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HomeMy WebLinkAboutResolution - 5867 - Approved & Adopted Investment Policy & Investment Strategy - 05_28_1998Resolution No. 5867 Item No. 19 May 28, 1998 RESOLUTION WHEREAS, the City Council of the City of Lubbock adopted an investment policy in Resolution #4933 dated August 25, 1995, which has been reviewed by staff on an annual basis; and WHEREAS, the City Council of the City of Lubbock adopted a revised investment policy in Resolution #5728 dated December 18, 1997, to reflect changes to comply with changes to the Public Funds Investment Act (Section 2256 of the Texas Local Government Code); and WHEREAS, the City Council has reviewed and approved the City of Lubbock Texas Investment Policy and Investment Strategy and desires to make amendments that adjust current practices and strategies and clarify current provisions, while remaining in compliance with the Public Funds Investment Act (Section 2256 of the Texas Local Government Code); NOW THEREFORE: IT IS HEREBY RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the City of Lubbock investment policy and investment strategy, as reviewed and amended in the attached document entitled "City of Lubbock, Texas Investment Policy and Investment Strategy" which is hereby incorporated in this Resolution as if fully set forth, BE approved and adopted for the City of Lubbock, Texas and shall be included in the minutes of the Council. Passed by the City Council this 28th day of May 1998. WINDY SITTO MAYOR 'A ST: , .;Kayt " arnell, City Secretary APPROVED AS TO CONTENT: es��G Anna Mosqueda, Ma#9ing Director of Financial ServicLIrs APPROVED AS TO FORM: Linda Chamales Supervising Attorney Office Practice Resolution No. 5867 Item No. 19 May 28, 1998 CITY OF LUBBOCK, TEXAS INVESTMENT POLICY AND STRATEGY The City Director of Financial Services or Designee 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 ("Bond Funds'), shall be pooled into one investment account ("Consolidated Funds'). The investment income derived from this account shall be distributed to the various City funds in accordance with the existing City Policy. These City funds include: General Fund Special Revenue Funds Debt Service Funds Capital Projects Funds Enterprise Funds Internal Service Fund Trust & Agency Funds The Bond Funds Portfolio includes bond proceeds recorded in Capital Project Funds and Enterprise Funds, while the Consolidated Portfolio includes all other resources in Capital Project Funds and Enterprise Funds as well as all other funds listed. OBJECTIVES The City's principal investment objectives are: • Compliance with all Federal, State, and other legal requirements (includes but Is not limited to Chapter 2256 "Public Funds Investment Act, as amended and Chapter 2257 "Public Funds Collateral Act, as amended, of Vernon's Texas Civil Statutes) • 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 Director of Financial Services or Designee. DELEGATION OF AUTHORITY The ultimate responsibility and authority for investment transactions involving the City resides with the City Director of Financial Services or Designee. The City Director of Financial Services or Designee 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. City of Lubbock, Texas, Investment Policy Page 2 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 Director of Financial Services or Designee, 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 no less than quarterly 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. INVESTMENT ADVISORS The City Director of Financial Services or Designee 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 Director of Financial Services or Designee 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 ie person" 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." inves#nent pelley was adhered to shall be reensid The City will perform a compliance audit of management controls on investments and adherence to investment policies annually. In accordance with Section 2256 Public Funds Investment Act, as amended, the Finance Manager, Managing Director of Financial Services, and the Assistant Treasurer shall attend an investment training session no less often than once every two fiscal years commencing September 1, 1997 and shall receive not less than 10 hours of instruction relating to investment responsibilities. The investment training session shall be provided by an independent source approved by the Investment Review Committee. itegy Asks, mar4iet r;sks 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 for City of Lubbock and ail are es 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 b f the United 7c Stmes, the tmder «'t„ f „1 ieh nt„ed b stt u ♦ tit. f tl. Mini ed Stmes .J ::'.b �.... »...J .... ............ b.:». »....�..» v� ».. a".be .vj v�iia uuxvr�sna T�vr-cr:c� City of Lubbock, Texas, Investment Policy Page 3 • 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 terns of a reverse security repurchase agreement shall be used to acquire addtional authorized investments, but the term of the authorized investments acquired must mature not later than the expiration date stated in the reverse security repurchase agreement. . • 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-1 or P-1 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-1 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 • Ne lead mutual funds Fegister-ed*,4_ t-he See-or-ities and E*ehaage GaffHnissiea, with '-a'�`erageeighted matur-ity of less dian two yeaB, mvested exelusively in obligations approved by this 9 behapier-, eeatinaeu* fated as te iavestmea4 quality by at lest ene natiefially r-eeapized investment rating Efifffn ..f net less than AAA A .- its _el..,iy le..t_ and eea mis to the of [/ T ! A Geye..«,„e„t Code & ct . n 2256.016(b) and [P! • Investment pools authorized by the City's governing body and as defined by Public Funds Investment Act 2256, 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 (IO'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 City of Lubbock, Texas, Investment Policy Page 4 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 INVESTMENT DIVERSIFICATION 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 —4094 65% in Federal Instrumentalities or Agencies 30% in Repurchase Agreements collateralized by Federal Instrumentalities, or 100% in Repurchase Agreements collateralized by United States Treasury Obligations 20% in Commercial Paper (no more than 10% in anyone Issuer) 20% in Banker's Acceptances Investment pools must be continuously rated no lower than AAA, with a weighted average maturity of <90 day& The pool must have an advisory board A thorough investigation of the pool Is required prior to investing, and on a continual basis, as due diligence, and shall include but is not limited to, the following topics: A description of eligible investment securities, and a written statement of investment policy and objectives. A description of interest calculations, method of distribution, and treatment of gains and losses. A description of the method used to safeguard securities (including the settlement processes), and the frequency and method by which securities are priced The frequency of audit of the program. A description of eligible participants along with allowable frequency and size of deposits and withdrawals. A schedule for receiving statements and portfolio listings. The policy under which reserves, retained earnings, etc. may be utilized by the pool. A fee schedule, and when and how it is assessed. Information related to the fund's eligibilityfor accepting bond proceeds. 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. Ne fn a than 2594 of the C t..'s ..eA f lie may be INVESTMENT STRATEGY The Clty of Lubbock maintains portfolios which utilize four specific investment strategy considerations, designed to address the unique characteristics of the fund groups represented in the investment portfolios. The policies detailed below are subject to an annual review to occurprior to the annual City Council action regarding the Investment Policy. (1) Operating Funds and Commingled Pools Containing Operating Funds: City of Lubbock, Texas, Investment Policy Page 5 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. (2) Debt Service Funds Investment strategies for debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity date which exceeds the debt service payment date. (3) Debt Service Reserve Funds 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. (4) Bond Funds 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. A cash flow analysis shall be reviewed and updated no less than semi-annually, In connection with revised budget and proposed budget reviews. This cash flow analysis is the basis for matching liabilities or obligations with security maturities as outlined in the strategies previously listed. The maximum maturity of any individual security the City may invest in shall be 5 years. DERIVATIVES A defivative shall be defined by the Gity as ", seeufity whose eash fiew ehameter-isties (eeupea, redemption ameont-, or- stated matuFky) depend upen . di-r-A-15 Aff. th-at inaVe embedded Patufe i or- options. :Fhey ran be linked to different mar4et sectors ef iateFOSt Fate SU-13—ATiAN i-ft-A-WiRgi 1)iner-eaFiageFdear-easiRgiatefestr-ates, �eld euse c)c erishange e its, and 7)eemmedity pr4ce movements. ««gage 1'==lE@fi City of Lubbock, Texas, Investment Policy Page 6 bends,, basedan prepayment rates. When prepa5qneat ate deer -ease, tl,em Only k Step ep an&eF Callable Bonds. Step tip seour-ities initialb, pay the hwestef an abwve Fnar-ket yield fer- a sheft fie» .,11 p ed and then, i€fiet Balled, "step p" to a hi&e resupen rate _A Faeldste„ and seecessiveiyhigher- ee ' Ems ever- its NCR. At eaeb rail date, :f the_1,and is not ealtede ,. the seu1F n rate 3�6reaSeSc • T.,,ie., A w...«t: News li (IANs). T A Ns repay pr-..a1 .. ....1.;« rt t.. a_ ,-e.lete.•.,,:., e.l . i.,; linkpij u; tl;e level efa spesifis index er- a specified pr-epayfaent rate. As fna&et immest rates iner-ease e prepa�q�ent fates ,extends, imilar- to that ----- - -' -' -off a-. obligation_ • l ual ladex Nate.. These 1..,...in 1.a..e e9upen .sates that are dete.•.ni ed by the diff re,. indirses. These beads eften h-ave _a A-4-wed- coupon r-a4e fef a bFief period, fellowed by a leageF period efvar-iable • De !ever -aged Bonds. These bonds pay invester-s aeeef:ding W a femimlla t—hat iss based upen a fraetion Af the s the Bends.Rieffige beads (of asepial beads) ate s long Fe&r-eaee rate is between levels established eA issue. For- earah day that the Fefefenee r- te is eu4side thi rates A derivative is any security whose cash flow characteristics (coupon, redemption amount, or stated and estimated 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 dfferent yield curves, S) foreign exchange rates 6) equity price movements, and 7) commodity price movements. The City shall define a derivative for purposes of investment as any mortgaged backed security to eliminate possible extension, volatility and reinvestment risk. The City will not Invest in any mortgage -backed securities (MBS) whether a straight pass -through mortgage backed or further derived mortgage backed security (CMO). The City shall not define United States Agency and Instrumentality debentures as derivatives. Debentures have a defined maturity date which can not extend regardless of their structure. These will be restricted to a maximum maturity of three (3) years. Floating rate debentures may only float on the U.S. Treasury rates and not exceed one (1) year in maturity. 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. Pie p ufshase n .,le e-f ell S e so .:tie s shall be on a del:.versus t b The City seeks an active, rather than passive, management of its portfolio assets. Assets may be sold at a loss only if the City Director of Financial Services or Designee 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 City of Lubbock, Texas, Investment Policy Page 7 Assistant City Treasurer for all 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 As defined by PFIA Chapter 2256, as amended, 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 and to review the list at least annually. 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 have received and thoroughly reviewed the City's investment policy and have implemented reasonable procedures and controls and understand the parameters set by the City of Lubbock. in an ef&r4 te prvelude impfaden4 investfa 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, registered with the State of Texas, 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 Director of Financial Services or Designee 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 select financial institutions from which the City may purchase C.D.'s in accordance with Public Funds Investment Act 2256 as amended. The City of Lubbock will have a written agreement with any jMancial institution which whom the City of Lubbock has time or demand deposits. The Assistant City Treasurer shall monitor the financial condition of financial institutions where Certificates of Deposit are held and report quarterly to the Investment Review Committee, COL L A TERA L IZA TIONISA FEKEEPING Collateralization requirements are governed by Chapter 2257 COLLATERAL FOR PUBLIC FUNDS. Collateralization will be required on three types of investments: depository bank balances, certificates of deposit and repurchase agreements. In order to anticipate market changes and provide a level oj'securityfor allfunds, the collateralization level will be 102% of market value of prinicipal and accrued interest The entity chooses to limit collateral to the following: Underlying collateral shall be composed of only those investments approved In this policy for investment by the City of Lubbock. The maturity of the collateral security shall be no longer than 5 years Market value of the collateral shall be priced at least daily for repurchase agreements and monthly for securities City of Lubbock, Texas, Investment Policy Page 8 The r•t, a «ther- l; :ts and G.� e.,t Cede Seet;e., 2296 as fell�� n ll ll + al4ed « eha agfeements shall in addition to the «d;. of the et t. t;,nkei as fellewsr-: eme should the eellater-al value. be allevied te go below 101%, the matur-45, efthe eella4er- J seeer-ity shall be fie 1eager- than ten yeffs, .,d the market -value eftl,e_eelleter-al shall be pFieed .,t least dal y Collateral will always be held by an independent third party with whom the City of Lubbock has a current custodial agreement. A safekeeping receipt must be supplied to the City of Lubbock for any transaction involving salesfpurchases/maturides of securities and/or underlying collateral, which the City of Lubbock will retain. The right of collateral substitution is granted provided the substitution is followed by the delivery of a safekeeping receipt to the City of Lubbock. AU security transactions, including collateral for repurchase agreements, entered into by the City of Lubbock shall be conducted on a delivery -versus payment (DVP) basis, 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. SAFEKEEPING in thk-d paAy safekeeping by a Feder -a! Resen,e member- finaneial institHfien designated as the Ws depesitef�- Fbeei—oities pufohased by the Gity that afe wifable via the Feder -a! Resente System shall b 3 held by the GiW& 6hall behold injokA sustedy at the Feder -a! Reser:ve Bank (97). It is the intent efthe Gity peffected in the name ef —e City. REPORTING Investment reports shall be prepared on a quarterly and annual basis and be submitted to the City Director of Financial Services or Designee 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 no less than quarterly to review the investment activity. The quarterly 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 reasonable time after the end of each quarter, the Assistant City Treasurer shall prepare and submit to the City Director of Financial Services or Designee, 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 separate investment, and state the maturity date of each security and accrued interest for the reporting period. . 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, and Generally Accepted Accounting Principles. Market pricing information is obtained through the use of appropriate software available either externally such as through investment advisors, or internally. An independent auditor will review quarterly investment reports on an annual basis, as required by Public Funds Investments Act 2256, as amended. City of Lubbock, Texas, Investment Policy Page 9 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 no less than quarterly 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 Director of Financial Services or Designee 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 Director of Financial Services or Designee any material financial interests in financial institutions that conduct business within this City, and they shall further disclose any large personal financial/investment 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 Director of Financial Services or Designee 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 The governing body shall adopt a written instrument by rule, order, ordinance, or resolution stating that it has reviewed the investment policy and investment strategies and that the written instrument so adopted shall record any changes made to either the investment policy or investment strategies. The Investment Policy and Investment Strategies will be reviewed annually by the Investment Review Committee. The Investment Review Committee shall forward modifications to the Policy or a resolution stating there are no changes to the City Council annually for City Council action. AUTHORITY/DATE ISSUED: City Council Resolution # 5728/December 18, 1997