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• <br /> 2. Interest Rate Risk: Interest rate risk(the risk of a loss in market value due to <br /> general changes in interest rates)will be controlled through: <br /> a. Investing operating funds primarily in shorter term securities, money market <br /> mutual funds or similar investment pools(matching maturities with cash <br /> requirements). <br /> b. Establishing maximum guidelines for portfolio duration <br /> B. Liquidity: The Portfolio shall remain sufficiently liquid to meet all operating <br /> requirements that may be reasonably anticipated, including matching maturities with <br /> cash requirements. However, since all possible cash demands cannot be anticipated, <br /> the portfolio should consist largely of securities with active secondary resale markets. <br /> C. Return: The investment portfolio shall be managed with the objective of attaining a <br /> rate of return throughout budgetary and economic cycles consistent with the <br /> objectives of principal preservation, liquidity(in A and B above)and avoidance of <br /> realized losses. Return on investment is of secondary importance compared to safety • <br /> and liquidity. The total annualized return for each Component Portfolio is expected <br /> to exceed the total return of the performance benchmark established in this IPS for <br /> each Component, while maximizing the portion of return derived from current <br /> income. The return for the Total Portfolio is expected to exceed the total return on <br /> the Composite Benchmark(representing the dollar-weighted composite of the three <br /> Component Portfolio benchmarks). <br /> D. Loss Avoidance: Investment transactions shall seek to ensure that capital losses are <br /> avoided. In the event of a need to liquidate any security prior to maturity, <br /> consideration shall be given to selecting securities that avoid or minimize the <br /> realization of capital losses. Exceptions due to credit deterioration may be acceptable <br /> if such transactions were executed under guidelines listed herein and notification is <br /> made to the Director of the Office of Financial Services,the Mayor and City Council. <br /> 11 • <br />