October 19, 1998

SUBJECT: Proposed Amendment to Board Policy E-9, Investment

That the Board of Trustees modify its policy on Investments

This item is consistent with Policy E-9, Investments.

The proposed modification in Board Policy would change the primary investment officer’s former titles to their current titles. Administrative Vice President and Associate Vice President of Business Services would change to Executive Vice President Administration and Institutional Advancement and Vice President, Business Services respectively. Secondly, the inclusion of the following sentence in the "Reporting" section, "In conjunction with the annual financial audit, a compliance audit of management controls on investments and adherence to the established investment policies be performed". This sentence addresses a requirement of Sec. 2256.005(m) of the Public Funds Investment Act.

None.

Jerry Miller, Vice President, Business Services

Proposed Amended Policy (sentence change in bold and italic)

Austin Community College (ACC) shall invest its financial assets in accordance with the Texas Government Code, Chapter 2256. The priorities of those investments shall be, in order: (1) safety, (2) appropriate liquidity, and (3) revenue generation.

The investment of College funds shall be managed by the Executive Vice President of Administration and Institutional Advancement Administrative Vice President and the Associate Vice President for Business Services who shall provide the Board with quarterly reports to the Board on investment activities. Investment officers and College Trustees shall take the investment-related training specified by law.

Intent:

The intent of this investment policy is to set forth the investment and operational policies for the management of public funds of Austin Community College. This policy is designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with those of comparable funds and financial market fund indexes.

A copy of this statement will be provided to all investment dealers and investment managers doing business with ACC, and will also be provided to other interested parties on request. Confirmation of receipt and review of this policy by a registered principal of a business organization providing investment services to ACC and who deal directly with ACC accounts shall be received by ACC prior to the initiation of such services.

This investment policy applies to all financial assets of ACC. These funds are accounted for in the College's Audited Financial Statements including, but not limited to the following: Unrestricted Fund, Restricted Fund, Auxiliary Fund, Endowment & Similar Funds, Agency Fund, Plant Fund.

Investments shall be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of their capital and the probable income to be derived.

The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.

Trustees of the Board and investment officers shall attend at least one training session relating to the person's responsibilities conducted by the Texas Higher Education Coordinating Board within six months after taking office or assuming duties. Training will include education in investment controls, security risks, strategy risks, market risks, and compliance with the Public Funds Investment act.

A. Safety. This is the most important objective of the investment policy of ACC. Investments of the College shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. In order to minimize any potential losses on individual securities, diversification is required. The college shall demonstrate its support of this objective by investing in 100% collateralized instruments or investments backed by the U.S. government or one of its Agencies.

B. Liquidity. The ACC investment portfolio will remain sufficiently liquid to enable the College to meet all operating requirements which can be reasonably anticipated. To a large extent liquidity shall be determined by the flow of revenues and expenditures predicted via cash flow projections. These cash flow projections shall be up to one year in length.

C. Yield. The College's investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, consistent with the College's investment risk constraints and the cash flow needs projected.

The Executive Vice President of Administration and Institutional Advancement Administrative Vice President and Associate Vice President of Business Services are designated as primary investment officers and are responsible for investment decisions and activities. All investment activity shall be strictly limited to other provisions within this policy.

Not less than quarterly, the Executive Vice President of Administration and Institutional Advancement Administrative Vice President shall prepare and submit to the Board of Trustees and Chief Executive Officer a written report of investment transactions for all funds. The report must conform to the content requirements of the Public Funds Investment Act.

The investment officer may purchase, sell, and invest funds in investments described below, in compliance with adopted investment policies and according to the standard of care set out in this policy.

A. Only the following securities are authorized investments under this policy (section reference is to Texas Government Code 2256):

1.Obligations of the United States or its agencies and instrumentalities (.009(1)).

2.Direct obligations of the State of Texas or its agencies and instrumentalities (.009(2)).

3.Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities. (.009(4)).

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.(.009(5)).

5.Collateralized Repurchase Agreements. Agreements must have a defined termination date and be secured by obligations described by .009(a)(1). The term "repurchase agreement" includes a direct security repurchase agreement and a reverse security repurchase agreement. (.011).

6.Commercial Paper. Paper must have a stated maturity of 270 days or less and be rated not less than A-1 or P-1 (.013(1), (2)(a) and (b)).

7.No-Load Mutual Fund. Fund must be registered with the SEC, have an average weighted maturity of less than two years, be continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent, and conform to the requirements set forth in (.016(b) and (c)) relating to eligibility of investment pools to receive and invest funds of investing entities. Investment amounts are subject to limitations in the Code. Bond proceeds, reserves and funds held for debt service may not be invested in a no-load mutual fund (.014(b)).

8.Investment Pools. The following investment pool(s) are hereby specifically authorized as college investments: Texpool Municipal Investment Fund.

As an integral part of the investment policy, ACC shall adopt a separate written investment strategy for each of the funds under its control. Each investment strategy must describe the investment objectives for the particular fund, with the goal of determining the suitability of the investment to the financial requirements of ACC, preserving and safekeeping principal, maintaining liquidity, marketability of the investment if the need arises to liquidate the investment before maturity, diversification of the portfolio, and the yield. Texas Government Code 2256.005(d). The Board of Trustees of ACC shall review its investment policy and strategies not less than annually. Texas Government Code 2256.005(a). The investment strategies listed hereinafter apply to all funds under the control of the Board of Trustees of the Austin Community College and listed in the Scope section of this policy.

The general investment strategy for ACC shall be accomplished by purchasing high quality, short-to-medium-term securities which will complement each other in a laddered or barbell maturity structure. The dollar-weighted average maturity for operating funds shall be 365 days or less. Calculation of dollar-weighted maturity shall be based on the stated final maturity dates of each security. Callable securities may be purchased in this fund group when there is a yield advantage over non-callable treasury securities of comparable duration based on both the call data and the stated final maturity date. For securities which are callable prior to the stated maturity, the collar-weighted average maturity shall be calculated using a projected outcome at the time of the calculation. Investment in public funds investment pools which function as a money market mutual fund is assumed to have a duration of one day for calculation purposes. For the portion of current fund investments representing the fund balance, the stated final maturity for an individual security can be up to 5 years from the date of purchase, which for the remaining portion, the stated final maturity for an individual security may not exceed 2 years from the date of purchase.

Investment strategies for debt service funds shall assure investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity date which exceeds the debt service payment date.

Investment strategies for debt service reserve funds shall generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility. Except as may be required by the bond ordinance specific to an individual issues, securities should be of high quality, with short-to-intermediate-term maturities. Stated final maturity of any individual security in the debt service reserve fund will not exceed the final installment payment date of the debt issue. 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.

Plant Fund: (Construction Funds and Unexpended Plant Funds):

Investment strategies for special projects or special purpose fund portfolios such as the construction funds and unexpended plant funds shall assure that anticipated cash flows are matched with adequate investment liquidity. These portfolios should include at least 10% in highly liquid securities or investment in public funds investment pools which function as a money market mutual fund to allow for flexibility to meet unanticipated project outlays. The stated final maturity dates of securities held should not exceed the estimated project completion date.

Investment strategies for the endowment funds and other similar funds functioning as endowments are governed by the Texas Education Code. Texas Education Code 130.007. The investment performance goal on endowment and similar funds is: (1) to achieve a total rate of return at least equal to two times the rate of inflation (applying a five-year moving average), net of commissions fees and out-of-pocket costs; (2) to match or exceed the growth rate of Standard & Poor's 500 Stock Index; and (3) the income stream from investments to increase in order to preserve the purchasing power of the endowment income. Preferred and common stocks, bonds, debentures obligations of corporations or other institutions are appropriate investments for endowment and similar funds. Stocks must be listed on an exchange registered with the Securities and Exchange Commission or on the National Association of Securities Dealers Automated Quotes (NASDAQ). Stocks ordinarily must be of corporations incorporated within the United States which have paid dividends for five consecutive years or longer prior to date of purchase. Exceptions are permitted on specific recommendation of the Associate Vice President Business Services with the concurrence of the Executive Vice President of Administration and Institutional Advancement Administrative Vice President. No more than 5% of the total endowment and similar fund (cost basis) may be invested in the securities of any one corporation. No more than 1% of the outstanding stocks of a single corporation may be included in the Austin Community College portfolio. No more than 20% of the total endowment and similar fund (cost basis) may be invested in any one industry.