2006 Comprehensive Annual Financial Report

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CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Investment Policies Indiana Code 5-13-9 authorizes the City to invest in securities backed by the full faith and credit of the United States Treasury or fully guaranteed by the United States ofAmerica and issued by the United States Treasury, a federal agency, a federal instrumentality, orafederal govemment spon- sored enterprise. Indiana Code also authorizes the unit to invest in securities fully guaranteed and issued by a federal agency, a federal instrumentality or a federal government sponsored enterprise. These investments are required by statute to have a stated final maturity of not more than two years. Indiana Code also provides for investment in money market mutual funds that are in the form of securities of, or interest in, an open-end, no-load, management-type investment company or investment trust registered under the provision of the federal Investment Company Act of 1940, as amended. Investments in money market mutual funds may not exceed 50% of the funds held by the City and available for investment. The portfolio of an investment company or investment trust used must be limited to direct obligations of the United States of America, obligations issued by a federal agency, a federal instrumentality, or a federal government sponsored enterprise; or repurchase agreements fully collateralized by direct obligations ofthe United States ofAmerica or obligations issued by a federal agency, a federal instrumentality, or a federal government spon- soredenterprise. The form of securities of, or interest in, an investment company or investment trust must be rated as AAA, or its equivalent by Standard and Poors Corporation or its successor or Aaa, or its equivalent, by Moody's Investors Service, Inc., or its successor. The form of securi- ties in an investment company or investment trust should have a stated final maturity of one day. Additionally, the City may enter into repurchase agreements with depositories designated by the State Board of Finance as depositories for state deposits involving the unit's purchase and guaranteed resale of any interest-bearing obligations issued or fully insured or guaranteed by the United States of America, a United States of America government agency, an instrumentality of the United States of America, or a federal govemment sponsored enterprise. The repurchase agreement is considered to have a stated final maturity of one day. This agreement must be fully collateralized by interest-bearing obligations as determined by their current market value. Investment Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counter- party to a transaction, a government will not be able to recover the value of investment or col- lateralsecurities that are in the possession of an outside party. The City does not have a formal investment policy for custodial credit risk for investments. At December 31, 2006, the City held investments in U.S. Treasuries and Securities in the amount of $1,787,219. These investments were held by the counterparty's trust department or agent but not in the City's name. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City must follow state statute and limit the stated final maturities of the invest- ments to no more than two years. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obli- gations. U.S. Treasury Securities are guaranteed by the full faith and credit of the U.S. gov- ernmentand are recognized as the safest investment available. The City does not have a formal investment policy for credit risk. 54