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CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY <br />JULY 1, 2016 — JUNE 30, 2017 <br />Page 4 <br />transaction and the entire portfolio must comply with California Government Code, Sections <br />53600 and 53635 et seq. and this policy. <br />ALLOWABLE INVESTMENT INSTRUMENTS — STATE LAW <br />California Government Code Section 53601 establishes allowable investment instruments <br />applicable to all local agencies along with maximum maturities, maximum specified percentages <br />of total portfolio, and minimum quality requirements. Section 53601.1 authorizes local agencies <br />to invest in financial futures or financial option contracts in any of the allowable investment <br />categories enumerated in section 53601. <br />INELIGIBLE INVESTMENTS - STATE LAW: <br />Certain investments, however, are prohibited by California Government Code Section 53601.6. <br />Accordingly, the City shall not invest in any inverse floaters, range notes, or mortgage derived, <br />interest -only strips. In addition, the City shall not invest any funds in any security that could <br />result in zero interest accrual if held to maturity. However, prohibited securities that are in the <br />City's portfolio, as of the date of this policy adoption, may be held until their maturity dates. <br />DISALLOWED INVESTMENTS - HIGHER PERCEIVED RISK <br />Besides investments prohibited by statute, this policy disallows investments in the following due <br />to a higher perceived risk: <br />• Asset - backed securities (ABS) — securities supported by pools of installment loans <br />or leases or by pools of revolving lines of credit; <br />Derivatives — financial instruments which have a principal and /or interest payment <br />subject to uncertainty as to timing and /or amount including financial instruments <br />whose return profile is linked to, or derived from, the movement of one or more <br />underlying index or security, and may include a leveraging factor, or financial <br />contracts based upon notional amounts whose value is derived from an underlying <br />index or security (interest rates, foreign exchange rates, equities or commodities); <br />Investment agreements — contracts regarding funds deposited by an investor often <br />separated into those offered by banks and those offered by insurance companies <br />commonly known as Guaranteed Investment Contracts (GICs) or Guaranteed <br />Investment Agreements (GIAs); <br />55C -14 <br />