FCPEMSD Resolution No. 78 RESOLUTION NO. 78
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN
FIRE CONTROL, PREVENTION, AND EMERGENCY MEDICAL SERVICES
DISTRICT ADOPTING THE BAYTOWN FIRE CONTROL, PREVENTION,
AND EMERGENCY MEDICAL SERVICES DISTRICT'S INVESTMENT
POLICY AND STRATEGY STATEMENT; AND PROVIDING FOR THE
EFFECTIVE DATE THEREOF.
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BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN FIRE
CONTROL, PREVENTION, AND EMERGENCY MEDICAL SERVICES DISTRICT:
Section 1: That the Board of Directors of the Baytown Fire Control, Prevention, and
Emergency Medical Services District hereby acknowledges that it has reviewed the investment
policy and strategy statement and that the written instrument adopted in Section 2 hereof records
any changes made to either the investment policy or strategy statement.
Section 2: That the Board of Directors of the Baytown Fire Control, Prevention, and
Emergency Medical Services District hereby adopts its investment policy, including the strategy
statement therein, which is attached hereto as Exhibit "A" and incorporated herein for all intents
and purposes.
Section 3: This resolution shall take effect immediately from and after its passage by
the Board of Directors of the Baytown Fire Control, Prevention, and Emergency Medical
Services District.
INTRODUCED, READ and PASSED, by the affirmative vote of the Board of Directors
of the Baytown Fire Control, Prevention, and Emergency Medical Services District this the 18th
day of August, 2020. `
/A/X'0� �Sh�—
RENDA BRADLEY SMITH, President
ATT T:
``,,,,N1111111/ ,4',',
LETICIA BRYSCH, Secr t y
APPROVED AS TO FORM:
KAREN L. HORNER, Interim General Counsel
R:Karen Anderson\RESOLUTIONSIFCPEMSD\2020.08.18\Resolution-Adopt Investment Policy.doc
EXHIBIT "A"
BAYTOWN FIRE
CONTROL
PREVENTION
EMERGENCY
MEDICAL SERVICES
DISTRICT
Investment Policy -.
Baytown Fire Control, Prevention
and Emergency Medical Services District
Investment Policy
Baytown Fire Control, Prevention and Emergency
Medical Services District (FCPEMSD)
Investment Policy
Table of Contents
I. Policy 1
II. Scope 1
III. General Objectives
A. Safety 1
B. Liquidity 2
C. Yield 2
IV. Standards of Care
A. Prudence 3
B. Ethics and Conflicts of Interest 3
C. Delegation of Authority 3
D. Training 4
V. Safekeeping and Custody
A. Authorized Financial Dealers and Institutions 4
B. Internal Controls 5
C. Delivery vs. Payment 5
VI. Suitable and Authorized Investments
A. Eligible Investments 5-14
B. Collateralization 14
C. Existing Investments 15
VII. Investment Parameters
A. Diversification 15
B. Maximum Maturities 15
VIII. Investment Strategies 15
IX. Reporting
A. Methods 16
B. Performance Standards 16
C. Marking to Market 16
EXHIBITS
A- Authorized Investment Officers 17
B - Statement of Ethics and Conflicts of Interest 18
C—Approved Broker/Dealers, Financial Institutions and Investment Pools 19
D—Certification by Business Organization 20
E—Investment Strategy 21-23
Baytown Fire Control, Prevention
and Emergency Medical Services District
Investment Policy
Baytown Fire Control, Prevention and Emergency
Medical Services District
Investment Policy
I. Policy
It is the policy of the Baytown Fire Control, Prevention and Emergency Medical
Services District (the "FCPEMSD") to administer and invest its funds in a manner
that will preserve principal and maintain liquidity while meeting the daily cash flow
requirements of the FCPEMSD. The FCPEMSD will conform to all federal, state and
local statutes, rules, and regulations governing the investment of the FCPEMSD's
funds.
The FCPEMSD's policy is to hold investments to maturity, however, securities may
be sold in order to minimize the potential loss of principal on a security whose credit
quality has declined; to swap into another security which would improve the quality,
yield or target duration of the portfolio; or to meet unanticipated liquidity needs of the
portfolio.
Not less than annually, the FCPEMSD Board shall adopt a written instrument by
resolution stating that it has reviewed the Investment Policy and Investment
Strategies and that the written instrument so adopted shall record any changes made
to the Investment Policy or Investment Strategies.
II. Scope
This Investment Policy applies to all the investment activities of the FCPEMSD.
These funds are accounted for in the FCPEMSD's Annual Financial Report and
include all financial assets of all funds managed for FCPEMSD by the City of
Baytown, including but not limited to tax revenues, charges for services, bond
proceeds, and interest income.
III. General Objectives
The primary objectives, in priority order, of the FCPEMSD's investment activities
shall be safety, liquidity, and yield:
A. Safety — Safety of the principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure
the preservation of capital in the overall portfolio. The objective will be to
minimize credit risk and interest rate risk.
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Investment Policy
1. Credit Risk—The FCPEMSD will minimize credit risk, the risk of loss
due to the failure of the security issuer or backer, by:
(a) Limiting investments to the safest types of securities;
(b) Pre-qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which the FCPEMSD will do
business; and
(c) Diversifying the investment portfolio so that potential losses on
individual securities will be minimized
2. Interest Rate Risk—The FCPEMSD will minimize the risk that the
market value of securities in the portfolio will fail due to changes in
general interest rates, by:
(a) Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby
avoiding the need to sell securities on the open market prior to
maturity; and
(b) Investing operating funds primarily in shorter-term securities,
money market mutual funds, or similar investment pools
B. Liquidity — The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. This
is accomplished by structuring the portfolio so that securities mature
concurrent with cash needs to meet anticipated demands. Furthermore,
since all possible cash demands cannot be anticipated, the portfolio shall
consist largely of securities with active secondary or resale markets. A
portion of the portfolio also may be placed in money market mutual funds
or local government investment pools that offer same-day liquidity for
short-term funds.
C. Yield — The investment portfolio shall be designed with the objective of
attaining a market rate of return throughout budgetary and economic
cycles, taking into account the investment risk constraints and liquidity
needs. Return on investment is of secondary importance compared to the
safety and liquidity objectives described above. The core of investments
is limited to relatively low risk securities in anticipation of earning a fair
return relative to the risk being assumed. Securities shall not be sold prior
to maturity with the following exceptions:
1. A security with declining credit may be sold early to minimize loss of
principal
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Investment Policy
2. To swap into another security which would improve the quality, yield
or target duration of the portfolio; and
3. Liquidity needs of the portfolio require that the security be sold
IV. Standards of Care
A. Prudence — The standard of care to be used by investing officers shall be
the "prudent person" standard and shall be applied in the context of
managing an overall portfolio. Investment officers acting in accordance
with written procedures and the Investment Policy and exercising due
diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from
expectations are reported in a timely fashion and the liquidity and the sale
of securities are carried out in accordance with the terms of this policy.
Investments shall be made with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation, but
for investment, considering the probable safety of their capital as well as
the probable income to be derived.
B. Ethics and Conflicts of Interest — Officers and employees involved in
the investment process shall refrain from personal business activity that
could conflict with proper execution and management of the investment
program, or that could impair their ability to make impartial investment
decisions. Employees and investment officers shall disclose to the
FCPEMSD and the Texas Ethics Commission any material financial
interests in financial institutions that conduct business with the
FCPEMSD. They shall further file a disclosure statement with the Texas
Ethics Commission and the FCPEMSD that includes any large personal
financial/investment positions that could be related to the performance of
the investment portfolio. See Exhibit B.
C. Delegation of Authority — City employees authorized to engage in
investment transactions and authorized as Investment Officers are the
Director of Finance, the Treasurer, and the Financial Analyst.
Management responsibility for FCPEMSD's investment program is
assigned to the Director of Finance. This authority is derived from the
Local Government Code Chapter 344. Responsibility for the operation of
the investment program is hereby delegated to the Director of Finance,
who shall act in accordance with established written procedures and
internal controls for the operation of the investment program consistent
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Investment Policy
with this Investment Policy. Procedures should include reference to:
safekeeping, delivery vs. payment, investment accounting, repurchase
agreements, wire transfer agreements, and collateral/depository
agreements. Such procedures shall include explicit delegation of authority
to persons responsible for investment transactions. (See Exhibit A) No
person may engage in an investment transaction except as provided under
the terms of this policy and the procedures established by the Director of
Finance. The Director of Finance shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate activities of
subordinate officers.
D. Training — Investment Officers shall attend at least one investment
training session within 12 months after taking office or assuming
investment duties, and shall attend investment training not less than once
annually, beginning on the first day of the FCPEMSD's fiscal year and
consisting of one (1) consecutive fiscal year after that date, and receive not
less than 10 hours of instruction relating to investment responsibilities.
The FCPEMSD shall provide the training through courses and seminars
offered by professional organizations and associations in order to ensure
the quality and capability of the FCPEMSD's investment personnel
making investment decisions in compliance with Public Funds Investment
Act (PFIA). Professional organizations and associations that may provide
investment training include the Government Treasurer's Organization of
Texas, the University of North Texas, the Government Finance Officers
Association of Texas, the Association for Financial Professionals, or the
Texas Municipal League.
V. Financial Institutions, Broker/Dealers, Safekeeping and Custody
A. Authorized Financial Dealers and Institutions — Investment Officers will
maintain a list of financial institutions and security broker/dealers
authorized to provide investment services (Exhibit Q. These may include
"primary" dealers or regional dealers. No public deposit shall be made
except in a qualified public depository as established by state laws.
All financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions must supply Investment Officers with
the following as appropriate:
1. Audited financial statements
2. Proof of Financial Industry Regulatory Authority (FINRA)
certification
3. Proof of state registration
4. Completed broker/dealer questionnaire(Exhibit D)
5. Certification by a qualified representative of the firm that the firm
has a) received and reviewed the FCPEMSD's Investment Policy
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and b) has implemented reasonable procedures and controls in an
effort to preclude investment transactions that are not authorized by
the FCPEMSD's Investment Policy, except to the extent that this
authorization is dependent on an analysis of the makeup of the
6. FCPEMSD's entire portfolio or requires an interpretation of
subjective investment standards.
The FCPEMSD Board shall at least annually review and/or revise and adopt
a list of qualified brokers that are authorized to engage in investment
transactions with the FCPEMSD.
Internal Controls — The Director of Finance is responsible for
establishing and maintaining an internal control structure designed to
ensure that the assets of the FCPEMSD are protected from loss, theft or
misuse. The internal control structure shall be designed to provide
reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that (1) the cost of a control should not
exceed the benefits likely to be derived and (2) the valuation of costs and
benefits requires estimates and judgments by management.
Accordingly, the Director of Finance shall establish a process for an
annual independent review by an external auditor to assure compliance
with policies and procedures. The internal controls shall address the
following points:
1. Control of collusion
2. Separation of transaction authority from accounting and record
keeping
3. Custodial safekeeping
4. Avoidance of physical delivery securities
5. Clear delegation of authority to subordinate staff members
6. Written confirmation of transactions for investments and wire
transfers
7. Development of a wire transfer agreement with the lead bank and
third party custodian
B. Delivery vs. Payment — All trades where applicable will be executed by
delivery vs. payment (DVP) to ensure that securities are deposited in an
eligible financial institution prior to the release of funds. Securities and
collateral will be held in the City of Baytown's name (for FCPEMSD) by
a third-party custodian as evidenced by safekeeping receipts.
VI. Investments
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Baytown Fire Control, Prevention
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A. Eligible Investments — Assets of the FCPEMSD may be invested in the
following instruments described below. All of these investments are
authorized by Chapter 2256 of the Government Code (Public Funds
Investment Act).
An investment that requires a minimum rating under this section does not
qualify as an authorized investment during the period the investment does
not have the minimum rating. The FCPEMSD shall take all prudent
measures consistent with this Investment Policy to liquidate an investment
that does not have the minimum rating.
In order to monitor rating changes in investments acquired with public
funds, Investment Officers shall, on at least a monthly basis, verify the
ratings of investments currently held by the FCPEMSD with either the
authorized broker/dealer from which the investment was purchased, or a
broker/dealer currently authorized to engage in investment transactions
with the FCPEMSD As a condition of engaging in investment
transactions with the FCPEMSD, brokers/dealers shall, when requested by
the FCPEMSD's Investment Officer(s), provide said Investment Officer(s)
with written verification of the ratings of investments currently owned by
the FCPEMSD. The FCPEMSD shall take all prudent measures consistent
with this Investment Policy to liquidate an investment that does not have
the minimum rating.
1. Obligations of, or Guaranteed by Governmental Entities
(a) Except as provided by Subsection (b), the following are authorized
investments under this subchapter:
(i) obligations, including letters of credit, of the United States or
its agencies and instrumentalities;
(ii) direct obligations of this state or its agencies and
instrumentalities;
(iii) 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;
(iv) other obligations, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the
full faith and credit of this state or the United States or their
respective agencies and instrumentalities, including
obligations that are fully guaranteed or insured by the Federal
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Deposit Insurance Corporation or by the explicit full faith
and credit of the United States;
(v) obligations of states, agencies, counties, cities, and other
political subdivisions of any state rated as to investment
quality by a nationally recognized investment rating finn not
less than A or its equivalent; and
(b) The following are not authorized investments under this section:
(i) obligations whose payment represents the coupon payments
on the outstanding principal balance of the underlying
mortgage-backed security collateral and pays no principal;
(ii) obligations whose payment represents the principal stream of
cash flow from the underlying mortgage-backed security
collateral and bears no interest;
(iii) collateralized mortgage obligations that have a stated final
maturity date of greater than 10 years; and
(iv) collateralized mortgage obligations the interest rate of which
is determined by an index that adjusts opposite to the changes
in a market index.
2. Certificates of Deposit and Share Certificates
A certificate of deposit is an authorized investment under this
subchapter if the certificate is issued by a state or national bank
domiciled in this state, a savings bank domiciled in this state, or a state
or federal credit union domiciled in this state and is:
(i) guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor or the National Credit Union
Share Insurance Fund or its successor;
(ii) secured by obligations that are described by Section 1(a),
including mortgage backed securities directly issued by a
federal agency or instrumentality that have a market value of
not less than the principal amount of the certificates, but
excluding those mortgage backed securities of the nature
described by Section 1(b); or
(iii) secured in any other manner and amount provided by law for
deposits of the investing entity.
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3. Repurchase Agreements
(a) A fully collateralized repurchase agreement is an authorized
investment under this subchapter if the repurchase agreement:
(i) has a defined termination date;
(ii) is secured by a combination of cash and obligations described
by Section 1(a)(i); and
(iii) requires the securities being purchased by the FCPEMSD, or
cash held by the FCPEMSD, to be pledged to the FCPEMSD,
held in the FCPEMSD's name, and deposited at the time the
investment is made with the FCPEMSD or with a third party
selected and approved by the FCPEMSD; and
(iv) is placed through a primary government securities dealer, as
defined by the Federal Reserve, or a financial institution
doing business in this state.
(b) In this section, "repurchase agreement" means a simultaneous
agreement to buy, hold for a specified time, and sell back at a future
date obligations described by Section 1(a)(i), at a market value at the
time the funds are disbursed of not less than the principal amount of
the funds disbursed. The term includes a direct security repurchase
agreement and a reverse security repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse security
repurchase agreement may not exceed 90 days after the date the
reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms of a reverse security
repurchase agreement shall be used to acquire additional authorized
investments, but the term of the authorized investments acquired must
mature not later than the expiration date stated in the reverse security
repurchase agreement.
4. Banker's Acceptances
A bankers' acceptance is an authorized investment under this policy if
the bankers' acceptance:
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(i) has a stated maturity of 270 days or fewer from the date of
its issuance;
(ii) will be, in accordance with its terms, liquidated in full at
maturity;
(iii) is eligible for collateral for borrowing from a Federal
Reserve Bank; and
(iv) is accepted by a bank organized and existing under the laws
of the United States or any state, if the short-term obligations of
the bank, or of a bank holding company of which the bank is the
largest subsidiary, are rated not less than A-1 or P-1 or an
equivalent rating by at least one nationally recognized credit
rating agency.
5. Commercial Paper
Commercial paper is an authorized investment under this policy if the
commercial paper:
(i) has a stated maturity of 365 days or fewer from the date of its
issuance; and
(ii) is rated not less than A-1 or P-1 or an equivalent rating by at
least:
1. two nationally recognized credit rating agencies; or
2. one nationally recognized credit rating agency and
is fully secured by an irrevocable letter of credit
issued by a bank organized and existing under the
laws of the United States or any state.
6. Mutual Funds
(a) A no-load money market mutual fund is an authorized investment
under this subchapter if the mutual fund:
(i) is registered with and regulated by the Securities and
Exchange Commission;
(ii) provides the investing entity with a prospectus and other
information required by the Securities Exchange Act of 1934 (15
U.S.C. Section 78a et seq.) or the Investment Company Act of
1940 (15 U.S.C. Section 80a-1 et seq.);
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(iii) has a dollar-weighted average stated maturity of 90 days or
fewer; and
(iv) includes in its investment objectives the maintenance of a
stable net asset value of$1 for each share.
(b) In addition to a no-load money market mutual fund permitted as an
authorized investment in Subsection (a), a no-load mutual fund is an
authorized investment under this subchapter if the mutual fund:
(i) is registered with the Securities and Exchange Commission;
(ii) has an average weighted maturity of less than two years;
(iii) is invested exclusively in obligations approved by this
subchapter;
(iv) is continuously rated as to investment quality by at least one
nationally recognized investment rating firm of not less than
AAA or its equivalent; and
(v) conforms to the requirements set forth in Sections 5(b) and
5(c) relating to the eligibility of investment pools to receive and
invest funds of investing entities.
(c) The FCPEMSD is not authorized by this section to:
(i) invest in the aggregate more than 15 percent of its monthly
average fund balance, excluding bond proceeds and reserves and
other funds held for debt service, in mutual funds described in
Subsection(b);
(ii) invest any portion of bond proceeds, reserves and funds held
for debt service, in mutual funds described in Subsection (b); or
(iii) invest its funds or funds under its control, including bond
proceeds and reserves and other funds held for debt service, in
any one mutual fund described in Subsection (a) or (b) in an
amount that exceeds 10 percent of the total assets of the mutual
fund.
7. Guaranteed Investment Contracts
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(a) A collateralized guaranteed investment contract is an authorized
investment for bond proceeds under this policy if the guaranteed
investment contract:
(i) has a defined termination date;
(ii) is secured by direct and unsubordinated obligations described
by Section 2256.009(a)(1) of the Act, excluding those
obligations described by Section 2256.009(b) of the Act, in an
amount at least equal to the amount of bond proceeds invested
under the contract; and
(iii) is pledged to the FCPEMSD and deposited with the
FCPEMSD or with a third party selected and approved by the
FCPEMSD.
(b) Bond proceeds, other than bond proceeds representing reserves
and funds maintained for debt service purposes, may not be invested
under this policy in a guaranteed investment contract with a term of
longer than five years from the date of issuance of the bonds.
(c) To be eligible as an authorized investment:
(i) the FCPEMSD Board must specifically authorize guaranteed
investment contracts as an eligible investment in the order,
ordinance, or resolution authorizing the issuance of bonds;
(ii) the FCPEMSD must receive bids from at least three separate
providers with no material financial interest in the bonds
from which proceeds were received;
(iii)the FCPEMSD must purchase the highest yielding
guaranteed investment contract for which a qualifying bid is
received;
(iv) the price of the guaranteed investment contract must take
into account the reasonably expected drawdown schedule for
the bond proceeds to be invested; and
(v) the provider must certify the administrative costs reasonably
expected to be paid to third parties in connection with the
guaranteed investment contract.
8. Investment Pools
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The FCPEMSD may invest its funds and fiends under its control
through an eligible investment pool if the FCPEMSD Board by rule,
order, ordinance, or resolution, as appropriate, authorizes investment
in the particular pool. An investment pool shall invest the funds it
receives from entities in authorized investments permitted by this
subchapter. An investment pool may invest its funds in money market
mutual funds to the extent permitted by and consistent with Subchapter
A of the Texas Government Code, Chapter 2256 and the investment
policies and objectives adopted by the investment pool.
To be eligible to receive fiends from and invest funds on behalf of the
FCPEMSD under this section, an investment pool must furnish to the
investment officer or other authorized representative of the
FCPEMSD an offering circular or other similar disclosure instrument
that contains, at a minimum, the following information:
(i) the types of investments in which money is allowed to be
invested;
(ii) the maximum average dollar-weighted maturity allowed,
based on the stated maturity date, of the pool;
(iii)the maximum stated maturity date any investment security
within the portfolio has;
(iv) the objectives of the pool;
(v) the size of the pool;
(vi)the names of the members of the advisory board of the pool
and the dates their terms expire;
(vii) the custodian bank that will safekeep the pool's assets;
(viii) whether the intent of the pool is to maintain a net asset
value of one dollar and the risk of market price fluctuation;
(ix) whether the only source of payment is the assets of the pool
at market value or whether there is a secondary source of
payment, such as insurance or guarantees, and a description
of the secondary source of payment;
(x) the name and address of the independent auditor of the pool;
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(xi) the requirements to be satisfied for an entity to deposit funds
in and withdraw funds from the pool and any deadlines or
other operating policies required for the entity to invest funds
in and withdraw funds from the pool; and
(xii) the performance history of the pool, including yield, average
dollar-weighted maturities, and expense ratios.
To maintain eligibility to receive funds from and invest funds on
behalf of the FCPEMSD under this section, an investment pool must
furnish to the investment officer or other authorized representative of
the FCPEMSD:
(i) investment transaction confirmations; and
(ii) a monthly report that contains, at a minimum, the following
information:
(a) the types and percentage breakdown of securities in
which the pool is invested;
(b) the current average dollar-weighted maturity, based on
the stated maturity date, of the pool;
(c) the current percentage of the pool's portfolio in
investments that have stated maturities of more than one
year;
(d) the book value versus the market value of the pool's
portfolio, using amortized cost valuation;
(e) the size of the pool;
(f) the number of participants in the pool;
(g) the custodian bank that is safekeeping the assets of the
pool;
(h) a listing of daily transaction activity of the entity
participating in the pool;
(i) the yield and expense ratio of the pool. including a
statement regarding how yield is calculated;
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0) the portfolio managers of the pool; and
(k) any changes or addenda to the offering circular.
The FCPEMSD by contract may delegate to an investment pool the
authority to hold legal title as custodian of investments purchased with
its local funds.
In this section, for purposes of an investment pool for which a $1.00
net asset value is maintained, "yield" shall be calculated in accordance
with regulations governing the registration of open-end management
investment companies under the Investment Company Act of 1940, as
promulgated from time to time by the federal Securities and Exchange
Commission.
To be eligible to receive funds from and invest funds on behalf of the
FCPEMSD under this section, a public funds investment pool created
to function as a money market mutual fund and uses amortized cost or
fair value accounting, must mark its portfolio to market daily, and, if
the investment pool uses amortized cost, the investment pool must, to
the extent reasonably possible, stabilize at a $1.00 net asset value,
when rounded and expressed to two decimal places. If the ratio of the
market value of the portfolio divided by the book value of the portfolio
is less than 0.995 or greater than 1.005, the governing body of the
investment pool must take action, as the body determines necessary to
eliminate or reduce to the extent reasonably practicable any dilution or
unfair result to existing participants, including the sale of portfolio
holdings, as necessary to maintain the ratio between 0.995 and 1.005.
The public funds investment pool must, in addition to the requirements
of its Investment Policy and any other forms of reporting, report yield
to its investors in accordance with regulations of the federal Securities
and Exchange Commission applicable to reporting by money market
funds.
To be eligible to receive funds from and invest funds on behalf of the
FCPEMSD under this section, a public funds investment pool must
have an advisory board composed:
(i) equally of participants in the pool and other persons who do
not have a business relationship with the pool and are qualified to
advise the pool, for a public funds investment pool created under
Chapter 791 and managed by a state agency, or
(ii) of participants in the pool and other persons who do not have
a business relationship with the pool and are qualified to advise
the pool, for other investment pools.
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To maintain eligibility to receive funds from and invest funds on
behalf of the FCPEMSD under this section, an investment pool must
be continuously rated no lower than AAA or AAA-m or at an
equivalent rating by at least one nationally recognized rating service.
Collateralization — Collateralization will be required on two types of
investments: certificates of deposit and repurchase (including reverse
repurchase) agreements. In order to anticipate market changes and
provide a level of security for all funds, the collateralization level will be
one hundred two percent (102%) of market value of principal and accrued
interest. Pledged collateral shall consist of eligible U.S. Treasury
securities, eligible securities issued by U.S. Government Sponsored
Enterprises, or Federal Home Loan Bank Letters of Credit, or a
combination thereof, and shall be marked to market on at least a monthly
basis.
Likewise, all time and demand deposits in excess of FDIC or NCUA
insurance levels shall be collateralized to a minimum of 102% of principal
and accrued interest. The depository shall be responsible for maintaining
collateral ization margins. Collateral will be held in the City of Baytown's
name (for the FCPEMSD) by an independent third party with whom the
City of Baytown (for the FCPEMSD) has a current custodial agreement
approved by the Council and executed under the terms of FIRREA
(Financial Institutions Reform, Recovery, and Enforcement Act) as
amended. A clearly marked evidence of ownership (safekeeping receipt)
must be supplied to the FCPEMSD and retained. The right of collateral
substitution is granted, subsequent to the review and approval of an
authorized City of Baytown Investment Officer.
C. Existing Investments — Any investment currently held that is no longer
an authorized investment under the Public Funds Investment Act (PFIA)
or this policy, but was an authorized investment at the time of purchase, is
not required to be liquidated.
VII. Investment Parameters
A. Diversification — The investments shall be diversified by security type
and institution. With the exception of U.S. Treasury securities and
authorized pools, the FCPEMSD will diversify the entire portfolio to
comply with the investment strategy; however, in no case shall any single
investment transaction be more than 10 percent (10%) of the entire
portfolio.
B. Maximum Maturities — To the extent possible, the FCPEMSD shall
attempt to match its investments with anticipated cash flow requirements.
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Investment Policy
Unless matched to a specific cash flow, the FCPEMSD will not directly
invest in securities maturing more than five (5) years from the date of
purchase.
VIII. Investment Strategies
The FCPEMSD maintains separate portfolios for individual funds or groups of
funds that are managed according to the terms of this Policy and the
corresponding investment strategies listed in Exhibit E. The investment
strategy for portfolios established after the annual Investment Policy review
and adoption will be managed in accordance with the terms of this Policy and
applicable agreements until the next annual review when a specific strategy
will be adopted.
The FCPEMSD maintains a pooled fund group that is an aggregation of the
majority of FCPEMSD finds including tax receipts and investment interest.
This portfolio is maintained to meet anticipated daily cash needs for
FCPEMSD operations and capital outlay. In order to ensure the ability of the
FCPEMSD to meet obligations and to minimize potential liquidation losses,
the dollar-weighted average stated maturity of the Investment Pool shall not
exceed 2 years. The objectives of this portfolio are to ensure safety of
principal; ensure adequate investment liquidity; limit market and credit risk
through diversification; and attain the best feasible yield in accordance with
the objectives and restrictions set for in this Policy
IX. Reporting
A. Methods — Investment officers shall jointly prepare an investment report
at least quarterly, including a management summary that provides an
analysis of the status of the current investment portfolio and transactions
made over the last quarter. This management summary will be prepared
in a manner consistent with the requirements of Section 2256.023 (Internal
Management Reports) of the PFIA, and that will allow the FCPEMSD to
ascertain whether investment activities during the reporting period have
conformed to the Investment Policy. The report should be provided to the
FCPEMSD Board
An independent auditor shall formally review the quarterly reports
prepared under this section at least annually, and that auditor shall report
the results of the review to the FCPEMSD Board.
B. Performance Standards — The investment portfolio shall be managed in
accordance with the objectives specified in this policy (safety, liquidity,
yield). The portfolio should obtain a market average rate of return during
a market/economic environment of stable interest rates. The basis used by
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the investment officer to determine whether market yields are being
achieved shall be the three (3) month U.S. Treasury Bill.
C. Marking to Market — The market value of the portfolio shall be
calculated at least monthly and a statement of the market value of the
portfolio shall be issued at least quarterly. The market value of each
investment shall be obtained from a source such as the Wall Street
Journal, a reputable brokerage firm or security pricing service and
reported on the investment reports.
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Investment Policy
EXHIBIT A
Baytown Fire Control, Prevention and Emergency Medical Services District
Authorized Investment Officers
W. Victor Brownlees, City of Baytown Director of Finance
Brent Yowell, City of Baytown Treasurer
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EXHIBIT B
Baytown Fire Control, Prevention and Emergency Medical Services District
Statement of Ethics and Conflicts of Interest
Investment officers for the Baytown Fire Control, Prevention and Emergency Medical Services
District shall refrain from personal business relationships with business organizations that could
conflict with the proper execution of the investment program, or which could impair their ability
to make impartial investment decisions. This would only apply to personal business relationships
with business organizations that have been approved by the Board of Directors to conduct
investment transactions with the Baytown Fire Control, Prevention and Emergency Medical
Services District.
An investment officer is considered to have a personal business relationship with a
business organization if:
(I) The investment officer owns 10 percent 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.
(2) Funds received by the investment officer from the business organization exceed
10 percent of the investment officer's gross income for the previous year.
(3) 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.
I do hereby certify that I do not have a personal business relationship with any business
organization approved to conduct investment transactions with the Baytown Fire Control,
Prevention and Emergency Medical Services District, nor am I related within the second degree
by affinity or consanguinity, as determined under Chapter 573 of the Texas Government Code, to
an individual seeking to sell an investment to the Baytown Fire Control, Prevention and
Emergency Medical Services District as of the date of this statement.
City of Baytown
Investment Officers
W. Victor Brownlees, Date
City of Baytown Director of Finance
Brent Yowell, Date
City of Baytown Treasurer
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EXHIBIT C
Baytown Fire Control, Prevention and Emergency Medical Services District
Approved Broker/Dealers, Financial Institutions and Investment Pools
Broker/Dealers
Cantor Fitzgerald & Co.
Wells Fargo Brokerage Services, LLC
Hilltop Securities, Inc.
Duncan-Williams, Inc.
Multi-Bank Securities, Inc.
Vining Sparks IBG, L.P.
FTN Financial
Raymond James & Associates, Inc.
RBC Capital Markets, LLC
Public Depository
JP Morgan Chase, NA (Primary)
Local Government Investment Pools
TexPool
TexSTAR
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EXHIBIT D
Baytown Fire Control, Prevention and Emergency Medical Services District
Certification by Business Organization
date
Baytown Fire Control, Prevention and Emergency Medical Services District
C/O City of Baytown, Texas
(Attn: Designated Investment Officer)
P 0 Box 424
Baytown, TX 77522-0424
Dear Mr/s. (investment officer):
This certification is executed on behalf of the Baytown Fire Control, Prevention and Emergency
Medical Services District (the Investor) and
(the Business Organization)pursuant to the Public Funds Investment Act, Chapter 2256,Texas
Government Code, (the Act) in connection with investment transactions conducted between the
Investor and Business Organization.
The undersigned Qualified Representative of the Business Organization hereby certifies on behalf
of the Business Organization that:
I. The undersigned is a Qualified Representative of the Business Organization offering to enter
an investment transaction with the Investor(Note: as such terms are used in the Public Funds
Investment Act, chapter 2256, Texas Local Government Code) and;
2. The Qualified Representative of the Business Organization has received and reviewed the
Investment Policy furnished by the Investor and;
3. The Qualified Representative of the Business Organization has implemented reasonable
procedures and controls in an effort to preclude investment transactions conducted between
the Business Organization and the Investor that are not authorized by the Investor's
Investment Policy, except to the extent that this authorization is dependent on an analysis of
the makeup of the investor's entire portfolio or requires an interpretation of the subjective
investment standards.
Qualified Representative of the Business Organization
Signed By:
Name
Title
Date
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EXHIBIT E
INVESTMENT STRATEGY
It is the policy of the Fire Control, Prevention and Emergency Medical Services District
("FCPEMSD") that, giving due regard to the safety and risk of investments, all funds shall be
invested at all times in conformance with State and Federal statutes, applicable trust agreements
or related bond document requirements, the FCPEMSD's adopted Investment Policy and this
Investment Strategy. FCPEMSD's portfolio shall be designed and managed in a manner
responsive to the public trust and consistent with the Investment Policy.
In accordance with the Public Funds Investment Act, FCPEMSD investment strategies establish
maximum maturities and maximum dollar-weighted average maturity limits for each portfolio
and address the priorities for those funds(in order of priority):
• Suitability of the investment to the financial requirements of FCPEMSD and the
particular Fund Type;
• Preservation and safety of principal;
• Liquidity;
• Marketability of the investment if the need arises to liquidate the investment prior to
maturity;
• Diversification of the investment portfolio; and
• Yield.
Effective investment strategy development coordinates the primary objectives of FCPEMSD's
Investment Policy and cash management procedures with investment security risk/retum analysis
to enhance interest earnings and reduce investment risk. FCPEMSD intends to generally utilize a
buy and hold strategy but will evaluate more active strategies, such as swaps or outright sales of
securities, for incremental income when appropriate. The structure of the portfolio(s) will be
primarily dependent upon the continuing cash flow requirements of the funds represented. The
portfolio(s) will reflect both the short and long term needs of the funds. A limited liquidity buffer
will be maintained to cover any unanticipated cash needs,where appropriate.
With a more active position, maturity selections may be extended to gain incremental income or
adjust portfolios to economic and market conditions. It is recognized that more active
management may increase the overall weighted average maturity of the portfolios due to
additional volatility.
FCPEMSD's Investment Officer(s) shall monitor and evaluate the ongoing economic
environment and incorporate market information from reliable sources as well as current and
anticipated FCPEMSD financial conditions when prudently implementing these strategies.
Anticipated changes in the FCPEMSD's Investment Strategy shall be reported to the Board as
part of the quarterly investment reporting.
The FCPEMSD expects, but is not required by law, to consolidate and commingle funds from
similar type funds or all funds in an attempt to maximize investment earnings. Investment
income by fund will be recognized and allocated on a monthly basis based on respective fund
balances for the period in accordance with generally accepted accounting principles.
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FUND TYPE IDENTIFICATION
Each major fund type has varying cash flow requirements and liquidity needs. Therefore, specific
strategies shall be implemented considering the fund type's unique requirements. FCPEMSD
funds shall be analyzed and invested according to the following major fund types:
a. Operating Funds
Operating funds have ongoing cash needs in support of ongoing operations and required transfers.
Funds include: General Fund.
b. Capital Replacement/Improvement Funds
Capital Replacement/Improvement funds have cash needs dependent upon anticipated
construction, acquisition and payment schedules. Funds include: Capital Replacement Fund and
Capital Improvement Program.
C. Liquidity Buffer Accounts
Liquidity funds are to assure FCPEMSD's liquidity for anticipated and unanticipated needs
within one month. A liquidity buffer is needed in all but debt service funds which have well-
defined and unalterable liabilities.
INVESTMENT STRATEGY BY TYPE
In order to minimize market risks or principal loss due to interest rate fluctuations, investment
maturities and portfolio structures will be limited by the anticipated cash flow requirements of the
various fund types. The general investment strategies are established by fund type. The use of
liquidity buffers in fund types is to provide for unanticipated liabilities.
a. Operating Funds
The short term (one to six months) needs of the operating funds will generally be addressed
through a laddered portfolio and the longer term (six to twelve months) needs of the operating
funds will be structured in a more loosely structured ladder. Core funds, not intended for use
within one year may be extended to two years.
Operating Funds are designed to meet ongoing demands. The portfolio(s) will utilize high credit
quality securities with no perceived credit risk to meet those demands and assure liquidity if
needed. Securities with active and efficient secondary markets are necessary in the event of an
unanticipated cash requirement. Investment maturities shall be laddered based on the anticipated
operating needs of FCPEMSD. Market cycle risk will be reduced by diversifying the appropriate
maturity structure. Operating Funds require the greatest short-term liquidity of any of the fund
types, investment pools and money market mutual funds can provide daily liquidity.
Price volatility of the overall portfolio(s) will be minimized by requiring a maximum dollar-
weighted average days to maturity (WAM) for the Operating portfolio(s) of 180 days and
restricting the maximum allowable maturity to two years.
Attaining a competitive market yield is a desired objective. The yields on the six-month and one-
year Treasury Bills shall be the minimum yield objective and benchmarks for these funds in
accordance with their anticipated WAM restrictions.
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b. Capital Replacement/Improvement Funds
Capital Improvement Funds are designed to meet anticipated needs for construction and certain
fixed liabilities, are primarily funded by bond proceeds and should have reasonably predictable
draw down schedules.
Investment maturities will 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. The portfolio(s) must be based upon the anticipated
schedules but also provide for changing schedules and cash needs and to minimize the effect of
market fluctuations. As such they require a laddered portfolio based on known needs and a
liquidity buffer to provide for unanticipated needs.
Securities with active and efficient secondary markets of high-credit quality with no perceived
default risk are to be used.
A single flex repurchase agreement may be utilized, and structured to satisfy expenditure
requests. The flex may be used effectively to manage against falling interest rates and protect
against negative arbitrage.
US tax and arbitrage regulations require competitive market rates. The portfolio(s) will be
structured in such a way as to avoid negative arbitrage on bond proceeds and will comply with all
arbitrage provisions. For Capital Improvement Funds that have an arbitrage yield, achieving a
positive spread to the applicable arbitrage yield is the desired objective.
If the arbitrage yield is not applicable, then current market conditions will determine the portfolio
structure and strategy.
At no time shall the investment maturities of a fund exceed the anticipated expenditure schedule.
The maximum maturity limits shall reflect the then-current expenditure plan for the proceeds.
C. Liquidity Buffer Accounts
A liquidity buffer, dependent in size upon then—current economic conditions and FCPEMSD cash
flow needs, shall be maintained in Operating and Capital Improvement Funds to meet immediate
cash needs of at least one month and provide for reasonable, unanticipated liabilities. The
maximum maturity of these liquid invested funds should be one day. These funds may be
invested in money market mutual funds, local government pools, or in a depository overnight
sweep.
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