HomeMy WebLinkAboutResolution - 5616 - Investment Advisory Agreement-Patterson & Associates-Advise & Assist Investments - 08_28_1997Resolution No.5616
Item #45
August 28, 1997
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the Mayor of the City of Lubbock BE and is hereby authorized and
directed to execute for and on behalf of the City of Lubbock an Investment
Advisory Agreement, attached herewith, by and between the City of Lubbock and
Patterson & Associates, and any associated documents, which Agreement shall be
spread upon the minutes of the Council and as spread upon the minutes of this
Council shall constitute and be a part of this Resolution as if fully copied herein in
detail.
Passed by the City Council this 28th day of August
1997.
ATTEST:
Kay ie Darnell, City Secretary
APPROVED AS TO CONTENT
Betsy Bucy, Finance Ma ager
APPROVED AS TO FORM:
Dc(nald G. Vandiver, Fi
City Attorney
DGV.gs1ccdocs1P&Assoc.res
July 29, 1997
Resolution No.5616
Item #45
August 28, 1997
INVESTMENT ADVISORY AGREEMENT
BETWEEN
PATTERSON & ASSOCIATES and
The CITY OF LUBBOCK, TEXAS
This Investment Advisory Agreement dated as of the day of , 1997 (the
"Agreement") is made and entered into by and between Patterson Capital Management, L.P.,
&Wa Patterson & Associates ("P&A"), a registered investment advisor and funds management
Texas limited partnership and the City of Lubbock, Texas (the "Client").
PREAMBLE
WHEREAS, the Client has determined to select and appoint P&A to act as its funds
non -discretionary manager for funds and securities to advise and assist in the investment of
monies and securities and to perform the services described herein,
NOW THEREFORE, for and in consideration of the mutual promises, covenants, and
agreements herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree with each other as
follows:
ARTICLE I. Definitions
"Authorized Investments" shall mean those investments authorized and defined in the
Clients investment Policy attached hereto as Exhibit A.
"Authorized Representative(s) of the Client" shall mean the duly authorized officers,
members of the Board of Directors or their delegated representatives, empowered to execute
instructions and take other necessary actions under this Agreement on behalf of the Client as
evidenced by Resolution, a certified copy of which is on file with P&A. (Exhibit D)
"Authorized Representative(s) of P&A" shall mean any employee of P&A who is
designated in writing by P&A as an authorized representative for purposes of this Agreement.
(Exhibit D)
"Letter of Instructions" shall mean a written authorization and direction to an
Authorized Representative of P&A signed by an Authorized Representative of the Client,
ARTICLE II. Creation of Portfolio and Account(s)
Section 2.01. Creation of a Seuarate and Distinct Portfolio. P&A, on behalf of the
Client hereby creates and establishes a separate and distinct portfolio(s) (the "Portfolio") for
reporting purposes.
ARTICLE III. Operation of the Portfolio and Accounts
Section 3.01. Deoository Services. The Client's Portfolio and securities owned by the
Portfolio will be maintained in the Client's name and in the Client's designated depository. P&A
shall conduct all security transactions after gaining prior trade approval from the Client. P&A
will provide dual clearing instructions to the Client and Custodian, and guide the trade through
the clearing process.
ARTICLE IV. Investments and Duties
Section 4.01. Duties. P&A hereby agrees to provide full time non -discretionary
investment advisory services and portfolio management services to the Client to include:
-review of investment management procedures and documentation for recommendations,
-assistance in developing and implementing investment strategies to enhance
performance,
-review and recommend changes to the Client's investment policy,
-assist in establishing guidelines for financial institutions,
-propose internal controls for entire investment function,
-monitor the creditworthiness of the Client's financial institutions,
-work with staff on investment transactions and availability of funds,
-monitor collateral arrangements,
-review and verify repurchase agreement documentation,
-perform broker/dealer due diligence,
-provide cash and investment training on cash, treasury and investments,
-provide technical and fundamental market research,
-provide monthly and quarterly reporting in accordance with GAAP, GASB and the
Client's requirements,
provide executive reporting on market conditions and economy as it applies to the
Client's portfolio,
-review and verify internal and external reporting,
-assist Client in developing cash flow models,
-attend required meetings with staff and the Investment Review Committee, and
-provide other mutually agreed upon procedures and services.
P&A hereby agrees to provide information and advise on the Portfolio with judgment and care,
under circumstances then prevailing, which persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as probable income to be derived.
Section 4.02. Earnings and Losses from Investments. The Client and P&A agree that
all fiords in the Portfolio shall be invested only in Authorized Investments. All earnings and
profits from the investment of funds in any Account shall be credited to and deposited in such
Account. All losses resulting from the investment of fiords in any Account shall be charged to
such Account.
Section 4.03. Liability. P&A, or any P&A employees shall not be held liable for any act
or omission to act on behalf of herself, her agents, employees or other persons except for
negligence or malfeasance, or violation of applicable law. Common law and the federal
securities laws impose liabilities under certain circumstances on persons who act in good faith,
and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which
the Client may have under common law or any federal securities laws
Section 4.04. Portfolio Designation Client has the full discretion to designate the
amount of funds to be considered under this agreement.
ARTICLE V. Expenses and Reports
Section 5.01. Fee and Expenses. The Client agrees to pay to P&A on a quarterly basis
an amount sufficient to reimburse P&A for costs of performing the duties contemplated under
this Agreement in accordance with the Fee Schedule, attached hereto and made a part hereof as
Exhibit B. P&A shall advise the Client from time to time, in writing of the amount of such costs.
This itemized invoice shall set forth the services. Payment on the charges shall be made within
ten (10) business days after receipt of invoice.
Section 5.02. RRe oats. The Client shall define in concert with P&A all reporting needs
for information needed. P&A shall submit all reports to the Client of its transactions promptly
after the end of each month.
Section 5.03. Records. P&A shall keep a book of records in which complete and correct
entries shall be made of all transactions in accordance with generally accepted accounting
principles. Such records shall be available for inspection at all reasonable hours of the business
day and under reasonable conditions by the Client.
ARTICLE VI. Miscellaneous
Section 6.01. Notices. Any notices, Letters of Instruction, requests or demands required
or permitted to be given hereunder shall be given in writing and shall be deemed duly given
when mailed by registered or certified mail, postage pre -paid, addressed or teiefaxed as follows:
To the Client:
City of Lubbock
P.O. Box 2000
Lubbock, Texas 79457
Phone:
Fax:
To P&A: Patterson & Associates
301 Congress Avenue
Suite 570
Austin, Texas 78701
Telephone: (512) 320-5042
Telefax: (512) 320-5041
Section 6.02. Severability. If any provision of this Agreement shall be held or deemed
to be or in fact shall be illegal, inoperative, or unenforceable, the same shall not affect any other
provision or provisions herein contained or render the same invalid, inoperative, or
unenforceable to any extent whatsoever.
Section 6.03. Limitation of Rights. With the exception of the rights herein expressly
conferred, nothing in or to be implied from this Agreement is intended or shall be construed to
give any person other than the parties hereto any legal or equitable right, remedy or claim under
or in respect to this Agreement or any of the covenants, conditions and provisions herein
contained; this Agreement and all of the covenants, conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties hereto and herein
provided.
The Client further agrees that P&A's responsibilities hereunder are limited to the
management of the Portfolio and Accounts as herein described and the providing of reports and
information herein required; P&A shall not be liable for any losses from investments made and
transfers made in accordance with the procedures set forth in this Agreement.
Section 6.04. Execution of Counteraarts. This Agreement may be simultaneously
executed in several separate counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
Section 6.05. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and is performable in County, Texas.
Section 6.06. Captions. The captions or headings in this Agreement are for convenience
only and in no way define, limit, or describe the scope or intent of any provisions, articles, or
sections of this Agreement.
Section 6.07. Amendment. The Client and P&A may supplement or amend this
Agreement only if evidenced in a writing signed by both parties.
Section 6.08. Termination. This Agreement may be terminated by either party hereto,
with or without cause, by tendering ninety (90) days prior written notice in the manner set forth
in Section 6.01 hereof. In addition, the Client may terminate this Agreement within five (5)
business days of the date hereof, with or without cause and without penalty, by notifying P&A in
the manner set forth in Section 6.01 hereof of its decision to terminate the Agreement.
Section 6.09. Term. Unless terminated in accordance with Section 6.08 hereof, this
Agreement shall be automatically renewed on each anniversary date. However, after the second
renewal, the fee schedule provided by Exhibit B shall be revised.
Section 6.10. Assignment. This Agreement shall not be assignable by either party
hereto, by operation of law or otherwise, without the prior written consent of the other party
hereto. Any assignment in violation of this Section 6.10 shall result in the automatic termination
of this Agreement.
Section 6.11. Ownership Change. P&A shall notify the Client in writing of any
change in its partnership ownership within a reasonable time after such change.
IN WITLESS WHEREOF the parties hereto have cause this Agreement to be executed
in multiple counterparts as of the date first set forth above.
Approved as to content:
By: 44-u+ 4LA�
Betsy Bucy, Finance Manager
Date:
Approd as to form:
Patterson Capital Management, L.P. a/k/a
PATTERSON & ASSOCIATES
By: Patterson & Associates, Inc. General Partner
By: By:
nald G. Vandiver, v - inda T. Patterson, President
First Assistant City Attorney Patterson & Associates
Date: Date:
EXHIBIT A
CLIENT'S INVESTMENT POLICY
The Client's investment policy is made part of this Investment Advisory Agreement in order to
assure that all investment decisions conform to the policy and parameters established by the
Client.
CITY OF LUBBOCK, TEXAS
INVESTMENT POLICY AND STRATEGY
The City Treasurer of the City of Lubbock, Texas, is charged with the responsibility to prudently and properly
manage any and all funds of the City. These funds must be fully collateralized and appropriately authorized. The
following investment policy addresses the methods, procedures, and practices which must be exercised to ensure
sound fiscal management.
SCOPE
This policy shall apply to the investment of all financial assets and all funds of the City of Lubbock (hereinafter
referred to as the "City") over which it exercises financial control. In order to effectively make use of the City's
cash resources, all moneys, with the exception of certain bond proceeds which must be segregated and accounted
for separately, shall be pooled into one investment account. The investment income derived from this account shall
be distributed to the various City funds in accordance with the existing City policy.
OBJECTIVES
The City's principal investment objectives are:
• Compliance with all Federal, State, and other legal requirements.
• Preservation of capital and the protection of investment principal.
• Maintenance of sufficient liquidity to meet anticipated disbursements and cash flows.
• Diversification to avoid incurring unreasonable risks regarding securities owned.
• Attainment of a market rate of return equal to or higher than the performance measure established
by the City Treasurer.
DELEGATION OF AUTHORITY
The ultimate responsibility and authority for investment transactions involving the City resides with the City
Treasurer. The City Treasurer has delegated the investment function to the Assistant City Treasurer. The Assistant
City Treasurer is charged with executing the day-to-day investment functions for the City following the guidance
and recommendations of the City's Investment Review Committee,
INVESTMENT REVIEW COMMITTEE
The City will establish an Investment Review Committee to assist in monitoring the performance and structure of
the City's investments. The Investment Review Committee shall be composed of the City Treasurer, the Assistant
City Treasurer, and three other persons specifically designated by the City Manager. The Investment Review
Committee shall be responsible for the investment strategy decisions, activities, and the establishment of written
procedures for the investment operations consistent with this policy. Monitoring of the portfolio shall be performed
by the Investment Review Committee at least monthly and verified by the City's independent auditor at least
annually. The Investment Review Committee shall discuss investment reports, investment strategies, and
investment and banking procedures.
City of Lubbock, Texas, Investment Policy
Page 2
INVESTMENT ADVISORS
The City Treasurer may in his/her discretion appoint one or more investment advisors, registered with the
Securities and Exchange Commission under the Investment Advisors Act of 1940, to assist in the management of a
portion of the City's assets. To be eligible for consideration, an investment advisor shall demonstrate to the City
Treasurer and to the Assistant City Treasurer knowledge of cash management as well as familiarity and experience
in managing public funds. Selection of any investment advisor shall be based upon their expertise in public cash
management. An appointed investment advisor may be granted limited investment discretion within the guidelines
of this Investment Policy with regard to the City's assets placed under its management.
PRUDENCE
The standard of prudence to be used for managing the City's assets is the "prudent investor" rule, which states,
"Investments shall be made with judgment and care --under circumstances then prevailing --which persons of
prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for
investment, considering the probable safety of their capital as well as the probable income to be derived."
In determining whether an investment officer has exercised prudence with respect to an investment decision, the
investment of all funds over which the officer has control and whether the City's written investment policy was
adhered to shall be considered. The City will perform a compliance audit of management controls on investments
and adherence to investment policies annually.
Investment officers shall attend at least one training session within 12 months after assuming duties. This
training must include education in investment controls, security risks, strategy risks, market risks, and compliance
with the Public Funds Investment Act as amended.
Investment officers acting in accordance with written procedures and exercising due diligence, shall not be held
personally responsible for a specific security's credit risk or market price changes, provided deviations from
expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
ELIGIBLE INVESTMENTS
The following are eligible investments as authorized by V.T.C.A., Government Code, Section 2256 (the Public
Funds Investment Act) as amended:
• Obligations of the United States or its agencies and instrumentalities
• Direct obligations of this state or its agencies and instrumentalities
• Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States,
the underlying security for which is guaranteed by an agency or instrumentality of the United States
• 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
• Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to
investment quality by a nationally recognized investment rating firm not less than A or its equivalent
• Certificates of deposit issued by a state or national bank domiciled in this state or a savings and loan association
domiciled in this state and guaranteed by the Federal Deposit Insurance Corporation or its successor, secured by
obligations authorized by this subchapter, or secured in any other manner and amount provided by law for
deposits of the investing entity
• Repurchase agreements with a defined termination date; and secured by obligations authorized by V.T.C.A.,
Government Code, Section 2256.009(a)(1); and pledged to the City, held in the City's name, and deposited at
the time the investment is made with the City or with a third party selected and approved by the City; placed
through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution
doing business in this state. The term of any reverse repurchase agreements may not exceed 90 days after the
date the reverse security repurchase agreement is delivered. Money received by the City under the terms of a
reverse security repurchase agreement shall be used to acquire addtional authorized investments, but the term of
City of Lubbock, Texas, Investment Policy
Page 3
the authorized investments acquired must mature not later than the expiration date stated in the reverse security
repurchase agreement.
• Bankers' acceptances with a stated maturity of 270 days or fewer from the date of its issuance; and liquidated in
full at maturity; and eligible for collateral for borrowing from a Federal Reserve Bank; and accepted by a bank
organized and existing under the laws of the United States or any state, if the short-term obligations of the bank,
or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A- I or P- I or
an equivalent rating by at least one nationally recognized credit rating agency
• Commercial paper with a stated maturity of 270 days or fewer from the date of its issuance, and rated not less
than A-1 or P- I or an equivalent rating by at least two nationally recognized credit rating agencies or one
nationally recognized credit rating agency and 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
• No-load money market mutual funds regulated by the Securities and Exchange Commission, and with a dollar -
weighted average stated maturity of 90 days or fewer, and whose investment objectives include the
maintenance of a stable net asset value of $1 for each share
• No-load mutual funds registered with the Securities and Exchange Commission, with an average weighted
maturity of less than two years, invested exclusively in obligations approved by this subchapter, continuously
rated as to investment quality by at lest one nationally recognized investment rating firm of not less than AAA
or its equivalent, and conforms to the requirements of V.T.C.A., Government Code, Section 2256.016(b) and
(c)
• Investment pools authorized by the City's governing body which invests in eligible securities as authorized by
this subchapter
The following investments are prohibited by V.T.C.A., Government Code, Section 2256:
• Obligations whose payment represents the coupon payments on the outstanding principal balance of the
underlying mortgage -backed security collateral and pays no principal, i.e. interest -only collateralized mortgage
obligations (10's).
• Obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed
security collateral and bears no interest, i.e. principal -only collateralized mortgage obligations (PO's).
• Collateralized mortgage obligations that have a stated final maturity date of greater than 10 years.
• Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to
the changes in a market index, i.e. CMO inverse floaters.
• Investment in the aggregate of more than 80 percent of the entity's monthly average fund balance, excluding
bond proceeds and reserves and other funds held for debt service, in money market mutal funds or mutual
funds; investment in the aggregate of more than 15 percent of its monthly average fund balance, excluding
bond proceeds and reserves and other funds held for debt service, in mutual funds; investment of any portion of
bond proceeds, reserves, and funds held for debt service, in mutual funds; and investment of its funds or funds
under its control, including bond proceeds and reserves and other funds held for debt service, in any one mutual
fund in an amount that exceeds 10 percent of the total assets of the mutual fund
In addition to the ineligible securities designated above, the City prohibits any investment in derivatives as
defined in a later section, money market mutual funds, and mutual funds as well as securities lending and reverse
repurchase agreements,
The City further limits and clarifies V.T.C.A., Government Code, Section 2256 as follows:
Fully collateralized repurchase agreements shall in addition to the wording of the act be limited as follows:
repurchase agreements shall be collateralized at 102% of the money value of the transaction at the time of purchase
and in no case should the collateral value be allowed to go below 101%, the maturity of the collateral security shall
be no longer than ten years, and the market value of the collateral shall be priced at least weekly
City of Lubbock, Texas, Investment Policy
Page 4
I Q11FA *111 O"1 122,11 i71l"/ no ,;I I Wto". N COW
It is the intent of the City to diversify the investment instruments within the portfolio to avoid incurring
unreasonable risks inherent in overinvesting in specific instruments, individual financial institutions or maturities.
The asset allocation in the portfolio should, however, be flexible depending upon the outlook for the economy and
the securities markets. When conditions warrant, the guidelines below may be exceeded by approval of the
Investment Review Committee.
The City may invest to the following limits as a percentage of its total portfolio:
100% in United States Treasury Obligations
50% in Certificates of Deposit
40% in Federal Instrumentalities or Agencies
30% in Repurchase Agreements collateralized by Federal Instrumentalities, or
100% in Repurchase Agreements collateralized by United States Treasury Obligations
Investments in a qualifying Investment Pool (in accordance with Resolution dated May 28, 1992) should be
limited to no more than 5% of the total assets in the pool. No more than 25% of the City's portfolio may be
included in any one pool.
INVESTMENT STRATEGY
Investment strategies for operating funds, or the consolidated fund, have as their primary objective to assure that
anticipated cash flows are matched with adequate investment liquidity. Investment maturities shall be matched
against liabilities including debt service requirements.
The secondary objective of the consolidated fund is to create a portfolio structure which will experience minimal
volatility during economic cycles. This will be accomplished by purchasing high quality, short- to medium -term
securities which will complement each other in a laddered maturity structure.
The City shall maintain a dollar -weighted average maturity of 2 years or less based on the stated final maturity
dates of each security in its consolidated fund. The City shall at all times maintain at least 10% of its consolidated
investment portfolio in instruments maturing in 120 days or less.
Investment strategies for debt service reserve funds shall have as the primary objective the ability to generate a
dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility.
Except as may be required by the bond ordinance specific to an individual issue, securities should be of high quality
with short- to intermediate -term maturities.
Volatility shall be further controlled through the purchase of securities carrying the highest coupon available
within the desired maturity and quality range using a laddered maturity structure. Such securities will tend to hold
their value during economic cycles.
Investment strategies for bond funds will have as their primary objective to assure that anticipated cash flows are
matched with adequate investment liquidity. These portfolios should include at least 10% in highly liquid securities
to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held shall not
exceed the estimated project completion date.
The maximum maturity of any individual security the City may invest in shall be 5 years.
DERIVATIVES
A derivative shall be defined by the City as any security whose cash flow characteristics (coupon, redemption
amount, or stated maturity) depend upon one or more indices or that have embedded futures or options. They can
be linked to different market sectors or interest rate scenarios including: 1)increasing or decreasing interest rates,
2)U.S. Treasury yield curve, 3)foreign yield curves, 4)relationship between two different yield curves, 5)foreign
exchange rates, b)equity price movements, and 7)commodity price movements.
City of Lubbock, Texas, Investment Policy
Page 5
Following is a description of the more common derivative products:
• Collateralized Mortgage Obligations (CMOs). CMOs are collateralized by mortgages or mortgage -backed
securities in which the principal and interest payments from the collateral are allocated to the various classes of
bonds, or tranches, based on prepayment rates. When prepayment rates decrease, the maturity of a CMO
extends and vice versa. Additionally, some tranches receive interest only (IOs), while others receive principal
only (POs).
• Step-up and/or Callable Bonds. Step-up securities initially pay the investor an above -market yield for a short
non -call period and then, if not called, "step up" to a higher coupon rate. A multistep bond has a series of fixed
and successively higher coupons over its life. At each call date, if the bond is not called, the coupon rate
increases.
• Index Amortizing Notes (IANs). LANs repay principal according to a predetermined amortization schedule that
is linked to the level of a specific index or a specified prepayment rate. As market interest rates increase or
prepayment rates decrease, the maturity of an IAN extends, similar to that of a collateralized mortgage
obligation.
• Dual Index Notes. These bonds have coupon rates that are determined by the difference between two market
indices. These bonds often have a fixed coupon rate for a brief period, followed by a Ionger period of variable
rates.
• De -leveraged Bonds. These bonds pay investors according to a formula that is based upon a fraction of the
increase or decrease in a specified index.
• Range Bonds. Range bonds (or accrual bonds) pay the investor an above -market coupon rate as long as the
reference rate is between levels established at issue. For each day that the reference rate is outside this range,
the bonds earn no interest.
• Inverse Floaters. These bonds have coupons that increase as rates decline and decrease as rates rise.
The Assistant City Treasurer will monitor the development of new financial instruments and may present to the
Investment Review Committee amendments to the above definition.
OTHER INVESTMENT GUIDELINES
All investment transactions must be executed with broker/dealers and financial institutions,that have been
authorized by the City, and each transaction must be competitively transacted with at least three authorized
broker/dealers or financial institutions. In addition, before any repurchase agreements shall be executed with an
authorized broker/dealer or financial institution, a Master Repurchase Agreement must be signed between the City
and that broker/dealer or financial institution. The Assistant City Treasurer shall maintain a file of all executed
Master Repurchase Agreements.
The purchase and sale of all securities shall be on a delivery versus payment basis.
The City seeks an active, rather than passive, management of its portfolio assets. Assets may be sold at a loss
only if the City Treasurer or the Investment Advisor feels that the sale of the security is in the best long-term interest
of the City. Supporting documentations shall be maintained by the Assistant City Treasurer for ail sales of
securities in which there is a book loss or where a security is sold in order to simultaneously purchase another
security.
SELECTION OF FINANCIAL INSTITUTIONS AND BROKER/DEALERS
The City shall maintain a list of authorized broker/dealers and financial institutions which are approved by the
Investment Review Committee for investment purposes, and it shall be the policy of the City to purchase securities
only from those authorized institutions and firms. To be eligible for authorization, each broker/dealer or financial
institution must complete and submit to the City a Broker/Dealer Questionnaire which includes the firm's most
recent financial statements. In addition, each broker/dealer must provide a written instrument certifying that they
City of Lubbock, Texas, Investment Policy
Page 6
have received and thoroughly reviewed the City's investment policy and have implemented reasonable procedures
and controls in an effort to preclude imprudent investment activities.
Banks and Savings and Loan Associations must be members of the FDIC or FSLIC in order to be eligible for
authorization. All other non -primary broker/dealers must submit financial reports documenting good standing as
National Association of Security Dealers members and they must meet capital adequacy standards. The Assistant
City Treasurer shall maintain a file of all Broker/Dealer Questionnaires. Broker/dealers and other financial
institutions will be selected on the basis of their expertise in cash management and their ability to provide service to
the City's account.
Depositories shall be selected through the city's banking services procurement process, which shall include a
formal request for proposals. In selecting depositories, the credit -worthiness of institutions shall be considered, and
the City Treasurer shall conduct a comprehensive review of prospective depositories' credit characteristics and
financial history.
The supervising officer shall agree to exercise due diligence in monitoring the activities of other officers and
subordinate staff members engaged in transactions with the City. Employees of any firm or financial institution
offering securities or investments to the City of Lubbock shall be trained in the precautions appropriate to public -
sector investments and shall be required to familiarize themselves with the City's investment objectives, policies and
constraints. In the advent of a material adverse change in the financial condition of the firm or financial institution,
the City will be informed immediately by telephone and in writing.
SELECTION OF BANKS AND SAVINGS AND LOANS
The City shall maintain a list of authorized banks and savings and loans which are approved to provide banking
services or from whom the City may purchase Certificates of Deposit. The Investment Review Committee shall
monitor the financial condition of approved financial institutions. Those banks and savings and loans which in the
judgment of the Investment Review Committee no longer offer adequate safety to the City will be removed from the
approved list. Institutions in this section are required to pledge collateral or be insured by the FDIC or FSLIC or
their successor pursuant to V.T.C.A., Government Code, Section 2256.
SAFEKEEPING
Investment securities purchased by the City will be delivered by either book entry or physical delivery, and held
in third party safekeeping by a Federal Reserve member financial institution designated as the City's depository.
The trust department of the institution designated as depository will be considered to be a third party for the
purposes of safekeeping securities.
Securities purchased by the City that are wirable via the Federal Reserve System shall be held by the City's
depository bank in their Customer Account (02). Collateral pledged to the City securing Certificates of Deposit
shall be held in joint custody at the Federal Reserve Bank (07). It is the intent of the City that all securities be
perfected in the name of the City.
REPORTING
Investment reports shall be prepared, on a monthly, quarterly, and annual basis and be submitted to the City
Treasurer in a timely manner. A written record shall be maintained of all bids and offerings for securities
transactions in order to insure that the City receives competitive pricing.
The Investment Review Committee will meet monthly to review the investment activity. The monthly reports
should include listings of all the investments held by the City, the current market valuation of the investments,
transactions summaries, and performance results.
Within a month after the end of each quarter, the Assistant City Treasurer shall prepare and submit to the City
Treasurer, City Manager, and City Council a written report of the quarter's investment activity. This report must be
signed by each official member of the Investment Review Committee. This report shall describe in detail the
investment position of the City, disclose the market value and book value of each fund group as well as each
City of Lubbock, Texas, Investment Policy
Page 7
separate investment, and state the maturity date of each security. It must also express the compliance of the
portfolio to the investment strategy contained in the City's investment policy and the Public Funds Investment Act
as amended.
CHANGES IN STATUTES, ORDINANCES OR PROCEDURE
This policy is designed to operate within the restrictions set forth in applicable State of Texas and Federal laws
and statutes, but it does not permit all activity allowed by those laws. Changes to state or federal laws which restrict
a permitted activity under this policy shall be incorporated into this policy immediately upon becoming law.
Changes to state or federal laws which do not further restrict this policy shall be reviewed by the Investment Review
Committee and recommended to the City Council when appropriate.
PERFORMANCE REVIEW
The investment Review Committee shall meet at least monthly to review the portfolio's adherence to appropriate
risk levels and to compare the portfolio's total return to the established investment objectives and goals.
The City Treasurer or his appointee shall periodically establish a benchmark yield for the City's investments
which shall be equal to the average yield on the United States Treasury security which most closely corresponds to
the portfolio's actual weighted average maturity. When comparing the performance of the City's portfolio, all fees
and expenses involved with managing the portfolio should be included in the computation of the portfolio's rate of
return.
ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain from personal business activity that
could conflict with proper execution of the investment program, or which could impair their ability to make
impartial investment decisions. Employees and investment officials shall disclose to the City Treasurer any material
financial interests in financial institutions that conduct business within this City, and they shall further disclose any
large personal financiallinvestment positions that could be related to the performance of this City's portfolio.
Employees and officers shall subordinate their personal investment transactions to those of the City particularly with
regard to the timing of purchases and sales. ,
INTERNAL CONTROLS
The City Treasurer shall establish a system of internal controls, which shall be documented in writing. The
internal controls shall be reviewed by the investment committee and with the independent auditor on an annual
basis. The controls shall be designed to prevent losses of public funds arising from fraud, employee error,
misrepresentation by third parties, unanticipated market changes, or imprudent actions by employees and officers of
the City.
POLICY REVISIONS
This Investment Policy will be reviewed not less than annually by the City Treasurer and may be amended as
conditions warrant by the City Council.
EXHIBIT B
FEESCHEDULE
The non -discretionary investment advisory services described under the terms of this Agreement
are being provided in accordance with the following fee schedule.
Services are provided for a fee of :
$25,000.00 for the first year of the contract, and
$18,000.00 for each of the following two years of the contract.
Fees are calculated by P&A on services rendered in the preceding quarter and the invoice
provided to the Client by the fifth (5) business day of the succeeding quarter.
Fees are due and payable within ten (10) business days after receipt of invoice.
EXHIBIT C
Securities and Exchange Commission ADV FORM, PART II
This form is being provided the Client in accordance with SEC Regulations 204-3 for Registered
Investment Advisors. This disclosure document must be provided the Client not less than 48
hours prior to entering any investment advisory contract.
W.i-. l i 3 i if
AUTHORIZED REPRESENTATIVES
Authorized Representatives of the Client
Name
Title
Phone
Fax
Dottie Lewis
Assistant Treasurer
(806)767-2196
(806)749-7211
_Timmy Rodriguez
Chief Accountant
(806)767-2160
(806)749-7211
Betsy Bucy
Anna MngquPdA
Finance Manager
Diractor of Fin Spry
(806)767-2161
(9n60767-7007
(806)749-7211
(R06)749-7911
Authorized Representatives of P&A
Name Title
Deborah A. Baptista Vice -President
Scott D. McIntyre Vice -President
Linda T. Patterson President
Phone
512-320-5042
512-320-5042
512-320-5042
Fax
512-320-5041
512-320-5041
512-320-5041