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6.1. B. - Page 65 NOTE 2— CASH AND INVESTMENTS �CONTINUED) 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 Banl< 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 Not Rated AAAf/S1 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 Banl< of New York). Union Banl<, U.S. Banl< and Banl< of New Yorl< are registered members of the Federal Reserve Bank. The securities held by Union Banl<, U.S. Bank and Banl< of New Yorl< 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, 2011 from the fiscal year ended June 30, 2010 amounted to an unrealized loss of $346,007. 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. C. Restricted Cash The City's restricted cash consisted of $26,783,818 in cash and investments as of June 30, 2011 held by trustees or fiscal agents. The City had $3,377,651 in restricted cash and investments held by the City. This restricted cash is pledged for the payment or security of certain bonds, certificates of participation, and lease obligations. The California government code provides that these monies, in the absence of specific statutory provisions governing the issuance of bonds, certificates, or leases, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments its trustees or fiscal agents may make. In some situations, these investments differ from those permitted by the City investment policy. Included in these investments at June 30, 2011 is a guaranteed investment contract with a maturity date in fiscal year 2035 authorized in the bond indenture and by City Council prior to purchase. 39