STATEMENT OF INVESTMENT PRINCIPLES - NDSU

1 STATEMENT OF INVESTMENT PRINCIPLES PAGE 1 I. LEGAL AUTHORITY AND OBJECTIVES It is the policy of north dakota State university to invest funds in a manner which will provide INVESTMENT returns and security consistent with good business practices, while meeting the daily cash flow demands of the university , and conforming to all statutes and university bond resolutions governing the investments of funds. Funds of north dakota State university will be invested in accordance with the provisions of the: - north dakota Constitution: Article VII, Section 6; - north dakota Century Code: Chapters 15-67; 15-55; NDCC 15-10 -11, 15-10 -17; - Policies of the north dakota State Board of Higher Education: 305-1 and 810; and - covenants provided from the university 's bond issuance activities.

2 The three basic objectives of north dakota State university 's INVESTMENT program are: 1. Safety of invested funds; 2. Maintenance of sufficient liquidity to meet cash flow needs; 3. Attainment of the maximum INVESTMENT returns possible consistent with the first two objectives. The achievement of these objectives shall be accomplished in the manner described below: 1. Safety of Invested Funds The university will insure the safety of its invested funds by limiting credit and interest rate risks. Credit risk is the risk of loss due to the failure of the security issuer or backer to meet promised interest or principal payments on required dates. Interest rate risk is the risk that the market value of portfolio securities will fall or rise due to changes in general interest rates.

3 The physical security of the university 's investments is also an important element of safety. Detailed safekeeping requirements are defined in Section II of this policy. 2. Liquidity The university 's INVESTMENT portfolio will be structured in such a manner that securities mature at the same time as cash is needed to meet anticipated demands. Additionally, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets. STATEMENT OF INVESTMENT PRINCIPLES PAGE 2 3. INVESTMENT Returns INVESTMENT returns on the university 's INVESTMENT portfolio is a priority after the safety and liquidity objectives described above.

4 Investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. II. GENERAL PROVISIONS AND DEFINITIONS Prudence Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion and intelligence exercise in management of their own affairs, not for speculation but for INVESTMENT , considering the probable safety of their own capital as well as 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. Diversification The portfolio should consist of a mix of various types of securities, issues and maturities.

5 While the fund s asset allocation strategy provides diversification by fixed income sector, each portfolio within the sectors will also be broadly diversified by security type, issue and maturity. Asset Allocation Due to the restrictions set in state law, the only INVESTMENT accounts where the university has some discretion with asset allocation is in the Endowments and Expendable Gifts categories (see Section III.). Because of the limited size of the investments in these categories, the asset allocation policy will be set in terms of allowable ranges, based on an analysis of anticipated cash needs, existing and anticipated revenues, interest rate trends, and specific market opportunities.

6 Overall asset allocation ranges for Expendable Gift INVESTMENT pools will be approved by the Vice President for Finance and Administration. Definition of Funds Funds for the purpose of this policy are all university funds which are available for INVESTMENT at any one time. Funds include those in the university 's general operation and debt financing activities. STATEMENT OF INVESTMENT PRINCIPLES PAGE 3 Ethics and Conflicts of Interest Officers, employees and agents involved in the INVESTMENT process shall refrain from personal business activity that conflicts with the proper execution of the INVESTMENT program, or impairs their ability to make impartial INVESTMENT decisions. They shall disclose any material financial interests that could be related to the performance of the university 's INVESTMENT portfolio.

7 They shall also comply with all applicable Federal and State laws governing ethics and conflict of interest. Accounting and Reporting In reporting investments on its financial statements, the university follows the reporting requirements of GASB (Governmental Accounting Standards Board) Statements Number 3 and Number 40. Generally, these statements require a mark-to -market financial reporting. Internal Control The Accountant position in the university s Accounting Office will be responsible for recording the purchase and sales to the university s accounting system. The Accountant will not be involved in purchases or sales of investments. Safekeeping All investments will be a book entry or paperless type so no physical security exists or needs to be held by a custodian.

8 INVESTMENT Performance The university Controller and Vice President for Finance and Administration will perform periodic reviews of the cash and INVESTMENT activity to ensure that the safety, liquidity and performance of the INVESTMENT portfolio is appropriate. III. SPECIFIC PROVISIONS Financial Institutions By north dakota Century Code, monies received by north dakota State university must be deposited to university accounts in the Bank of north dakota . There are four basic exceptions: A clearing account in the local community is allowed for depositing collections and temporarily holding monies for periodic transfer to the Bank of north dakota . Appropriated monies belonging to the Agricultural Experiment Station, Extension Service, and north dakota Forest Service are to be held in the north dakota State Treasurer s Office Endowments and gift funds STATEMENT OF INVESTMENT PRINCIPLES PAGE 4 Monies required by a bond covenant to be held by a trustee outside of the Bank of north dakota .

9 Bank of north dakota The Bank of north dakota is the nation s only state-owned bank. The only available INVESTMENT options at the Bank of north dakota are money market accounts and certificates of deposit. It is the responsibility of the university s Controller to monitor daily cash balances at the Bank of north dakota and local clearing accounts, consider future cash needs, and execute certificates of deposit purchase and sale transactions. Objectives in investing excess Bank of north dakota cash is to minimize excess cash and establish a maturity ladder of certificate of deposits to achieve a balance of maintaining liquidity and maximizing INVESTMENT returns. Certificates purchased at the Bank of north dakota will be a book entry or paperless type so no physical security exists or needs to be held by a custodian.

10 Certificates will be in the name of the university . Collateral is not required for Bank of north dakota certificates of deposits. Ordinarily, Bank of north dakota certificates of deposits will be purchased from INVESTMENT pools. Interest income will not be allocated to all of the funds sharing in the INVESTMENT pools. Interest will be credited to a central administration fund and expended at the direction of the President or Vice President for Finance and Administration. In cases where certificates of deposit are purchased from individual funds, the interest income will be credited to the fund holding the INVESTMENT . Local Clearing Accounts State Century Code allows for the use of clearing accounts in the communities where cash collections are made and need to be securely deposited in local financial institutions.