VILLAGE OF GRAFTON NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2016 NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 1. Deposits and Investments (cont.) d. The local government investment pool. e. Any security maturing in seven years or less and having the highest or second highest rating category of a nationally recognized rating agency. f. Securities of an open-end management investment company or investment trust, subject to various conditions and investment options. g. Repurchase agreements with public depositories, with certain conditions. The village has adopted an investment policy. That policy follows the state statute for allowable investments and custodial credit risk. The policy addresses custodial credit risk by giving the Director of Administrative Services for the Village the ability to deposit Village assets in F.D.I.C. insured institutions up to the combined state and F.D.I.C. insured amount. It also allows deposits to exceed the combined state and F.D.I.C. insured amounts if the amount over the insured limit is (1) 100% collateralized with securities that are obligations of the U.S. Government or its agencies that are fully guaranteed by the U.S. Government or 2) collateralized with a similar state approved alternative. The policy addresses credit risk by requiring the securities have a rating which is the highest or second highest rating category assigned by Standard & Poor's Corporation, Moody's Investor Service or similar nationally recognized rating agency or if that security is senior tom or on a parity with, a security of the same issuer which has such a rating. No policy exists for the following risks: Interest rate risk Concentration of credit risk Investments highly sensitive to interest rate changes Investments are stated at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair values are based on methods and inputs as outlined in Note III. A. No investments are reported at amortized cost. Adjustments necessary to record investments at fair value are recorded in the operating statement as increases or decreases in investment income. Investment income on commingled investments of municipal accounting funds is allocated based on average balances. The difference between the bank statement balance and carrying value is due to outstanding checks and/or deposits in transit. The Wisconsin Local Government Investment Pool (LGIP) is part of the State Investment Fund (SIF), and is managed by the State of Wisconsin Investment Board. The SIF is not registered with the Securities and Exchange Commission, but operates under the statutory authority of Wisconsin Chapter 25. The SIF reports the fair value of its underlying assets annually. Participants in the LGIP have the right to withdraw their funds in total on one day's notice. At December 31, 2016, the fair value of the village 's share of the LGIP's assets was substantially equal to the amount as reported in these statements. See Note III. A. for further information. 49