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SOUTHEASTERN COLORADO WATER CONSERVANCY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 2 -CASH, CASH EQUIVALENTS AND INVESTMENTS Cash, cash equivalents and investments are summarized as follows: Cash and cash equivalents Demand deposits $ 4,775,967 Money market mutual funds 1,671,982 $ 6.447.949 Investments U.S. agency securities, at fair value $ 10,827,710 $ 10.827.710 DEPOSITS At December 31, 2005, the carrying amount of the District's deposits was $4,775,967 and the bank balance was $4,820,012. Of the bank balance, $294,164 was covered by federal depository insurance and $4,525,848 was collateralized in single financial institution collateral pools maintained by the individual financial institutions that hold these deposits. Colorado law requires that depository institutions must apply for and be designated as an eligible public depository before the institution can accept public fund monies. The depository institution must pledge eligible collateral as security for all public deposits held by that institution that are not insured by depository insurance. The market value of the collateral that each institution pledges as security must be equal to at least 102% of the total uninsured deposits held by that institution. Generally, the eligible collateral in the collateral pools is held by the depository institution or its agent in the name of the depository institution. Custodial credit risk is the risk that, in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk. At December 31, 2005, deposits with a bank balance of $4,525,248 are uninsured and are exposed to custodial credit risk because they are collateralized with securities held by the pledging financial institution's agent. INVESTMENTS The District is subject to the provisions of Colorado Revised Statues 24-75-601 which is entitled "Concerning Investment in Securities by Public Entities". This law, among other things, outlines the types of securities that public entities in Colorado may acquire and hold as investments. These include U.S. government and agency securities, certain bonds of political subdivisions, bankers acceptances, commercial paper, local government investment pools, repurchase agreements, money market funds, guaranteed investment contracts, and U.S. dollar-denominated corporate or bank debt. The statute also includes a provision limiting any investment to a five year maturity unless the governing body authorizes a longer period. -23-