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BACKGROUND <br />California Government Code Section 53646 provides for the City Council to adopt an <br />annual investment policy. The investment policy for FY 2007-08 and the adopting <br />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 is a fundamental requirement in <br />fulfilling fiduciary responsibilities. Specifically, a formal investment policy is necessary to <br />identify investment objectives, define risk tolerance, assign responsibility, and establish <br />control over the investment process. Safekeeping of cash and investments is one of the <br />most important responsibilities of the City Council, City Manager and the Director of <br />Finance. Awell-developed investment policy serves as a working document that directs <br />the investment activities of the staff and protects the government from potential losses <br />stemming from 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 5 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 />February 28, 2007. <br />Page 2 of 4 <br />