HENRIETTA INDEPENDENT SCHOOL DISTRICT HENRIETTA, TEXAS INVESTMENT POLICY INTRODUCTION INVESTMENT STRATEGY

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1 HENRIETTA INDEPENDENT SCHOOL DISTRICT HENRIETTA, TEXAS INVESTMENT POLICY INTRODUCTION The purpose of this document is to set forth specific investment policy and strategy guidelines for Henrietta Independent School District in order to achieve the goals of safety, liquidity, yield, and public trust for all investment activity. The Board of Trustees of Henrietta Independent School District shall review its investment policy annually. This policy serves to satisfy the statutory requirement (specifically the Public Funds Investment Act, Article 342a-2 V.T.C.S. (the Act ) to define, adopt and review a formal investment strategy and policy. INVESTMENT STRATEGY Henrietta Independent School District maintains portfolios which utilize specific investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios: A. Investment strategies for operating funds have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. This 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. B. Investment strategies for 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. C. Investment strategies for capital projects funds will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. These portfolios should include at least 10 percent in highly liquid securities to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held should not exceed the estimated project completion date. Board Updated- May 14,

2 SCOPE This investment policy applies to all financial assets under the direct authority of Henrietta Independent School District. These funds are accounted for in the District s Annual Financial Report and include: General Fund Special Revenue Funds Debt Service Funds Trust and Agency Funds Capital Projects Funds Enterprise Funds OBJECTIVES The objectives and priorities of the investment policy of Henrietta Independent School District are as follows: 1. To comply with the laws of the State of Texas as defined in Government Code, Section 2256, known as the Public Funds Investment Act. 2. To provide for the safety of principal of all Henrietta ISD funds. 3. To provide sufficient funds to meet the cash needs of the continuing operations of Henrietta ISD. 4. To earn the highest possible rates of return on investments consistent with the foregoing objectives and guidelines. 5. To allow for diversification in the types, issues and maturities of investments so as to avoid incurring unreasonable and avoidable risks. 6. To maintain the highest professional and ethical standards as custodians of the public trust. Board Updated- May 14,

3 Delegation of Authority and Training RESPONSIBILITY AND CONTROL The Business Manager is designated as Investment Officer of the District and is responsible for investment decisions and activities. The Business Manager shall establish and maintain the investment policy. The Investment Officer shall attend at least one training session relating to the Officer s responsibility under the Act within 12 months after assuming duties. The investment officers shall attend an investment training session no less often than once every two fiscal years and shall receive not less than 10 hours of instruction relating to investment responsibilities. The investment training session shall be provided by an independent source. For purposes of this policy, an "independent source" from which investment training shall be obtained shall include a professional organization, an institute of higher learning or any other sponsor other than a business organization with whom the District may engage in an investment transaction. Internal Controls The Business Manager is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the District are protected from loss, theft or misuse. Accordingly, the Business Manager shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures. The internal controls shall address the following points: A. Control of collusion. B. Separation of transaction authority from accounting and recordkeeping. C. Custodial safekeeping. D. Avoidance of bearer-form securities. E. Clear delegation of authority. F. Written confirmation for telephone transactions for investments and wire transfers. The only transactions permitted without Business Manager approval are transfers in/out of Money Market Investment Pools and Money Market Mutual funds to cover daily cash needs. Board Updated- May 14,

4 Prudence The standard of prudence to be applied by the Investment Officer shall be the Prudent Investor Rule which states, 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. In determining whether an Investment Officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration: A. The investment of all funds, or funds under the District s control, over which the officer had responsibility rather than a consideration as to the prudence of a single investment. B. Whether the investment decision was consistent with the written investment policy of the District. The Investment Officer, acting in accordance with written procedures and exercising due diligence, shall not be held personally responsible for a specific security s credit risk or market price changes, provided that these deviations are reported immediately and that appropriate action is taken to control adverse developments. Ethics and Conflicts of Interest District staff involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair the ability to make impartial investment decisions. District staff shall disclose to the Superintendent any material financial interests in financial institutions that conduct business with the District, and they shall further disclose positions that could be related to financial transactions to those of the District, particularly with regard to timing of purchases and sales. An Investment Officer of the District who has a personal business relationship with an organization seeking to sell any investment to the District shall file a statement disclosing that personal business interest. An investment officer who is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the District shall file a statement disclosing that relationship. A statement required under this subsection must be filed with the Texas Ethics Commission and the governing body of the entity. Board Updated- May 14,

5 Quarterly Reporting The Business Manager shall prepare and submit to the Board of Trustees a signed quarterly investment report for all funds for the preceding period. The report will: A. Describe in detail the investment position of the District on the date of the report. B. Contain a summary statement of each fund that states the beginning market value for the reporting period, additions and changes to the market value during the period, and the ending market value for the period. C. State the book value and market value of each separately invested asset at the beginning and end of the reporting period by the type of asset and fund type invested. D. State the maturity date of each separately invested asset that has a maturity date. E. Contain a statement of compliance of the District s investment portfolio with State Law and the investment strategy and policy approved by the Board of Trustees. Active Portfolio Management INVESTMENT PORTFOLIO The District shall pursue an active versus passive portfolio management philosophy. That is, securities may be sold before they mature if market conditions present an opportunity for the District to benefit from the trade. The Investment Officer will routinely monitor the contents of the portfolio, the available markets, and the relative value of competing instruments, and will adjust the portfolio accordingly. Market value of all securities in the portfolio will be determined on a quarterly basis. These values will be obtained from a reputable and independent source and disclosed to the governing body quarterly in a written report. Authorized Investments Within the guidelines provided in Government Code Title 10, Chapter 2256, Public Funds Investment Act (short title), the Board of Trustees of Henrietta Independent School District has hereby adjudged and decreed that the following investments are allowed for Henrietta Independent School District funds: Obligations of, or Guaranteed by, Governmental Agencies. Authorization: government Code, Section obligations of the United States or its agencies and instrumentalities; Board Updated- May 14,

6 (b) (c) (d) (e) direct obligations of this state or its agencies and instrumentalities; 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; 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 that A or its equivalent. Certificates of Deposit Authorization: Government Code, Section A certificate of deposit is an authorized investment under this subchapter if the certificate of deposit is issued by a state or national bank that has its main office or a branch office in this state or a savings and loan association that has its main office or a branch office in this state and is: (b) (c) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor; secured by obligations that are described by Section , including mortgage backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal of the certificates, but excluding those mortgage backed securities of nature described by Section (b); or secured in any other manner and amount provided by law for deposits of the investing entity. Repurchase Agreements Authorization: Government Code, Section A fully collateralized repurchase agreement is an authorized investment if the repurchase agreement: (b) has a defined termination date; is secured by obligations described by Section (1); Board Updated- May 14,

7 (c) (d) requires the securities being purchased by the District to be pledged to the District, held in the District s name, and deposited at the time the investment is made with the District or with a third party selected and approved by the District; and is placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in this state. 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) at a market value at the time the funds are disbursed of not less than the principal amount disbursed. The term includes a direct security repurchase agreement and a reverse security repurchase agreement. The term of any reverse security repurchase agreement may not exceed 90 days after the date the reverse repurchase agreement is delivered. Banker s Acceptances Authorization: government Code, Section A banker s acceptance is an authorized investment under this subchapter if the banker s acceptance: (b) (c) (d) has a stated maturity of 270 days or fewer from the date of its issuance; will be, in accordance with its terms, liquidated in full at maturity; is eligible for collateral for borrowing from a Federal Reserve Bank; and 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 credit rating agency. Commercial Paper Authorization: Government Code, Section Commercial paper is an authorized investment under this subchapter if the commercial paper: (b) has a stated maturity of 270 days or fewer from the date of its issuance; and is rated not less than A-1 or P-1 or an equivalent rating by at least: Board Updated- May 14,

8 (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. Public Funds Pools Authorization: Government Code, Section The District may invest its funds through an eligible investment pool only if the particular pool is approved by resolution of the Henrietta Independent School District Board of Trustees. Unauthorized Investments The following are not authorized investments under this investment policy: (b) (c) (d) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest; collateralized mortgage obligations that have a stated final 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 market index. Investment Diversification It is the intent of the District to diversify the investment instruments within the portfolio to avoid incurring unreasonable risks inherent in over investing in specific instruments, individual financial institutions or maturities. The asset allocation in the portfolio should, however, be flexible depending upon the outlook for the economy and the securities markets. Henrietta Independent School District recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Portfolio diversification is employed as a way to control risk. The Investment Officer is expected to display prudence in the selection of securities as a way to minimize default risk. No individual investment transaction shall be undertaken that Board Updated- May 14,

9 jeopardizes the total capital position of the overall portfolio. In the event of default by a specific issuer, the Investment Officer shall review, and if appropriate, proceed to liquidate securities having comparable credit risks. To control market price risks, volatile investment instruments shall be avoided. Investment Maturities Henrietta Independent School District intends to match the holding periods of investment funds with liquidity needs of the District. In no case will the average maturity of investments of the Districts funds exceed five years. The maximum final stated maturity of any investment shall not exceed ten years. INVESTMENT INSTITUTIONS AND REPRESENTATIVES The Investment Officer shall invest District funds with any or all of the following institutions or groups consistent with federal and state law and the current bank depository contract: 1. Depository Bank; 2. Other state or national bank that has its main office or a branch office in Texas that are insured by FDIC; 3. Savings and load association that has its main office or a branch office in Texas that are insured by FSLIC; 4. Public funds investment pools; or 5. Government securities brokers and dealers. Henrietta Independent School District shall maintain a list of authorized broker/dealers and financial institutions which are approved for investment purposes. It shall be the policy of the District to place investments with and purchase securities only from authorized institutions and firms. A list of institutions which are approved to do business with the District shall be reviewed periodically. Brokers/dealers must be in good standing with the National Association of Securities Dealers. Representatives of brokers/dealers shall be registered with the Texas State Securities Board. The Investment Officer of the District may not buy securities from a person who has not delivered to the District an Investment Policy Affidavit acknowledged by the principal of the organization. Delivery vs. Payment Board Updated- May 14,

10 Securities shall be purchased using the delivery vs. payment method with the exception of investment pools and mutual funds. Funds shall not be wired or paid until verification has been made that the correct security was received by the Trustee. The security shall be held in the name of the District or held on behalf of the District. The Trustee s records shall assure the notation of the District s ownership of or explicit claim on the securities. The original copy of all safekeeping receipts shall be delivered to the District. SAFEKEEPING AND COLLATERALIZING The District will execute a Third-Party Custodial Safekeeping Agreement with a commercial bank approved by the Board of Trustees. All securities purchased and/or collateral obtained by the District shall be properly designated as an asset of the District and held in safekeeping. INVESTMENT POLICY ADOPTION The Henrietta Independent School District Investment Policy shall be adopted by resolution of the District Board of Trustees. The policy shall be reviewed for effectiveness on an annual basis by the Board, and any modifications shall be recommended for approval. Board Updated- May 14,

DATE ISSUED: 2/2/ of 13 LDU CAK(LOCAL)-X

DATE ISSUED: 2/2/ of 13 LDU CAK(LOCAL)-X GENERAL STATEMENT FUNDS INCLUDED COLLEGE OFFICER This policy serves to satisfy the statutory requirements of Government Code Chapter 2256 Public Funds Investment Act (PFIA) to define and adopt a formal