ORDER N0. 25809 APPROVE REVISED INVESTMENT PDLICY AND INVESTMENT STRATEGY On this the 22nd day of March 1999, upon motion made by Commissioner Williams, seconded by Commissioner Griffin, the Court unanimously approved by a vote of 4-0-0, to accept the Revised Investment Policy and Investment Str^ategy, presented by the Ker^r County Treasurer, Barbara Nemec. Y -' COMMISSIONERS' COURT AGENDA REQUEST PLEASE F[JRIVISH ONE ORIGINAL AND FIVE COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVVED BY THE COURT: ~ ~ • NjADE $}~; BARBARA NEMEC OFFICE: TRFA4TTRFR MEETING DATE: MARCH 22. 1999 SUBJECT: (PLEASE BESPECIFIC) TIlvIE pREFEItRED: 6 : 3 0 • pm CONSIDER AND DISCUSS APPROVAL OF REVISED INVESTMENT POLICY AND INVESTMENT STRATEGY EXECUTIVE SESSION REQUESTID: (PLEASE STATE REASON) ESTIMATED LENGTH OF PRESENTATION: 1F PERSONNEL MATTER -NAME OF EMPLOYEE: NAME OF PERSON ADDRESSING THE COURT: 5 min. Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: , Meeting scheduled for Mondays: THIS REQUEST RECEIVED BY: THIS REQUEST RECEiVID ON: 5:00 P.M. previous Monday. All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal wnsideration and action at time of Court Meetings. Your cooperation will be appreciated and corrtribute towards you request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Corrunissioners' Court. REVISED INVESTMENT POLICY FOR THE COUNTY OF KERR KERRVILLE, TE}{AS MARCH 22, 1999 TRBLE OF CONTENTS I. INVESTMENT SCOPE .............................. 1 II. INVESTMENT OB.7ECTIVE .......................... c III. RESPONSIBILITY AND CON"fROL .................... 4 IV. INVESTMENT RERORTING .......................... 6 V. INVESTMENT INSTITUTIONS ....................... 7 VI. COLLATERAL AND SAFEKEEPING .................... B VII. INVESTMENT TYPES .............................. 9 'JIII. TEYAS PUBLIC FUNDS INVESTMENT CERTIFICATiON...1c I. INVESTMENT SCOPE GENERAL STATEMENT This investment policy applies to the investment activities of the County of Kerr, Kerrville, Texas. Thies policy serves to satisfy the statutory requirements of Texas Government Code Sections 2256.004 and 2256.052, to define and adopt a formal investment policy. FUNDS INCLUDED All financial assets of all funds of the County of Kerr, Kerrville, Texas, at the present time and any funds to be created in the future and any other funds held in custody by the County Treasurer shall be administered in accordance with the provisions of these policies, unless expressly prohibited by law or unless it is in contravention of any depository contract between Kerr County and any depository bank. -1- II. INVESTMENT OBJECTIVES SAFETY Kerr County is concerned about the return of its principal; therefore, safety of principal is a primary objective in any investment transaction. LIQUIDITY The countys' investment portfolio must be structured in a manner which will provide the liquidity necessary to pay obligations as they become due. DIVERSIFICATION The portfolio of the county shall be diversified to eliminate the risk of loss resulting from one concentration of assets in a specific maturity, a specific issuer or a specific class of investments. Diversification requirements can be fully met through the use of an authorized investment pool. Investments of the county shall always be be selected that provide for stability of income and reasonable liquidity. YIELD It is the objective of county to earn the maximum rate of return allowed on its investments within the policies imposed by its safety and liquidity objectives and state and federal law governing investment of public funds. MATURITY Portfolio maturities will be staggered in a way to achieve the highest return of interest but at the same time provide for the necessary liquidity to meet the cash needs of the county. ACTIVE PORTFOLIO MANAGEMENT The county intends to pursue an active versus a passive portfolio management philosophy. Securities may be sold or exchanged before they mature if market conditions present an opportunity for the county to benefit from the trade. Under this investment policy, all investments will be made with the intent of pursuing, at the time of purchase, the best rate of return on securities held until maturity, and not with intent of speculative trading. -2- CUALITY AHD CAPABILITY OF IHVESTMEHT MAHAG£MEHT It ie the policy of the county to provide periodic training in investments for the County Treasurer through courses and seminars offered by professional organizations and associations in order to insure the quality and capability for the County Treasurer in making investment decisions and in order to comply with Chapter 2256.008 of the Government Code. IHVESTMEHT STRATEGIES In accordance with the Public Funds Investment Act, Section 2256.005. a separate written investment strategy will be developed for Kerr Countys' control. -3- y III. INVESTMENT RESPONSIBILITY AHD CONTROL INVESTMENT DELEGATE OF THE COUNTY Pursuant to Texas Local Government Code Section 116.112, the County Treasurer, under the direction of the Kerr County Commissioners' Court, is authorized to withdraw any funds deposited in a county depository that are not immediately required to pay obligations of the county and invest those funds as provided by this order unless such an investment is contrary to the terms of the depository contract. INVESTMENT COMMITTEE The Commissioners' Court may appoint a committee to advise the Court and the Treasurer on investment policy. The County Treasurer will serve as the Chairperson of the Kerr County Investment Committee. The Committee, or the Treasurer in the event that no committee is appointed, will adhere to the following procedures: On a quarterly basis, a member of the committee will inform the Commissioners' Court on the countys' investment posture. Annually, the investment policy will be re-affirmed or updated for the Court. 1. In making such reports and recommendations to the Court, the Committee shall be governed by the following guidelines: 2. Investing by the County Treasurer is not to be viewed as a profit center, but rather, as the timely return of capital; 3. The County Treasurer will purchase securities only from brokers who meet the following requirements: a. Approval by the Committee or by the Commissioners Court in the event that no committee is appointed. b. Those who have had a background check conducted by the National Association of Securities Dealer, which has been provided to, and approved by, the Committee or the Court in the event a committee is not appointed. c. Those who have signed the Texas Public Funds Investment Certification. PRUDENCE County investments shall be made not for speculation, but rather with the exercise of due care, caution, and good judgement, considering the safety of capital, liquidity, as well as the probable income to be earned. ,_ -4- LIABILITY OF TREASURER In accordance with Section 113.005, Local Government Code, the County Treasurer is not responsible for any loss of the county funds through the failure or negligence of a depository. This section does not release the treasurer from responsibility for a loss resulting from the official misconduct or negligence of the Treasurer, including a misappropriation of the funds, or from responsibility for funds until a depository is selected and the funds are deposited. STATEMENT OF DISCLOSURE If the County Treasurer or any member of the Committee has a personal business relationship with any entity or is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the county, such person shall file a statement disclosing that personal business interest or relationship with the Texas Ethics Commission and the Commissioners Court in accordance with Government Code 2256.005 fi). AUDIT CONTROL The Kerr County Treasurer will establish liaison with the Kerr County Auditor in preparing investment forms to assist the County Auditor for accounting and auditing control. SUBJECT TO AUDIT The Kerr County Treasurer is subject to audit by the Auditor. In addition, it is the policy of Kerr County Court, at a minimum, to have an audit of all county independent auditing firm as required by law. The Treasurer and the countys' investment procedures shall the audit and any special audits as required. Kerr County Commissioners' funds by an Kerr County be subject to -5- IV. INVESTMENT REPORTING AUARTERLY REPORTING The Kerr County balances of the Auditor, will county fund. ANNUAL REPORT Treasurer, in its quarterly reporting of the cash fund county to the Commissioners' Court and to the County report the amount and type of investments for each The Kerr County Treasurer will conform to Government Code Title 10, Chapter 2256 and prepare a written yearly report concerning the countys' local funds investment transactions for the preceding year and describing in detail the investment position of the county as of the date of the report. HOTIFICATIOft OF INVESTMENT CHARGES It shall be the duty of the Treasurer of Kerr County, Texas and the Investment Committee, to notify the Kerr County Commissioners' Court of any significant changes in current investment methods and procedures prior to their implementation. -6- 'V. IHVESTMEHT INSTITUTIONS INVESTMENT INSTITUTIONS DEFINED ' The Kerr County Treasurer shall invest county funds with any or all of the following institutions or groups consistent with federal and state law and the current depository bank contract: L. Depository bank; 2. Other state or national banks domiciled in Texas that are insured by the Federal Deposit Insurance Corporation; 3. Brokers or dealers of United State government securities, licensed under the Texas Securities Act and approved by the County Investment Committee or the Court in the event a Committee is not appointed; 4. Savings and loan associations domiciled in Texas that are insured by FSLIC (or its successor); 5. Public funds investment pool. -7- VI. INVESTMENT COLLATERAL AHD SAFEKEEPING COLLATERAL OR INSURANCE The Kerr County Treasurer shall insure that all county funds are fully collateralized or insured consistent with federal and state law and the current Bank Depository Contract in one or more of the following manners: 1. FDIC insurance coverage; 2. Obligations of the United States or its agencies and instrumentalities; 3. Direct obligations of the State of Texas or its agencies; 4. Other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or its agencies and instrumentalities 5. Obligations of states, agencies, counties, cities and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent; or 6. Any other manner allowed by law. SAFEKEEPING All purchased securities shall be held in safekeeping by the county, or a county account in a third party financial institution, or with a Federal Reserve Bank. All certificates of deposit, insured by FDIC, purchased outside the Depository Bank shall be held in safekeeping by either the county or county account in a third party financial institution. All pledged securities by the Depository Sank shall be held in safekeeping by the county, or a county account in a third party financial institution, or with a Federal Reserve Bank. DELIVERY VS. PAYMENT It is the policy of the county that all Treasury Bills, Notes, Bonds, and Government Agencies' securities shall be purchased using the "delivery vs. payment" (DVP) method through the Federal Reserve System. By so doing, county funds are not to be released until the county has received, through the Federal Reserve wire, the securities purchased. -8- 'VII. IHVESTMEHT TYPES AUTHORIZED The Kerr County Treasurer shall use any or all of the following authorized investment instruments consistent with governing law. 1. Obligations of the United States or its agencies and instrumentalities. 2. Direct obligations of this state or its agencies and instrumentalities. 3. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, this state or the United States or their respective agencies and instrumentalities. 4. Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent. 5. Certificates of deposit if issued by a state or national bank domiciled in this state or a savings and loan association domiciled in this state and is: a. guaranteed or insured by the Federal Deposit Insurance Corporation or its successor; b. secured by obligations that are described by Section 2256.009 (a) of the Public Funds Investment Act; and c. secured in any other- manner and amount provided by law for deposits of the county. 6. A fully collateralized repurchase agreement, as defined in the Public Funds Investment Act, if it: a. has a defined termination date; b. is secured by obligations described by Section 2256.009(a)(1) of the Public Funds Investment Act; and c. requires the securities being purchased by the county to be pledged to the county, held in the countys' name, and deposited at the time the investment is made with the county or with a third party selected and approved by the county; and d. is placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in this state. Notwithstanding any law, the term of any reverse security repurchase agreement may not exceed 90 days after the date the reverse security repurchase agreement is delivered. Money received by a county 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. -9- 9. Commercial paper is an authorized investment under this chapter if the commercial paper: - a. has a stated maturity of 270 days or fever from the date of its issuance; and ' b. is rated not less than A-1 or P-1 or an equivalent rating by at least, two nationally recognized credit rating agencies or one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the lave of the United States or any state. 8. Mutual funds and money market mutual funds rith limitations described below: A no-load money market mutual fund is authorized if it: a. is regulated by the Securities and Exchange Commission; b. has a dollar-weighted average stated maturity of 90 days or fever; and c. includes in its investment objectives the maintenance of a stable net asset value of S1 for each share. A no-load mutual fund is authorized if it: a. is registered with the Securities and Exchange Commission; b. has an average reighted maturity of less than two years; c. is invested exclusively in obligations approved by this subchapter; d. 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 e. conforms to the requirements set forth in Sections 2256.016(b) and (c) relating to the eligibility of investment pools to receive and invest funds of investing entities. Relative to mutual funds and money market mutual funds, the county may not: a. invest in the aggregate more than 80 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in money market mutual funds or mutual funds, either separately or collectively; b. 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; c. invest any portion of bond proceeds, reserves and funds held for debt service, in mutual funds; or d. invest its funds or funds under its control, including bond proceeds and reserves and other funds held for debt service, in any one mutual or money market mutual-fund in an amount that exceeds 10 percent of the total assets of the mutual funds or money market mutual funds. 9. Eligible investment pools if the Commissioners' Court by resolution authorizes investment in the particular pool. An investment pool shall invest the funds it receives from entities in authorized investments permitted by the Public Funds Investment Act. A county by contract may delegate to an investment pool the authority to hold legal title as custodian of investments purchased with its local funds. -10- " PROHIBITED The Kerr County Treasurer has no authority to use the following investment instruments which are strictly prohibited by the Public Funds Investment Act: 1. Obligations whose payments represent the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; 2. Obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest; 3. Collateralized mortgage obligations the interest rate of which is determined by an index that adjust opposite to the changes in a market index. It is the policy of Kerr County not to invest in the following investment instruments which are likely to cause investment risk: 1. Any and all collateralized mortgage obligations; 2. Bankers' acceptances; 3. Corporate bonds; 4. Eurodollar floating rate/fixed rate notes; 5. Farmers home administration insured notes; 6. Small business administration debentures and pools; 7. Stripped mortgage-backed securities; 8. Strips ( U. S. Treasury) ; and 9. Student loan marketing association discount notes. -li- VIII. TEXAS PUBLIC FUNDS INVESTMENT CERTIFICATION In accordance with Texas Government Code 2256.005(k), I certify that all relevant sales personnel dealing with the Kerr County account have thoroughly reviewed and read the investment policies, atrategiea and objectives of Kerr County as well as Chapter 2256, Texas Government Code, and agree to abide by said laws and policies. I further certify that my organization has implemented reasonable procedures and controls designed to preclude imprudent investment activities arising out of transactions conducted between our organization and Kerr County. We will notify you immediately by telephone and in writing in the event of a material adverse change in our financial condition. We pledge to exercise due diligence in informing you of all foreseeable risks associated with financial transactions conducted with our firm. Business Organization Signature Representative Signature Principal I have provided Kerr Countys' policies, Texas Public Funds Investment Act to _ and agreement on file. Signature Kerr County Treasurer Date Date strategies and a copy of the of pledge to maintain this Date -12- Court Order No. ~.~ ~~ Date: March 22, 1999 Submitted to Commissioners Court, Kerr County, Prepared and Submitted by: Barbara Nemec, County Treasurer KERR COUNTY INVESTMENT STRATEGY The County of Kerr maintains portfolios which utilize four specific strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios. Investment strategies for operating funds have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. This may be accomplished by purchasing high quality, short to medium term securities which will complement each other in a laddered maturity structure. The dollar weighted average maturity of 365 days or less will be calculated using the stated final maturity dates of each security. Investment strategies of debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities pur- chased shall not have a stated final maturity date which exceeds the debt service payment date. Investment strategies for debt service reserve funds shall have as the primary objective the ability to generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility. E:ccept as may be required by the bond ordinance specific to an individual issue, securities should be of high quality, with short to intermediate term maturities. Volatility shall be further controlled through the purchase of securities carrying the highest coupon available, within the desired maturity and quality range, without paying a premium, if at all possible. Such securities will tend to hold their value during economic cycles. Investment strategies for special projects or special purpose fund portfolios will have as their primary objective to assure that antici- pated cash flows are matched with adequate investment liquidity. These portfolios should include at least 10% in highly liquid securities to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held should not exceed the estima- ted project completion date.