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EXHIBIT A <br /> OBJECTIVE <br /> The primary objectives, in priority order, of the City's investment action shall be: <br /> a. Safety: Safety of principal is the foremost objective of the investment program. <br /> Investments of the City shall be undertaken in a manner that seeks to ensure the <br /> preservation of capital in the overall portfolio. To attain this objective, <br /> diversification is required in order that potential losses on individual securities do <br /> not exceed the income generated from the remainder of the portfolio. <br /> b. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable <br /> the City to meet all operating requirements which might be reasonably <br /> anticipated. <br /> c. Return on Investment: The City's investment portfolio shall be designed with the <br /> objective of attaining a market rate of return throughout budgetary and economic <br /> cycles, taking into account the City's investment risk constraints and the cash <br /> flow characteristics of the portfolio. <br /> CONCENTRATION OF RISK <br /> Government Accounting Standards Board (GASB) 40 recognizes that there are many <br /> factors that can affect the value of investments. Investment risk factors include credit <br /> risk, custodial credit risk, concentration of credit risk, interest rate risk, and foreign <br /> currency risk. <br /> Credit risk is the risk of loss due to failure of an issuer of a security or a financial <br /> institution. The City purchases U.S. Treasuries and high -grade securities which will <br /> lessen this type of risk. In addition, the portfolio will be diversified so that the failure of <br /> any one issuer will not unduly harm the City's cash flow. <br /> Custodial credit risk is the risk that in the event of the failure of the custodian, the <br /> investments may not be returned. The City's investment securities are to be held by a <br /> third party custodian designated by the City and evidenced by safekeeping receipts. <br /> Concentration of credit risk is the risk associated with a lack of diversification of <br /> having too much invested in a few individual issuers, thereby exposing the organization <br /> to greater risks resulting from adverse economic, political, regulatory, geographic, or <br /> credit developments. The City's investments will be diversified and will not exceed <br /> maximum percentages allowed in the California Government Code. <br /> Interest rate risk is the risk that the market value of securities in the portfolio will fall <br /> due to an increase in general interest rates. Interest rate risk may be reduced by <br /> structuring the portfolio so that securities are maturing periodically to meet cash <br /> requirements for ongoing operations, thereby avoiding the need to sell securities on the <br /> 2 <br />