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CITY OF SAN LEANDRO NOTES TO BASIC FINANCIAL STATEMENTS For The Year Ended June 30, 2014 NOTE 2 - CASH AND INVESTMENTS (Continued) The City valued its investments in LAIF as of June 30, 2014, at the market value. The fair value is calculated by multiplying the account balance with LAIF times a fair value factor of 1.00029875 which is determined by LAIF. This fair value factor was determined by dividing all LAIF participants' total aggregate amortized cost by total aggregate fair value. The City's investments with Local Agency Investment Funds (LAIF) at June 30, 2014, included a portion of the pool funds invested in Structured Notes and Asset -Backed Securities. These investments included the following: • Structured Notes are debt securities (other than asset-backed securities) whose cash-flow characteristics (coupon rate, redemption amount, or stated maturity) depend on one or more indices and/or that have embedded forwards or options. • Asset-backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as CMOs) or credit card receivables. Concentration of Credit Risk The City's Policy states that the investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the City's investment risk constraints and the cash flow characteristic of the portfolio. Purchases of mutual funds must not exceed 20% of the value of the portfolio. Investments in U.S. agencies exceed 5% of total portfolio, and Federal agency investments exhibited below exceeded 5% percent or more of the total investments in any one issuer: Amount Percentage of U.S. Agencies Invested Investments Federal agency securities: Federal Home Loan Banks (FHLB) $ 5,066,018 5.24% Federal Home Loan Mortgage Corporation (FHMLC) 6,541,894 6.77% Federal National Mortgage Association (FNMA) 5,923,374 6.13% Total $ 17,531,286 18.13% Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Entity's investment policy, or debt agreements, and the actual rating as of year-end for each investment type. 091