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INVESTMENT POLICY—RESERVE FUNDS <br /> CITY OF SAN MARCOS <br /> FINANCE DEPARTMENT <br /> I. 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 daily cash flow demands of the City and conforming to <br /> all state and local statutes governing the investment of public funds. <br /> II. 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 Administrators 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 /> All operating and bond funds will be pooled for investment purposes. The primary objectives, in priority <br /> order, of the City's investment activities for all funds 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 investment portfolio shall be designed with the objective of attaining a market <br /> rate of return in accordance with its designated benchmark which is based on the City's cash <br /> flow requirements throughout budgetary and economic cycles, commensurate with the City's <br /> investment risk constraints and the cash flow characteristics of the portfolio. <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 /> City of San Marcos Investment Policy Page 1 <br />