The URL can be used to link to this page

1996 02 14 IABT a • 4&J" 4 4a - 78-495 CALLE TAMPICO — LA QUINTA, CALIFORNIA 92253 - (619) 777-7000 FAX (619) 777-7101 INVESTMENT ADVISORY BOARD AGENDA Study Session Room 78-495 Calle Tampico- La Quinta, CA 92253 February 14, 1996 - 5:30 P.M. I CALL TO ORDER a. Pledge of Allegiance b. Roll Call II CONFIRMATION OF AGENDA III PUBLIC COMMENT -(This is the time set aside for public comment on any matter not scheduled on the agenda.) IV CONSENT CALENDAR A. Approval of Minutes of January 10, 1995. V BUSINESS SESSION A. Transmittal of Treasury Report for December 31, 1995. B. Selection of Broker/Dealer VI BOARD MEMBER COMMENTS VII INFORMATIONAL ITEMS A. Prudent Investor Act B. Review of Investment Policy C. CAFR Follow-up Answer on Miscellaneous Revenue D. California Municipal Treasurers Association (CMTA) Sponsored Investment Seminar in Palm Desert VII ADJOURNMENT MAILING ADDRESS - P.O. BOX 1504 - LA QUINTA, CALIFORNIA 92253 �� 2 OF TNT INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 BUSINESS SESSION: A ITEM TITLE Transmittal of Treasury Report for December 31, 1995 ISSUE AND DISCUSSION: Attached please find the Treasury Report for December 31, 1995. RECOMMENDATION: Review, Receive and File the Treasury Report for December 31, 1995. Approved for submission to the Investment Advisory Board: J hn M. Falcone Finance Director r-0 01;0 N�� c (n Nn tnrr D D � co-n_0 �Zni (n p n C CD (D CD CD CD Q Q Q 5 N .^�. N N m'I�co a �' oiCID 0CDDCID N d 2)X 0 r • w=�Ncm� S r'I 'CD (D �•;� S� (D (D tD 3 N N N v N D � N � N N 0 cc 3 3 rn 7 c Co oo ao = .. (D d 0 v CD m m N CD 1 p 7 j Cn m (D a. 0 m (D O c aa��I 7 �7 Z7 c n < to °'DpDDW 3 m (DDl ND-��j 'C A n I CL T-nm -n -n + -i -� ooW222 n D N ,. C y CD I CD o o mm'n U)cn a�� 0�CID C� (D c0ic�iaaa mm(D m o. miD <CDz �a q `c `Z u� d 0 0 0 -.(c Wcc CD I i I N N N N N N ?? _► ��l�oi A Ut C7t (T Cfl �I Cr CJI N W � V W N N W (DO-IAN Cn O 00 co 00 O Cn CD—y CA) -4 K)000 o (nLn oDD0D"� o 0 0 0 0 I 0 0 0 0 0 I M; CD00�� Cn(a Cnci 0 00 3 m d ma) ZZZZZ0o* cm w DDDDDI CLL CCIL a0 aaa �s C7D CA y W W CA) IOC h1 N N Cat 0 W W W ACT IW W W V-NaUtU�p C11CD. -4 mow-' t0000 W Ap W .a am-4 O CD co 'AN IAA I co W W 14 N N(DN��UW13 (p -N N Gn C.0 Oj-ICA� IV N 400 04, V v N C cm CYI W pf0'Qco 00 W w0to4 W - �N AA � 4O CA OOVow ! OOD(WDCND r'a O O O O O O O O w V N O O O O O O 0 0 i otooA01 (4 � b � COI O 0 K ? O COH O 0 0 O y o I o � 3 I D o y \ cn O D D of 'n 01 0, CD 0 O 300 Z CD c z 01C =r 0 CnD_=rso <I OCi� — — d 0 CD U; —� d D 0 CS �'I 3;o c e<D c (° � go D o � c -� (° � 90 A � a 0 � CID N y 3 N (1 ! N N I -C 3Iy �i �' < O < jo CD cD I a � o < 0 I -0 o� Ln (c G � m vi N N' a y o_ c CD D 061 � CD a a I I CID ! N I I (p (D D c 0 CD 77r (n (n nci(oS m c -- (n °c'�mta �. -n S?o —m -n t1 �Qccinoo o ! =cneD o00) _ j —< N y CD (wt O A c, W Co W O O W N to 0f V v 0 rLD y � c O DDDD"� p � 0 a too 0 (D CT Q i 0 d o ? c 4 CA CL 3m ZZZ3m DDDD� to D DDDDI6 D CT C71 C71 I O O co W (D 0-0 °' Coco00 d N � 3 O K n cn 0 , -0 S?o < CL CD cn (D I N 4-1 c cnpl,-n, No I* 00 ;a -1<E oor-OG)G)in �' d jC7 a I a a 6-a r: CL cc jC :y a I N p) Q 3 0 � -�► co cn 3 _. cu 'I 0 i n.' s 0� < co Qo c r X p� ' Q2� coc �n R � � I ��(D3CQo� cc �:3 i o CD :3 3 �* I � -n C? CD o 3 a o-� -n cn c T a CD I i I = CA � CL CL cn I I I I I � ! I I I I i J -4 OD O ! V D1AAW-ten, W W CD OD fl1 I OD NNW -co W Cr V O. CD OOA— NNa coA-4rn D -bbvCD00 co �� t7tICJ10 OO O O OUINNW WWWVOWO(D .-..-. A OcWOQjCO�I M A W Wo W 0 �71�OONNv�Cn:-40 w A,CDw W y 4 m a 2 N. G 3 Qo � uri 0 �o c 0 � C7 0 (1 Ul � 7' Qo R CD A ^�� 3 3 90 � W o� v rn CITY OF LA QUINTA CITY, CITY RDA RDA FA BALANCE SHEET 12/31/95 FIXED LONG TERM FIXED LONG TERM FINANCING LONG TERM GRAND CITY ASSETS DEBT RDA ASSETS DEBT AUTHORITY DEBT TOTAL ASSETS: POOLED CASH 10,192,302.48 4,197,967.80 14,390,270.28 LQHP CASH 22,093.08 22,093.08 BOND REDEMPTION CASH 300,076.91 4,441.82 304,518.73 BOND RESERVE CASH, 538,944.95 710,869.25 1,249,814.20 BOND PROJECT CASH 13,472,091.44 13,472,091.44 BOND ESCROW CASH 172,243.95 172,243.95 PETTY CASH 1,000.00 1,000.00 BANK OF THE DESERT M/M 9,730.22 9,730.22 ICMA DEFERRED COMPENSATION 332,304.17 332,304.17 CASH & INVESTMENT TOTAL 10,535,336.87 18,703,418.13 715,311.07 29,954,066.07 ACCOUNTS RECEIVABLE 257,857.15 87,526.34 345,383.49 LOAN/NOTES RECEIVABLE 67,120.00 67,120.00 DUE FROM OTHER AGENCIES (57,244.84) (57,244.84) DUE FROM OTHER GOVERNMENTS DUE FROM OTHER FUNDS 551,038.04 551,038.04 DUE FROM RDA 6,048,957.20 6,048,957.20 INTEREST ADVANCE -DUE FROM RDA 302,447.88 302,447.88 NSF CHECKS RECEIVABLE 776.59 776.59 ACCRUED REVENUE TRAVEL ADVANCES 2,065.64 2,065.64 EMPLOYEE ADVANCES PREPAID EXPENSES RECEIVABLE TOTAL 6,554,859.62 705,684.38 7,260,544.00 WORKER COMPENSATION DEPOSIT RENT DEPOSITS UTILITY DEPOSITS 75.00 75.00 MISC. DEPOSITS 2,000.00 2,000.00 DEPOSITS TOTAL 2,075.00 2,075.00 GENERAL FIXED ASSETS 15,893,519.00 5,879,910.05 21,773,429.05 AMOUNT AVAILABLE TO RETIRE L/T DEBT 2,340,653.00 2,340,653.00 AMOUNT TO BE PROVIDED FOR UT DEBT 309,279.00 70,289,985.04 8,360,000.00 78,959,264.04 TOTAL OTHER ASSETS 15,893,519.00 309,279.00 5,879,910.05 72,630,638.04 8,360,000.00 103,073,346.09 TOTAL ASSETS 17,092,271.49 15,893,519.00 309,279.00 19 409 102.51 5,879,910.05 72 630 638.04 715,311.07 8,360,000.00 140,290,031.16 LIABILITY ACCOUNTS PAYABLE DUE TO OTHER AGENCIES 32,809.86 32,809.86 DUE TO OTHER FUNDS 551,038.04 551,038.04 INTEREST ADVANCE -DUE TO CITY ACCRUED EXPENSES 12,272.60 386,764.00 399,036.60 PAYROLL LIABILITIES 34,222.84 34,222.84. STRONG MOTION INSTRUMENTS 1,768.62 1,768.62 FRINGE TOED LIZARD FEES 82,417.40 82,417.40 SUSPENSE (1,360.84) (1,360.84) DUE TO THE CITY OF LA QUINTA PAYABLES TOTAL 162,130.48 937,802.04 1,099,932.52 ENGINEERING TRUST DEPOSITS 42,654.16 42,654.16 SO. COAST AIR QUALITY DEPOSITS ARTS IN PUBLIC PLACES DEPOSITS 174,892.63 174,892.63 DEVELOPER DEPOSITS 153,306.90 153,306.90 MISC. DEPOSITS 10,366.62 10,366.62 AGENCY FUND DEPOSITS 847,448.35 847,448.35 ICMA-DEFERRED COMP DEPOSITS 332,304.17 332,304.17 TOTAL DEPOSITS 1,560,972.83 1,560,972.83 DEFERRED REVENUE OTHER LIABILITIES TOTAL COMPENSATED ABSENCES PAYABLE DUE TO THE CITY OF LA QUINTA NOTE DUE TO MURPHY, DALES, LANE DUE TO COUNTY OF RIVERSIDE DUE TO C.V. UNIFIED SCHOOL DISTRICT DUE TO DESERT SANDS SCHOOL DISTRIC BONDS PAYABLE TOTAL LONG TERM DEBT TOTAL LIABILITY EQUITY -FUND BALANCE TOTAL LIABILITY & EQUITY 1,723,103.31 15, 369,168.18 15, 893, 519.00 309,279.00 309,279.00 6,351,406.29 6,351,406.29 11,572,687.00 11, 572,687.00 12,271,884.75 12,271,884.75 1,904,660.00 1,904,660.00 40,530,000.00 8,360,000.00 48,890,000.00 309,279.00 72,630,638.04 8,360,000.00 81,299,917.04 309,279.00 937,802.04 72,630,638.04 8,360,000.00 83,960,822.39 18,471,300.47 5,879,910.05 715,311.07 56,329,208.77 17,092 271.49 15,893 519.00 309,279.00 19 409 102.51 5,879,910.05 72 630 638.04 715,311.07 8,360,000.00 140,290 031.16 5 u _ a fit• �� ..�� OF TNT INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 BUSINESS SESSION: B ITEM TITLE Selection of Broker/Dealer ISSUE AND DISCUSSION: The purpose of this staff memo is to report the efforts taken in selecting broker/dealers to serve the City of La Quinta. A Broker/Dealer Questionnaire was sent out to the firms listed below based upon the following criteria 1) firms that submitted requests to the City and 2) Investment Advisory Board recommendations. Broker/Dealer Questionnaires Mailed or Delivered: Bank of California, Los Angeles International Securities, Group, San Diego Merrill Lynch, Indian Wells Prudential Securities, Indian Wells Smith Barney, Palm Desert Wells Fargo Bank, Indian Wells In addition, to reviewing the questionnaire, staff also contacted the National Association of security Dealers (NASD) and State of California Corporations Department to disclose disciplinary actions that my have been taken and reviewed financial statement information. Staff has also visited the offices of the two firms, International Securities Group and Merrill Lynch. The results can be summarized as follows: ► Met requirements ► Did not meet requirements ► Declined to respond The results are as follows: Bank of California International Securities Group Merrill Lynch Prudential Securities Smith Barney Wells Fargo Bank - Did no meet requirements - Met requirements - Met requirements - Declined to respond - Declined to respond - Declined to respond The goal of staff was to have three broker/dealers to obtain quotes from when trading investments, however only two have met the requirements set forth in the broker/dealer questionnaire. Staff will continue to seek a third broker/dealer in the future, however we do not want to delay the diversification of the investment portfolio. The Investment Policy only requires two bids and I believe that the additional time needed to select another broker/dealer would not result in significant savings based upon the types of investments that will be purchased. The Investment Policy only requires that two bids be obtained. The Corporate Resolutions and Investor Agreement has been reviewed by the City Attorney and have been attached. RECOMMENDATION: Staff recommends that International Securities Group, San Diego and Merrill Lynch of Indian Wells be placed as broker/dealers of the Listing of Financial Institutions for the City of La Quinta. Approved for submission to the Investment Advisory Board: phn M. Falconer inance Director Merrill Lynch,Pierce Fenner & Smith, Inc. � _ a 00k�� OF TNT Public Funds Account Authorization to Trade TO: Merrill Lynch,Pierce Fenner & Smith, Inc. Dear Sirs: You are hereby authorized and empowered to open and maintain an account on your books in the name of PERMISSIBLE INVESTMENTS/DELAYED SETTLEMENTS I (We) certify the following "permissible investments", with related delayed settlements when indicated, to be those permitted by applicable law: AUTHORIZED PERSONS Any one of the following "authorized persons', to wit: (Name) (Name) (Name) (Title) is hereby authorized to give written or verbal instructions by telephone or telegraph or otherwise for the purchase, sale and settlement of transactions effected in the account. This authorization shall continue until written notice of amendment or revocation is received by you and, in the case of such amendment of revocation, it shall continue effective as to transactions entered into prior thereto. This authorization shall inure to the benefit of your successors or assigns, by merger, consolidation or otherwise. I(We) warrant that I (We) have the authority to execute this agreement. Dated: (Signature and Title of Authorized Individual) Dated: (Signature and Title of Authorized Individual) Form W-9 Request for Taxpayer Give form to the (Rev. March 1994) Identification Number and Certification requester. Do NOT Department of the Treasury send to the IRS. Internal Revenue Service Name (If joint names, list first and circle the name of the person or entity whose number you enter in Part I below. See instructions on page 2 if your name has changed.) I LBusiness name (Sole proprietors see instructions on page 2.) 0 0.0 0, Please check appropriate box: ❑ Individual/Sole proprietor Corporation Partnership ❑ Other ► -------------------------------- 0 Address (number, street, and apt. or suite no.) Requester's name and address (optional) m a City, state, and ZIP code Identification Number Enter your TIN in the appropriate box. For individuals, this is your social security number (SSN). For sole proprietors, see the instructions on page 2. For other entities, it is your employer identification number (EIN). If you do not have a number, see How To Get a TIN below. Note: If the account is in more than one name, see the chart on page 2 for guidelines on whose number to enter. Certification List account number(s) here (optional) Social security number OR - Employer identification number For Payees Exempt From Backup Withholding (See Part II instructions on page 2) Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. 1 am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service that 1 am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup, withholding. Cartification Instructions. —You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. (Also see Part III instructions on page 2.) Sign Here Signature ► Date ► Section references are to the Internal Revenue Code. Purpose of Form. —A person who is required to file an information return with the IRS must get your correct TIN to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. Use Form W-9 to give your correct TIN to the requester (the person requesting your TIN) and, when applicable, (1) to certify the TIN you are giving is correct (or you are waiting for a number to be issued), (2) to certify you are not subject to backup withholding, or (3) to claim exemption from backup withholding if you are an exempt payee. Giving your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. Note: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form if it is substantially similar to this Form W-9. What Is Backup Withholding? —Persons making certain payments to you must withhold and pay to the IRS 31 % of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding. If you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS tells the requester that you furnished an incorrect TIN, or 3. The IRS tells you that you are subject to backup withholding because you did not report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. See the Part III instructions for exceptions. Certain payees and payments are exempt from backup withholding and information reporting. See the Part II instructions and the separate Instructions for the Requester of Form W-9. How To Get a TIN. —If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Number Card (for individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. If you do not have a TIN, write "Applied For" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will then have 60 days to get a TIN and give it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN. Form W-9 (Rev. 3-94) International Securities Group CERTIFICATE OF CORPORATE SECRETARY Brokerage Account and Trading Resolutions , being the Secretary of duly organized and validly existing under the laws of , and having a principal place of business at (the "Corporation"), hereby certify that, at a meeting of the Board of Directors of the Corporation duly held on the day of , 19 , the following Resolutions were duly adopted and are now in full force and effect: Opening of Brokerage Account(s); Conducting Transactions RESOLVED, that the Corporation is hereby authorized and directed to establish and maintain one or more accounts (including margin accounts) (each, an "Account"), and to engage in any of the transactions hereinafter described, with or through, Bear, Stearns & Co. Inc., Bear, Stearns Securities Corp., or any of their now or hereafter existing affiliated entities (collectively, "Bear Stearns"), through an Account or otherwise. Bear Stearns is authorized to act as principal or agent in such transactions; Trading Authority RESOLVED, that the Corporation is hereby authorized and empowered to invest according to the attached adopted City Investment Policy. Authorized Officers/Agents RESOLVED, that each of the following officers or agents of the Corporation is hereby individually authorized for and on behalf of the Corporation (1) to give to and receive from Bear Stearns oral or written instructions, confirmations, notices or demands with respect to any Account or transaction; (2) to have complete authority at all times to bind the Corporation to the performance of any transaction or agreement, amendment or modification thereof, relating to any Account or transaction involving the Corporation; (3) to lend or borrow money or securities and to secure the repayment thereof with the property of the Corporation; (4) to pay in cash or by check or draft drawn upon the funds of the Corporation any sums required to be paid in connection with any Account or transaction; (5) to order the transfer or delivery of any securities, funds or other property to such officer or agent or to any other person; (6) to order the transfer of record of any securities, funds or other property to any name and to accept delivery of any securities, funds or other property; (7) to direct the sale or exercise of any rights with respect to any securities or other property; (8) to sign for and on behalf of the Corporation all releases, assignments, powers of attorney or other documents in connection with any Account or transaction; (9) to agree to any terms or conditions affecting any Account or transaction; (10) to endorse any securities or other property in order to pass title thereto (or to any interest therein); (11) to direct Bear Stearns to surrender any securities or other property for the purpose of effecting any exchange or conversion thereof or otherwise; (12) to appoint any other person or persons to do any and all things which such officer or agent is hereby empowered to do; and (13) generally, to take all such action as such officer or agent may deem necessary or desirable to implement or facilitate the trading activities authorized in the preceding Resolutions: Name of Officer/Agent Title/Firm Name Specimen Signature Effectiveness of Resolutions RESOLVED, that the foregoing Resolutions shall apply to all transactions and agreements between the Corporation and Bear Stearns, even if such transactions and agreements were entered into by the Corporation and Bear Stearns prior to the adoption of such Resolutions (which prior transactions and agreements with Bear Stearns are hereby ratified in all respects), shall supersede any prior resolutions dealing with the subject matter covered herein and shall remain in full force and effect in all respects until the close of business on the day after Bear Stearns receives written notice of the modification or revocation thereof at its offices located at 245 Park Avenue, New York, New York 10167, Attn: Director, Institutional Credit Department. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the Corporation to be affixed on this day of , 19 Secretary (CORPORATE SEAL) BEAR E R � RNS BEAR, STEARNS SECURITIES CORP. u� .� L/ u� ONE METROTECH CENTER NORTH BROOKLYN, NEW YORK 11201-3859 Customer Agreement (212) 2721000 PLEASE READ CAREFULLY, SIGN AND RETURN This agreement ("Agreement') sets forth the terms and conditions under which Bear, Steams Securities Corp., Bear, Steams & Co. Inc., and their successors and assigns (collectively "Bear Steams') will transact business with you including but not limited to the maintenance of your account(s). If these accounts are cash accounts and you have fully paid for all securities therein, the provisions of paragraphs 16 and 17 shall not bind you unless you enter into a margin transaction. 1. APPLICABLE LAW AND REGULATIONS. All trans- between or among any of you, your broker and its employees, and Bear actions shall be subject to all applicable law and the rules and regulations Steams and its employees. of all federal, state and self -regulatory agencies, including, but not limited 9. COSTS OF COLLECTION. You hereby authorize Bear to, the Board of Governors of the Federal Reserve System and the Stearns to charge you for any reasonable direct or indirect costs of collection, constitution, rules and customs of the exchange or market (and clearing including, but not limited to, attorneys' fees, court costs and other expense& house) where executed 10. IMPARTIAL LOTTERY ALLOCATION. You agree that, 2. SECURITY INTEREST AND LIEN. As security for the in the event Bear Steams holds on your behalf bonds or preferred stocks in payment of all of your obligations and liabilities to Bear Stearns, Bear street name or bearer form which are callable in part, you will participate Steams shall have a continuing security interest in all property in which in the impartial lottery allocation system of the called securities in accordance you have an interest held by or through Bear Steams or its affiliates, with the rules of the New York Stock Exchange, Inc. or any other appropriate including, but not limited to, securities, commodity futures contracts, self -regulatory organization. When any such call is favorable, no allocation commercial paper, monies and any after acquired property. In addition, in will be made to any account(s) in which Bear Steams has actual knowledge order to satisfy any such outstanding liabilities or obligations, Bear Stearns that its officers, directors or employees have any financial interest until all may, at any time and without prior notice to you, use, apply or transfer any other customers are satisfied on an impartial lottery basis. such securities or property interchangeably. In the event of a breach or 11. WAIVER, ASSIGNMENT AND NOTICES. Neither Bear default under this Agreement, Bear Steams shall have all rights and remedies Steams' failure to insist at any time upon strict compliance with this available to a secured creditor under any applicable law in addition to the Agreement or with any of the terms hereof nor any continued course of rights and remedies provided herein. such conduct on its part shall constitute or be considered a waiver by Bear 3. DEPOSITS ON TRANSACTIONS. Whenever Bear Steams, Steams of any of its rights or privileges hereunder. Any assignment of your in its sole discretion, considers it necessary for its protection, it may require rights and obligations hereunder or interest in any property held by or you to deposit cash or collateral immediately in your account(s) prior to through Bear Steams without obtaining the prior written consent of an any applicable settlement date in order to assure due performance of your authorized representative of Bear Steams shall be null and void. Notices or open contractual commitments. other communications, including margin calls, delivered or mailed to the 4. BREACH. BANKRUPTCY OR DEFAULT. Any breach of address provided by you, shall, until Bear Stearns has received notice in this Agreement or the filing of a petition or other proceeding in bankruptcy, writing of a different address, be deemed to have been personally delivered insolvency, or for the appointment of a receiver by or against you, the levy to you. of an attachment against your account(s) with Bear Steams, or your death, 12. FREE CREDIT BALANCES. You hereby direct Bear mental incompetence or dissolution, or any other grounds for insecurity, as Steams to use any free credit balance awaiting investment or reinvestment determined by Bear Steams in its sole discretion, shall constitute, at Bear in your account(s) in accordance with all applicable rules and regulations Stearns' election, a default by you under all agreements Bear Stearns may and to pay interest thereat at such rate or rates and under such conditions then have with you, whether heretofore or hereafter entered into. In the as are established from time to time by Bear Steams for such accounts(s) event of default, Bear Steams reserves the right to sell, without prior notice and for the amounts of cash so used. to you, any and all property in which you have an interest, held by or 13. RESTRICTIONS ON ACCOUNT. You understand that through Bear Steams or any of its affiliates, to buy any or all property which Bear Steams, in its sole discretion, may restrict or prohibit trading of may have been sold shorn, to cancel any or all outstanding transactions securities or other property in your account(s). and/or to purchase or sell any other securities or property to offset market 14. CREDIT INFORMATION AND INVESTIGATION. risk, and to offset any indebtedness you may have (either individually or You authorize Bear Stearns and your broker, in their discretion, to make jointly with others), after which you shall be liable to Bear Steams for any and obtain reports concerning your credit standing and business conduct. remaining deficiency, loss, costs or expenses sustained by Bear Steams in You may make a written request within a reasonable period of time for a connection therewith Such purchases and/or sales may be effected publicly description of the nature and scope of the reports made or obtained by Bear or nrivately without notice or advertisement in such manner as Bear Steams Steams may in its sole discretion determine. At any such sale or purchase, Bear Steams may purchase or sell the property free of any right of redemption. In addition, Bear Steams shall have the right to set off and apply any amount owing from Bear Steams or any of its affiliates to you against any indebtedness in your accounts, whether matured or untnat md. S. FEES AND CHARGES. You understand that Bear Stearns may charge corunissions and other fees for execution, custody or any other service furnished to you, and you agree to pay such commissions and fees at Bear Steams' then prevailing rates You understand further that such commissions and fees may be changed from time to time, upon thirty days' prior written notice to you, and you agree to be bound thereby. 6. TRANSACTION REPORTS AND ACCOUNT STATEl1IENTS. Reports of the execution of orders and statements of your account(s) shall be conclusive if not objected to in writing within five days in the case of reports of execution, and ten days in the case of account statements, after such documents have been transmitted to you by mail or otherwise. 7. DEBIT BALANCES/TRUTH-IN-LENDING. You hereby acknowledge receipt of Bear Stearns' Truth -in -Lending disclosure statement You understand that interest will be charged on any debit balances in your account(s), in accordance with the methods described in such statement or in any amendment or revision thereto which may be provided to you. Any debit balance which is not paid at the close of an interest period will be added to the opening balance for the next interest period. 8. CLEARANCE ACCOUNTS. Bear, Stearns Securities Corp. carries your account(s) as clearing agent for your broker. Unless Bear, Steams Securities Corp.. receives from you prior written notice to the contrary, Bear, Steams Securities Corp. may accept from such other broker, without any inquiry or investigation: (a) orders for the purchase or sale of securities and other property in your account(s) out margin or otherwise and (b) any other instructions concerning your account(s) or the property therein. You understand and agree that Bear Steams shall have no responsibility or liability to you for any acts or omissions of such broker, its officers, employees or agents. You agree that your broker and its employees are third -party beneficiaries of this Agreement, and that the terms and conditions hereof, including the arbitration provision, shall be applicable to all matters IS. SHORT AND LONG SALES. In placing any sell order for a short account, you will designate the order as such and hereby authorize Bear Steams to mark the order as being "short." In placing any sell order for a long account, you will designate the order as such and hereby authorize Bear Steams to mark the order as being "long." The designation of a sell order as being for a long account shall constitute a representation that you own the security with respect to which the order has been placed, that such security may be sold without restriction in the open market and that, if Bear Steams does not have the security in its possession at the time you place the order, you shall deliver the security by settlement date in good deliverable form or pay to Bear Stearns any losses or expenses incurred as a result of your failure to make delivery. 16. MARGIN ACCOUNTS. You hereby agree to deposit and maintain such margin in your margin account(s) as Bear Stearns may in its sole discretion require, and you agree to pay forthwith on demand any debit balance owing with respect to any of your margin account(s). Upon your failure to pay, or at any time Bear Steams, in its discretion, deems necessary for its protection, whether with or without prior demand, call or notice, Bear Stearns shall be entitled to exercise all rights and remedies provided in paragraphs 2 and 4 above. No demands, calls, tenders or notices that Bear Stearns may have made or given in the past in any one or more instances shall invalidate your waiver of the requirement to make or give the same in the future. Unless you advise Bear Stearns to the contrary, you represent that you are not an affiliate (as defined in Rule 144(a)(1) under the Securities Act of 1933) of the issuer of any security held in your account(s). 17. CONSENT TO LOAN OR PLEDGE OF SECURITIES. Within the limits of applicable law and regulations, you hereby authorize Bear Steams to lend either to itself or to others any securities held by Bear Stearns in your account(s), together with all attendant rights of ownership, and to use all such property as collateral for its general loans. Any such property, together with all attendant rights of ownership, may be pledged, repledged, hypothecated or rehypothecated either separately or in common with other such property for any amounts due to Bear Steams thereon or for a greater sum, and Bear Steams shall have no obligation to retain a like amount of similar property in its possession and control. nA nT 4 ^. tC%-r^S XCO n^nV �rT A 1u, rrnn V^1 IP) 1"fr/+I'�1"f r1C 18. LEGALLY BINDING. You hereby agree that this Agreement and all the terms hereof shall be binding upon you and your estate, heirs, executors, administrators, personal representatives, successors and assigns. You agree that all purchases and sales shall be for your account(s) in accordance with your oral or written instructions. You hereby waive any and all defenses that any such instruction was not in writing as may be required by the Statute of Frauds or any other similar law, rule or regulation. 19. AMENDMENT; ENTIRE AGREEMENT. You agree that Bear Steams may modify the terms of this Agreement at any time upon prior written notice. By continuing to accept services from Bear Steams, you will have indicated your acceptance of any such modifications. If you do not accept such modifications, you must notify Bear Steams in writing; your account may then be terminated by Bear Steams, after which you will remain liable to Bear Steams for all remaining liabilities or obligations. Otherwise, this Agreement may not be waived or modified absent a written instrument signed by an authorized representative of Bear Steams. Except as set forth above, this Agreement represents the entire agreement- and understanding between you and Bear Stearns concerning the subject matter hereof. 20. NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED, AND THE RIGHTS AND. LIABILITIES OF THE PARTIES DETERMINED; IN ACCORDANCE WITH THE LAW OF THE STATE 'Olt NEW YORK. 21. ARBITRATION. • ARBITRATION IS FINAL AND BINDING ON THE PARTIES. • THE PARTIES ARE WAIVING THEIR RIGHT` TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT- TO JURY TRIAL. • PRE -ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND- DUFFERENT--FROM -COURT PROCEEDINGS:. -THE ARBITRATORS' AWAIM' iS NOT REQUIRED - TO INCLUDE FACTUAL FINDINGS OR LEGAL- REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO' SEED MODIFICATION OF RULINGS BY' THE ARBII•TRATORS ' I9 STRICTLY LIMITED. • THE PANEL OF ARBITRATORSWILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS- WHO WERE ON ARE. AFFELIATED.—WITH-THESECIJRTIIES INDtNTRY. • NO PERSON SHALT: BRING k, PUTATTUTW OR CERTIFIED CLASS ACTION TO ARBITRATION, NOR' SEEM TO ENFORCE ANY PRE -DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO HAS 114T1gATEH IM COURT" A PUTATIVE CLASS ACTION OR WHO IS A MEMBER OF'A PUTATIVE CLASS WHO HAS NOT OF_rW OUT AF'THE CLASS WITH' RESPECT IWANY CLAIMg ENCOMPASSED BY THE PUTATIVE -CLASS-ACTION UNTH:: (i) THE CLASS CERTIFICATION E9 DENIED,•• * THE CLASS IS DECERTIFIED; OR-' - (iu) THE`CUSTONIER N EXCLUDED FROM -THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO'ARBTTRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER T M AGREEMENT EXCEPT TO THE EXTEND STATED HEREIN. YOU AGREE, AND BY MAINTAINING AN ACCOUNT FOR YOU BEAR STEARNS AGREES, THAT CONTROVERSIES. ARISING BETWEEN YOU AND BEAR STEARNS, ITS CONTROL PERSONS, PREDECESSORS, SUBSIDIARIES AND AFFILIATES AND ALL RESPECTIVE SUCCESSORS, ASSIGNS AND EMPLOYEES, WHETHER ARISING PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION. ANY ARBITRATION UNDER THIS -AGREEMENT SHALL BE HELD AT THE FACILITIES AND BEFORE AN ARBITRATION PANEL APPOINTED BY THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE, INC., OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (AND ONLY BEFORE SUCH EXCHANGES OR ASSOCIATION). YOU MAY ELECT ONE OF THE FOREGOING FORUMS FOR ARBITRATION, BUT' IF YOU FAIL TO MAKE SUCH ELECTION BY REGISTERED MAIL OR TELEGRAM ADDRESSED TO BEAR, STEARNS SECURITIES CORP. 245 PARK AVENUE, NEW YORK NEW YORK 10167, ATTENTION: CHIEF LEGAL OFFICER (OR ANY OTHER ADDRESS OF WHICH YOU ARE ADVISED IN WRITING), BEFORE THE EXPIRATION OF TEN DAYS AFTER RECEIPT OF A WRITTEN REQUEST FROM BEAR STEARNS TO MAKE SUCH ELECTION, THEN BEAR STEARNS MAY MAKE SUCH ELECTION. FOR ANY ARBITRATION SOLELY BETWEEN YOU AND A BROKER FOR WHICH BEAR STEARNS ACTS AS CLEARING AGENT, SUCH ELECTION- SHALL BE MADE BY REGISTERED MAIL TO SUCH BROKER AT ITS PRINCIPAL PLACE OF BUSEgESS. THE AWARD OF THE ARBITRATORS, OR' OF THE MAJORITY OF THEM, SHALL BE FINAL, AND JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY'E'OURT, STAT19!OR FEDERAI, HAVING JURISDICTION. 22. SEVERABILITY. If any provision herein is, or should become inconsistent with any present or future law, rule or regulation of any sovereign government or regulatory body having jurisdiction over the subject matter of this Agreement, such provision shall be deemed to be rescinded or. modified in accordance with any such ,law, rule or regulation. In all other respects, this Agreement shall continue to remain in full force and effect. 21 CAPACITY TO CONTRACT: CUSTOMER AFFILIATION. You, repoesertt that you are of legal age and that, unless you have notified Bear Stearns to the contrary, neither you nor any member of your immediate family is., an employee of any exchange .ormniber thereof, the National Association of Securities Dealers. Inc.: or a member themeof, or of any corppwon, firm or individual engaged in the business of dealing, as brokes or principal, in securities, options of futures,.or. of any bank, trust company. or insuimice company, 2W EXTRAORDINARY EVENTS, Bear Steams shall nor be liable for losses caused directly or urditectly, by government restrictions,. exchange, or mad= ruling%, suspmsiou. of erring, war, strikes or other comlitians beyond its controL 25.'FERADINGS. Tht• Headings of the- provisions hereof ate for descriptive purposes only and shall not rnodif) or qualify my_ of the tights or obligations set forth in sudr pwAsions, 26. TELEPHONE CONVERSATIONS. For the protection of both you�and Bear Steams, and as a tool to correct misunderstandings, you hereby authorize Bear Stearns at Bear Steams, discretion and without prior notice to you, to monitor and/or record any or all telephone conversations between you, Besi Stemns-and any of Bear Steams' employees or agents.. If this is a Joint Account, both patties must sign. Persons signing on, behalf of others should indicate the, titles or capacities in which they are signing.. BY SIGNING THIS AGREEMENT YOU ACKNOWLEDGE THAT: I. THE SECURITIES IN YOUR MARGIN ACCOUNT(S) AND ANY SECURITIES FOR WHICH YOU HAVE NOT FULLY PAID, TOGETHER WITH ALL ATTENDANT OWNERSHIP RIGHTS, MAY BE LOANED TO BEAR STEARNS OR LOANED OUT TO OTHERS; AND I YOU HAVE RECEIVED A COPY OF THIS AGREEMENT. THIS AGREEMENT CONTAINS A PRE -DISPUTE ARBITRATION CLAUSE AT PARAGRAPH 2L THL9 AGREEMENT DATED AS OF frypW or PeN—) X (s*MMI.r) (typed or Pe Yed Name) X (siguNhwe) , 191_ (Mrsneg Addnm) Accoant Nea Date: Accepted By: (Bear, sa mm Swuritln Corp.) Date: f- Z � _ a OF INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 INFORMATIONAL ITEM: A ITEM TITLE Prudent Investor Act ISSUE AND DISCUSSION: Attached please find a copy of the Prudent Investor Act for your review. At the time the agenda was mailed a written opinion from the City Attorney was not available as to the fiduciary responsibilities of the Investment Advisory Board. In my discussions with the City Attorney, she indicated that during a recent Brown Act Workshop this issued was discussed. If available, a written response from the City Attorney will be distributed at the meeting. Approved for submission to the Investment Advisory Board: v in M. Falconer ance Director PROBATE CODE Article 2.5 UNIFORM PRUDENT INVESTOR ACT Section 16045. Short title. 16046, Compliance; duty of trustee; exception; liability. 16047. Standard of care; investments and man- agement; considerations. 16048. Diversification; duty of trustee; excclp- tion. 16049. Review of assets; time for compliance. § 16046 Section 16050. Costs; incurrence. 16051. Compliance determinations; standards. 16052. Delegation of investment and management functions; standards of care; trustees and agents; liability; Jurisdicti011. 1(iUn3. Terms or language authorizing application of chapun.. 16054. Application of article; retroactivity. Ai-ticte 2.5 was added by Stats.1995, C. 63 (S.13-222), .tip 6, UNIFORM PRUDENT I;`vF.sTOR ACT Table of Juri.sdictian-s Wh-e,reen. Act Has Beev Adopted Jurisdiction Statutory Citation _ California ............... • . . • • • . • • • • •West's Ann,Cal,Probate Code, §§ 16045 to 16054. Colorado .................. • • • • . • • . • . • ....West's C.R.S.A. §§15-1.1-101 to 15--1.1--115. Florida .. • .. . ............. • ... .......... West's F.S.A. §§ 518.11, 51.8.112. Illinois .................... .. • ... • S.H.A. 760 ILCS 5/5, 5/5.1. 2. New Mexico..........•.•..••••••••••..II .NMSA 1978, §§ 45-7•-601 to 45-7-61 New York ............... • ...... • • • • • .... Mcl<inney's EPTL 11-2.3. 60 oki.St.Ann. §§ 175.60 to 175.72, Oklahoma ........... • U CA 1953 7 5 Utah...•........•...• ................... —7-302. Virginia ................. • Code 1.950, § 26--45.1. Washington West's RCWA 11.100.010 et seq. § 16045. Short title This article, together with subdivision (a) of Section 16002 and Section 1600.3, constitutes the prudent investor rule and may be cited as the Uniform Prudent Investor Act. (Added by Stats.1995, c. 63 (S.B.222), § 6.) Law Revision Commission Comments 1995 Addition ( Revised Comment) Section 16046 has the same purpose as Section 12 of the See also Section 2 (construction of prm isions drawn Uniform Prudent Investor Act (1994) promulgated by the from uniform ad�l, which is the same in substance as National Conference of Commissioners on Uniform State Section 11 of the 1'niforn; Trident Investor- Act (1994), Laws. Most of the substance of the uniform act is set. forth and Section 1'3 (.,cverability), which is the same ul soh in this article, but some rules already exist in other part,~ stance as Section 14 of the Uniform Prudent Investor Act of the Trust Law and are included within the short title by (1994). For a list of uniform acts in the Probate Cade, see specific reference. See Sections 16002(a) (duty of loyalty), Section 2 Comment. [25 Csil.L.Rev.Comm• Report. 543, 16t103 (duty to deal impartially with beneficiaries). Ei73 (1995)1 Historical and Statutory Notes Uniform Law: Sec' 7B Uniform Laws Annotated, Master F�dition or This section is similar to § 13 of the Uniform Prudent ULA Database on W'ESTLAW. Investor Act. § 16046. Compliance; duty of trustee; exception; liability (a) Except as provided in subdivision (b), a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule. (b) The settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument. A trustee is not liable to a beneficiary for the trustee's (rood faith reliance on these express provisions. (Added by Stats.1995, c. 63 (S.B.222), § 6.) Additions or changes Indicated by underline; deletions by asterisks 7 § 16046 PRORATE CODE Historical and Statutory Notes Uniform Law: See 7B Uniform Laws Annotated, Master Edition car This section is similar to § I of the Uniform Prudent t'LA Database on WESTLAW. Investor Act. § 16047. Standard of care; investments and management; considerations (a) A trustee shall invest and manage trust asset .=. as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. (h) A trust.ee's investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context Of the trust portfolio as a whole and as a part of arr overall investment strategy having risk and return oh.jectives reasonably suited to the trust. (c) Among circumstances that are appropriate to considclr in investing and managing trust assets are the following, to the extont relevant to the trust or its beneficiaries: (1) General economic conditions. (2) The possible effect of inflation or deflation. (3) The expected tax consequences of investment decisions or strategies, (l) They role that each investment or course of action plays within the overall trust portfolio. (5) The expected total return from income and Ow appreciation of capital. ((i) Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries. (7) Needs for liquidity, regularity of income, and preservation or appreciation of capital. (8) An asset's special relationship or special value, if' any, to the purposes of the trust or to one or more of the beneficiaries. (d) A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of trust assets. (e) A trustee may invest in any kind of property or type of investment or engage in any course of action or investment strategy consistent with the standards of this chapter. (Added by Stats.1995, c. 63 (5.13.2212), Historical and Statutory Notes Uniform Law: Soe 7B Uniform laws Annotated, _Master Edition or This section is similar to 5 2 of the Uniform Pnidcnt ULA Database on WESTLAW. lm-estor ;1ct. § 16048, Diversification; duty of trustee; exception In making and implementing investment decisions, the trustee has a duty to diversity .the investments of the trust unless, under the circumstances, it is pr-udent not to da so. (Added by 5tats.1995, c, 63 (5.13.222), § 6.) Historical and Statutory Notes Uniform Law: This section is similar to " 3 of the Uniform Prucic;nt Im,estor Act.. § 16049, Review of assets; time for compliance See 713 Uniform Laws Annotated, MastA!r Edition or UkA Database on W'ES;TLAW. Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust i.rssets and make and implement decisions concerning they retention and disposition of asset., in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of they trust, and with the requirements of this chapter. (ridded by St.ats.1995, c. 63 (S.B,222), § G ) Additions or changes indicated by underline; deletions by asterisks S ka } U S PROBATE CODE § 16052 Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16049 is the same as Section 4 of the Uniform rule in former Section 16008 (6.,position of improper Prudent Investor Act (1994). For related duties, see Sec- investment,` and retention of property in furthenmee of p trust purposes). [d. lions 16000 (duty to administer trust on acceptance), `�5 Ca1,L.iiev.Comm, Ileperts r`��1:3, 673 16006 (duty to take control of and preserve trust proper- (1995)1 ty). This section, along with Section 16048, supersedes the i Historical and Statutory Notes See 7B Uniform Laws Annotated, Master Edition or Uniform Law: This section is similar to § 4 of the Uniform Prudent iJLA Database on WESTLAW. Investor Act. § 16050. Costs; incurrence ropriato and In investing and managing trust assets, a trustee may only ly incur osts ats thatotheare ircunptances of the reasonable in relation to the assets, overall investment strategy,purposes, trust. (Added by Stats.1995, c. 63 (S.B.222), § 6.) Historical and Statutory Notes Uniform Law: See 7B Uniform Laws Annotated, Master F(Iltion or This section is similar to § 7 of the Uniform Prudent ULA Database on WESTLAW. Investor Act. § 16051, Compliance determinations; standards • _ Compliance with the prudent investor rule is determined in light of the facts and circumstances existing ; at the time of a trustee's decision or action and not by hindsight. (Added by Stats.1995, c. 63 (S.B.222), § 6.) Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16051 is the same as Section 8 of the Uniform trustee liability, see Sections 16440-16465, Investor Act (1994). See also Section 16045 (pru- comm. Reports `y13, 673 (1995)1dent Prudent investor rule defined). For related rules governingV i .H Historical and Statutory Notes See 7B Uniform Laws Annotated, Master h:dition or Uniform Law: This section is similar to § 8 of the Uniform Prudent ULA Database on WESTLAW. Investor Act. § 16052. Delegation of investment and management functions; standards of care; trustees and 1 agents; liability; jurisdiction (a) A trustee may delegate investment and management functions as prudent under the circumstances. The trustee shall exercise prudence in the following: (1) Selecting an agent. (2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust. (3) Periodically reviewing the agent's overall performance and compliance with the terms of the delegation. (b) ti performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation. (c) Except as otherwise provided in Section 16401, a trustee who complies with the requu ements of subdivision (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated. Additions or changes indicated by underline; deletions by asterisks 9 f § 16052 PROBATE COM' (d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the lay% of this state, an agent suhinit.s to th4s jurisdiction of the courts of this state. (Added by Stats.1995, c. 63 (S.I3.222), § G.) Historical and Statutory Notes Uniform Law: See 7B Uniform Laws Annotated, Master Eclitfon r This section is similar to § 9 of the Uniform Prudent, ULA Database on WESTLAW. Investor Act, 16053. Terms or language authorizing application of chapter The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment, or strategy permitted under this chapter: "investments permissihlc, by law for investment of trust funds," "legal investments," "authorized investments," "using the judlrinent and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to Ow permanent disposition of their funds, considering the probable income as well as the probable safety (A' their capital," "prudent nlan rule," "prudent trustee rule," "prudent person rule," and "prudent investor rifle." (Added by Stats.1995, c. 63 (S.13.222), § fi.) Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16o53 is the same as Section 10 of the Uniform (prudent investor rule defined). i25 Cal.L.ReV.t`ornln. !'rodent Investor Act (1994) and restate;; fwiner Section Reports 543, 673 (1995)1 100,12 without substantive change. See also Section 1604,5 historical and Statutory Notes Uniform Law: See 713 Uniform Laws Annotated, Master Edition ,r This section is similar to 10 of the t.Jniform Prudent LILA Datahase on WESTLAW. Investor Act. 16054, Application of article; retroactivity This article applies to trusts existing on and created after its effective date. As applied to trusts eusting on its effective date, this article governs only decisions or actions ocew-ring after that elate. (Added by Stats.1995, c. 63 (S.13.222), § 6.) Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16051 is the. same as Section 11 of the Uniform the general transitional provisions in Section 3: [25 Cal. Prudent Investor Act (1994) and is a specific application of L.Rev.Comm. Reports 543, 673 (1995)) Historical and Statutory Notes Uniform Law: See 713 Uniform Laws Annotated, Master Edition or This section is similar to § 11 of the Uniform Prudent. ULA Database on WESTLAW. Investor• Act. § 16052 PROBATE CODE (d) liy accepting; the delegation of a trust function from the trustee of a trust that is subject to the laic of this state, an agt(,nt suinnitss to th(: jurisdiction of the courts of this state. (Melded by Stats.1995, c. 63 (S.B.222), § (i.) Historical and Statutory Notes Uniform Law: See 713 Uniform Laws Annotated, Master Edition or This section is similar to § 9 of the Uniform Pnrdent ULA Database on WESTLAW. I rwestor Act. § 16053. Terms or language authorizing application of chapter The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment or strategy permitted under this chapter: "investments permissible by law for investment of trust funds," "legal investments," "authorized investments," "using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital," "prudent man rule," "prudent trustee rule," "prudent person rule," and "prudent investur Vile." (Added by Stats.1995, C. 63 (S.B.222), § h.) Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16053 is the same as Section 10 of the Uniform (prudent investor rule defined). 125 Cal.L.Kev.Comm. Prudent Investor Act (1994) and restates former Section Reports 543, 673 (1995)) 16042 without substantive change. See also Section 16045 Historical and Statutory Notes See 713 Uniform Laws Annotated, Master Edition or Uniform Law: This section is similar to § 10 of the Uniform I'nrdent ULA Database an WESTLAW. Investor Act. § 16054. Application of article; retroactivity This article applies to trusts e.dsting on and created after its effective date. As applied to trusts existing on its effective date, this article governs only decisions or actions occurring after that elate. (Added by Stats.1995, C. 63 (S.B.222), § 6.) Law Revision Commission Comments 1995 Addition (Revised Comment) Section 16054 is the same as Section 11 of the Uniform the general transitional provisions in Section 3. (25 Cal. Prudent Investor Act (1994) and is a specific application of L.Rev.Comm. Reports 543, 673 (1995)1 Historical and Statutory Notes Uniform Law: See 713 Uniform Laws Annotated, Master Edition or This section is similar to § 11 of the Uniform Prudent ULA Database on WESTLAW. Investor Act F GZ U - `y OF TNT INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 INFORMATIONAL ITEMS: B ITEM TITLE Review of Investment Policy ISSUE AND DISCUSSION: Attached please find an initial draft of the Investment Policies of the City of La Quinta. This is required as of January 1, 1996 and is scheduled to be performed by June of each year. The review was performed to accomplish the following: Updating the policies based upon recent legislation; Updating the policies based upon the auditors comments; Updating the policies based upon Staffs recommendation. The City Manager and City Attorney have also received a copy of this draft document. RECOMMENDATION: At this time, Staff is requesting that the Investment Advisory Board commence discussion on updating the City of La Quinta Investment Policies. Approved for submissjpn to the Investment Advisory Board: n M. Falconer ince Director CITY OF LA QUINTA Investment Policies Table of Contents Section Topic Page I General Purpose 2 II Investment Policy 2 III Scope 2 IV Objectives 3 ► Safety ► Liquidity ► Yield V Prudence 4 VI Delegation of Authority 4 VII Conflict of Interest 4 VIII Authorized Financial Dealers and Institutions 5 ► Broker/Dealers ► Financial Institutions IX Authorized Investments and Diversification 6 X Investment Pools 8 XI Collateralization 8 XII Safekeeping and Custody 9 XIII Interest Earning Distribution Policy 9 XIV Maximum Maturities 9 XV Internal Controls 10 XVI Performance Standards 11 XVII Reporting Standards 11 XVIII Investment of Bond Proceeds 12 XIX Investment Advisory Board - City of La Quinta 12 XX Investment Policy Adoption 12 Appendices Municipal Code Ordinance 2.70 - Investment Advisory Board 13 Municipal Code Ordinance 3.08 - Investment of Moneys and Funds 14 Listing of Approved Financial Institutions 16 Broker/Dealer Questionnaire and Certification 17 Investment Pool Questionnaire 21 Segregation of Major Investment Responsibilities 25 Glossary 26 1 City of La Quinta Statement of Investment Policy July 1, 1996 through June 30, 1997 Adopted by the City Council on GENERAL PURPOSE The general purpose of this document is to provide the rules and standards users must follow in administering the City of La Quinta cash investments. II INVESTMENT POLICY It is the policy of the City of La Quinta to invest public funds in a manner which will provide a diversified portfolio with the highest investment return and the maximum security while meeting daily cash flow demands. In addition, the Investment Policy will conform to all State and local statutes governing the investment of public funds. III SCOPE This Investment Policy applies to all cash and investments of the City of La Quinta, City of La Quinta Redevelopment Agency and the City of La Quinta Financing Authority, hereafter referred in this document as the "City". These funds are reported in the City of La Quinta Comprehensive Annual financial Report (CAFR) and include: All funds within the following fund types: ► General to. Special Revenue ► Capital Project ► Debt Service ► Internal Service ► Trust and Agency ► Any new fund types and fund(s) that may be created. 2 IV OBJECTIVES The primary objective, in order of priority, of the City of La Quinta's investment activity shall be: 1. Safety Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. A. Credit Risk Credit Risk - is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: ► Limiting investments to the safest types of securities; ► Pre -qualifying the financial institutions, and broker/dealers, which the City of La Quinta will do business; and ► Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest Rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: ► Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and ► By investing operating funds primarily in shorter -term securities. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore since all possible cash demands cannot be anticipated the portfolio should consist of securities with active secondary or resale markets. 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to 3 relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions: A declining credit security could be sold early to minimize loss of principal; A security swap would improve the quality, yield, or target duration in the portfolio; or ► Liquidity needs of the portfolio require that the security be sold. V PRUDENCE Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control; and adverse developments. VI DELEGATION OF AUTHORITY Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include reference to safekeeping, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this Investment Policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The City Manager or designee shall approve in writing all purchases and sales of investments prior to their execution by the City Treasurer. VII CONFLICT OF INTEREST Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance of improper influence. Therefore, the City Manager or designee, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: 51 All persons authorized to place or approve investments shall not personally or through a close relative maintain any accounts, interest, or private dealings with any firm with the City places investments, with the exception of regular savings, checking and money market accounts, or other similar transactions that are offered on a non-negotiable basis to the general public. Such accounts shall be disclosed annually to the City Clerk in conjunction with annual disclosure statements of economic interest. All persons authorized to place or approve investments shall report to the City Clerk kinship relations with principal employees of firms with which the City places investments. VIII AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City of La Quinta maintains a listing of financial institutions which are approved for investment purposes. In addition a list will also be maintained of approved broker/dealers selected by credit worthiness, who maintain an office in the State of California. 1. Broker/Dealers who desire to become bidders for investment transactions must supply the City of La Quinta with the following: ► Current audited financial statements ► Proof of National Association of Security Dealers Certification ► Trading resolution ► Proof of California registration ► Resume of Financial broker ► Completion of the City of La Quinta Broker/Dealer questionnaire which contains a certification of having read the City of La Quinta Investment Policy The City Treasurer shall evaluate the documentation submitted by the broker/dealer and independently verify existing reports on file for any firm and individual conducting investment related business. The City Treasurer will also contact the following agencies during the verification process: ► National Association of Security Dealer's Public Disclosure Report File - 1-800-289- 9999 State of California Corporations Section 1-916-445-3062 All Broker/Dealers selected by the City Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The City Attorney will perform a legal review of the trading resolution/investment contract submitted by each Broker/Dealer. 2. Financial Institutions will be required to meet the following criteria in order to receive City funds for investment: A. Insurance - Public Funds shall be deposited only in financial institutions insured by the Federal Deposit Insurance Corporation B. Collateral - The amount of City of La Quinta deposits or investments not insured by agency of the federal government shall be 100% collateralized by securities' or 150% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Size - The amount of City of La Quinta deposits or investments must be collateralized or insured by an agency of the federal government. D. Disclosure i) Each financial institution maintaining invested funds in excess of $100,000 shall furnish corporate authorities a copy of all statements of resources and liabilities which it is required to furnish to the State banking or savings and loan commissioners as required by the California Financial Code. The City shall not invest in excess of $100,000 in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. ii) Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S. Treasury Department regulations. Each mutual fund shall provide a prospectus and statement of additional information. IX AUTHORIZED INVESTMENTS AND DIVERSIFICATION The City Treasurer will be permitted to invest in the following types of investments subject to the maximum percentage compliance limits and bid process requirements: Bid Process Maximum Tyne of Investments 1 85% Savings accounts and other time accounts insured by the Federal Deposit Insurance Corporation. 2 60% Certificate of Deposits, limited to $99,000. with interest earnings paid monthly, and insured by the FDIC. 3 75% U.S. Treasury Bills, Strips, Notes and Bonds; 75% U.S. Government Securities and Federal Government Securities (except any collateralized mortgage obligation (CMO) derivative product) as follows: Government National Mortgage Association (GNMA) Federal National Mortgage Association (FNMA) Federal Home Loan Bank Notes & Bonds (FHLB) Federal Land Bank Bonds (FLB) Federal Farm Credit Bank (FFCB) Federal Intermediate Credit Bank Debenture (FICB) Federal Home Loan Mortgage Corporation (FHLMC) No one Federal Agency Obligation of one specific entity can exceed 25% of the portfolio. 3 40% Bankers Acceptances - not exceeding 270 days 3 30% Prime Commercial Paper - not exceeding 180 days and must beA-1, P-1 4 Repurchase Agreements 5 90% Local Agency Investment Fund (LAIF) 6 60% Money market mutual funds regulated by the Securities and exchange Commission and whose portfolios consist only of US Agency Securities maintaining a par value per share of $1. 7 N/A Investment Agreements for bond proceeds and/or reserve funds. Bid Process 1. Periodically conduct a bid process at least every four (4) years or sooner if considered necessary for banking and/or custodian services. Since banking services and custodian services are so closely related it is anticipated that the bid process would include the scope of both services. 2. The financial institutions can be either state or federally chartered, must be located in the State of California and must be insured by the Federal Deposit Insurance Corporation (FDIC). 3. At least two bids from broker/dealers that qualify under Securities and Exchange Commission Rule 150-1 listed on the Listing of Approved Financial Institutions in the appendices 4. Repurchase Agreements can only be executed with financial institutions or broker/dealers that have signed a Master Repurchase Agreement with the City and are listed on the Listing of Approved Institutions. 5. Completion of Investment Pool Questionnaire and City Council Approval. 6. Money Market mutual funds must comply with Government Code Section 53601(k). The mutual funds must be rated Triple A by at least two (2) of the three (3) top rating agencies; 7 must be registered by the SEC and must include marking the portfolio to market daily. 7. A formal bid process must be administered with at least three responses received. Investment Agreements must also meet the approval of all bond covenants and bond insurers requirements. X INVESTMENT POOLS There are three (3) types of investment pools: 1) state -run pools, 2) pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee i.e. County Pool; and 3) pools that are operated for profit by third parties. The City of La Quinta has an investment with the State of California's Treasurers Office Local Agency Investment Fund commonly referred to as LAIF. LAIF was organized in 1977 through State Legislation Section 16429.1, 2 and 3. Each LAIF account is restricted to a maximum investable limit of $20 million. On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to LAIF. Also, prior to opening any new Investment Pool account, which would require City Council approval, the City Treasurer will require the completion of the Investment Pool Questionnaire. The City does not have an investment with any other Investment Pool - County Pools or Third Party Pools. XI COLLATERALIZATION Collateralization will be required for two types of investments: Certificates of Deposit and Repurchase Agreements. The type of collateral is limited to City authorized investments. 1. Certificates of Deposits under $100,000. The City Treasurer may waive collateralization of a deposit that is federally insured. 2. Certificates of Deposit over $100,000. The amount not federally insured shall be 110% collateralized by securities or 150% mortgages market value of that amount of invested funds plus unpaid interest earnings. 3. Repurchase Agreements In order to anticipate market changes and provide a level of security the collateralization level will be 102% of market value of principal and accrued interest. Collateral will always be held by an independent third party with whom the City of La Quinta has a current custodial agreement. Evidence of ownership must be supplied to the City of La Quinta and retained by the City Treasurer. 0 XII SAFEKEEPING AND CUSTODY All security transactions except for repurchase agreements as discussed below, of the City of La Quinta shall be conducted on a delivery - versus - payment (DVP) basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by safekeeping receipts. 1. Repurchase Agreements of greater than 14 days - The City must take delivery of the securities, as listed in the authorized investments and diversification section, or have required collateralized securities in a restricted account located at the Federal Reserve Bank. 2. Repurchase Agreements of 14 days or less - Securities as listed in the authorized investment and diversification section shall be held in safekeeping by a banker or broker in a designated trust department. XIII INTEREST EARNING DISTRIBUTION POLICY Interest earnings is generated from pooled investments and specific investments. 1. Pooled Investments - It is the general policy of the City to pool all available operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta Financing Authority and allocate interest earnings, in the following order, as follows: A. Payment to the General Fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. B. Payment to the General Fund of a management fee equal to 5% of the annual pooled cash fund investment earnings. C. Payment to each fund of an amount based on the average computerized daily cash balance included in the common portfolio for the earning period. 2. Specific Investments - Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. XIV MAXIMUM MATURITIES The City of La Quinta shall adhere to Government Code State Statutes, which require each individual investment to have a maximum maturity of five ,Years unless specific approval is authorized by the City Council. X XV INTERNAL CONTROLS The City Treasurer shall establish a system of internal controls to accomplish the following objectives: ► Safeguard assets; ► The orderly and efficient conduct of its business, including adherence to management policies; ► Prevention or detection of errors and fraud; ► The accuracy and completeness of accounting records; and, ► Timely preparation of reliable financial information. While no internal control system, however elaborate, can guarantee absolute assurance that the City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable assurance that management of the investment function meets the City's objectives. The internal controls shall address the following: a. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. b. Separation of transaction authority from accounting and record keeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. C. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping. d. Avoidance of physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. e. Clear delegation of authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions . and their respective responsibilities as outlined in the Segregation of Major Investment Responsibilities appendices. f. Written confirmation or telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. 10 g. Development of a wire transfer agreement with the City's bank and third party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. In addition to the System of Internal Controls developed by the City, the Internal Controls shall be reviewed annually by the independent auditor. The independent auditors management letter comments pertaining to cash and investments, if any, shall be directed to the City Manager who will direct the City Treasurer to provide a written response to the independent auditors letter. This response will also be directed to the City's Investment Advisory Board for their action. XVI PERFORMANCE STANDARDS The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the investment risk constraints and the cash flow needs of the City. 1. Benchmark The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. XVII REPORTING STANDARDS SB564 section 3 requires a quarterly report to the Legislative Body of Investment activities. The City of La Quinta has elected to report the investment activities to the City Council on a monthly basis through the Treasurers Report. The City Treasurer shall submit a monthly Treasurers Report to the City Council and the Investment Advisory Board that includes all investments under the authority of the Treasurer. The Treasurers Report shall consist of a narrative of significant changes in cash balances and the following: ►, Changes in investments from the previous month; ► A certification statement from the City Treasurer; ► Purchases and sales of investments; ► Cost to market value comparisons of all investments by authorized investment category; ► Comparison of actual holdings to Investment Policy maximums; ► Twenty four (24) months history of cash and investments for trend analysis; ► Balance Sheet. 11 XVIII INVESTMENT OF BOND PROCEEDS The City's investment policy shall govern bond proceeds and bond reserve fund investments. California Code Section 5922 (d) governs the investment of bond proceeds and reserve funds in accordance with bond indenture provisions which shall be structured in accordance with the City's investment policy. Arbitrage Requirement The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations as required and return excess earnings to the US Treasury from investments of proceeds of bond issues sold after the effective date of this law. This arbitrage calculations may be contracted with an outside source to provide the necessary technical assistance to comply with this regulation. Investible funds subject to the 1986 Tax Reform Act will be kept segregated from other funds and records will be kept in a fashion to facilitate the calculations. The City's investment position relative to the new arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It is a fiscally sound position to continue maximization of yield and to rebate excess earnings, if necessary. XIX INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA The Investment Advisory Board (IAB) consists of seven members of the community that have been appointed by and report to the City Council. The IAB meets on a monthly basis to 1) review account statements and verifications to ensure accurate reporting 2) monitor compliance with existing Investment Policy and Procedures and 3) review investment contracts and investment consultants. The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory Board Provisions. XX INVESTMENT POLICY ADOPTION The Investment Policies shall be adopted by resolution of the City of La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. The Investment Policies will be reviewed and revisions, if any, proposed by the Investment Advisory Board, City Manager, City Treasurer, and City Attorney. 12 Chapter 2.70 INVESTMENT ADVISORY BOARD PROVISIONS Sections: 2.70.010 General Rules Regarding Appointment and Terms. 2.70.020 Board meetings and compensation. 2.70.030 Board functions. 2.70.010 General rules regarding appointment and terms. Except as set out below, see Chapter 2.06 for General Provisions. The Investment Advisory Board (the "board") is a standing board composed of seven (7) members from the public that are appointed by city council. La Quinta residency is preferred, but not a requirement for board members. Recruitment for members may be advertised outside of the city". Background in the investment field and/or related experience is preferred. Background information will be required and potential candidates must agree to a background check and verification. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at any time if a change in circumstances warrants, each board member will provide the City Council with a disclosure statement which identifies any matters on the board. Such matters may include, but are not limited to, changes in employment, changes in residence, or changes in clients. The Board members will serve for two year staggered terms beginning on July 1 of every other year, commencing July 1, 1993. Initially, two members will be appointed for two year terms and three members will be appointed for one year terms. These initial appointments will start their yearly calculations from July 1, 1993. 2.70.020 Board meetings and compensation. Board members will be reimbursed for meeting and related expenses at an amount of fifty dollars ($50) per meeting. Initially, the Board should meet once a month, but this schedule may be extended to quarterly meetings upon the concurrence of the Board and the City Council. The specific meeting dates will be determined by the Board members and meetings may be called for on an as needed basis. 2.70.030 Board functions. The Board will annually elect a Chairperson and Vice -chairperson at the first meeting held after each June 30. The following are functions of the Board that are to be addressed at each meeting: (I) review account statements and verifications to ensure accurate reporting as they relate to an investment activity; (ii) monitor compliance with existing Investment policy and procedures; and (iii) review and make investment contracts, and investment consultants. The Board will report to City council after each meeting either in person or through correspondence at a regular City Council meeting. 13 Chapter 3.08 INVESTMENT OF MONEYS AND FUNDS Sections: 3.08.010 Investment of city moneys and deposit of securities. 3.08.020 Authorized investments. 3.08.030 Sales of securities. 3.08.040 City bonds. 3.08.050 Reports. 3.08.060 Deposits of securities. 3.08.070 Trust fund administration. 3.08.010 Investment of city moneys and deposit of securities. Pursuant to, and in accordance with, and to the extent allowed by, Sections 53607 and 53608 of the Government Code, the authority to invest and reinvest moneys of the city, to sell or exchange securities, and to deposit them and provide for their safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982) 3.08.020 Authorized investments. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to purchase, at their original sale or after they have been issued, securities which are permissible investments under any provision of state law relating to the investing of general city funds, including but not limited to Sections 53601 and 53635 of the Government Code, as said sections now read or may hereafter be amended, from moneys in his custody which are not required for the immediate necessities of the city and as he may deem wise and expedient, and to sell or exchange for other eligible securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part), 1982) 3.08.030 Sales of Securities. From time to time the city treasurer shall sell the securities in which city moneys have been invested pursuant to this chapter, so that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. (Ord. 2 § 1(part), 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be canceled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be resold. (Ord. 2 § 1 (part), 1982) 3.08.050 Reports. The city treasurer shall make a monthly report to the city council of all investments made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982) 3.08.060 Deposits of securities. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to deposit for 14 safekeeping, the securities in which city moneys have been invested pursuant to this chapter, in any institution or depository authorized by the terms of any state law, including but not limited to Section 53608 of the Government Code as it now reads or may hereafter be amended. In accordance with said section, the city treasurer shall take from the institution or depository a receipt for the securities so deposited and shall not be responsible for the securities delivered to and receipted for by the institution or depository until they are withdrawn therefrom by the city treasurer. (Ord. 2 § 1 (part), 1982 3.08.070 Trust fund administration. Any departmental trust fund established by the city council pursuant to Section 36523 of the Government Code shall be administered by the city treasurer in accordance with Section 36523 and 26524 of the Government code and any other applicable provisions of law. (Ord. 2 § 1 (part), 1982) . 15 LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services - First Interstate Bank 2. Custodian Services - First Interstate Bank Institutional Trust Services 3. Deferred Compensation - International City/County Management Association Retirement Corporation 4. Broker/Dealer Services - 5. Government Pool - State of California Local Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency 6. Bond Trustees - 1991 City Hall Revenue Bonds - First Trust 1991 RDA Project Area 1 - First Trust 1992 RDA Project Area 2 - First Interstate Bank 1994 RDA Project Area 1 - First Trust 1995 RDA Project Area 1 & 2 - First Interstate Bank No Changes to this listing may be made without City Council approval. 16 BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1. Name of Firm: 2. Address: 3. Telephone: 4. Broker's Representative to the City (attach resume): Name: Title: Telephone: (_) 5. Manager/Partner-in-charge (attach resume): Name: Title: Telephone: 6. List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Title: Telephone: 7. Which of the above personnel have read the City's investment policy? 8. Which instruments are offered regularly by your local office? (Must equal 100%) % U.S. Treasuries % BA's % Commercial Paper % CD's % Mutual Funds % Agencies (specify): 17 % Repos % Reverse Repos CMO's Derivatives Stocks/Equities Other (specify): 9. References -- Please identify your most directly comparable public sector clients in our geographical area. Entity Contact Telephone (� Client Since Entity Contact Telephone (� Client Since 10. Have any of your clients ever sustained a loss on a securities transaction arising from a misunderstanding or misrepresentation of the risk characteristics of the instrument? If so, explain. 11. Has your firm or your local office ever been subject to a regulatory or state/federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees been so investigated? If so, explain. 12. Has a client ever claimed in writing that y�Qu were responsible for an investment loss? Yes No If yes, please provide action taken Has a client ever claimed in writing that your firm was responsible for an investment loss? Yes No If yes, please provide action taken Do Xou have any current, or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken Does your firm have any current, or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken 18 13. Explain your clearing and safekeeping procedures, custody and delivery process. Who audits these fiduciary responsibilities? Latest Audit Report Date 14. How many and what percentage of your transactions failed. Last month? % $ Last year? % $ 15. Describe the method your firm would use to establish capital trading limits for the City of La Quinta. 16. Is your firm a member in the S.I.P.C. insurance program. Yes If yes, explain primary and excess coverage and carriers. 17. What portfolio information, if any, do you require from your clients?, No 18. What reports and transaction confirmations or any other research publications will the City receive? 19. Does your firm offer investment training to your clients? Yes No 20. Does your firm have professional liability insurance. Yes No If yes, please provide the insurance carrier, limits and expiration date.. 21. Please list your NASD Registration Number 19 22. Do you have any relatives who work at the City of La Quinta? Yes If yes, Name and Department 23. Do you maintain an office in California. Yes No No 24. Do you maintain an office in La Quinta or Riverside County? Yes No 25. Please enclose the following: • Latest audited financial statements. • Samples of reports, transaction confirmations and any other research/publications the City will receive. • Samples of research reports and/or publications that your firm regularly provides toclients. • Complete schedule of fees and charges for various transactions. ***CERTIFICATION*** I hereby certify that I have personally read the Statement of Investment Policy of the City of La Quinta, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of La Quinta. All sales personnel will be routinely informed of the City's investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so advised by the City. We pledge to exercise due diligence in informing the City of La Quinta of all foreseeable risks associated with financial transactions conducted with our firm. By signing this document the City of La Quinta is authorized to conduct any and all background checks. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge. Broker Representative Title Sales Manager and/or Managing Partner* Title 20 Date Date INVESTMENT POOL QUESTIONNAIRE Note: This Investment Pool Questionnaire was developed by the Government Finance Officers Association (GFOA). Prior to entering a pool, the following questions and issues should be considered. SECURITIES Government pools may invest in a broader range of securities than your entity invests in. It is important that you are aware of, and are comfortable with, the securities the pool buys. 1. Does the pool provide a written statement of investment policy and objectives? 2. Does the statement contain: a. A description of eligible investment instruments? b. The credit standards for investments? c. The allowable maturity range of investments? d. The maximum allowable dollar weighted average portfolio maturity? e. The limits of portfolio concentration permitted for each type of security? f. The policy on reverse repurchase agreements, options, short sales and futures? 3. Are changes in the policies communicated to the pool participants? 4. Does the pool contain only the types of securities that are permitted by your investment policy? INTEREST Interest is not reported in a standard format, so it is important that you know how interest is quoted, calculated and distributed so that you can make comparisons with other investment alternatives. Interest Calculations 1. Does the pool disclose the following about yield calculations: a. The methodology used to calculate interest? (Simple maturity, yield to maturity, etc.) b. The frequency of interest payments? c. How interest is paid? (Credited to principal at the end of the month, each quarter; mailed?) d. How are gains/losses reported? Factored monthly or only when realized? Reporting 1. Is the yield reported to participants of the pool monthly? (If not, how often?) 21 2. Are expenses of the pool deducted before quoting the yield? 3. Is the yield generally in line with the market yields for securities in which you usually invest? 4. How often does the pool report, and does that report include the market value of securities? SECURITY The following questions are designed to help you safeguard your funds from loss of principal and loss of market value. 1. Does the pool disclose safekeeping practices? 2. Is the pool subject to audit by an independent auditor? 3. Is a copy of the audit report available to participants? 4. Who makes the portfolio decisions? 5. How does the manager monitor the credit risk of the securities in the pool? 6. Is the pool monitored by someone on the board of a separate neutral party external to the investment function to ensure compliance with written policies? 7. Does the pool have specific policies with regards to the various investment vehicles? a. What are the different investment alternatives? b. What are the policies for each type of investment? 8. Does the pool mark the portfolio to its market value? 9. Does the pool disclose the following about how portfolio securities are valued: a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio (cost, current value, or some other method)? OPERATIONS The answers to these questions will help you determine whether this pool meets your operational requirements: 1. Does the pool limit eligible participants? 2. . What entities are permitted to invest in the pool? 22 3. Does the pool allow multiple accounts and sub -accounts? 4. Is there a minimum or maximum account size? 5. Does the pool limit the number of transactions each month? What is the number of transactions permitted each month? 6. Is there a limit on transaction amounts for withdrawals and deposits? a. What is the minimum and maximum withdrawal amount permitted? b. What is the minimum and maximum deposit amount permitted? 7. How much notice is required for withdrawals/deposits? 8. What is the cutoff time for deposits and withdrawals? 9. Can withdrawals be denied? 10. Are the funds 100% withdrawable at anytime? 11. What are the procedures for making deposits and withdrawals? a. What is the paperwork required, if any? b. What is the wiring process? 12. Can an account remain open with a zero balance? 13. Are confirmations sent following each transaction? STATEMENTS It is important for you and the agency's trustee (when applicable), to receive statements monthly so the pool's records of your activity and holding are reconciled by you and your trustee. 1. Are statements for each account sent to participants? a. What are the fees? b. How often are they passed? c. How are they paid? d. Are there additional fees for wiring funds (what is the fee)? 2. Are expenses deducted before quoting the yield? QUESTIONS TO CONSIDER FOR BOND PROCEEDS 23 It is important to know (1) whether the pool accepts bond proceeds and (2) whether the pool qualifies with the U.S. Department of the Treasury as an acceptable commingled fund for arbitrage purposes. 1. Does the pool accept bond proceeds subject to arbitrage rebate? 2. Does the pool provide accounting and investment records suitable for proceeds of bond issuance subject to arbitrage rebate? 3. Will the yield calculation reported by the pool be acceptable to the IRS or will it have to be recalculated? 4. Will the pool accept transaction instructions from a trustee? 5. Are you allowed to have separate accounts for each bond issue so that you do not commingle the interest earnings of funds subject to rebate with funds not subject to regulations? 24 SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Develop formal Investment Policy Recommend modifications to Investment Policy Review formal Investment Policy and recommend City Council action Adopt formal Investment Policy Review Financial Institutions & Select Investments Approve investments Execute investment transactions Confirm wires, if applicable Record investment transactions in City's accounting records Investment verification - match broker confirmation to City investment records Reconcile investment records - to accounting records and bank statements - to Treasurers Report of investments Security of investments at City Security of investments Outside City Review internal control procedures 25 Responsibilities City Treasurer Investment Advisory Board City Manager City Attorney City Council City Treasurer City Manager City Treasurer City Manager or Accounting Supervisor Accounting Supervisor Account Technician Account Technician Vault Third Party Custodian External Auditor GLOSSARY The purpose of this glossary is to provide the reader of the City of La Quinta investment policies with a better understanding of financial terms used in municipal investing. AGENCIES: Federal agency securities ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): Short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the drafts at its maturity. An acceptance is a high-grade negotiable instrument. Acceptances are purchased in various denominations for 30, 60 or 90 days, but no longer than 270 days. The interest is calculated on a 360- day discount basis similar to treasury bills. Local agencies may not invest more than 40% of their surplus money in bankers acceptances. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): Time deposits of a bank or savings and loan. They are purchased in various denominations with maturities ranging from 30 to 360 days. The interest is calculated on a 360-day, actual -day month basis and is payable monthly. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. 26 COMMERCIAL PAPER: Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, Bank America, etc. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of La Quinta. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material,.and a detailed Statistical Section. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. The following is a listing: 1. FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued in various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. 2. FHLBs (,Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage -lending institutions. They are issued irregularly for 27 various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued with various maturities and carry semi-annual coupons. Interest is calculated on a 360-day, 30-day month basis. 3. FLBs Federal Land Bank Bonds) - Long-term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,000. They carry semi- annual coupons. Interest is calculated on a 3 60- day, 30 day month basis. 4. FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. 5. FICBs (Federal Intermediate Credit bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity and is calculated on a 360-day, 30-day month basis. 6. FHLMCs (Federal Home Loan Mortgage Corporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Mortgages are purchased solely from the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Association notes (SALLIE- MAEs). FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: the central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 55700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The term "passthroughs" is often used to describe Ginnie Maes. LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum balance of $20,000,000 for any agency. The City is restricted to a maximum of ten transactions per month. It offers high liquidity because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed. to those agencies participating on a proportionate share basis determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one -quarter of one percent of the earnings. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase --reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the vent of default by the seller -borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable MONEY MARKET: The market in which short- term debt instruments (bills, commercial paper, banders' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of securities held by an investor. WE PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity an depositions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker - dealers, banks and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state -- the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. The State of California has adopted the Uniform Prudent Investor Act. Probate Code Sections 15045 - 16054. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repo. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. REVERSE REPURCHASE AGREEMENTS - A reverse repurchase agreement is the opposite of a repurchase agreement. The City loans a security to a bank in exchange for cash. The City agrees to pay off the loan with interest on a future date. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMAS, SLMA, etc.) And Corporations which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative -based returns) into their debt structure, Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the Shape of the yield curve. TREASURY BILLS: Issued weekly with maturity dates up to one year. They are issued and traded on a discount basis with interest figured on a 360-day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. TREASURY BONDS: Long-term coupon -bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium -term coupon - bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. 30 UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker -dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITYis the current income yield minus any premium above par of plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. La" +� •C9! � � 2QUA& OF TNT INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 INFORMATIONAL ITEM: C ITEM TITLE CAFR Follow-up Answer on Miscellaneous Revenue ISSUE AND DISCUSSION: Attached please find Staffs response to the Miscellaneous revenue amount listed on page 43 of the CAFR. RECOMMENDATION: Review, receive and file Staffs response to the Miscellaneous revenue amount listed on the CAFR. Approved for submission to the Investment Advisory Board: n M. Falconer ance Director T a 0 444f 4 am&& MEMORANDUM Date: January 11, 1996 To: John Falconer Finance Director From: John Risley,, Accounting Supervisor Re: CAFR, page 43, miscellaneous revenue Budgeted revenue $536,116, actual received $5,067. The Investment Advisory Board asked for an explanation of the variance on the above. This item consists of the following: Budget Actual Variance Subsidy Reimbursements $ 5200 $ 507 ($47,533) Sale of Land 483,516 0 483 516 Totals $536,516 Li.,067 531 049 The estimate used for Subsidy Reimbursements will always be difficult to estimate because it depends solely on those people who sell their homes and had received Redevelopment Agency sewer subsidies, rent subsidies, or home purchase assistance. The sale of land transaction was anticipated in the 94/95 fiscal year but was not transacted until the 95/96 fiscal year. The Redevelopment Agency received $990,408 in the 95/96 fiscal year realizing a gain on the sale of $629,068. �OLJ c9t u a of INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 INFORMATIONAL ITEM: D ITEM TITLE California Municipal Treasurers Association (CMTA) Seminar in Palm Desert ISSUE AND DISCUSSION: Attached please find an information on an investment policy workshop to be held March 8, 1996 for elected officials. The cost is $10. The City will pay for those Investment Advisory Board Members who sign up and attend. We request that if you sign up and have to cancel that the City be reimbursed. Please contact myself or Debbie if you are available to attend. RECOMMENDATION: Information Only pprgyed for submission to the Investment Advisory Board: >hn M. Falconer nance Director SENT BY: 2- 7-96 ; 15:13 City of Palm Desert-t 161977771014 li 2 February 7, 1 City of Palm Desert 73-510 FRED WARING DRIVE, BALM DESERT, CALIFORNIA 92260-2576 TELEPHONE (619) 346-0611 COACHELLA VALLEY CITIES MAYORS, CITY CC)t NCIL MEMBERS RE, California Municipal Trea.!;urer's Association Elected Officials Workshop - Friday, March 8, 199E FAX (619) 341-7096 The City of Palm Desert is very pleased to announce that it will be hosting a CMTA Elected Officials Workshop for our area. on..... Friday. March 8, 1996 Council Chainhers - Pislin Desert Civie Center 7.4-571) Frei' Waring !Drive Pales Desert, CA 9: 00 .... Registration 12: a01....Luncheon 9::30-12: 00 Yst Session r: 00 - 2:00 Continuance Highlights we will cover are: w Discussion On the Investment Reports or What is recuired in an Investment P licv ^wREQ FLAGS YOU SHOULD ASK QUESTIONS ABOUT twElected Officials hold ultimate responsibility fgr All Investrn= 'Phis workshop is as mu for all City Council AlMhers. Cj*tyagers and Finance Cy, mtmitteelln estment Committee members. In light of the events affecting municipalities in the past year, this workshop provides you with key information you need to best manage your resources effectively and wisely. The information provided is geared exclusively to you, the elected official, so that you may better execute your dWes regarding investments in your city. l�or further information, or to make reservations, please contact my office at (.fkl.9) J46-06. 320. We look forward to seeing you Friday, March 8! Rest regards, PACTL S. 6111SON5 DIRECTOR OR 01 1ANANC1;' C YFY f.31" PALM DE?SFRT', CALIFORNIA 4 ICY � PSG:RDK:rdk MCVGW Nam Past -it' Fax Note 7671 D _ pages► � Fro C I nip CO.MElpt. Phone a F'hanc # Fax # + Fax II .- SENT BY: 2- 7-96 15:13 ; City of Palm Desert-� 16197777101;# 2/ 2 ATTENTION ELSCTED OFFICIALS, CITY MANAGERS, DI CT DIRIL'TOR WHAT EVERY LOCAL AGENCY GOVERNING BODY NEEDS TO KNOW ABOUT OVERSIGHT OF INVE`!'1ViENTS Priday, Nkrcb 8, 19% 73-510 FMd WttrinS Div* p,11M Deter#, CA 92260 9:00 sm, - 2.00 p.m. 9:00 am -Ida aradcn 9:30 welcome, Welter Snyder, mayor of Pith Dewd Adair MOO, proaident, Califomi& Murdci l TrazoMrs ANWA&dm 9:30 TreaAAWS Handbook -- Everything you wed to kww about tr#amry rramSemem is found Ift i s 10:30 BREAK 10:45 Inveancnt Policy -- Not halving one C40 hutt YOU! 1145 LUNCH 1:00 P.M. Imoment, lgpo -- A laoic at UKMWY1qUW=1Y tGPO ex.ecdy wb*t l otmdon they Idd ca=ln Educett erecadon -- %ould you rdgtdte +our pxdolio mawar to be oartiftd? 2;00 CLOSE -- (Samson icaders will be available boyond 2.00 for additional tufts low eud d6mvion) Ramamber the Jeopatdy Clam*; JU mower is: 1.5 billion $ km. Tbc quatica is: What's du wom that co heppan.? The amwet W. 300% leveraging. The quelon tc How did the worst happen? Flaw uy to L t nd and bdq your qu =, wall do our bm to provW answers. Wall ales 'pmv'ide you with 90M9 qurations to ask your ttea .rid Portfolio MAnMM as Weft M l tC eapect frM Merin. F n.rwl-wliY.-r--�v-►s-ra--w'-+w-...--.--r.-w+raserr.rr--•w.�—w.r �^w 3i�i Plena and corngloted rcgisnfiim foci by Felmary A 1996 (with Eck fear $10 MA& Plylb" to CMTA wadm) tv: loan RuO, Mff, tnvas ant A+l=9vt city of him D►Mrt 73.510 Fred Waft Drive Pohn DeW4 CA 92260 Ag y. . . , Hx t ended P ax— Atlas,_.,,,._. __—,,,r.. If your agendy lax a written Investment policy a ndlo ' Mvn&Wtj tAmat reports, you may w4h to br as wqk to the se"en, aa•&OM I � � J2 • a OF TNT INVESTMENT ADVISORY BOARD MEETING: February 14, 1996 INFORMATIONAL ITEM: D ITEM TITLE California Municipal Treasurers Association (CMTA) Seminar in Palm Desert ISSUE AND DISCUSSION: Attached please find an information on an investment policy workshop to be held March 8, 1996 for elected officials. The cost is $10. The City will pay for those Investment Advisory Board Members who sign up and attend. We request that if you sign up and have to cancel that the City be reimbursed. Please contact myself or Debbie if you are available to attend. RECOMMENDATION: Information Only prgged for submission to the Investment Advisory Board: John M. Falconer Finance Director SENT BY 2- 7-96 ; 13:13 City of Faim Desert- 16197777101:* 1/ 2 )911911 kLM DESERT, CALIFORNIA 92280-2578 FAX (819) 341-7098 COACHELLA VALLEY CITIES MAYORS, CITY COI TNCIL MEMBERS RR: California Municipal Treasurer's Association Elected Officials Workshop - Friday, March 8, 1996 The City of Palm Desert is very pleased to announce that it will be hosting a CMTA Fleeted Officials Workshop for our area on..... 'rid Hard A. 1996 Council Chanibeis - Palm Dgsert Civic Center 73-5/0 Fred Waring Drive Palm Desert, CA 9. 00..... Registradon 12: 00....Luncheon 9:30-12: OO 1st Session 1: 00 - 2:00 Continuance Highlights we will cover are: owaiscussion on the Investment ReDOM �r What is required in an Investment Policy wRED FLAGS YOU SHOULD ASK QUESTIONS ABOUT KwElected officials hold ultimate responsibility for All )nvestments This workshop is as mfor all Citv�Coulicil emhff.,% City Ugnagers and Finance f nmmjl eelliyestme t Committee members. in light of the events alTecting municipalities in the past year, this workshop provides you with key information you need to best manage your resources effectively and wisely. The information provided is geared exclusively to you, the elected official, so that you may better execute your duties regarding investments in your city. l'or further information, or to make reservations, please contact my office at (412.1 346-0611. Ext. We look forward to seeing you Friday, March 8! Rest regards, Post-ft" Fax Note 7671 Im � r 7.c`� I= PAtJL S. CilBSON, l)l R1:C,,'OR O F 1NANC't C_TVY OF PALM nr:SF,RT, CALIFORNIA ` , t PSG:RDK:rdk SEAT BY: 2- 7-96 : 15:13 : City of Palm Desert 16197777101:# 2/ 2 ' ATTENTION ELECTED OFFICL4UI CITY MANAGgRp D1VMCT DIRWrORS WHAT EVERY LOCAL, AGENCY GOVERMG BODY MMS TO KNOW ABOUT OVjM$YGBi' OF INVEST[Vi OTS prldayv Moab & 19% Cky Council C hambm 73-510 Fmd Wei Mva lslm Dow% Chi 92260 9:d0 sm. - Z:Od p.aa. 9:00 &M. Silu Won 9:30 WGIC=t Wsitor Snyder, Mayor of pain Dasart Adair MCW, Pvsdd=4 C.&Iffafnia Mnkipal Tray umn Amadedw 9:50 Titannes Hmk ok -- Evaythft you Hoed W IMW about tt way teasgammt is fouad In fhb book. 10:30 DFMAE 10:45 lttvemm m P&q -- Not hAvb* oee C40 putt Yvu! 11;45 LUNCH i:QO pm. Itsvegment R*pM -- A lack at morldn 1quaitiotly toPaft �nd exactly who wwostiunn they a x"d =MM &gcatian/Cattmc&dw -- Should you tequire lour paift o hex to be certified? 2:00 CLOSE . (Session k a& rs wM bo avaihbls boyod ,2:00 for Ali queWom aid d6weelon) ER the leopttdr t3araa; T Tho ateewer is: 1.5 billion S 1a�. he q�tica is WhaCs the vroret th�►t co Iv►ppan? 'I o aoswet W 300% leveraOt The question WHaw did the wotlt luppon Plamm try to atisnd and i rft yoar quadom well too our bw to povi& wrRers. Wv2 an p vAdip you with In M1 quu*m to ask Tom ttftmx=and pordao maasgen as won W " MMVM to upeot f m tha. NNr.rr��++M�M�• --��.��YI��Y�A�JYfi�� 4 �M� l�•- pient send comgpleted mWMOM fonn by pebn=rY A 1996 (with andCk far $10 rattle payablx td CMTA Jan Rt LCM I t MMAVt city of ftLM De'ert 73.510 PMd W%dM Drive Palm Deal; CA MOO Tide . .. P.x t t nded Pnx-. Aftm. W�tA to a I f yaor Mency &M a WrrWen jnvesanent polky an4/ar neonAi+al repart� YOu mdy jaep1e to the Mslax. AMMM ,, , BEAR, STEARNS SECURITIES CORP. ONE METROTECH CENTER NORTH BROOKLYN, NEW YORK 11201-3859 (212) 272-1000 Customer Agreement PLEASE READ CAREFULLY, SIGN AND RETURN This agreement ("Agreement") sets forth the terms and conditions under which Bear, Stearns Securities Corp., Bear, Stearns & Co. Inc., and their successors and assigns (collectively `Bear Steams") will transact business with you including but not limited to the maintenance of your account(s). If these accounts are cash accounts and you have fully paid for all securities therein, the provisions of paragraphs 16 and 17 shall not bind you unless you enter into a margin transaction. 1. APPLICABLE LAW AND REGULATIONS. All trans- between or among any of you, your broker and its employees, and Bear actions shall be subject to all applicable law and the rules and regulations Steams and its employees. of all federal, state and self -regulatory agencies, including, but not limited 9. COSTS OF COLLECTION. You hereby authorize Bear to, the Board of Governors of the Federal Reserve System and the Steams to charge you for any reasonable direct or indirect costs of collection, constitution, rules and customs of the exchange or market (and clearing including, but not limited to, attorneys' fees, court costs and other expenses. house) where executed. 10. IMPARTIAL LOTTERY ALLOCATION. You agree that, 2. SECURITY INTEREST AND LIEN. As security for the in the event Bear Stearns holds on your behalf bonds or preferred stocks in payment of all of your obligations and liabilities to Bear Stearns, Bear street name or bearer form which are callable in part, you will participate Stearns shall have a continuing security interest in all property in which in the impartial lottery allocation system of the called securities in accordance you have an interest held by or through Bear Stearns or its affiliates, with the rules of the New York Stock Exchange, Inc. or any other appropriate including, but not limited to, securities, commodity futures contracts, self -regulatory organization. When any such call is favorable, no allocation commercial paper, monies and any after -acquired property. In addition, in will be made to any account(s) in which Bear Stearns has actual knowledge order to satisfy any such outstanding liabilities or obligations, Bear Stearns that its officers, directors or employees have any financial interest until all may, at any time and without prior notice to you, use, apply or transfer any other customers are satisfied on an impartial lottery basis. such securities or property interchangeably. In the event of a breach or 11. WAIVER, ASSIGNMENT AND NOTICES. Neither Bear default under this Agreement, Bear Steams shall have all rights and remedies Stearns' failure to insist at any time upon strict compliance with this available to a secured creditor under any applicable law in addition to the Agreement or with any of the terms hereof nor any continued course of rights and remedies provided herein. such conduct on its part shall constitute or be considered a waiver by Bear 3. DEPOSITS ON TRANSACTIONS. Whenever Bear Steams, Steams of any of its rights or privileges hereunder. Any assignment of your in its sole discretion, considers it necessary for its protection, it may require rights and obligations hereunder or interest in any property held by or you to deposit cash or collateral immediately in your account(s) prior to through Bear Stearns without obtaining the prior written consent of an any applicable settlement date in order to assure due performance of your authorized representative of Bear Stearns shall be null and void. Notices or open contractual commitments. other communications, including margin calls, delivered or mailed to the 4. BREACH, BANKRUPTCY OR DEFAULT. Any breach of address provided by you, shall, until Bear Steams has received notice in this Agreement or the filing of a petition or other proceeding in bankruptcy, writing of a different address, be deemed to have been personally delivered insolvency, or for the appointment of a receiver by or against you, the levy to you. of an attachment against your account(s) with Bear Stearns, or your death, 12. FREE CREDIT BALANCES. You hereby direct Bear mental incompetence or dissolution, or any other grounds for insecurity, as Steams to use any free credit balance awaiting investment or reinvestment determined by Bear Stearns in its sole discretion, shall constitute, at Bear in your account(s) in accordance with all applicable rules and regulations Stearns' election, a default by you under all agreements Bear Steams may and to pay interest thereon at such rate or rates and under such conditions then have with you, whether heretofore or hereafter entered into. In the as are established from time to time by Bear Stearns for such accounts(s) event of default, Bear Steams reserves the right to sell, without prior notice and for the amounts of cash so used. to you, any and all property in which you have an interest, held by or 13. RESTRICTIONS ON ACCOUNT. You understand that through Bear Stearns or any of its affiliates, to buy any or all property which Bear Stearns, in its sole discretion, may restrict or prohibit trading of may have been sold short, to cancel any or all outstanding transactions securities or other property in your account(s). and/or to purchase or sell any other securities or property to offset market 14. CREDIT INFORMATION AND INVESTIGATION. risk, and to offset any indebtedness you may have (either individually or You authorize Bear Steams and your broker, in their discretion, to make jointly with others), after which you shall be liable to Bear Steams for any and obtain reports concerning your credit standing and business conduct. remaining deficiency, loss, costs or expenses sustained by Bear Steams in You may make a written request within a reasonable period of time for a connection therewith. Such purchases and/or sales may be effected publicly description of the nature and scope of the reports made or obtained by Bear may in its sole discretion determine. At any such sale or purchase, Bear Stearns may purchase or sell the property free of any right of redemption. In addition, Bear Stearns shall have the right to set off and apply any amount owing from Bear Stearns or any of its affiliates to you against any indebtedness in your accounts, whether matured or unmatured. 5. FEES AND CHARGES. You understand that Bear Steams may charge commissions and other fees for execution, custody or any other service furnished to you, and you agree to pay such commissions and fees at Bear Steams' then prevailing rates. You understand further that such commissions and fees may be changed from time to time, upon thirty days' prior written notice to you, and you agree to be bound thereby. 6. TRANSACTION REPORTS AND ACCOUNT STATEMENTS. Reports of the execution of orders and statements of your account(s) shall be conclusive if not objected to in writing within five days in the case of reports of execution, and ten days in the case of account statements, after such documents have been transmitted to you by mail or otherwise. 7. DEBIT BALANCES/TRUTH-IN-LENDING. You hereby acknowledge receipt of Bear Steams' Truth -in -Lending disclosure statement. You understand that interest will be charged on any debit balances in your account(s), in accordance with the methods described in such statement or in any amendment or revision thereto which may be provided to you. Any debit balance which is not paid at the close of an interest period will be added to the opening balance for the next interest period. 8. CLEARANCE ACCOUNTS. Bear, Steams Securities Corp. carries your account(s) as clearing agent for your broker. Unless Bear, Stearns Securities Corp. receives from you prior written notice to the contrary, Bear, Stearns Securities Corp. may accept from such other broker, without any inquiry or investigation: (a) orders for the purchase or sale of securities and other property in your account(s) on margin or otherwise and (b) any ether instructions concerning your account(s) or the property therein. You understand and agree that Bear Stearns shall have no responsibility or liability to you for anv acts or omissions of such broker, its officers, employees or agents. You agree that your broker and its employees are third -party beneficiaries of this Agreement, and that the terms and conditions hereof_ includinLy the arbitration vrovision, shall be applicable to all matters 15. SHORT AND LONG SALES. In placing any sell order for a short account, you will designate the order as such and hereby authorize Bear Stearns to mark the order as being "short." In placing any sell order for a long account, you will designate the order as such and hereby authorize Bear Steams to mark the order as being "long." The designation of a sell order as being for a long account shall constitute a representation that you own the security with respect to which the order has been placed, that such security may be sold without restriction in the open market and that, if Bear Stearns does not have the security in its possession at the time you place the order, you shall deliver the security by settlement date in good deliverable form or pay to Bear Stearns any losses or expenses incurred as a result of your failure to make delivery. 16. MARGIN ACCOUNTS. You hereby agree to deposit and maintain such margin in your margin account(s) as Bear Steams may in its sole discretion require, and you agree to pay forthwith on demand any debit balance owing with respect to any of your margin account(s). Upon your failure to pay, or at any time Bear Stearns, in its discretion, deems necessary for its protection, whether with or without prior demand, call or notice, Bear Stearns shall be entitled to exercise all rights and remedies provided in paragraphs 2 and 4 above. No demands, calls, tenders or notices that Bear Steams may have made or given in the past in any one or more instances shall invalidate your waiver of the requirement to make or give the same in the future. Unless you advise Bear Steams to the contrary, you represent that you are not an affiliate (as defined in Rule 144(a)(1) under the Securities Act of 1933) of the issuer of any security held in your account(s). 17. CONSENT TO LOAN OR PLEDGE OF SECURITIES. Within the limits of applicable law and regulations, you hereby authorize Bear Steams to lend either to itself or to others any securities held by Bear Steams in your account(s), together with all attendant rights of ownership, and to use all such property as collateral for its general loans. Any such property, together with all attendant rights of ownership, may be pledged, repledged, hypothecated or rehypothecated either separately or in common with other such property for any amounts due to Bear Stearns thereon or for a greater sum, and Bear Stearns shall have no obligation to retain a like amount of similar property in its possession and control. 3(Xx)-1041 (8/92) PART 1 - CUSTOMER COPY - RETAIN FOR YOUR RECORDS DOCUMENTATION DEPARTMENT USE ONLY — DO NOT WRITE IN THIS AREA 0 002 ©' 03 DOC CODE O 005 18. LEGALLY BINDING. You hereby agree that this Agreement and all the terms hereof shall be binding upon you and your estate, heirs, executors, administrators, personal representatives, successors and assigns. You agree that all purchases and sales shall be for your account(s) in accordance with your oral or written instructions. You hereby waive any and all defenses that any such instruction was not in writing as may be required by the Statute of Frauds or any other similar law, rule or regulation. 19. AMENDMENT; ENTIRE AGREEMENT. You agree that Bear Stearns may modify the terms of this Agreement at any time upon prior written notice. By continuing to accept services from Bear Steams, you will have indicated your acceptance of any such modifications. If you do not accept such modifications, you must notify Bear Stearns in writing; your account may then be terminated by Bear Steams, after which you will remain liable to Bear Stearns for all remaining liabilities or obligations. Otherwise, this Agreement may not be waived or modified absent a written instrument signed by an authorized representative of Bear Steams. Except as set forth above, this Agreement represents the entire agreement and understanding between you and Bear Stearns concerning the subject matter hereof. 20. NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 21. ARBITRATION. • ARBITRATION IS FINAL AND BINDING ON THE PARTIES. • THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL. • PRE -ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS. • THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED. • THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY. -NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE -DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: 0) THE CLASS CERTIFICATION IS DENIED; 00 THE CLASS IS DECERTIFIED; OR (iii) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN. YOU AGREE, AND BY MAINTAINING AN ACCOUNT FOR YOU BEAR STEARNS AGREES, THAT CONTROVERSIES ARISING BETWEEN YOU AND BEAR STEARNS, ITS CONTROL PERSONS, PREDECESSORS, SUBSIDIARIES AND AFFILIATES AND ALL RESPECTIVE SUCCESSORS, ASSIGNS AND EMPLOYEES, WHETHER ARISING PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION. ANY ARBITRATION UNDER THIS AGREEMENT SHALL BE HELD AT THE FACILITIES AND BEFORE AN ARBITRATION PANEL APPOINTED BY THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE, INC., OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (AND ONLY BEFORE SUCH EXCHANGES OR ASSOCIATION). YOU MAY ELECT ONE OF THE FOREGOING FORUMS FOR ARBITRATION, BUT IF YOU FAIL TO MAKE SUCH ELECTION BY REGISTERED MAIL OR TELEGRAM ADDRESSED TO BEAR, STEARNS SECURITIES CORP. 245 PARK AVENUE, NEW YORK NEW YORK 10167, ATTENTION: CHIEF LEGAL OFFICER (OR ANY OTHER ADDRESS OF WHICH YOU ARE ADVISED IN WRITING), BEFORE THE EXPIRATION OF TEN DAYS AFTER RECEIPT OF A WRITTEN REQUEST FROM BEAR STEARNS TO MAKE SUCH ELECTION, THEN BEAR STEARNS MAY MAKE SUCH ELECTION. FOR ANY ARBITRATION SOLELY BETWEEN YOU AND A BROKER FOR WHICH BEAR STEARNS ACTS AS CLEARING AGENT, SUCH ELECTION SHALL BE MADE BY REGISTERED MAIL TO SUCH BROKER AT ITS PRINCIPAL PLACE OF BUSINESS. THE AWARD OF THE ARBITRATORS, OR OF THE MAJORITY OF THEM, SHALL BE FINAL, AND JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT, STATE OR FEDERAL, HAVING JURISDICTION. 22. SEVERABILITY. If any provision herein is or should become inconsistent with any present or future law, rule or regulation of any sovereign government or regulatory body having jurisdiction over the subject matter of this Agreement, such provision shall be deemed to be rescinded or modified in accordance with any such law, rule or regulation. In all other respects, this Agreement shall continue to remain in full force and effect. 23. CAPACITY TO CONTRACT; CUSTOMER AFFILIATION. You represent that you are of legal age and that, unless you have notified Bear Steams to the contrary, neither you nor any member of your immediate family is an employee of any exchange or member thereof, the National Association of Securities Dealers, Inc. or a member thereof, or of any corporation, firm or individual engaged in the business of dealing; as broker or principal, in securities, options or futures, or of any bank, trust company or insurance company. 24. EXTRAORDINARY EVENTS. Bear Steams shall not be liable for losses caused directly or indirectly by government restrictions, exchange or market rulings, suspension of trading, war, strikes or other conditions beyond its control. 25. HEADINGS. The headings of the provisions hereof are for descriptive purposes only and shall not modify or qualify any of the rights or obligations set forth in such provisions. 26. TELEPHONE CONVERSATIONS. For the protection of both you and Bear Stearns, and as a tool to correct misunderstandings, you hereby authorize Bear Steams at Bear Stearns' discretion and without prior notice to you, to monitor and/or record any or all telephone conversations between you, Bear Stearns and any of Bear Steams' employees or agents. If this is a Joint Account, both parties must sign. Persons signing on behalf of others should indicate the titles or capacities in which they are signing. BY SIGNING THIS AGREEMENT YOU ACKNOWLEDGE THAT: 1. THE SECURITIES IN YOUR MARGIN ACCOUNT(S) AND ANY SECURITIES FOR WHICH YOU HAVE NOT FULLY PAID, TOGETHER WITH ALL ATTENDANT OWNERSHIP RIGHTS, MAY BE LOANED TO BEAR STEARNS OR LOANED OUT TO OTHERS; AND 2. YOU HAVE RECEIVED A COPY OF THIS AGREEMENT. THIS AGREEMENT CONTAINS A PRE -DISPUTE ARBITRATION CLAUSE AT PARAGRAPH 21. THIS AGREEMENT DATED AS OF (Typed or Printed Name) X (Signature) (Typed or Printed Name) X (Signature) Accepted By: (Bear, Stearns Securities Corp.) , 19 Account No.: Date: Date: (Mailing Address)