HomeMy WebLinkAboutItem 11 - Investment Policy ReviewMEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROGER NELSON, CITY MANAGER"
MEETING DATE: OCTOBER 21, 2003
SUBJECT: INVESTMENT POLICY REVIEW
RECOMMENDATION:
City Council to consider review and approval of an ordinance amending the City
Investment Policy, pursuant to the provisions of the Public Funds Investment Act, Chapter
2256, Texas Government Code.
BACKGROUND:
Chapter 2256 of the Texas Government Code, the Public Funds Investment Act, requires
an annual City Council review of the City's Investment Policy. The Council initially adopted
the policy in 1997 and has since amended it several times.
The proposed amendments are:
Broker/Dealer List — adding the following brokers to the allowed broker list:
Samco Capital Markets
Southwest Securities
Multi -Bank Securities
Investment Strategy Statements — Clarification of responsibility — page 10
Pursuant to a recommendation from the Auditors, the City Investment Officers are to be
listed by name and title. This clearly establishes which individuals are allowed to conduct
business with Brokers, Dealers, and other investment institutions. See Attachment "A".
Broker List
This change provides for the Broker/Dealer list to be amended by concurrence of the
investment officers with final approval by the City Manager. From time to time there are
investment opportunities that become available on short notice from brokers and dealers.
With the current structure requiring approval of the investment committee, it could take long
enough to get the committee together that the investment opportunity is lost. With
concurrence of the investment officers and approval by the City Manager, security of
transaction authorization is still maintained.
October 15, 2003 (8:51AM)
This agenda item is provided to allow the Council the opportunity for statutory compliance
with Chapter 2256 and to amend the policy. These items have been reviewed and
recommended for approval by the City Council Audit Committee. A copy of the Investment
Policy, including a copy of the approved broker list is attached.
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October 15, 2003 (8:51AM)
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AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS AMENDING ORDINANCE NO.
97-110 RELATIVE TO THE CITY INVESTMENT POLICY
PURSUANT TO CHAPTER 10 FINANCE, ARTICLE 11
INVESTMENT OF CITY FUNDS TO COMPLY WITH THE
PUBLIC FUNDS INVESTMENT ACT; PROVIDING A
SEVERABILITY CLAUSE; DECLARING AN EMERGENCY
AND PROVIDING AN EFFECTIVE DATE
WHEREAS, the Grapevine Code of Ordinances, Chapter 10, Finance, Article 11
Investment of City Funds, Section 10-31(e) provides that the City Council may adopt
investment policies and guidelines;
WHEREAS, the City Council approved Ordinance No. 97-44 on May 6, 1997
which adopted the current Investment Policy and Investment Strategy and amended
said policy by approving Ordinances No. 97-110, 98-127, 99-159, 2001-86 and 2002-
83; and;
WHEREAS, Chapter 2256 of the Local Government Code requires City Council
to perform an annual view of the City's Investment Policy and Strategy; and
WHEREAS, the City Council deems it in the best interest of the City of Grapevine
to amend the Grapevine Municipal Code to authorize certain changes in the City's
Investment Policy.
NOW, THEREFORE BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS
Section 1. That all matters stated in the preamble to this ordinance are true and
correct and are incorporated herein as if copied in their entirety.
Section 2. That the City Council has performed the annual review of the City
Investment Policy and Investment Strategy required pursuant to Chapter 2256 of the
Texas Government Code and desires to adopt amendments to the Policy as shown on
Exhibit "A " attached hereto and made a part of said Policy.
Section 3. That in order to implement the proposed Investment Policy Changes
as shown on Attachment "A", the Investment Policy is amended in accordance with
Attachment "A".
Section 4. If any section, article, paragraph, sentence, clause, phrase or word
in this ordinance, or application thereto any person or circumstances is held invalid or
unconstitutional by a Court of competent jurisdiction, such holding shall not affect the
validity of the remaining portions of this ordinance; and the City Council hereby declares
it would have passed such remaining portions of the ordinance despite such invalidity,
which remaining portions shall remain in full force and effect.
Section 5. The fact that the present ordinance and regulations of the City of
Grapevine, Texas are inadequate to properly safeguard the health, safety, morals,
peace and general welfare of the inhabitants of the City of Grapevine, Texas, creates an
emergency for the immediate preservation of the public business, property, health,
safety and general welfare of the public which requires that this ordinance shall become
effective from and after the date of its passage, and it is accordingly so ordained.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS on this the 21st day of October, 2003
0220119"D
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ATTEST:
APPROVED AS TO FORM:
ORD. NO. 2
CITY INVESTMENT POLICY AND INVESTMENT STRATEGY
ATTACHMENT "A"
ADOPTED October 21, 2003
Changes to the City Investment Policy and Investment Strategy:
1. Broker Dealer List — adding the following brokers to the allowed broker list:
Samco Capital Markets
Southwest Securities
Multi -Bank Securities
2. Clarification of Responsibility — Page 10
Individuals who are authorized to perform day-to-day performance of managing and
investment of the funds of the City of Grapevine:
Roger Nelson, City Manager
Bruno Rumbelow, Assistant City Manager
William A. Gaither, Director of Administrative Services
Fred L. Werner, Managing Director of Financial Services
3. Selection of Broker approved by Investment Officers — Page 10
The list of approved brokers to be utilized for the purchase of allowed securities is to
be selected by the Investment Officers, with final approval by the City Manager.
ORD. NO. 3
CITY OF GRAPEVINE
INVESTMENT POLICY
Adopted:
May 6, 1997
Most Recent Revision:
November 19, 2002
It is the policy of City of Grapevine that, giving due regard to the safety and risk of investment,
all available funds shall be invested in conformance with State and Federal Regulations, applicable
Bond Resolution requirements, adopted Investment Policy and adopted Investment Strategy.
Effective cash management is recognized as essential to good fiscal management. Aggressive cash
management and effective investment strategy development will be pursued to take advantage of
interest earnings as viable and material revenue to all City funds. The City's portfolio shall be
designed and managed in a manner responsive to the public trust and consistent with this Policy.
Investments shall be made with the primary objectives of:
• Preservation of capital,
• Safety of City funds,
• Maintenance of sufficient liquidity,
• Maximization of return within acceptable risk constraints, and
• Diversification of investments.
DIVESTMENT POLICY
TABLE OF CONTENTS
Page
IPURPOSE..............................................................................................1
H. INVESTMENT OBJECTIVES....................................................................2
III. INVESTMENT POLICIES......................................................................... 3
A. Authorized Investments.........................................................................3
B. Protection of Principal........................................................................... 5
C. Investment Advisors and Investment Providers ............................................. 8
D. Responsibility and Controls....................................................................9
A. Formal Adoption
This Investment Policy is authorized by the City of Grapevine in accordance with Chapter
2256, Texas Government Code, and the Public Funds Investment Act.
B. Scope
This Investment Policy applies to all of the investment activities of the City. This Policy
establishes guidelines for: 1) who can invest City funds, 2) how City funds will be invested,
and 3) when and how a periodic review of investments will be made. In addition to this
Policy, bond funds (as defined by the Internal Revenue Service) shall be managed in
accordance with their issuing documentation and all -applicable State and Federal Law.
All investments made with City funds prior to the adoption of this Investment Policy shall be
held or liquidated as determined by the Investment Officer to be in the best interest of the
financial well being of the City.
C. Review and Amendment
This Policy shall be reviewed annually by the City Council. Amendments must be approved
by the Investment Officer and adopted by the City Council.
D. Investment Strategy
In conjunction with the annual Policy review, the City Council shall review the separate
written investment strategy for each of the City funds. The investment strategy must describe
the investment objectives for each particular fund according to the following priorities:
1) investment suitability,
2) preservation and safety of principal,
3) liquidity,
4) marketability prior to maturity of each investment,
5) diversification, and
6) yield.
Monitoring of market prices for investments will be accomplished by utilizing the most recent
issues of the Wall Street Journal or the Investor Business Daily.
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},..,» II. Ir"TSTMENT OBJECTIVES
A. Safety of Principal
The primary objective of all investment activity is the preservation of capital and the safety
of principal in the overall portfolio. The first priority of each investment transaction shall be
to ensure that capital losses are avoided, whether they be from securities defaults or erosion
of market value.
B. Maintenance of Adequate Liquidity
The City's investment portfolio will remain sufficiently liquid to meet the cash flow
requirements that might be reasonably anticipated. Liquidity shall be achieved by matching
investment maturities with forecasted cash flow requirements; investing in securities with
active secondary markets; and maintaining appropriate portfolio diversification.
A. Authorized Investments
Investments described below are authorized by the Public Funds Investment Act as eligible
securities for the City. The City's funds governed by this Policy may be invested in:
1. Obligations of Governmental Entities.
Except for the items listed in (h) below, the following are authorized investments for
obligations of governmental agencies:
a. Obligations of the United States or its agencies and instrumentalities;
b. Direct obligations of the State of Texas or its agencies and instrumentalities;
c. Other obligations, the principal and interest on which are unconditionally
guaranteed, insured by, or backed by the full faith and credit of the State of Texas
or the United States or their respective agencies and instrumentalities;
d. Obligations of states, agencies, counties, cities, and other political subdivisions
of any State having been rated as to investment quality by a nationally recognized
investment rating firm and having received a rating of not less than "A" or its
equivalent; and
e. 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.
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f. Guaranteed investment contracts will be authorized for bond proceeds if the
guaranteed investment contract:
(1) has a defined termination date.
(2) is secured by obligations described by Section 2256.009(a)(1), excluding
those obligations described by Section 2256.009(b), in an amount at
least equal to the amount of bond proceeds invested under the contract;
and
(3) is pledged to the entity and deposited with the entity or with a third
party selected and approved by the entity.
g. The average life of Governmental Obligations may not exceed 2 '/a years and
stated maturities may not exceed 2 r/2 years.
h. The following are not authorized investments for this City:
(1) Obligations whose payments represent the coupon payments on the
outstanding principal balance of the underlying mortgage-backed
security collateral and pays no principal (Interest Only CMO);
(2) Obligations whose payments represent the principal stream of cash flow
from the underlying mortgage-backed security collateral and bears no
interest (Principal Only CMO);
(3) Collateralized mortgage obligations that have a stated final maturity date
of greater than 3 years; and
(4) Collateralized mortgage obligations, the interest rate of which is
determined by an index that adjusts opposite to the changes in the
market index (Inverse Floater CMO).
The City of Grapevine expressly prohibits the acceptance of collateralized deposits interest -
only and principal -only mortgage backed securities and collateralized mortgage obligations
with stated final maturities in excess of ten years or with coupon rates that float inversely to
market index movements.
2. Certificates of Deposit.
Certificates of deposit issued by state and national banks and savings and loan associations
domiciled in Texas that are:
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a. Guaranteed or insured by the Federal Deposit Insurance Corporation or its successors;
.,,.. or
b. Secured by obligations that are described by 1 above, which are intended to include
all direct Federal agency or instrumentality issued mortgage backed securities, but
excluding those mortgage backed securities of the nature described in Lf. above, that
have a market value of not less than the principal amount of the certificates; or
c. Secured in any other manner and amount provided by law for deposits of the City of
Grapevine; or
d. Governed by a Depository Agreement, as described in B.4. of this section, that
complies with Federal and State regulation to properly secure a pledged security
interest.
e. Certificates of Deposit may have stated maturities of no greater than one year.
3. Repurchase Agreements.
a. Fully collateralized repurchase agreements and reverse repurchase agreements as
defined by the Public Funds Investment Act, with a defined termination date that are
placed with a primary government securities dealer or financial institution doing
business in the State of Texas, and which are secured by obligations of the United
States or its agencies and instrumentalities and which are pledged in the City's name
and deposited with a third party custodian bank selected and approved by the City.
Repurchase agreements should not exceed 180 days to stated maturity and reverse
repurchase agreements should not exceed 90 days to stated maturity, provided an
executed PSA Master Repurchase Agreement is on file with the City and the counter
parry bank or dealer.
b. Sweep accounts are authorized for the City's excess collected balances, with such funds
invested in a repurchase agreement as defined and authorized by this policy and
collateralized as required by this policy for repurchase agreements.
4. Mutual Funds.
Money market mutual funds regulated by the Securities & Exchange Commission, with a
dollar weighted average portfolio maturity of 90 days or less that fully invest dollar -for -dollar
all City's funds without sales commissions or loads and, whose investment objectives include
seeking to maintain a stable net asset value of $1 per share. The City may not invest funds
under its control in an amount that exceeds 10% of the total assets of any individual money
market mutual fund or exceeds 15% of its monthly average fund balance, excluding bond
proceeds and reserves and other funds held for debt service in money market mutual funds;
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5. Investment Pools.
Eligible investment pools organized and operating in compliance with the Public Funds
Investment Act that have been authorized by the City Council; and whose investment
philosophy and strategy are consistent with this Policy and the City's ongoing investment
strategy.
B. Protection of Principal
The City shall seek to control the risk of loss due to the failure of a security issuer or grantor.
Such risk shall be controlled by investing only in the safest types of securities as defined in the
Policy; by collateralization as required by law; and through portfolio diversification by maturity
and type.
The purchase of individual securities shall be executed "delivery versus payment" (DVP) through
the City's Safekeeping Agent. By so doing, City's funds are not released until the City has
received, through the Safekeeping Agent, the securities purchased.
1. Diversification by Investment Type
Diversification by investment type shall be maintained by ensuring an active and efficient
secondary market in portfolio investments and by controlling the market and opportunity
risks associated with specific investment types.
Diversification by investment type shall be established by the following maximum
percentages of investment type as compared to the total investment portfolio at the time
of each investment transaction:
a. U.S. Treasury Bills/Notes/Bonds 100%
b. U. S. Agencies & Instrumentalities 100%
c. States, Counties, Cities, & Other 75%
d. Certificates of Deposit 75%
e. Money Market Mutual Funds 20%
f. Eligible Investment Pools 100%
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2. Bond Proceeds
Bond proceeds may be invested in a single security or investment if the City Manager
determines that such an investment is necessary to comply with Federal arbitrage restrictions
or to facilitate arbitrage record keeping and calculation.
3. Diversification by Investment Maturity
In order to minimize risk of loss due to interest rate fluctuations, investment maturities will
not exceed the anticipated cash flow requirements of the funds. Maturity guidelines by fund
are as follows (Investment transactions made prior to the adoption of this Policy are not
subject to these guidelines):
a. Operating Funds
The weighted average days to maturity for the operating fund portfolio shall be less than
270 days and the maximum allowable maturity shall be 2 1/2 years.
b. Construction and Capital Improvement Funds
The investment maturity of construction and capital improvement funds shall generally
be limited to the anticipated cash flow requirement or the "temporary period," as defined
by Federal tax law. During the temporary period bond proceeds may be invested at an
unrestricted yield. After the expiration of the temporary period, bond proceeds subject
to yield restriction shall be invested considering the anticipated cash flow requirements
of the funds and market conditions to achieve compliance with the applicable regulations.
The maximum maturity for construction or capital improvement funds investments shall
generally be no longer than the construction time required for a particular project, with
no single security instrument exceeding the life of authorized investments as described in
1 f. above.
c. Debt Service Funds
Debt Service Funds shall be invested to ensure adequate funding for each consecutive debt
service payment. The Investment Officers shall invest in such a manner as not to exceed
an "unfunded" debt service date with the maturity of any investment. An unfunded debt
service date is defined as a coupon or principal payment date that does not have cash or
investment securities available to satisfy said payment.
Funds that are considered "bond proceeds" for arbitrage purposes may be invested using
a more conservative approach than the standard investment strategy when arbitrage rebate
rules require rebating excess earnings. All earnings in excess of the allowable arbitrage
earnings ("rebate liability") will be segregated and made available for any necessary
payments to the U.S. Treasury.
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4. Ensuring Liquidity
Liquidity shall be achieved by anticipating cash flow requirements, by investing in
securities with active secondary markets and by investing in eligible money market mutual
funds and local government investment pools.
A security may be liquidated to meet unanticipated cash requirements, to re -deploy cash
into other investments expected to outperform current holdings, or otherwise to adjust the
portfolio.
5. Depository Agreements
Consistent with the requirements of State law, the City requires all bank and savings and
loan association deposits to be federally insured or collateralized with eligible securities.
Financial institutions serving as the City's Depositories will be required to sign a
Depository Agreement with the City and the City's safekeeping agent. The safekeeping
portion of the Agreement shall define the City's rights to the collateral in case of default,
bankruptcy, or closing and shall establish a perfected security interest in compliance with
Federal and State regulations, including:
• the Agreement must be in writing;
• the Agreement has to be executed by the Depository and the City of Grapevine
contemporaneously with the acquisition of the asset;
• the Agreement must be approved by the Board of Directors or the loan committee of
the Depository and a copy of the meeting minutes must be delivered to the City of
Grapevine;
• the Agreement must be part of the Depository's "official record" continuously since
its execution.
a. Allowable Collateral
Eligible securities for collateralization of deposits are defined by the Public Funds
Collateral Act, as amended, and meet the constraints of this Policy.
b. Collateral Levels
The market value of the principal portion of collateral pledged for certificates of
deposit must at all times be equal to or greater than the par value of the certificate of
deposit plus accrued interest, less the applicable level of FDIC insurance.
c. Monitoring Collateral Adequacy
The City shall require monthly reports with market values of pledged securities from
all financial institutions with which the City has collateralized deposits. The
Investment Officers will monitor adequacy of collateralization levels to verify market
values and total collateral positions.
d. Additional Collateral
If the collateral pledged for a deposit falls below the par value of the deposit, plus
accrued interest and less FDIC insurance, the institution holding the deposit will
notify the City and must pledge additional securities no later than the end of the next
succeeding business day.
e. Collateral Maturity
Collateral pledged for a deposit may not exceed five years as stated maturity.
f. Security Substitution
Collateralized deposits often require substitution of securities. Any financial
institution requesting substitution must contact the Investment Officers for approval
and settlement. The substituted security's value will be calculated and substitution
approved if the substitution maintains a pledged value equal to or greater than the
required security level. An Investment Officer must provide written notification of
the decision to the bank or the safekeeping agent holding the security prior to any
security release. Substitution is allowable for all transactions, but should be limited,
if possible, to minimize potential administrative problems and transfer expense. The
Investment Officers may limit substitution and assess appropriate fees if substitution
becomes excessive or abusive.
6. Safekeeping
a. Safekeeping Agreement
The City shall contract with a bank or banks for the safekeeping of securities either
owned by the City as a part of its investment portfolio or as part of its depository
agreements.
b. Safekeeping of Deposit Collateral
All collateral securing bank and savings and loan deposits must be held by a third -
party banking institution acceptable to and under contract with the City of Grapevine,
or by the Federal Reserve Bank.
C. Investment Advisors and Investment Providers
Investment Advisors shall adhere to the spirit, philosophy and specific term of this Policy and
shall invest within the same "Standard of Care." Investment Providers shall adhere to the
spirit and philosophy of this Policy and shall avoid recommending or suggesting transactions
outside that "Standard of Care."
Selection of Investment Advisors and Investment Providers will be performed by the
Investment Committee. The Investment Committee will establish criteria to evaluate
Investment Advisors and Investment Providers, including:
a. Adherence to the City's policies and strategies,
b. Investment performance and transaction pricing within accepted risk constraints,
c. Responsiveness to the City's request for services, information and open communication,
d. Understanding of the inherent fiduciary responsibility of investing public funds, and
e. Similarity in philosophy and strategy with the City of Grapevine's objectives.
Selected Investment Advisors and Investment Providers shall provide timely transaction
confirmations and monthly activity reports.
Business organizations eligible to transact investment business with the City shall be presented
a written copy of this Investment Policy. Additionally, the registered principal of the business
organization seeking to transact investment business shall execute a written instrument
substantially to the effect that the registered principal has:
1) received and thoroughly reviewed this Investment Policy, and
2) (a) Acknowledged that the business organization has implemented
reasonable procedures and controls in an effort to preclude investment
transactions conducted between the City and the organization that are
not authorized by the City's investment policy, except to the extent that
this authorization is dependent on an analysis of the makeup of the
City's entire portfolio or requires an interpretation of subjective
investment standards.
(b) Such instrument must be accepted by a qualified representative of the
business. Such qualified representative must meet the following criteria:
(1) "Qualified representative" means a person who holds a position with a
business organization, who is authorized to act on behalf of the business
organization, and who is one of the following:
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W for a business organization doing business that is regulated by or registered
with a securities commission, a person who is registered under the rules of the
National Association of Securities Dealers;
(ii) for a state or federal bank, a savings bank, or a state or federal credit union,
a member of the loan committee for the bank or branch of the bank or a
person authorized by corporate resolution to act on behalf of and bind the
banking institution; or
(iii) for an investment pool, the person authorized by the elected official or board
with authority to administer the activities of the investment pool to sign the
written instrument on behalf of the investment pool.
The City shall not enter into an investment transaction with a business organization
prior to receiving the written instrument described above.
3) The list of approved brokers to be utilized for the purchase of allowed securities is to
be selected by the investment committee with such list of selected brokers to be
provided to the City Council on an annual basis or at anytime the list is modified. All
such brokers so selected will meet the criteria set forth in the other provisions of this
Investment Policy.
D. Responsibility and Controls
1. Delegation of Authority to Invest
The city council hereby designates the "investment officers" to be the city manager, with
overall responsibilities to see that investment objectives are accomplished and that the,
assistant city manager, director of administrative services, or his designee, managing
director of financial services are vested and authorized with specific day-to-day performance
of managing and investment of the funds of the City of Grapevine. (See Attachment "A"
for names of individuals authorized)
Per Ordinance 98-127 The City Council has established an Investment Committee consisting
of the City Council representative to the audit committee, City Manager or Assistant City
Manager, the Director of Administrative Services and Managing Director of Financial
Services of the City of Grapevine. The committee shall perform the following duties:
1. Establish and modify from time to time a list of approved brokers for the purchase of
allowed securities. The list of approved brokers to be utilized for the purchase of allowed
securities is to be selected by the Investment Committee Officers, with such list of
selected brokers to be provided to the City Council on an annual basis or at anytime the
list is modified. All such brokers so selected will meet the criteria set forth in the other
provisions of the City's Investment Policy.
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2. Review the City's investment portfolio on a regular basis and determine appropriate
portfolio adjustments, oversee the City's investment advisor, monitor compliance with
the City's Investment Policy and Strategy statements and perform other duties as
necessary to maintain the City's investment program.
2. Training
(a) All Investment Officers of the City of Grapevine shall have a minimum of 10
classroom hours of Investment Training during each consecutive 24 month period
following the effective date of this Ordinance.
(b) Training as required in (2.(a) above is authorized to be provided from one or more
of the following sources:
The Texas Municipal League (TML)
The North Central Texas Council of Governments (NCTCOG)
Courses sponsored by the Government Finance Officers Association
Area Universities and Colleges
Qualified training institutions not affiliated with any financial institution
the City does business with
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2. Prudent Investment Management
The designated Investment Officers shall perform their duties in accordance with the adopted
Investment Policy and internal procedures. In determining whether an Investment Officer has
exercised prudence with respect to an investment decision, the investment of all funds over which
the Investment Officer had responsibility; rather that the prudence of a single investment shall be
considered. Investment Officers acting in good faith and in accordance with these policies and
procedures shall be relieved of personal liability.
3. Standard of Care
The standard of care used by the City shall be the "prudent investor rule" and shall be applied in
the context of managing the overall portfolio within the applicable legal constraints. The Public
Funds Investment Act states:
"Investments shall be made with judgment and care, under circumstances then prevailing, that a
person of prudence, discretion and intelligence would exercise in the management of the person's
own affairs, not for speculation, but for investment, considering the probable safety of capital and
the probable income to be derived."
4. Standards of Ethics
The designated Investment Officers shall act as custodians of the public trust avoiding any
transaction which might involve a conflict of interest, the appearance of a conflict of interest, or
any activity which might otherwise discourage public confidence. Investment Officers 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.
Additionally, all Investment Officers shall file with the Texas Ethics Commission and the City a
statement disclosing any personal business relationship with an entity seeking to sell investments
to the City.
Each City investment officer shall disclose if he has a personal business relationship with any
investment firm doing business with the City, if the extent of business relationship meets any of
the following conditions:
(a) the investment officer owns 10% or more of the voting stock or shares of the business
organization or owns $5,000 or more of the fair market value of the business
organization;
(b) funds received by the investment officers from the business organization exceed 10
percent of the investment officer's gross income for the previous year; or
(c) the investment officer has acquired from the business organization during the previous
year investments with a book value of $2,500 or more for the personal account of the
investment officer.
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(d) If the investment officer is related within the second degree by affinity or consanguinity,
as determined under the Government Code, to an individual seeking to sell an investment
to the City.
6. Establishment of Internal Controls
The City of Grapevine's Investment Officer will maintain a system of internal controls over the
investment activities of the City.
7. Reporting
Investment performance will be monitored and evaluated by the Investment Officer. The
Investment Officers will provide a quarterly comprehensive report signed by all Investment
Officer to the City Council. This investment report shall:
1) describe in detail the investment position of the City,
2) state the reporting period beginning book and market value, additions or changes to the
book and market value during the period and ending book and market value for the period
of each pooled fund group,
3) state the reporting period beginning book and market value and reporting period ending
book and market value for each investment security by asset type and fund type,
4) state the maturity date of each investment security,
5) state the fund for which each investment security was purchased, and
6) state the compliance of the investment portfolio with the City's Investment Policy and
strategy and the Public Funds Investment Act.
The City of Grapevine, in conjunction with its Annual Financial Audit, shall perform a
compliance audit of management controls on investments and adherence to the City's
Investment Policy and Investment Strategy Statement. The City's independent auditor is
required to review the Quarterly Investment Reports during the annual audit of the City's
Financial System.
H:invpo12003
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CITY INVESTMENT POLICY AND INVESTMENT STRATEGY
ATTACHMENT "A"
1. Individuals who are authorized to perform days -to -day performance of managing
and investment of the funds of the City of Grapevine:
Roger Nelson, City Manager
Bruno Rumbelow, Assistant City Manager
William A. Gaither, Director of Administrative Services
Fred L. Werner, Managing Director of Financial Services
CITY OF GRAPEVINE, TEXAS
BROKER/DEALER LIST
The following is a list of approved and authorized broker/dealers used for the City of
Grapevine, Texas. Each of the firms used from this list will provide compliance materials
and a complete file of those materials will be maintained by the City.
In accordance with Section 2256.025 of the Public Funds Investment Act, the list below is
approved by the Investment Committee.
Primary Broker/Dealers
Banc One Capital Markets, Inc.
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Salomon Smith Barney Inc.
Zions First National Bank
Regional/Local Brokers
Vinning-Sparks
First Southwest Company
First Tennessee Capital Markets
Coastal Securities
Gifford Securities
Duncan Williams
Wells Fargo
Samco Capital Markets
Southwest Securities
Multi -Bank Securities
Kbrokerslis=03
CITY OF GRAPEVINE
INVESTMENT STRATEGY STATEMENT
Adopted:
May 6, 1997
Revised:
November 16, 1999
November 19 2002
It is the policy of the City of Grapevine that, giving due regard to the safety and risk of
investment, all available funds shall be invested in conformance with State and Federal
Regulations, applicable Bond Resolution requirements, adopted Investment Policy and adopted
Investment Strategy.
In accordance with the Public Funds Investment Act, the City of Grapevine's investment strategies
shall address the following priorities (in order of importance):
• Understanding the suitability of the investment to the financial requirements of the City,
• Preservation and safety of principal,
Liquidity,
• Marketability of the investment prior to maturity,
• Diversification of the investment portfolio, and
® Yield.
Effective investment strategy development coordinates the primary objectives of the City of
Grapevine's Investment Policy and cash management procedures to enhance interest earnings and
reduce investment risk. Aggressive cash management will increase the available "investment
period" and subsequently interest earnings. Maturity selections shall be based on cash flow and
market conditions to take advantage of various interest rate cycles. The City's investment
portfolio shall be designed and managed in a manner responsive to the public trust and consistent
with the Investment Policy.
Each major fund type has varying cash flow requirements and liquidity needs. Therefore specific
strategies shall be implemented considering the fund's unique requirements. The City's funds
shall be analyzed and invested according to the following major fund types:
a. Operating Funds
b. Construction and Capital Improvement Funds
C. Debt Service Funds
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INVESTMENT STRATEGY
In order to minimize risk of loss due to interest rate fluctuations, investment maturities will not
exceed the anticipated cash flow requirements of the funds. Investment guidelines by fund -type
are as follows:
a. Operating Funds
The City of Grapevine's Operating Funds are as follows:
General Fund Occupancy Tax Fund
Water and Sewer Fund Grant Fund
TIF 1 & 2 Operating Fund Trust and Agency Fund
Lake Enterprise Fund Self Insurance Fund
Fleet Management Fund Capital Lease Fund
Heritage Foundation Fund
Suitability Any investment eligible in the Investment Policy is suitable for the Operating Funds.
Safety of Principal - All investments shall be of high quality securities with no perceived default
risk. Market price fluctuations will occur. By managing the weighted average days to maturity
for the Operating Fund portfolio to less than 270 days and restricting the maximum allowable
maturity to 2 1/2 years, the price volatility of the overall portfolio will be minimized.
Marketability - Securities with active and efficient secondary markets are necessary in the event
of an unanticipated cash requirement. Historical market "spreads" between the bid and offer
prices of a particular security -type of less than a quarter of a percentage point shall define an
efficient secondary market.
Liquidity - The Operating Funds require the greatest short term liquidity of any of the fund types.
Short term investment pools and money market mutual funds shall provide daily liquidity and may
be utilized as a competitive yield alternative to fixed maturity investments.
Diversification - Investment maturities shall be staggered throughout the budget cycle to provide
cash flow based on the anticipated operating needs of the City. Market cycle risk will be reduced
by diversifying the appropriate maturity structure out through two years.
Yield - Attaining a competitive market yield for comparable security -types and portfolio
restrictions is the desired objective. The yield of an equally weighted, rolling three month
treasury bill portfolio shall be the minimum yield objective.
b. Construction and Capital Improvement Funds
The City of Grapevine's Construction and Capital Improvement funds are as follows:
Capital Projects - Streets
Capital Projects - General Facilities and Equipment
Capital Projects - Recreation
Capital Projects - Street Maintenance and Capital Replacement
Capital Projects - Tax Increment Financing Districts #1 and #2.
Suitability - Any investment listed as eligible in the Investment Policy is suitable for Construction
and Capital Improvement Funds.
Safety of Principal - All investments shall be of high quality securities with no perceived default
risk. Market price fluctuations will, however, occur. By managing the Construction and Capital
Improvement Fund's portfolio to exceed the anticipated expenditure schedule the market risk of
the overall portfolio will be minimized.
Marketability - Securities with active and efficient secondary markets are necessary in the event
of an unanticipated cash requirement. Historical market "spreads" between the bid and offer
prices of a particular security -type of less than a quarter of a percentage point shall define an
efficient secondary market.
Liquidity - The City's funds used for construction and capital improvement programs have
reasonably predictable draw down schedules. Therefore, investment maturities shall generally
follow the anticipated cash flow requirements. Investment pools and money market mutual funds
shall provide readily available funds generally equal to one month's anticipated cash flow needs,
or a competitive yield alternative for short term fixed maturity investments. A singular repurchase
agreement may be utilized if disbursements are allowed in the amount necessary to satisfy any
expenditure request. This investment structure is commonly referred to as a Flexible Repurchase
Agreement.
Diversification - Market conditions and arbitrage regulations influence the attractiveness of
staggering the maturity of fixed rate investments for bond proceeds and other construction and
capital improvement funds. With bond proceeds, if investment rates exceed the applicable
arbitrage yield, the City is best served by locking in most investments. If the arbitrage yield
cannot be exceeded, then concurrent market conditions will determine the attractiveness of
diversifying maturities or investing in shorter and larger amounts. At no time shall the anticipated
expenditure schedule be exceeded in an attempt to bolster yield with any City funds.
Yield - Achieving a positive spread to the applicable arbitrage yield is the desired objective for
bond proceeds. Non -bond proceed construction and capital project funds will target a rolling
portfolio of six month treasury bills.
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c. Debt Service Funds
The City's Debt Service Fund includes:
Debt Service Fund - General Obligations
Debt Service Fund - Tax Increment Financing Districts #1 and #2.
Suitability - Any investment listed as eligible in the Investment Policy is suitable for the Debt
Service Fund.
Safety of Principal - All investments shall be of high quality securities with no perceived default
risk. Market price fluctuations will however occur. By managing the Debt Service Fund's
portfolio to not exceed the debt service payment schedule the market risk of the overall portfolio
will be minimized.
Marketability - Securities with active and efficient secondary markets are not necessary, as the
event of an unanticipated cash requirement is not probable.
Liquidity - Debt service funds have predictable payment schedules. Therefore, investment
maturities shall not exceed the anticipated cash flow requirements. Investment pools and money
market mutual funds may provide a competitive yield alternative for short term fixed maturity
investments. A singular repurchase agreement may be utilized if disbursements are allowed in
the amount necessary to satisfy any debt service payment, this investment structure is commonly
referred to as a Flexible Repurchase Agreement.
Diversification - Market conditions influence the attractiveness of fully extending maturity to the
next "unfunded" payment date. Generally if investment rates are trending down, the City is best
served by locking in most investments. If interest rates are flat or trending up, then concurrent
market conditions will determine the attractiveness of extending maturity or investing in shorter
term alternatives. At no time shall the debt service schedule be exceeded in an attempt to bolster
yield.
Yield - Attaining a competitive market yield for comparable security -types and portfolio
restrictions is the desired objective. The yield of an equally weighted, rolling three month
treasury bill portfolio shall be the minimum yield objective.
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