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06-04-2018 Council Work Session Packet
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06-04-2018 Council Work Session Packet
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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2017 <br /> <br /> <br /> <br /> <br />The City has the following recurring fair value measurements at December 31, 2017: <br /> <br />Investment Type 12/31/2017 Level 1 Level 2 Level 3 <br />Investments at fair value: <br />Brokered CD's $16,419,585 $ - $16,419,585 $ - <br />Municipal bonds 10,908,237 - 10,908,237 - <br />Federal Home Loan Mortgage Corp.1,482,210 - 1,482,210 - <br />$0 $28,810,032 $0 <br />Investments not categorized: <br />Wells Fargo money market 4,275,289 ` <br />Morgan Stanley money market 24,165 <br />4M Fund 7,207,927 <br />Total investments $40,317,413 <br />Fair Value Measurement Using <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on the amount withdrawn.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 /> <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 />56
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