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Notes to Combined Financial Statements, Continued The District's cash deposits at December 31, 1994 and 1993 were either entirely insured by appropriate Federal depository insurance or collateralized with collateral held by the pledging financial institution's trust department or agent in the District's name in accordance with provisions of the California Government Code, The carry- ing amount and bank balance of the District's deposits at December 31,1994 and 1993 are as follows: The District's investment policies allow for investments in obligations of U.s. Treasury and other Federal agency securities, State Treasury and other state and local govern- mental agency securities, bankers' accep- tances, commercial paper, mortgage securi- ties and the State Treasurer's Local Agency Investment Fund, as well as certain invest- ments commonly referred to as "deriva- tives," Included in the District's investments at December 31,1994 and 1993 are deriva- tives. Derivatives are generally defined as contracts whose value depends on, or derives from, the value of an underlying asset, reference rate or index, The deriva- tive investments held by the District during 1994 and 1993 consisted of "inverse- floaters," which were originally purchased to improve the District's overall return on investment. These derivative investments consist of Federal Home Loan Mortgage Corp., Federal Farm Credit Bank and Federal Home Loan Bank Notes and are included in U.S. Government agency secu- rities, The District's inverse floaters, which are financial instruments whose interest rates 1994 Carrying Amount Insured Collateralized $ 252,059 4,653,955 -- $4,906,014 Bank Balance 1993 Carrying Bank Amount Balance 5,793,506 7,049,602 1,406,540 1,661,038 7,200,046 8,710,640 Total cash deposits -- -- vary inversely with a particular published index or rate, consisted of two types of inverse floaters: single and dual indexed, The single indexed floaters total $28,659,996 and $17,702,719 at December 31, 1994 and 1993, respectively, and vary indirectly with a multiple of either the one- or six-month London Interbank Offering Rate (LIBOR) which reset monthly or semiannually, respectively, The dual indexed floaters, which also vary directly with another index, total $3,934,000 and $2,000,000 at December 31,1994 and 1993, respectively, Because of the nature of these inverse floaters, as general interest rate levels increase, the pay rate on the investments decrease, resulting in a decline in interest income as well as a decline in market value, The weighted average interest rate on the inverse floaters was 4,66% and 6.47%, and the unrealized loss was $4,442,280 and $589,749 (57.7% and 70,1% of total portfolio unrealized losses) at December 31,1994 and 1993, respectively. The District's investments at December 31, 1994 and 1993 are categorized by the level of custodial risk assumed by the District. The risk categories are defined as follows: 519,198 6,607,274 7,126,472 Category 1: includes investments that are insured or registered or for which the secu- rities are held by the District or its agent in the District's name, Category 2: includes uninsured and unreg- istered investments for which the securities are held by the counterparty's trust depart- ment or agent in the District's name, Category 3: includes uninsured and unreg- istered investments for which the securities are held by the counterparty, or by its trust department or agent, but not in the District's name, Not Required to be Categorized: invest- ments in pools managed by other govern- ments or investment services in which the District owns a share of the total pool, but does not own specific underlying invest- ments within such pool. This includes investments in the State Treasurer's Local Agency Investment Fund (LAIF) and mutu- al funds, The District does not have detail of the portfolios of LAIF or the mutual funds at December 31, 1994 and 1993, The District's investments at December 31, 1994 and 1993 are categorized by level of custodial risk in the following table: 1994 1993 Market Value! Market Value! Carrying Contractual Carrying Contractual Amount Amount Amount Amount Risk category 1: U.s, Government securities $ 3,330,981 3,288,312 3,326,405 3,311,201 U.s, Government agency securities 42,687,138 37,662,169 31,796,328 31,320,069 Medium-term corporate notes 8,559,350 8,077,902 Negotiable certificates of deposit 100,000 100.000 100,000 100.000 Total risk category 1 54,677,469 49,128,383 35,222,733 34,731,270 Risk category 2: U.s, Government agency securities 37,679,444 36,700,613 Medium-term corporate notes 6,978,100 6,848,450 5,578,670 5,538,750 Total risk category 2 44,657,544 43,549,063 5,578,670 5,538,750 Risk category 3: U.s. Government agency securities $ 3,626,054 2,996,496 Negotiable certificates of deposit 7,112 7,112 3,097 3,097 Total risk category 3 3,633,166 2,973,608 3,097 3,097 Investments not required to be categorized: State Treasurer's Local Agency Investment Fund 5,500,000 5,500,000 2,000,000 2,000,000 Mutual fund investments 6,785,445 6,400,343 3,000,000 2,800,000 Employee-deferred compensation plan (held in mutual funds) 13,859,002 13,859,002 12,826,602 12,826,602 Total investments not required to be categorized 26,144,447 25,759,345 17,826,602 17,626,602 Total investments 129,112,626 $121,410.399 58,631,102 57,899,719 Cash deposits 4.906.014 7.200.046 Net cash and investments $134,018,640 65,831,148