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Home My WebLink About2026-02-27; Investment Review Board; 02; 2026 Investment Policy Proposed RevisionsMeeting Date: Feb. 27, 2026 To: Investment Review Board From: Christian Peacox, City Treasurer Staff Contact: Katie Schroeder, Senior Accountant katie.schroeder@carlsbadca.gov, 442-339-5246 Subject: 2026 Investment Policy Proposed Revisions District: All Recommended Action Receive a presentation on proposed revisions to the 2026 Investment Policy and provide recommendations. Executive Summary The City Council and the California Government Code require the city’s Investment Policy and any modifications to the policy to be reviewed annually. Explanation & Analysis The effective management of the city's investment portfolio plays an important role in maintaining Carlsbad's fiscal health. Section 53646(a)(2) of the California Government Code states that the City Treasurer “may annually render to the legislative body … a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a public meeting.” An annual review of the policy is a requirement under the city’s current Investment Policy. The Investment Policy includes such subjects as: Investment objectives of safety, liquidity and return on investment Ethics and conflicts of interest and internal controls Authorized dealers, institutions and investments Portfolio strategy, review and reporting The scope of the Investment Policy covers general and operating funds, as well as stating the objectives of the investment strategy. The scope of the Investment Policy does not cover the city’s Section 115 Pension Trust or debt as each is governed by City Council policies (Nos. 98 and 94, respectively). INVESTMENT REVIEW BOARD Feb. 27, 2026 Item #2 Page 1 of 59 The city’s investments are performing as desired and as designed by the city’s Investment Policy. In evaluating the scope of the Investment Policy and assessing the policy with the California Government Code requirements, the City Treasurer has recommended the following updates:  Section 8.1.2 – Municipal Bonds Included bonds issued by the city as authorized investments and increased allowable percentage of investment portfolio from 15% to 20%.  Section 8.1.3 – Bankers’ Acceptances Increased allowable percentage of investment portfolio from 25% to 40%; increased allowable percentage of investments with a single issuer from 10% to 30%.  Section 8.1.5 – Negotiable Certificates of Deposit Expanded authorized investments to include a savings association or a federal association, a state or federal credit union (if no one with investment authority is on the credit union’s board of directors or certain committees), or a federally licensed or state-licensed branch of a foreign bank; and added percentage of investment portfolio maximum to also be limited to the maximum deposit limits in California Government Codes Section 53638.  Section 8.1.6 – Placement Service Deposits and Certificates of Deposit Added as an authorized investment in line with the allowances and restrictions of applicable California Government Code sections, including maximum portfolio allocation of 30% with sunsetting provision of 50% with qualifications.  Section 8.1.7 – Collateralized Bank Deposits Added as an authorized investment in line with the allowances and restrictions of applicable California Government Code sections.  Section 8.1.8 – Commercial Paper Increased maturity from 270 days to 397 days and removed rating requirements when issuer holds existing debt.  Section 8.1.9 – Repurchase Agreements Added statements regarding valuation and value adjustment requirements as well as statement that securities underlying the repurchase agreement must be securities authorized by California Government Code Section 53601 and this policy and have the same issuer, description, issue date, and maturity.  Section 8.1.10 – Medium-Term Notes Relabeled corporate notes as medium-term notes; reduced rating requirement from AA/A to A by a single Nationally Recognized Statistical Rating Organization (NRSRO). Feb. 27, 2026 Item #2 Page 2 of 59  Section 8.1.11 – Mutual Funds and Money Market Mutual Funds Expanded definition of section to include mutual funds as investment options, to include criteria of rating or retention of an appropriate investment advisor, and investment limitations of no more than 10% in a single fund, and no more than 20% of the investment portfolio.  Section 8.1.14 – Joint Powers Authority Pool Retitled from California Asset Management Program to include allowing for other eligible Joint Powers Authority pool options.  8.1.15 – Supranational Securities Reduced credit rating requirement from AA/AA to AA.  Section 9.0 – Unauthorized Investments Allow exception for investments that could result in zero or negative interest accrual of securities issued by, or backed by, the United States government in the event of, and for the duration of, a period of negative market interest rates as permitted by California Government Code Section 53601.6(b)(2).  Section 15.1.1 – Liquidity Requirement Removed measure of two-thirds operating budget cash availability within a rolling 12-month period and revised requirement to rolling six-months maturities plus estimated base operating revenues cash availability.  Section 15.2 – Maximum Modified Duration Removed maximum modified duration as a measure of portfolio risk.  Section 20.0 – Reporting Combined statement of internal controls with Section 20.0 Reporting. All other changes are updates or improvements of reference data, formatting, clarification or readability, but do not alter the directive of the Investment Policy. The changes recommended do not put any current investments out of compliance. Fiscal Analysis There is no fiscal impact from this action. Next Steps The Treasury Department will consider all changes outlined above as well as any additional recommendations made by the Investment Review Board for making final recommendations to City Council. In addition, the Investment Policy will be reviewed and approved by the City Council at least once every year. Environmental Evaluation The proposed action is not a “project” as defined by California Environmental Quality Act Section 21065 and CEQA Guidelines Section 15378(b)(5) and does not require environmental review under CEQA Guidelines Section 15060(c)(3) and 15061(b)(3) because the proposed action to receive a presentation on proposed revisions to the 2026 Investment Policy and Feb. 27, 2026 Item #2 Page 3 of 59 provide recommendations is an organizational or administrative government activity that does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. Any subsequent action or direction stemming from the proposed action may require preparation of an environmental document in accordance with CEQA or the CEQA Guidelines. Exhibits 1. Proposed 2026 Investment Policy 2. Current Investment Policy with revisions called out Feb. 27, 2026 Item #2 Page 4 of 59 Exhibit 1 City of Carlsbad Investment Policy May 5, 2026 Christian Peacox City Treasurer 1635 Faraday Avenue Carlsbad, CA 92008 (442) 339-5119 www.carlsbadca.gov/city-hall/city-treasurer Feb. 27, 2026 Item #2 Page 5 of 59 Table of Contents 1.0 Policy ...................................................................................................................................... 4 2.0 Scope ...................................................................................................................................... 4 2.1 Pooled Investments ........................................................................................................ 4 2.2 Investments Held Separately ......................................................................................... 5 3.0 Prudence ................................................................................................................................ 5 4.0 Objective ................................................................................................................................ 5 4.1 Safety .............................................................................................................................. 5 4.2 Liquidity .......................................................................................................................... 5 4.3 Return on Investment .................................................................................................... 6 5.0 Delegation of Authority ......................................................................................................... 6 6.0 Ethics and Conflicts of Interest .............................................................................................. 7 7.0 Authorized Financial Dealers and Institutions ....................................................................... 7 7.1 Financial Institutions ...................................................................................................... 7 7.2 Broker & Dealers ............................................................................................................ 8 7.3 Purchase, Sale, Payment, and Delivery .......................................................................... 8 8.0 Authorized and Suitable Investments .................................................................................... 8 8.1 Pooled Investments ........................................................................................................ 8 8.2 Investments Held Separately ....................................................................................... 14 8.3 Other Securities ............................................................................................................ 14 8.4 Housing Loans ............................................................................................................... 14 9.0 Unauthorized Investments .................................................................................................. 15 10.0 Review of Investment Portfolio ........................................................................................... 15 10.1 Exceptions .................................................................................................................... 15 11.0 Investment Pools & Mutual Funds ...................................................................................... 16 12.0 Collateralization, Perfection, Security and Contracts .......................................................... 16 Feb. 27, 2026 Item #2 Page 6 of 59 13.0 Safekeeping and Custody ..................................................................................................... 16 14.0 Diversification ...................................................................................................................... 17 15.0 Maximum Maturities ........................................................................................................... 17 15.1 Maximum Maturities for Pooled Investments ............................................................. 17 15.2 Investments Held Separately ....................................................................................... 18 16.0 Performance Standard for Pooled Investments .................................................................. 18 17.0 Short-term Borrowing .......................................................................................................... 18 17.1 Short-term Loan ........................................................................................................... 18 17.2 Line of Credit ................................................................................................................ 18 18.0 Investment Strategy ............................................................................................................. 19 18.1 Pooled Investments ...................................................................................................... 19 18.2 Investments Held Separately ....................................................................................... 19 19.0 Reporting.............................................................................................................................. 19 19.1 Pooled Investments ...................................................................................................... 19 19.2 Investments Held Separately ....................................................................................... 20 20.0 Investment Policy Adoption ................................................................................................. 20 21.0 Glossary ................................................................................................................................ 20 22.0 Summary of Authorized Investments .................................................................................. 25 Feb. 27, 2026 Item #2 Page 7 of 59 - 4 - City of Carlsbad Investment Policy May 5, 2026 (Supersedes Investment Policy dated May 13, 2025) The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment-related activities. Related activities which comprise good cash management include accurate cash projections, the expeditious collection of revenue, the control of disbursements, cost-effective banking relations, and arranging for a short-term borrowing program which coordinates working capital requirements and investment opportunities. 1.0 Policy It is the policy of the City of Carlsbad to invest public funds not required for immediate day- to-day operations in safe, liquid, and medium-term investments. These investments shall yield an acceptable return while conforming to all California statutes and the city's Investment Policy. 2.0 Scope It is intended that this policy cover the investment activities of all contingency reserves and inactive cash under the direct authority of the city. 2.1 Pooled Investments Investments for the city and its subsidiary entities will be made on a pooled basis including, but not limited to, the City of Carlsbad, the Housing Authority of the City of Carlsbad, the City of Carlsbad Public Improvement Corporation, the Carlsbad Public Financing Authority, and the Carlsbad Municipal Water District. The city's Annual Comprehensive Financial Report identifies the fund types involved as follows:  General Fund  Special Revenue Funds  Debt Service Funds  Capital Project Funds  Enterprise Funds  Internal Service Funds  Fiduciary Funds  Miscellaneous Special Funds  Any new funds created by the City Council, unless specifically exempt. Feb. 27, 2026 Item #2 Page 8 of 59 - 5 - 2.2 Investments Held Separately Investments of bond proceeds will be held separately when required by the bond indentures or when necessary to meet arbitrage regulations. If allowed by the bond indentures, or if the arbitrage regulations do not apply, investments of bond proceeds will be held as part of the pooled investments. 3.0 Prudence California Government Code Section 53600.3 identifies trustees as those persons authorized to make investment decisions on behalf of a local agency. As a trustee, the standard of prudence to be used shall be the "Prudent Investor” standard and shall be applied in the context of managing the overall portfolio. The Prudent Investor standard states that, when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing. These circumstances include, but are not limited to, the general economic conditions and the anticipated needs of the agency that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims to safeguard the principal and maintain the liquidity needs of the agency. It is the policy of this Council that investment officers acting in accordance with written procedures and the Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk changes or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. 4.0 Objective California Government Code Section 53600.5 outlines the objectives of a trustee when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds. 4.1 Safety The primary objective is to safeguard the principal of funds. Investments of the city shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To attain this objective, the City Treasurer will diversify the city’s investments by investing funds among a variety of securities with independent returns. 4.2 Liquidity The secondary objective is to meet the city’s liquidity needs. The city's investment portfolio will remain sufficiently liquid to enable the city to meet all operating requirements which might be reasonably anticipated. Feb. 27, 2026 Item #2 Page 9 of 59 - 6 - 4.3 Return on Investment The third objective is to achieve a return on the city’s funds. The City Treasurer shall have the objective of attaining a comparative performance measurement or an acceptable rate of return throughout budgetary and economic cycles. These measures shall be commensurate with the city’s investment risk constraints identified in the Investment Policy and the cash flow characteristics of the portfolio. The City Treasurer should strive to maintain the level of investment of all contingency reserves and inactive funds as close to 100% as possible. While the objectives of safety and liquidity must first be met, it is recognized that portfolio assets represent a potential source of significant revenues. It is to the benefit of the city that these assets be managed to realize a yield on investments consistent with California statutes and the city’s Investment Policy. 5.0 Delegation of Authority Under California Government Code Section 53607 and by the annual adoption of this policy, the City Council delegates the management of inactive cash and the investment of funds identified in Section 2.0 Scope to the City Treasurer. No person may engage in an investment transaction covered by the terms of this policy unless directed by the City Treasurer. In the execution of this delegated authority, the City Treasurer may establish accounts with qualified financial institutions and brokers/dealers for the purpose of effecting investment transactions in accordance with this policy. The criteria used to select qualified financial institutions and brokers/dealers are identified in Section 7.0 Authorized Financial Dealers and Institutions. As authorized by California Government Code Section 41006, the City Treasurer has appointed the Finance Director as Deputy City Treasurer who, in the absence of the City Treasurer, will assume the City Treasurer's duties and responsibilities under this policy. The City Treasurer shall retain full responsibility for all transactions undertaken under the terms of this policy. In the endeavor to have all inactive cash invested all the time, the treasury department accountant will assist the City Treasurer in the gathering of information to create cash flow estimates. Feb. 27, 2026 Item #2 Page 10 of 59 - 7 - 6.0 Ethics and Conflicts of Interest All participants in the city's investment process shall seek to act responsibly as custodians of the public trust. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment recommendations and decisions. Investment officials and employees shall make all disclosures appropriate under the Fair Political Practices Act and may seek the advice of the City Attorney and the Fair Political Practices Commission whenever there is a question of personal financial or investment positions that could represent potential conflicts of interest. 7.0 Authorized Financial Dealers and Institutions Investments not purchased directly from the issuer shall only be purchased from an institution licensed in California as a broker-dealer, a member of a federally regulated securities exchange, a national or California-chartered bank, a savings association or federal association, or a brokerage firm designated as a primary government dealer by the Federal Reserve Bank. The City Treasurer may maintain a list of financial institutions and broker- dealers who are approved to provide the city with investment services. This list should be updated annually by the City Treasurer to ensure compliance with this Investment Policy. All financial institutions and broker-dealers who desire to become qualified bidders for investment transactions will be given a copy of the city's Investment Policy and provide written confirmation indicating that the Investment Policy has been read, understood and that their investment offers will comply with this policy and applicable state and federal law. Qualified financial institutions and broker-dealers must supply the City Treasurer with the documents below. 7.1 Financial Institutions  Current audited financial statements.  Depository contracts, as appropriate.  A copy of the latest Federal Deposit Insurance Corporation call report, and  Proof that commercial banks, savings associations, or federal associations are California or federally chartered. Commercial banks, savings associations, and federal associations must maintain a minimum net worth to asset ratio as provided by law (total regulatory net worth divided by total assets) and must have had positive net earnings for the last reporting period. Feb. 27, 2026 Item #2 Page 11 of 59 - 8 - 7.2 Broker & Dealers  Current audited financial statements  Proof that brokerage firms are licensed in California as a broker-dealer or members in good standing of a federally regulated securities exchange, or designated as a primary government dealer by the Federal Reserve Bank 7.3 Purchase, Sale, Payment, and Delivery A competitive bid process, when deemed practical by the City Treasurer, will be used to place all investment transactions. It is recommended that the City Treasurer obtain two or more bids from broker-dealers before purchasing an investment, and three or more quotes when selling an investment. When two or more investment opportunities offer essentially the same maturity, liquidity, yield, and quality, the City Treasurer may consider financial institutions based in the City of Carlsbad, the state of California, and within the United States. Payment for securities will be made on a delivery-versus-payment basis via the city's custodian. Delivery of securities will be made to the city in accordance with the third-party custodial agreement. 8.0 Authorized and Suitable Investments Except for Certificates of Deposit, investments will be made only in readily marketable securities actively traded in the secondary market. 8.1 Pooled Investments The City Treasurer may invest city funds in the following instruments as specified in California Government Code Section 53601 and as further limited in this policy. Where this policy specifies a percentage limit for an investment category, the percentage is applicable only at the purchase date. U.S. Treasury and U.S. Agency Obligations United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government sponsored- enterprises.  Maximum remaining maturity of five years as of the date of settlement.  Percentage of portfolio, issuer, and ratings are not applicable. Feb. 27, 2026 Item #2 Page 12 of 59 - 9 - Municipal Bonds Registered state warrants or treasury notes or bonds of the state of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state of California or by a department, board, agency, or authority of the state of California. Registered treasury notes or bonds of another state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by another state or by a department, board, agency, or authority of another state. Bonds, notes, warrants, or other evidence of indebtedness of a local agency within California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. Bonds issued by the city, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the city or by a department, board, agency, or authority of the city.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 20% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” by one and “A” by another of the three Nationally Recognized Statistical Rating Organization (NRSRO) rating agencies, Moody's Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. Bankers’ Acceptances Bankers’ acceptances drawn on and accepted by a commercial bank.  Maximum maturity of 180 days as of the date of settlement.  Shall not exceed 40% of the investment portfolio.  No more than 30% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Feb. 27, 2026 Item #2 Page 13 of 59 - 10 - Certificates of Deposit (Non-negotiable) Investments in Certificates of Deposit and checking accounts shall be fully insured up to the amount allowed per account by the Federal Deposit Insurance Corporation or the National Credit Union Administration. The city may use a private sector entity that assists in the placement of Certificates of Deposit.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio.  No more than 10% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Negotiable Certificates of Deposit Negotiable Certificates of Deposit issued by a nationally or California- chartered bank, a savings association or a federal association, a state or federal credit union (if no one with investment authority is on the credit union’s board of directors or certain committees), or a federally licensed or state-licensed branch of a foreign bank.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio or the maximum deposit limits in California Government Code Section 53638.  No more than 10% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Placement Service Deposits and Certificates of Deposit The full amount of each deposit along with accrued interest must at all times be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).  The maximum maturity does not exceed five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio invested in a combination of qualifying placement service deposits o Under a provision sunsetting on January 1, 2031, no more than 50% of the total portfolio may be invested in deposits through a placement service, including Certificates of Deposit, if the Agency is a city, district or local agency that does not pool money with other local agencies. Feb. 27, 2026 Item #2 Page 14 of 59 - 11 -  No more than 10% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Collateralized Bank Deposits Notes, bonds, or other obligations secured by a first priority security interest in eligible securities listed in California Government Code Section 53651 with a market value of at least equal to the amounts required by Government Code Section 53652 for the purpose of security local agency deposits.  The securities must be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secure obligation.  Security interest must be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted.  Maximum remaining maturing of five years as of the date of settlement.  Percentage of portfolio, issuer, and ratings are not applicable. Commercial Paper Eligible paper must be of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by an NRSRO. Additionally, the issuer must be a general corporation organized and operating within the United States, have total assets in excess of $500 million, and have debt other than commercial paper, if any, rated in a rating category of “A” or its equivalent or higher by an NRSRO.  Maximum remaining maturity of 397 days as of the date of settlement.  Shall not exceed 10% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Ratings measures are not applicable. Repurchase Agreements The market value of securities underlying a repurchase agreement must be valued at 102% or greater of the funds borrowed against those securities and the value must be adjusted no less than quarterly. If the value of the repurchase agreement fluctuates below 102%, it must be brought back up to 102% by the next business day. Feb. 27, 2026 Item #2 Page 15 of 59 - 12 - Securities underlying the repurchase agreement must be securities authorized by California Government Code 53601 and this policy and have the same issuer, description, issue date, and maturity.  Maximum remaining maturity of one year as of the date of settlement.  Shall not exceed 5% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Medium-Term Notes Medium-term notes permitted are debt securities issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. New investments made directly into corporations involved in the business of exploration, extraction, or further processing of oil and gas are not eligible for investment.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “A” or its equivalent or better by an NRSRO. Mutual Funds and Money Market Mutual Funds Money Market Mutual Funds must follow regulations specified by the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1, et seq.) and meet either of the following criteria: a) Must receive the highest ranking or the highest letter and numerical rating by no less than two NRSROs, or b) Must retain an investment advisor who is registered or exempt from registration with the SEC and has at least five years' experience investing in specified securities and managing assets in excess of $500 million. Feb. 27, 2026 Item #2 Page 16 of 59 - 13 - Mutual Funds must abide by the same investment restrictions and regulations that apply to public agencies in California Government Code Section 53601(a-k) &(m-o) and meet either of the following criteria: a) Must receive the highest ranking or the highest letter and numerical rating by no less than two NRSROs, or b) Must retain an investment advisor who is registered or exempt from registration with the SEC and has at least five years' experience investing in specified securities and managing assets in excess of $500 million.  No more than 10% invested in any one mutual fund.  Investments in money market mutual funds and mutual funds may not exceed 20% of the portfolio.  The purchase price of shares shall not include any commission that the fund manager may charge. Sweep Accounts Sweep accounts for the investment of overnight funds when the funds are swept into investments allowed by this policy. Local Agency Investment Fund (LAIF) Local Agency Investment Fund (LAIF) will be made in accordance with the laws and regulations governing the LAIF, including California Government Code Sections 16429.1-16429.4. Joint Powers Authority Pool Investments in a joint powers authority pool that retains an investment advisor who is: (1) registered or exemption from registration with the United States Securities and Exchange Commission (SEC), (2) has assets under management in excess of $500 million, and (3) has at least five years’ experience in investing in instruments authorized by California Government Code Section 53601(a)-(q). Supranational Securities  United States dollar denominated senior unsecured, unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. Maximum remaining maturity of five years as of the date of settlement.  Eligible for purchase and sale in the United States Feb. 27, 2026 Item #2 Page 17 of 59 - 14 -  Shall not exceed 10% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” or its equivalent or better by at least one NRSROs. Agency Backed Mortgage Passthrough Securities Mortgage passthrough securities issued or guaranteed by the United States Government and its agencies.  Maximum remaining maturity of five years as of the date of settlement.  Percentage of portfolio, issuer, and ratings are not applicable. Non-agency Backed Mortgage Passthrough Securities Non-agency backed mortgage passthrough securities, collateralized mortgage obligations, mortgage-backed or other pay-through bonds, equipment lease-backed certificates, consumer receivable passthrough certificates, or consumer receivable-backed bonds.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 5% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” or its equivalent or better by at least one NRSRO. 8.2 Investments Held Separately Investments of bond funds will be made in conformance with the trust indenture for each issue. Such investments will be held separately when required. 8.3 Other Securities Other types of securities authorized by California law, but which are not currently allowed by the city’s Investment Policy, must first be approved by the City Council. 8.4 Housing Loans Housing loans approved by the City Council to private developers and homeowners as part of the city housing program shall comply with California statutes but need not meet the investment objectives and the risk management requirements of this Investment Policy. The City Council will manage these loans directly. Feb. 27, 2026 Item #2 Page 18 of 59 - 15 - 9.0 Unauthorized Investments California Government Code Section 53601.6 disallows the following investments:  Inverse floaters  Range notes  Interest-only strips that are derived from a pool of mortgages. In addition, and more generally, investments are further restricted as follows:  No investment will be made in any security that could result in zero- or negative-interest accrual if held to maturity, except for securities issued by, or backed by, the United States government in the event of, and for the duration of, a period of negative market interest rates as permitted by California Government Code Section 53601.6(b)(2).  No investment will be made that could cause the portfolio to be leveraged.  No purchases of investments on margin will be made. 10.0 Review of Investment Portfolio Pursuant to Carlsbad Municipal Code Chapter 2.43, the Investment Review Board shall conduct reviews of the city's investment portfolio, the strategy being utilized for the investment of city funds, and the city's Investment Policy. This board will be composed of the City Treasurer (acting as the chair), and four City Treasurer-appointed members approved by the City Council. The board will convene periodically as necessary or desirable but not less frequently than once each quarter. All members of the Investment Review Board must comply with the disclosure requirements in the city’s Conflict of Interest Code. 10.1 Exceptions Securities must be in compliance with Section 8.0 Authorized Investments at the time of purchase. If an unauthorized investment is purchased or an authorized investment experiences a subsequent change that causes its not to comply with this Investment Policy (e.g., the rating of a medium-term note held in the portfolio has been downgraded by an NRSRO, or the total value of the portfolio has declined causing the percentage invested in medium-term notes to rise above 30%, or an unforeseen expenditure causes investments maturing within one year to fall below two-thirds of the approved operating budget of the current fiscal year) the City Treasurer will determine the course of action necessary to correct such exceptions and move the portfolio into compliance with state and city requirements. The City Treasurer’s determination may not expose the assets of the portfolio to undue risk and may not impair the meeting of financial obligations as they fall due. Additionally, any subsequent investments may not extend existing exceptions. Exceptions, and the decisions to correct the exceptions, will be reviewed with the Feb. 27, 2026 Item #2 Page 19 of 59 - 16 - Investment Review Board and reported on the monthly investment report presented to City Council. 11.0 Investment Pools & Mutual Funds An investigation and due diligence will be conducted before investing in any investment pool or mutual fund. The City Treasurer shall review at a minimum:  The investment policy and objectives.  Interest calculations and distributions.  Safeguard and settlement processes.  A description of the program including legal investors and the minimums and maximum transactions allowable.  Schedule for receiving statements.  How reserves and retained earnings are treated.  The fee schedule. 12.0 Collateralization, Perfection, Security and Contracts When required by California statute or this Investment Policy, any investment capable of being collateralized shall be collateralized by the required amounts imposed by law. To give greater security to the city’s investments, when an investment is collateralized and not perfected under existing law, an attempt to perfect the collateralization should be made. California Government Code Section 53652 requires that the depository secure active or inactive deposits with eligible securities having a fair market value of at least 10% more than the total amount of all deposits, and 50% in excess of the deposit when secured with mortgage pools. California Government Code Section 53649 specifies that the City Treasurer is responsible for entering into deposit contracts with each depository. 13.0 Safekeeping and Custody All security transactions, including collateral for repurchase agreements, entered into by the city shall be conducted on a delivery-versus-payment basis. All securities owned by the city will be held by a third-party custodian designated by the City Treasurer and evidenced by a monthly statement from the custodian. All securities will be held in the nominee’s name of the custodian unless the counterparty bank’s trust department is used for the delivery of the security, in which case the security will be held in the city’s name. Collateral for time deposits in banks will be held in the city's name in the bank's Trust Department or in the Federal Reserve Bank. Feb. 27, 2026 Item #2 Page 20 of 59 - 17 - 14.0 Diversification The portfolio will be diversified to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions. In addition to the limitations on specific security types indicated in Section 8.0 Authorized Investments, and with the exception authorized pools and investments, no more than 5% of the city's portfolio will be placed with any single issuer. 15.0 Maximum Maturities Maximum maturity supports the principal of liquidity by ensuring that adequate cash is available to meet anticipated cash flow requirements of the city. 15.1 Maximum Maturities for Pooled Investments A policy of laddered maturities will generally be followed for pooled investments. The following maturity requirements will apply as of the month end of each reporting period. Liquidity Requirement Investments maturing within the next six months, measured at par value, plus estimated base operating revenues, shall be sufficient to meet the city’s next six months of expenditure requirements. Remaining investments of the portfolio shall not have a maturity greater than five years from the date of settlement except as provided in Section 15.1.3 Five Year Exception. Three Years Average The average portfolio investment maturity shall be three years or less. A dollar-weighted average will be used in computing the average maturity of the portfolio. Five-Year Exception Before an investment, which is allowed by California statute, is made in securities that mature more than five years from the date of purchase, the City Treasurer and the Deputy City Manager of Administrative Services will review the city's long-term cash needs. Both must concur before such an investment is made. A resolution authorizing such investment must first be approved by the City Council. Investments beyond five years will not be greater than 10% of the portfolio and will be counted in the percentage of the portfolio that may mature beyond one year. Feb. 27, 2026 Item #2 Page 21 of 59 - 18 - Ten-Year Limit No investments will be made that mature beyond 10 years from the date of investment. Callable Investments Callable investments will be recorded at their maturity dates. 15.2 Investments Held Separately Maturities for investments held separately will conform to the trust indenture for each issue. 16.0 Performance Standard for Pooled Investments Laddered maturities and a buy and hold strategy for pooled investments will cause the investment portfolio to attain a market-average rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the city’s cash flow needs. The rate of return of the investment portfolio will be based on the maturity value of the investments. A dollar-weighted average of yields to maturity will be used in calculating the rate of return of the entire portfolio. The city’s performance benchmarks may change from year to year but should strive to mirror the assets held in the city’s portfolio. 17.0 Short-term Borrowing The city is permitted by law to borrow money to meet current short-term cash flow needs. These needs may arise either because projected cash disbursements exceed projected cash receipts, or because the city's cash accounts may be temporarily overdrawn due to the efforts to invest 100% of inactive funds at all times. To provide for these contingencies the City Treasurer is authorized to take the following actions: 17.1 Short-term Loan When there is a shortfall between projected cash revenues and projected cash disbursements, the City Treasurer may secure a loan in the amount that would equal the cash deficit plus projected cash disbursements for one month. Any such loan will be repaid within one year. 17.2 Line of Credit The City Treasurer may maintain a line of credit with the city's bank in an amount to cover sums temporarily overdrawn because of efforts to invest all inactive funds at all times. Feb. 27, 2026 Item #2 Page 22 of 59 - 19 - 18.0 Investment Strategy 18.1 Pooled Investments A buy and hold strategy will be followed; that is, investments once made will be held until maturity. A buy and hold strategy will result in unrealized gains or losses as market interest rates fall or rise from the coupon rate of the investment. Unrealized gains or losses, however, will diminish as the maturity dates of the investments are approached or as market interest rates move closer to the coupon rate of the investment. A buy and hold strategy requires that the portfolio be kept sufficiently liquid to preclude the undesired sale of investments prior to maturity. Occasionally, the City Treasurer may find it advantageous to sell an investment prior to maturity, but this should only be on an exception basis and only when it is in the best interest of the city and conforms to the Prudent Investor standard. 18.2 Investments Held Separately Investments held separately for bond proceeds will follow the trust indenture for each issue. 19.0 Reporting California Government Code Section 53607 require reports meeting the standards set forth in these sections to be presented to City Council, as well as any additional information desired. The City Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the city are protected from loss, theft, fraud or misuse. Therefore, it is the policy of the city that the investments and transactions described in these sections, and as outlined in Section 20.1 below be given to the City Council, City Manager, Internal Auditor Deputy City Manager of Administrative Services, and Finance Director. 19.1 Pooled Investments The investment report will be submitted monthly by the City Treasurer within 60 days following the end of the month covered by the report. The monthly report will be published to the City Treasurer webpage after reporting to City Council. Each report will include the following elements:  Itemized listing of portfolio investments by type, yield to maturity, and issuer  Par value, dollar amount invested, amortized cost, and current market value as of the date of the report will be given for the total of all securities, investments, and moneys held by the city and its component units. The source of the market values will be cited.  Credit ratings of corporate notes. Feb. 27, 2026 Item #2 Page 23 of 59 - 20 -  Accrued income.  Weighted average yield of the portfolio.  Weighted average days to maturity of the portfolio from the date of the report.  Weighted average modified duration of the portfolio.  Dollar amount and percentage of portfolio maturing within one year.  Dollar amount and percentage of portfolio maturing between one and 5 years.  Percent that each type of investment represents in the portfolio.  Investment transactions for the reporting period excluding due dates.  Fund source of investments when available.  Statement that the investment portfolio has the ability to meet the city's expenditure requirements for the next six (6) months.  Statement of compliance of the portfolio with the city’s Investment Policy. When applicable, any material exceptions will be noted. An annual report for pooled investments will also be made to the City Council following the close of the fiscal year. Among other items, the annual report will include an analysis of the composition of the portfolio with regard to fund source, a review of trends regarding the size of the fund, portfolio yields, cash income, and a statement regarding anticipated fund activity in the next fiscal year. 19.2 Investments Held Separately A report of investments held separately will be made quarterly. Within 30 days following the end of the quarter the report will be submitted as an exhibit in the City Treasurer’s monthly report. The quarterly report will contain the information required by California Government Code Section 53646 when available. 20.0 Investment Policy Adoption California Government Code Section 53646(a)(2) allows the City Treasurer to render to the City Council and the Investment Review Board a statement of Investment Policy and recommends that one be presented each year. Therefore, the city’s Investment Policy and any modifications to it shall be considered no less often than annually at a public meeting. Adoption of the Investment Policy and any changes must be made by resolution of the City Council. 21.0 Glossary Amortized Cost The cost of investments adjusted for amortized premiums and discounts. Amortized cost is used to maintain comparability with market value. Feb. 27, 2026 Item #2 Page 24 of 59 - 21 - Arbitrage Regulation Laws to control the use of profit making by purchasing securities on one market for immediate resale on another to profit from a price difference. Bankers’ Acceptances An investment vehicle created to facilitate international commercial trade transactions. The bank accepts responsibility to repay a loan to the holder of the investment vehicle created in a commercial transaction. The credit worthiness of Bankers’ Acceptances is enhanced because they are secured by the issuing bank, the goods themselves, and the importer. Bankers’ Acceptances are sold on a discounted basis. Bond Indenture A written agreement specifying the terms and conditions for issuing bonds, stating the form of the bond being offered for sale, interest to be paid, the maturity date, call provisions and protective covenants, if any, collateral pledged, the repayment schedule, and other terms. It describes the legal obligations of a bond issuer and the powers of the bond trustee, who has the responsibility for ensuring that interest payments are made to registered bondholders. Book Value A term synonymous with amortized cost. Buy and Hold Strategy Investments in which management has the positive intent and ability to hold each issue until maturity. Certificate of Deposit A deposit account paying interest for a fixed term, with the understanding that funds cannot be withdrawn before maturity without giving notice. Collateralization An asset used to secure a debt in part or in full by pledge of collateral. The collateral is used as security to help ensure payment or performance of an obligation. Commercial Paper A short-term IOU, or unsecured money market obligation, issued by prime rated commercial firms and financial companies, with maturities from 2 days up to 397 days. A promissory note of the issuer used to finance current obligations and is a negotiable instrument. Feb. 27, 2026 Item #2 Page 25 of 59 - 22 - Delivery Versus Payment A securities industry term indicating payment is due when the buyer has securities in hand or a book entry receipt. Interest-Only Strips Mortgage-backed instrument where the investor receives only interest, no principal, from a pool of mortgages. Issues are highly interest rate sensitive. Cash flows vary between interest periods. Also, the maturity date may occur earlier than that stated if all loans within the pool are prepaid. High prepayments on underlying mortgages can return less to the holder than the dollar amount invested. Inverse Floater A bond or note that does not earn a fixed rate of interest. Rather, the interest rate that is earned is tied to a specific interest-rate index identified in the bond/note structure. The interest rate earned by the bond/note will move in the opposite direction of the index (e.g., if market interest rates as measured by the selected index rises, the interest rate earned by the bond/note will decline). An inverse floater increases the market rate risk and modified duration of the investment. Joint Powers Authority Pool A joint powers authority pool is a joint powers authority organized under California Government Code Section 6509.7 to invest in securities and obligations permitted under California Government Code Section 53601(a) through (r), inclusive. The joint powers authority must have an investment advisor that: (1) is registered or exempt from registration with the United States Securities and Exchange Commission; (2) has not less than five years of experience investing in the securities and obligations authorized in California Government Code Section 53601(a) through (q), inclusive; and (3) has assets under management in excess of five hundred million dollars ($500,000,000). Laddered Portfolio A bond investment portfolio with securities in each maturity range (e.g., monthly) over a specified period (e.g., five years). Leverage Investing with borrowed money with the expectation that the interest earned on the investment will exceed the interest paid on the borrowed money. Local Agency Investment Fund (LAIF) A voluntary investment program offering participating agencies the opportunity to participate in a major portfolio which daily invests hundreds of millions of dollars, using the investment expertise of the State Treasurer’s Office investment staff at no additional cost Feb. 27, 2026 Item #2 Page 26 of 59 - 23 - to the taxpayer. Investment in LAIF, considered a short-term investment, is readily available for cash withdrawal daily. Market Risk The risk that market interest rates will rise causing a loss of value in investments held. All investments made by the city involve a degree of market risk. See also Unrealized Gains (Losses). Negotiable Certificates of Deposit A large denomination ($100,000 or more) interest bearing time deposits, paying the holder a fixed amount of interest at maturity. Issues can be sold to a new owner before maturity. Municipal Bonds Municipal bonds are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems. Nominee Name The registered owner of a stock or bond if different from the beneficial owner, who acts as holder of record for securities and other assets. Typically, this arrangement is done to facilitate the transfer of securities when it is inconvenient to obtain the signature of the real owner, or the actual owner may not wish to be identified. Nominee ownership simplifies the registration and transfer of securities. Nationally Recognized Statistical Rating Organization (NRSRO) A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating agency that issues credit ratings that the United States Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes. Three of the primary recognized rating agencies are Moody’s Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. Pooled Investment A grouping of resources for the common advantage of the participants. Range Note An investment whose coupon payment varies (e.g., either 7% or 3%) and is dependent on whether the current benchmark (e.g., 30-year Treasury) falls within a pre-determined range (e.g., between 6.75% and 7.25%). Repurchase Agreement A contract to purchase and subsequently sell securities at a specified date and price. Feb. 27, 2026 Item #2 Page 27 of 59 - 24 - Supranational Securities Supranational securities are United States dollar denominated senior unsecured, unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation , or Inter-American Development Bank. These organizations were established by international treaties, are headquartered in Washington D.C and incorporated into federal law by Congressional Acts. California Government Code Section 53601(q) permits the securities of these three organizations to be incorporated into local agency investment portfolios. Sweep Account A short-term income fund into which all uninvested cash balances from the non-interest- bearing checking account are automatically transferred daily. Third-Party Custodian A corporate agent, usually a commercial bank, who, acting as trustee, holds securities under a written agreement for a corporate client and buys and sells securities when instructed. Custody services include securities safekeeping, and collection of dividends and interest. The bank acts only as a transfer agent and makes no buy-sell recommendations. Unrealized Gains (Losses) An increase (decrease) in the value of investments representing the difference between the amortized cost of the investments and their current market value. Increases (decreases) in value are caused primarily by changes in market interest rates subsequent to purchasing the investments. Increases (decreases) in value indicate two things: 1. The portfolio has a potential gain (loss) in principal if the securities are sold, and 2. The portfolio is over performing (underperforming) the current market for similar investments. An increase in value indicates the portfolio is earning relatively more interest than current market conditions, and a decrease in value indicates that the portfolio is earning relatively less interest than current market conditions. Zero Accrual Periods A period in which an investment accumulates no interest. Feb. 27, 2026 Item #2 Page 28 of 59 - 25 - 22.0 Summary of Authorized Investments Investment Type Maximum Maturity Maximum % Portfolio Maximum % Issuer NRSRO Minimum Obligations of the US Government 5 years - - - Certificates of Deposit (Non-Negotiable) 5 years 30% 10% - Negotiable Certificates of Deposit 5 years 30% 10% - Placement Service Deposits/Certificates of Deposit 5 years 50% 10% - Collateralized Bank Deposits 5 years - - - Medium-Term Notes 5 years 30% 5% A Municipal Bonds 5 years 20% 5% AA/A Supranational Securities 5 years 10% 5% AA Agency Backed Mortgage Passthrough Securities 5 years - - - Non-agency Backed Mortgage Passthrough Securities 5 years 5% 5% AA Repurchase Agreements 1 year 5% 5% - Commercial Paper 397 days 10% 5%³ Bankers’ Acceptances 180 days 40% 30% - Mutual Funds N/A 20% 10% AAA/AAA Money Market Funds N/A 20% - - LAIF N/A - - - JPA Pool N/A - - - Sweep Accounts N/A - - - Feb. 27, 2026 Item #2 Page 29 of 59 Exhibit 2 City of Carlsbad Investment Policy May 153, 20256 Christian Peacox City Treasurer 1635 Faraday Avenue Carlsbad, CA 92008 (442) 339-5119 www.carlsbadca.gov/city-hall/city-treasurer Feb. 27, 2026 Item #2 Page 30 of 59 Table of Contents 1.0 Policy ...................................................................................................................................... 6 2.0 Scope ...................................................................................................................................... 6 2.1 Pooled Investments ........................................................................................................ 6 2.2 Investments Held Separately ......................................................................................... 7 3.0 Prudence ................................................................................................................................ 7 4.0 Objective ................................................................................................................................ 7 4.1 Safety .............................................................................................................................. 7 4.2 Liquidity .......................................................................................................................... 8 4.3 Return on Investment .................................................................................................... 8 5.0 Delegation of Authority ......................................................................................................... 8 6.0 Ethics and Conflicts of Interest .............................................................................................. 9 7.0 Authorized Financial Dealers and Institutions ....................................................................... 9 7.1 Financial Institutions ...................................................................................................... 9 7.2 Broker & Dealers .......................................................................................................... 10 7.3 Purchase, Sale, Payment, and Delivery ........................................................................ 10 8.0 Authorized and Suitable Investments .................................................................................. 10 8.1 Pooled Investments ...................................................................................................... 10 8.2 Investments Held Separately ....................................................................................... 17 8.3 Other Securities ............................................................................................................ 17 8.4 Housing Loans ............................................................................................................... 17 9.0 Unauthorized Investments .................................................................................................. 17 10.0 Review of Investment Portfolio ........................................................................................... 18 10.1 Exceptions .................................................................................................................... 18 11.0 Investment Pools & Mutual Funds ...................................................................................... 18 12.0 Collateralization, Perfection, Security and Contracts .......................................................... 19 Feb. 27, 2026 Item #2 Page 31 of 59 13.0 Safekeeping and Custody ..................................................................................................... 19 14.0 Diversification ...................................................................................................................... 19 15.0 Maximum Maturities ........................................................................................................... 19 15.1 Maximum Maturities for Pooled Investments ............................................................. 20 15.2 Investments Held Separately ....................................................................................... 21 16.0 Performance Standard for Pooled Investments .................................................................. 21 17.0 Short-term Borrowing .......................................................................................................... 21 17.1 Short-term Loan ........................................................................................................... 22 17.2 Line of Credit ................................................................................................................ 22 18.0 Investment Strategy ............................................................................................................. 22 18.1 Pooled Investments ...................................................................................................... 22 18.2 Investments Held Separately ....................................................................................... 22 19.0 Reporting.............................................................................................................................. 22 19.1 Pooled Investments ...................................................................................................... 23 19.2 Investments Held Separately ....................................................................................... 23 20.0 Investment Policy Adoption ................................................................................................. 24 21.0 Glossary ................................................................................................................................ 24 23.0 Summary of Authorized Investments .................................................................................. 30 1.0 Policy ...................................................................................................................................... 4 2.0 Scope ...................................................................................................................................... 4 2.1 Pooled Investments ........................................................................................................ 4 2.2 Investments Held Separately ......................................................................................... 5 3.0 Prudence ................................................................................................................................ 5 4.0 Objective ................................................................................................................................ 5 4.1 Safety .............................................................................................................................. 5 4.2 Liquidity .......................................................................................................................... 6 Feb. 27, 2026 Item #2 Page 32 of 59 4.3 Return on Investment .................................................................................................... 6 5.0 Delegation of Authority ......................................................................................................... 6 6.0 Ethics and Conflicts of Interest .............................................................................................. 7 7.0 Authorized Financial Dealers and Institutions ....................................................................... 7 7.1 Financial Institutions ...................................................................................................... 7 7.2 Broker & Dealers ............................................................................................................ 8 7.3 Purchase, Sale, Payment, and Delivery .......................................................................... 8 8.0 Authorized and Suitable Investments .................................................................................... 8 8.1 Pooled Investments ........................................................................................................ 8 8.2 Investments Held Separately ....................................................................................... 15 8.3 Other Securities ............................................................................................................ 15 8.4 Housing Loans ............................................................................................................... 15 9.0 Unauthorized Investments .................................................................................................. 15 10.0 Review of Investment Portfolio ........................................................................................... 16 10.1 Exceptions .................................................................................................................... 16 11.0 Investment Pools & Mutual Funds ...................................................................................... 16 12.0 Collateralization, Perfection, Security and Contracts .......................................................... 17 13.0 Safekeeping and Custody ..................................................................................................... 17 14.0 Diversification ...................................................................................................................... 17 15.0 Maximum Maturities and Maximum Modified Duration .................................................... 17 15.1 Maximum Maturities for Pooled Investments ............................................................. 18 15.2 Investments Held Separately ....................................................................................... 19 16.0 Performance Standard for Pooled Investments .................................................................. 19 17.0 Short-term Borrowing .......................................................................................................... 19 17.1 Short-term Loan ........................................................................................................... 20 17.2 Line of Credit ................................................................................................................ 20 Feb. 27, 2026 Item #2 Page 33 of 59 18.0 Investment Strategy ............................................................................................................. 20 18.1 Pooled Investments ...................................................................................................... 20 18.2 Investments Held Separately ....................................................................................... 20 19.0 Reporting.............................................................................................................................. 20 19.1 Pooled Investments ...................................................................................................... 21 19.2 Investments Held Separately ....................................................................................... 21 20.0 Investment Policy Adoption ................................................................................................. 22 21.0 Glossary ................................................................................................................................ 22 23.0 Summary of Authorized Investments .................................................................................. 28 Feb. 27, 2026 Item #2 Page 34 of 59 - 6 - City of Carlsbad Investment Policy May 513, 20256 (Supersedes Investment Policy dated February May 1325, 20255) The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment-related activities. Related activities which comprise good cash management include accurate cash projections, the expeditious collection of revenue, the control of disbursements, cost-effective banking relations, and arranging for a short-term borrowing program which coordinates working capital requirements and investment opportunities. 1.0 Policy It is the policy of the City of Carlsbad to invest public funds not required for immediate day-to-day operations in safe, liquid, and medium-term investments. These investments shall yield an acceptable return while conforming to all California statutes and the city's Investment Policy. 2.0 Scope It is intended that this policy cover the investment activities of all contingency reserves and inactive cash under the direct authority of the city. 2.1 Pooled Investments Investments for the city and its component unitssubsidiary entities will be made on a pooled basis including, but not limited to, the City of Carlsbad, the Housing Authority of the City of Carlsbad, the City of Carlsbad Public Improvement Corporation, the Carlsbad Public Financing Authority, and the Carlsbad Municipal Water District. The city's Annual Comprehensive Financial Report identifies the fund types involved as follows:  General Fund  Special Revenue Funds  Debt Service Funds  Capital Project Funds  Enterprise Funds  Internal Service Funds  Fiduciary Funds  Miscellaneous Special Funds  Any new funds created by the City Council, unless specifically exempt. Feb. 27, 2026 Item #2 Page 35 of 59 - 7 - 2.2 Investments Held Separately Investments of bond proceeds will be held separately when required by the bond indentures or when necessary to meet arbitrage regulations. If allowed by the bond indentures, or if the arbitrage regulations do not apply, investments of bond proceeds will be held as part of the pooled investments. 3.0 Prudence California Government Code Section 53600.3 identifies trustees as those persons authorized to make investment decisions on behalf of a local agency. As a trustee, the standard of prudence to be used shall be the "Prudent Investor” standard and shall be applied in the context of managing the overall portfolio. The Prudent Investor standard states that, when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing. These circumstances, includeing, but are not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. It is the policy of this Council that investment officers acting in accordance with written procedures and the Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk changes or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. 4.0 Objective California Government Code Section 53600.5 outlines the primary objectives of a trustee investing when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public moneyfunds. The primary objectives, in order of priority, of the city's investment activities shall be: 4.1 Safety Safety of principal is the foremost objective of the investment program. The primary objective is to safeguard the principal of funds. Investments of the city shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To attain this objective, the City Treasurer will diversify the city’s Feb. 27, 2026 Item #2 Page 36 of 59 - 8 - investments by investing funds among a variety of securities with independent returns. 4.2 Liquidity The secondary objective is to meet the city’s liquidity needs. The city's investment portfolio will remain sufficiently liquid to enable the city to meet all operating requirements which might be reasonably anticipated. 4.3 Return on Investment The third objective is to achieve a return on the city’s funds. Investment return becomes a consideration only after the requirements of safety and liquidity have been met. The City Treasurer shall have the objective of attaining a comparative performance measurement or an acceptable rate of return throughout budgetary and economic cycles. These measurements shall be commensurate with the city’s investment risk constraints identified in the Investment Policy and the cash flow characteristics of the portfolio. The City Treasurer should strive to maintain the level of investment of all contingency reserves and inactive funds as close to 100% as possible. While the objectives of safety and liquidity must first be met, it is recognized that portfolio assets represent a potential source of significant revenues. It is to the benefit of the city that these assets be managed to realize a yield on investments consistent with California statutes and the city’s Investment Policy. 5.0 Delegation of Authority Under California Government Code Section 53607 and Bby the annual adoption of this policy, the City Council delegates the management of inactive cash and the investment of funds identified in Section 2.0 Scope is the responsibility ofto the City Treasurer as directed by the City Council. Under the authority granted by the City Council, nNo person may engage in an investment transaction covered by the terms of this policy unless directed by the City Treasurer. In the execution of this delegated authority, the City Treasurer may establish accounts with qualified financial institutions and brokers/dealers for the purpose of effecting investment transactions in accordance with this policy. The criteria used to select qualified financial institutions and brokers/dealers are identified in Section 7.0 Authorized Financial Dealers and Institutions. As authorized by California Government Code Section 41006, Tthe City Treasurer has appointeddesignates the Finance Director as Deputy City Treasurer who, in the absence of the City Treasurer, will assume the City Treasurer's duties and Feb. 27, 2026 Item #2 Page 37 of 59 - 9 - responsibilities under this policy. The City Treasurer shall retain full responsibility for all transactions undertaken under the terms of this policy. In the endeavor to have all inactive cash invested all the time, the treasury department accountant will assist the City Treasurer in the gathering of information to create cash flow estimates. 6.0 Ethics and Conflicts of Interest All participants in the city's investment process shall seek to act responsibly as custodians of the public trust. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment recommendations and decisions. Investment officials and employees shall make all disclosures appropriate under the Fair Political Practices Act and may seek the advice of the City Attorney and the Fair Political Practices Commission whenever there is a question of personal financial or investment positions that could represent potential conflicts of interest. 7.0 Authorized Financial Dealers and Institutions Investments not purchased directly from the issuer shall only be purchased only through well established, financially sound institutions from an institution licensed in California as a broker-dealer, a member of a federally regulated securities exchange, a national or California-chartered bank, a savings association or federal association, or a brokerage firm designated as a primary government dealer by the Federal Reserve Bank. The City Treasurer may maintain a list of financial institutions and broker-/dealers who are approved to provide the city with investment services. This list should be updated annually by the City Treasurer to ensure compliance with this Investment Policy. All financial institutions and broker-/dealers who desire to become qualified bidders for investment transactions will be given a copy of the city's Investment Policy and provide written confirmation indicating that the Investment Policy has been read, understood and that their investment offers will comply with this policy and applicable state and federal law. Qualified financial institutions and broker/- dealers must supply the City Treasurer with the documents below. 7.1 Financial Institutions  Current audited financial statements.  Depository contracts, as appropriate.  A copy of the latest Federal Deposit Insurance Corporation call report, and Feb. 27, 2026 Item #2 Page 38 of 59 - 10 -  Proof that commercial banks, savings banks, or savings and loan associations, or federal associations are state California or federally chartered. Commercial banks, savings associations, and federal associations must maintain a minimum net worth to asset ratio as provided by law (total regulatory net worth divided by total assets) and must have had positive net earnings for the last reporting period. 7.2 Broker & Dealers  Current audited financial statements  Proof that brokerage firms are licensed in California as a broker-dealer or members in good standing of a nationalfederally regulated securities exchange, or  A designatedion as a primary government dealer by the Federal Reserve Bank Commercial banks, savings banks, and savings and loan associationssavings associations, and federal associations must maintain a minimum net worth to asset ratio as provided by law (total regulatory net worth divided by total assets) and must have had positive net earnings for the last reporting period. 7.3 Purchase, Sale, Payment, and Delivery A competitive bid process, when deemed practical by the City Treasurer, will be used to place all investment transactions. It is recommended that the City Treasurer obtain two or more bids from broker/-dealers before purchasing an investment, and three or more quotes when selling an investment. When two or more investment opportunities offer essentially the same maturity, liquidity, yield, and quality, the City Treasurer may consider financial institutions based in the City of Carlsbad, the Sstate of California, and within the United States. Payment for securities will be done on a Ddelivery- Vversus- Ppayment (DVP) basis via the city's custodian. Delivery of securities will be made to the city in accordance with the third-party custodial agreement. 8.0 Authorized and Suitable Investments Except for Certificates of Deposit, investments will be made only in readily marketable securities actively traded in the secondary market. 8.1 Pooled Investments The City Treasurer may invest city funds in the following instruments as specified in the California Government Code Section 53601 and as further limited in this policy. Where this policy specifies a percentage limit for an investment category, the percentage is applicable only at the purchase date. Feb. 27, 2026 Item #2 Page 39 of 59 - 11 - Obligations of the U.S. GovernmentU.S. Treasury and U.S. Agency Obligations United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. Government Sponsored Enterprise (GSE) debt and its agencies.Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government sponsored- enterprises.  Maximum remaining maturity of five years as of the date of settlement.  Percentage of portfolio, issuer, and ratings are not applicable. Municipal Bonds Registered state warrants or treasury notes or bonds of the state of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state of California or by a department, board, agency, or authority of the state of California. Registered treasury notes or bonds of any of the other 49another states in addition to California, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by another state or by a department, board, agency, or authority of anothery of the other 49 states, in addition to California. Bonds, notes, warrants, or other evidence of indebtedness of a local agency within California, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. Bonds issued by the city, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the city or by a department, board, agency, or authority of the city.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 2015% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” by one and “A” by another of the three Nationally Recognized Statistical Rating Organization (NRSRO) rating Feb. 27, 2026 Item #2 Page 40 of 59 - 12 - agencies, Moody's Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. Bankers’ Acceptances Bankers’ Aacceptances drawn on and accepted by a commercial bank.  Maximum maturity of 180 days as of the date of settlement.  Shall not exceed 2540% of the investment portfolio.  No more than 1030% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Certificates of Deposit (Non-negotiable) Investments in Certificates of Deposit and checking accounts shall be fully insured up to the amount allowed per account by the Federal Deposit Insurance Corporation or the National Credit Union Administration. The city may use a private sector entity that assists in the placement of Certificates of Deposit.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio.  No more than 10% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Negotiable Certificates of Deposit Negotiable Certificates of Deposit issued by a nationally or stateCalifornia- chartered bank, a savings association or a federal association, a state or federal credit union (if no one with investment authority is on the credit union’s board of directors or certain committees), or a federally licensed or state-licensed branch of a foreign bank.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio or the maximum deposit limits in California Government Code Section 53638.  No more than 10% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Placement Service Deposits and Certificates of Deposit  The maximum maturity does not exceed five (5) years. Feb. 27, 2026 Item #2 Page 41 of 59 - 13 -  No more than 30% of the total portfolio may be invested in a combination of qualifying placement service deposits.  The full amount of each deposit along with accrued interest must at all times be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).  Under a provision sunsetting on January 1, 2031, no more than 50% of the total portfolio may be invested in deposits through a placement service, including Certificates of Deposit, if the Agency is a city, district or local agency that does not pool money with other local agencies. Collateralized Bank Deposits Notes, bonds, or other obligations secured by a first priority security interest in eligible securities listed in California Government Code Section 53651 with a market value of at least equal to the amounts required by Government Code Section 53652 for the purpose of security local agency deposits.  The securities must be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secure obligation.  The security interest must be perfected in accordance with the requirements of the Uniform Commerical Code or federal regulations applicable to the types of securities in which the security interest is granted.  Maximum remaining maturing of five years as of the date of settlement. Commercial Paper Eligible paper must be of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by an Nationally Recognized Statistical Rating Organization (NRSRO). Additionally, the issuer must be a general corporation organized and operating within the United States, have total assets in excess of $500 million, and have debt other than commercial paper, if any, rated in a rating category of “A” or its equivalent or higher by an NRSRO.  Maximum remaining maturity of 270397 days as of the date of settlement.  Shall not exceed 10% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” by two of of the three Nationally Recognized Statistical Rating Organization (NRSRO) rating agencies: Moody's Investors Feb. 27, 2026 Item #2 Page 42 of 59 - 14 - Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. if the issuer has other existing debt. Repurchase Agreements The market value of securities that underlayunderlying a Rrepurchase Aagreement shall must be valued at 102% or greater of the funds borrowed against those securities and the value must be adjusted no less than quarterly. If the value of the repurchase agreement fluctuates below 102%, it must be brought back up to 102% by the next business day.  Securities underlying the repurchase agreement must be securities authorized by California Government Code 53601 and this policy and have the same issuer, description, issue date, and maturity.  Maximum remaining maturity of one year as of the date of settlement.  Shall not exceed 5% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Rating measures are not applicable. Corporate Medium-Term Notes Corporate NotesMedium-term notes permitted are debt securities issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. New investments made directly into corporations involved in the business of exploration, extraction, or further processing of oil and gas are not eligible for investment.  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 30% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” by one and “A” anotheror it’s equivalent or better by of the three Nationally Recognized Statistical Rating Organization (NRSRO) rating agencies, Moody's Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc.an NRSRO Mutual Funds and Money Market Mutual Funds Money Market Funds Money market funds whose portfolio consists of one or more of the foregoing lawful investments. Feb. 27, 2026 Item #2 Page 43 of 59 - 15 -  Money Market Mutual Funds must follow regulations specified by the SE under the Investment Company Act of 1940 (15 U.S.C. Section 80a- 1, et seq.) and meet either of the following criteria: o Must receive the highest ranking or the highest letter and numerical rating by no less than two NRSROs. o Must retain an investment advisor who is registered or exempt from registration with the SEC and has at least five years' experience investing in specified securities and managing assets in excess of $500 million.  Mutual Funds must abide by the same investment restrictions and regulations that apply to public agencies in California Government Code Section 53601(a-k) &(m-o) and meet either of the following criteria: o Must receive the highest ranking or the highest letter and numerical rating by no less than two NRSROs. o Must retain an investment advisor who is registered or exempt from registration with the SEC and has at least five years' experience investing in specified securities and managing assets in excess of $500 million. No more than 10% invested in any one mutual fund.  Investments in money market mutual funds and mutual funds may not exceed 20% of the portfolio.  The purchase price of shares shall not include any commission that the fund manager may charge . Sweep Accounts Sweep accounts for the investment of overnight funds when the funds are swept into investments allowed by this policy. Local Agency Investment Fund (LAIF) Local Agency Investment Fund (LAIF) of the State of California Investments will be made in accordance with the laws and regulations governing those FundsLAIF, including California Government Code Sections 16429.1-16429.4. Local Government InvestmentJoint Powers Authority Pool Investments in a joint powers authority poolwill be made in accordance with the laws and regulations governing those funds. that retains an investment advisor who is: (1) registered or exemption from registration with the United States Securities and Exchange Commission (SEC), (2) has assets under management in Feb. 27, 2026 Item #2 Page 44 of 59 - 16 - excess of $500 million, and (3) has at least five years’ experience in investing in instruments authorized by California Government Code Section 53601(a)-(q). California Asset Management Program (CAMP) CAMP investments will be made in accordance with the laws and regulations governing those funds. Supranational Securities Supranational securities are defined as United States dollar denominated senior unsecured, unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD or World Bank), International Finance Corporation (IFC), or Inter-American Development Bank (IADB). These organizations were established by international treaties, are headquartered in Washington D.C., and incorporated into U.S. Federal Law by Congressional Acts. California Government Code Section 53601(q) permits the securities of these three organizations to be incorporated into local agency investment portfolios.  Maximum remaining maturity of five years as of the date of settlement.  Eligible for purchase and sale in the United States  Shall not exceed 10% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” or its equivalent or better by at least twoone of the three Nationally Recognized Statistical Rating Organization (NRSROs) rating agencies, Moody's Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. Agency Backed Mortgage Passthrough Securities Mortgage passthrough securities issued or guaranteed by the U.nited S.tates Government and its agencies.  Maximum remaining maturity of five years as of the date of settlement.  Percentage of portfolio, issuer, and ratings are not applicable. Non-agency Backed Mortgage Passthrough Securities Non-agency backed mortgage passthrough securitiesy, collateralized mortgage obligations, mortgage- backed or other pay-through bonds, equipment lease- backed certificates, consumer receivable passthrough certificates, or consumer receivable-backed bonds. Feb. 27, 2026 Item #2 Page 45 of 59 - 17 -  Maximum remaining maturity of five years as of the date of settlement.  Shall not exceed 5% of the investment portfolio.  No more than 5% of the portfolio may be invested in any single issuer.  Shall carry a rating of “AA” or its equivalent or better by at least one of the three Nationally Recognized Statistical Rating Organization (NRSRO) rating agencies, Moody's Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. 8.2 Investments Held Separately Investments of bond funds will be made in conformance with the trust indenture for each issue. Such investments will be held separately when required. 8.3 NewOther Securities NewOther types of securities authorized by California law, but which are not currently allowed by the city’s Investment Policy, must first be approved by the City Council. 8.4 Housing Loans Housing loans approved by the City Council to private developers and homeowners as part of the city housing program shall comply with California statutes but need not meet the investment objectives and the risk management requirements of this Investment Policy. The City Council will manage these loans directly. 9.0 Unauthorized Investments California Government Code Section 53601.6 disallows the following investments:  Inverse floaters  Range notes  Interest-only strips that are derived from a pool of mortgages. In addition, and more generally, investments are further restricted as follows:  No investment will be made in any security that could result in zero- or negative- interest accrual if held to maturity, except for securities issued by, or backed by, the United States government in the event of, and for the duration of, a period of negative market interest rates as permitted by California Government Code Section 53601.6(b)(2).  No investment will be made that could cause the portfolio to be leveraged. Feb. 27, 2026 Item #2 Page 46 of 59 - 18 -  No Ppurchases of investments on margin will not be made. 10.0 Review of Investment Portfolio Pursuant to Carlsbad Municipal Code Chapter 2.43, the Investment Review Board shall conduct reviews of the city's investment portfolio, the strategy being utilized for the investment of city funds, and the city's Investment Policy. This board will be composed of the City Treasurer (acting as the chair), and four City Treasurer- appointed members approved by the City Council. The board will convene periodically as necessary or desirable but, not less frequently than once each quarter. All members of the Investment Review Board must comply with the disclosure requirements in the city’s Conflict of Interest Code. 10.1 Exceptions Securities must be in compliance with Section 8.0 Authorized Investments at the time of purchase. If an unauthorized investment is purchased or an authorized investment experiences a subsequent change that causes its not to comply with this Investment Policy (e.g., the rating of a corporate medium-term note held in the portfolio has been downgraded by an NRSRO, or the total value of the portfolio has declined causing the percentage invested in corporate medium-term notes to rise above 30%, or an unforeseen expenditure causes investments maturing within one year to fall below two-thirds of the approved operating budget of the current fiscal year) the City Treasurer will determine the course of action necessary to correct such exceptions and move the portfolio into compliance with state and city requirements. The City Treasurer’s determination may not expose the assets of the portfolio to undue risk and may not impair the meeting of financial obligations as they fall due. Additionally, any subsequent investments may not extend existing exceptions. Exceptions, and the decisions to correct the exceptions, will be reviewed with the Investment Review Board and reported on the monthly investment report presented to cCity cCouncil. 11.0 Investment Pools & Mutual Funds An investigation and due diligence will be conducted before investing in any investment pool or mutual fund. The City Treasurer shall review at a minimum:  The investment policy and objectives.  Interest calculations and distributions.  Safeguard and settlement processes. Feb. 27, 2026 Item #2 Page 47 of 59 - 19 -  A description of the program including legal investors and the minimums and maximum transactions allowable.  Schedule for receiving statements.  How reserves and retained earnings are treated.  The fee schedule. 12.0 Collateralization, Perfection, Security and Contracts When required by California statute or this Investment Policy, any investment capable of being collateralized, shall be collateralized by the required amounts imposed by law. To give greater security to the city’s investments, when an investment is collateralized and not perfected under existing law, an attempt to perfect the collateralization should be made. California Government Code Section 53652 requires that the depository secure active or inactive deposits with eligible securities having a fair market value of at least 10% more than the total amount of all deposits, and 50% in excess of the deposit when secured with mortgage pools. California Government Code Section 53649 specifies that the City Treasurer is responsible for entering into deposit contracts with each depository. 13.0 Safekeeping and Custody All security transactions, including collateral for repurchase agreements, entered into by the city shall be conducted on a delivery-versus-payment basis. All securities owned by the city will be held by a third-party custodian designated by the City Treasurer and evidenced by a monthly statement from the custodian. All securities will be held in the nominee’s name of the custodian unless the counterparty bank’s trust department is used for the delivery of the security, in which case the security will be held in the city’s name. Collateral for time deposits in banks will be held in the city's name in the bank's Trust Department or in the Federal Reserve Bank. 14.0 Diversification The portfolio will be diversified to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions. In addition to the limitations on specific security types indicated in Section 8.0 Authorized Investments, and with the exception authorized pools and investments, no more than 5% of the city's portfolio will be placed with any single issuer. 15.0 Maximum Maturities and Maximum Modified Duration Feb. 27, 2026 Item #2 Page 48 of 59 - 20 - Maximum maturity and maximum modified duration evaluation supports the principal of liquidity by ensuring that adequate cash is available to meet anticipated cash flow requirements of the city. 15.1 Maximum Maturities for Pooled Investments A policy of laddered maturities will generally be followed for pooled investments. The following maturity requirements will apply as of the month end of each reporting period. Two-Thirds Within One YearLiquidity Requirement Investments maturing within the next six monthsone year, measured at par value, plus estimated base operating revenues, shall be sufficient to meet the city’s next six months of obligationsexpenditure requirementsmust be no less than two- thirds of the approved operating budget of the current year. This requirement should be met within three months following adoption of the current operating budget. Remaining investments of the portfolio shall not have a maturity greater than five years from the date of investment settlement except as provided in Section 15.1.3 Five Year Exception. Three Years Average The average portfolio investment maturity shall be three years or less. A dollar- weighted average will be used in computing the average maturity of the portfolio. Five-Year Exception Before an investment, which is allowed by California statute, is made in securities that mature more than five years from the date of purchase, the City Treasurer and the Deputy City Manager of Administrative Services will review the city's long- term cash needs. Both must concur before such an investment is made. A resolution authorizing such investment must first be approved by the City Council. Investments beyond five years will not be greater than 10% of the portfolio and will be counted in the percentage of the portfolio that may mature beyond one year. Ten-Year Limit No investments will be made that mature beyond 10 years from the date of investment. Callable Investments Callable investments will be recorded at their maturity dates. 15.2 Maximum Modified Duration Feb. 27, 2026 Item #2 Page 49 of 59 - 21 - The investment restrictions identified in paragraphs of Section 8.0 Authorized Investments and Section 9.0 Unauthorized Investments, and the maturity requirements identified in Section 15.1 Maximum Maturities for Pooled Investments, imply that the value of city investments should not change more than 2.2% for every 1% change in market interest rates. To ensure that this is the case, a maximum modified duration is established at 2.2. This states that the unrealized gains and losses of the portfolio are not expected to exceed 2.2% for every 1% change in market interest rates. A modified duration in excess of 2.2 would indicate that the portfolio is exposed to more market risk than is desired by this policy. If the modified duration of 2.2 is exceeded, an explanation will be made in the first monthly report following the occurrence. 15.315.2 Investments Held Separately Maturities for investments held separately will conform to the trust indenture for each issue. 16.0 Internal Controls The City Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the city are protected from loss, theft, fraud or misuse. The City tTreasurer shall present all monthly and annual reports to the City Council, City Manager, Internal Auditor, Deputy City Manager of Administrative Services, Finance ManagerDirector, and the city’s external auditors in the conduct of their annual audit of the city. 17.016.0 Performance Standard for Pooled Investments Laddered maturities and a buy and hold strategy for pooled investments will cause the investment portfolio to attain a market-average rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the city’s cash flow needs. Since the amount maturing within one year must be at least equal to two-thirds of the currently approved operating budget, the rate of return will be more closely related to, but lag behind, changes in short-term market rates. The rate of return of the investment portfolio will be based on the maturity value of the investments. A dollar-weighted average of yields to maturity will be used in calculating the rate of return of the entire portfolio. The city’s performance benchmarks may change from year to year but should strive to mirror the assets held in the city’s portfolio. 18.017.0 Short-term Borrowing The city is permitted by law to borrow money to meet current short-term cash flow needs. These needs may arise either because projected cash disbursements Feb. 27, 2026 Item #2 Page 50 of 59 - 22 - exceed projected cash receipts, or because the city's cash accounts may be temporarily overdrawn due to the efforts to invest 100% of inactive funds at all times. To provide for these contingencies the City Treasurer is authorized to take the following actions: 18.117.1 Short-term Loan When there is a shortfall between projected cash revenues and projected cash disbursements, the City Treasurer may secure a loan in the amount that would equal the cash deficit plus projected cash disbursements for one month. Any such loan will be repaid within one year. 18.217.2 Line of Credit The City Treasurer may maintain a line of credit with the city's bank in an amount to cover sums temporarily overdrawn because of efforts to invest all inactive funds at all times. 19.018.0 Investment Strategy 19.118.1 Pooled Investments A buy and hold strategy will be followed; that is, investments once made will be held until maturity. A buy and hold strategy will result in unrealized gains or losses as market interest rates fall or rise from the coupon rate of the investment. Unrealized gains or losses, however, will diminish as the maturity dates of the investments are approached or as market interest rates move closer to the coupon rate of the investment. A buy and hold strategy requires that the portfolio be kept sufficiently liquid to preclude the undesired sale of investments prior to maturity. Occasionally, the City Treasurer may find it advantageous to sell an investment prior to maturity, but this should only be on an exception basis and only when it is in the best interest of the city and conforms to the Prudent Investor standard. 19.218.2 Investments Held Separately Investments held separately for bond proceeds will follow the trust indenture for each issue. 20.019.0 Reporting California Government Code Section 536070 require reports meeting the standards set forth in these sections to be presented to City Council, as well as any additional information desired. The City Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the city are protected from loss, theft, fraud or misuse. Therefore, it is the policy Feb. 27, 2026 Item #2 Page 51 of 59 - 23 - of the city that the investments and transactions described in these sections, and as outlined in Section 20.1 below be given to the City Council, City Manager, and Internal Auditor (or the Deputy City Manager of Administrative Services in the absence of an Internal Auditor), and Finance Director. 20.119.1 Pooled Investments The investment report will be submitted monthly by the City Treasurer within 60 days following the end of the month covered by the report. The monthly report will be published to the City Treasurer webpage after reporting to City Council. Each report will include the following elements:  Itemized listing of portfolio investments by type, yield to maturity, and issuer  Par value, dollar amount invested, amortized cost, and current market value as of the date of the report will be given for the total of all securities, investments, and moneys held by the city and its component units. The source of the market values will be cited.  Credit ratings of corporate notes.  Accrued income.  Weighted average yield of the portfolio.  Weighted average days to maturity of the portfolio from the date of the report.  Weighted average modified duration of the portfolio.  Dollar amount and percentage of portfolio maturing within one year.  Dollar amount and percentage of portfolio maturing between one and 5 years.  Percent that each type of investment represents in the portfolio.  Investment transactions for the reporting period excluding due dates.  Fund source of investments when available.  Statement that the investment portfolio has the ability to meet the city's cash flow demandsexpenditure requirements for the next six (6) months.  Statement of compliance of the portfolio with the city’s Investment Policy. When applicable, any material exceptions will be noted. An annual report for pooled investments will also be made to the City Council following the close of the fiscal year. Among other items, the annual report will include an analysis of the composition of the portfolio with regard to fund source, a review of trends regarding the size of the fund, portfolio yields, cash income, and a statement regarding anticipated fund activity in the next fiscal year. 20.219.2 Investments Held Separately Feb. 27, 2026 Item #2 Page 52 of 59 - 24 - A report of investments held separately will be made quarterly. Within 30 days following the end of the quarter the report will be submitted as an exhibit in the City Treasurer’s monthly report. The quarterly report will contain the information required by California Government Code Section 53646 when available. 21.020.0 Investment Policy Adoption California Government Code Section 53646(a)(2) allows the City Treasurer to render to the City Council and the Investment Review Board a statement of Investment Policy and recommends that one be presented each year. Therefore, the city’s Investment Policy and any modifications to it shall be considered no less often than annually at a public meeting. Adoption of the Investment Policy and any changes must be made by resolution of the City Council. 22.021.0 Glossary Amortized Cost The cost of investments adjusted for amortized premiums and discounts. Amortized cost is used to maintain comparability with market value. Arbitrage Regulation Laws to control the use of profit making by purchasing securities on one market for immediate resale on another to profit from a price difference. Bankers’ Acceptances An investment vehicle created to facilitate international commercial trade transactions. The bank accepts responsibility to repay a loan to the holder of the investment vehicle created in a commercial transaction. The credit worthiness of Bankers’ Acceptances is enhanced because they are secured by the issuing bank, the goods themselves, and the importer. Bankers’ Acceptances are sold on a discounted basis. Bond Indenture A written agreement specifying the terms and conditions for issuing bonds, stating the form of the bond being offered for sale, interest to be paid, the maturity date, call provisions and protective covenants, if any, collateral pledged, the repayment schedule, and other terms. It describes the legal obligations of a bond issuer and the powers of the bond trustee, who has the responsibility for ensuring that interest payments are made to registered bondholders. Book Value A term synonymous with amortized cost. Feb. 27, 2026 Item #2 Page 53 of 59 - 25 - Buy and Hold Strategy Investments in which management has the positive intent and ability to hold each issue until maturity. California Asset Management Program (CAMP) A California Joint Powers Authority (JPA) established in 1989 to provide California public agencies with professional investment services. The CAMP Pool is a permitted investment for all local agencies under California Government Code Section 53601(p). CAMP is directed by a Board of Trustees, which is made up of experienced local government finance directors and treasurers. Certificate of Deposit A deposit account paying interest for a fixed term, with the understanding that funds cannot be withdrawn before maturity without giving notice. Collateralization An asset used to secure a debt in part or in full by pledge of collateral. The collateral is used as security to help ensure payment or performance of an obligation. Commercial Paper A short-term IOU, or unsecured money market obligation, issued by prime rated commercial firms and financial companies, with maturities from 2 days up to 270397 days. A promissory note of the issuer used to finance current obligations and is a negotiable instrument. Delivery Versus Payment A securities industry term indicating payment is due when the buyer has securities in hand or a book entry receipt. Embedded Option A statement within the bond structure that would alter the interest rate earned by the bond. Interest-Only Strips Mortgage-backed instrument where the investor receives only interest, no principal, from a pool of mortgages. Issues are highly interest rate sensitive. Cash flows vary between interest periods. As well, the maturity date may occur earlier than that stated if all loans within the pool are pre-paid. High prepayments on underlying mortgages can return less to the holder that the dollar amount invested. Feb. 27, 2026 Item #2 Page 54 of 59 - 26 - Inverse Floater A bond or note that does not earn a fixed rate of interest. Rather, the interest rate that is earned is tied to a specific interest-rate index identified in the bond/note structure. The interest rate earned by the bond/note will move in the opposite direction of the index, (e.g., if market interest rates as measured by the selected index rises, the interest rate earned by the bond/note will decline). An inverse floater increases the market rate risk and modified duration of the investment. Joint Powers Authority Pool A joint powers authority pool is a joint powers authority organized under California Government Code Section 6509.7 to invest in securities and obligations permitted under California Government Code Section 53601(a) through (r), inclusive. The joint powers authority must have an investment advisor that: (1) is registered or exempt from registration with the United States Securities and Exchange Commission; (2) has not less than five years of experience investing in the securities and obligations authorized in California Government Code Section 53601(a) through (q), inclusive; and (3) has assets under management in excess of five hundred million dollars ($500,000,000). Laddered Portfolio A bond investment portfolio with securities in each maturity range (e.g., monthly) over a specified period (e.g., five years). Leverage Investing with borrowed money with the expectation that the interest earned on the investment will exceed the interest paid on the borrowed money. Local Agency Investment Fund (LAIF) A voluntary investment program offering participating agencies the opportunity to participate in a major portfolio which daily invests hundreds of millions of dollars, using the investment expertise of the State Treasurer’s Office investment staff at no additional cost to the taxpayer. Investment in LAIF, considered a short- term investment, is readily available for cash withdrawal daily. Market Risk The risk that market interest rates will rise causing a loss of value in investments held. All investments made by the city involve a degree of market risk. See also Unrealized Gains (Losses). Modified Duration Feb. 27, 2026 Item #2 Page 55 of 59 - 27 - A measure of the sensitivity that the value of a fixed-income security has to changes in market rates of interest. Modified duration is the best single measure of a portfolio’s or security’s exposure to market risk. Modified duration identifies the potential gain/loss in value before the gain/loss actually occurs. It is a prospective measurement, e.g., a modified duration of 1.5 indicates that when and if a 1% change in market interest rates occurs, a 1.5% change in the value of a security will result. Investments with modified durations of one to three are considered to be relatively conservative. Negotiable Certificates of Deposit A large denomination ($100,000 or more) interest bearing time deposits, paying the holder a fixed amount of interest at maturity. Issues can be sold to a new owner before maturity. Municipal Bonds Municipal bonds are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems. Nominee Name The registered owner of a stock or bond if different from the beneficial owner, who acts as holder of record for securities and other assets. Typically, this arrangement is done to facilitate the transfer of securities when it is inconvenient to obtain the signature of the real owner, or the actual owner may not wish to be identified. Nominee ownership simplifies the registration and transfer of securities. Nationally Recognized Statistical Rating Organization (NRSRO) A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating agency that issues credit ratings that the United. States. Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes. Three of the primary recognized rating agencies are Moody’s Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc. Pooled Investment A grouping of resources for the common advantage of the participants. Range Note An investment whose coupon payment varies (e.g., either 7% or 3%) and is dependent on whether the current benchmark (e.g., 30-year Treasury) falls within a pre-determined range (e.g., between 6.75% and 7.25%). Feb. 27, 2026 Item #2 Page 56 of 59 - 28 - Repurchase Agreement A contract to purchase and subsequently sell securities at a specified date and price. Supranational Organization A supranational organization is formed by a group of countries through an international treaty. Member states transcend national boundaries or interests to share in the decision-making process to promote economic development in the member countries. Supranational Securities Supranational securities are United States dollar denominated senior unsecured, unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD or World Bank), International Finance Corporation (IFC), or Inter-American Development Bank (IADB). These organizations were established by international treaties, are headquartered in Washington D.C and incorporated into U.S. Ffederal Llaw by Congressional Acts. The California Government Code Section 53601(q) permits the securities of these three organizations to be incorporated into local agency investment portfolios. Sweep Account A short-term income fund into which all uninvested cash balances from the non- interest-bearing checking account are automatically transferred daily. Third-Party Custodian A corporate agent, usually a commercial bank, who, acting as trustee, holds securities under a written agreement for a corporate client and buys and sells securities when instructed. Custody services include securities safekeeping, and collection of dividends and interest. The bank acts only as a transfer agent and makes no buy-sell recommendations. Unrealized Gains (Losses) An increase (decrease) in the value of investments representing the difference between the amortized cost of the investments and their current market value. Increases (decreases) in value are caused primarily by changes in market interest rates subsequent to purchasing the investments. Increases (decreases) in value indicate two things: 1. The portfolio has a potential gain (loss) in principal if the securities are sold, and 2. The portfolio is over performing (underperforming) the current market for similar investments. An increase in value indicates the portfolio Feb. 27, 2026 Item #2 Page 57 of 59 - 29 - is earning relatively more interest than current market conditions, and a decrease in value indicates that the portfolio is earning relatively less interest than current market conditions. Zero Accrual Periods A period in which an investment accumulates no interest. Feb. 27, 2026 Item #2 Page 58 of 59 - 30 - 24.023.0 Summary of Authorized Investments Investment Type Maximum Maturity Maximum % Portfolio Maximum % Issuer NRSRO Minimum Obligations of the US Government 5 years - - - Certificates of Deposit (Non-Negotiable) 5 years 30% 10% - Negotiable Certificates of Deposit Placement Service Deposits/Certificates of Deposit Collateralized Bank Deposits 5 years 5 years 5 years 30% 50% - 10% 10% = - Corporate Medium-Term Notes 5 years 30% 5% AA/A Municipal Bonds 5 years 1520% 5% AA/A Supranational Securities 5 years 10% 5% AA/AA Agency Backed Mortgage Passthrough Securities 5 years - - - Non-agency Backed Mortgage Passthrough Securities 5 years 5% 5% AA Repurchase Agreements 1 year 5% 5% - Commercial Paper 270 397 days 10% 5%³ AA/AA Bankers’ Acceptances 180 days 2540% 1030% - Mutual Funds N/A 20% 10% AAA/AAA Money Market Funds N/A 20%- - - LAIF N/A - - - CAMPJPA Pool N/A - - - Sweep Accounts N/A - - - Feb. 27, 2026 Item #2 Page 59 of 59 Investment Policy Proposed Updates for 2026 Zach Korach, Finance Director February 27, 2026 PROPOSED INVESTMENT POLICY CHANGES Allowable percentage changes •Investment portfolio •Single issuer Liquidity •Modified duration •Cash availability calculation Other changes •Authorized investment additions •Ratings •Maturity Discussion Allowable percentage changes Section Current Proposed Municipal Bonds 15%20% Bankers’ Acceptances 25%40% Mutual Funds 10% fund 20% portfolio Placement service deposits & CD None 30% (50% sunsetting provision) Section Current Proposed Bankers’ Acceptances 10%30% Placement service deposits & CD None 10% Allowable percentage of investment by issuer Allowable percentage of investment portfolio Liquidity •Remove modified duration •Remove measure of two-thirds operating budget cash availability within a rolling 12-month period and revised requirement to rolling six-months cash and maturities plus estimated base operating revenues cash availability. Proposed Cash and maturities within 6 months + estimated base operating revenues = required cash availability Current Fiscal year operating budget x (2/3) = required cash availability within next 12 months ($36,108,331) ($60,000,000) ($40,000,000) ($20,000,000) $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 Fe b - 2 2 Ma r - 2 2 Ap r - 2 2 Ma y - 2 2 Ju n - 2 2 Ju l - 2 2 Au g - 2 2 Se p - 2 2 Oc t - 2 2 No v - 2 2 De c - 2 2 Ja n - 2 3 Fe b - 2 3 Ma r - 2 3 Ap r - 2 3 Ma y - 2 3 Ju n - 2 3 Ju l - 2 3 Au g - 2 3 Se p - 2 3 Oc t - 2 3 No v - 2 3 De c - 2 3 Ja n - 2 4 Fe b - 2 4 Ma r - 2 4 Ap r - 2 4 Ma y - 2 4 Ju n - 2 4 Ju l - 2 4 Au g - 2 4 Se p - 2 4 Oc t - 2 4 No v - 2 4 De c - 2 4 Ja n - 2 5 Fe b - 2 5 Ma r - 2 5 Ap r - 2 5 Ma y - 2 5 Ju n - 2 5 Ju l - 2 5 6-Month Rolling Changes to Investment Cost Other Section Current Proposed Medium-term notes (FKA corporate notes) AA/A A Supranational AA/AA AA Section Current Proposed Commercial paper 270 days 397 days Maturity RatingsAuthorized investments additions: •Collateralized Bank Deposits •United States government-backed zero/negative interest accrual in the event of, and for the duration of, a period of negative market interest rates DISCUSSION & QUESTIONS