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XIII. DIVERSIFICATION <br />Diversification of the overall portfolio will be maintained in accordance with the following diversification <br />limits. <br />Security Type <br />US Government Treasury Obligations <br />US Government Agencies and Instrumentalities <br />Municipal Instruments <br />Certificates of Deposit <br />Issued by institution <br />Repurchase Agreements <br />Flex repurchase agreements for bond proceeds <br />Constant dollar investment pools <br />Ownership of the pool <br />Commercial Paper <br />Limit per commercial paper issuer <br />Money Market Mutual Fund <br />Ownership of the fund <br />XIV. INTERNAL CONTROLS <br />Maximum % of Portfolio <br />100% <br />80% <br />30% <br />40% <br />20% <br />25% <br />100% <br />100% <br />10% <br />25% <br />10% <br />50% <br />10% <br />The Investment Officer(s) shall establish a system of written internal controls that will be reviewed annually <br />with the City or independent auditor of the City along with quarterly investment reports. The controls will <br />be designed to prevent loss of public funds due to fraud, employee error, misrepresentation by third parties, <br />unanticipated market changes, or imprudent actions by employees, contracted investment managers or <br />financial counterparties of the City. <br />Loss of Rating <br />The Investment Officer or investment adviser shall monitor, on no less than a weekly basis, the credit rating <br />on all authorized investments in the portfolio based upon independent information from a nationally <br />recognized rating agency. If any security falls below the minimum rating required by Policy, the Investment <br />Officer or adviser shall notify the City Manager of the loss of rating, conditions affecting the rating and <br />possible loss of principal with liquidation options available, within two weeks after the loss of the required <br />rating. <br />Monitoring FDIC Status <br />The Investment Officer or Investment Adviser shall monitor, on no less than a weekly basis, the status and <br />ownership of all banks issuing brokered CDs owned by the City based upon information from the FDIC. <br />If any bank has been acquired or merged with another bank in which brokered CDs are owned, the <br />Investment Officer or Adviser shall immediately liquidate any brokered CD which places the City above <br />the FDIC insurance level. <br />XV. PERFORMANCE STANDARDS <br />The investment portfolio shall be designed with the objective of obtaining a rate of return throughout <br />budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs <br />of the City. A benchmark for performance of the portfolio will be included in the quarterly reports based on <br />the portfolio's maximum weighted average maturity of 360 days. The periodic total return of the six -month <br />U.S. Treasury Bill will be used as the City's operating benchmark. <br />City of San Marcos Investment Policy Page 6 <br />