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CITY OF LINO LAKES, MINNESOTA
<br />NOTES TO FINANCIAL STATEMENTS
<br />December 31, 2016
<br />The City has the following recurring fair value measurements as of December 31, 2016:
<br />Investment Type
<br />Investments at fair value:
<br />Mutual funds
<br />Brokered CD's
<br />Municipal bonds
<br />Federal Home Loan Mortgage Corp.
<br />Investments not categorized:
<br />Wells Fargo money market
<br />4M Fund
<br />Total investments
<br />3,759,721
<br />9,653,494
<br />$40,039,971
<br />The 4M Fund is an external investment pool investment which is regulated by Minnesota Statutes and
<br />the Board of Directors of the League of Minnesota Cities. It is an unrated pool and the fair value of the
<br />position in the pool is the same as the value of pool shares. The pool is managed to maintain a portfolio
<br />weighted average maturity of no greater than 60 days and seeks to maintain a constant net asset value
<br />(NAV) of $1 per share. The pool measures its investments at amortized cost in accordance with GASB
<br />Statement No. 79. The 4M Plus Fund requires funds to be deposited for a minimum of 14 calendar
<br />days. Withdrawals prior to the 14 -day restriction period are subject to penalty equal to 7 days interest
<br />on the amount withdrawn.
<br />C. INVESTMENT RISKS
<br />Custodial Credit Risk — Investments — For investments in securities, custodial credit risk is the risk
<br />that in the event of failure of the counterparty to a transaction, the City will not be able to recover
<br />the value of its investment securities that are in the possession of an outside party. Investments
<br />in investment pools and money markets are not evidenced by securities that exist in physical or
<br />book entry form, and therefore are not subject to custodial credit risk disclosures. The City's
<br />investment policy requires its brokers be licensed with the appropriate federal and state agencies. A
<br />minimum capital requirement of $5,000,000 and at least five years of operation is mandatory.
<br />Investments in securities are held by the City's broker-dealers. The securities at each broker-dealer are
<br />insured $500,000 through SIPC. Each broker-dealer has provided additional protection by providing
<br />additional insurance. This insurance is subject to aggregate limits applied to all of the broker -dealer's
<br />accounts.
<br />Interest Rate Risk — Interest rate risk is the risk that changes in interest rates will adversely affect the
<br />fair value of an investment. Generally, the longer the maturity of an investment, the greater the
<br />sensitivity of its fair value to changes in market interest rates. The City's policy to minimize interest
<br />rate risk includes investing primarily in short-term securities and structuring the investment portfolio so
<br />that securities mature to meet cash requirements for ongoing operations.
<br />Credit Risk — Credit risk is the risk than an issuer of an investment will not fulfill its obligation to the
<br />holder of the investment. The City's policy to minimize credit risk includes limiting investing funds to
<br />those allowable under Minnesota Statute I I8A, annually appointing all financial institutions where
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<br />Fair Value Measurement Using
<br />12/31/2016
<br />Level Level Level
<br />$1,782,066
<br />$1,782,066 $ - $ -
<br />12,395,765
<br />- 12,395,765 -
<br />11,963,565
<br />- 11,963,565 -
<br />485,360
<br />485,360 -
<br />$1,782,066 $24,844,690 $ -
<br />3,759,721
<br />9,653,494
<br />$40,039,971
<br />The 4M Fund is an external investment pool investment which is regulated by Minnesota Statutes and
<br />the Board of Directors of the League of Minnesota Cities. It is an unrated pool and the fair value of the
<br />position in the pool is the same as the value of pool shares. The pool is managed to maintain a portfolio
<br />weighted average maturity of no greater than 60 days and seeks to maintain a constant net asset value
<br />(NAV) of $1 per share. The pool measures its investments at amortized cost in accordance with GASB
<br />Statement No. 79. The 4M Plus Fund requires funds to be deposited for a minimum of 14 calendar
<br />days. Withdrawals prior to the 14 -day restriction period are subject to penalty equal to 7 days interest
<br />on the amount withdrawn.
<br />C. INVESTMENT RISKS
<br />Custodial Credit Risk — Investments — For investments in securities, custodial credit risk is the risk
<br />that in the event of failure of the counterparty to a transaction, the City will not be able to recover
<br />the value of its investment securities that are in the possession of an outside party. Investments
<br />in investment pools and money markets are not evidenced by securities that exist in physical or
<br />book entry form, and therefore are not subject to custodial credit risk disclosures. The City's
<br />investment policy requires its brokers be licensed with the appropriate federal and state agencies. A
<br />minimum capital requirement of $5,000,000 and at least five years of operation is mandatory.
<br />Investments in securities are held by the City's broker-dealers. The securities at each broker-dealer are
<br />insured $500,000 through SIPC. Each broker-dealer has provided additional protection by providing
<br />additional insurance. This insurance is subject to aggregate limits applied to all of the broker -dealer's
<br />accounts.
<br />Interest Rate Risk — Interest rate risk is the risk that changes in interest rates will adversely affect the
<br />fair value of an investment. Generally, the longer the maturity of an investment, the greater the
<br />sensitivity of its fair value to changes in market interest rates. The City's policy to minimize interest
<br />rate risk includes investing primarily in short-term securities and structuring the investment portfolio so
<br />that securities mature to meet cash requirements for ongoing operations.
<br />Credit Risk — Credit risk is the risk than an issuer of an investment will not fulfill its obligation to the
<br />holder of the investment. The City's policy to minimize credit risk includes limiting investing funds to
<br />those allowable under Minnesota Statute I I8A, annually appointing all financial institutions where
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