Item 24 - Annual Statement of Investment Policy

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City of Santa - Annual Page C July 1, 2021 - Statement of Investment Policy June 30, 2022 CREDIT QUALITY: The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. [Referenced page: 4] CREDIT RISK: The risk to an investor that an issuer will default in the payment of interest and/or principal on a security. [Referenced pages: 2, 3, 17] DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. [Referenced pages: 3, 8, 9, 24, 25] DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. See Safekeeping and Custody: [Referenced pages: 17, 19, 31] DERIVATIVE: 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). [Referenced page: 14] DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. [Referenced page: 17] DURATION: Is a measure of time (term of investment) which also is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. [Referenced pages: 4, 18] FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations. [Referenced pages: 29, 36, 37, 39] FEDERAL FARM CREDIT BANK (FFCB): Notes are high credit quality, short-term debt instruments, issued at a discount to their par amount, similar to U.S. Treasury bills. FFCB provides a steady and continuous stream of capital for the agricultural sector in all 50 states and Puerto Rico. Presently, the Farm Credit System funds approximately 35 percent of all U.S. farm business debt. [Referenced page: 9] FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLB is to liquefy the housing related assets of its members who must purchase stock in their district Bank. [Referenced pages: 9, 16, 28, 29] FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA