Officers and shall monitor the investment activities;
assist in the development of investment policies, strategies and procedures;
and annually review and approve the City's broker/dealers and independent
training sources.
D. Internal Control
The Finance Director will establish and maintain a system of internal controls to
ensure that the assets are protected from loss, theft, or misuse. The internal
control structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that the cost
of a control should not exceed the benefits likely to be derived and the valuation of
costs and benefits requires estimates and judgement by management.
The internal controls deemed most important include, but are not limited to:
• Avoidance of collusion
• Separation of duties
• Separating transaction authority from accounting and record -keeping
• Custodial safekeeping
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• Clear delegation of authority
• Documentation of transactions
• Dual authorization of fed wire transfers
• Compliance with investment policies
• Accurate and timely investment reports
• Documentation of investment bidding
V. AUTHORIZED INVESTMENTS AND PARAMETERS
A. Authorized Investments
Funds of the City may be invested in the following instruments described below
consistent with the PFIA and as authorized by this Policy. Investments not
specifically listed below will not be permitted by this Policy.
1. Obligations of the United States government or its agencies and
instrumentalities, including the Federal Home Loan Banks.
2. Other obligations, the principal and interest of which are unconditionally
guaranteed or insured by, or backed by the full faith and credit of, this State or
the United States or their respective agencies and instrumentalities, including
obligations that are fully guaranteed or insured by the Federal Deposit
Insurance Corporation or by the explicit full faith and credit of the United States.
3. Direct obligations of this State or its agencies and instrumentalities.
4. Obligations of Texas, agencies, counties, cities, and other political subdivisions
of any state rated as to investment quality by at least one nationally recognized
rating firm not less than A or its equivalent.
5. Certificates of Deposit, and other forms of deposit, issued in compliance with
the PFIA, and insured by the Federal Deposit Insurance Corporation (FDIC) or
the National Credit Union Share Insurance Fund (NCUSIF) or their respective
successors, or when applicable, collateralized in accordance with this Policy
and the Public Funds Collateral Act that are issued by a depository institution
that has its main office or a branch office in the state of Texas.
6. Repurchase agreements, with the execution of a Repurchase Agreement,
placed and secured in compliance with the PFIA and, collateralized with a
minimum market value of 102% of the dollar value of the transaction plus
accumulated accrued interest.
7. SEC -registered, AAAm, or its equivalent, (as rated by Fitch, Moody's or
Standard & Poor's), no-load money market mutual funds. The investment
objective of the fund must be to maintain a stable dollar net asset value of
$1.0000. The City may not invest funds under its control in an amount that
exceeds 10% of total assets of any individual money market mutual fund. A
fund prospectus shall be reviewed for compliance with this Policy prior to
depositing monies.
8. Local government investment pools which meet the requirements of the PFIA,
are rated no lower than AAA or an equivalent rating by at least one nationally
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recognized rating service, seek to maintain a $1.00 net asset value, and are
authorized by resolution or ordinance by the City Council.
B. Prohibited Investments
The Investment Officers shall not knowingly permit City funds to be invested with
any of the following investment instruments that are strictly prohibited:
1. Options trading or futures contracts
2. Hedging or purchasing any security that is not authorized by Texas State law
3. Any investment in asset backed or mortgage -backed securities
4. Any other restricted instruments or limitations that involve outright speculation.
C. Investments with Required Ratings
If an investment is downgraded below minimum required ratings, the City will take
all prudent measures to liquidate the investment.
D. Exemption for Existing Investments
Any investment currently held that does not meet the guidelines of this Policy, but
was authorized at the time of purchase, shall be exempted from the requirements
of this Policy and Investment Officers shall not be required to liquidate the
investment. At maturity or liquidation, such monies shall be reinvested only as
provided by this Policy.
VI. PRIMARY DEPOSITORY AND BROKER/DEALERS
A. Primary Depository
In compliance with Chapter 105, at least once every five years, a qualified
depository shall be selected through the City's banking services procurement
process, which shall include a formal request for proposal and be consistent with
state law. In evaluating depositories on the basis of the "most advantageous" for
the City criteria, the service cost, hours of operation, yield on deposits, credit
worthiness, location of depository, ability to meet service requirements and
banking relationship of the institutions shall be considered.
B. Authorized Broker/Dealers
Broker/dealers are approved by the Investment Committee. At least once
annually, the Investment Committee will review, revise, and adopt a list of
authorized broker/dealers to engage in security transactions with the City. Those
firms that become qualified may be required to provide information regarding
creditworthiness, experience and reputation. Authorized firms may include
primary dealers or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3-1 (Uniform Net Capital Rule).
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C. Competitive Environment
The City requires a competitive environment for all individual security purchases
and sales, financial institution time deposit and transaction accounts, and money
market mutual fund, and local government investment pool selections. The
Finance Director shall develop and maintain procedures for ensuring a competitive
environment in the investment of the City's funds.
D. Delivery Versus Payment
All security transactions must be settled on a delivery versus payment basis. That
is, funds shall not be released or paid until verification has been made that the
security was received by the City's safekeeping agent.
E. Investment Policy Certification
All local government investment pools and discretionary investment management
firms must sign a certification acknowledging that the organization has received
and reviewed the City's Investment Policy, and that reasonable procedures and
controls have been implemented to preclude investment transactions that are not
authorized by the City's Policy.
VII. SAFEKEEPING AND CUSTODY
A. Safekeeping and Custodial Agreements
The City shall contract with a safekeeping agent for the safekeeping of securities
owned by the City as part of its investment portfolio. Securities owned by the City
shall be held in the City's account as evidenced by safekeeping receipts of the
institution holding the securities. Safekeeping institutions shall be independent
from the parties involved in the investment transaction.
Collateral to secure financial institution deposits will be held by a third -party
custodian designated by the City, the Federal Reserve Bank, branch of the Federal
Reserve Bank, or a Federal Home Loan Bank and pledged to the City as evidenced
by pledge receipts of the institution with which the collateral is deposited.
B. Collateral Policy
The City has established a collateral policy in compliance with Public Funds
Collateral Act. Deposits secured with irrevocable letters of credit shall have 100%
of principal plus anticipated interest of the deposit, less any amount insured by the
FDIC or NCUSIF. Deposits secured by pledged marketable securities shall have
a market value equal to greater than 102% of the deposits plus accrued interest
less an amount insured by the FDIC or NCUSIF. Evidence of the pledged collateral
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shall be maintained by the Finance Director or designee and held by an
independent party with whom the City has a current custodial agreement with.
All financial institution deposits shall be insured or collateralized in compliance with
applicable State law. The City reserves the right, in its sole discretion, to accept
or reject any form of insurance or collateral ization pledged towards financial
institution deposits. Acceptable forms of collateral are limited to those authorized
in the Public Funds Collateral Act.
Any substitution of collateral must meet the requirements of the Public Funds
Collateral Act, Public Funds Investment Act and this Investment Policy.
Substitution of collateral must be approved by at least one Investment Officer of
the City. Written notice must be provided to the bank or safekeeping agent prior to
any security release.
Collateral shall be reviewed on a regular basis to ensure the market value of the
securities pledged equals or exceeds financial institution deposits.
Financial institutions serving as City depositories will be required to sign a
depository agreement with the City. The agreement shall address any concerns in
relation to acceptable collateral, levels of collateral, substitution and addition of
collateral, and reporting and. monitoring of collateral. The collateralized deposit
portion of the agreement shall define the City's rights to the collateral in case of
default, bankruptcy, or closing and shall establish a perfected security interest in
compliance with Federal and State regulations, including:
• The agreement must be in writing,
• The agreement must be executed by the depository and the City
contemporaneously with the acquisition of the asset,
• The agreement must be approved by the Board of Directors or Designated
Committee of the depository and a copy of the meeting minutes must be
delivered to the City, and
• The agreement must be part of the depository's "official record" continuously
since its execution.
VIII. REPORTING
A. Reporting Method
The Investment Officers shall prepare and sign an investment report each quarter
in compliance with the PFIA. This report will be prepared in a manner that will allow
the City to ascertain whether investment activities during the reporting period have
conformed to this Policy. The report will be provided to the City Council and will
include the following:
• A listing of individual investments held at the end of the reporting period,
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• Unrealized gains or losses resulting from appreciation or depreciation, by listing
the beginning and ending book and market value of investments for the period,
• Additions and changes to the market value during the period,
• Average weighted yield to maturity of the portfolio,
• Listing of investment by maturity date,
• Fully accrued interest for the reporting period,
• The percentage of the total portfolio that each type of investment represents,
and
• Statement of compliance of the City's investment portfolio with State law and
the Investment Policy (and incorporated Strategy) approved by the City
Council.
In conjunction with the quarterly investment report, the Investment Officers will
verify from reliable sources market value of all securities and the current credit
rating for each investment that has a PFIA-required minimum rating.
B. Compliance Audits
In conjunction with the annual audit, the external auditor will perform a formal
review of the quarterly reports with the results reported to the City Council.
Also, in conjunction with the annual audit, the City will require the audit firm to
conduct a compliance audit of the management controls on investments and
adherence to investment policies.
IX. INVESTMENT POLICY AND ADOPTION
The Investment Policy and investment strategies shall be adopted by Resolution of
the City Council. The Resolution so adopted shall record any changes made to either
the Policy or the strategies. The City Council shall review the Investment Policy not
less than annually.
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