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05-13-19-R
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05-13-19-R
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<br />-35- <br />NOTE 2 – DEPOSITS AND INVESTMENTS (CONTINUED) <br /> <br />C. Investments <br /> <br />Investments are subject to various risks, the following of which are considered the most significant: <br /> <br />Custodial Credit Risk – For investments, this is the risk that in the event of a failure of the <br />counterparty to an investment transaction (typically a broker-dealer), the City would not be able to <br />recover the value of its investments or collateral securities that are in the possession of an outside <br />party. The City’s investment policies do not further address this risk, but typically li mits its exposure <br />by purchasing insured or registered investments, or by the control of who holds the securities. <br /> <br />Credit Risk – This is the risk that an issuer or other counterparty to an investment will not fulfill its <br />obligations. Minnesota Statutes limit the City’s investments to direct obligations or obligations <br />guaranteed by the United States or its agencies; shares of investment companies registered under the <br />Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the <br />two highest rating categories by a statistical rating agency, and all of the investments have a final <br />maturity of 13 months or less; general obligations rated “A” or better; revenue obligations rated <br />“AA” or better; general obligations of the Minnesota Housing Finance Agency rated “A” or better; <br />bankers’ acceptances of United States banks eligible for purchase by the Federal Reserve System; <br />commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the <br />highest quality category by at least two nationally recognized rating agencies, and maturing in <br />270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, <br />domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in <br />one of the top two highest categories; repurchase or reverse purchase agreements and securities <br />lending agreements with financial institutions qualified as a “depository” by the government entity, <br />with banks that are members of the Federal Reserve System with capitalization exceeding <br />$10,000,000; that are a primary reporting dealer in U.S. government securities to the Federal Reserve <br />Bank of New York; or certain Minnesota securities broker-dealers. The City’s investment policies do <br />not further address credit risk. <br /> <br />Interest Rate Risk – This is the risk of potential variability in the fair value of fixed rate investments <br />resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the <br />greater the risk). The City’s investment policies do not mandate a limit on the duration of <br />investments. <br /> <br />Concentration Risk – This is the risk associated with investing a significant portion of the City’s <br />investment (considered 5 percent or more) in the secur ities of a single issuer, excluding United States <br />guaranteed investments (such as treasuries), investment pools, and mutual funds. The City’s <br />investment policies state that no more than 5 percent of the overall portfolio may be invested in the <br />securities of a single issuer, except for the securities of the United States government, or a maximum <br />of 25.0 percent with any individual counterparty in an external investment pool. At year-end, the <br />City’s investments in the City of Minneapolis, Minnesota (municipal bonds) represented 5.4 percent, <br />and in the City of Oshkosh, Wisconsin (municipal bonds) represented 5.8 percent.
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