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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2019 <br /> <br /> <br /> <br /> <br />fund are valued on the basis of amortized cost. Shares may be redeemed without penalty on any <br />business day. <br /> <br />C. INVESTMENT RISKS <br /> <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 /> <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 /> <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 118A, annually appointing all financial institutions where <br />investments are held, and diversifying the investment portfolio. This is measured by the assignment of <br />a rating by a nationally recognized statistical rating organization. <br /> <br />Concentration of Credit Risk – Concentration of credit risk is the risk of loss that may be attributed to <br />the magnitude of a government’s investment in a single issuer. The City places no limit on the amount <br />it may invest in any one issuer. At December 31, 2019, no individual investments exceeded 5% of the <br />City’s total investment portfolio. <br /> <br /> <br />56