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City of Santa - Annual <br />Statement of Investment Policy July 1, 2022 - <br />June 30, 2023 Page L <br /> <br />STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) <br />and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, <br />derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of <br />interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. <br /> <br />TIME DEPOSITS: These instruments are issued by depository institutions against funds deposited for a <br />specified length of time. For the purpose of this report, time deposits (which would include instruments such <br />as deposit notes) are distinct from CDs. The primary difference between the two is the method of interest <br />calculation. Interest payments on time deposits are calculated in a manner similar to that of corporate bonds <br />whereas interest payments on CDs are calculated similarly to money market instruments. <br /> <br />TOTAL RETURN: All money earned on a bond or bond fund from annual interest and market gain or loss, if <br />any, including the deduction of sales charges and/or commissions. <br /> <br />WHEN ISSUED (WI): A conditional transaction in which an authorized new security has not been issued. All <br />“when issued” transactions are settled when the actual security is issued. <br /> <br />YIELD CURVE: A graphic representation that depicts the relationship at a given point in time between yields <br />and maturity for bonds that are identical in every way except maturity. A normal yield curve may be alternatively <br />referred to as a positive yield curve. <br /> <br />YIELD TO CALL (YTC): The rate of return you receive if you hold the bond to its call date and the security is <br />redeemed at its call price. YTC assumes interest payments are reinvested at the yield-to-call date. <br /> <br />YIELD TO MATURITY (YTM): The overall interest rate earned by an investor who buys a bond at the <br />market price and holds it until maturity. Mathematically, it is the discount rate at which the sum of all future <br />cash flows (from coupons and principal repayment) equals the price of the bond. <br /> <br />YIELD TO WORST (YTW): The lower yield of yield-to-call and yield-to-maturity. Investors of callable bonds <br />should always do the comparison to determine a bond's most conservative potential return. <br /> <br />ZERO-COUPON SECURITIES (STRIPS): Security that is issued at a discount and makes no periodic <br />interest payments. The rate of return consists of a gradual accretion of the principal of the security and is <br />payable at par upon maturity. California state law does not allow local agencies to purchase these securities <br />because of the greater interest rate risk and price volatility associated with them.