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San Leandro Investment Policy Statement Page 14 of 15 <br />MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining <br />debt early. Unlike a call option, with a make whole call provision, the issuer makes a lump <br />sum payment that equals the net present value (NPV) of future coupon payments that will <br />not be paid because of the call. With this type of call, an investor is compensated, or "made <br />whole." <br />MARGIN. The difference between the market value of a security and the loan a broker makes using <br />that security as collateral. <br />MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market <br />conditions or interest rates. <br />MARKET VALUE. The price at which a security can be traded. <br />MARKING TO MARKET. The process of posting current market values for securities in a portfolio. <br />MATURITY. The final date upon which the principal of a security becomes due and payable. <br />MEDIUM TERM NOTES. Unsecured, investment-grade senior debt securities of major corporations <br />which are sold in relatively small amounts on either a continuous or an intermittent basis. <br />MTNs are highly flexible debt instruments that can be structured to respond to market <br />opportunities or to investor preferences. <br />MODIFIED DURATION. The percent change in price for a 100 basis point change in yields. Modified <br />duration is the best single measure of a portfolio’s or security’s exposure to market risk. <br />MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes, <br />commercial paper, and banker’s acceptances) are issued and traded. <br />MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and principal cash <br />flows from a specified pool of mortgages. Principal and interest payments made on the <br />mortgages are passed through to the holder of the security. <br />MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and <br />operating expenses. <br />MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of <br />securities which is specifically defined in the fund’s prospectus. Mutual funds can be invested <br />in various types of domestic and/or international stocks, bonds, and money mark et <br />instruments, as set forth in the individual fund’s prospectus. For most large, institutional <br />investors, the costs associated with investing in mutual funds are higher than the investor <br />can obtain through an individually managed portfolio. <br />NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO). <br />A credit rating agency that the Securities and Exchange Commission in the United States <br />uses for regulatory purposes. Credit rating agencies provide assessments of an <br />investment's risk. The issuers of investments, especially debt securities, pay credit rating <br />agencies to provide them with ratings. The three most prominent NRSROs are Fitch, S&P, <br />and Moody's. <br />NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, savings <br />or federal association, state or federal credit union, or state-licensed branch of a foreign <br />bank. Negotiable CDs are traded in a secondary market and are payable upon order to the <br />bearer or initial depositor (investor). <br />PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost <br />is above par. <br />PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage <br />securities. <br />PREPAYMENT WINDOW. The time period over which principal repayments will be received on <br />mortgage securities at a specified prepayment speed. <br />PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve <br />in its execution of market operations to carry out U.S. monetary policy, and (2) that <br />participates for statistical reporting purposes in compiling data on activity in the U.S. <br />Government securities market. <br />PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to <br />fiduciaries. In California, the rule is stated as “Investments shall be managed with the care, <br />skill, prudence and diligence, under the circumstances then prevailing, that a prudent <br />person, acting in a like capacity and familiar with such matters, would use in the conduct of <br />an enterprise of like character and with like aims to accomplish similar purposes.” <br />37