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NAVARRO COLLEGE INVESTMENT POLICYAND STRATEGY Pursuant the PublicFundsInvestment TexasGovernment to Act, CodeSection 2256, House Bill 2799,

Acts of 75thLegisfature, and House Bill 3OOg, Acts of Z6th Legislature, Boardof Trustees Navarro the of College District policies adopts following the and strategies regardto its investments.This investment in policydoes not applyto investments donated the College a particular to purpose donated for or according the to termsspecified a donor. by Thisexception authorized H.B.3OOg, is by (1999).Thispolicy revisesthe investment policyand strategyamendedand reaffirmed the Boardon by September 22,2005. The Boardof Trustees Navarro of College recognizes requirement the Chief the for Executive Officer delegate to authority the overall for direction management fiscal and of responsibilitytotheVice-Presidentfor andAdministration. resolution Finance This provides direction the execution theseduties. for of Delegation Authoity of TheVice-Presidentfor Finance Administration, ChiefFinancial and as Officerof the College District, designated the Investment is as Officer and is responsible the overall for investment management decisions and activities. The Vice-President responsible is for considering qualityand capability the staff,investment the of advisors, and consultants involved investment in management procedures. participants the investment and All in process shallseekto act responsibly custodians the public as of trust.The Investment Officershall developand maintainadministrative procedures the operationof the for programwhich are consistent investment with this investment policy.The Investment Officer shallbe responsible alltransactions for undertaken shallestablish system and a of controls regulate activities subordinate to the of officials staff.The Investment and Officer shall designatethe BusinessManageras Deputy tnvestment Officer in the event circumstances require timelyactionandthe ChiefInvestment Officer notavailable. is The Deputylnvestment Officershallbe a key member the investment of teamand will act on behalfof the Investment Officerin his absence.

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Noofficer designee or mayengage an investment in transaction except provided as under termsof thispoficy. policy be established the Investment the The will by Officer and recommended the President the Boardof Trustees finalapproval. by to for This authority is effective untilrescinded the Boardof Trustees untilthetermination employment. by or of Scope This investment policyapplies all the financial to assetsand funds held by the Navarro CollegeDistrict. Navarro College consolidates fundsintoone investment its fund for investment purposes efficiency maximum for and investment opportunity. Thesefunds are defined Navarro in college's AnnualFinancial Report and include: Educational General and Fund,DebtService Fund,PlantFund,Auxiliary Fund, Agency Fund,Student Financial Funds Aid andanyotherfundsheld by Navarro Collegeunlessspecifically exempted the Boardof Trustees by andthis policy. OBJECTIVES Safety Safetyof principal theforemost is objective the investment of program. Investments shallbe undertaken a manner in that seeksto ensure preservation capital the the of in overallportfolio. There are varioustypes of investment risksfaced by the College'sportfolio.In compliance Governmental with Accounting Standards Board(GASB) Statement the 40, College addresses thesevarious typesof risk. CustodialRisk CustodialRisk is definedas (1) depositsthat are uninsured and either (a) uncollaterilizedcollateralized notin the governments or but nameor investments are that uninsured unregistered. and In accordance with the collateralization policyfor depositsand certificates of deposits, of Navarro all College's investments fullycollateralized FDICinsurance, are by pfedged securities andlora suretybondin the nameof the College District.

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Credit Risk Credit Riskis the riskof lossdueto the failure the security backer. orderto of or In disclose credit risk,credit ratings froma nationalstatisticalorganization reported willbe on the year'end investment report. Obligations or guaranteed the U.S.Government of by do not requiredisclosure creditquality. of Certificates Deposit fullycollateralized of are and do not require credit rating. an investment unrated, factmustbe disclosed. a risk lf is that Concentration Credit Risk of In accordance GASB governments to disclose amount issues with 40, need by and any concentration one issuerthat represents percent(5%) or more of the total in five assetsin the portfolio that business for activity. Investments issued or explicitlyguaranteed the U.S. Governments by and investments mutual in fundsor poolsare excluded. Navarro College's auditors classify short-term Certificates Deposit "Deposits" do not require of as and disclosure. Long-term Certificates Deposit fullycollateralized do not require of are and disclosure. lnterest Rate Risk NavarroCollegeneedsto discloseits interestrate sensitivity its investments. of Individual investment maturities be listedin the investment will reportand a Maturity Schedulewill be presented the NavarroCollegeBoardof Trusteesreviewin the for quarterly investment report. Variable interest instruments discouraged rate are sincethese itemsare highly sensitive interest changes. addition, to rate In maturities investments of generally shouldbe fiveyearsor less. Liquidity portfolio The investment shall remainsufficiently liquidto meet all operating requirements maybe reasonably that anticipated. is accomplished structuring This by the portfolioso that securitiesmature concurrent with cash needs to meet anticipated demands. Sinceall possible cashdemands cannotbe anticipated, portfolio the should consistlargely securities activesecondary resalemarkets. of with or Yield portfolio The investment shallbe designed withthe objective attaining market of a rate of returnthroughout budgetary and economiccycles,taking into accountthe investment constraints liquidity risk and needs. Return investment of least on is importance Revised: 9/08/06

compared the safetyand liquidity to objectives described above.The coreof investments is limited relatively risksecurities anticipation earning fair returnrelative the to low in of a to risk being assumed. Securities shall not be sold priorto maturity with the following exceptions: a declining credit security couldbe soldearly minimize of principal; to loss a yield,or targetdurationin the security swap would improve quality, the portfolio; liquidity needsof the portfolio or require the security sold. that be INTERNAL CONTROL PROCEDURES Internal controlis the process whichNavarro by College's Boardof Trustees and management obtainreasonable assurance to achievement specified as of objectives.lt consists interrelated of components integrity, with ethical values andcompetence, the and control environment serving thefoundation establishing as for objectives, assessment, risk information systems,control procedures, communication, managingchange, and monitoring. Prudence The standard prudence be usedby investment of to officials shallbe the "prudent person"standardand shall be appliedin contextof managing overallportfolio. an policyand Investment officers actingin accordance procedures this investment with and exercising due diligence shall be relieved personal of responsibility an individual for provided security's creditriskor marketpricechanges, deviations from expectations are reported a timelyfashion in and the liquidity the saleof securities carried in and are out with accordance the termsof this policy. Investments be made shall withthejudgement care,under and circumstances then prevailing, which personsof prudence, discretion and intelligence exercisein the management theirownaffairs, for speculation, for investment, of not but considering the probable safetyof theircapitalas well as the probable income be derived. to

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of Ethicsand Conflicts lnterest processshall refrainfrom Officersand employeesinvolvedin the investment personal business activity couldconflict that withthe proper execution management and program, that couldimpairthe ability makeimpartial of the investment or to decisions. Employees and investment officials shall discloseany materialinterests financial in with Theyshallfurtherdisclose institutions whichthey conductbusiness. any personal positions couldbe related the performance the investment to of financial/investment that personalinvestment portfolio.Employees and officersshall refrainfrom undertaking with with is transactions the sameindividual whombusiness conducted behalf their on of officerwho has a personal relationship any entity with entity.An investment business to College who is related the second seeking sellan investment Navarro to or in degree (affinity) bloodrelations (consanguinity)an individual or by marriage to seeking sellan to Navarro College required is tofilea statementdisclosing relationshipwith the investmentto Boardof Trustees. and College the TexasEthicsCommission the Navarro Delegation Authoity of program granted the Vice-President for Authority managethe investment is to to responsibility the operation the investment for of Finance Administration derived and and programis herebydelegated the lnvestment Officer.No personmay engagein an to investmenttransactionexcept as providedunder the terms of this policy and its procedures. Investment for The Officer shallbe responsible all transactions undertaken a the to of officials. and shallestablish systemof controls regulate activities subordinate nt QuaIity and CapabiIity of Investme Manaoement: Training Eachmember the Boardof Trustees, President, its investment of the and officers by shall attendat least one trainingsession,provided the Texas HigherEducation Board,relating the person'sresponsibilities underthe PublicFunds Coordinating to The must Act six office assuming duties. training Investment within months aftertaking or risks, compliance with in: security risks, market and include education investment controls, the PublicFundslnvestment Act.

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The investment not officers shallattenda training session lessthanoncein a twoyearperiodand mayreceive fromany independent sourcesuchas TexasHigher training or Education Coordinating Board, othergovernmentalagencies,non-profit organizations. The investment officersshallpreparea reporton the PublicFundsInvestment and Act deliver to the Boardno laterthanthe 180th afterthe lastdayof eachregular it day session of the legislature. SAFEKEEPING CUSTODY AND Authorized FinancialDealerand lnstitution A list will be maintained financialinstitutions to of authorized provideinvestment services.In addition,a list will also be maintained approved of securitybroker/dealers "primary" Thesemay include dealersor regional selected creditworthiness. by dealers. of bidders be will An annualreviewof the financial condition and registration qualified conducted. Forfiscalyear approves National BankandTrust 2006-2007, Board the Corsicana institutions for of and servicing the as its primary dealer purchase securities all financial of Collegeservicearea as banksfor purchase certificates depositand other interest of can provideappropriate deposit insuranceand/or bearing accountsif the institution pledged collateral surety or bonds. quoteswhen it purchases The Collegewill solicitat leastthree (3) competitive investments. primary The bankhasprovided Certificates Deposit similar of and depository rateswill be solicited telephone by from Competitive a "floo/' ratefor theseinvestments. or before a Certificate similar investmentis at least two other financialinstitutions providing bestrate purchased. bidfilewillbe maintained thosebids. A of Theinstitution the officers be selected. will in the opinionof the investment is for and an The Investment Officer responsible establishing maintaining internal from of College protected are control structure designed ensure to thatthe assets Navarro reasonable to loss,theftor misuse. internal The control structure shallbedesigned provide recognizes assurance are of assurance theseobjectives met.Theconcept reasonable that

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that(1)the costof the control should exceed benefits not likely be derived; (2) the to and the valuation costsand benefits of requires estimates judgements management. by and Accordingly, President the shallestablish process annual a of independent review by an external auditor assure to compliance policies with and procedures. internal The points: controls shalladdress following the a. b. Control collusion. of is Collusion a situation wheretwo or moreemployees areworking conjunction defraud in to theiremployer. Separation transaction of authority fromaccounting recordkeeping. and By separating personwho authorized performs transaction the or the fromthe peoplewho recordor otherwise account the transaction, separation for a of dutiesis achieved. investment All transactions be settled a delivery will on poolsand mutual versuspaymentbasiswith the exception investment of funds. c. purchased Custodial safekeeping. Securities from any bank or dealer (as including appropriate collateral defined Statelaw)shallbe placed by with d. an independent partyfor custodial third safekeeping. Avoidance physical delivery of securities. Bookentrysecurities much are easierto transfer account sinceactual and for of delivery a document never takesplace. Delivered securities mustbe properly safeguarded against loss or destruction. The potentialfor fraud and loss increases with physically delivered securities. e. Cleardelegationof authoritytosubordinatestaff members. Subordinatestaff members must have a clear understanding their authorityand of responsibilitiesavoidimproper to action. of Cleardelegation authority also preserves internalcontrolstructure is contingent the various the that on staff positions theirrespective and responsibilities. AND AUTHOR'ZED SUITABLE INVESTMENTS lnvestmentTypes The following investments be permitted this policy: will by

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a.

suchas Treasury obligations U.S.Government Treasury Treasury Bonds, Discount Bills, Notes, Notesand Debentures agencyobligations such as U.S. Government Farm Credit System, Farmers Home Federal Home Loan Bank, Administration, Federal Home Loan MortgageCorporation, NationalMortgageAssociation, Government StudentLoan Administration, Small Business Valley and Marketing Association; Tennessee Authority Certificates deposit of deposits Savings loanassociation and Prime commercialpaper that has a stated maturity 270daysor lessandis ratednot less of than A-1 or P-1 by at least two nationally recognized creditratingagencies. obligationsof state, local Investment-grade governments, public authorities and

b.

c. d. e.

f.

by investments not authorized this policy: are The following 1. payments the on represents coupon the whosepayment Obligations principal mortgage-backed balanceof the underlying outstanding and security collateral paysno principal; the streamof cash whosepaymentrepresents principal Obligations securitycollateraland mortgage-backed flow from the underlying bearsno interest; that mortgage obligations havea statedfinal maturity Collateralized greater 10 years;and than dateof the interestrate of which is mortgageobligations Collateralized in to to by determined an indexthat adjusts opposite the changes a index. market

2.

3. 4.

Collateralization on of will with In accordance statelaw,full collateralization be required certificates of of depository bank.Collateralizationcertificates and cashheldin the College's deposit 9/08/06 Revised:

depositand cash balances be in accordance will with Chapter2257of Vernon'sTexas The totalvalueof eligible CodesAnnotated. collaterat securethe College's to depositof public fundsmustbe in an amount lessthanthe amount public not of fundsincreased by the amountof any accruedinterest. The valueof investment security shallbe its market value. Investment securities collateralize to deposits Navarro of College shall be U.S. Government debt obligations, U.S. Agencydebt obligations, State of Texas, local municipalities district and debtobligations. investment All securities be heldat the will Reserve Federal Bankofffifas, the Federal HomeLoanBankofattasor at a thirdparty bankas approved the College. by All substitution security of collateral shallbeapproved the Investment by Committee composed the Vice-President Finance Administration, Business of for and the Manager, and the Comptroller. In accordance with H.B. 3459,the Collegerequires collateral pledgedon the pledged the District in an amount not lessthan 110o/o mortgage backed securities to be of of the marketvalueof the securities. Navarro College depository banks shall maintain separate, a accurate complete and recordrelating pledged to investment security, deposit publicfunds a transaction a of and relatedto a pledgedinvestment security.lt is the College's responsibility informthe to banksof anysignificant depository in change the amount activity its deposits. of of According Section to 2257.048 the Government of code,a security interest arises outof a depository's pledge bank atthetimethatthecustodian identifies pledge the the of on security it's booksand records and issuesthe trustreceipt. INVESTMENT STRATEGY Diversification The investments be diversified security will by typeand maturity.The buyand sell in decisions regard investments to entered the portfolio be madebythe investment into will team. The investment team shallbe composed the Vice-President Finance of for and Administration the Business and Manager. Revised: 9/08/06

Buy and sell decisions be primarily will influenced cash flow in each of the by respective funds listed previously. The fundamental investment strategyof Navarro College be to buy an investment holdit untilits maturity. will and However, because of changes marketconditions changes anticipated flowthere in and in cash maybe instances wheredecisions needto be madeto liquidate investment to its maturity. will prior the Whenthe investment teammakesdecisions regard purchasing in to securities for the portfolio, team must interpret interestrate cycleand may chooseto make the the relatively long term purchases the purposeof "locking a favorable for in" interest rate or choose to make shorterterm purchases they anticipate if interestrates to be more favorable the future. in Theinvestment teamis given responsibility putting placean investment the for into portfolio whichserves College's the financial requirements alsoattempts protect and to the College againstmarketcondition changes. is the intentof this document givethe lt to investment team the latitude purchase to investments withinthe scopeouflinedand to changestrategies withinthe confines the statedobjectives this policy. of of MaximumMaturities Navarro College normally finalmaturities anysecurities fiveyearsor will limit on to less.To the extentpossible, Navarro Collegewill attemptto matchits investments with anticipated cash flow requirements. Unlessmatchedto a specificcash flow, Navarro College notdirectly will investin securities maturing morethanfive(5)yearsfromthe date of purchase. The Investment Officerwill analyze each fund and determine what the appropriate average weighted maturity the portfolio of shouldbe. The following funds will requireinvestments are shorterterm in maturities. that Thesefundswill require investments generally that mature oneyearor less: in Educational General and Fund PlantFund Auxiliary Enterprises Fund AgencyFund

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for amountsof the abovefundsmay be invested longerthan one year if this Smaller fundswill normally The with cashflow requirements. following is investment consistent of alfowfor maturities longerthanone year: DebtServiceFund Financial Fund Aid Student maturityschedulefor all Officerwill providefor a diversified The Investment LoanMortgage i.e. of diversificationsecuritytypes, FederalHome In investments. addition, no normally morethan securities, ForAgency Bills, etc.,is required. U. Notes, S.Treasury of ten percent(10olo) the total portfolioshall be in one type of securityissuedby one Notes. on Thereis no restriction U.S.Treasury agency. REPORTING Methods report at least quarterly, Officershall preparean investment The Investment a that provides clearpictureof the statusof management summary a including succinct made over the last quarter. This the current investmentportfolioand transactions to College whichwillallowNavarro in will summary be prepared a manner management periodhaveconformed the to during reporting the activities whetherinvestment ascertain and the Board of policy.The reportshouldbe providedto the President investment The reportmust: Trustees. position Navarro on College the dateof of in describe detailtheinvestment a. b. c. d. the rePort; jointlyby all investment College; of officers Navarro be prepared Officer; Officerand DeputyInvestment be signedby the Investment the: fundgroupthat includes of statement eachpooled a contain summary 1. 2. 3. period; valuefor the reporting market beginning the valueduring period; to and additions changes market valuefor the period; market ending

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e. f. g.

statethe bookvalueandmarket valueof eachseparately invested assetfhaf hasa maturitydate; statethe account fund or pooledgroupfund for whicheach individual or investment acquired; was and state the compliance the investment of portfoliowith NavarroCollege's policy, investment investment strategy theprovision the Public and of Funds Investment as amended. Act be posted the Navarro to College website accordance StateAuditor's in with Officerequirements.

h'

In accordance H.B.2799,therewillbe a formal with annual review thequarterly of reports by an independent auditorwith results reported thegoverning to body. Theauditors should alsoreport assurances regarding compliance the Public with FundsInvestment Act. PertormanceStandards The investment portfoliowill be managedin accordance with the parameters specified withinthis policy.The portfolio shouldobtaina marketaveragerate of return during a markeUeconomic stable interestrates. Portfolioperformance of should be compared appropriate to benchmarks a regular on basis.The investment officers use will the Wall Sfreef Joumal to monitorand report the marketprices of the investments acquired.Corrective actionwill be takenif an investment consistently under-performs as compared its appropriate to benchmark. Amendment Thispolicy shallbe reviewed an annual on basis. accordance H.B.2799, In with the Boardof Trustees willtakeformalactionannually stating policy this andstrategy been has reviewed record and any changes the document. in Any changes mustbe approved by the Boardof Trustees, well as the individual(s) as chargedwith maintaining internal controls.However, changesoccur in financialmarkets, Boardof Trusteesmay as the amendthispolicy oftenas needed. as

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STATEOF TEXAS COUNTY NAVARRO OF

s s

NAVARRO COLLEGE DISTRICT l, the undersigned, Secretary-Treasurerof Board Trustees Navarro the of of College District, herebycertifythat the attached a true,full and correctcopyof a resolution do is adoptedby the Boardof Trusteeson the 21"1day of September, 2006 reaffirming an policy all college investment for funds. WITNESS HANDAND SEALof said District this 22ndday of September, MY on 2006.

Secretary/Treasurer, Boardof Trustees Navarro College District

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