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CITY OF ROSEVILLE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (Continued) A. Deposits and investments (Continued) 3. Investments The City has the following investments at year end: Investment T Rating Agency U.S. Treasuries AAA S &P U.S. Agencies Aaa Moody's Total Investments Interest Risk- Maturity Duration in Years 1 to 5 5 to 10 Total $ 9,796,500 $ 0 $ 9,796,500 1,928,410 20,193,806 22,122,216 $11,724,910 $20,193,806 $31.918.716 Investments are subject to various risks, the following of which are considered the most significant: Custodial credit risk — For investments, this is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker - dealer) the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City does not have a formal investment policy addressing this risk, but typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. The City's assets are currently being held under credit risk #3. The City will be updating its safekeeping agreement to ensure its assets be categorized under credit risk #1. Credit risk — This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City's investments to direct obligations or obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of thirteen months or less; general obligations rated "A" or better; revenue obligations rated "AA" or better; general obligations of the Minnesota Housing Finance Agency rated "A" or better; bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by Unite States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one of the top two highest categories; repurchase or reverse purchase agreements and securities lending agreements with financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000 that are a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker - dealers. The City's investment policies do not further address credit risk beyond what is prescribed by State Statute. 56