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MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and <br /> principal cash flows from a specified pool of mortgages. Principal and interest <br /> payments made on the mortgages are passed through to the holder of the security. <br /> MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital <br /> and operating expenses. <br /> MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a <br /> set of securities which is specifically defined in the fund's prospectus. Mutual funds <br /> can be invested in various types of domestic and/or international stocks, bonds, <br /> and money market instruments, as set forth in the individual fund's prospectus. For <br /> most large, institutional investors, the costs associated with investing in mutual <br /> funds are higher than the investor can obtain through an individually managed <br /> portfolio. <br /> NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO). <br /> A credit rating agency that the Securities and Exchange Commission in the <br /> United States uses for regulatory purposes. Credit rating agencies provide <br /> assessments of an investment's risk. The issuers of investments, especially debt <br /> securities, pay credit rating agencies to provide them with ratings. The three most <br /> prominent NRSROs are Fitch, S&P, and Moody's. <br /> NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, <br /> savings or federal association, state or federal credit union, or state-licensed <br /> branch of a foreign bank. Negotiable CDs are traded in a secondary market and <br /> are payable upon order to the bearer or initial depositor (investor). <br /> PREMIUM. The difference between the par value of a bond and the cost of the bond, when <br /> the cost 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 <br /> on mortgage securities at a specified prepayment speed. <br /> PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal <br /> Reserve in its execution of market operations to carry out U.S. monetary policy, <br /> and (2) that participates for statistical reporting purposes in compiling data on <br /> activity in the U.S. 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 <br /> the care, skill, prudence and diligence, under the circumstances then prevailing, <br /> that a prudent person, acting in a like capacity and familiar with such matters, <br /> would use in the conduct of an enterprise of like character and with like aims to <br /> accomplish similar purposes." <br /> REALIZED YIELD. The change in value of the portfolio due to interest received and interest <br /> earned and realized gains and losses. It does not give effect to changes in market <br /> value on securities, which have not been sold from the portfolio. <br /> REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit <br /> of its customers without maintaining substantial inventories of securities and that <br /> is not a primary dealer. <br /> 18 <br />