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by the City from the custodian listing all securities held in safekeeping with current market <br /> data and other information. <br /> The only exceptions to the foregoing shall be depository accounts and securities <br /> purchases made with: (i) local government investment pools; (ii) time certificates of <br /> deposit, and (iii) mutual funds and money market mutual funds, since these securities are <br /> not deliverable. <br /> RISK MANAGEMENT AND DIVERSIFICATION <br /> Mitigating Credit Risk in the Portfolio <br /> Credit risk is the risk that a security or a portfolio will lose some or all its value due to a <br /> real or perceived change in the ability of the issuer to repay its debt. The City will mitigate <br /> credit risk by adopting the following strategies: <br /> • The diversification requirements included in the "Authorized And Suitable <br /> Investments" section of this policy are designed to mitigate credit risk in the <br /> portfolio. <br /> • No more than 5% of the total portfolio may be deposited with or invested in <br /> securities issued by any single issuer unless otherwise specified in this policy. <br /> • The City may elect to sell a security prior to its maturity and record a capital <br /> gain or loss in order to manage the quality, liquidity or yield of the portfolio in <br /> response to market conditions or City's risk preferences. <br /> • If a security owned by the City is downgraded to a level below the requirements <br /> of this policy, making the security ineligible for additional purchases, the <br /> following steps will be taken: <br /> a. Any actions taken related to the downgrade will be communicated to the <br /> Director of Finance in a timely manner. <br /> b. If a decision is made to retain the security, the credit situation will be <br /> monitored and reported to the City Council. <br /> Mitigating Market Risk in the Portfolio <br /> Market risk is the risk that the portfolio value will fluctuate due to changes in the general <br /> level of interest rates. The City recognizes that, over time, longer-term portfolios have the <br /> potential to achieve higher returns. On the other hand, longer-term portfolios have higher <br /> volatility of return. The City will mitigate market risk by providing adequate liquidity for <br /> short-term cash needs, and by making longer-term investments only with funds that are <br /> not needed for current cash flow purposes. <br /> The City further recognizes that certain types of securities, including variable rate <br /> securities, securities with principal paydowns prior to maturity, and securities with <br /> embedded options, will affect the market risk profile of the portfolio differently in different <br /> interest rate environments. The City, therefore, adopts the following strategies to control <br /> and mitigate its exposure to market risk: <br /> 12 <br />