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BACKGROUND <br /> California Government Code Section 53646 provides for the City Council to adopt an <br /> annual investment policy. The proposed investment policy for FY2016/17 and the <br /> adopting resolution are attached. <br /> DISCUSSION <br /> Aside from being legally required, an investment policy is important because it provides <br /> the framework for a prudent investment program and helps fulfill the City's fiduciary <br /> responsibilities. Specifically, a formal investment policy is necessary to identify investment <br /> objectives, define risk tolerance, assign responsibility, and establish control over the <br /> investment process. Safekeeping of cash and investments is one of the most important <br /> responsibilities of the City Council, City Manager and the Director of Finance. A well- <br /> developed investment policy serves as a working document that directs the investment <br /> activities of the staff and protects the government from potential losses stemming from <br /> unsuitable investment practices. <br /> Investment Strategy <br /> The overall strategy of the investment program is to earn a market rate of return, while <br /> maintaining sufficient liquidity to meet operating cash requirements. This is accomplished <br /> by maintaining a portfolio of allowable investment instruments that have acceptable credit <br /> quality standards with maturities matching expected cash needs. The City does not <br /> actively trade securities in the open market. We utilize a conservative approach, which is <br /> described as "buy and hold", and means that once we purchase a security we hold the <br /> security until maturity. <br /> Allowable Investment Instruments <br /> The California Government Code restricts the type of investments that can be made by a <br /> municipal government, and the City's investment policy further restricts the type of <br /> investment instruments that are allowed. The California Government Code also restricts <br /> the maturities of investments to no more than five years and restricts the percentage of <br /> certain investment instruments in the portfolio. The City's investment policy mirrors those <br /> same restrictions. The following table summarizes the investments allowed by the <br /> California Government Code, and of those, the investments allowed by the recommended <br /> City investment policy. It also lists the value of each category in the current portfolio as of <br /> March 31, 2016. <br /> Page 2 of 4 <br />