07-23-12 Fiscal Affairs Committee

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VL INVESTMENTS ACTIVE PORTFOLIO MANAGEMENT The City intends to pursue active versus passive portfolio management philosophy. That is, securities may be sold before they mature if market conditions present an opportunity for the City to benefit from the trade. AUTHORIZED INVESTMENTS The following are authorized investments for the City and all are authorized and further defined by the Act: A. Obligations, including letters of credit, of the United States or its agencies and instrumentalities; direct obligations of this state or its agencies and instrumentalities; 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; and 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. (Section 2256.009 (a) of the Act) The following are not authorized investments under Section 2256.009 (b) of the Act: • obligations whose payment represents the coupon payment on the outstanding principal balance of the underlying mortgage -backed security collateral and pays not principal (Interest only bonded); • obligations whose payment represents the principal stream of cash from the underlying mortgage -backed security collateral and pays no interest (Principal only bonds); • collateralized mortgage obligations that have a final stated maturity date of greater than 10 years; and • collateralized mortgage obligations, the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. B. Fully collateralized certificates of deposit issued by a depository institution that has its main office or branch office in Texas and, guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor; secured by obligations authorized by this subchapter, or secured in any other manner and amount provided bylaw for deposits of the City. (Section 2256.010 of the Act) C. Fully collateralized repurchase agreements with a defined termination date; and secured by obligations described by the Act (Section 2256.009 (a)(1)); such collateral, held in the City's name, and deposited at the time the investment is made with the City or an independent third party selected and approved by the City. Repurchase agreements must be purchased through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in this Texas. Repurchase agreements and reverse repurchase agreements shall be entered into only with dealers who have executed a Master Repurchase Agreement with the City. 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 the City 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 no later than the expiration date stated in the reverse security repurchase agreement. (Section 2256.011 of the Act)