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Notes to the Financial Statements June 30, 2020 NOTE 2 —CASH AND INVESTMENTS (continued) B. Cash deposits (continued) The fair market value of pledged securities must equal at least 110% of the District's cash deposits. California law also allows institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the District's total cash deposits. The District has waived collateral requirements for cash deposits, which are fully insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). C. Investments Under the provisions of the District's investment policy, and in accordance with California Government Code Section 53601, the District is authorized to invest or deposit in the following: Authorized Maximum Maximum Percentage Maximum Investment Investment Type Maturity of Portfolio in One Issuer US Government Securities 2 years 10% 10% Bankers acceptances 2 years 10% 10% Commercial paper 2 years 10% 10% Negotiable certificates of deposit 2 years 10% 10% Repurchase agreements 2 years 10% 10% Certificates of deposit 2 years 10% 10% Local Agency Investment Fund (LAIF) 2 years None $75m County Agency Investment Fund 2 years None None Savings deposits 2 years 10% 10% D. Investment in Local Agency Investment Fund The District is a voluntary participant in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF) which has invested a portion of the pool funds in structured notes and asset-backed securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these structured notes and asset-backed securities are subject to market risk as to change in interest rates. The District's investments with LAIF at June 30, 2020 included 3.37% of the pooled funds invested in structured notes, medium term asset-backed securities. These investments included the following: Structured notes: debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-backed securities (medium and short-term): generally mortgage-backed securities that 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 (for example, Collateralized Mortgage Obligations) or credit card receivables. 35