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<br />CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY <br />JULY 2006-2007 <br /> <br />OBJECTIVES: <br /> <br />1. SAFETY OF PRINCIPAL Safety of principal is the foremost <br />objective of the City of Santa Ana. Each investment transaction <br />shall be undertaken in a manner that seeks to ensure preservation <br />of capital in the overall portfolio. The objective will be to <br />mitigate credit risk and interest rate risk. <br /> <br />A. Credit Risk <br /> <br />Credit Risk is the risk of loss due to the failure of the security <br />issuer or backer. Credit risk may be mitigated by: <br /> <br />Limiting investments to the safest types of securities; <br />Pre-qualifying the financial institutions, <br />broker/dealers, intermediaries, and advisors with which <br />an entity will do business; and <br />Diversifying the investment portfolio so that potential <br />losses on individual securities will be minimized. <br /> <br />B. Interest Rate Risk <br /> <br />Interest rate risk is the risk that the market value of securities <br />in the portfolio will fall due to changes in general interest <br />rates. Interest rate risk may be mitigated by: <br /> <br />Structuring the Fund so that securities mature to meet <br />cash requirements for ongoing operations, thereby <br />avoiding the need to sell securities on the open market <br />prior to maturity, and <br />By investing operating funds primarily in shorter-term <br />securities. <br /> <br />The cash flow is updated on a daily basis and will be considered <br />prior to the investment of securities, which will reduce the <br />necessity to sell investments for liquidity purposes. <br /> <br />2. LIQUIDITY The investment portfolio shall remain sufficiently <br />liquid to meet all operating requirements that may be reasonably <br />anticipated. This is accomplished by structuring the portfolio so <br />that securities mature concurrent with cash needs to meet <br />anticipated demands (static liquidity). Furthermore, since all <br />possible cash demands cannot be anticipated, the portfolio should <br />consist largely of securities with active secondary or resale <br />markets (dynamic liquidity). <br /> <br />3. YIELD - The City'S Fund shall be designed with the objective of <br />attaining a market-average rate of return throughout budgetary <br />and economic cycles taking into account the investment risk <br />constraints and liquidity needs. Return on investment is of <br />least importance compared to the safety and liquidity <br />objectives described above. The core of investments are <br />limited to relatively low risk securities in anticipation of <br />earning a fair return relative to the risk being assumed. <br /> <br />19C-4 <br /> <br />