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HomeMy Public PortalAboutResolution No. 210.2-04 04-12-2004 • RESOLUTION N0.210.2-04 A RESOLUTION APPROVING A CITY OF RICHLAND HILLS INVESTMENT POLICY WHEREAS, Chapter 2256 of the Texas Government Code, commonly known as the "Public Funds Investment Act," required the city adopt an investment policy by rule, order, ordinance, or resolution; and WHEREAS, the Public Funds Investment Act requires the treasurer; the chief financial officer, if not the treasurer; and the investment officer of the city to attend investment training; and WHEREAS, the City of Richland Hills approves of the investment training courses sponsored or endorsed by the Government Finance Officers Association of Texas, the Government Treasurers Organization of Texas, the Texas Municipal League, and the North Central Texas Council of Governments; and • WHEREAS, the treasurer; the chief financial officer, if not the treasurer; and the investment officer have attended an investment training sponsored by the North Central Texas Council of Governments and the Government Finance Officers Association of Texas, as required by the Public Funds Investment Act; and WHEREAS, the City Council has reviewed the attached investment policy and the city's investment strategies, as required by law; and WHEREAS, the attached investment policy and incorporated revision comply with the Public Funds Investment Act, as amended, and authorize the investment of city funds in safe and prudent investments. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF RICHLAND HILLS, TEXAS: That the City of Richland Hills has complied with the requirements of the Public Funds Investment Act, as amended, and the attached investment policy is hereby adopted as the investment policy of the city effective April 12, 2004. 'The following changes to the investment policy and investment strategies were made: none. • Resolution 210.2-04; Richland Hills Investment Policy -April 12, 2004 Page I of 2 • PASSED, ADOPTED AND APPROVED by the City Council of~the City of Richland Hills this 12`~ day of April 2004. Th Honorable Nelda Stroder, Mayor ATTEST: ~ ~ ~ ~ r `"1 ~a ~ ~ 0 ~ i Sutter, Cit Secretary ~3 ~ APPROVE TO F RM AND LEGALITY: ~ + ~ ~ u ~ rr Tim G. Sralla, City Attorney • • Resolution 210.2-04; Richland Hills Investment Policy -April 12, 2004 Page 2 of 2 4,12.04Resolution Page 2 of 16 IT'~`~~ Ft,I~~.A~Jt~ H~L.L I~!`~ET't~iE~' ~'C~.IY http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4.12.04Resolution Page 3 of 16 • TABL.~ C1F Ct?I~ITEIVTS 5ectic~n ~~ge In#roducftan` 9 Scope 7 Investment Objirr~ t -2 investment Strategy 2w3 Respansibiliiy ~r~d Control 3-4 Reporting 4 Investrnen# Parkt`pl~'a Aufhurized Financial Insttuti~+ns 7.8 • Safekeepin,~ and Custody ~_g Investment Policy A,dpptian 9 Glossary 1 ~-1 • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4.12.04Resolution Page 4 of 16 • pity of 12i~hT~>l><c~: Hills investrrr~nt Policy I't is the policy of the`City of Richland Hi41s to invest-.public funds In a ma;ntier wficl~ wrill provide the higfi~ast investment return with ~e maximum sevurity while rneetin,~ the deity cash flow demands 4f the entity 8rid cQnfarmin~g tc~ qll state and focal s#a#utes: gu+rerriing the investment of put~lic fiunds. The pti[g©se cif this document is to set forth specific rrjvestlTt~hf policy.. -and strategy gi~itlefines for #h~ Cit~+ of RiChE~nd Mills in r~rder #o acFtieve ti7e goals of safe#y, liquidity, yield, and public. trust fbr all irivastment activity, The ~i1}/ Gnuncil of the City of Richland Hills shatR revieyr its. investment strategies and paJicyr nat less than annually. T#~ls Investment Policy serves to satisfy the statutory requitement. of .the F'ul~liv Funds Investment ,~,Gt, 'Chapter ~25G, Texas Gvverrrtment Code; fo define, adapt, ~rtd review a. fr~rmai investment strateg}r and polic}~. SC?PE This 1"nv~esfinen# P©licy applies to a1M the financial assets of the ~i€y of Richland Hiifs. Tlt~se funds are. aoGOUrtte~l for in the Cily's ComPrehensi+re Annual ~inanciel Report 1C,4FR~ and ineltrde: • General Fund • Special Revenue']=ands • Debt Service funds Capital Projects Funds Proprietary Funds • All Qther Funds INV~STME~T +QiBJEC7'IVE The City of Richland Hills Shall rnan>~e and iiavest its investments with four objective, listed in order of priorit}r: Safety, Liquidity, Public Trust:, end Ftaturrh en fnuestments. The safety of the principal invested always remains tFre primary ©bjeetive. All. investments shill Ibe designed and managed in s manner respotlsive to the public tr~s{ and consistent with State and Local 1!aws: Satiety Safetyr of principal rr"s the fiotemos# objectivee ttf the investment program investments of the City of Richland Hills shall tie undert~rkQn ir? a manner that seeks to ensure the preservation.pf capital in tPre ovata1l partfalia. Ta ai#ain ttYis objective,. diversification is required in order that potential lc?sses on individaal securities d¢ not exceed the-income generated from tl-ie rerttainder csf the portfolio. ~s • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4.12.04Resolution Page 5 of 16 • Laquidlty The City- of .Richland Hills investment partlolip wiil rerriain suffrcientlj~ liquid to enable the pity to meet all operating ?~quiremeri#s_which migh# be reasanr3bly ar>#icipated. I'ubtic 7"rust )nve;>tinen#s stialf be triode with Jud>~ment and care. under crcutnstances, Then preaaiiin~, which persons ref pnuderrce, discretion and intelligtbri?ve exercise in the managerrr~nt of their own affairs, not for speculation, but far investntenE, cansderirig" the probable safst~+ of capital a5 well as the probable inaame do be derived. t;,lniggs auth4ri~e~d by Law, a persoro may ric~tdeposlt, Yvithdrauv; transfer, car marra~e in ariy o#her mat'tnraF the funds of the investirog entity. Rr~turrr iDn Irrvei5~nent' 'i'he City of Ftichhar7d F9il5 investment pvrt€dlib shelf be designed with ttit~ Qkajectiue of attaining a rate of return throughout budgetary and ecaniar»rc cycles, cc~mminensurate vrith the City's investment risk ccanstrairit6 artd the cash flaw characteristics 4f the pvrtfo Gra. It+tVESTMENT STRATEG1i` 1'he~ rwity of R~hland Flills maintains portralir~s vrhich utilize four specific investment strategy considerations designed to addre~S the unique characteristics of the fund groups te)~resant~ in the partfvlios~ A. lnvestmen# strategies far opPrAting funds are tQ assure that ~ntieipa#ed cash flaws era matched with adequate invesfrnent liquidity, The secondary objective is to crzate a portfolio structure which will experience fiinimal volaEiiity during economic cycles. This may be aocompGshed by~ purchasing high qualit}~, shprtt4 medium term securities which will complement each other. The dollar vreighted average maturity of 3~5 days br lass will be calculated-using:ihestated f"iria[ maturity date of each security. B_ ]nvestment ~#r~giec for the .debt sentice ferhds shall haue as the primary vbjecti~re the assuranr,~ of investment liquidity to ce+rer the debt senrrce cibligation vn the required paymentdate_ Securities purchased shad riot have a stated maturity date which exceeds trre debt service payment da#e_ C. Investment strategies for debt service reserve funds shalt hraye as the primary objective the af~ility tip generate a dependable revr3tt#ie stream the appropriate debt service fond from securi#ies with alr~tia degr~ of volatility. Securities should ba of high quatity and, except as maybe.. required by the bond ordinance specific try err individual issue, of short to medium term maturities. d, investment Strafe ces for special projects, special purpose, ar cemstructian #und portfolios uuil~have as their primaryry objective the assUrariGe that anticipated cash flows_are matched with adequate investment liquidity. • http://www.t-ichlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4;12.04Resolution Page 6 of 16 • These pvr#1t11fas ~shauld include at least '10"I~ in highly liquid securities to altaw for flexihirrty and uriianticip~#~ project outlays. The stated final maturity dates of securities held should not exceed the est~rnated protect completiart .date. RESIN©IVSlBIL1TY`Ahtfl C4NTRClL; Clelegatian of Autltc~rity and Training The City Manager and the FinanoelAcCpurhfing Manager aro designated as ln~ers#i»ent_ Officer{s) of the City and are responsible for in+~estmenf decisions and activities_ The investment t?fficer(s) shall attend a training sessiar~ not Icass than once in a twa-year period and receive not less than 10 hattrs of instruction r~slating to investment respons:biiities. The #rainirZg provider trust 6e an indePenden# spurce, Th+:: pity Manager will attain ultimate resprrnsil~ility far investment de~rsi4ns. internal Gttntrol The in+~estmsnt officer is responsible for establisf~ing and mainta;ning an internal control structure designed to ensure that tfie assets of the pity are pr~,teoted from loss, theft rsr misuse, The internal confrot structure sYaall be designed to praviiie reasonable a86utence that these ahjcctives art the[. Ths concept of reas+anabfie~ assurance re+Cc~grrizeS that ~ 1) the cast of a control should not ercceed the benefits likely to be derived; end f~? ttie valuation of eost~ anti beraefi#s requires estlrrrates and judgments by management.. The Investmen# C7fficer shall establish a process for annual independent review by an external :auditor to fissure compliance with policies end procedures.. The jntemal CnntrCl€ shall. addre~-the foA~uving pair?ts: • ~Carttrol rtf collusican_ Separa~tinn of transaction authority from acr,QUnting end record keeping. Custa~dial safekeepin 1;7; Avcrialance of tahysicadeliuery securities. E. Glear delegation of autFiDrity to subordinate s#afF memf}ers, l`: 1^lritten confirmation for tei+ephane (voice} tr~Flsactian& ftar investments Arid wire transactions. G fle+,elapment of a ?~lire #rsnSfer agreem~:rtt uritt! the depositary balk r,r` third party cuai#odian. An independent auditor roust farmaAy r®view at least at~nualfy the quarterly inv~es#ment reports prepared to Comply wittl:S+actian 2256:023 of #ha Texas Government Code and` report thc~ results of tha# re~vievr try the pity Ct~urticl. Ethl~ and Confllats of interest Officials ,arid employees involued In the roves#martt process st,alt refratin from prsrsanal business activities that carJld rrc~nflict with proper execution of the inwestznert# pr©gram er which could impair their ability to make irnpartral inve~s#ment decisions. investment t,7fficx~rs yr employees with investment tespor?styility must disclose to the Texas l=thics r; • http://www.t7chlandhills.com/admin/agenda/dots/58%SC4.12.04Resolution.htm 9/27/2005 4.12.04Resolution Page 7 of 16 • Cgmmissign and the .City Courrudl any per~anall business retaticnships csr rriaterial financial interests with anyone a#tempting #a sett an investment to the Gity_ RERt7RTIhIPa Quarterly Ftaportlnp The Inue~tment DffiCer(s) Shall submit ~ signed ge~rkerty investment report that. surnrnoriaes current market condition8, scan©mic developments and `anticipated irtvestrnertt conditions, The report shall summarize investment strategies employed fn the mast recent quarter, and describe the portfolio in terms of investment securities, maturities, risk ~i~taracteristies, end .shall explain the tt~tal vestment return for the gU~rter. Atfnual Repcsrt l^dithin ~0 days of the end of titre fiscal year, the lnaes#ment Cftf#cer(s} shall present sin arrnua{ report.on the investrner>!t program snd investment ac#iVity. Metthods The quarterly investment report shall provide a sta#r~s of the current investment portfolio and #ransactions rnad~e aver the last quarter. The report will be prrxvided to the ~ify t~ianager and City Gaun~il and include the following; A listing, of indiuiduai securities held at the end of the r,eAorting period, 8. Unrealtzeci gains or lasses resulting tram appreciation or depreciation byr !is#ing the beginning and ending book and market value of securi#ies for the period. h~larket price is the net selling price of securities as quoted by a recognized market pricing source quat~d an the valuation date... C- Additions artid changes !n the martcet v81ue during the period and fully accrued interest for the r®parting period. • d?. Average Wi?ighted yield to maturity of portfolio on ~ih~ investments a compared to applicable benchmark, Listing of investments by ma#urity date. by type of asset and fund typt;. F: The percentage of th® total portfolio which each typo of investment represents. A statement of compliance of the City's irnestment pc~r#fai#n with Matte Isvas and the investment error y acrd pvGcy approved by the City Coa~ncl. H_ Be jdintlyiarepar~+d and Signedy all investment ofdicers It~V~S7M~I~T PC)RTFt~Llt7 Au4h~arizved and Suitabta lnve~tmertits /assets trl the City of Richlaind Hills :tray be invested is the fali4wling ins#ruments, provided, however, thst at no t+ma Shall assets of the City be in,res#ed in arty instrurtaera# ar security not autharized for irivestr»en# under the Ac#; as the Act it~ay from time to time be amended: A. ©bligattorts of the tlrti#ed States qr i#s agencies at#d instrutatentalities with stated maturity not to exceed tvuo years. B. 13irec# 9bii9~ti4n5 0l the Mate of Texas: or its agencies: • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4.12.04Resolution Page 8 of 16 • C: Qther obligations, the principal of-and interest arr whfbh are uncanditianallygaaranteed or insured bar the State afi'TexaS t5f tttp Unitett States yr its agencies and inst~'uirnentafrtfes vvifh stated maturity not to excete(! tW0 years. C)bfigati~pns of states, agencies, counties, cities, and other political subdivisitsns of any state having been rated as tv investment quafityr by a nationally recd zed inuestrnent rating firm and having rac:eived a rating of not less than A ar its +2q~~Uafer#t. E. Gertiticates of deposit issued by state iind nairicartal banks ddm€cifed in °~exas #hat are: 4a) guaranteed or insun=d by the Federal Depo:3ft Insurarrce Garporation, or its successor, ar bbl secured by obligations #hat are described by A through f],abQVe, wt~icf~ are intended to include ali direct federal agency. or .instrumentality issued mari~age backed securities that have a tltarket value of not less t#~ar~ tta~? principal arnv,~nt of tFie cer#ificates or in other manner artd amoun# provided by law far deposits at Participants. C". Fully ooliateraGzed repurchases agreements flavfrtg adeflned termination date, secured by ciireCt abfi~atlcns of the U!.5. yr its agencies anti instrumentalities pledged with a fttird partyy, selected or approved by tine political entffy, other than an agency far the pf~ged, f~epurchase agreernen#s must be ppurchased through a primary ~avernm~nt securities deafer; as d~ifined by tFFe Federal Reserve, Qr ~ bank domiciled in Texas, Each counter-party to a repurchase t[arrs~id#ip~rt is required to sign a cagy of the Public Sece~rrties Assaciatjgn lsrlastet" f~epurcttase A reement. An executEd spy of tl1e Agreement mus# be on fife. t3efc~re the i#y vrill enter into any transactions wi# a counter Party, Joint paai~ of political subdivisions fn the Mate of Terms which rsuest in - instfiurnent~ and follow practices alfcrwed by current law, A poo{ must be continuau~ly rated na iuuvser than A~'+A ar AAA-m or at an equivalent ratr`ng by srt least one natianaffy recognized rating service. Unauthorized tn+estmetits The t?ity's autharfzad roves#rnent a{ternstrves are mare restrictive than these allowed by State lava.. State li3ua spe~cifcalfy prohibits investmenf in the failawlrtg irrveent SBGLErrtleS: A_ Cibligatiians whose paymeftt represents the coupaa payments tan the outstanding pt•incip~{ balance of the. underlying rnor#gage=.packed 5ecutfty ~~oflateral an~J pa~+s_ntrprincipal: t3, r~bligations whosr~ payment r'apresentS the princapaf stream of cash flaw frorrr the underlying mortgage-backed security collateral and bears no fi • http://www.richlandhills.com/admin/agenda/does/58%SC4.12.04Resolution.htm 9/27/2005 4..12.04Resolution Page 9 of 16 • iCtte rH&€, Callateratized`mortgage oblrgation~ that brave a stated final maturity' date of greater than tan years, d•_ ~oilaterlized rnartgage, pbligatiprts thi~ interes# rati; cif v.+hich is determr"ned by an index that ~dlus#S apposite tithe changes in, a tnerket index. This policy pr#hibits ir~tirastments in optEC~ns, t~nancial futur+as c~at~tr~cts, and clay #rading of lang term securities; Floldu'ng Period The City of Richland Hi1~s intends;to match the holding pr~riorls of invr~sttYtertt funds smith Ilquidity needs of #hQ City_ In no case will the averag8 ma~rity of investments of the pity's operating funds exceed one year with na individual maturity exceedng tvro years. The maximum final stated maturity of any investment shad not exceed two years except that assets held in reserue fronds may be invested in rttaturtties up itf five years: R7sk and [?iver~ificas~lbn; The City of Richland, Hills re~nizes that investment risks care result from issuer defaul#s, .market price changes or various technical caompli€~tions leading ti} temp4rery risks to liquidity. Risk is contr©lted thrau$h portt'o{ie di+rarsificetiora wtrieta shall be achieved by the ftallawing general cluide(ines: A. F2isk cif issuer clvfault is cantri]lied t)y limiting investments to these instrurrrents allowed day the Aet. which are described t?i4rein_ ~ disk of market price changes shall be controlled by av~miding over- cdrtcacntration of assets in a specific maturity sects(, Htrt(tot(on df average • maturity of operating funds investments to ane year,: and avoidanQe ref abler-cvneentration of specific instruments othor than U_ S. Treasury Securities and insured or Co(ieterlizect Certrficates t?f Qeposif. C Risk tt~ liquidity due to technical carnpiicativns shall be controlled by ttte s~electian of securities dealers as'desr~ribed herein. Performance 5t$rrdards The investment portfolio shall. be designed with the obisctlve of obtaining a rete a#' return throughout budgetary and economic cycles, cammansuraEe with the„investment risk. constraints and the cast flaw needs.. The pity's investment strategy is passive. ~iuen this s#rategy, the basis y~ed by ti~re Treasury to detarrriine whether market yields are being achieved shall be the six month U,5.7reasury gill. • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4:12.04Resolution Page 10 of 16 • AUTH4RIZ~C~ F1t+lANCtAL lNSTITUTI~NS` D~posltbry A tEualified depositary shall be selectecf through the City s b~anki+~g services ` .procurement process, v~liich shall include a formal request for proposal (RFP}_ The.' c~ntralizatirin of depository services is designed to maximize investment capabilities ~rfitil~eminimizing service costs, The select€on of a depository shall be based on the financial institution offering the mast favorable terms and conditions at the least cast, while adhering to the guidelines and provisions within the request far proposal, trt Selecting a depositary ,the Gity shag give consideration to the #in~ncial institution s ~r~di# characteristics, financial history, service- capabilities, location within City limits, grad cosEs fpr required sen+iees. The City's deposi#ory° contract shall be for three years. with an option to extend for two additic~tlaf years upon mutual agrer?rrrent of the depository and the Cityr. Specialized services +~ay be contracted far by the Citp vvlth anatf~er financial institution ar company if th+a depasrtflry cannot provide such service ar charges more than another financial institutcar't for tkte same .service wi#h little dr no appreciable benefit. Certificates of Depe~slt Banks seeking to establish eligibility f+~r the City's carnpetitive ciertif?cate of depos# purchase program shall submit t!or review annual flnanoiai .statements, evidence of federal insurance and,a~thvr infarmatlon as required by the 1nu~eStment t~ll~cer, Selection of Inwe~stment Brokerslbeaters an~f Advisors Selectbn will be performed by the investment ~?#ficer{s): with raitf~tion and apprtwal by the City Council, Selected Investment Advisors and BrokerlClealers shall provide timely transaction confirmations and mbnthiy portfolio reports. Pro&pective Broker}Dealers shall provide financial and ratfser infarmatlo7l as requested by the • Investment Officer sufficient to evaluate their fiscal canditior~ and ability to senvice tfte City. The lnv?sttrrent gfficer{sl will establish criteria to evaluate Inves#ment Advist~rs and BroKeFfl3ealers, including: "l.3 i4dherence to the City's policies snsf straggles., 2-) Investment pertorrnance and transaction.pricing vr~thin accepted cask constraints, 3:} Responsiveness to the City's request forsenrices, Inf~irmatic~n and rrpen cornmunica#ion, Understanding of the inherentftduclary resp~tslbilityof investing pubiia funds, and Similarity in philosophy end str€rtegy witE~ the Cii}r's abjeoti~es. An annual rouew of the financial canditirm and registrations. of qualified bidders will ba cantiucfed kay the Treasurer, A current audited financial statement. is requlfed to bs an file`#ar each finart+cigE institution and 6rokerldealer in which the Gi#yr in~tests, Approved BrokerlDealers Brdkerll~ealer or other institutions eligible tc~ transact irrvestmertt business with the Cty+ shall tie presentctt a dvrit#en copy of tl'tis 1nv~stmerlt Policy, AdditipnaEly, the registered principal of the tausness organi~t~on, ar equivalent to a registered principal acceptable ~a • http://www.richlandhills.com/admin/agenda/does/58%SC4.12.04Resolution.htm 9/27/2005 4,12.04Resolution Page 11 of 16 to the City seeltiiig to transact investment business sha[I.exeCttte a Certifiar~tidn to the.. #ffect th,~t,the registered principal has; 9;) i'eceiv~d ar~d thorat~ghly reviewed this lnvestmei•rt F'oi~iay, acknowledged that their organization has irnplernented re2rsonablc procedures and controls in an eff©rt to preclude imprudent investment: activities witi~ the City. supplied audited financial sta#oments; ~i.~ suppJred proof of National ,4ssooiatian of Securities ;L]ealers certtficati©ra 5.j supplreti proof of state registration, and; B.) GorTtpleted brol~erfdealer questionnaire. tnvesfrnerrt f3fficials shalt not #cnawingfy conduot busines~~ w€[~ any fi~ri .with ~v~,~ public entities have sust~rined losses on investments, III Securiities tisalers sl~lt provide the City references from Public entities Nrhit;h they are cttrrerrtly serving: SEKE'EPlNG ANG CUSTQaY Callateiatizatitan Ail d+apastts arrd investments df City ]rands shall t]e cQ{laterialized consistent with s#ate law. In trrder to atnticipate market chariges and provide r~ level oi' security for all furs. the Collateralization Level will tae 102~'o ttf market value of principal and accrued interes# Qn the. deposits or investments less an amount insured by the FDIC. Evidence of the pledge collateral shall be maintained by the FinancelAccounting Manager or a third p~srty financial instiEution. Repurchase agreements shad be documented by a specifia° allied dailynotC4llatera) sh Ilebe rpevew~d aQaoast manthiy to aSSUre~thatrth® m~atrlcet • value of the pledged securities is adequate. Sa#ekeeping Agreement +Colfa#eral pledged to secure deposits of the City shall be halt! by a s~fekeepirtg institution in accar~iance with a Safekeeping Agreernea~# tyhich clearly rtefines the. procedural steps fnr gaining access to the cellatera# shpuld the City of Richland Hills determine that the city's funds are inleopardy. The ~afeke~epit~g institution, or Trusl~e$, shall be the Federal Reserve Bank ar an instituttan approved by the City_ and no#~ affiliated with the firm pledging thr~ Goltaterai. The safekeeping agreement shalt "rnCiude the signatures crf autt#arf~ed repr~serrtatives of the .City, the firr~~ pledging the. Golfe.#era1, and the Trustee, Coftateral det!;netl The Gity.of Richland Fulls shall as~cept`anly #ht; f©Ilawing securities as c~l~teral~ +~t. l=f3lC insurance coverage 8.,, A txQnd. bill, certificate of indebteclrtess; or Treasury Note of the United States, qr ~th@r evidence of indebtednes~of the United States tf~at is guaranteed as #o principal and interest by the United Stages. ~bllg;aiipns the principal and interest on which,.-are unconditivna(ly guaranteed or insured by.the State of Texas. • http://www.richlandhills.com/admin/agenda/does/58%SC4.12.04Resolution.htm 9/27/2005 4.•12.04Resolution Page 12 of 16 • i7. A t}ond of the State of T,as nr a count, ci#y tar other p~olitica~ subdivis'resn of the ~#ate of Texas Having been rated as +nvestment grade {iinaestment rpting no fuss than "ate ar its equivalent) by a.nationali}r,recogn~zed tatin~ a~etfeywitt~ a remaining rtTatUnty often years or less. Sulbje~ct t~s Audit Ail collateral shall be subject to inspection and audit by the Investment C3fficer or the City's independent auditors. Collateral suastftutlor, Golfatereil`rZed cet#ifrcates a# deposit and repurchase ..:agreements ©tterr require substitu#ion of collateral. Any broker, deader Qe ffnanclal institu#ior, regaesting sui~s#itirtlon must contact tt~e Investment Qfflcer(s} fir apprcaval and settlement. The substi#uted security's value will be calculated and substitution eppraved if it:s vale i& squat to or greater than the squired SE~Cllrlty level. The Investment offrc~r{a), or a desiggnee, must provide arri#ten notificatit~n of the decision to the .bank or the sa€ekeeping agent holding the security riot to an security release, Substitution is all~awable far all trartsactic~ns, trot shau{d be limited, if possible, to mPnirnize p~rtentat adnt"rnistratNe pproblems and transfer expense, T`he inves#ment 4fl'icer may limit substitufion an~1 assess appropriate Bees if substitution becomes excessive ar abusiue, L}ialivey us. Payrment Tteesury Bills Notes, Bonds, Repurchas+s Agreement8 and Go+remment Agencies': securities sha8 be purchased using the delivery vs. paymen# method. That is, funds. .shall rtbt be 'vrired or paid until verification has been made that the correct security +AUas received by tike Trustee, The security shall kre held in the. nam® nt the Cif or held art behalf of the City. The Tors#ee's rec©rds shall assure ,the nota#ion of the Cifiy's • ownership 4f +~r ex#rliGit claim tin tPre SeCUlYties: The trrigireal copy of all safekeeping repeipts shalt b~ delrver~d to the City. 1NVESr~nEw~ P{7LlCY ~~t7pTr~nl The City of Richland 1.1i11s investment poky, u~+hich includes strategies far each furic#, .shall be atJopted by resolution of the City Cauncila The policy shall be rt~viewet9 annusHy tired any modifipati~ons ther$to must be appi'crved by the Ci#y ~auncil, i? • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4..12.04Resolution Page 13 of 16 • ~LO;~,SARY' 'AGENCIES: ~ed>rtarl agency securities. A~KEa:; 7hs price at wihieh securities are ofFer~d: BANKERS ACCEPTANCl3 t~Ay: A dCaft ar bill exchan a accepted by a bank car trust company. The accepting institution guarantees payment of the b~L as yell as tl~e issuer.. F31[}: 7'h~,pripe offered`by a buyer of securities. (When you are selling securities; you ask for a brd.) See t:3t~ar. BR+gKJ=R: ~k bmk~rbrings buyers grid sellers together for a dommJs~i~rn. GE'Rrl~lt~ATE`t~ Dl>"p©51T (i~D): A time deposit with a specified rna#urit~r+evviderrc~d by a certificate, Large-cfenarrrlr?ation CD s are typically negotiable. COLLAT~FFAL_ S~urifties, evidence of deposit ar other property which s borrav+rer pledges try secure repayment of a t4art: Also refierto securities pledged tsy a bank to sure deposits of public moneys, G~d~AiIF'REtIENSIVE ANNUAL FINANCIAL FtEPdRT (GAFR): The o~caal annual report forthe. pity of Richland Hills. It includes five combined statements for each individual fund and account giroup prepared in canformit}+ with GaAP. It Slso includes supporting schedules necessary to demonstrate compliance with finance-related legal and: etrntrastuai prdvisic~ns, exti~nsi~re introductory materiel. and a defailid Statistical • Setticsn, COUPGN; ~a) The annual ra#e pf interest that bond s issuer promises ti} pay the bondhglder on the bond s face ~ralue. (ts} A c+ei•tifici~te attached to a f}and r~videncing interest due an a payment date: I?EALERt A dealer; as apprasecl td' a broker ;acts as a prirocifaal in all trarfsactir3aas,, buying and s~eNing for his otivn asaaaunt. C}EBENTLIRt~ A band secured truly by the gerrerat credit of issuer. bELf+VERY V'ERSIlS PAYMENT:: Thisre are two methods of delivery of securities> delivery vr3rsus payment and delivery versus receipt. Delivery versus RaYrnertt is delivery of securities with an exchange of money for the securities. gelivery versus receipt is delivery of seccarities with an e>change of a signed receipt for the securities. DiSCC)UNT: Tire difference bet?vicen the cast pprice of a security and its maturity when t~uoted at lower than face value, A security sallirag hela~v aftering price. shortly afher sale alsp is considered to bs3 at a discount. a[;3GOtlMT SECURITfES; Hors-interest bearin rrraneY market instruments that are issued alt a discotmt end red~rned at maturity ~ar full face ,value, e.g. U.S. Treasury' $itls. • http://www.richlandhills.com/admin/agendaldocs/58%SC4.12.04Resolution.htm 9/27/2005 4:12.04Resolution Page 14 of 16 • DIVER~IFICATIg1V; Dividing investment fonds amgng a v~r~ty of securitties afferlr~tg independent returns ~Ei1?EI~ CR~QI'T AGEMCIE9: Agencies e?f tt~e Federal government set up to supply credit to various classes of irastitu#ions and individuals, e.g, SSL s, small business farts, students,: farmers, farm cooperatives, end ~x{aorti'rs. F~DER,4L FUtV;I?S RATE; Tfte rate of int~eresi at which FEE? fonds ere traded:. This. rate is currently pegged ay the l*e~leral Reserve through opon-market operations, FE13f_RiAL NgME L_dAN f3A1rtK5 (FHLB}; Thanstitutions that regMate and lend #a savings and loans associations. The Federal Horne LoartBanks play a trote anra(ogt~us fa that played by the Federal Reserve Banks via-a-via rrrtember commercial banks. FE~ERAI. NATIOHAI. MORTGAGE ASSOCIATION (FhIMA)~ FNMA, Gke:~NMA; aua& chartered uttrterthe Federal National Mortgage Association Act in 1838, ~NMr4 is a federal corporation working under trye auspices of the Detaartment of Hauling antl Urban (]evelopment (HUO). It is the largest single provider of residential mortgage farads in the United States. Fannie fvlae, as the corpora#ion is called, is a priUate stoakheldsr-owned carpo,ratiart,, the corporation s purchases include a variety o~ ad~ustable rate mortgages 2nd ;~ecat1d I~Rans, in addition to ftxed-ram rnortgages_ F~14fA s securities are 8llso hrg~hty liquid and are widely accepted. FNMA assumes and guaranbaes that atl security hc~hiers wip receive timely payment of priif~Cipal and [aterest. FEQERAL OREIy IIPIARKEI' ~4MiIlITTEE ~FOMCI: Consists of seven memt~ers of the FederaP Resents Bank Board and free of tha tvrePve Federal Reserve Bank Presidents,.. The President of the New Ycark Federal Reserve F3ank is a permanent member, while. the other Presidents serve on a rotating basis. The Committee periodically meets to sit • Federal Reserve guidelines regarding purchases and sale of Governmen# 5ecuritie& in the open market as a means of influencing fhe volume of bank credit oral money. FI~CIERAL RESERVE SYSTEM: The central bank of the United States created by Congress-and consisting of a seven member Board of Govemars in USlashingtan, Q,C. regional banks ar?d about. 5,7Q0 commercial hanks that are. mertrbers of the system, GOVI`RtdluiENT 11J4TIONAL MflRTQA~f` ASSOCIATION tQNMA or Ginnte Mae)c Securities infiemrneirtg the volumo of hank credit guaranteed by GNWIA and issued by rrtartgage bankQrs, CCtrrunercial banks, savings and Poan association; and gthea instiuti.on_ security holder is protected by full faith and credit of the U. S. Government Ginnie Mae securities are backed by tha FHA, VA, or FPa~HAA rnc~rtgages. The term passthroughs is often used to describe Ginnie Maw . I.tQUIDITY~ A liquid asset is one that man be Converted easily-and rapidly to#a cash Wlfhout a substantial loss of value. In the mon~jr market, a security is saitt tb be Gaauid if ttte spread between bid and asked prices is natra~+~ and reas~onatale quantities can be purch~esed at those quotes. Ld+CAt. GOVER11tMEPtT tPI1~/ESTMENT PQOL {[_GtPy: The aggregate of aif funds from pptiticarl suhdivisittns th8t 8re placed in ttte custody of the State.: Treastarer far investment and reinvestment, t • http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4,12.04Resolution Page 15 of 16 • MIJ4Rt[ET VA1.Uil:. The price at whicfi a security is tradit~ and rquld presr,mabfy be ~~~Urcfiased ~r s~o~ld, MASTER Rif URCHASE AtaREElIAEMT: A written catintract oovr~ring all future transactions between the parties to repurchase -reverse repurchase agreements that-. e~stablis~s each party's rights in the #ransactions. A master agreement will often specrfy, among Other things, the right of the buyer-lender to ligraidate the underlying st~curitles in the even# of default by the seller-bQrrowere lUIL?N~Y MARKET' The date upon wtOiCh the principaF or stated value of an imr~strnenE becarnes due and payable. t?FFER: 7'he price asked by a seller of securites_ ~Wfien;yvu are buying Securities, yott ask faratn offer,) aoe Asked and Bid. OF''Et~ MARKET C?ipER,ttTIQNS; Purchases and sales of gv+~arnmeret and certain other securitt~s in the open market by the New York Federal Reserve 8anic as dii~cted by the FL~MC in ©rder to influence the uolume of money and credit in the economy: l~ui-chases inject reserves into the bank system and Stimulate growEh v# money ancl' crr~dE; sales have Ehe opposi#e effect. 4pErn market operations are tite Federal Reserve s most important and most flexible rnorretary policy too{. I'QRTFOk.IQ; Gt~dlection of securities held by an investor. PRIMARY [3EAL,.IR: A group of government securities dealer$ vuho<SUbmit dally. reports of market activr"ty and positions and rrronth)y financial statements ttr fhe Federal Reserve Bank of New fork and are subject to its inf~rntal oversight. t?rim~3yrtlealerg. include Securitias artd Exchange ~ammission >SEC)-registered securities br~aker- • dealers, banks, anti a few unregulated firms, PRUDENT PERS+~11t RE1LE: An investmeht standard. In Some states the iBVd requires ttlat a ~dt,ciary, such as a trustee. may invest mc~aey obil}r in a list of securities elected by fhe custody estate-the sa called legal list. In other' states the trustee may invest in' security if it is vnE which would be boug#~t by a pruderrt`persc~n of discretion and. intelligence vnc~a is seeking a reasonable incarne and preservation of capital . 4UAL.IFlED [~UBUC DEPQSITORIES; A financial institution which does not claim exemp#iort from the payment of any sales or compensating use rar ad valorem taxes under the 12ryvs of this state, which has segregated far tt,e benefit of the commission eligible collateral! having a value csf npt less than its maximum Iii3E~ility and which hay been apprra~red kry the Public l3~ppstt Protection Commission to hold ~SUblic deposits: RATE f3~ RETUIwthl; Tfie yield otxtainarble vn a SeCUrity based on its pui~hase price ar its current marketprice. This may. be the amortized yield to maturity gn a band ar the current income return. • http://www.t7chlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005 4,12.04Resolution Page 16 of 16 • I~EPURCHA$E p,f3R~~Q~W~ ~P~p p~R ~Ep~1: hcitder of Securities sells these s~curitPes to an ntisstar with an agreementto repurcFtase them a# a fixed price an a fixed date:. The secerrity buyer in effect lends the seller money fc~r the perrod a# the' agreement, and the terms of the agreement are strecturetl to compensate hire fcrtlis. L7ealera use RP sxtenstUely to finance their positions. Exception; V4rhert the Fed is said tCr be doing }~P, it is (ending mon~ay, that is, increasing bank reserves, $+4FEKEEPIpIG: A senriee to customers render$d by tanks f~vr a fee whereby , s~GUrities and valuables of eli types and descriptiat~s are held in the bank s vaul#s far prttection. SECONQARY IIAARKET; A n1~rk~et made {t?r`the purchase and sale at outstanding issues. foAowing the initial ctistribwtidn. ~ECURI71E5 AND EXCHANf3E CC~iIMISSIt.?N- Agency created by'Cangress to'; protect in~restrsrs ih securities transactions by adminisfenng securities legislatidn. SEC ~l.lLE "15C3-'1: ~ee• Unif4rrn (Vet Capital Rule, TREASURY BILLS; Aoar#-Interest bearing discount security issued h}+ the :tJ.~. 7reas~ury to finanoe the natln~nal debt, Mcst~ills areissu~i ~ matvrt-3 in thr rrtit~t~ths, six months, or one year, 7i~asuaY {({)TES. Intermediate-terra, cvuport-bearing U_5. Treasury securities hawing iniiial maturities tron~ one to ten years,.. tINIFURM htET CAPITAL f2ULE; Securities and Exchange GammissiQn requirement thatrrtember firms as well as nonmember broker-dealers in securities mairttgin a maximum ratio of indebtedness to Liquid capi#al of 15 to t, also called net capi#al rules • .and net capi#al ratio. indebtedness covers all money awed to a firm, including margin loans and commitments t~ purchase securities. one reason n~erv public ifisues are spread among members of undenwrltin9_syndicates. Liquid capital includes cash arad assets easily cQrnerted into cash.;.; YIELD: T7te rate of annual incorrte return an an investment, expressed as percentage. (a) Income Wield is obtained by dividinr~ the current dollar incptp~* by ~e curren# market price for security. {b) Net Yield to Yield A4aturity is the current incom$ yield minus any premium abtiye par or plus any discount tram parin {purchase price, wi#h the adjustment Spread auer the period from the date of purchase #o the date ail rn~tufity of the bond.,. 1 http://www.richlandhills.com/admin/agenda/docs/58%SC4.12.04Resolution.htm 9/27/2005