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1. Safety <br /> Safety of principal is the foremost objective of the investment program. Investments shall be • <br /> undertaken in a manner that seeks to ensure the preservation of capital in the overall <br /> portfolio. The objective will be to mitigate credit risk and interest rate risk. <br /> a. Credit Risk <br /> The City will minimize credit risk,which is the risk of loss due to the failure of the <br /> security issuer or backer,by: <br /> • Limiting investments to the types of securities listed in Section VII of this Investment <br /> Policy <br /> • Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with <br /> which the City will do business in accordance with Section V <br /> • Diversifying the investment portfolio so that the impact of potential losses from any one <br /> type of security or from any one individual issuer will be minimized. <br /> b. Interest Rate Risk <br /> The City will minimize interest rate risk,which is the risk that the market value of <br /> securities in the portfolio will fall due to changes in market interest rates, by: <br /> • Structuring the investment portfolio so that securities mature to meet cash requirements <br /> for ongoing operations, thereby avoiding the need to sell securities on the open market <br /> prior to maturity <br /> • Investing operating funds primarily in shorter-term securities, money market mutual <br /> funds, or similar investment pools and limiting the average maturity of the portfolio in <br /> accordance with this policy(see section VIII). <br /> 2. Liquidity <br /> The investment portfolio shall remain sufficiently liquid to meet all operating requirements <br /> that may be reasonably anticipated. This is accomplished by structuring the portfolio so that <br /> securities mature concurrent with cash needs to meet anticipated demands (static liquidity). <br /> Furthermore, since all possible cash demands cannot be anticipated, the portfolio should <br /> consist largely of securities with active secondary or resale markets (dynamic liquidity). <br /> Alternatively, a portion of the portfolio may be placed in money market mutual funds or <br /> local government investment pools, which offer same-day liquidity for short-term funds. <br /> 3. Yield <br /> The investment portfolio shall be designed with the objective of attaining a market rate of <br /> return throughout budgetary and economic cycles, taking into account the investment risk <br /> constraints and liquidity needs. Return on investment is of secondary importance compared <br /> to the safety and liquidity objectives described above. The core of investments are limited to <br /> relatively low risk securities in anticipation of earning a fair return relative to the risk being <br /> assumed. Securities shall generally be held until maturity with the following exceptions: <br /> • A security with declining credit may be sold early to minimize loss of principal. <br /> • A security swap would improve the quality, yield, or target duration in the portfolio. <br /> • Liquidity needs of the portfolio require that the security be sold. • <br />