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6.1 B - Attachment No. 4 NOTE 2—CASH AND INVESTMENTS(CONTINUED� Under the provisions of the City's investment policy, and in accordance with California Government Code, the following investments are authorized: Maximum Maximum Maximum Percentage of Investment in Authorized Investment Type Maturity Portfolio One Issuer Certificates of Depos it 1 year 7.50% $3Million Banker's acceptances 180 days No limit $3Million Treasury Bills,Notes and Bonds 3 years No limit No limit Government Agency Securities 3 years No limit No limit Corninercial Paper 15 days No limit $1Million Local Agency Investment Fund N/A No limit $40Million Passbook Savings Accounts 1 year No limit $100,000 San Mateo County Investment Fund N/A No limit $40Million Money Market/Mutual Funds N/A 10% No limit Corporate Notes 3 years 30% $SMillion The City's investments are rated by the nationally recognized statistical rating organizations as follows: Moody's S&P Fitch U.S.Agencies,Securities,and Corporate Notes: Federal Home Loan Bank Aaa AAA Federal National Mortgage Association Aaa AAA AAA Federal Home Loan Mortgage Corporation Aaa AAA AAA Federal Farm Credit Aaa AAA AAA U.S.Treasury Securities Aaa AAA AAA External Investment Pools: San Mateo County Investment Fund AA/V 1+ Not Rated Not Rated California Local Agency Investment Fund Not Rated Not Rated Not Rated Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counter party, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. All securities, with the exception of the County Pool and LAIF, are held by third-party custodians (Union Bank of California Trust Division, U.S. Bank and Bank of New York). Union Bank, U.S. Bank and Bank of New York are registered members of the Federal Reserve Bank. The securities held by Union Bank, U.S. Bank and Bank of New York are in street name, and an account number assigned to the City identifies ownership. None of the City's investments were subject to custodial credit risk. In fiscal year 1997/98, the City adopted Governmental Accounting Standards Board Statement No. 31, which requires that the City's investments be carried at fair value instead of cost. Under GASB 31, the City must adjust the carrying value of its investments to reflect their fair value at each fiscal year-end,and it must include the effects of these adjustments in income for that fiscal year. Changes in value at the fiscal year ended June 30, 2009 from the fiscal year ended June 30, 2008 amounted to an unrealized gain of$135,840. GASB 31 applies to all the City's investments, even if they are held to maturity and redeemed at full face value. Since the City's policy is to hold all investments to maturity,the fair value adjustments required by GASB 31 result in accounting gains or losses (called "recognized" gains or losses) which do not reflect actual sales of the investments (called "realized" gains or losses). Thus, recognized gains or losses on an investment purchased at par will now reflect changes in its value at each succeeding fiscal year-end, but these recognized gains or losses will net to zero if the investment is held to maturity. By following the requirements of GASB 31,the City is reporting the amount of resources which would actually have been available if it had been required to liquidate all its investments at any fiscal year-end. 38