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CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY <br />JULY 2015 -2016 <br />Page 2 <br />OBJECTIVES: <br />SAFETY OF PRINCIPAL - Safety of principal is the foremost objective of the City of Santa <br />Ana. Each investment transaction shall be undertaken in a manner that seeks to ensure <br />preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and <br />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 the City 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 />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 demands <br />(static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the <br />portfolio should consist largely of securities with active secondary or resale markets (dynamic <br />liquidity). <br />3. YIELD - The City's Fund shall be designed with the objective of attaining a market - average <br />rate of return throughout budgetary and economic cycles taking into account the investment <br />risk constraints and liquidity needs. Return on investment is of least importance compared to <br />the safety and liquidity objectives described above. The core of investments is limited to <br />55B -6 <br />