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CITY OF ELK RIMER, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />DECEMBER 31, 2011 <br />Note 3: DETAILED NOTES ON ALL FUNDS - CONTINUED <br />The carrying amount of deposits for the HRA, a discretely presented component unit, was $919,821 and the bank <br />balance was $919,821. The bank balance was covered by federal depository insurance and securities held by the <br />pledging financial institution's agent in the HRA's name. <br />Investments <br />Minnesota Statutes and the City's investment policy authorize the City to invest in the following: <br />a. Direct obligations or obligations guaranteed by the United States or its agencies. <br />b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only <br />investments are in securities described in (a) above. <br />c. General obligations of the State of Minnesota or any of its municipalities. <br />d. Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. <br />e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and <br />maturing in 270 days or less. <br />The City's investment policy follows Minnesota State Statutes which reduces the City's exposure to credit, custodial <br />credit and interest rate risks. Specific risk information for the City is as follows: <br />® Custodial credit risk - For investments, custodial credit risk is the risk that in the event of a failure of the <br />counterparty, the government would not be able to recover the value of its investment or collateral securities <br />that are in the possession of an outside party. As of December 31, 2011 all investments were insured or <br />registered, or securities were held by the City or its agent in the City's name. <br />® Credit risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its <br />obligations. State law limits investments in commercial paper that is rated in the highest quality category by at <br />least two nationally recognized rating agencies. The City's investment policy does not further limit the ratings <br />of their investments. <br />® Concentration risk - Concentration risk is the risk of loss that may be caused by the city's investment in a single <br />issuer. The City does not have a formal policy that limits the amount of investments in a single issuer. As of <br />December 31, 2011, more than 5% of the City's investments were held in the following U.S. Agencies: Federal <br />National Mortgage Association (32 %), Federal Home Loan Bank (24 %), and Federal Home Loan Mortgage <br />Corporation (7 %). <br />® Interest rate risk - In accordance with its investment policy, the City diversifies its investment portfolio to <br />eliminate the risk of loss resulting from the over - concentration of assets in a specific maturity. The maturities <br />selected shall provide for stability of income and reasonable liquidity. <br />The Minnesota Municipal Money Market Fund (4M Fund) is an external investment pool allowable under Minnesota <br />Statutes and regulated by the Board of Directors of the League of Minnesota Cities. The 4M Fund is a customized cash <br />management and investment program for Minnesota public funds designed to address the daily and long term investment <br />needs of Minnesota cities and other municipal entities. The 4M Fund is an unrated 2a7 -like pool and the fair value of the <br />position in the pool is the same as the value of pool shares. Financial statements of the 4M Fund can be obtained by <br />contacting RBC Global Asset Management at 100 South Fifth Street Suite 2300, Minneapolis, MN 55402 -1240. <br />45 <br />