Loading...
HomeMy WebLinkAboutRes 2019-11 Accepting the Investment PolicyCity of West University Place Harris County, Texas RESOLUTION NO. 2019-11 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST UNIVERS TEXAS, REVIEWING AND ACCEPTING THE CITY OF WEST UNIVERSIT INVESTMENT POLICY IN ACCORDANCE WITH THE PUBLIC FUNDS INVESTMEIS MATTERS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE TI WHEREAS, the City of West University Place, Texas, established policies and proce investment of funds on March 21, 1988 by Resolution Number 88 -03; and WHEREAS, in 1995 and 2009 through 2016, the City Council amended the City' Policy to incorporate amendments according to the Public Funds Investment A improved management of the City's investments and reflecting any organizational chat WHEREAS, Texas Government Code, Section 2256.005(e) requires that the InveE shall be made in accordance with written policies approved, at least annually, by tl body; and WHEREAS, investment policies must address safety of principal, liquidity, yield, diver maturity, with primary emphasis on safety of principal; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WEST UNIVERS TEXAS: Section 1. That the City Council of West University Place, Texas, has reviewf Investment Policy and Investment Strategies and the policy and strategies adopted hereof records any changes made by the City Council to such document. Section 2. That the City Council of the City of West University Place, Texas, heret Investment Policy, including the Investment Strategies, of the City of West University is attached hereto as Attachment - A and incorporated herein for all intents and purpo(, Section 3. This Resolution shall take effect immediately from and after its passag+ Council of the City of West University Place, Texas. INTRODUCEq, READ and PASSE by the ffirmativ vote of the City Council of the Uni exas, this the, ay of , 20_. Signed: !� . lLl S cr ( Mayor ATTACHMENT —A (This page intentionally left blank) CITY OF WEST UNIVERSITY PLACE, TEXAS INVESTMENT POLICY City of 0 West Univers.- Place August 26, 2019 City of West University Place Investment Policy Table of Contents I. Policy II. Purpose III. Scope IV. General Objectives A. Safety B. Liquidity C. Public Trust D. Yield V. Standards of Care A. Prudence B. Ethics and Conflicts of Interest C. Delegation of Authority D. Training E. Internal Controls VI. Safekeeping and Custody A. Authorized Financial Dealers and Institutions B. Competitive Bids C. Delivery vs. Payment VII. Suitable and Authorized Investments A. Eligible Investments B. Collateral ization C. Existing Investments VIII. Investment Parameters A. Diversification B. Maximum Maturities IX. Investment Strategies X. Reporting A. Methods B. Performance Standards C. Marking to Market EXHIBITS A Authorized Investment Officials B - Statement of Ethics and Conflicts of Interest /\ • 1 T\ S /T1 1 T• • 7 ■ City of West University Place Investment Policy I. Policy It is the policy of the City of West University Place (the "City ") to administ invest its funds in a manner that will preserve the principal, maintain liquidit optimize interest earnings while meeting the daily cash flow requirements of th4 The City will conform to all federal, state and local statutes, rules and regul governing the investment of the City's funds. This Policy sets forth the inve; program of the City and the guidelines to be followed in achieving its objectives The City's policy is to hold investments to maturity; however, securities may t in order to minimize the potential loss of principal on a security whose credit c has declined; or to meet unanticipated liquidity needs of the City. Not less than annually, City Council shall adopt a written instrument by rest stating that it has reviewed the Investment Policy and investment strategies at the written instrument so adopted shall record any changes made to the Inve Policy or investment strategies. II. Purpose The purpose of this policy is to comply with Chapter 2256 of the Texas Govem Code ( "Public Funds Investment Act" or "PFIA" or "Act "), which requires each entity to adopt a written investment policy regarding the investment of its funds funds under its control. The investment policy addresses the methods, procedur practices that must be exercised to ensure effective and judicious fiscal manager of the entity's funds. III. Scope This investment policy applies to all funds and investments of the City. These are accounted for in the City's Comprehensive Annual Financial Repoi include all funds managed by the City, including but not limited to tax rev charges for services, bond proceeds, interest income, loans and funds received City where the City performs a custodial function. However, this policy do apply to the assets administered for the benefit of the City by outside agencies deferred compensation programs or other retirement programs. The City will consolidate cash balances from all funds to maximize inve earnings, (except as otherwise required by covenants in bond ordinances, agreements as defined in V.T.C.A., Government Code § 1371.001 or other app City of West University Place Investment Policy IV. General Objectives The primary objectives, in priority order, of the City's investment activities sl safety, liquidity, and yield: A. Safety - Safety of the principal is the primary objective of the inve program. Investments shall be undertaken in a manner that see ensure the preservation of capital for the overall portfolio. The ob will be to minimize credit risk and interest rate risk. i. Credit Risk and Concentration of Credit Risk - The Ci- minimize credit risk, which is the risk of loss due to the of the security issuer or backer, and concentration of cred the risk of loss attributed to the magnitude of investmen single issuer, by: • Limiting investments to the types listed in Sectio ( "Suitable and Authorized Investments ") of this Policy, • Pre - qualifying the financial institutions, brokerid intermediaries, and advisers with which the City w business in accordance to Section VI.A ( "Authorized Fir Dealers and Institutions "), and; • Diversifying the investment portfolio so that potential lo: individual securities will be minimized. ii. Interest Rate Risk The City will minimize interest rat which is the risk that the market value of securities in the pc will fall due to changes in market interest rates, by: • Structuring the investment portfolio so that securities ma meet cash requirements for ongoing operations, t avoiding the need to sell securities on the open market r maturity, • Investing operating funds primarily in shorter -term sec - money market funds that seek a stable $1.00 price per sl stable $1.00 net asset value (NAV) to avoid potential lip fees or redemption gates, or similar local govei investment pools, limiting the weighted average maturity portfolio in accordance with Section IX ( "Inve Strategies "), and; • Diversify maturities and stagger purchase dates to minim impact of market movements over time in accordant RPntinn Vill ( "invPCtmPnt ParamPtPrc" ) City of West University Place Investment Policy since all possible cash demands cannot be anticipated, a portion portfolio will be invested in money market funds that seek a stable NAV or local government investment pools that offer same -day lic for short-term funds. Additionally, a portion of the portfolio will c of securities with active secondary or resale markets. C. Public Trust All participants in the City's investment process sha to act responsibly as custodians of the public trust. Investment O shall at all times be cognizant of the standard of care and inve objectives and shall avoid any transaction that might impair confidence in the City's ability to govern effectively. D. Yield — The investment portfolio shall be designed with the objec' attaining a market rate of return, throughout budgetary and ecc cycles, taking into account the investment risk constraints and lic needs of the portfolio. Return on investment is of least impc compared to the safety and liquidity objectives described above. Tf of investments is limited to relatively low risk securities in anticipa earning a fair return relative to the risk being assumed. Securities A be sold prior to maturity with the following exceptions: • A security with declining credit may be sold early to minimize l principal • Liquidity needs of the portfolio require that the security be sold V. Standards of Care A. Prudence - The standard of prudence to be used by investing offii designated investing officials shall be the "prudent person" rult rule states that "Investments shall be made with judgment and care, circumstances then prevailing, which persons of prudence, discretii intelligence exercise in the management of their own affairs, r. speculation, but for investment, considering the probable safety o capital as well as the probable income to be derived." The determi of whether an investing official has exercised prudence with respec investment decision shall be applied in the context of managing an portfolio rather than a consideration as to the prudence of a investment. Investment Officers acting in accordance with written procedures z investment policy and exercising due diligence shall be relie, personal responsibility for an individual security's credit risk or City of West University Place Investment Policy B. Ethics and Conflicts of Interest Investment Officer(s) and emp involved in the investment process agree to refrain from personal bu activity that could conflict with proper execution and management investment program, or that could impair their ability to make im investment decisions. Investment Officer(s) and Investment Offi shall agree to disclose to the City Council with said disclosure held within the Finance Department any conflicts of interests or pc business relationship with financial institutions that conduct busines the City. They shall further disclose any personal financial /inve: positions that could be related to the performance of the inve: portfolio. (See Exhibit B.) A statement required under this subsection must be filed with the Ethics Commission and the City Council if. a. The Investment Officer or Investment Official personal business relationship with a business organi offering to engage in an investment transaction wi City; or b. An Investment Officer or Investment Official v related within the second degree by affini consanguinity, as determined under Chapter 573 Texas Government Code, to an individual seeki transact investment business with the. C. Delegation of Authority - Authority to manage the City's inve; program is granted to the Finance Director, hereinafter referred Investment Officer, and derived from the following: City Charter 1 VII, Section 7.01 c. Responsibility for the operation of the inve program is hereby delegated to the Investment Officer, who shall accordance with established procedures and internal controls f operation of the investment program consistent with this inve policy. This policy includes explicit delegation of authority to p responsible for investment transactions. (See Exhibit A) No perso engage in an investment transaction except as provided under the to this policy and the procedures established by the Investment Office Investment Officer shall be responsible for all transactions undertak shall establish a system of controls to regulate activities of suboi Investment Officials (Treasurer and Fiscal Services Officer). D. Training - Investment Officer(s) and persons authorized to City of West University Place Investment Policy strategy risks, market risks, diversification of investment portfoli compliance with the Act. The City shall provide the training ti courses and seminars offered by professional organization: associations in order to insure the quality and capability of the investment personnel are in compliance with PFIA. Profe: organizations and associations that may provide investment ti including the Government Treasurer's Organization of Texa. University of North Texas, the Government Finance Officers Assoc of Texas, Treasury Management Association, or the Texas Mui League. E. Internal Controls - The Finance Director is responsible for estab' and maintaining an internal control structure designed to ensure that funds of the entity are protected from loss, theft, or misuse. The ii control structure shall be designed to provide reasonable assuranc these objectives are met. The concept of reasonable assurance reco that (a) the cost of a control should not exceed the benefits likely derived and (b) the valuation of costs and benefits requires estimat judgments by management. Therefore, the Finance Director establish a process for annual independent review by an external during the annual audit to assure compliance with policies and proce VI. Safekeeping and Custody A. Authorized Financial Dealers and Institutions The Investment or Investment Official(s) will maintain a list of financial institute. security broker /dealers authorized to provide investment services I C) to the City. This list shall be reviewed, revised as necessary and at least annually. Investment Officers or Investment Official(s) s conduct business with any firm not approved by City Council. N4 deposit shall be made except in a qualified public depository as est by state laws. Those firms that request to become qualified bidders for si transactions will be required to provide 1) information rE creditworthiness, experience, references and reputation, and certification stating the firm has received, read and understood the investment policy and agree to comply with the policy. Authorizf may include primary dealers or regional dealers that qualify Securities & Exchange Commission Rule 15C3 -1 (Uniform Net Rule), and qualified depositories. All investment providers, it City of West University Place Investment Policy investment transactions that are not authorized by the City's polic), Exhibit D) Should an approved institution merge with or be acquired by while on the City's approved list, the new institution must agree the same collateralization and certification requirements or removed from the approved list. B. Competitive Bids — The City's policy requires that at least competitive bids or offers must be solicited for all individual sec purchases and sales except for a) transactions with money market i and local government investment pools (which are deemed to be i at prevailing market rates) and b) treasury and agency secu purchased at issuance through an approved broker /dealer or fins institution e) fully insured certificates of deposit placed in accorc with the conditions prescribed in Section 2256.010(b) of the Ac situations where the exact security being offered is not offere, other dealers, offers on the closest comparable investment may be to establish a fair market price for the security. C. Delivery vs. Payment — All trades with the exception of invest pools and money market funds will be executed by delivery vs. pay (DVP) to ensure that securities are deposited in an eligible fins institution prior to the release of funds. Securities and collateral w held in the City's name by a third -party custodian as evidence( safekeeping receipts of the institution with which the securitie; deposited. VII. Suitable and Authorized Investments A. Eligible Investments — Funds of the City may be invested it following instruments described below. All of these investment; authorized by the Public Funds Investment Act. Only instruments listed in this section are authorized. 1. Direct Obligations of the United States of America, its age and instrumentalities, the principal and interest of whist unconditionally guaranteed or insured by, or backed by the full and credit of the United States or its respective agencies instrumentalities. City of West University Place Investment Policy its main office or a branch in Texas. The certificate of de must be guaranteed or insured by the Federal Deposit Insui Corporation or its successor or the National Credit Union Insurance Fund or its successor and secured by obligations manner and amount as provided by law. In addition, certificat deposit obtained through a depository institution that are collateralized under a pledge agreement approved by the Cit3 authorized investments. 4. No -load Money Market Funds that 1) are registered and regula the Securities and Exchange Commission, 2) have a dollar we average stated maturity of 90 days or less, 3) seek to maintain a net asset value of $1.00 per share and 4) are rated no lower than or an equivalent rating by at least one nationally recognized service. 5. Local Government Investment Pools, authorized by a se resolution, which meet the requirements of Chapter 2256.016 Public Funds Investment Act and are rated no lower than AAA equivalent rating by at least one nationally recognized rating s4 To become eligible, investment pools must be approved b` Council action. Investments will be made in a local gover investment pool only after a thorough investigation of the pool, shall at least annually be reviewed, revised and adopted. 6. Interest bearing checking accounts that are fully collateralized at of the ledger balance. B. Collateralization — Collateralization will be required for all fur deposit with a depository bank, other than investments in accordanc the requirements of this Policy and Chapter 2257, Governmental (Public Funds Collateral Act ") and Financial Institution R Recovery, and Enforcement Act of 1989 (FIRREA). In order to ant market changes and provide a level of security for all fund collateralization level will be one hundred and two percent (102 market value of principal and accrued interest on the deposits, 1 amount insured by the FDIC. Securities pledged as collateral will be held in the City's name independent third party with whom the City has a current cu City of West University Place Investment Policy Collateral shall be reviewed at least quarterly to assure that the 1 value of the pledged securities is adequate. Eligible collateral includes a) direct obligations of the United St,, other obligations of the United States or other obligations, the pr and interest of which are unconditionally guaranteed or insured backed by the full faith and credit of the United States, b) direr obligations of an agency or instrumentality of the United States, c) debt obligations of states, agencies, counties, cities, and other pi subdivisions of any state rate as to investment quality by a nati recognized investment rating firm not less than A or its equivalen City's Investment Officer or Investment Official(s) reserve(s) the r accept or reject any form of collateral or enhancement at thei discretion. C. Existing Investments — Any investment currently held that does nc the guidelines of this policy, but was an authorized investment time of purchase, is not required to be liquidated; however, the Cit. take all prudent measures consistent with this Investment Pol liquidate an investment that does not or no longer qualifies authorized investment. VIII. Investment Parameters A. Diversification — The investments shall be diversified by securit and institution. With the exception of U.S. Treasury secs Government- sponsored enterprises (GSE's), interest - bearing ch accounts that are fully collateralized, and authorized local govel pools, the City will diversify the entire portfolio to comply wi investment strategy. In no case shall any single investment trans be more than twenty five- percent (25 %) of the entire portfolio at tf of purchase of the security. B. Maximum Maturities — To the extent possible, the City shall atte match its investments with anticipated cash flow requirements. matched to a specific cash flow, the City will not directly in` securities maturing more than three (3) years from the date of pui The composite portfolio will have a weighted average maturity days or less. This dollar weighted average maturity will be cah using the stated final maturity date(s) of each security. City of West University Place Investment Policy agreements until the next annual review, when a specific strateg, be adopted. The City maintains a pooled fund group that is an aggregation of the m of City funds including tax receipts, enterprise fund revenues, fine a: revenues, as well as some, but not all, bond proceeds, and grants portfolio is maintained to meet anticipated daily cash needs fol operations, capital projects and debt service. The objectives of this po are to ensure safety of principal; ensure adequate investment liquidity market and credit risk through diversification; and attain a market z return in accordance with the objectives and restrictions set for in this Pc X. Reporting A. Methods — The Investment Officer shall prepare an investment red least quarterly, including a management summary that provid analysis of the status of the current investment portfolio and trans made over the last quarter. This management summary will be pr{ in a manner consistent with the requirements of Section 2256.023 (I1 Management Reports) of the PFIA, and that will allow the C ascertain whether investment activities during the reporting perioc conformed to the investment policy. The report will be provided City Council. An independent auditor shall formally review the reports prepared this section at least annually, and that auditor shall report instances c compliance to City Council in the annual audit management letter. B. Performance Standards The investment portfolio shall be mans accordance with the objectives specified in this policy (safety, liq and yield). The portfolio should obtain a market average rate of during a market/economic environment of stable interest rates Investment Officer shall determine whether market yields are achieved by comparing the portfolio market yield to the three (3) U.S. Treasury Bill, the six (6) month U.S. Treasury Bill and the t, year U.S. Treasury Note. C. Marking to Market — The market value of the portfolio sh calculated at least monthly and a statement of the market value portfolio shall be issued at least monthly. The market value o investment shall be obtained from a source such as the Wall City of West University Place Investment Policy City of West University Place Authorized Investment Officer and Investment Officials Finance Director Investment Officer Treasurer — Investment Official Fiscal Services Officer Investment Official City of West University Place Investment Policy EXHIBIT B City of West University Place Statement of Ethics and Conflicts of Interest Investment Officer(s) and designated Investment Official(s) for the City of West Universit; shall refrain from personal business relationships with business organizations that could c with the proper execution of the investment program, or which could impair their ability ti partial investment decisions. This would only apply to personal business relationshif business organizations that have been approved by City Council to conduct invc transactions with the City of West University Place. An Investment Official or Investment Officer is considered to have a person business relationship with a business organization if: (1) The Investment Official or Investment Officer owns 10 percent or more voting stock or shares of the business organization, or owns $5,000 or n the fair market value of the business. (2) Funds received by the Investment Official or Investment Officer fir( business organization exceed 10 percent of the Investment Official's income for the previous year. (3) The Investment Official or Investment Officer has acquired from the b' organization during the previous year investments with a book value of or more for the personal account of the Investment Official. Cl I do hereby certify that I do shave a personal business relationship with any b' organization approved to conduct investment transactions with the City of West Uni Place, nor am I related within the second degree by affinity or consanguinity, as dete under Chapter 573 of the Texas Government Code, to an individual seeking to investment to the City of West University Place as of the date of this statement. C I do hereby certify that I shave a personal business relationship with a b organization approved to conduct investment transactions with the City of West Uni Place, and/or I am related within the second degree by affinity or consanguin determined under Chapter 573 of the Texas Government Code, to an individual seel sell an investment to the City of West University Place as of the date of this stateme willfully remove myself from any activities or areas of professional conduct that cause a perception of ethical conflict and acknowledge that I am required to disclo relation to the City Council and Texas Ethics Commission. City of West University Place Investment Off cer /Official(s) City of West University Place Investment Policy EXHIBIT C City of West University Place Approved Broker/Dealers, Financial Institutions and Investment Pools Broker/Dealers Cantor Fitzgerald & Company FTN Financial (formerly "Coastal Securities ") Hilltop Securities (formerly "First Southwest Company ") Multi - Bank Securities Wells Fargo Securities LLC Public Depositories JP Morgan Chase, NA (Primary) Local Government Investment Pools TexPool City of West University Place Investment Policy EXHIBIT D City of West University Place Certification by Business Organization (date) City of West University Place, Texas (Attn: Designated Investment Official) 3800 University Blvd. West University Place, TX 77005 Dear Mr /s. (Investment Official): This certification is executed on behalf of the City of West University Place, Texas (the InN and (the Business Organiz pursuant to the Public Funds Investment Act, Chapter 2256, Texas Government Code, (ti in connection with investment transactions conducted between the Investor and the Bi Organization. The undersigned Registered Principal or authorized representative of the Business Organ hereby certifies on behalf of the Business Organization that: 1. The undersigned is a Registered Principal or authorized representative of the Bi Organization offering to enter an investment transaction with the Investor (Note: Z terms are used in the Public Funds Investment Act, chapter 2256, Texas Local Gove Code) and; 2. The Registered Principal or authorized representative of the Business Organizati received and reviewed the Investment Policy furnished by the Investor and; 3. The Registered Principal or authorized representative of the Business Organizati implemented reasonable procedures and controls in an effort to preclude mve transactions conducted between the Business Organization and the Investor that authorized by the Investor's investment policy, except to the extent that this authorizs dependent on an analysis of the makeup of the investor's entire portfolio or requil interpretation of the subjective investment standards. Registered Principal or Broker Assigned to the Accoui authorized representative Signed By: Printed Name City of West University Place Investment Policy INVESTMENT STRATEGIES The City of West University's investment portfolio will be designed and mana ensure that it will meet all the requirements established by the City of West Univf investment policy and the Public Funds Investment Act. The overall investment sl outlined in the investment policy has been further refined in this investment sl statement by the following fund types. Operating Funds: Operating Funds generally have greater cash flow needs than other funds The operating fund portfolio may consist of any approved investment typ the understanding that the financial requirements of the operating funs dictate the maturity dates of the investment. Of utmost importance preservation and safety of the investment principal. Additionally, each investment will be viewed for its liquidity and markel of the investment if the need arises to liquidate the investment before m" The final determining factors for the investment strategy will 1, diversification of the investment portfolio and the yield of the investment. To achieve short -term needs of one (1) to one hundred and eighty (180; funds will be invested in approved investment pools. For longer -term needs (b) months to three (3) years, funds will be invested in approved investmen. objectives prioritized as follows: 1) understanding the suitability of the investment to the fir. requirements of the City of West University Place; Z) preservation and safety of principal; 3) liquidity; 4) marketability of the investment if the need arises to liquida investment before maturity; 5) diversification of the investment portfolio; and City of West University Place Investment Policy INVESTMENT STRATEGIES (Continued) Debt Service Funds: The debt service requirements are usually semi - annual, thus allowir investment strategy to mirror debt obligation payment dates. The strate debt service funds allows greater flexibility since the actual requiremer known into the future. Investments will still meet the adopted policies; ho, planning maturity dates to match debt requirement dates will be the p. objective. The investment instruments will be invested primarily in approved inve types with maturities at six (6) or twelve (12) months established to matc requirement dates. Shorter -term investment may be used to meet objectives and longer -term investments may be used when fund b reserves exceed one year's debt service requirements. To achieve this strategy the following objectives are prioritized to investment opportunities: 1) understanding the suitability of the investment to the fin requirements of the City of West University Place; 2) preservation and safety of principal; 3) yield; 4) marketability of the investment if the need arises to liquida investment before maturity; S) diversification of the investment portfolio; and 6) liquidity. City of West University Place Investment Policy INVESTMENT STRATEGIES (Continued) Capital Improvement Funds: Bond proceeds can be invested over the life of the project; however, the disbursement of the funds is not always known. The investment objective capital improvement funds is to schedule maturities to maximize inve earnings while preserving principle. The key to an effective strategy is aware of the project needs and match maturities to the period funds are need The investment objective for capital projects funds is still to match inve maturities with funding needs. As short -term needs are recognized, inve maturities will be moved into approved investment pools to meet fir requirements. Longer -term needs will be invested with the following objl as prioritized for capital improvement funds: 1) understanding the suitability of the investment to the fir requirements of the City of West University Place; 2) preservation and safety of principal; 3) diversification of the investment portfolio; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquida investment before maturity. City of West University Place Investment Policy INVESTMENT STRATEGIES(Continued) Reserve Funds: Certain reserve funds have been established as required by bond covenant investment objective is to invest reserve funds to the extent that maturiti established to the limit of the investment policy or to the end of the requirements whichever is shorter. The overall investment strategy for reserve funds will not rely on inve pools; however, the use of pools is not prohibited. Longer -term inve objectives are prioritized as follows: 1) understanding the suitability of the investment to the fin requirements of the City of West University Place; 2) diversification of the investment portfolio; 3) preservation and safety of principal; 4) yield; 5) liquidity; and b) marketability of the investment if the need arises to liquida investment before maturity. City of West University Place Investment Policy INVESTMENT STRATEGIES (Continued) Investment Pool: The City's Investment Pool is an aggregation of the majority of City which includes tax receipts, enterprise fund revenues, fine and fee revenue grants. This portfolio is maintained to meet anticipated daily cash nee, the City operations, capital projects and debt service. 1) understanding the suitability of the investment to the fin requirements of the City of West University Place; 2) diversification of the investment portfolio; 3) preservation and safety of principal; 4) yield; S) liquidity; and b) marketability of the investment if the need arises to liquida investment before maturity. City of West University Place Investment Policy ACCRETION OF DISCOUNT: Periodic straight -line increases in the book or ca'. value of a security so the amount of the purchase price discount below face value is completely eliminated by the time the bond matures or by the call date, if applicabl( ACCRUED INTEREST: The interest accumulated on a security from its issue dai since the last payment of interest up to but not including the purchase date. The purchaser of the security pays to the seller the market price plus accrued interest. AMORTIZATION OF PREMIUM: Periodic straight -line decreases in the book carrying value of a security so the premium paid for a bond above its face value or c price is completely eliminated. ASK: The price at which securities are offered by sellers. BARBELL MATURITY STRATEGY: A maturity pattern within a portfolio in maturities of the assets in the portfolio are concentrated in both the short and long the maturity spectrum. BASIS POINT: One one - hundredth (1,' 100) of one percent; 0.0001 in decimal fort BENCHMARK: A comparative base for performance evaluation. A benchmark a broad -based bond index, a customized bond index, or a specific objective. BID: The price offered for securities by purchasers. (When selling securities, one for a bid.) BOND EQUIVALENT YIELD: Used to compare yields available from discount( securities that pay interest at maturity with yields available from securities that pay interest semi - annually. BOOK ENTRY SECURITIES: Stocks, bonds, other securities, and some certific; of deposit that are purchased, sold, and held as electronic computer entries on the rf of a central holder. These securities are not available for purchase in physical form buyers get a receipt or confirmation as evidence of ownership. BOOK VALUE: The original cost of the security as adjusted for amortization of a premium paid or accretion of discount since the date of purchase. City of West University Place Investment Policy CALLABLE BOND: A bond that the issuer has the right to redeem prior to matur a specified price. Some callable bonds may be redeemed on one call date while oth may have multiple call dates. Some callable bonds may be redeemed at par while o can be redeemed only at a premium. Some callable bonds are step -up bonds that pa initial coupon rate for the first period, and then the coupon rate increases for the following periods if the bonds are not called by the issuer. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large- denomination (over $100,000) CD's are typically negotiable. CODE: The Internal Revenue Code of 19565 as amended. COLLATERAL: Securities, evidence of deposit or other property which a borrox% pledges to secure repayment of a loan. Also refers to securities pledged by a bank t secure deposits of public monies. COLLATERALIZED MORTGAGE OBLIGATION (CMO): A type of mortga backed security created by dividing the rights to receive the principal and interest c� flows from an underlying pool of mortgages in separate classes or tiers. COMMERCIAL PAPER: Short-term unsecured promissory notes issued by corporations for a maturity specified by the buyer. It is used primarily by corporati( for short -term financing needs at a rate which is generally lower than the prime rate CONFIRMATION: The document used to state in writing the terms of the trade v had previously been agreed to verbally. COUPON RATE: The stated annual rate of interest payable on a coupon bond expressed as a percentage of the bond's face value. CREDIT RISK: The risk that (1) the issuer is downgraded to a lower quality cater and/or (2) the issuer fails to make timely payments of interest or principal. CUSIP NUMBER: A nine -digit number established by the Committee on Uniforn Securities Identification Procedures that is used to identify publicly traded securitie: Each publicly traded security receives a unique CUSIP number when the security is issued. CUSTODY: The service of an organization, usually a financial institution, of holdi City of West University Place Investment Policy They are compensated by the spread between the price they pay and the price they receive. Dealers are not the same as brokers; however, the same firms which act as dealers in some transactions may act as brokers in other transactions. DELIVERY VERSUS PAYMENT (DVP): The safest method of settling a trade involving a book entry security. In a DVP settlement, the funds are wired from the buyer's account and the security is delivered from the seller's account in simultanec interdependent wires. DEPOSITORY TRUST COMPANY {DTC): An organization that holds physica certificates for stocks and bonds and issues receipts to owners. Securities held by D are immobilized so that they can be traded on a book entry basis. DERIVATIVE: A security that derives its value from an underlying asset, group c assets, reference rate, or an index value. Some derivatives can be highly volatile an result in a loss of principal in changing interest rate environments. DISCOUNT: The amount by which the price paid for a security is less than its face value. DISCOUNT SECURITIES: Securities that do npt pay periodic interest. Investor, the difference between the discount issue price and the full face value paid at matur: DIVERSIFICATION: Dividing investment funds among a variety of securities of independent returns, to reduce risk inherent in particular securities. DURATION: A sophisticated measure of the weighted average maturity of a bond cash flow stream, where the present values of the cash flows serve as the weights. ECONOMIC CYCLE (BUSINESS CYCLE): As the economy moves through th business cycle, interest rates tend to follow the levels of production, output, and consumption - rising as the economy expands and moves out of recession and declir after the economy peaks, contracts, and heads once again into recession. EFFECTIVE MATURITY: The average maturity of a bond, given the potential f early call. For a non - callable bond, the final maturity date serves as the effective maturity. For a callable bond, the effective maturity is bounded by the first call dab the final maturity date; the position within this continuum is a function of the call pi the current market price, and the reinvestment rate assumed. FACE VALUE: The principal amount due and payable to a bondholder at maturit, City of West University Place Investment Policy FAIL: The event of a securities purchase or sale transaction not settling as intende+ the parties. FAIR VALUE: The amount at which a financial instrument could be exchanged it current transaction between willing parties, other than in a forced or liquidation sale FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agt that insures bank deposits. FEDERAL FARM CREDIT BANKS (FFCB): A government- sponsored corpora that was created in 1916 and is a nationwide system of banks and associations provi mortgage loans, credit, and related services to farmers, rural homeowners, and agricultural and rural cooperatives. The banks and associations are cooperatively of directly or indirectly, by their respective borrowers. The Federal Farm Credit Syste supervised by the Farm Credit Administration, an independent agency of the U.S. government. (See Government Sponsored Enterprise) FEDERAL FUNDS: Monies within the Federal Reserve System representing a mi bank's surplus reserve funds. Banks with excess funds may sell their surplus to oth banks whose funds are below required reserve levels. Normally, Federal funds are employed in settling all government securities transactions. The Federal Funds Rat the rate of interest at which Fed funds are traded. This rate is currently pegged by tl Federal Reserve through open - market operations. FEDERAL HOME LOAN BANKS (FHLB): Government - sponsored wholesale 1 (currently twelve regional banks) which lend funds and provide correspondent bank services to member commercial bank, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. (See Government Sponsor Enterprises) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or "Fre( Mac "): A government - sponsored corporation that was created in July 1970, by the enactment of Title III of the Emergency Home Finance Act of 1970. Freddie Mac i established to help maintain the availability of mortgage credit for residential housii primarily through developing and maintaining an active, nationwide secondary mar conventional residential mortgages. (See Government Sponsored Enterprises) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Ma FNMA, like GNMA was chartered under the Federal National Mortgage Associatic in 1938. FNMA is a federal corporation working under the auspices of the Departa City of West University Place Investment Policy FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven meml of the Federal Reserve Board and five of the twelve Federal Reserve Bank presiden The president of the New York Federal Reserve Bank is a permanent member while other presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created t Congress and consisting of a seven member Board of Governors in Washington, D., twelve regional banks and about 5700 commercial banks that are members of the sy FIXED- INCOME SECURITY: A financial instrument promising a fixed amount periodic income over a specified future time span. GOVERNMENT - SPONSORED ENTERPRISES (GSE's): Payment of principE interest on securities issued by these corporations is not guaranteed explicitly by the government, however, most investors consider these securities to carry an implicit t government guarantee. The debt is fully guaranteed by the issuing corporations. G include: Farm Credit System, Federal Home Loan Bank System, Federal Home Lo Mortgage Corporation, and Federal National Mortgage Association. INSTRUMENTALITIES: See Government - Sponsored Enterprises INTEREST RATE RISK: The risk that the general level of interest rates will chat causing unexpected price appreciations or depreciations. LADDERED MATURITY STRATEGY: A maturity pattern within a portfolio which maturities of the assets in the portfolio are equally spaced. Over time, the shortening of the remaining lives of the assets provides a steady source of liquidity, cash flow. Given a normal yield curve with a positive slope this passive strategy provides the benefit of being able to take advantage of the higher, longer -term yield without sacrificing safety or liquidity. LIQUIDITY: An entity's capacity to meet future monetary outflows (whether the` required or optional) from available resources. Liquidity is often obtained from reductions of cash or by converting assets into cash. LIQUIDITY RISK: The risk that an investment will be difficult to sell at a fair m� price in a timely fashion. City of West University Place Investment Policy MARKET VALUE: The price at which a security is trading and could presumabl} purchased or sold. MARKING -TO- MARKET: The practice of valuing a security or portfolio accord its market value, rather than its cost or book value. MASTER REPURCHASE AGREEMENT: A written contract covering all futt transactions between the parties to repurchase agreements that establishes each part, rights in the transactions. A master agreement will often specify, among other thing right of the buyer to liquidate the underlying securities in the event of default by the seller. MATURITY DATE: The date on which the principal or face value of an investmt becomes due and payable. MONEY MARKET INSTRUMENT: Generally, a short -term debt instrument tha purchased from a broker, dealer, or bank. Sometimes the term "money market" wit] "short- term ", defines an instrument with no more than 12 months remaining from tr purchase date until the maturity date. Sometimes the term "money market" is used 1 restrictively to mean only those instruments that have active secondary markets. MORTGAGE- BACKED SECURITIES (MBS): Securities composed of, or collateralized by, loans that are themselves collateralized by liens on real property. OFFER: The price asked by a seller of securities. (When purchasing securities, on asks for an offer.) OPEN MARKET OPERATIONS: Purchases and sales of government and certait other securities in the open market by the New York Federal Reserve Bank as direct the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and c sales have the opposite effect. Open market operations are the Federal Reserve's m important and most flexible monetary policy tool. OPPORTUNITY COST: The cost of pursuing one course of action measured in t of the foregone return that could have been earned on an alternative course of actior was not undertaken. PAR: See Face Value PFIA OR ACT: The Public Funds Investment Act, Chapter 2256, Texas Governm City of West University Place Investment Policy PREMIUM: The amount by which the price paid for a security exceeds its face va PRIMARY DEALER: A group of government securities dealers that submit daily reports of market activity and positions and monthly financial statements to the Fed Reserve Bank of New York and are subject to its informal oversight. Primary deal( include Securities and Exchange Commission (SEC) - registered securities broker -de banks, and a few unregulated firms. PRINCIPAL: The face or par value of an instrument, exclusive of accrued interest PRUDENT PERSON RULE: An investment standard. In some states the law rec that a fiduciary, such as a trustee, may invest money only in a list of securities selec the state. In other states the trustee may invest in a security if it is one which would bought by a prudent person of discretion and intelligence who is seeking a reasonab income and preservation of capital. QUALIFIED REPRESENTATIVE: A person who holds a position with - and is authorized to act on behalf of - a business organization (as defined by the Public Fu Investment Act). RATE OF RETURN: The amount of income received from an investment, expres a percentage. A market rate of return is the yield that an investor can expect to rece the current interest -rate environment utilizing a buy- and -hold to maturity investmer. strategy. REINVESTMENT RATE: The interest rate earned on the reinvestment of coupoi payments. REINVESTMENT RATE RISK: The risk that the actual reinvestment rate falls of the expected or assumed reinvestment rate. REPURCHASE AGREEMENT (RP or REPO): An agreement of one party to s{ securities at a specified price to a second party and a simultaneous agreement of the party to repurchase the securities at a specified price on demand or at a specified lal date. The difference between the selling price and the repurchase price provides tho interest income to the party that provided the funds. Every transaction where a sect sold under an agreement to be repurchased is a repo from the seller/borrower's pain view and a reverse repo from the buyer /lender's point of view. REVERSE REPURCHASE AGREEMENT: (See Repurchase Agreement) City of West University Place Investment Policy SECONDARY MARKET: A market made for the purchase and sale of outstandir issues following the initial distribution. SECURITIES AND EXCHANGE COMMISSION (SEC): Agency created by Congress to protect investors in securities transactions by administering securities legislation. SECURITIES LENDING: The temporary transfer of securities by one party, the lender, to another, the borrower. The securities borrower is required to provide acceptable assets as collateral to the securities lender in the form of cash or other securities. If the borrower provides securities as collateral to the lender, it pays a fe borrow the lent securities. If it provides cash as collateral, the lender pays interest b borrower and reinvests the cash at a higher rate. SEC RULE 15C3 -1: See Uniform Net Capital Rule STRUCTURED NOTES: Debt obligations whose principal or interest payments determined by an index or formula. SEPARATELY INVESTED ASSET: An account or fund of a state agency or loc government that is not invested in a pooled fund group (as defined by the Public Fu: Investment Act). SPREAD: Most commonly used when referring to the difference between the bid asked prices in a quote. Additionally, it may also refer to additional basis points tho non - Treasury security earns over and above a Treasury with a comparable maturity STRIPS: Separation of the principal and interest cash flows due from any interest - bearing securities into different financial instruments. Each coupon payment is sep; from the underlying investment to create a separate security. Each individual cash i is sold at a discount. The amount of the discount and the time until the cash flow is determine the investor's return. SWAP: The trading of one asset for another. Sometimes used in active portfolio management to increase investment returns by "swapping" one type of security for another. TOTAL RETURN: Interest income plus capital gains (or minus losses) on an investment. TREASURY BILLS: A non- interest bearing discount security issued by the U.S. City of West University Place Investment Policy TREASURY NOTES: Intermediate -term, coupon bearing U.S. Treasury securitie; having initial maturities of 2 - 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker - dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called nE capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new pul issues are spread among members of underwriting syndicates. Liquid capital incluc cash and assets easily converted into cash. YIELD TO MATURITY (YTM): The promised return assuming all intere principal payments are made and reinvested at the same rate taking into accoun appreciation (if priced below par) or depreciation (if priced above par).