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INVESTMENT POLICY — RESERVE FUNDS <br />CITY OF SAN MARCOS <br />FINANCE DEPARTMENT <br />POLICY <br />It is the policy of the City of San Marcos to invest public funds in a manner which will optimize interest <br />earnings with maximum security while meeting the demands of the City and conforming to all state and <br />local statutes governing the investment of public funds. <br />SCOPE <br />This Investment Policy (the "Policy ") applies only to the Reserve assets of the City. Reserve funds are <br />undesignated and longer by nature than operating funds and are therefore managed and controlled under <br />parameters more directly suited to their unique nature. <br />III. PRUDENCE <br />The standard of prudence to be used by investment Officers and Finance Administration shall be the <br />"prudent person" standard and shall be applied in the context of managing an overall portfolio. <br />Investments shall be made with judgment and care —under circumstances then prevailing —which <br />persons of prudence, discretion and intelligence exercise in the management of their own affairs, <br />not for speculation, but for investment, considering the probable safety of their capital as well as <br />the probable income to be derived. <br />IV. OBJECTIVES <br />Reserve funds are pooled for investment purposes with the same primary objectives of the City's overall <br />investment and shall be: <br />1. Safety: Safety of principal is the foremost objective of the investment program. Investments <br />of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in <br />the overall portfolio. <br />2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City to meet <br />all operating requirements, which might be reasonably anticipated. <br />3. Diversification: In order to supplement the safety objective, diversification is needed to <br />minimize credit and market risk and to reduce overall portfolio impact from potential losses on <br />individual securities. <br />4. Yield: The City's reserve investment portfolio shall be designed with the objective of attaining <br />a market rate of return in accordance with its designated benchmark commensurate with the <br />City's investment risk constraints and objectives. <br />V. Strategy <br />The structure and management of the Reserve Funds portfolio will address the longer term nature and <br />needs of the funds. The primary investment strategy will be to utilize financial markets to maximize yield in <br />order to build the reserves. A secondary strategy objective is to create a portfolio structure that will <br />experience minimal volatility during economic cycles. These objectives may be accomplished by <br />purchasing high credit quality, medium term securities while assuring the marketability of those <br />City of San Marcos Investment Policy Page I <br />