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NOTE I -SIGNIFICANT ACCOUNTING POLICIES T. Change in Fund Structure During 2005 the City elected to change the classification of two major funds from special revenue funds to capital project funds. They include the Landfill Fund and the Equipment Revolving Fund. In addition, a non-major special revenue fund, the Park Improvement Fund, was also changed to a capital project fund. We believe these changes in classification more closely reflect the nature of the funds involved. Because we have elected to not present prior year comparisons, and both Special Revenue funds and Capital Project funds are considered Governmental funds, no prior period adjustment is necessary. NOTE 2 - DEPOSITS AND INVESTMENTS A. Components of Cash and Investments Cash and investments at year-end consist of the following: Deposits $ 6,648,507 Investments 56,772,650 Cash on hand 625 Total $ 63,421,782 Cash and investments are presented in the financial statements as follows: Cash and temporary k~ves~rnents - Statement of Net Assets $ 48,026,944 Restricted cash and investments for debt service - Statement of Net Assets 1,962,301 Restricted cash and investments for capital projects - Statement of Net Assets12,068,580 Cash and Investments held by trustee - Statement of Fiduciary Net Assets 1,363,957 Total $ 63,421082 B. Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council, including checking accounts and certificates of deposits. The following is considered the most significant risk associated with deposits: Custodial credit risk- In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated "A" or better; revenue obligations rated "AA" or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The City has no additional deposit policies addressing custodial credit risk. -37-