Water Walker provides separately managed account investment and advisory services in accordance with
the client’s investment policy statement. Water Walker is engaged to manage the Florida Fixed Income
Investment Trust (FL-FIT) and the Texas Fixed Income Trust (TX-FIT) also referred to, providing Florida
and Texas’s local governments unique investment pools consisting primarily of separate and distinct pools
that focus their investments in, short term government and corporate securities and certain unregistered
cash deposit programs (each a “Pool”). Water Walker also provides consulting to the managers of public
funds in many areas. These specialties include: treasury management, investment policy development,
custodian bank analysis, fiduciary services for retirement plans and other investment advice.
Water Walker also markets and administers certain FDIC insured cash deposit products called the
INSURED DEPOSIT PORTAL™, or “IDP.” To the extent that Water Walker utilizes cash deposit products
for its clients. Water Walker solely acts as an agent and administrator for multiple underlying deposit
programs. The IDP program is a federally insured deposit program which is designed to give clients a
product that will enable them to protect their liquid assets by placing cash deposits in multiple interest-
bearing deposit accounts with U.S. financial institutions in a manner that maintains full insurance of the
funds by the Federal Deposit Insurance Corporation.
Water Walker has been in business since June of 2000 and registered with the Securities and Exchange
Commission since 2001. Mr. M. Brent Wertz and Mr. David Jang collectively own 100% of Wertz York
Capital Management Group, LLC.
As of December 31, 2019, Water Walker had approximately $2.8 billion in discretionary assets under
management. Water Walker also had approximately $2.7 billion in non-discretionary assets under
management which consisted of Water Walker’s INSURED DEPOSIT PORTAL™ accounts that are
invested solely in FDIC insured bank deposits and the assets of Water Walker’s consulting clients.
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For managing separately managed accounts, the standard fee formula is an annual rate of 0.25% of assets
under management and maybe tiered down and/or negotiated by clients if certain minimum levels of assets under
management are attained as disclosed in the investment advisory agreement.
With respect to FL-FIT and TX-FIT, each Pool pays Water Walker a fee on a monthly basis that is based on
the average daily net assets of the applicable Pool for the prior month. The fee is calculated at the annual
rate as depicted in the advisory agreement with the Trust (as detailed below).
The fee formula that Water Walker has with the Florida Fixed Income Trust and the Texas Fixed Income
Trust is different for each Pool in the Trusts. The fee formula for each Pool is an annual rate that is paid
monthly based upon the average daily net assets of each applicable Pool for the prior month. The annual fee
formula rate for each Pool is as follows: Preferred Deposit Pool is 0.12%, the Enhanced Cash Pool is 0.12%,
the FL-FIT 1-3 Year Pool is 0.20%, the FL-FIT Cash Pool is 0.15%, the TX-FIT Cash Pool 0.15% and TX-
FIT Government Pool 0.12%.
Please note that each underlying investment pool and cash deposit program utilized by FL-FIT and TX-FIT
has its own fees and expenses, which are ultimately borne by the clients. These fees and expenses include,
but are not necessarily limited to, management fees, administrative servicing and support fees, insurance,
audit and tax preparation expenses, sales charges, legal fees, and potentially other fees and expenses. The
fees of the underlying investment pool and cash deposit program are separate and distinct from the fees
assessed by Water Walker to manage the Pools and they are separate from the operating expenses incurred
by each Pool.
As noted above, Water Walker also markets and administers IDP. For clients of Water Walker that utilize
IDP, Water Walker solely acts as an agent and administrator and is compensated for these services by the
specific sponsors of the underlying cash deposit programs from the gross yield of the investment. The fee earned
by Water Walker for this service range from 4 basis points (0.04%) to 10 basis points (0.10%) to administer
and serve as an agent on behalf of clients.
Please also see Item 12 of this brochure, which discusses brokerage arrangements utilized by Water Walker.
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Water Walker’s client base consists of public sector accounts (government entities), an unregistered pooled
investment vehicle, which has been established as governmental entities pursuant to an inter-local agreement
(and consists of the Pools), and separately managed accounts. Water Walker also acts as an agent for its
INSURED DEPOSIT PORTAL™ accounts, which are invested exclusively in FDIC insured products.
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Water Walker seeks to achieve its investment objective with respect to all client portfolios (including FL-
FIT and TX-FIT) by investing primarily in short-term bonds and other short-term instruments with a targeted
time horizon that is consistent with the client’s investment policy. Government bonds include securities
issued or guaranteed by the U.S. government, as well as securities issued by its agencies or instrumentalities,
such as Federal Home Loan Bank securities. Water Walker also utilizes SEC-registered funds, Supranational
bonds, certificates of deposits, mortgage back securities, corporate bonds, and commercial paper as the
client’s investment policy permits.
Water Walker takes a top-down approach that focuses on the identification of themes that we believe will
drive returns. Macroeconomic variables such as business cycles, capital flows, credit trends, currency
dynamics, and monetary and fiscal policies are evaluated to help develop these themes. Sector allocations
are determined within this context, and sector spread forecasts are projected over a set horizon. Using a
blend of fundamental and quantitative analysis, securities are selected which are consistent with our market
themes and sector strategy. Our core/tactical holdings are based upon an internal and external review of credit
metrics, industry analysis, and geographical considerations. Changes in sector weightings are typically
driven by macro thematic shifts or divergences in relative value.
Fundamental Analysis
Water Walker credit review process is focused on: (a) asset quality (credit metrics, industry analysis, and
strategic direction); (b) management; and (c) geography/geopolitical considerations.
Water Walker research is conducted on a specific issuer level basis and involves both qualitative and
quantitative aspects. Qualitatively, we emphasize bottom-up fundamental research focusing on management
review, capital structure considerations, covenant analysis, and key credit risks.
Quantitatively, during our credit analysis process of a firm, we analyze specific ratios and trends of the ratios
as well as analyzing the free cash flow to the firm. A variety of software and analytical tools are utilized to
make forward-looking projections regarding credit metrics, industry trends, and overall internal investment
recommendations on behalf of portfolios and/or clients.
For FDIC bank products, Water Walker monitors the FDIC website and, in conjunction with FDIC bank
providers detailed reviews of the quarterly reporting by financial institutions to FDIC. Management also
monitors the overall health of each banking institution. The health score is compiled from monitoring deposit
growth, bank capitalization, as well as the Texas ratio. The Texas ratio is a measure of a financial institution’s
credit holdings which was developed by RBC Capital Markets when analyzing the financial strength of Texas
financial institutions in the early 1980’s recession. When calculating the Texas ratio, the analysis determines
the overall credit troubles experienced by a financial institution by comparing the total value of non-
performing loans (loans >90 day past due) as compared to the total value of assets (including tangible
common equity and loan loss reserves) the bank has on hand to cover the loans.
Strategy Risks. The risks associated with Water Walker’s investment strategies include, but are not
necessarily limited to, the following:
Government Risk. The U.S. Government’s guarantee of the ultimate payment of principal and
timely payment of interest on certain U.S. Government securities owned by an investment account
does not imply that an investment account overall value is guaranteed or that the price of an
investment account’s shares of a mutual fund will not fluctuate. In addition, securities issued or
guaranteed by federal agencies or instrumentalities may or may not be backed by the full faith and
credit of the U.S. Government.
Interest Rate Risk. The value of an investment account’s fixed income securities will decrease
when interest rates rise.
Market Risk. The bond market may decrease in value, and it may decrease in value sharply and
unpredictably.
Management Risk. The securities selected by the adviser may underperform the bond market or
mutual funds with similar investment objectives and strategies. Water Walker may not be
successful in limiting an investment account’s interest rate risk.
Specific Maturity Risk. The specific maturities in which an investment account invests may fall in
value more than other maturities. Generally, due to changes in interest rates and other factors, the
value of a portfolio of bonds with a longer effective maturity will fluctuate more than the value of
a portfolio of bonds with a shorter effective maturity.
Prepayment Risk. The value of the callable, mortgage-backed, and asset-backed securities held in
an investment account may go down as a result of changes in prepayment rates on the underlying
mortgages or consumer loans. During periods of declining interest rates, prepayment usually
increases and an investment account may have to reinvest prepayment proceeds at a lower interest
rate.
Credit Risk. The issuer of fixed income security may not be able to make interest and principal
payments when due. Generally, the lower the credit rating of a security, the greater the risk that the
issuer will default on its obligation.
Derivative Risk. Clients may invest in structured instruments, which are considered derivatives.
The value of derivative securities is dependent upon the performance of underlying securities or
indices. If the underlying securities or indices do not perform as expected, the value of the derivative
security may decline. Generally, derivatives are more volatile and riskier in terms of both liquidity
and value than traditional investments.
Futures and Options Risk. The use of options, futures contracts or options on futures contracts for
risk management or hedging purposes may not be successful, resulting in losses to an investment
account. In addition, the cost of hedging may reduce an investment account’s returns, and the use
of futures and options for investment purposes increases an investment account’s potential for loss.
Leverage Risk. This is the risk associated with securities or practices that multiply small market
movements into large changes in value. Leverage is often associated with investments in derivatives,
such as futures and options. Reverse repurchase agreements, a form of borrowing, are subject to
leverage risk.
Reverse Repurchase Transaction Risk. Reverse repurchase transactions also involve the risk that
the market value of the securities sold by an investment account may decline below the price at
which an investment account is obligated to repurchase the securities. In the event of bankruptcy or
other default by the purchaser, an investment account could experience both delays in repurchasing
the portfolio securities and losses. Reverse repurchase transactions may increase fluctuations in an
investment account’s net asset value.
Liquidity Risk. Liquidity risk exists when particular investments of a client would be difficult to
purchase or sell, possibly preventing a client from selling such illiquid securities at an advantageous
time or price. If an auction fails for an auction rate security, there may be no secondary market for
the security, and a client may be forced to hold the security until the security is refinanced by the
issuer or a secondary market develops.
Default Risk. The chance that the bond issuer will not make the required coupon payments or
principal repayment to its bondholders.
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David Jang, a Partner and Director of Client Affairs, joined Water Walker in August 2015. Mr. Jang is a
registered representative of First Dominion Capital Corp. in Richmond, Virginia, and spends less than 5%
of his time on any activities on behalf of this broker-dealer firm.
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Water Walker has adopted its Code of Ethics (“Code”) which includes an Insider Trading Policy to establish
principles of conduct and to detect and avoid conflicts of interests that may arise between employees and
clients as a result of personal investing activities. The Code is designed to ensure, among other things, that
employees conduct their investing activities in accordance with applicable law and in a manner where
clients’ interests are placed first and foremost. Water Walker’s Code applies to all employees of Water
Walker and any account in which an employee has control or beneficial interest as well as the accounts of
family members of each employee’s immediate household, as further described in the Code.
Generally, the Code requires, among other things, for all employees to pre-clear transactions in initial public
offerings and private placements. The Code also requires employees to report all accounts and securities
holdings covered by the Code at the commencement of their employment and annually thereafter. In
addition, on a quarterly basis, all employees are required to report all securities transactions executed during
the quarter. Certain securities are exempt from the requirements of the Code including open-end mutual
funds which are neither managed nor affiliated with Water Walker, money market funds, money market
instruments, unit investment trusts that are invested in open-end mutual funds and U.S. Government
securities.
The Code imposes specific prohibitions on employee trades including (i) trades based on material nonpublic
information, (ii) trades intended to manipulate the market; (iii) trades in securities on Water Walker’s
restricted list, (iv) trades in securities subject to an open order or during the blackout period, and (v) trades in
initial public offerings. Water Walker has exempted certain types of securities from some of the requirements
and prohibitions of the Code. As part of the Code, Water Walker has established an Insider Trading Policy.
Water Walker’s Insider Trading Policy includes specific requirements regarding the possession of material
non-public information (“MNI”) in order to avoid situations that may violate applicable statutes or
regulations or create an appearance of impropriety. Water Walker’s Insider Trading Policy strictly forbids
any employee from (i) conducting trades, either personally or on behalf of others, including clients of Water
Walker, while in possession of MNI; or (ii) communicating MNI to others.
A copy of Water Walker’s Code of Ethics will be provided to any client, investor or prospective client or
investor upon request.
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Water Walker generally has the authority and responsibility of selecting broker-dealers for effecting
transactions for client accounts. It is the policy of Water Walker to seek to obtain the best execution for
client portfolio transactions. In seeking best execution and negotiating commission rates, the commission
cost is one factor considered by Water Walker. Other factors considered in seeking best execution include
the price, the quality, and reliability of the brokerage services provided, execution capability, and a firm’s
financial responsibility, research and other investment information or services provided by a broker-dealer.
In its discretion, Water Walker does not obligate itself to seek the lowest commission cost on each individual
transaction and may cause a client to pay commission costs, which may exceed the cost charged by the
executing broker-dealer or another broker-dealer. This may occur when Water Walker determines in good
faith that the commission costs are reasonable in relation to the research and/or brokerage services provided
by the broker-dealer.
On an ongoing basis, Water Walker monitors and evaluates the performance and execution capabilities of
the firms which provide research and brokerage services.
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Client accounts are reviewed daily by the portfolio management team. Other reports are provided to
investors monthly and quarterly and other times as required or requested. The calendar is the triggering
factor.
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Water Walker may enter into contractual agreements with individuals and organizations (hereafter referred to
as "agents") that solicit clients for Water Walker. While the specific terms of each arrangement may differ,
generally an agent's compensation is based upon the value of assets of the referred clients or a portion of the
management fee paid by such clients. As disclosed to the client, the agent's compensation may or may not
increase the referred client’s fees beyond that which Water Walker would otherwise charge the client for
similar services.
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Client assets are held with independent qualified custodians. Each qualified custodian is responsible for the
safe-keeping of cash and securities of each client. In general, securities and cash are insured by the custodian
up to $500,000 in total value and up to $250,000 in cash.
In its agreement with Water Walker, each client authorizes Water Walker to have access over each client
account. The authorization generally provides Water Walker with trading access and broker-dealer selection.
The custodian prepares a statement no less than quarterly for each client account. Statements are made
available by the custodian to clients by US Mail or secure internet access. Clients should carefully review
these statements and should compare these statements to any account information provided by Water Walker
and notify Water Walker of any discrepancies.
Water Walker does not have custody of any client accounts.
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In providing investment supervisory services to its clients, Water Walker invests client portfolios in
accordance with the investment objectives and guidelines of the individual clients, subject to any investment
restrictions or other limitations placed by a client upon the discretionary authority of Water Walker. These
restrictions may include limitations on asset allocations, specific issuers, or classes of securities or direction
as to the use of specific broker-dealers. These objectives, guidelines, and restrictions are detailed in each
client’s formation and/or offering documents.
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Given the nature of the investments purchased by Water Walker pursuant to its discretionary authority,
proxy voting is expected to be a rare occurrence. Nonetheless, each client’s custodian has been instructed to
forward all proxies to Water Walker. Any proxy vote submitted by Water Walker will be voted solely in the
best interest of the client and in accordance with Water Walker’s policies and procedures. The CCO shall
review each proxy vote submitted by Water Walker no less frequently than annually.
There may be instances where Water Walker’s interests conflict, or appear to conflict, with client interests in
the voting of proxies. Water Walker addresses these conflicts or appearances of conflicts by ensuring that
proxies are voted in accordance with recommendations made by an unaffiliated third-party.
A copy of Water Walker’s Proxy Voting Policies and Procedures may be obtained by writing to Elizabeth
Huston at Water Walker Capital Management Group, LLC, P.O. Box 9691, Tampa, FL33674.
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Water Walker does not have any financial condition that is likely to impair its ability to their contractual
commitments to its clients.
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