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CITY OF ST. ANTHONY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2019 The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. The hierarchy has three levels. Level 1 investments are valued using inputs that are based on quoted prices in active markets for identical assets. Level 2 investments are valued using inputs that are based on quoted prices for similar assets or inputs that are observable, either directly or indirectly. Level 3 investments are valued using inputs that are unobservable. The City has the following recurring fair value measurements as of December 31, 2019: Investment Type 12/31/19 Level 1 Level 2 Level 3 Investments at fair value: Brokered Certificates of Deposit $8,870,287 $ - $8,870,287 $ - Municipal Securities 481,994 - 481,994 - Federal National Mortgage Association 249,950 - 249,950 Total/Subtotal 9,602,231 $0 $9,602,231 $0 Investments not categorized: External investment pool - 4M, 4M Plus 5,978,060 Money market funds 1,129,763 Total $16,710,054 Fair Value Measurement Using The City’s external investment pool investment is with the 4M fund which is regulated by Minnesota Statutes and the Board of Directors of the League of Minnesota Cities. The 4M fund is an unrated pool and the fair value of the position in the pool is the same as the value of pool shares. The pool is managed to maintain a portfolio weighted average maturity of no greater than 60 days and seeks to maintain a constant net asset value (NAV) per share of $1. The pool measures its investments at amortized cost in accordance with Government Accounting Standards Board Statement No. 79. The 4M Liquid Asset Fund has no redemption requirements. The 4M Plus Fund requires funds to be deposited for a minimum of 14 calendar days. Withdrawals prior to the 14-day restriction period are subject to a penalty equal to 7 days interest on the amount withdrawn. In regards to the 4M Fixed Income Fund, redemption of a CD prior to the maturity may result in early withdrawal penalties. C. INVESTMENT RISKS Custodial credit risk – investments – For investments in securities, custodial credit risk is the risk that in the event of failure of the counterparty to a transaction, the City will not be able to recover the value of its investment securities that are in the possession of an outside party. Investments in investment pools and money markets are not evidenced by securities that exist in physical or book entry form, and therefore are not subject to custodial credit risk disclosures. The City’s investment policy does not address custodial risk. However, investments in securities are held by the City’s broker-dealers of which $500,000 is insured through SIPC. The broker-dealer has provided additional protection by providing additional insurance. This insurance is subject to aggregate limits applied to all of the broker-dealers’ accounts. Interest rate risk – Interest rate risk is the risk that changes in interest rates of debt investments could adversely affect the fair value of an investment. The City’s investment policy requires the City to diversify its investment portfolio to eliminate the risk of loss resulting from over concentration of assets in a specific maturity. The policy also states the City’s investment portfolio will remain 55