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VI. PRUDENCE
The standard of prudence to be used in the investment function shall be the "prudent
person" standard and shall be applied in the context of managing the overall portfolio.

This standard 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 expected income to be
derived."

Limitation of Personal Liability - The Investment Officer and those delegated investment
authority, when acting in accordance with the written procedures and this Policy and in
accord with the Prudent Person Rule, shall be relieved of personal liability in the
management of the portfolio provided that deviations from expectations for a specific
security's credit risk or market price change are reported in a timely manner and that
appropriate action is taken to control adverse market effects.

VII. INTERNAL CONTROLS
The Investment Officer shall establish a system of written internal controls which will be
reviewed annually with the independent auditor of the Town. The controls shall be designed
to prevent loss of public funds due to fraud, employee error, and misrepresentation by third
parties, or imprudent actions by employees of the Town.

VIII. AUTHORIZED INVESTMENTS
Acceptable investments under this policy shall be limited to the instruments listed below.
The choice of high-grade government investments and high-grade, money market
instruments are designed to assure the marketability of those investments should liquidity
needs arise.

• Obligations of the United States Government, its agencies and instrumentalities, not
to exceed two (2) years to stated maturity and excluding mortgage backed securities;

• Fully insured or collateralized certificates of deposit from a bank doing business in
the State of Texas and under the terms of a written depository agreement with that
bank, not to exceed one year to stated maturity;

• No-load, SEC registered money market mutual funds. No more than 80% of the
entity's monthly average balance may be invested in money market funds

• Public Funds interest bearing accounts; and

• Constant dollar, AAA-rated Texas Local Government Investment Pools as defined by
the Public Funds Investment Act.

If additional types of securities are approved for investment by public funds by state statute,
they will not be eligible for investment until this Policy has been amended and the amended
version adopted by the Council.

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