Item 24 - Annual Statement of Investment Policy

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City of Santa - Annual Page 14 July 1, 2021 - Statement of Investment Policy June 30, 2022 9.0 PROHIBITED INVESTMENTS AND INVESTMENT PRACTICES 9.1 Ineligible Investments - State Law Certain investments, however, are prohibited by California Government Code Section 53601.6. Accordingly, the City shall not invest in any inverse floaters, range notes, or mortgage derived, interest-only strips. In addition, the City shall not invest any funds in any security that could result in zero interest accrual if held to maturity. However, prohibited securities that were purchased and are currently held in the City's portfolio, as of the date of this policy adoption, which were previously allowed under the California Government Code, yet are now prohibited due to changes in the Code may be held until their maturity dates. 9.2 Disallowed Investments - Higher Perceived Risk Besides investments prohibited by statute, this policy disallows investments in the following due to a higher perceived risk: • Asset-backed securities (ABS) – securities supported by pools of installment loans or leases or by pools of revolving lines of credit; • Derivatives – financial instruments which have a principal and/or interest payment subject to uncertainty as to timing and/or amount including financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities); • Investment agreements – contracts regarding funds deposited by an investor often separated into those offered by banks and those offered by insurance companies commonly known as Guaranteed Investment Contracts (GICs) or Guaranteed Investment Agreements (GIAs); • Mortgage-backed securities – securities created when a mortgage or purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interests or participation in the pool, including principal only strips; • Reverse Repurchase agreements – agreements involving the borrowing of cash from a financial institution for the purchase of securities in which a financial asset is instead pledged as a collateral for a loan in which the roles of borrower and lender are reversed. Securities lending agreements – agreements allowing local agencies to earn incremental income on their investment portfolio by loaning securities in their portfolio to financial services companies for a limited time;