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CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY <br />JULY 2011-2012 <br />ensure preservation of capital in the overall portfolio. The objective will be to mitigate <br />credit risk and interest rate risk. <br />A. Credit Risk <br />Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk <br />may be mitigated by: <br />Limiting investments to the safest types of securities; <br />Pre-qualifying the financial institutions, broker/dealers, intermediaries, and <br />advisors with which an entity will do business; and <br />Diversifying the investment portfolio so that potential losses on individual <br />securities will be minimized. <br />B. Interest Rate Risk <br />Interest rate risk is the risk that the market value of securities in the portfolio will fall <br />due to changes in general interest rates. Interest rate risk may be mitigated by: <br />Structuring the Fund so that securities mature to meet cash requirements for <br />ongoing operations, thereby avoiding the need to sell securities on the open <br />market prior to maturity, and <br />By investing operating funds primarily in shorter-term securities. <br />The cash flow is updated on a daily basis and will be considered prior to the investment of <br />securities, which will reduce the necessity to sell investments for liquidity purposes. <br />2. LIQUIDITY - The investment portfolio shall remain sufficiently liquid to meet all operating <br />requirements that may be reasonably anticipated. This is accomplished by structuring the <br />portfolio so that securities mature concurrent with cash needs to meet anticipated <br />demands (static liquidity). Furthermore, since all possible cash demands cannot be <br />anticipated, the portfolio should consist largely of securities with active secondary or <br />resale markets (dynamic liquidity). <br />3. YIELD - The City's Fund shall be designed with the objective of attaining a market- <br />average rate of return throughout budgetary and economic cycles taking into account the <br />investment risk constraints and liquidity needs. Return on investment is of least <br />importance compared to the safety and liquidity objectives described above. The core of <br />investments are limited to relatively low risk securities in anticipation of earning a fair <br />return relative to the risk being assumed. Securities shall not be sold prior to maturity with <br />the following exceptions: <br />1) a declining credit security could be sold early to minimize loss of principal; <br />2) a security swap would improve the quality, yield, or target duration in the <br />55A-6