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2002 07 10 IABP.O. Box 1504 78-495 CALLE TAMPICO (760) 7 7 7 - 7 0 0 0 LA QUINTA, CALIFORNIA 92253 FAX (760) 777-7101 AGENDA INVESTMENT ADVISORY BOARD Study Session Room 78-495 Calle Tampico- La Quinta, CA 92253 July 10, 2002 - 5:30 P.M. Board Member Felice (Video Conference Location) Cisco Systems 170 West Tasman Dr., Bldg. L, San Jose, California, 95134 I CALL TO ORDER a. Pledge of Allegiance b. Roll Call II APPOINTMENT OF OFFICERS A. Appointment of Investment Advisory Board Chairperson B. Appointment of Investment Advisory Board Vice -Chairperson III PUBLIC COMMENT - (This is the time set aside for public comment on any matter not scheduled on the agenda.) IV CONFIRMATION OF AGENDA V CONSENT CALENDAR A Approval of Minutes of Meeting on June 12, 2002 for the Investment Advisory Board. VI BUSINESS SESSION A. Transmittal of Treasury Report for May 2002 B. FY 2002/2003 Meeting Schedule C. Consideration of Approval of Investment Advisory Board 2002/2003 Work Plan D. LAIF Conference VII CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - June 2002 B. Pooled Money Investment Board Reports - April 2002 C. Distribution of Investment Policies for Fiscal Year 2002/2003. VIII BOARD MEMBER ITEMS IX ADJOURNMENT INVESTMENT ADVISORY BOARD Business Session: A Meeting Date: July 10, 2002 ITEM TITLE: Transmittal of Treasury Report for May 31, 2002 BACKGROUND: Attached please find the Treasury Report for May 31, 2002. RECOMMENDATION: Review, Receive and File the Treasury Report for May 31, 2002. JoNn M. Falcorner, Finance Director TWit 4 4Q" MEMORANDUM TO: La Quinta City Council FROM: John M. Falconer, Finance Director/Treasurer SUBJECT: Treasurer's Report for May 31, 2002 DATE: June 28, 2002 Attached is the Treasurer's Report for the month ending May 31, 2002. The report is submitted to the City Council each month after a reconciliation of accounts is accomplished by the Finance Dept. The following table summarizes the changes in investment types for the month: Investment Beginning Purchased Notes Sold/Matured Other Ending Change Cash $197,910 $12,677,663 (1) $12,875,573 $12,677,663 LAIF $17,828,290 2,000,000 19,828,290 2,000,000 US Treasuries (2) $64,097,595 13,042,522 (51,161,000) 66,811 26,045,928 (38,051,667) US Gov't Agencies (2) $12,983,136 7,888,540 (8,000,000) 15,205 12,886,881 (96,255) Commercial Paper (2) $0 0 0 Mutual Funds $8,267,424 35,879,520 1 44,146,944 35,879,520 Total $103 374 355 $71 488 245 $59 161 000 $82 016 1 $115 783 616 1 $12 409 261 I certify that this report accurately reflects all pooled investments and is in compliance with the California Government Code; and is in conformity with the City Investment Policy. As Treasurer of the City of La Quinta, I hereby certify that sufficient investment liquidity and anticipated revenues are available to meet the pools expenditure requirements for the next six months. the City of La Quinta used the Bureau of the Public Debt, U.S. Bank Monthly Statement and the Bank of New York Monthly Custodian Report to determine the fair market value of investments at month end. An M. Falconbr inance Director/Treasurer 711 Date Footnote (1) The amount reported represents the net increase (decrease) of deposits and withdrawals from the previous month. 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Q �c1(MM "t QCD(O(D(O (D O o 0 0 a o O o 0 0 0 0 75I� 0 O O 0) CO d' V Lnt'It (O > h h= CO N C' =Mr-MNN V ) I V c") V' m V '7 (D (D (O (O O cn N N N C C C C E E E E y N N N > C C N C C N =C a) = CC Zn N U rn N > O V C N N > V C d a. FL I= (Lu-Q Q' C O O O— V1 N N m 6 0 6 N 0 N m O f° C mc1 �. 0)07a '� m C€ E 'E 'c N- `m E E y m m o 900 m m y= LL1WW m ami WWW� C N N N r N J fO m N N N C N fC N N N C N —M O C j j j 20 0) N Ix D 7Co W CCC._>Q US QQQ(O QJ QQQfO Q.J CITY OF LA QUINTA CITY CITY RDA RDA FA BALANCE SHEET 05/31/02 FIXED LONG TERM FIXED LONG TERM FINANCING LONG TERM GRAND CITY ASSETS DEBT RDA ASSETS DEBT AUTHORITY DEBT TOTAL ASSETS: POOLED CASH 14,160,853.99 17,758,989.04 57,381.54 31,977,324.57 LQRP INVESTMENT IN POOLED CASH 670,000.00 670,000.00 INVESTMENT T-BILUNOTES & OTHER 39,000,000.00 39,000,000.00 AUTO MALL CASH LQRP CASH 55,539.24 55,539.24 BOND REDEMPTION CASH 13,088,22 2.44 13,090.66 BOND RESERVE CASH BOND PROJECT CASH 43,949,426.03 184,426.36 44,133,852.39 BOND ESCROW CASH PETTY CASH 1,000 00 1.000.00 CASH & INVESTMENT TOTAL 53,161,953.99 62,447,042.53 241,810.34 115,850,806.86 INVESTMENT IN LAND HELD FOR RESALE ACCOUNTS RECEIVABLE 44,692.34 60,900.00 105,592.34 PREMIUM/DISCOUNT ON INVESTMENT (67,191.22) (67.19122) LQRP-ACCOUNTS RECEIVABLE 49.545.80 49,545.80 INTEREST RECEIVABLE 5,942.62 5,942.62 LOAN/NOTES RECEIVABLE 13,489,353.69 13,489,353.69 DUE FROM OTHER AGENCIES 820,898.89 820,898.89 DUE FROM OTHER AGENCIES - CVAG 2,299,096.69 2,299,096.69 CVAG ALLOWANCE (2,299,096.69) (2,299,096.69) DUE FROM OTHER GOVERNMENTS 0,37 0.37 DUE FROM OTHER FUNDS 551,038.04 551,038.04 DUE FROM RDA 8,497,550.20 8.497,550,20 INTEREST ADVANCE -DUE FROM RDA 3,929,473.63 3,929,473.63 ADVANCES TO OTHER FUNDS 56,483.22 2,745,618.71 2,802,101.93 NSF CHECKS RECEIVABLE 2,901.86 2,901.86 ACCRUED REVENUE 833.40 833.40 FIXED ASSETS 20,711,742.00 20,711,742.00 ACCUMULATED DEPRECIATION 711,534.48 711.534.48 TRAVEL ADVANCES 2,819.00 2,819.00 EMPLOYEE ADVANCES PREPAID EXPENSES 15,496.25 _ 15 496.25 RECEIVABLE TOTAL 14,020,601.64 20,711,742.00 16,897,289.64 51,629,633.28 WORKER COMPENSATION DEPOSIT RENT DEPOSITS 75.00 UTILITY DEPOSITS 75.00 MISC. DEPOSITS 2,10000 2,100.00 DEPOSITS TOTAL 2,175.00 2,175.00 GENERAL FIXED ASSETS 9,988,279.05 9,988,279.05 ACCUMULATED DEPRECIATION 3,395,117.03 3,395,117.03 AMOUNT AVAILABLE TO RETIRE UT DEBT AMOUNT TO BE PROVIDED FOR LIT DEBT 951 847.65 80,866,860.97 7,750,000,00 89,568,708.62 TOTAL OTHER ASSETS 951,847.65 9,988,279,05 84,261,978.00 7,750,000.00 102,952,104.70 TOTAL ASSETS 67 184 730.63 20 711 742.00 951 847.65 79 344 332.17 9,988,279.05 84 261 978.00 241 810.34 7,750,000.00 270 434 719.84 LIABILITIES: ACCOUNTS PAYABLE 13,650.17 (150.00) 13,500.17 DUE TO OTHER AGENCIES 1,986,639.07 1,986,639.07 1,594,528.29 DUE TO OTHER FUNDS 1,594,528.29 14,129,155.71 INTEREST ADVANCE -DUE TO CITY 2,745,618.71 11,383,537.00 16,468.50 ACCRUED EXPENSES 16,468.50 33,199.94 PAYROLL LIABILITIES 33,199.94 3,080,66 STRONG MOTION INSTRUMENTS 3,060.66 78,981.50 FRINGE TOED LIZARD FEES 78,981.50 (63.21) SUSPENSE (63.21) DUE TO THE CITY OF LA QUINTA PAYABLES TOTAL 4,861,106.84 12,994,383.79 17,855,490.63 ENGINEERING TRUST DEPOSITS SO, COAST AIR QUALITY DEPOSITS 15,695.00 LQRP DEPOSITS 15,695.00 877,697.16 DEVELOPER DEPOSITS 877,697.16 439,168.66 MISC. DEPOSITS 439,168.66 1,992,175.84 AGENCY FUND DEPOSITS 1,992,175.84 3,324,736.66 TOTAL DEPOSITS 3,309,041.66 15,695.00 DEFERRED REVENUE 934,698.89 11,378,904.00 12,313,602,89 12,313,602.89 OTHER LIABILITIES TOTAL 934,698.89 11,378,904.00 COMPENSATED ABSENCES PAYABLE 373,536.65 189,725.50 373,536.65 768,036.50 DUE TO THE CITY OF LA QUINTA 578.311.00 10,989,847.00 1 DUE TO COUNTY OF RIVERSIDE 8,747,405.50 8, ,747,47,405.05.500 DUE TO C.V. UNIFIED SCHOOL DIST. DUE TO DESERT SANDS SCHOOL DIST. 7,750,000.00 72,085,000.00 BONDS PAYABLE TOTAL LONG TERM DEBT 951,847.65 84,261,978.00 84,261,978.00 7,750,000.00 92,963,825,65 9,104,847.39 951,847.65 24,388,982.79 84,261,978.00 7,750,000.00 126,457,655,83 TOTAL LIABILITIES EQUITY -FUND BALANCE 58,079,883.32 20,711,742.00 54,955,349.38 9,988,279.05 241,810.34 143,977,064.09 TOTAL LIABILITY & EQUITY 67,184,730.71 20,711,742.00 951,847.65 79,344,332.17 9,988,279.05 84,261,978.00 241,810.34 7,750,000.00 270,434 719.92 0.00 0.00 CASH & INVESTMENT TOTAL 115,850,606.86 PREMIUMIDISCOUNT ON INVESTMENT (67,191.22) . TOTAL 115,783,615.64 010 INVESTMENT ADVISORY BOARD MEETING BUSINESS SESSION: B Meeting Date: July 10, 2002 ITFM TITI F Meeting Schedule for Fiscal Year 2002/2003 BACKGROUND: Attached find a list of meeting dates for Fiscal Year 2002/2003. RECOMMENDATION: Approve the meeting schedule of the Investment Advisory Board for Fiscal Year 2002/20,03. Jbhn M. Falconers, Finance Director TO: Investment Advisory Board Members FROM: John M. Falconer, Finance Director DATE: July 10, 2002 RE: Schedule of Investment Advisory Board Meeting Schedule The City Ordinance specifies that the Investment Advisory Board usually will meet monthly unless the Board with Council concurrence believes less frequent meetings are considered necessary. In the past, the Board has met monthly except for the Month of August. Listed below are meeting dates for the Boards review. Monthly July 10, 2002 August 14, 2002 September 11, 2002 October 9, 2002 November 13, 2002 December 11, 2002 January 8, 2003 February 12, 2003 March 12, 2003 April 9, 2003 May 14, 2003 June 11, 2003 Quarterly September 11, 2002 December 11, 2002 March 12, 2003 June 11, 2003 Please consider the schedules for Fiscal Year 2002/2003 and give Staff direction. INVESTMENT ADVISORY BOARD Meeting Date: July 10, 2002 Fiscal Year 2002/03 Work Plan BACKGROUND: Business Session: C Each year the Investment Advisory Board adopts a work plan, which is subsequently forwarded to the City Council for approval. In addition to the responsibilities listed in the ordinance, the Board may want to consider additional items to address during FY 02/03. Last year the work plan included a review of internal controls, and a review of the investment policy investments in GSE's. In addition, Chairman Mahfoud has asked that the attached article be included to this agenda item. RECOMMENDATION: Review and approval of work plan items as deemed appropriate. 41 4';9-1 n M. Falcon , Finance Director Fixed Income Research July 26, 200-1 U.S. Government -Sponsored Enterprises (GSEs) & Their Debt In countries all around the world, governments have created agencies and corporations to fill the needs of their citizens. In the United States alone, there are forty-six such entities, which we refer to as Government -Sponsored Enterprises (GSEs) or Agencies. Throughout this discussion we will give a brief description of GSEs, with our main focus on, the three largest GSEs in the U.S.: the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank (FHLB). We will discuss when and why these Agencies were created and how they have evolved into such a major part of the world economy. Over the past decade, these GSEs have become some of the largest issuers of debt in the world. We will discuss the breadth and depth at which these Agencies' debt is entrenched in the global markets. We will give an overview of the size of this market and the form in which this debt is passed on to investors. Finally, we will discuss the soundness of these corporations and the risk investors are faced with when investing in their securities. What are GSEs? A Government -Sponsored Enterprise (GSE) is an entity which, in one way or another, has a direct or indirect relationship with the government in the country in which it resides. In the U.S. most GSEs were either at one point owned by the government or were created by government charters in order to meet some specific need. GSEs in the U.S. provide a variety of functions, such as regulators, railways, energy companies, and financial firms, created to provide liquidity to the home mortgage industry of the country. Throughout this discussion we will focus on three of these financial firms, FHLB, FHLMC, and FNMA. These corporations are privately owned but federally charted companies, created by Congress to help overcome barriers to the flow of credit into segments of the economy. These GSEs play an integral part in the housing market in the United States, and investors all over the world purchase their debt. The Federal Home Loan Bank System (FHLB) was created in 1932 by the federal government to provide credit to illiquid thrifts and to help in the development of long-term, fixed-rate mortgages. The FHLB system consists of 12 regional banks, which combine to provide member banks reliable funding and technical assistance to support residential mortgage lending and related community investment. Currently, the FHLB has 7,820 members consisting of banks, ; thrifts, credit unions and insurance companies. As of March 31, 2001, the consolidated Federal Home Loan Bank system had total assets of over $674 billion. Loans to their member institutions (advances) made up nearly 67 percent of assets, while 30 percent consisted of investments. These advances and investments are funded by debt obligations totaling $600 billion as of March 31, 2001. The FHLB is regulated by the Federal -Housing Finance Board, an independent regulatory agency of the executive branch of the U.S. Government. The Federal Housing Finance Board (FHFB) is a five -member board chaired by the Secretary of the Department of Housing and Urban Development (HUD), with the other four members appointed by the President of the United States. The FHFB appoints a varying number of the FHLB's Board of Directors. The Federal National Mortgage Association or Fannie Mae (FNMA) was created in 1938 by the U.S. government to expand the flow of mortgage funds. They were authorized to purchase mortgages, thus creating a secondary market and replenishing the supply of lendable money. In 1968, FNMA became a private, shareholder -owned corporation and has grown into the largest supplier of funds for residential mortgage loans in the U.S. FNMA provides funds for residential mortgage loans by purchasing these loans from lenders and issuing mortgage -backed securities (MBS) with the loans as collateral. FNMA funds the purchase of these mortgages by selling debt to investors in the global capital markets. As of March 31, 2001, FNMA had over $700 billion in total assets, of which 91 percent consisted of mortgages. The purchase Page 1 of 6 The information contained herein is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. The opinions expressed herein reflect the judgment of the author at this date and are subject to change without notice and are not a complete analysis of every material fact respecting any company, industry or security. Morgan Keegan & Company, Inc. and its officers, directors, shareholders, employees and affiliates and members of their families may make investments in a company or securities mentioned herein before, after or concurrently with the publication of this report. Morgan Keegan & Company, Inc. may from time to time perform or seek to perform investment banking or other services for, or solicit investment banking or other services from any company, person or entities mentioned herein. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any security. 02001 Morgan Keegan & Company, Inc. of these mortgages is funded by debt obligations totaling over $666 billion. FNMA is regulated by the Office of Federal Housing Enterprise Oversight (OFHEO), an independent office of the Department of Housing and Urban Development (HUD). The OFHEO's primary mission is to ensure the capital adequacy and financial safety and soundness of FNMA and FHLMC. FNMA's 18-member Board of Directors has five members that are appointed by the President of the United - States. The Federal Home Loan Mortgage Corporation or Freddie Mac (FHLMC) was created in 1970 to increase the availability of mortgage credit for residential housing; their mission is virtually identical to that of FNMA. Like FNMA, FHLMC is a government chartered, private, shareholder owned corporation. FHLMC provides funds for residential mortgage loans by purchasing these loans from lenders and issuing mortgage -backed securities (MBS) with the loans as collateral. FHLMC funds the purchase of these mortgages by selling debt to investors in -the global capital markets. As of March 31, 2001, FHLMC had total assets of nearly $498 billion, of which 85 percent consisted of mortgages. The purchase of these mortgages has been funded by debt obligations totaling over $459 billion as of March 31, 2001. FHLMC is regulated by the OFHEO. FHLMC's 15-member Board of Directors has five members that are appointed by the President of the United States. Why do we need these GSEs? The GSEs provide needed support for an integral part of what most U.S. citizens refer to as the "American Dream," home ownership, by creating and facilitating a secondary market for home mortgages. Currently, over 67% of U.S. families own their own home; this is the highest level of home ownership in the history of the United States. Without financial support this high level of home ownership could not be realized because lenders in the United States would not be able to provide the funds needed for citizens to purchase homes at realistic funding levels. Without credit support and a secondary mortgage market, financial institutions would only be able to lend a percentage of deposits they hold. The mortgage industry would eventually reach a cap and homebuyers would not have access to the affordable funds needed to purchase a home. The concept of home ownership not only affects the "American Dream," but it also has a major impact of the U.S. economy. If funds were not available to purchase homes, then there would be no reason to build homes, which would trickle through other parts of the economy. For example, without home construction, we would not need people to build homes and we would not need the materials used to build homes. If materials are not needed to build homes, then jobs are not needed to create these materials. In summary, the concept of home ownership is one of the major driving forces of the U.S. economy and without organizations such as the GSEs the realization of this concept is not possible. The GSEs' debt obligations The FHLB, FNMA, and FHLMC all have a similar goal. That is to lower the financing cost for homebuyers in the U.S. and to provide ample funds for financial institutions that loan the funds to individuals. The GSEs do this in two ways: First, the FHLB lends money to financial institutions; in turn, the financial institutions lend these funds to end -users. The banks are able to make a profit on the spread difference between their borrowing cost and their lending price. The FHLB profits in a similar way; they borrow from the investing public through the issuance of securities then lend to the banks at a higher rate. As of March 31, 2001 the FHLB had over $600 billion in outstanding debt. Second, FNMA and FHLMC purchase home mortgages from lenders. The lenders in turn take the funds from the sale of the whole loan mortgages and lend them to different homebuyers. FNMA and FHLMC then either securitize and guarantee the mortgages they purchased and sell them to the investing public or hold them in their own portfolio. In order to fund the purchase of these mortgages, FNMA and FHLMC borrow from the investing public through the issuance of securities. As of March 31, 2001 FNMA and FHLMC combined had over $1.1 trillion in outstanding debt. The combined $1.7 trillion of FHLB, FNMA, and FHLMC debt is one of the largest markets in the world. It is currently larger than the entire U.S. municipal bond market — the outstanding debt of the fifty U.S. states and localities that issue publicly traded debt. If you add the over $2.3 trillion in MBS guaranteed by FNMA and FHLMC, this market is larger than the $3.2 trillion of outstanding privately held marketable U.S. Treasuries. FHLMC estimated that the U.S. residential mortgage market exceeded $5.5 trillion at the end of 2000, and they expect it to grow by nearly eight percent a year for the next several years. Page 2 of 6 In order to finance such a large market, the GSEs must have a broad group of investors. One -group of investors that currently holds roughly 17 percent of all outstanding GSE debt are banks, thrifts, and credit unions in the United States. The banking industry holds the largest portion, $245 billion. Financial institutions are widely encouraged to hold both direct obligations of the Agencies and the MBS supported by the Agencies. For example, analyze the Risk -Based Capital Guidelines for U.S. banking institutions. Banks are required to mark only 20% of an Agency obligation or Agency backed MBS as a risk -to -capital and there is no limit to the amount of these securities that can be purchased. Only direct obligations of the Treasury have a lower risk to capital limit (00/6). U.S. corporate obligations and U.S. consumer loans have a 100% risk -to -capital weighting (with the exception of debt backed by a bank in an (OECD') country, which is also 20%). Foreign investors are responsible for the purchaseof a large portion of GSE debt. As -of April 24, 2001, Europe and Asia held over 27 percent of the $211 billion non -callable Benchmark Securities issued by FNMA from 1998- 2001. If one were to assume that the rest of the Agencies' debt was distributed through Asia and Europe at the same rate, then investors in Europe and Asia would hold nearly $460 billion in U.S. GSE debt. In total, nearly 45 percent of GSE debt is held in either U.S. banking institutions or foreign countries. The remaining 55 percent is diversified among U.S. Fund Managers, State and Local Governments, Insurance Companies, and a variety of other investors. Is GSE debt guaranteed by the U.S. government? The U.S. government does not guarantee debt obligations of the GSEs. However, all of the GSEs we have discussed do have a credit feature or implied guarantee. The FHLB is authorized`to borrow up to $4 billion from the U.S. government at the discretion of the Treasury Secretary, and FNMA and FHLMC would each be allowed to sell the Treasury up to $2.25 billion of securities in times of need. When comparing the amount of possible credit a GSE could receive under current legislation to the amount of GSE debt outstanding, it is obvious that the small percentage of credit would not benefit a GSE in times of extreme financial distress. Thus, in order to ensure their financial solvency, the GSEs are some of the most regulated corporations in the United States. Each of the GSEs mentioned above has a corresponding regulatory agency that was created to focus on their activities and factors affecting their economies. The FHLB is regulated by the Federal Housing Finance Board (FHFB), an independent regulatory agency of the executive branch of the U.S. government. The FHFB's mission is to ensure that the FHLB is operating in a safe and sound manner, is adequately capitalized, and is able to raise funds in the capital markets. This is carved out through the continuous supervision of the FHLB's underwriting standards and monitoring of the FHLB's criteria for lending. In order to borrow from the FHLB, financial institutions are required to pledge acceptable collateral (equivalent to at least 100% of the advance) on all advances. In the 69-year history of the FHLB, they have never had a credit loss. FNMA and FHLMC are regulated by the Office of Federal Housing Enterprise Oversight (OFHEO), an independent office of HUD. The OFHEO was established in 1992 for the primary purpose of ensuring the capital adequacy and financial safety and soundness of FNMA and FHLMC. This is carried out by continuously conducting broad examinations of FNMA and FHLMC, through 1) "stress testing" that simulates volatile interest rate and credit scenarios, 2) by creating risk -based capital standards, and 3) through the creation of regulations concerning capital and enforcement standards. What would it take for the GSEs to fail? In order to find the factors that may cause a GSE to fail, we must first identify the different types of risk GSEs face in their everyday business. Due to the investment -like nature of their business, the GSEs major risks are those commonly seen by most investors: interest rate risk and credit risk. When analyzing the GSEs interest rate risk exposure we see that they are able to protect themselves from large shifts in rates through the use of derivatives and sophisticated asset/liability techniques. An example is the use of callable structures in which GSEs issue a large portion of their debt. One of the characteristics of mortgage investments is increasing prepayments in falling rate environments. In order to combat the prepayment exposure, the callable structures allow the GSEs to redeem their debt. This provides three important functions. First, it keeps the Asset/ Liability balance of the GSEs' balance sheets in check. Second, it allows the GSEs to 1 OECD — The Organization for Economic Cooperation and Development Page 3 of 6 keep a relative stable margin between interest inflows and ohey l Finally, puenables callable structure re -borrow just a of the public at a rate comparable to those of the new mortgages they purchasing.ed man tools the GSEs use when hedging their interest rate risk exposure. Another of interest ate swapsSallowsttheoGSEseto Y to protect themselves from interest ate risk is derivative contras s. The GSEs have advanced forms of pro tect themselves from a rising cost of funds in times of rising interest a to tiple interest rate scenarios. This a hedging lows themto tools available. They use Monte Carlo simulation techniques to test m be prepared in the most volatile of interest ate environments finthis wn caan higot hly sure that an unforeseen oreseen interest rate environment would not cause a failure of one of the GSEs, we Credit risk is probably the most dangerous factor affecting the GSEs. 'Me GSEs b st ofense for ret history credit the GSEs is chigh underwriting standards, credit enhancements, and capital adequacy. From 1997 . losses, we see that "the combination of loss mitigation tools and widespreadDebt SecuritiesdOverviewit eMray 200 1)servesments as a highly effective `shock absorber' for problem credits (MAChrporaarantee by 82 percent. Over that same period the amount to 2001, FNMA has increased the amount of mortgagesy gumortgage . uance and the loan -to -value ratio (LTV: of credit losses per quarter has decreased by 70 percent. Private have had and should continue to have a positive impact on Loan Amount! Value of Property) of their mortgagep purchased through the GSEs credit losses. A characteristicin value over mortgthatfav ages borrowers pay down the prinors the GSEs is that cipal owed on the loan, the loan - mortgages usually holds or increases 5 percent to -value of the mortgages should decrease. This can be seewhen copant tialprprotection origination GSEs. 7 Should a versus their current market LTV of 58 percent. Lower L providefor more than the outstanding balance of the borrower default on their mortgage, then the GSEs could sell the property will not purchase or guarantee a mortgage unless 20 loan and, thus, avoid a credit loss. The GSEs keep their LTV ratios at low levels through their underwriting standards an through the use of private mortgage insurance. FNMA and FHL has guaranteed 25 percent of the principal on the mortgage is paid at origination or a private mortgage insurance company insurance through to 30 percent of the balance of the remaining mortgage. The borrower obtains private mortgage premium payment to these corporations like the Mortgage Guaranty Insurance Corporation (MGIC) and makes a p private a their mortgage. If the borrower defaults on a GSE guaranteed loan, a corporations monthly when they pay mortgage insurance company will pay the GSE between 25 and 30 percent of the remain balance on the loan, there y, decreasing the risk that the GSE will be left with a credit loss. By the use f high a potent und al increase in the amountriting standards and of enhancements, we believe that the GSEs have made themselves w protected defaults on mortgages resulting from an economic dowrntlien the GSEs would have to rely on their. However, if the economy were to capital apital base.severe depression resulting in large amounts of defaulting mortgages, of March 31, 2001, the capital ratios of FNMA, FHLB, and FHLMwthem tore °have 7capital ratios (core ecapital/totalrrassets) FNMA and FHLMC have implemented internal guidelines requiring of 4.0% within three years (Fall, 2003). Table I shows the amount of defaults bef�nit 7Et and recovery rates of those defaults it would require to eliminate the capital Keen' which the GSEs currently maintain. 20 .40 .60 .80 1.0 1.2 1.4 16 1.8 2 0 This analysis does not take into account 40 .80 1.2 1 6 2 0 2.4 2.8 0 any credit enhancements or any decline ' 11*/° .80 1.6 2 4 3 Q {0 80 in property value that could occur° 1.0 2.0 3 © 4 0 S tt1© during a severe depression. Using 1.2 2.4 4 6 R. FNMA as an example, we can see that it would take at least 4.0% of their 1.6 3 2 4 8 6� 9 II I fi44 lfs 0 guaranteed mortgages defaulting with a 1.8 3 6 5 2 7 2 9.{1 le. $ 12 6 . 14 +4 ..:_ f► l8 a recovery rate of only 20 percent to es, or 373,000 homeowners deplete FNMA's capital. In dollar terms this would mean that $56 billion in mortgages, (assuming the average mortgage amount of $150,000) would have to default and that FNMA would only be able to recover $11.2 billion. If FNMA were able to recover a mini 84 billion, on m of 50 torcompl ccent of ompletely deplete is currene value of these t levelof capital. woulden it take 6.0 percent of their guaranteed mortgages defaulting, or $ > an economic event As of December 31, 2000, there were $5.6 trill►onmdefaulltoutstandid mortgages in be catastrophic toethe U.Sf economyIt would happened that caused 6.0 percent of all mortgaget Page 4 of 6 cause over 2.2 million homeowners to default on their mortgages. As of March 31, 2001, the U.S. -Census Bureau estimated that there were approximately 120 million privately owned homes. If we assume that 60 percent of these homes have outstanding mortgages, then 3.06 percent of these owners would have to default on their mortgages. Financial institutions other than FNMA and FHLMC own over 84 percent of all mortgages outstanding. Of these, 70 percent are not insured by government agencies. U.S. banks own approximately $1.1 trillion in residential mortgages and have an average capital ratio of 8.5 percent. Assuming the same scenario as above, if 6.0 percent of home owners defaulted on their mortgage and bankers were only able to recoup 50 percent of the value then it would reduce the banking industry's capital by 35 percent. Although they would be able to survive, it would have a major negative impact on the banking system. In our opinion, an economic event that would have this type of impact could not happen in a short period of time. Only an extended U.S. and global depression, like no other seen in modem U.S. history, could cause this type of distress. When. analyzing the affect this would have on the GSEs, we believe they would be one of the last to feel the impact. The combination of the underwriting standards and credit enhancements that the GSEs have in place would provide adequate protection in most economic downturns. What would happen if the GSEs were allowed to fail ? When asking the question "What would happen if the GSEs were allowed to fail?", we must look at all of the facets of the world economy which are, or can be, either directly or indirectly affected. We must assume it would take the most severe economic depression of modern U.S. history to cause a GSE failure and that it could not happen in a short amount of time. There would have to be some type of extended chain reaction. With home ownership as one of the most important U.S. values, hence the vision of the "American Dream," we believe that the GSEs would be among the last institutions to fail. During a time of economic depression, we believe that the demand for homes would decline and that the GSEs would concentrate on paying debt, not issuing debt. However, if the GSEs were unable to meet their debt payments because of high defaults on their guaranteed mortgages, then the economy would depress at an increasing rate. For this to occur, we would have to assume that corporations would also be defaulting on their debt obligations. This, coupled with home buyers defaulting on their mortgages, would likely render the entire banking system insolvent. In essence, the entire U.S. economy would melt down. Could a financial melt down occur causing a GSE failure? A financial melt down of this magnitude did occur in the late 1920's and early 1930's in the U.S. and abroad. However, in present day economies we feel that there is a variety of reasons why this is very unlikely to occur. • As of December 31, 2000, FNMA, FHLMC, and the FHLB combined were involved in interest rate swaps contracts totaling nearly $1.34 trillion with swap counter -parties around the world. These interest rate swap contracts are held with large U.S. and non-U.S. banking institutions. If any of the GSEs were allowed to default on their swap contracts, it would have a negative effect on the counterparty institutions' capital. If the default was large enough, it could cripple those institutions so that they would be unable to fulfill their obligations to other swap counterparts. In turn, the counterparties could have the same problems and there would be a trickle down effect. Eventually, this could lead to a meltdown of the largest financial institutions in the world. • As of March 31, 2001, FNMA, FHLMC, and the FHLB combined had over $1.7 trillion in debt obligations outstanding. As discussed previously, their debt is owned by U.S. financial institutions, foreign central banks, insurance companies, money managers, and municipalities. Many of these entities have a large portion of these obligations as a percentage of their assets or investments. A GSE default would almost certainly cause many of the entities to become insolvent. For example, U.S. banks have an average capital ratio of 8.5 percent. Any of these banking institutions which hold more than 8.5 percent of their assets in GSEs debt obligations and have an average capital ratio would become insolvent if the GSEs defaulted. If these entities were unable to meet their financial obligations, we would see the same trickle down effect, eventually leading to an economic meltdown. • The GSEs derivative and debt obligations are backed by the mortgages that they purchase and insure. In our opinion, their underwriting standards and credit enhancement tools are the best available. If an economic downturn crippled the economy in a way that a large percentage of homeowners began to default, then we believe the GSEs would be the last to feel the effects. Banking institutions with lower lending criteria would be the first to have mortgages default. Page 5 of 6 By the time the percentage of people defaulting on their mortgages grew to an amount that would cause the GSEs to that default, the U.S. economy would already be experiencing Vl/a financial distress. During hether through the use of taxthis or by ng an, we funds into the U.S. government would not allow this to happ en.the money supply, we believe that the U.S. government would take some type of action to prevent a meltdown from happening. The large U.S. banking companies along with the GSEs are intertwined through central banks in most countries as well as many of the large banking instituo�owo� the worldwide. d econom�tAntions were aspect we haveyetet tofireview, governments thevlue did not step in, then it would send nipplesg institutions of the U.S. dollar. More than 50 percent of S.liars are held outside ries and hefinU. al institutions financial then they would were failing and were unable to meet their obligations lose credibility. Institutions worldwide would not want to hold U.S. dollars and the value of the dollar would tumble. This means that all securities denominated in U.S. dollars would lose luvalue. thAs thass value e decreeass d, central y and anks and other banking institutions around the world would see the could be eventually this could lead to insolvency. The credibility of the United States along with the U.S. Treasury severely hampered. In order to judge and compare the credit quality of investments, investors worldwide depend on two of the most es, Moody's Investor's Service (Moody's) and Standard & Poor's (S&P). These recognized credit rating compani corporations review the credit quality of entities thatAhis on debtsuerspthat tare judged to betof the best quality receive credit ratings. The highest rating assigned is Aaa/ Y this rating. �Moody's states these issuers "carry aelarge smallest or by an ex ept orally degree of stable margin and print palt risk and are generally e issecu e "gilt edged. Interest payments are protected y While the various protective elements are likely to change, such changes are unlikely to impair the fundamentally strong position of such issues." Examples of Aaa/AAA rated debt issuers are the U.S. Treasury, Exxon Corporation, ly reviewing these Bayenshe Landesbank, FNMA, FHLMC, and the FHLB. Moody's and S&P ar �at g agent es would adjust entities' financial strength. If one of these entities began to have financial distress, thetheir rating to a level which identified with their current level of credit worthiness. For example, Moody's downgraded the government of Japan in 1998 (S&P also downgraded Japan in 2001). After nearly a decade of economic difficulties, Moody's lowered Japan s credit rating from Aaa to Aa1. Although the rating was still at a high investment grade level, the downgrade provided investors with the knowledge that Japan's credit was not as strong as previously believed. Because of the rating agencies' proactive stance, we have the opinion that if FNMA, FHLMC, or the FHLB were to begin to experience some sort of financial distress, investors would be warned. This would provide an investor with ample opportunity to sell their security, before severe loss of principle would occur. Conclusion The U.S. economy is continuously being monitored. When the economy looks to be slowing, the U.S. government takes action through the purchase or sale of U.S. debt and through the shifting of borrowing rates. If the GSEs were to have financial troubles which would have a negative effect on the U.S. economy as well as the world economy, we believe that the U.S. government would step in and take action. This action might be the availability of credit lines or the purchase of their debt obligations, regardless, we do not believe that the U.S. government would allow the GSEs to default on their obligations. Douglas Hubbard Vice President Fixed Income Research Phone: 901-524-4163 800-366-7426 Email: doug.hubbard@morgankeegan.com Additional Information Is Available Upon Request The securities and other investment products described herein are: 1) Not insured by the FDIC, 2) Subject to investment risks, including possible loss of the principal amount invested, 3) Not deposits or other obligations of, nor guaranteed by Morgan Keegan & Company, Inc., Regions Financial Corporation or any of their affiliates. Page 6 of 6 INVESTMENT ADVISORY BOARD Business Session: D Meeting Date: September 2002 TITLE: LAIF Conference — Sacramento, CA September 12 & 13, 2002 BACKGROUND: The LAIF Conference Agenda has not been printed yet but will be held in Sacramento, California on September 12th and 13tn The tentative agenda is as follows: September 12: 9:00 a.m. Opening remarks Economics Outlook Current legislative issues for local government investments Lunch with the State Treasurer Credit issues by FITCH Auditors role — KM4P43 Pill 3:30 p.m. Wrap—up September 13: 7:00 a.m. Tour of LAIF Offices and watch trading activities 9:00 a.m. Wrap-up RECOMMENDATION: Select un to two Board members to attend the LAIF Conference. J4hh M. Falconer, ,Finance Director INVESTMENT ADVISORY BOARD Meeting Date: July 10, 2002 TITLE: Month End Cash Report - June 2002 BACKGROUND: Correspondence & Written Material Item A This cash report• is not a complete Treasury Report (exclude petty cash, deferred compensation and fiscal agent balances,) but would report in a timely fashion selected cash balances. RECOMMENDATION: Information item only. n M. 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In addition, Staff has attached notification from LAIF on the recent court finding discussed at the June meeting. At the May meeting Board Member Lewis inquired as to the differences between AB55 Loans and General Fund Loans. Page 11 of the LAIF answer book contains a description of the two types of loans. Board Member Osborne inquired if there was a new limit to the General Fund Loans — 6% in February. According to the information on Page 11 under item 4 the State Controller's office is responsible for establishing the limit subject to restrictions discussed in item 5. 1 spoke to Ms. Eileen Parks, LAIF Administrator about this matter and she stated the Controller's office is very busy right now and she would identify a contact person at the Controller's office to call. If the information is available, it will be reported verbally at the meeting. RECOMMENDATION: Receive & File V,6,4�,� M. Falconer4 Finance Director Jarvis v. Connell Court of Appeal Decision Issued Page I of I Philip Angelides, State Treasurer Inside the State Treasurer's office Local Agency Investment Fund (LAIF) Jarvis v. Connell Court of Appeal Decision Issued The Court of Appeal issued a decision on the Jarvis Taxpayers Association v. Connell case on May 29, 2002. The court held that the Controller may disburse funds during a budget impasse when state and federal law properly authorizes or requires their payment, despite the absence of a budget act or emergency appropriation. Since Local Agency Investment Fund program is provided for in law and is continuously appropriated, disbursements from the fund will be permitted even if no budget is passed by July 1st. Questions about this matter or the LAIF program may be directed to LAIF Administrator Eileen Park at (916) 653-3001 or by email at epark(&treasurenca.gov. 07/01 /2002 NOTES TO MONTHLY SELECTED INVESTMENT DATA Reverse Repurchase - The temporary sale of owned securities, with the simultaneous agreement to repurchase the same securities at a predetermined cost and rate on a specified future date. The Pooled Money Investment Account from time to time enters into Reverse Repurchase Agreements with major pre -approved securities dealers. The intent is to earn incremental interest for pool partici- pants. Because it is viewed as incremental, earnings derived from reverses are never projected or anticipated. All reverses are in compliance with Government Code Sec. 16480.4, and are further discussed in the Treasurer's Statement of Investment Policies, Goals and Objectives. AB 55 -Wans Named for Assembly Bill 55, these loans are made from the Pool to state agencies which have pre -approved authority to issue bonds for specific projects. The AB 55 loan program allows an agency to borrow money for up -front and progress expenses when funding a specific project. Toward the end of the project construction, the already approved bond issue is brought to market, the proceeds of which are used to pay off principal and interest due on the AB 55 loan. This method eliminates the need for an arbitrage tracking system, had the bonds been sold "up front." The maximum term for AB 55 loans is 364 days, with many retired earlier. General Fund Loans - Loans made by the Pool to the General Fund in anticipation of evening out cash flow. The average life of these loans is well below 30 days. Unlike the on -going AB 55 loan program, General Fund loans are much more infrequently requested. Both AB 55 and General Fund Loans have the following characteristics: 1. Amount available for loans is determined by the State Controller and EXCLUDES certain trust monies, such as LAIF balances; 2. LAIF participants do share in the interest income paid to the Pool on each loan balance; 3. The decision to approve these loans rests in the authority of the Pooled Money Investment Board; 4. A predetermined maximum total loan balance is capped as a specific percentage of identified borrowable resources as determined by the State Controller. 5. No surplus monies may be loaned if such a loan would inhibit carrying out the purpose for which the monies were originally designated. 6. Since the granting of these loans is not an investment function, the loans (AB 55, GF) are not included in records of daily investment activity. 7. Since interest is commingled with other investment revenue, both AB 55 and General Fund loans are included in Selected Data Reports and portfolio accountability. 8. The total monies in AB 55 and General Fund loans are figured into the Portfolio book value when reporting portfolio size and yield. 11 Revised September 30, 1998 Philip Angelides April 2002 STATE OF CALIFORNIA STATE TREASURER'S OFFICE POOLED MONEY INVESTMENT BOARD REPORT APRIL 2002 TABLE OF CONTENTS SUMMARY................................................................. 01 SELECTED INVESTMENT DATA .................................... 02 PORTFOLIO COMPOSITION ........................................ 03 INVESTMENT TRANSACTIONS ..................................... 04 TIMEDEPOSITS........................................................ 25 BANK DEMAND DEPOSITS .......................................... 38 POOLED MONEY INVESTMENT BOARD DESIGNATION... 39 POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF APRIL 2002 WITH APRIL 2001 (DOLLARS IN THOUSANDS) APRIL 200 APRIL 2001 CHANGE Average Daily Portfolio $ 47,431,096 $ 42,916,044 +4,515,052 Accrued Earnings $ 110,906 $ 203,162 -92,256 Effective Yield 2.845 5.760 -2.915 Average Life -Month End (In Days) 185 176 +9 Total Security Transactions Amount $ 32,099,131 $ 28,482,046 +3,617,085 Number 715 610 +105 Total Time Deposit Transactions Amount $ 2,251,800 $ 2,069,200 +182,600 Number 151 148 +3 Average Workday Investment Activity $ 1,635,759 $ 1,454,821 +180,938 Prescribed Demand Account Balances For Services $ 537,852 $ 231,905 +305,947 For Uncollected Funds $ 392,554 $ 439,129 -46,575 1 PHILIP ANGELIDES TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) TYPE OF SECURITY Government Bills Bonds Notes Strips Total Government Federal Agency Coupons Certificates of Deposit Bank Notes Bankers' Acceptances Repurchases Federal Agency Discount Notes Time Deposits G N MAs Commercial Paper FHLMC Corporate Bonds Pooled Loans GF Loans Reversed Repurchases Total (All Types) INVESTMENT ACTIVITY Pooled Money Other Time Deposits Totals PMIA Monthly Average Effective Yield Year to Date Yield Last Day of Month April 30, 2002 DIFFERENCE IN PERCENT OF PERCENT OF PORTFOLIO FROM AMOUNT PORTFOLIO PRIOR MONTH $ 595,024 0 6,191,194 0 $ 6,786,218 $ 4,989,487 6,936,923 625,003 17,877 0 9,467,212 5,167,995 800 11,134, 534 7,587 2,257,543 2,614,679 616,300 -1,064,547 $ 49,557,611 APRIL 2002 NUMBER AMOUNT 715 $ 32,099,131 52 930,886 151 2,251,800 918 $ 35,281,817 2.845 3.586 2 1.20 0.00 12.49 0.00 13.69 10.07 14.00 1.26 0.04 0.00 19.10 10.43 0.00 22.47 0.02 4.55 5.28 1.24 -2.15 100.00 MARCH 2O02 -.48 0.00 -.22 0.00 -.70 -.38 +1.63 -.07 0.00 0.00 -.20 -.60 0.00 +2.66 0.00 -.64 -.39 -1.28 -.03 NUMBER AMOUNT 531 $ 24,613,590 14 6,185 137 1,591,000 682 $ 26,210,775 2.861 3.663 Pooled Money Investment Account Portfolio Composition $49.5 Billion Reverses Loans -2.15% Treasuries Corporate 6.52% 1 ,z eaoi Commercial Paper 22.47% Bankers Acceptant 0.04% Time 1 �.t., /O CD's/BN's 15.26% 3 es Agencies 29.17% 4/30/02 8 Treasuries 8 Mortgages ® Agencies ® CD's/BN's ■ Time Deposits El Bankers Acceptances ■ Repo El Commercial Paper ® Corporate Bonds ❑ Loans El Reverses 04/02/02 REDEMPTIONS CID BEAR 04/02/02 1.830 $ 50,000 15 $ 38,125.00 1.856 CID BEAR 04/02/02 1.830 50,000 15 38,125.00 1.856 CID BEAR 04/02/02 1.830 50,000 15 38,125.00 1.856 CID BEAR 04/02/02 1.830 50,000 15 38,125.00 1.856 CID CONAGRA 04/02/02 2.000 50,000 18 50,000.00 2.029 CID SAFEWAY 04/02/02 2.050 50,000 18 51,250.00 2.080 CID BEAR 04/02/02 1.830 40,000 21 42,700.00 1.857 CID BEAR 04/02/02 1.830 50,000 21 53,375.00 1.857 CID FMCC 04/02/02 2.270 25,000 29 45,715.28 2.305 CID FMCC 04/02/02 2.270 50,000 29 91,430.56 2.305 CID HERTZ 04/02/02 2.300 50,000 29 92,638.89 2.336 CID GEN MILLS 04/02/02 2.060 35,000 34 68,094.44 2.092 CID MORG STAN 04/02/02 1.780 50,000 36 89,000.00 1.807 CID MORG STAN 04/02/02 1.780 50,000 36 89,000.00 1.807 CID MORG STAN 04/02/02 1.780 50,000 36 89,000.00 1.807 CID MORG STAN 04/02/02 1.780 50,000 36 89,000.00 1.807 CID GECC 04/02/02 1.790 50,000 39 96,958.33 1.818 CID GECC 04/02/02 1.790 50,000 39 96,958.33 1.818 CID GECC 04/02/02 1.790 50,000 39 96,958.33 1.818 CID GECC 04/02/02 1.790 50,000 39 96,958.33 1.818 CID FCAR 04/02/02 1.800 35,000 41 71,750.00 1.828 CID FCAR 04/02/02 1.800 50,000 41 102,500.00 1.828 CID GMAC 04/02/02 2.230 50,000 41 126,986.11 2.266 CID GMAC 04/02/02 2.230 50,000 41 126,986.11 2.266 CID SALOMON 04/02/02 1.790 50,000 46 114,361.11 1.819 CID SALOMON 04/02/02 1.790 50,000 46 114,361.11 1.819 CID KODAK 04/02/02 2.250 50,000 56 175,000.00 2.289 CID AMER EXP 04/02/02 1.770 50,000 62 152,416.67 1.800 CID AMER EXP 04/02/02 1.770 50,000 62 152,416.67 1.800 CID JP MORGAN 04/02/02 1.770 50,000 62 152,416.67 1.800 CID JP MORGAN 04/02/02 1.770 50,000 62 152,416.67 1.800 CID JP MORGAN 04/02/02 1.770 50,000 62 152,416.67 1.800 CID JP MORGAN 04/02/02 1.770 50,000 62 152,416.67 1.800 CID HOUSEHOLD 04/02/02 1.670 50,000 70 162,361.11 1.698 CID SRAC 04/02/02 2.110 50,000 70 205,138.89 2.148 CID FMCC 04/02/02 2.700 50,000 75 281,250.00 2.752 CID FMCC 04/02/02 2.700 50,000 75 281,250.00 2.752 CID FMCC 04/02/02 2.700 50,000 75 281,250.00 2.752 CID FMCC 04/02/02 2.700 50,000 75 281,250.00 2.752 CID HOUSEHOLD 04/02/02 1.610 25,000 77 86,090.27 1.638 CID FCAR 04/02/02 1.600 50,000 77 171,111.11 1.627 CID FCAR 04/02/02 1.600 50,000 77 171,111.11 1.627 CID AMER EXP 04/02/02 1.620 25,000 78 87,750.00 1.648 CID AMER EXP 04/02/02 1.620 50,000 78 175,500.00 1.648 CID AMER EXP 04/02/02 1.620 50,000 78 175,500.00 1.648 DISC NOTES FHLMC 04/02/02 1.780 15,000 5 3,708.33 1.805 DISC NOTES FHLMC 04/02/02 1.780 50,000 5 12,361.11 1.805 DISC NOTES FHLMC 04/02/02 1.780 50,000 5 12,361.11 1.805 PURCHASES CP NCAT 04/03/02 1.810 50,000 CP NCAT 04/03/02 1.810 50,000 CP CONAGRA 04/10/02 1.950 40,000 CP W/F 04/10/02 1.770 50,000 CP W/F 04/10/02 1.770 50,000 CP SAFEWAY 05/06/02 2.050 50,000 CP FMCC 06/10/02 2.050 50,000 CP HERTZ 06/10/02 2.290 50,000 CP GMAC 06/10/02 2.120 50,000 CP GMAC 06/10/02 2.120 50,000 CP SRAC 06/10/02 2.200 50,000 PURCHASES c/ TREAS NOTES 5.250% 08/15/03 1.780 50,000 TREAS NOTES 7.000% 07/15/06 1.780 8,626 04/03/02 REDEMPTIONS CP NCAT 04/03/02 1.810 50,000 1 2,513.89 1.835 CP NCAT 04/03/02 1.810 50,000 1 2,513.89 1.835 CP NCAT 04/03/02 1.780 40,000 6 11,866.67 1.805 CP GOLDMAN 04/03/02 1.750 50,000 6 14,583.33 1.774 CP GOLDMAN 04/03/02 1.750 50,000 6 14,583.33 1.774 CP GOLDMAN 04/03/02 1.750 50,000 6 14,583.33 1.774 CP GOLDMAN 04/03/02 1.750 50,000 6 14,583.33 1.774 CP BEAR 04/03/02 1.830 50,000 16 40,666.67 1.856 CP BEAR 04/03/02 1.830 50,000 16 40,666.67 1.856 DISC NOTES FNMA 04/03/02 1.670 50,000 85 197,152.78 1.699 MTN B/A 7.350% 04/03/02 6.702 5,000 503 465,848.97 6.705 MTN B/A 7.350% 04/03/02 6.702 50,000 503 4,658,489.65 6.705 SALES c/ TREAS NOTES 5.250% 08/15/03 1.780 50,000 1 2,507.03 1.804 TREAS NOTES 7.000% 07/15/06 1.780 8,626 1 459.64 1.804 PURCHASES CD BNPARIS 1.980% 08/01/02 1.980 50,000 CD BNPARIS 1.980% 08/01/02 1.980 50,000 CD MONTREAL 2.000% 08/01/02 2.000 50,000 CD MONTREAL 2.000% 08/01/02 2.000 50,000 CD HELABA 1.975% 08/05/02 1.975 50,000 CD HELABA 1.975% 08/05/02 1.975 50,000 CD U/B CALIF 2.000% 08/08/02 2.000 50,000 CD HYPO 2.090% 08/28/02 2.090 50,000 CD HYPO 2.090% 08/28/02 2.090 50,000 9 04/03/02 PURCHASES (continued) CID NCAT 04/04/02 1.780 20,000 CID GECC 04/04/02 1.780 50,000 CID GECC 04/04/02 1.780 50,000 CID GECC 04/04/02 1.780 50,000 CID GECC 04/04/02 1.780 50,000 CID GECC 04/04/02 1.780 50,000 CID GECC 04/04/02 1.780 50,000 CID NCAT 04/04/02 1.780 50,000 CID COUNTRY 04/04/02 1.830 50,000 CID COUNTRY 04/04/02 1.830 50,000 CID GOLDMAN 08/30/02 2.030 50,000 CID GOLDMAN 08/30/02 2.030 50,000 CID GOLDMAN 08/30/02 2.030 50,000 CID GOLDMAN 08/30/02 2.030 50,000 CID GOLDMAN 08/30/02 2.030 50,000 CID GOLDMAN 08/30/02 2.030 50,000 DISC NOTES FNMA 08/29/02 2.000 31,550 DISC NOTES FNMA 08/29/02 2.000 50,000 04/04/02 REDEMPTIONS CD MONTREAL 1.810% 04/04/02 1.810 50,000 7 17,597.22 1.835 CD MONTREAL 1.810% 04/04/02 1.810 50,000 7 17,597.22 1.835 CD MONTREAL 1.810% 04/04/02 1.810 50,000 7 17,597.22 1.835 CD MONTREAL 1.810% 04/04/02 1.810 50,000 7 17,597.22 1.835 CID NCAT 04/04/02 1.780 20,000 1 988.89 1.804 CID NCAT 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID GECC 04/04/02 1.780 50,000 1 2,472.22 1.804 CID COUNTRY 04/04/02 1.830 50,000 1 2,541.67 1.856 CID COUNTRY 04/04/02 1.830 50,000 1 2,541.67 1.856 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID GECC 04/04/02 1.800 50,000 7 17,500.00 1.825 CID SALOMON 04/04/02 1.830 50,000 14 35,583.33 1.856 CID SALOMON 04/04/02 1.830 50,000 14 35,583.33 1.856 TREAS BILLS 04/04/02 2.150 50,000 182 543,472.22 2.203 TREAS BILLS 04/04/02 2.150 50,000 182 543,472.22 2.203 TREAS BILLS 04/04/02 2.155 50,000 182 544,736.10 2.208 TREAS BILLS 04/04/02 2.155 50,000 182 544,736.10 2.208 2 04/04/02 PURCHASES CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CP GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID GECC 04/05/02 1.800 50,000 CID W/F 04/09/02 1.710 50,000 CID W/F 04/09/02 1.710 50,000 CID W/F 04/09/02 1.710 50,000 CID W/F 04/09/02 1.710 50,000 CID W/F 04/09/02 1.710 50,000 CID SALOMON 04/09/02 1.770 50,000 CID SALOMON 04/09/02 1.770 50,000 CID SALOMON 04/09/02 1.770 50,000 CID SALOMON 04/09/02 1.770 50,000 CID AMER EXP 04/09/02 1.750 50,000 CID AMER EXP 04/09/02 1.750 50,000 CID AMER EXP 04/09/02 1.750 50,000 CID AMER EXP 04/09/02 1.750 50,000 CID AMER EXP 04/10/02 1.750 50,000 CID AMER EXP 04/10/02 1.750 50,000 CID AMER EXP 04/10/02 1.750 50,000 CID AMER EXP 04/10/02 1.750 50,000 CID MERRILL 04/12/02 1.750 8,371 CID MERRILL 04/12/02 1.750 50,000 CID MERRILL 04/12/02 1.750 50,000 PURCHASES c/ TREAS BILLS 04/16/02 1.720 45,039 TREAS BILLS 04/16/02 1.720 50,000 TREAS BILLS 04/16/02 1.720 50,000 TREAS BILLS 05/02/02 1.720 50,000 TREAS BILLS 05/02/02 1.720 50,000 TREAS NOTES 5.875% 11/15/05 1.720 50,000 TREAS NOTES 5.875% 11/15/05 1.720 50,000 04/05/02 REDEMPTIONS CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 7 04/05/02 REDEMPTIONS (continued) CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 1 2,500.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 CID GECC 04/05/02 1.800 50,000 8 20,000.00 1.825 DISC NOTES FNMA 04/05/02 4.040 38,185 343 1,469,825.51 4.260 DISC NOTES FNMA 04/05/02 4.040 50,000 343 1,924,611.11 4.260 DISC NOTES FNMA 04/05/02 3.985 50,000 346 1,915,013.89 4.201 DISC NOTES FNMA 04/05/02 4.000 50,000 346 1,922,222.22 4.217 DISC NOTES FNMA 04/05/02 4.000 50,000 346 1,922,222.22 4.217 DISC NOTES FNMA 04/05/02 4.260 25,000 354 1,047,250.00 4.508 DISC NOTES FNMA 04/05/02 4.260 50,000 354 2,094,500.00 4.508 PURCHASES CID MONSANTO 04/08/02 1.780 50,000 CID AMER EXP 04/10/02 1.740 50,000 CID AMER EXP 04/10/02 1.740 50,000 CID GECC 04/12/02 1.730 50,000 CID GECC 04/12/02 1.730 50,000 CID SRAC 04/12/02 1.850 50,000 CID W/F 04/12/02 1.740 50,000 CID W/F 04/12/02 1.740 50,000 CID W/F 04/12/02 1.740 50,000 CID W/F 04/12/02 1.740 50,000 CID TEXT FIN 05/10/02 2.100 50,000 CID GECC 09/03/02 2.020 50,000 CID GECC 09/03/02 2.020 50,000 CID GECC 09/03/02 2.020 50,000 CID GECC 09/03/02 2.020 50,000 TREAS NOTES 3.625% 03/31/04 3.501 50,000 TREAS NOTES 3.625% 03/31/04 3.501 50,000 TREAS NOTES 3.625% 03/31/04 3.501 50,000 TREAS NOTES 3.625% 03/31/04 3.501 50,000 PURCHASES c/ TREAS NOTES 3.625% 03/31/04 TREAS NOTES 3.625% 03/31/04 TREAS NOTES 3.625% 03/31/04 1.650 1,809 1.650 50,000 1.650 50,000 04/08/02 RRS TREAS NOTES 4.250% 03/31/03 1.350 50,000 TREAS NOTES 4.250% 03/31/03 1.350 50,000 TREAS NOTES 4.250% 03/31/03 1.350 50,000 TREAS NOTES 4.250% 03/31/03 1.350 50,000 REDEMPTIONS CID MONSANTO 04/08/02 1.780 50,000 3 7,416.67 1.804 TREAS NOTES 3.625% 03/31/04 1.650 1,809 3 244.20 1.672 TREAS NOTES 3.625% 03/31/04 1.650 50,000 3 6,752.90 1.672 TREAS NOTES 3.625% 03/31/04 1.650 50,000 3 6,752.90 1.672 PURCHASESg/ CID JP MORGAN 04/30/02 1.750 4,000 CID JP MORGAN 04/30/02 1.750 50,000 CID JP MORGAN 04/30/02 1.750 50,000 CID JP MORGAN 04/30/02 1.750 50,000 CID JP MORGAN 04/30/02 1.750 50,000 PURCHASES CID GECC 05/06/02 1.780 50,000 CID GECC 05/06/02 1.780 50,000 CID GECC 05/10/02 1.780 50,000 CID GECC 05/10/02 1.780 50,000 04/09/02 REDEMPTIONS CID AMER EXP 04/09/02 1.750 50,000 5 12,152.78 1.774 CID AMER EXP 04/09/02 1.750 50,000 5 12,152.78 1.774 CID AMER EXP 04/09/02 1.750 50,000 5 12,152.78 1.774 CID AMER EXP 04/09/02 1.750 50,000 5 12,152.78 1.774 CID SALOMON 04/09/02 1.770 50,000 5 12,291.67 1.795 CID SALOMON 04/09/02 1.770 50,000 5 12,291.67 1.795 CID SALOMON 04/09/02 1.770 50,000 5 12,291.67 1.795 CID SALOMON 04/09/02 1.770 50,000 5 12,291.67 1.795 CID W/F 04/09/02 1.710 50,000 5 11,875.00 1.734 CID W/F 04/09/02 1.710 50,000 5 11,875.00 1.734 CID W/F 04/09/02 1.710 50,000 5 11,875.00 1.734 CID W/F 04/09/02 1.710 50,000 5 11,875.00 1.734 CID W/F 04/09/02 1.710 50,000 5 11,875.00 1.734 CID CONAGRA 04/09/02 2.000 25,000 12 16,666.67 2.029 CP SALOMON 04/09/02 1.820 50,000 19 48,027.78 1.847 CID SALOMON 04/09/02 1.820 50,000 19 48,027.78 1.847 CID SRAC 04/09/02 2.150 40,000 22 52,555.56 2.182 CID DISNEY 04/09/02 2.060 50,000 55 157,361.11 2.095 CP JP MORGAN 04/09/02 1.770 50,000 61 149,958.33 1.799 9 04/09/02 REDEMPTIONS (continued) CID JP MORGAN 04/09/02 1.770 50,000 61 149,958.33 1.799 SALES c/ TREAS BILLS 04/16/02 1.720 45,039 5 10,531.18 1.743 TREAS BILLS 04/16/02 1.720 50,000 5 11,691.22 1.743 TREAS BILLS 04/16/02 1.720 50,000 5 11,691.22 1.743 TREAS BILLS 05/02/02 1.720 50,000 5 11,685.49 1.743 TREAS BILLS 05/02/02 1.720 50,000 5 11,685.49 1.743 TREAS NOTES 5.875% 11/15/05 1.720 50,000 5 12,566.03 1.743 TREAS NOTES 5.875% 11/15/05 1.720 50,000 5 12,566.03 1.743 PURCHASES CD HELABA 1.950% 08/28/02 1.950 50,000 CD HELABA 1.950% 08/28/02 1.950 50,000 CD ABN AMRO 1.900% 08/28/02 1.890 50,000 CD ABN AMRO 1.900% 08/28/02 1.890 50,000 CID MERRILL 04/10/02 1.680 50,000 CID MERRILL 04/10/02 1.680 50,000 CID SRAC 08/07/02 2.300 50,000 CID DEERE 08/08/02 2.250 50,000 TREAS NOTES 3.625% 03/31/04 3.517 50,000 TREAS NOTES 3.625% 03/31/04 3.517 50,000 TREAS NOTES 6.000% 08/15/04 3.744 50,000 TREAS NOTES 6.000% 08/15/04 3.744 50,000 04/10/02 REDEMPTIONS CID MERRILL 04/10/02 1.680 50,000 1 2,333.33 1.703 CID MERRILL 04/10/02 1.680 50,000 1 2,333.33 1.703 CID AMER EXP 04/10/02 1.740 50,000 5 12,083.33 1.764 CID AMER EXP 04/10/02 1.740 50,000 5 12,083.33 1.764 CID AMER EXP 04/10/02 1.750 50,000 6 14,583.33 1.774 CID AMER EXP 04/10/02 1.750 50,000 6 14,583.33 1.774 CID AMER EXP 04/10/02 1.750 50,000 6 14,583.33 1.774 CP AMER EXP 04/10/02 1.750 50,000 6 14,583.33 1.774 CID CONAGRA 04/10/02 1.950 40,000 8 17,333.33 1.977 CID W/F 04/10/02 1.770 50,000 8 19,666.67 1.795 CID W/F 04/10/02 1.770 50,000 8 19,666.67 1.795 CID DISNEY 04/10/02 2.060 50,000 56 160,222.22 2.095 MTN DISNEY 7.000% 04/10/02 6.583 27,500 499 2,491,322.07 6.591 PURCHASES CID AMER EXP 04/11/02 1.620 50,000 CP AMER EXP 04/11/02 1.620 50,000 CID AMER EXP 04/11/02 1.620 50,000 10 04/10/02 PURCHASES (continued) CID AMER EXP 04/11/02 1.620 50,000 CID JP MORGAN 04/11/02 1.670 50,000 CID JP MORGAN 04/11/02 1.670 50,000 CID JP MORGAN 04/11/02 1.670 50,000 CID JP MORGAN 04/11/02 1.670 50,000 CID GEN MILLS 05/16/02 2.020 30,000 CID AMER EXP 08/15/02 1.900 20,000 CID AMER EXP 08/15/02 1.900 50,000 PURCHASE c/ STRIP COUPONS 02/15/03 1.700 25,000 STRIP COUPONS 11/15/03 1.700 23,000 STRIP COUPONS 11/15/04 1.700 20,696 STRIP COUPONS 02/15/06 1.700 20,000 STRIP COUPONS 02/15/07 1.700 25,000 04/11/02 RRS TREAS NOTES 3.625% 03/31/04 1.500 50,000 TREAS NOTES 3.625% 03/31/04 1.500 50,000 REDEMPTIONS CID AMER EXP 04/11/02 1.620 50,000 1 2,250.00 1.642 CID AMER EXP 04/11/02 1.620 50,000 1 2,250.00 1.642 CID AMER EXP 04/11/02 1.620 50,000 1 2,250.00 1.642 CID AMER EXP 04/11/02 1.620 50,000 1 2,250.00 1.642 CID JP MORGAN 04/11/02 1.670 50,000 1 2,319.44 1.693 CID JP MORGAN 04/11/02 1.670 50,000 1 2,319.44 1.693 CID JP MORGAN 04/11/02 1.670 50,000 1 2,319.44 1.693 CID JP MORGAN 04/11/02 1.670 50,000 1 2,319.44 1.693 DISC NOTES FNMA 04/11/02 4.050 50,000 349 1,963,125.00 4.274 DISC NOTES FNMA 04/11/02 4.050 50,000 349 1,963,125.00 4.274 SALES-&j STRIP COUPONS 02/15/03 1.700 25,000 1 1,133.57 1.723 STRIP COUPONS 11/05/03 1.700 23,000 1 1,018.91 1.723 STRIP COUPONS 11/15/04 1.700 20,696 1 865.39 1.723 STRIP COUPONS 02/15/06 1.700 20,000 1 781.91 1.723 STRIP COUPONS 02/15/07 1.700 25,000 1 922.44 1.723 PURCHASES g/ CID GOLDMAN 06/25/02 1.810 50,000 CID GOLDMAN 06/25/02 1.810 50,000 11 04/12/02 RRS TREAS TREAS REDEMPTIONS CD CD CID CP CID CID CID CID CID CP CID CID CP CID PURCHASES g// CD CD CD PURCHASES MTN MTN MTN MTN 04/15/02 RRS TREAS REDEMPTIONS MTN CID RRP TREAS NOTES 4.250% 03/31/03 1.450 50,000 NOTES 4.250% 03/31/03 1.450 50,000 HELABA 1.760% 04/12/02 1.760 20,000 15 14,666.67 1.784 HELABA 1.760% 04/12/02 1.760 50,000 15 36,666.67 1.784 GECC 04/12/02 1.730 50,000 7 16,819.44 1.754 GECC 04/12/02 1.730 50,000 7 16,819.44 1.754 W/F 04/12/02 1.740 50,000 7 16,916.67 1.764 W/F 04/12/02 1.740 50,000 7 16,916.67 1.764 W/F 04/12/02 1.740 50,000 7 16,916.67 1.764 W/F 04/12/02 1.740 50,000 7 16,916.67 1.764 SRAC 04/12/02 1.850 50,000 7 17,986.11 1.876 MERRILL 04/12/02 1.750 8,371 8 3,255.39 1.774 MERRILL 04/12/02 1.750 50,000 8 19,444.44 1.774 MERRILL 04/12/02 1.750 50,000 8 19,444.44 1.774 SALOMON 04/12/02 1.810 50,000 22 55,305.56 1.837 SALOMON 04/12/02 1.810 50,000 22 55,305.56 1.837 MONTREAL 1.800% 06/25/02 1.800 1,875 MONTREAL 1.800% 06/25/02 1.800 50,000 MONTREAL 1.800% 06/25/02 1.800 50,000 B/A 6.625% 06/15/04 4.080 10,000 GECC 4.250% 01/28/05 4.480 29,253 GECC 6.800% 11/01/05 4.885 20,000 W/F 5.900% 05/21/06 5.153 15,388 NOTES 2.750% 10/31/03 1.550 50,000 GMAC GOLDMAN NOTES 5.550% 04/15/02 5.570 32,700 1096 5,460,900.00 5.564 04/15/02 1.780 50,000 40 98,888.89 1.808 2.750% 10/31/03 1.500 50,000 40 (83,750.00) -1.520 12 04/15/02 PURCHASESy( (continued) CID ASCC 06/14/02 1.800 50,000 PURCHASES CD U/B CALIF 2.100% 10/29/02 2.100 50,000 CD U/B CALIF 2.100% 10/29/02 2.100 50,000 CID BEAR 07/29/02 1.860 50,000 CID BEAR 07/29/02 1.860 50,000 CID BEAR 07/29/02 1.860 50,000 CID BEAR 07/29/02 1.860 50,000 CID SRAC 07/29/02 2.300 50,000 CID GOLDMAN 08/28/02 1.910 50,000 CID GOLDMAN 08/28/02 1.910 50,000 CID GOLDMAN 08/28/02 1.910 50,000 CP GOLDMAN 08/28/02 1.910 50,000 CID GOLDMAN 08/28/02 1.910 50,000 CID GOLDMAN 08/28/02 1.910 50,000 CID GECC 09/26/02 2.000 50,000 CID GECC 09/26/02 2.000 50,000 CID GECC 09/26/02 2.000 50,000 CID GECC 09/26/02 2.000 50,000 PURCHASES 1 DISC NOTES FNMA 04/04/03 2.470 50,000 DISC NOTES FNMA 04/04/03 2.470 50,000 DISC NOTES FNMA 04/04/03 2.470 50,000 DISC NOTES FNMA 12/13/02 2.000 42,263 FHLB 5.250% 02/13/04 2.000 10,000 FHLB 5.250% 02/13/04 2.000 50,000 FHLB 4.625% 08/13/04 2.000 48,000 FHLB 4.375% 02/15/05 2.000 26,470 FHLB 6.875% 08/15/05 2.000 25,000 FHLMC 6.750% 05/30/06 2.000 25,000 FNMA 6.500% 08/15/04 2.000 10,000 FNMA 6.500% 08/15/04 2.000 50,000 FNMA 7.125% 03/15/07 2.000 50,000 FNMA 7.125% 03/15/07 2.000 50,000 04/16/02 SALES c/ DISC NOTES FNMA 12/13/02 2.000 42,263 1 2,266.00 2.027 FHLB 5.250% 02/13/04 2.000 10,000 1 565.39 2.027 FHLB 5.250% 02/13/04 2.000 50,000 1 2,827.11 2.027 FHLB 4.625% 08/13/04 2.000 48,000 1 2,674.83 2.027 FHLB 4.375% 02/15/05 2.000 26,470 1 1,455.11 2.027 FHLB 6.875% 08/15/05 2.000 25,000 1 1,479.89 2.027 FHLMC 6.750% 05/30/06 2.000 25,000 1 1,493.50 2.027 13 04/16/02 SALES c/ (continued) FNMA 6.500% 08/15/04 2.000 10,000 1 581.06 2.027 FNMA 6.500% 08/15/04 2.000 50,000 1 2,905.33 2.027 FNMA 7.125% 03/15/07 2.000 50,000 1 2,987.00 2.027 FNMA 7.125% 03/15/07 2.000 50,000 1 2,987.00 2.027 PURCHASES CID GE 05/06/02 1.770 50,000 CID GE 05/06/02 1.770 50,000 CID BEAR 05/13/02 1.780 50,000 CID BEAR 05/13/02 1.780 50,000 DISC NOTES FNMA 08/28/02 1.860 50,000 DISC NOTES FNMA 08/28/02 1.860 50,000 DISC NOTES FNMA 08/28/02 1.860 50,000 DISC NOTES FNMA 08/28/02 1.860 50,000 DISC NOTES FNMA 08/30/02 1.860 50,000 DISC NOTES FNMA 08/30/02 1.860 50,000 04/17/02 REDEMPTIONS CD BNPARIS 1.810% 04/17/02 1.810 50,000 30 75,416.67 1.835 CD BNPARIS 1.810% 04/17/02 1.810 50,000 30 75,416.67 1.835 CID GOLDMAN 04/17/02 1.800 50,000 30 75,000.00 1.827 CID GOLDMAN 04/17/02 1.800 50,000 30 75,000.00 1.827 CID GOLDMAN 04/17/02 1.800 50,000 30 75,000.00 1.827 CID GOLDMAN 04/17/02 1.800 50,000 30 75,000.00 1.827 RRP TREAS NOTES 3.000% 02/29/04 1.375 50,000 30 (56,647.14) -1.394 TREAS NOTES 3.000% 02/29/04 1.375 50,000 30 (56,647.14) -1.394 TREAS NOTES 3.000% 02/29/04 1.375 50,000 30 (56,647.14) -1.394 TREAS NOTES 3.000% 02/29/04 1.375 50,000 30 (56,647.14) -1.394 TREAS NOTES 3.000% 02/29/04 1.380 50,000 30 (56,853.12) -1.399 TREAS NOTES 3.000% 02/29/04 1.380 50,000 30 (56,853.12) -1.399 PURCHASES FHLB 4.625% 04/15/05 4.330 50,000 FHLB 4.625% 04/15/05 4.330 50,000 04/18/02 NO SALES PURCHASES CID GMAC 06/10/02 2.000 25,000 CID FMCC 06/10/02 2.020 50,000 CID GECC 06/10/02 1.750 50,000 14 04/18/02 PURCHASES (continued) CID GECC 06/10/02 1.750 50,000 CID GECC 06/10/02 1.750 50,000 CID GECC 06/10/02 1.750 50,000 CID GEN MILLS 06/10/02 2.000 50,000 CP GMAC 06/10/02 2.000 50,000 CID NCAT 06/11/02 1.760 25,000 CID GECC 06/11/02 1.750 50,000 CID GECC 06/11/02 1.750 50,000 CID GECC 06/11/02 1.750 50,000 CID NCAT 06/11/02 1.760 50,000 CID RCAPC 06/12/02 1.780 49,727 CID RCAPC 06/12/02 1.780 50,000 CID RCAPC 06/12/02 1.780 50,000 04/19/02 REDEMPTIONS DISC NOTES FNMA 04/19/02 4.040 25,000 357 1,001,583.33 4.267 DISC NOTES FNMA 04/19/02 4.050 25,000 357 1,004,062.50 4.278 DISC NOTES FNMA 04/19/02 4.050 50,000 357 2,008,125.00 4.278 DISC NOTES FNMA 04/19/02 4.050 50,000 357 2,008,125.00 4.278 DISC NOTES FNMA 04/19/02 4.050 50,000 357 2,008,125.00 4.278 PURCHASES CID GECC 05/10/02 1.750 50,000 CID GECC 05/10/02 1.750 50,000 CID BEAR 05/13/02 1.750 50,000 CID BEAR 05/13/02 1.750 50,000 CID GECC 05/14/02 1.750 25,000 CID GECC 05/14/02 1.750 50,000 CID COUNTRY 06/10/02 1.830 5,000 CID COUNTRY 06/10/02 1.830 50,000 CID AMER EXP 06/10/02 1.750 50,000 CID AMER EXP 06/10/02 1.750 50,000 MTN GECC 5.375% 04/23/04 3.920 10,000 MTN GMAC 5.360% 07/27/04 5.250 25,604 MTN PROCTER 4.000% 04/30/05 4.250 37,637 04/22/02 NO SALES PURCHASES BN US BANK 1.940% 09/26/02 1.940 50,000 BN US BANK 1.940% 09/26/02 1.940 50,000 BN US BANK 1.940% 09/26/02 1.940 50,000 BN US BANK 1.940% 09/26/02 1.940 50,000 CD CR AGRIC 1.940% 09/26/02 1.940 50,000 CD CR AGRIC 1.940% 09/26/02 1.940 50,000 15 04/22/02 PURCHASES (continued) CD U/B CALIF CD U/B CALIF CID GECC CID GECC CID COUNTRY CID COUNTRY CID GEN MILLS CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA DISC NOTES FNMA 04/23/02 REDEMPTIONS MTN FR CHASE MTN FR CHASE PURCHASES CID CAMPBELL PURCHASES_qj TREAS BILLS TREAS BILLS TREAS BILLS TREAS BILLS 04/24/02 REDEMPTIONS CID CAMPBELL SALES c/ TREAS BILLS TREAS BILLS 1.960% 09/26/02 1.960 50,000 1.960% 09/26/02 1.960 50,000 05/09/02 1.760 25,000 05/09/02 1.760 50,000 05/20/02 1.810 50,000 05/29/02 1.810 50,000 06/05/02 1.970 25,000 09/26/02 1.940 50,000 09/26/02 1.940 50,000 09/26/02 1.940 50,000 09/26/02 1.940 50,000 09/30/02 1.940 50,000 09/30/02 1.940 50,000 09/30/02 1.940 50,000 09/30/02 1.940 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 09/30/02 1.870 50,000 6.343% 04/23/02 6.120 12,000 865 1,456,760.83 5.120% 04/23/02 5.120 50,000 1096 7,828,131.96 04/24/02 1.740 50,000 07/05/02 1.680 50,000 08/08/02 1.680 35,000 09/12/02 1.680 19,081 10/10/02 1.680 50,000 5.122 5.213 04/24/02 1.740 50,000 1 2,416.67 1.764 07/05/02 1.680 50,000 1 2,277.61 1.703 08/08/02 1.680 35,000 1 1,590.31 1.703 16 04/24/02 SALES c/ (continued) TREAS BILLS TREAS BILLS PURCHASES CID MERRILL CID AMER EXP CID AMER EXP CID MERRILL CID CITIGROUP CID BARTON CID AMER EXP CID AMER EXP CID CITIGROUP CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC CID GECC PURCHASES STRIP COUPONS STRIP COUPONS DISC NOTES FNMA DISC NOTES FNMA TREAS NOTES 04/25/02 REDEMPTIONS CID MERRILL CID MERRILL CID AMER EXP CID AMER EXP SALES c/ STRIP COUPONS STRIP COUPONS PURCHASES CD SOC GEN 09/12/02 1.680 19,081 10/10/02 1.680 50,000 04/25/02 1.670 25,000 04/25/02 1.600 50,000 04/25/02 1.600 50,000 04/25/02 1.670 50,000 04/26/02 1.680 25,000 04/26/02 1.700 30,785 04/26/02 1.600 50,000 04/26/02 1.600 50,000 04/26/02 1.680 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 04/26/02 1.690 50,000 02/15/04 1.700 35,000 05/15/05 1.700 20,369 10/02/02 1.650 50,000 10/02/02 1.650 50,000 5.750% 08/15/03 1.650 2,801 1 865.90 1.703 1 2,266.18 1.703 04/25/02 1.670 25,000 1 1,159.72 1.693 04/25/02 1.670 50,000 1 2,319.44 1.693 04/25/02 1.600 50,000 1 2,222.22 1.622 04/25/02 1.600 50,000 1 2,222.22 1.622 02/15/04 1.700 35,000 1 1,528.25 1.723 05/15/05 1.700 20,369 1 832.86 1.723 1.900% 09/26/02 1.890 20,000 17 04/25/02 PURCHASES (continued) CD RABO 1.880% 09/26/02 1.870 50,000 CD RABO 1.880% 09/26/02 1.870 50,000 CD SOC GEN 1.900% 09/26/02 1.890 50,000 CD SOC GEN 1.900% 09/26/02 1.890 50,000 CID NCAT 04/26/02 1.770 30,000 CID SALOMON 04/26/02 1.750 50,000 CID SALOMON 04/26/02 1.750 50,000 CID NCAT 04/26/02 1.770 50,000 CID NCAT 04/26/02 1.770 50,000 CID HOUSEHOLD 09/26/02 1.870 50,000 CID HOUSEHOLD 09/26/02 1.870 50,000 CID HOUSEHOLD 09/26/02 1.870 50,000 CP HOUSEHOLD 09/26/02 1.870 50,000 PURCHASES c/ TREAS NOTES 5.875% 11/15/04 1.790 27,790 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 5.875% 11/15/04 1.790 50,000 TREAS NOTES 3.250% 12/31/03 1.760 46,000 TREAS NOTES 3.000% 01/31/04 1.760 37,000 TREAS NOTES 3.625% 03/31/04 1.760 18,065 STRIP COUPONS 08/15/05 1.780 33,000 STRIP COUPONS 11/15/02 1.780 22,311 04/26/02 REDEMPTIONS BN B/A 4.210% 04/26/02 4.210 50,000 367 2,145,930.56 4.268 BN B/A 4.210% 04/26/02 4.210 50,000 367 2,145,930.56 4.268 BN BANC ONE 4.230% 04/26/02 4.230 50,000 367 2,156,125.00 4.288 BN BANC ONE 4.230% 04/26/02 4.230 50,000 367 2,156,125.00 4.288 BN BANC ONE 4.230% 04/26/02 4.230 50,000 367 2,156,125.00 4.288 BN BANC ONE 4.230% 04/26/02 4.230 50,000 367 2,156,125.00 4.288 CID NCAT 04/26/02 1.770 30,000 1 1,475.00 1.794 CID SALOMON 04/26/02 1.750 50,000 1 2,430.56 1.774 CID SALOMON 04/26/02 1.750 50,000 1 2,430.56 1.774 CID NCAT 04/26/02 1.770 50,000 1 2,458.33 1.794 CID NCAT 04/26/02 1.770 50,000 1 2,458.33 1.794 CID CITIGROUP 04/26/02 1.680 25,000 2 2,333.33 1.703 CID BARTON 04/26/02 1.700 30,785 2 2,907.46 1.723 CID AMER EXP 04/26/02 1.600 50,000 2 4,444.44 1.622 CID AMER EXP 04/26/02 1.600 50,000 2 4,444.44 1.622 CID CITIGROUP 04/26/02 1.680 50,000 2 4,666.67 1.703 18 04/26/02 REDEMPTIONS (continued) CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID GECC 04/26/02 1.690 50,000 2 4,694.44 1.713 CID CONAGRA 04/26/02 2.000 25,000 32 44,444.44 2.031 CID AMER EXP 04/26/02 1.750 25,000 92 111,805.56 1.782 CID MORG STAN 04/26/02 1.720 50,000 92 219,777.80 1.751 CID MORG STAN 04/26/02 1.720 50,000 92 219,777.80 1.751 CP MORG STAN 04/26/02 1.720 50,000 92 219,777.80 1.751 CID MORG STAN 04/26/02 1.720 50,000 92 219,777.80 1.751 CID AMER EXP 04/26/02 1.750 50,000 92 223,611.11 1.782 SALES c/ DISC NOTES FNMA 10/02/02 1.650 50,000 2 4,451.42 1.672 DISC NOTES FNMA 10/02/02 1.650 50,000 2 4,451.42 1.672 STRIP COUPONS 11/15/02 1.780 22,311 1 1,071.36 1.804 STRIP COUPONS 08/15/05 1.780 33,000 1 1,400.86 1.804 TREAS NOTES 3.625% 03/31/04 1.760 18,065 1 873.99 1.784 TREAS NOTES 5.875% 11/15/04 1.790 27,790 1 1,462.83 1.814 TREAS NOTES 3.000% 01/31/04 1.760 37,000 1 1,781.17 1.784 TREAS NOTES 3.250% 12/31/03 1.760 46,000 1 2,233.73 1.784 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.875% 11/15/04 1.790 50,000 1 2,632.29 1.814 TREAS NOTES 5.750% 08/15/03 1.650 2,801 2 263.82 1.672 PURCHASES CID COUNTRY 05/14/02 1.810 49,000 CID GMAC 09/03/02 2.150 50,000 CID FMCC 09/26/02 2.250 50,000 CID FMCC 09/26/02 2.250 50,000 CID GECC 09/30/02 1.900 50,000 CID GECC 09/30/02 1.900 50,000 DISC NOTES FNMA 09/30/02 1.820 50,000 DISC NOTES FNMA 09/30/02 1.820 50,000 DISC NOTES FNMA 09/30/02 1.820 50,000 19 04/26/02 PURCHASES (continued) DISC NOTES FNMA 09/30/02 1.820 50,000 04/29/02 RRS TREAS NOTES 5.250% 05/15/04 1.500 25,000 TREAS NOTES 5.250% 05/15/04 1.500 50,000 TREAS NOTES 5.250% 05/15/04 1.500 50,000 TREAS NOTES 5.250% 05/15/04 1.500 50,000 REDEMPTIONS BN B/A 4.210% 04/29/02 4.210 50,000 370 2,163,472.22 4.268 BN B/A 4.210% 04/29/02 4.210 50,000 370 2,163,472.22 4.268 CD TORONTO 1.780% 04/29/02 1.770 25,000 89 109,425.44 1.795 CD TORONTO 1.780% 04/29/02 1.770 50,000 89 218,850.91 1.795 CD TORONTO 1.780% 04/29/02 1.770 50,000 89 218,850.91 1.795 CD TORONTO 1.780% 04/29/02 1.770 50,000 89 218,850.91 1.795 CID SALOMON 04/29/02 1.810 50,000 35 87,986.11 1.838 MTN FR FMCC 5.156% 04/29/02 5.348 31,500 1033 4,735,013.28 5.319 MTN FR GMAC 5.813% 04/29/02 5.313 25,000 1301 4,769,278.72 5.373 MTN FR FMCC 5.848% 04/29/02 5.500 18,000 1316 3,429,215.69 5.283 MTN FR GMAC 5.813% 04/29/02 5.687 35,000 1341 6,783,681.88 5.278 MTN FR FMCC 5.848% 04/29/02 5.718 10,000 1449 2,097,572.48 5.270 MTN FR GMAC 5.906% 04/29/02 5.688 15,000 1567 3,466,352.22 5.386 MTN FR GMAC 5.906% 04/29/02 5.691 20,000 1568 4,715,274.91 5.493 MTN FR GMAC 5.906% 04/29/02 5.691 10,000 1571 2,310,917.50 5.373 RRP TREAS NOTES 3.000% 02/29/04 1.300 50,000 35 (62,499.31) -1.318 TREAS NOTES 5.250% 05/15/04 1.300 25,000 89 (84,565.46) -1.318 TREAS NOTES 5.250% 05/15/04 1.300 50,000 89 (169,130.90) -1.318 TREAS NOTES 5.250% 05/15/04 1.300 50,000 89 (169,130.90) -1.318 TREAS NOTES 5.250% 05/15/04 1.300 50,000 89 (169,130.90) -1.318 PURCHASES CD DEUTSCHE 1.760% 06/26/02 1.760 25,000 CD DEUTSCHE 1.760% 06/26/02 1.760 50,000 CD DEUTSCHE 1.760% 06/26/02 1.760 50,000 CD DEUTSCHE 1.760% 06/26/02 1.760 50,000 CD BNPARIS 1.890% 09/26/02 1.890 50,000 CD BNPARIS 1.890% 09/26/02 1.890 50,000 CD SVENSKA 1.900% 09/26/02 1.890 50,000 CD SVENSKA 1.900% 09/26/02 1.890 50,000 CID COUNTRY 04/30/02 1.900 30,000 CID COUNTRY 04/30/02 1.900 50,000 CID FMCC 09/26/02 2.160 50,000 20 04/29/02 PURCHASES (continued) CP GECC 09/26/02 1.900 50,000 CP GECC 09/26/02 1.900 50,000 CP GECC 09/26/02 1.900 50,000 CP GECC 09/26/02 1.900 50,000 MTN IBM 4.125% 06/30/05 4.424 25,000 PURCHASES c/ TREAS BILLS 05/09/02 1.810 1,205 TREAS BILLS 05/09/02 1.810 50,000 TREAS BILLS 05/09/02 1.810 50,000 TREAS BILLS 09/12/02 1.810 50,000 TREAS BILLS 09/12/02 1.810 50,000 TREAS BILLS 09/12/02 1.810 50,000 TREAS BILLS 09/12/02 1.810 50,000 TREAS BILLS 09/19/02 1.810 50,000 TREAS BILLS 09/19/02 1.810 50,000 TREAS BILLS 09/19/02 1.810 50,000 04/30/02 RRS TREAS NOTES 4.250% 03/31/03 1.500 50,000 TREAS NOTES 4.250% 03/31/03 1.500 50,000 TREAS NOTES 4.250% 03/31/03 1.500 50,000 TREAS NOTES 4.250% 03/31/03 1.500 50,000 REDEMPTIONS CP JP MORGAN 04/30/02 1.750 4,000 22 4,277.78 1.776 CP JP MORGAN 04/30/02 1.750 50,000 22 53,472.22 1.776 CP JP MORGAN 04/30/02 1.750 50,000 22 53,472.22 1.776 CP JP MORGAN 04/30/02 1.750 50,000 22 53,472.22 1.776 CP JP MORGAN 04/30/02 1.750 50,000 22 53,472.22 1.776 CP COUNTRY 04/30/02 1.900 30,000 1 1,583.33 1.926 CP COUNTRY 04/30/02 1.900 50,000 1 2,638.89 1.926 MTN GMAC 5.600% 04/30/02 6.500 23,000 501 2,040,330.00 6.539 MTN GMAC 5.600% 04/30/02 5.910 25,000 1085 4,363,472.22 5.920 TREAS NOTES 6.375% 04/30/02 6.836 50,000 705 6,572,520.38 6.862 TREAS NOTES 6.375% 04/30/02 6.836 50,000 705 6,572,520.38 6.862 TREAS NOTES 6.375% 04/30/02 6.790 50,000 700 6,486,243.21 6.813 TREAS NOTES 6.375% 04/30/02 6.790 50,000 700 6,486,243.21 6.813 SALES c/ TREAS BILLS 05/09/02 1.810 1,205 1 59.33 1.835 TREAS BILLS 05/09/02 1.810 50,000 1 2,464.37 1.835 TREAS BILLS 05/09/02 1.810 50,000 1 2,464.37 1.835 TREAS BILLS 09/12/02 1.810 50,000 1 2,449.03 1.835 21 04/30/02 SALES_gL(continued) TREAS BILLS 09/12/02 1.810 50,000 1 2,449.03 1.835 TREAS BILLS 09/12/02 1.810 50,000 1 2,449.03 1.835 TREAS BILLS 09/12/02 1.810 50,000 1 2,449.03 1.835 TREAS BILLS 09/19/02 1.810 50,000 1 2,446.01 1.835 TREAS BILLS 09/19/02 1.810 50,000 1 2,446.01 1.835 TREAS BILLS 09/19/02 1.810 50,000 1 2,446.01 1.835 RRP TREAS NOTES 4.250% 03/31/03 1.350 50,000 22 (41,984.25) -1.368 TREAS NOTES 4.250% 03/31/03 1.350 50,000 22 (41,984.25) -1.368 TREAS NOTES 4.250% 03/31/03 1.350 50,000 22 (41,984.25) -1.368 TREAS NOTES 4.250% 03/31/03 1.350 50,000 22 (41,984.25) -1.368 PURCHASES g// CP MORG STAN 05/29/02 1.750 50,000 CP MORG STAN 05/29/02 1.750 50,000 CP MORG STAN 05/29/02 1.750 50,000 CP MORG STAN 05/29/02 1.750 50,000 PURCHASES BN US BANK 1.900% 09/26/02 1.900 50,000 BN US BANK 1.900% 09/26/02 1.900 50,000 BN US BANK 1.900% 09/26/02 1.900 50,000 BN US BANK 1.900% 09/26/02 1.900 50,000 CP SALOMON 05/02/02 1.820 50,000 CP SALOMON 05/02/02 1.820 50,000 CP SALOMON 05/02/02 1.820 50,000 CP SALOMON 05/02/02 1.820 50,000 CP CONAGRA 05/14/02 1.870 15,000 CP GEN MILLS 05/29/02 1.950 10,000 CP GEN MILLS 05/29/02 1.950 50,000 CP GE 05/29/02 1.760 50,000 CP GE 05/29/02 1.760 50,000 CP W/F 05/29/02 1.760 50,000 CP W/F 05/29/02 1.760 50,000 CP W/F 05/29/02 1.760 50,000 CP W/F 05/29/02 1.760 50,000 CP DOW 05/31/02 1.920 40,000 CP GE 05/31/02 1.760 50,000 CP GE 05/31/02 1.760 50,000 CP W/F 05/31/02 1.760 50,000 CP W/F 05/31/02 1.760 50,000 CP W/F 05/31/02 1.760 50,000 CP W/F 05/31/02 1.760 50,000 CP CAMPBELL 07/01/02 1.850 33,000 22 04/30/02 PURCHASES (continued) CID CAMPBELL 08/01/02 1.920 25,000 MTN GECC 7.250% 02/01/05 4.210 21,800 23 a/ The abbreviations indicate the type of security purchased or sold; Le., (U.S.) Bills, Bonds, Notes, Debentures, Discount Notes and Participation Certificates: Federal National Mortgage Association (FNMA), Farmers Home Administration Notes (FHA), Student Loan Marketing Association (SLMA), Small Business Association (SBA), Negotiable Certificates of Deposit (CD), Negotiable Certificates of Deposit Floating Rate (CD FR), Export Import Notes (EXIM), Bankers Acceptances (BA), Commercial Paper (CP), Government National Mortgage Association (GNMA), Federal Home Loan Bank Notes (FHLB), Federal Land Bank Bonds (FLB), Federal Home Loan Mortgage Corporation Obligation (FHLMC PC) & (FHLMC GMC), Federal Farm Credit Bank Bonds (FFCB), Federal Farm Credit Discount Notes (FFC), Corporate Securities (CB), US Ship Financing Bonds (TITLE XI'S), International Bank of Redevelopment (IBRD), Tennessee Valley Authority (TVA), Medium Term Notes (MTN), Real Estate Mortgage Investment Conduit (REMIC). b/ Purchase or sold yield based on 360 day calculation for discount obligations and Repurchase Agreements. c/ Repurchase Agreement. d/ Par amount of securities purchased, sold or redeemed. e/ Securities were purchased and sold as of the same date. f/ Repurchase Agreement against Reverse Repurchase Agreement. cam/ Outright purchase against Reverse Repurchase Agreement. h/ Security "SWAP" transactions. i/ Buy back agreement. RRS Reverse Repurchase Agreement. RRP Termination of Reverse Repurchase Agreement. 24 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE Grand National Bank 11/27/01 2.060 3,000,000.00 05/17/02 Grand National Bank 05/17/01 3.700 3,000,000.00 05/17/02 Grand National Bank 07/13/01 3.520 3,095,000.00 07/12/02 Grand National Bank 01/07/02 1.840 1,000,000.00 08/13/02 Grand National Bank 01/09/02 1.840 2,000,000.00 08/13/02 Omni Bank 11/21/01 2.040 2,000,000.00 05/20/02 Omni Bank 11/30/01 1.870 3,000,000.00 06/03/02 Omni Bank 02/27/02 1.920 3,000,000.00 08/27/02 Omni Bank 04/23/02 1.970 2,000,000.00 10/21/02 ARROYO GRANDE Mid -State Bank 11/20/01 2.040 5,000,000.00 05/17/02 Mid -State Bank 12/18/01 1.870 5,000,000.00 06/14/02 Mid -State Bank 01/16/02 1.660 5,000,000.00 07/16/02 Mid -State Bank 02/14/02 1.880 5,000,000.00 08/13/02 Mid -State Bank 03/13/02 2.050 5,000,000.00 09/11/02 Mid -State Bank 04/15/02 2.000 5,000,000.00 10/16/02 i VI;III A:1111%? City National Bank 02/15/02 1.900 25,000,000.00 08/16/02 City National Bank 03/07/02 1.940 40,000,000.00 09/09/02 City National Bank 04/16/02 1.970 25,000,000.00 10/17/02 City National Bank 12/03/01 1.840 25,000,000.00 06/03/02 BREA Jackson Federal Bank 11/14/01 1.900 10,000,000.00 05/13/02 Jackson Federal Bank 01/22/02 1.740 10,000,000.00 07/22/02 Pacific Western National Bank 11/20/01 2.060 1,000,000.00 05/20/02 CALABASAS First Bank of Beverly Hills FSB 02/27/02 1.940 10,000,000.00 08/28/02 First Bank of Beverly Hills FSB 03/20/02 2.120 10,000,000.00 09/18/02 CAMARILLO First California Bank 04/30/02 1.730 2,000,000.00 07/29/02 First California Bank 01/29/02 1.860 2,000,000.00 07/29/02 First California Bank 03/29/02 2.150 3,000,000.00 09/25/02 25 I t 1,T11 AFly;a9l.-T11 +? DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE CAMERON PARK Western Sierra National Bank 01/16/02 1.680 3,000,000.00 07/16/02 Western Sierra National Bank 01/24/02 1.810 4,000,000.00 07/16/02 Western Sierra National Bank 02/06/02 1.890 6,000,000.00 08/15/02 CHICO North State National Bank 11/28/01 2.080 1,500,000.00 05/17/02 North State National Bank 12/07/01 1.890 1,000,000.00 06/05/02 North State National Bank 01/25/02 1.830 5,000,000.00 07/26/02 Tri Counties Bank 03/05/02 1.820 10,000,000.00 06/04/02 Tri Counties Bank 03/18/02 1.890 10,000,000.00 06/19/02 CHULA VISTA North Island Federal Credit Union 01/18/02 1.750 20,000,000.00 07/17/02 North Island Federal Credit Union 02/27/02 1.930 5,000,000.00 08/27/02 CITY OF INDUSTRY EverTrust Bank 12/12/01 1.770 6,000,000.00 06/11/02 EverTrust Bank 01/25/02 1.790 6,000,000.00 07/29/02 CONCORD CA State 9 Credit Union 02/19/02 1.900 10,000,000.00 08/20/02 DUBLIN Operating Engineers FCU 12/11/01 1.790 10,000,000.00 06/12/02 Operating Engineers FCU 02/04/02 1.910 5,000,000.00 08/13/02 Operating Engineers FCU 04/09/02 2.080 5,000,000.00 10/10/02 EL CENTRO Valley Independent Bank 02/14/02 1.800 7,500,000.00 05/15/02 Valley Independent Bank 04/30/02 1.900 20,000,000.00 10/28/02 EL SEGUNDO Hawthorne Savings FSB 01/04/02 1.870 30,000,000.00 07/09/02 Hawthorne Savings FSB 04/04/02 2.170 30,000,000.00 10/01/02 Xerox Federal Credit Union 02/14/02 1.890 20,000,000.00 08/16/02 26 NAME EL SEGUNDO (continued Xerox Federal Credit Union FRESNO United Security Bank United Security Bank United Security Bank FULLERTON Fullerton Community Bank Fullerton Community Bank GLENDALE Verdugo Banking Company Verdugo Banking Company GRANADA HILLS First State Bank of California First State Bank of California HUNTINGTON BEACH First Bank and Trust First Bank and Trust First Bank and Trust IRVINE Commercial Capital Bank Commercial Capital Bank LA JOLLA Silvergate Bank Silvergate Bank Silvergate Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 03/04/02 1.910 7,000,000.00 09/06/02 11/15/01 1.910 10,000,000.00 05/14/02 02/06/02 1.880 15,000,000.00 08/05/02 04/10/02 2.030 5,000,000.00 10/11/02 11/19/01 2.040 9,000,000.00 05/17/02 01/25/02 1.860 8,000,000.00 07/26/02 01/08/02 1.840 5,000,000.00 07/02/02 04/02/02 2.150 5,000,000.00 10/01/02 03/18/02 2.110 2,000,000.00 09/18/02 04/23/02 1.970 3,000,000.00 10/21/02 02/26/02 1.910 2,000,000.00 08/26/02 03/11/02 2.030 12,000,000.00 09/09/02 04/26/02 1.960 3,000,000.00 10/24/02 01/07/02 1.880 6,000,000.00 07/01/02 02/26/02 1.950 14,000,000.00 08/26/02 02/04/02 1.900 5,000,000.00 08/02/02 03/14/02 2.070 1,500,000.00 09/11/02 03/13/02 2.090 3,500,000.00 09/11/02 27 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE LAKEPORT Lake Community Bank 12/28/01 1.870 2,000,000.00 06/26/02 LODI Farmers & Merchant Bk Cen CA 01/11/02 1.790 10,000,000.00 07/10/02 LOS ANGELES Broadway Federal Bank 01/08/02 1.850 2,500,000.00 07/08/02 Broadway Federal Bank 03/11/02 2.060 3,000,000.00 09/09/02 California Center Bank 04/03/02 2.150 10,000,000.00 10/01/02 California Chohung Bank 04/11/02 1.730 2,500,000.00 06/26/02 California Chohung Bank 04/15/02 1.730 1,000,000.00 07/17/02 California Chohung Bank 02/19/02 1.870 4,000,000.00 08/19/02 California Chohung Bank 03/28/02 2.140 4,000,000.00 10/02/02 California Chohung Bank 04/02/02 2.130 1,500,000.00 10/02/02 California Chohung Bank 04/11/02 2.000 800,000.00 10/16/02 Cathay Bank 03/04/02 1.810 30,000,000.00 06/06/02 Cathay Bank 03/25/02 2.170 19,000,000.00 09/25/02 Cathay Bank 04/08/02 2.100 19,000,000.00 10/09/02 Cedars Bank 12/21/01 1.840 2,000,000.00 06/19/02 Cedars Bank 01/08/02 1.850 2,500,000.00 07/11/02 Cedars Bank 03/06/02 1.980 2,000,000.00 09/06/02 Cedars Bank 03/06/02 1.980 2,500,000.00 09/06/02 Cedars Bank 04/25/02 1.990 4,000,000.00 10/24/02 Eastern International Bank 11/05/01 1.980 900,000.00 05/07/02 Eastern International Bank 12/10/01 1.890 1,000,000.00 06/10/02 General Bank 02/20/02 1.770 15,000,000.00 05/24/02 General Bank 12/10/01 1.830 25,000,000.00 06/07/02 General Bank 01/18/02 1.730 15,000,000.00 07/17/02 General Bank 01/28/02 1.860 20,000,000.00 08/01/02 General Bank 02/08/02 1.870 15,000,000.00 08/13/02 General Bank 02/20/02 1.870 15,000,000.00 08/22/02 General Bank 03/07/02 1.940 15,000,000.00 09/04/02 General Bank 03/18/02 2.100 20,000,000.00 09/18/02 Hanmi Bank 01/31/02 1.740 20,000,000.00 05/02/02 Hanmi Bank 02/26/02 1.790 25,000,000.00 05/28/02 Hanmi Bank 03/21/02 1.850 25,000,000.00 06/20/02 Hanmi Bank 04/16/02 1.720 25,000,000.00 07/18/02 Manufacturers Bank 01/31/02 1.760 10,000,000.00 05/01/02 Manufacturers Bank 03/11/02 2.050 30,000,000.00 09/09/02 28 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE LOS ANGELES (continued) Manufacturers Bank 03/21/02 2.110 20,000,000.00 09/20/02 Marathon National Bank 04/08/02 1.820 2,000,000.00 07/12/02 Marathon National Bank 02/04/02 1.930 2,000,000.00 08/05/02 Mellon First Business Bank 02/01/02 1.760 25,000,000.00 05/02/02 Mellon First Business Bank 03/20/02 1.870 25,000,000.00 06/19/02 Mellon First Business Bank 04/04/02 1.820 25,000,000.00 07/10/02 Mellon First Business Bank 03/20/02 2.080 25,000,000.00 09/18/02 Nara Bank, NA 12/19/01 1.830 5,000,000.00 06/17/02 Nara Bank, NA 04/18/02 2.000 10,000,000.00 10/21/02 Nara Bank, NA 04/22/02 2.000 5,000,000.00 10/21/02 Pacific Union Bank 01/03/02 1.860 10,000,000.00 07/02/02 Pacific Union Bank 03/05/02 1.920 20,000,000.00 09/04/02 Preferred Bank 02/08/02 1.790 4,000,000.00 05/09/02 Preferred Bank 02/26/02 1.820 7,000,000.00 05/28/02 Preferred Bank 03/08/02 1.840 9,000,000.00 06/10/02 Preferred Bank 07/16/01 3.550 6,000,000.00 07/16/02 Preferred Bank 03/18/02 2.120 9,000,000.00 09/18/02 Sae Han Bank 01/15/02 1.620 6,000,000.00 07/15/02 State Bank of India (Calif) 04/02/02 1.840 5,500,000.00 07/01/02 State Bank of India (Calif) 07/18/01 3.510 2,000,000.00 07/18/02 State Bank of India (Calif) 02/25/02 1.890 2,000,000.00 08/27/02 Western Federal Credit Union 04/22/02 2.000 25,000,000.00 10/21/02 Western Federal Credit Union 04/22/02 2.000 5,000,000.00 10/21/02 Wilshire State Bank 11/06/01 1.970 4,000,000.00 05/06/02 Wilshire State Bank 11/15/01 1.910 2,000,000.00 05/14/02 Wilshire State Bank 12/19/01 1.850 8,000,000.00 06/18/02 Wilshire State Bank 07/13/01 3.540 4,000,000.00 07/12/02 Wilshire State Bank 02/05/02 1.880 4,000,000.00 08/06/02 Wilshire State Bank 02/27/02 1.920 4,000,000.00 08/26/02 MANTECA Delta National Bank 04/04/02 1.850 1,000,000.00 07/10/02 Delta National Bank 04/10/02 2.040 2,000,000.00 10/11/02 MERCED County Bank 12/07/01 1.910 10,000,000.00 06/06/02 County Bank 01/16/02 1.680 5,000,000.00 07/16/02 County Bank 02/26/02 1.930 5,000,000.00 08/26/02 County Bank 04/15/02 2.020 5,000,000.00 10/16/02 29 NAME MONTEREY PARK Trust Bank FSB Trust Bank FSB NORTH HIGHLANDS Safe Credit Union Safe Credit Union OAKDALE Oak Valley Community Bank Oak Valley Community Bank Oak Valley Community Bank OAKLAND Metropolitian Bank Metropolitian Bank Metropolitian Bank ONTARIO Citizens Business Bank Citizens Business Bank Citizens Business Bank Citizens Business Bank Citizens Business Bank PALO ALTO Bank of Petaluma Bank of Petaluma Bank of Santa Clara Bay Area Bank Bay Area Bank Bay Bank of Commerce Coast Commercial Bank Coast Commercial Bank Cupertino National Bank Cupertino National Bank Cupertino National Bank Cupertino National Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 01/02/02 1.860 3,000,000.00 07/01/02 04/02/02 2.160 3,000,000.00 10/01/02 01/14/02 1.750 5,000,000.00 07/15/02 02/06/02 1.870 20,000,000.00 08/15/02 06/05/01 3.640 1,500,000.00 06/05/02 04/08/02 1.800 2,500,000.00 07/12/02 03/22/02 2.640 2,000,000.00 03/20/03 11/29/01 1.960 1,000,000.00 05/28/02 03/25/02 2.180 1,000,000.00 09/25/02 04/29/02 1.930 1,000,000.00 10/28/02 05/07/01 3.800 10,000,000.00 05/07/02 12/03/01 1.830 25,000,000.00 06/03/02 08/22/01 3.480 30,000,000.00 08/22/02 03/26/02 2.150 30,000,000.00 09/25/02 04/05/02 2.110 25,000,000.00 10/04/02 02/25/02 1.910 3,500,000.00 08/23/02 03/13/02 2.070 12,000,000.00 09/11/02 02/25/02 1.910 20,000,000.00 08/23/02 01/14/02 1.760 5,000,000.00 07/15/02 04/29/02 1.880 5,000,000.00 10/28/02 04/29/02 1.900 5,000,000.00 10/28/02 01/14/02 1.780 5,000,000.00 07/15/02 02/25/02 1.910 20,000,000.00 08/23/02 01/14/02 1.760 10,000,000.00 07/15/02 04/29/02 1.780 35,000,000.00 07/30/02 02/25/02 1.890 20,000,000.00 08/23/02 03/13/02 2.050 10,000,000.00 09/11/02 30 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE PALO ALTO (continued Golden Gate Bank 02/25/02 1.910 9,000,000.00 08/23/02 Mid -Peninsula Bank 02/25/02 1.900 5,000,000.00 08/23/02 Mid -Peninsula Bank 03/13/02 2.060 10,000,000.00 09/11/02 Mid -Peninsula Bank 04/29/02 1.890 35,000,000.00 10/28/02 Mt. Diablo National Bank 03/13/02 2.080 10,000,000.00 09/11/02 Peninsula Bank of Commerce 02/25/02 1.890 15,000,000.00 08/23/02 PALOS VERDES ESTATES Malaga Bank 02/22/02 1.910 2,000,000.00 08/22/02 Malaga Bank 03/15/02 2.060 2,000,000.00 09/12/02 Malaga Bank 04/26/02 1.900 4,000,000.00 10/24/02 PASADENA Community Bank 06/22/01 3.400 20,000,000.00 06/21/02 Community Bank 07/11/01 3.520 20,000,000.00 07/11/02 Community Bank 01/28/02 1.860 10,000,000.00 07/11/02 Community Bank 02/08/02 1.850 15,000,000.00 08/09/02 Community Bank 04/25/02 1.910 5,000,000.00 10/23/02 Wescom Credit Union 11/13/01 1.840 10,000,000.00 05/13/02 Wescom Credit Union 12/14/01 1.830 15,000,000.00 06/12/02 Wescom Credit Union 01/28/02 1.890 15,000,000.00 07/26/02 PLACERVILLE El Dorado Savings Bank 05/02/01 3.910 5,000,000.00 05/02/02 El Dorado Savings Bank 06/18/01 3.460 5,000,000.00 06/10/02 El Dorado Savings Bank 06/05/01 3.640 5,000,000.00 06/10/02 El Dorado Savings Bank 12/13/01 1.740 10,000,000.00 06/10/02 El Dorado Savings Bank 02/08/02 2.250 5,000,000.00 02/07/03 El Dorado Savings Bank 03/07/02 2.390 5,000,000.00 03/07/03 El Dorado Savings Bank 03/22/02 2.640 5,000,000.00 03/20/03 El Dorado Savings Bank 04/12/02 2.640 10,000,000.00 04/10/03 PLEASANTON Valley Community Bank 03/14/02 2.080 5,000,000.00 09/12/02 POMONA PFF Bank and Trust 12/04/01 1.820 10,000,000.00 06/03/02 31 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE POMONA (continued) PFF Bank and Trust 12/06/01 1.890 10,000,000.00 06/03/02 PFF Bank and Trust 02/28/02 1.890 8,000,000.00 08/30/02 PORTERVILLE Bank of the Sierra 04/22/02 2.020 10,000,000.00 10/21/02 RANCHO SANTA FE La Jolla Bank, FSB 11/20/01 2.060 15,000,000.00 05/23/02 La Jolla Bank, FSB 02/01/02 1.880 10,000,000.00 08/06/02 La Jolla Bank, FSB 08/06/01 3.500 15,000,000.00 08/06/02 La Jolla Bank, FSB 03/01/02 1.910 10,000,000.00 09/04/02 RED BLUFF Tehama Bank 07/03/01 3.620 5,000,000.00 07/03/02 REDDING North Valley Bank 12/14/01 1.810 3,000,000.00 06/12/02 REDWOOD CITY Provident Central Credit Union 11/01/01 2.020 20,000,000.00 05/01/02 ROCKLIN Five Star Bank 04/04/02 2.150 2,000,000.00 10/01/02 RICHMOND Mechanics Bank 05/07/01 3.870 10,000,000.00 05/07/02 Mechanics Bank 06/12/01 3.560 10,000,000.00 06/12/02 Mechanics Bank 07/11/01 3.520 10,000,000.00 07/11/02 Mechanics Bank 08/13/01 3.490 10,000,000.00 08/13/02 Mechanics Bank 03/15/02 2.040 10,000,000.00 09/12/02 Mechanics Bank 10/12/01 2.380 10,000,000.00 10/15/02 Mechanics Bank 03/07/02 2.390 10,000,000.00 03/07/03 Mechanics Bank 04/05/02 2.710 10,000,000.00 04/01/03 Mechanics Bank 04/25/02 2.440 10,000,000.00 04/23/03 32 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE SACRAMENTO American River Bank 06/26/01 3.380 1,000,000.00 06/26/02 American River Bank 01/11/02 1.780 1,000,000.00 07/10/02 American River Bank 03/29/02 2.140 2,000,000.00 08/29/02 American River Bank 03/29/02 2.140 2,000,000.00 09/25/02 American River Bank 04/10/02 2.010 1,500,000.00 10/11/02 American River Bank 01/14/02 2.200 1,500,000.00 01/14/03 Bank of Sacramento 11/15/01 1.930 1,500,000.00 05/14/02 Bank of Sacramento 11/29/01 1.960 2,000,000.00 05/28/02 Bank of Sacramento 03/21/02 2.130 2,000,000.00 09/20/02 Golden One Credit Union 12/05/01 1.820 10,000,000.00 05/23/02 Golden One Credit Union 06/08/01 3.600 10,000,000.00 06/07/02 Golden One Credit Union 03/22/02 1.920 10,000,000.00 07/19/02 Golden One Credit Union 03/22/02 2.160 10,000,000.00 09/20/02 Golden One Credit Union 04/25/02 1.910 10,000,000.00 10/23/02 Merchants National Bank 07/23/01 3.460 2,000,000.00 07/23/02 Merchants National Bank 04/17/02 1.960 2,000,000.00 10/17/02 River City Bank 01/07/02 1.860 2,000,000.00 07/01/02 River City Bank 01/28/02 1.870 3,000,000.00 07/29/02 River City Bank 02/26/02 1.930 2,000,000.00 08/27/02 River City Bank 04/02/02 2.150 4,000,000.00 10/01/02 U.S. Bank 08/07/01 3.550 25,000,000.00 05/06/02 U.S. Bank 02/04/02 1.800 25,000,000.00 05/06/02 U.S. Bank 02/04/02 1.930 25,000,000.00 08/02/02 U.S. Bank 02/19/02 1.890 25,000,000.00 08/23/02 Union Bank of California 11/09/01 1.800 150,000,000.00 05/08/02 Union Bank of California 12/19/01 1.830 100,000,000.00 06/18/02 Union Bank of California 04/17/02 1.960 150,000,000.00 10/17/02 United California Bank 03/06/02 1.960 82,000,000.00 09/06/02 SAN BERNARDINO Business Bank of California 02/05/02 1.810 12,000,000.00 05/06/02 Business Bank of California 04/09/02 1.800 8,000,000.00 07/12/02 SAN DIEGO First Future Credit Union 11/30/01 1.850 5,000,000.00 05/29/02 First Future Credit Union 12/19/01 1.830 3,000,000.00 06/21/02 First Future Credit Union 03/01/02 1.890 5,000,000.00 08/30/02 First United Bank 01/18/02 1.680 2,000,000.00 07/18/02 First United Bank 02/15/02 2.300 1,000,000.00 02/14/03 Neighborhood National Bank 02/22/02 1.910 2,000,000.00 08/22/02 33 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE SAN FRANCISCO Bank of Canton California 11/21/01 2.050 10,000,000.00 05/22/02 Bank of Canton California 05/22/01 3.770 15,000,000.00 05/22/02 Bank of Canton California 12/12/01 1.770 20,000,000.00 06/11/02 Bank of Canton California 07/16/01 3.550 25,000,000.00 07/16/02 Bank of Canton California 08/31/01 3.470 20,000,000.00 08/30/02 Bank of Canton California 04/12/02 2.030 15,000,000.00 10/10/02 Bank of Canton California 03/08/02 2.390 20,000,000.00 03/07/03 Bank of the West 11/20/01 2.050 142,000,000.00 05/20/02 Bank of the West 04/15/02 1.740 50,000,000.00 07/01/02 Bank of the West 04/02/02 1.850 84,000,000.00 07/01/02 Bank of the West 01/24/02 1.780 76,500,000.00 07/23/02 Bank of the West 02/20/02 1.870 100,000,000.00 08/20/02 California Federal Bank 12/14/01 1.800 50,000,000.00 06/07/02 California Federal Bank 01/04/02 1.860 50,000,000.00 07/03/02 California Federal Bank 02/22/02 1.900 50,000,000.00 08/22/02 California Federal Bank 04/15/02 2.010 100,000,000.00 10/16/02 California Pacific Bank 02/15/02 1.770 1,000,000.00 05/16/02 California Pacific Bank 03/28/02 1.830 2,000,000.00 06/27/02 California Pacific Bank 04/10/02 1.770 1,000,000.00 07/17/02 Oceanic Bank 03/15/02 2.040 4,000,000.00 09/12/02 Trans Pacific National Bank 02/05/02 1.880 1,000,000.00 08/05/02 Trans Pacific National Bank 03/19/02 2.110 800,000.00 09/19/02 Trans Pacific National Bank 03/19/02 2.110 200,000.00 09/19/02 United Commercial Bank 06/05/01 3.660 10,000,000.00 06/05/02 United Commercial Bank 12/14/01 1.810 25,000,000.00 06/05/02 United Commercial Bank 12/21/01 1.840 25,000,000.00 07/02/02 United Commercial Bank 04/04/02 1.840 30,000,000.00 07/10/02 United Commercial Bank 07/31/01 3.480 40,000,000.00 07/31/02 United Commercial Bank 02/28/02 1.900 30,000,000.00 08/30/02 SANJOSE Comerica Bank of California 02/06/02 1.810 183,000,000.00 05/07/02 Comerica Bank of California 03/04/02 1.820 63,000,000.00 06/06/02 Comerica Bank of California 04/09/02 1.800 71,000,000.00 07/12/02 Heritage Bank of Commerce 02/15/02 1.900 2,000,000.00 08/15/02 Meriwest Credit Union 02/06/02 1.810 5,000,000.00 05/07/02 Meriwest Credit Union 12/20/01 1.860 5,000,000.00 06/18/02 Meriwest Credit Union 01/18/02 1.750 5,000,000.00 07/19/02 Meriwest Credit Union 02/28/02 1.920 5,000,000.00 08/28/02 San Jose National Bank 04/30/02 1.780 20,000,000.00 07/30/02 San Jose National Bank 02/13/02 1.840 20,000,000.00 08/14/02 34 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE SAN JOSE (continued) Santa Clara Co. Fed. C.U. 02/05/02 1.880 15,000,000.00 08/06/02 SAN LUIS OBISPO First Bank Of San Luis Obispo 03/27/02 1.890 5,000,000.00 06/26/02 Mission Community Bank 12/10/01 1.840 1,000,000.00 06/11/02 Mission Community Bank 03/08/02 2.010 1,000,000.00 09/05/02 Mission Community Bank 04/09/02 2.030 2,500,000.00 10/10/02 San Luis Trust Bank 01/08/02 1.840 1,350,000.00 07/11/02 San Luis Trust Bank 04/24/02 1.930 1,000,000.00 10/23/02 SAN MARINO East West Federal Bank 11/16/01 1.900 38,000,000.00 05/15/02 East West Federal Bank 11/28/01 2.080 35,000,000.00 06/10/02 East West Federal Bank 01/04/02 1.860 42,000,000.00 07/09/02 East West Federal Bank 02/07/02 2.260 35,000,000.00 02/07/03 SAN RAFAEL Metro Commerce Bank 11/28/01 2.070 1,800,000.00 05/30/02 Westamerica Bank 02/07/02 1.760 35,000,000.00 05/08/02 Westamerica Bank 07/18/01 3.510 25,000,000.00 07/18/02 Westamerica Bank 07/30/01 3.490 50,000,000.00 07/30/02 Westamerica Bank 04/09/02 2.570 35,000,000.00 04/10/03 SAN RAMON EBTEL Federal Credit Union 01/02/02 1.840 1,000,000.00 07/01/02 EBTEL Federal Credit Union 02/13/02 1.800 750,000.00 07/18/02 EBTEL Federal Credit Union 02/14/02 1.860 1,000,000.00 08/13/02 SANTA BARBARA FNB of Central California 11/30/01 1.860 10,000,000.00 06/03/02 FNB of Central California 12/20/01 1.840 10,000,000.00 06/14/02 FNB of Central California 01/25/02 1.810 15,000,000.00 07/25/02 FNB of Central California 03/11/02 2.040 10,000,000.00 09/09/02 FNB of Central California 04/10/02 2.020 10,000,000.00 10/11/02 Santa Barbara Bank & Trust 11/01/01 2.000 10,000,000.00 05/01/02 Santa Barbara Bank & Trust 11/30/01 1.850 20,000,000.00 06/03/02 Santa Barbara Bank & Trust 12/20/01 1.830 20,000,000.00 06/14/02 35 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE SANTA BARBARA (continued Santa Barbara Bank & Trust 01/25/02 1.800 30,000,000.00 07/25/02 Santa Barbara Bank & Trust 02/08/02 1.850 16,000,000.00 08/15/02 Santa Barbara Bank & Trust 04/02/02 2.130 10,000,000.00 10/01/02 SANTA CLARITA Valencia Bank & Trust 03/19/02 2.110 4,000,000.00 09/19/02 SANTA MARIA Hacienda Bank 03/11/02 2.030 1,000,000.00 09/09/02 SANTA ROSA National Bank of the Redwoods 01/28/02 1.860 5,000,000.00 07/26/02 National Bank of the Redwoods 04/26/02 1.970 10,000,000.00 10/24/02 Redwood Credit Union 12/28/01 1.840 8,000,000.00 06/24/02 Redwood Credit Union 02/28/02 1.950 17,000,000.00 08/28/02 SONORA Central California Bank 03/04/02 1.920 1,000,000.00 09/05/02 STOCKTON Pacific State Bank 01/08/02 1.850 1,000,000.00 07/02/02 Pacific State Bank 04/10/02 2.040 1,000,000.00 10/11/02 Service 1st Bank 01/31/02 1.780 2,000,000.00 05/01/02 Service 1st Bank 02/05/02 1.900 2,000,000.00 08/05/02 Union Safe Deposit Bank 11/05/01 2.020 10,000,000.00 05/07/02 Union Safe Deposit Bank 12/11/01 1.830 10,000,000.00 06/12/02 Union Safe Deposit Bank 01/23/02 1.820 15,000,000.00 07/25/02 Union Safe Deposit Bank 02/14/02 1.930 5,000,000.00 08/15/02 Union Safe Deposit Bank 02/14/02 1.930 10,000,000.00 08/15/02 Union Safe Deposit Bank 03/01/02 1.930 5,000,000.00 09/04/02 Union Safe Deposit Bank 03/01/02 1.930 10,000,000.00 09/04/02 Union Safe Deposit Bank 04/11/02 2.070 10,000,000.00 10/10/02 Washington Mutual Bank 12/21/01 1.830 15,000,000.00 06/17/02 Washington Mutual Bank 12/10/01 1.820 30,000,000.00 06/17/02 Washington Mutual Bank 01/24/02 1.770 60,000,000.00 07/23/02 Washington Mutual Bank 02/19/02 1.870 60,000,000.00 08/19/02 36 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE SUNNYVALE Asiana Bank 03/21/02 2.110 1,500,000.00 09/20/02 1fe]azwIlreT China Trust Bank (USA) 04/18/02 1.750 30,000,000.00 07/19/02 China Trust Bank (USA) 02/15/02 1.910 20,000,000.00 08/16/02 China Trust Bank (USA) 03/14/02 2.060 35,000,000.00 09/12/02 South Bay Bank 11/08/01 1.780 4,000,000.00 05/07/02 South Bay Bank 03/20/02 1.930 2,000,000.00 06/19/02 South Bay Bank 01/25/02 1.830 1,000,000.00 07/24/02 South Bay Bank 03/01/02 1.890 3,000,000.00 08/29/02 South Bay Bank 03/15/02 2.030 5,000,000.00 09/12/02 TUSTIN First Fidelity Investment & Loan 02/07/02 1.770 15,000,000.00 05/08/02 First Fidelity Investment & Loan 03/05/02 1.810 15,000,000.00 06/04/02 First Fidelity Investment & Loan 04/16/02 1.730 10,000,000.00 07/18/02 Sunwest Bank 02/08/02 1.760 7,800,000.00 05/10/02 Sunwest Bank 03/08/02 1.810 1,000,000.00 06/10/02 Sunwest Bank 04/09/02 1.770 3,500,000.00 07/12/02 Sunwest Bank 04/26/02 1.750 2,500,000.00 07/12/02 VACAVILLE Travis Credit Union 02/28/02 1.930 40,000,000.00 08/28/02 WATSONVILLE Monterey Bay Bank 12/17/01 1.840 3,000,000.00 06/17/02 Monterey Bay Bank 01/07/02 1.860 8,000,000.00 07/10/02 Monterey Bay Bank 03/20/02 2.100 8,000,000.00 09/19/02 Monterey Bay Bank 04/12/02 2.000 3,000,000.00 10/10/02 WHITTIER Quaker City Bank 11/27/01 2.080 25,000,000.00 05/24/02 Quaker City Bank 12/28/01 1.830 10,000,000.00 07/12/02 Quaker City Bank 01/08/02 1.860 14,000,000.00 07/12/02 Quaker City Bank 04/05/02 2.110 16,000,000.00 10/04/02 TOTAL TIME DEPOSITS APRIL 2002 5,167,995,000.00 37 BANK DEMAND DEPOSITS APRIL 2002 ($ in thousands) DAILY BALANCES DAY OF BALANCES WARRANTS MONTH PER BANKS OUTSTANDING 1 $ 1,202,224 $ 3,086,029 2 1,609,573 3,034,791 3 1,032,691 2,104,494 4 510,956 2,174,377 5 649,556 3,582,890 6 649,556 3,582,890 7 649,556 3,582,890 8 469,493 3,596,367 9 971,397 3,459,276 10 514,983 3,223,520 11 40,983 2,628,119 12 593,775 2,244,541 13 593,775 2,244,541 14 593,775 2,244,541 15 98,507 2,197,184 16 708,036 2,258,028 17 1,030,687 2,260,155 18 771,606 2,700,044 19 1,087,670 2,888,832 20 1,087,670 2,888,832 21 1,087,670 2,888,832 22 832,212 2,474,375 23 1,033,507 2,517,535 24 1,474,729 2,370,776 25 1,149, 785 2,429,434 26 887,569 2,710,958 27 887,569 2,710,958 28 887,569 2,710,958 29 1,158,817 2,595,584 30 1,169, 976 1,977,325 AVERAGE DOLLAR DAYS $ 847,863 a/ a� The prescribed bank balance for April was $930,406 . This consisted of $537,852 in compensating balances for services, balances for uncollected funds of $411,638 and a deduction of $19,084 for April delayed deposit credit. 38 DESIGNATION BY POOLED MONEY INVESTMENT BOARD OF TREASURY POOLED MONEY INVESTMENTS AND DEPOSITS No. 1634 In accordance with sections 16480 through 16480.8 of the Government Code, the Pooled Money Investment Board, at its meeting on April 17, 2002, has determined and designated the amount of money available for deposit and investment under said sections. In accordance with sections 16480.1 and 16480.2 of the Government Code, it is the intent that the money available for deposit or investment be deposited in bank accounts and savings and loan associations or invested in securities in such a manner so as to realize the maximum return consistent with safe and prudent treasury management, and the Board does hereby designate the amount of money available for deposit in bank accounts, savings and loan associ- actions, and for investment in securities and the type of such deposits and investments as follows: 1. In accordance with law, for deposit in demand bank accounts as Compensating Balance for Services $ 537,852,000 The active noninterest-bearing bank accounts designation constitutes a calendar month average balance. For purposes of computing the compensating balances, the Treasurer shall exclude from the daily balances any amounts contained therein as a result of nondelivery of securities purchased for "cash" for the Pooled Money Investment Account and shall adjust for any deposits not credited by the bank as of the date of deposit. The balances in such accounts may fall below the above amount provided that the balances computed by dividing the sum of daily balances of that calendar month by the number of days in the calendar month reasonably approximates that amount. The balances may exceed this amount during heavy collection periods or in anticipation of large impending warrant presentations to the Treasury, but the balances are to be maintained in such a manner as to realize the maximum return consistent with safe and prudent treasury management. 2. In accordance with law, for investment in securities authorized by section 16430, Government Code, or in term interest - bearing deposits in banks and savings and loan associations as follows: Time Deposits in Various Financial Institutions In Securities (sections 16503a Estimated From To Transactions (section 16430)* and 16602)* Total ( 1) 4/15/2002 4/19/2002 $ 3,630,900,000 $ 42,929,405,000 $ 5,157,495,000 $ 48,086,900,000 (2) 4/22/2002 4/26/2002 $ 3,704,818,000 $ 46,634,223,000 $ 5,157,495,000 $ 51,791,718,000 (3) 4/29/2002 5/3/2002 $ 1,868,100,000 $ 48,502,323,000 $ 5,157,495,000 $ 53,659,818,000 (4) 5/6/2002 5/10/2002 $ 241,300,000 $ 48,743,623,000 $ 5,157,495,000 $ 53,901,118,000 (5) 5/13/2002 5/17/2002 $ (150,600,000) $ 48,593,023,000 $ 5,157,495,000 $ 53,750,518,000 (6) 5/20/2002 5/24/2002 $ 1,464,411,000 $ 50,057,434,000 $ 5,157,495,000 $ 55,214,929,000 (7) 5/27/2002 5/31/2002 $ (2,049,100,000) $ 48,008,334,000 $ 5,157,495,000 $ 53,165,829,000 (8) 6/3/2002 6/7/2002 $ 599,700,000 $ 48,608,034,000 $ 5,157,495,000 $ 53,765,529,000 (9) 6/10/2002 6/14/2002 $ (8,500,000) $ 48,599,534,000 $ 5,157,495,000 $ 53,757,029,000 (10) 6/17/2002 6/21/2002 $ 2,697,400,000 $ 51,296,934,000 $ 5,157,495,000 $ 56,454,429,000 From any of the amounts specifically designated above, not more than 30 percent in the aggregate may be invested in prime commercial paper under section 16430(e), Government Code. Additional amounts available in treasury trust account and in the Treasury from time to time, in excess of the amounts and for the same types of investments as specifically designated above. Provided, that the availability of the amounts shown under paragraph 2 is subject to reduction in the amount by which the bank accounts under paragraph 1 would otherwise be reduced below the calendar month average balance of $ 537,852,000. POOLED MONEY INVESTMENT BOARD: Signatures on file at STO & SCO Chairperson Member Dated: April 17, 2002 * Government Code Member INVESTMENT ADVISORY BOARD MEETING Correspondence and Written Material: C Meeting Date: July 10, 2002 ITEM TITLE Distribution of Investment Policies for Fiscal Year 2003/2003 BACKGROUND: On June 18, 2002 the City Council approved the Investment Policies for Fiscal Year 2002/2003 which are attached. RECOMMENDATION: Receive and File. John M. Falconer/, Finance Director CITY OF LA QUINTA Investment Policy Table of Contents Section Topic Page Executive Summary 2 I General Purpose 5 II Investment Policy 5 III Scope 5 IV Objectives 6 ► Safety ► Liquidity ► Yield ► Diversified Portfolio V Maximum Maturities 7 VI Prudence 7 VII Delegation of Authority 8 Vill Conflict of Interest 8 IX Authorized Financial Dealers and Institutions 8 ► Broker/Dealers ► Financial Institutions X Authorized Investments and Limitations 10 XI Investment Pools 13 XII Safekeeping and Custody 14 XIII Interest Earning Distribution Policy 14 XIV Internal Controls and Independent Auditors 14 XV Benchmark 16 XVI Reporting Standards 16 XVII Investment of Bond Proceeds 17 XVIII Investment Advisory Board - City of La Quinta 17 IX Investment Policy Adoption 17 Appendices: A. Summary of Authorized Investments and Limitations 19 B. Municipal Code Ordinance 2.70 - Investment Advisory Board 20 C. Municipal Code Ordinance 3.08 - Investment of Moneys and Funds 21 D. Segregation of Major Investment Responsibilities 23 E. Listing of Approved Financial Institutions 24 F. Broker/Dealer Questionnaire and Certification 25 G. Investment Pool Questionnaire 30 H. Glossary 34 1 City of La Quinta Investment Policy Executive Summary The general purpose of this Investment Policy is to provide the rules and standards users must follow in investing funds of the City of La Quinta. It is the policy of the City of La Quinta to invest all public funds in a manner which will provide a diversified portfolio with maximum security while meeting daily cash flow demands and the highest investment return in conformity to all state and local statutes. This Policy applies to all cash and investments of the City of La Quinta, La Quinta Redevelopment Agency and the La Quinta Financing Authority, hereafter referred in this document as the "City". The primary objectives, in order of priority, of the City of La Quinta's investment activity shall be: 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 investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designed with the objective of attaining a market rate of return or yield throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Within the constraints of safety, liquidity and yield, the City will endeavor to maintain a diversified portfolio by allocating assets between different types of investments within policy limitations. 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. 2 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 and implement written procedures for the operation of the City's investment program consistent with the Investment Policy. The Treasurer shall establish and implement a system of internal controls to maintain the safety of the portfolio. In addition, the internal control system will also insure the timely preparation and accurate reporting of the portfolio financial information. As part of the annual audit of the City of La Quinta's financial statements the independent auditor reviews the adequacy of those controls and comments if weaknesses are found. Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance to a reasonable person of questionable or improper influence. The City of La Quinta Investment Policy maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions selected by the Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The Treasurer will be permitted to invest only in City approved investments up to the maximum allowable percentages or dollar limitations and, where applicable, through the bid process requirements. Authorized investment vehicles and related maximum portfolio positions are listed in Appendix A - Summary of Authorized Investments and Limitations. At least two bids will be required of investments in the authorized investment vehicles. Collateral ization will be required for Certificates of Deposits in excess of $100,000. Collateral will always be held by an independent third party from the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateral ization policies must be supplied to the City and retained by the City Treasurer. The City of La Quinta Investment Policy shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council, except the projected annual dollar amount as detailed in Section V, may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. In addition, the City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. The City's investment in Money Market Mutual funds is allowable as long as the average maturity does not exceed 60 days. The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. 3 The Investment Policies shall be adopted by resolution of the La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. This Executive Summary is an overall review of the City of La Quinta Investment Policies. Reading this summary does not constitute a complete review, which can only be accomplished by reviewing all the pages. M City of La Quinta Statement of Investment Policy July 1, 2002 through June 30, 2003 Adopted by the City Council on June 18, 2002 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 safety of principal as the primary objective while meeting daily cash flow demands with the highest investment return. 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 ► Special Revenue ► Capital Projects ► Debt Service ► Internal Service ► Trust and Agency ► Any new fund types and fund(s) that may be created. 5 P.O. Box 1504 78-495 CALLE TAMPICO LA QUINTA, CALIFORNIA 92253 City of La Quinta Statement of Investment Policy July 1, 2002 through June 30, 2003 Adopted by the City Council on June 18, 2002 GENERAL PURPOSE (760) 777-7000 FAX (760) 777-7101 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 safety of principal as the primary objective while meeting daily cash flow demands with the highest investment return. 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 ► Special Revenue ► Capital Projects ► Debt Service ► Internal Service ► Trust and Agency ► Any new fund types and fund(s) that may be created. 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 in accordance with the permitted investments. 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 sufficient liquid funds are available to meet anticipated demands. Furthermore since all possible cash demands cannot be anticipated the portfolio should be diversified and consist of securities with active secondary or resale markets. Securities shall not be sold prior to maturity with the following exceptions: ► A declining credit quality security could be sold early to minimize loss of principal; C.1 ► Liquidity needs of the portfolio require that the security be sold. 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 relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed 4. Diversified Portfolio Within the constraints of safety, liquidity and yield, the City will endeavor to maintain a diversified portfolio by allocating assets between different types of investments within policy limitations. V MAXIMUM MATURITIES It is the policy of the City of La Quinta to hold securities and other investments of cash in financial instruments until maturity, thus avoiding the risk that the market value on investments fluctuates with overall market interest rates. The hold until maturity policy shall not prevent the sale of a security to minimize loss of principal when the issuer or backer suffers declining credit worthiness. The hold until maturity policy requires that the City of La Quinta's investment portfolio is structured so that sufficient funds are available from maturing investments and other sources to meet anticipated cash needs. To meet anticipated cash needs, it is essential that the Treasurer have reasonably accurate, diligently prepared cash flow projections. Annually, the Treasurer shall project the amount of funds not expected to be disbursed within five years. For FY 2002/03, the amount of such funds was $10 million. Funds up to that amount may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. For all other funds, investments are limited to two years maximum maturity. VI PRUDENCE The City shall follow the Uniform Prudent Investor Act as adopted by the State of California in Probate Code Sections 16045 through 16054. Section 16053 sets forth the terms of a prudent person which are as follows: Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion, and intelligence excerise in the professional 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. 7 VII 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 Assistant City Manager shall approve in writing all purchases and sales of investments prior to their execution by the City Treasurer. VIII 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, Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: ► The City Manager, Assistant City Manager, and the City Treasurer shall not personally or through a close relative maintain any accounts, interest, or private dealings with any firm with which 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. IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City of La Quinta Investment Policy 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: N. ► 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 Department of Corporations 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. 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. 2. Financial Institutions will be required to meet the following criteria in order to receive City funds for deposit or investment: A. Insurance - Public Funds shall be deposited only in financial institutions having accounts insured by the Federal Deposit Insurance Corporation (FDIC) B. Collateral - The amount of City of La Quinta deposits or investments not insured by the FDIC -shall be 1 10% collateralized by securities' or 150% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Disclosure - Each financial institution maintaining invested funds in excess of the FDIC insured amount shall furnish the City a copy of the most recent Annual Call Report. The City shall not invest in excess of the FDIC insured amount in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. 41 X AUTHORIZED INVESTMENTS AND LIMITATIONS The City Treasurer will be permitted to invest in the investments summarized in the Appendix A. I. STATE OF CALIFORNIA AND CITY OF LA QUINTA LIMITATIONS As provided in Sections 16429.1, 53601, 53601.1, and 53649 of the Government Code, the State of California limits the investment vehicles available to local agencies as summarized in the following paragraphs. Section 53601, as now amended, provides that unless Section 53601 specifies a limitation on an investment's maturity, no investments with maturities exceeding five years shall be made. The City of La Quinta Investment Policy has specified that no investment may exceed two years, except the projected annual dollar amount, as detailed in Section V, may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. State Treasurer's Local Agency Investment Fund (LAIF) - As authorized in Government Code Section 16429.1 and by LAIF procedures, local government agencies are each authorized to invest a maximum of $40 million per account in this investment program administered by the California State Treasurer. The City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity of its investment portfolio does not exceed two years, unless specific approval is authorized by the City Council. The City of La Quinta has two accounts with LAIF. The City of La Quinta Investment Policy has a limitation of 20% of the portfolio. U.S. Government and Related Issues - As authorized in Government Code Sections 53601 (a) through (n) as they pertain to surplus funds, this category includes a wide variety of government securities which include the following: • Local government bonds or other indebtedness and State bonds or other indebtedness. The City of La Quinta Investment Policy does not allow investments in local and state indebtedness • U.S. Treasury bills, notes and bonds and Government National Mortgage Association (GNMA) securities directly issued and backed by the full faith and credit of the U.S. Government. The City of La Quinta Investment Policy limits investments in U.S. Treasury issues and GNMA to 100% of the portfolio. • U.S. Government instrumentalities and agencies issuing securities not backed as to principal and interest by the full faith and credit of the U.S. Government. The Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal Land Bank (FLB) and Federal Intermediate Credit Bank (FICB) are such issuers. The City of La Quinta Investment Policy 10 has a limitation of $5 million per issuer. • Federal government sponsored enterprises (GSEs) issuing securities not backed as to principal and interest by the full faith and credit of the U.S. Government. These GSEs include Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Student Loan Marketing Association (SLMA) which are publicly owned. The City of La Quinta Investment Policy has a limitation of $5 million for FNMA, $5 million for FHLMC, and $3 million for SLMA. Bankers' Acceptances - As authorized in Government Code Section 53601 (f), 40% of the portfolio may be invested in Bankers' Acceptances, although no more than 30% of the portfolio may be invested in Bankers' Acceptances with any one commercial bank. Additionally, the maturity period cannot exceed 180 days. The City of La Quinta Investment Policy does not allow investment in Bankers' Acceptances. Commercial Paper - As authorized in Government Code Section 53601(g), 15% of the portfolio may be invested in commercial paper of the highest rating (A-1 or P-1) as rated by Moody's or Standard and Poor's, with maturities not to exceed 270 days. This percentage may be increased to 30% if the dollar weighted average maturity does not exceed 31 days. There are a number of other qualifications regarding investments in commercial paper based on the financial strength of the corporation and the size of the investment. The City of La Quinta's Investment Policy follows The Government Code with the following additional limitations: (1) maximum maturity per issue of 90 days and (2) a maximum of $3 million per issuer. Negotiable Certificates of Deposit - As authorized in Government Code Section 53601(h), 30% of the portfolio may be invested in negotiable certificates of deposit issued by commercial banks and savings and loan associations. The City of La Quinta Investment Policy does not allow investment in Negotiable Certificates of Deposit. Repurchase and Reverse Repurchase Agreements - As authorized in Government Code Section 53601(i), these investment vehicles are agreements between the local agency and seller for the purchase of government securities to be resold at a specific date and for a specific amount. Repurchase agreements are generally used for short term investments varying from one day to two weeks. There is no legal limitation on the amount of the repurchase agreement. However, the maturity period cannot exceed one year. The market value of securities underlying a repurchase agreement shall be at least 102% of the funds invested and shall be valued at least quarterly. The City of La Quinta Investment Policy does not allow investment in Repurchase Agreements. The term "reverse repurchase agreement" means the sale of securities by the local agency pursuant to an agreement by which the local agency will 11 repurchase such securities on or before a specific date and for a specific amount. As provided in Government Code Section 53635, reverse repurchase agreements require the prior approval of the City Council. The City of La Quinta Investment Policy does not allow investment in Reverse Repurchase Agreements. Corporate Notes - As authorized in Government Code Section 53601 (j), local agencies may invest in corporate notes for a maximum period of five years in an amount not to exceed 30% of the agency's portfolio. The notes must be issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any other state and operating in the United States. The City of La Quinta Investment Policy does not allow investment in corporate notes. Diversified Management Companies - As authorized in Government Code Section 53601 (k►, local agencies are authorized to invest in shares of beneficial interest issued by diversified management companies (mutual funds) in an amount not to exceed 20% of the agency's portfolio. There are a number of other qualifications and restrictions regarding allowable investments in corporate notes and shares of beneficial interest issued by mutual funds which include (1) attaining the highest ranking or the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services, or (2) having an investment advisor registered with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations and with assets under management in excess of five hundred million dollars ($500,000,000). The City of La Quinta Investment Policy only allows investments in mutual funds that are money market funds maintaining a par value of $1 per share that invests in direct issues of the U.S. Treasury and/or US Agency Securities with an average maturity of their portfolio not exceeding 90 days and the City limits such investments to 20% of the portfolio. Mortgage -Backed Securities - As authorized in Government code Section 53601(n), local agencies may invest in mortgage -backed securities such as mortgage pass -through securities and collateralized mortgage obligations for a maximum period of five years in an amount not to exceed 20% of the agency's portfolio. Securities eligible for investment shall have a "A" or higher rating. The City of La Quinta Investment Policy does not allow investment in Mortgage - Backed Securities. Financial Futures and Financial Option Contracts - As authorized in Government Code Section 53601.1, local agencies may invest in financial futures or option contracts in any of the above investment categories subject to the same overall portfolio limitations. The City of La Quinta Investment Policy does not allow investments in financial futures and financial option contracts. Certificates of Deposit - As authorized in Government Code Section 53649, Certificates of Deposit are fixed term investments which are required to be collateralized from 1 10% to 150% depending on the specific security pledged as collateral in accordance with Government Code Section 53652. There are no portfolio limits on the amount or maturity for this investment vehicle. Collateral ization will be required for Certificates of Deposits in excess of the FDIC insured amount. The type of collateral is limited to City authorized investments. Collateral will always be held by an independent third party from the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateralization policies must be supplied to the City and retained by the City Treasurer as follows: 1. Certificates of Deposits Insured by the FDIC. The City Treasurer may waive collateralization of a deposit that is federally insured. 2. Certificates of Deposit in excess of FDIC Limits. The amount not federally insured shall be 1 10% collateralized securities or 150% mortgages market value of that amount of invested funds plus unpaid interest earnings. The City of La Quinta Investment Policy limits the percentage of Certificates of Deposit to 60% of the portfolio. Sweep Accounts - As authorized by the City Council, a U.S. Treasury and/or U.S. Agency Securities Money Market Sweep Account with a $50,000 target balance may be maintained in conjunction with the checking account. Derivatives - The City of La Quinta Investment Policy does not allow investment in derivatives. XI 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 Investment Policy has authorized 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 $40 million. In addition, LAIF will provide quarterly market value information to the City of La Quinta. 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. MCI The City does not allow investments with any other Investment Pool - County Pools or Third Party Pools. XII SAFEKEEPING AND CUSTODY All security transactions of the City of La Quinta Investment Policy 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. Deposits and withdrawals of money market mutual funds and LAIF shall be made directly to the entity and not to an investment advisor, broker or dealer. Money market mutual funds and LAIF shall also operate on a DVP basis to be considered for investment. 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 INTERNAL CONTROLS AND INDEPENDENT AUDITOR 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. 14 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 shall 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. Fax correspondence must be supported by evidence of verbal or written follow-up. 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. The System of Internal Controls developed by the City, shall be reviewed annually by the independent auditor in connection with the annual audit of the City of La Quinta's 15 Financial Statements. The independent auditor's 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 auditor's letter. The management letter comments pertaining to cash and investment activities and the City Treasurer's response shall be provided to the City's Investment Advisory Board for their consideration. Following the completion of each annual audit, the independent auditor shall meet with the Investment Advisory Board and discuss the auditing procedures performed and the review of internal controls for cash and investment activities. XV BENCHMARK 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. Return on investment is of least importance compared to safety and liquidity objectives. The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. XVI REPORTING STANDARDS SB564 section 3 requires a quarterly report to the Legislative Body of Investment activities. The City of La Quinta Investment Advisory Board has elected to report the investment activities to the City Council on a monthly basis through the Treasurers Report. AB 943 requires that the December 31' and June 30' Treasurers Reports be sent to the California Debt and Advisory Commission within sixty days of the end of the quarter. The City Treasurer shall submit a monthly Treasurers Report to the City Council and the Investment Advisory Board that includes all cash and investments under the authority of the Treasurer. The Treasurers Report shall summarize cash and investment activity and changes in balances and include the following: ► A certification by City Treasurer; ► A listing of Purchases and sales/maturities of investments; ► Cash and Investments categorized by authorized investments, except for LAIF which will be provided quarterly and show yield and maturity; ► Comparison of month end actual holdings to Investment Policy limitations; ► Current year and prior year monthly history of cash and investments for trend analysis; ► Balance Sheet; ► Distribution of cash and investment balances by fund; ► A comparison of actual and surplus funds; ► A year to date historical cash flow analysis and projection for the next six W months; ► A two-year list of historical interest rates. XVII 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. Investable 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 the City's position to continue maximization of yield and to rebate excess earnings, if necessary. XVIII 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 usually, meets on a monthly basis, but at least quarterly to (1) review at least annually she City's Investment Policy and recommend appropriate changes; (2) review monthly Treasury Report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; (3) receive and consider other reports provided by the City Treasurer; (4) meet with the independent auditor after completion of the annual audit of the City's financial statements, and receive and consider the auditor's comments on auditing procedures, internal controls and findings for cash and investment activities, and; (5) serve as a resource for the City Treasurer on matters such as proposed investments, internal controls, use or change of financial institutions, custodians, brokers and dealers. The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory Board Provisions. IX INVESTMENT POLICY ADOPTION On an annual basis, the Investment policies will be initially reviewed by the Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment policies, with any revisions, to the City Manager and City Attorney for their review and comment. A joint meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City Treasurer to review the Investment 17 policies and comments, prior to submission to the City Council for their consideration. 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. AB 943 requires that the Investment Policies be sent to the California Debt and Investment Advisory Commission within sixty days of a change to the Investment Policy. W Appendix A E E E o d �p d � d o m w m v u a o o vn Em o` m E o 1= m U u r � n o o A ° 0 s v Gov a c c o - U U p W Q n m(n U 2 m T a o `o c c m c my a N N N m m N o ° N N N N N N N m N W `o a d v v o n § o n m a y E ma a0 m .a a+�0 m d o E o � o c £ o w a u E o 0 0 0 O E o 0 o o co i O � o t- O r a o O a o o a O a° O O a° m N f0 O O o C O O O �- O 'o � N O mo O_ ° O rEoo 0 00 00 O 00'� e o o`o 'O �e c a° a o a 00 ao 00000 o°Vn ,z a° afv� Z om � 100 O � m N t7 a o N e 9 o m m to o u a H y m.2 n o c 3 O u o m ep T m c C 3 o m m �v E uu U N o m m O U ^ v o LD l= g� o co v Oo n��LL LL.LL N o v 'o ami m V @yy c 6o mo o u m a O o _ LL o7 V o aoi t m C m y u 2 oO m U v�wYQmm^LL s Z W m m 5 to d a o O Z m 0 OI ` LL O D O qmC0 G dCa C li V Tlj 'O C y O Q N m-m 0 m v 2 o c o u o a O N o JJCC 'S m im` N O.-- O G $E O m J g m° J am m E m .5 o E E m O m �c S c o E `m a EE Z n w c o o E Z x u S E mgo v o c u H >o m v o 0 o u o u '�' rnovvvavvv o U Q E c .° m E m V% N O lLL tLL LL li LL IL E J O m > f3 > > E � ac f u � o. m E - E o p 0 0 o m" E o E �5 . m mv ut Eo<E 5'r� m 0 0 E Y m o G —_ t o o a m o � c an ms a � £ o o — C£R m m Tn E A n m u'9 '- m U -5 0 0- Q m N ¢ rn m m o 2 a E u u E E > >c a� v U ^E o a u u m o t o m o m Lx o o M o N t c u o o m W , 4 o p VC N N E v m � c u q co o m rU§m UE um T m s L O m y o U 2 E U N m a rgo rg8 mmu v° o 'Z`c m tE v m my .5 u c uy0 mN� so o EW m umicv do ° uu o m O m o n$ o u° .,o m N a Tic o y 5u E o o> 6 m 5� H `o Ea o Z,mN mT E a Gov ° o w u F a E m o 7i m m a� v 00 m o m ci E o o LL 19 Appendix B Chapter 2.70 INVESTMENT ADVISORY BOARD PROVISIONS Sections: 2.70.010 General Rules Regarding Appointment. 2.70.020 Board meetings. 2.70.030 Board functions. 2.70.010 General rules regarding appointment A. Except as set out below, see Chapter 2.06 for General Provisions. B. 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". C. 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. D. 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 that have a bearing on the appropriateness of that member's service on the board. Such matters may include, but are not limited to, changes in employment, changes in residence, or changes in clients. 2.70.020Board meetings. The Board usually will meet monthly, 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. 2.70.030Board functions. 1. The principal functions of the Board are: (1) review at least annually the City's Investment Policy and recommend appropriate changes; (2) review monthly Treasury Report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; (3) receive and consider other reports provided by the City Treasurer; (4) meet with the independent auditor after completion of the annual audit of the City's financial statements, and receive and consider the auditor's comments on auditing procedures, internal controls, and findings for cash and investment activities, and; (5) serve as a resource for the City Treasurer on matters such as proposed investments, internal controls, use or change of financial institutions, custodians, brokers and dealers. 2. The Board will report to the City Council after each meeting either in person or through correspondence at a regular City Council meeting. W Appendix C 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 § I (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) 21 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 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) 22 Appendix D SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Responsibilities Develop formal Investment Policy City Treasurer Recommend modifications to Investment Policy Investment Advisory Board Review formal Investment Policy and recommend City Manager and City Council action City Attorney Adopt formal Investment Policy City Council Review Financial Institutions & Select Investments City Treasurer Approve investments City Manager or Assistant City Manager Execute investment transactions City Manager or Treasurer Confirm wires, if applicable Accounting Manager or Financial Services Assistant Record investment transactions in City's Accounting Manager or accounting records Financial Services Assistant Investment verification - match broker confirmation City Treasurer and Financial to City investment records Services Assistant Reconcile investment records - to accounting records and bank statements Financial Services Assistant Reconcile investment records - to Treasurers Report of investments Accounting Manager Security of investments at City Vault Security of investments Outside City Third Party Custodian Review internal control procedures External Auditor 23 Appendix E LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services - Wells Fargo Bank, Government Services, Los Angeles, California 2. Custodian Services - Bank of New York, Los Angeles, California 3. Deferred Compensation - International City/County Management Association Retirement Corporation 4. Broker/Dealer Services - Merrill Lynch, Indian Wells, CA Morgan Stanley, Los Angeles, California Salomon Smith Barney, Newport Beach, CA 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 - US Bank 1991 RDA Project Area 1 -US Bank 1992 RDA Project Area 2 - US Bank 1994 RDA Project Area 1 -US Bank 1995 RDA Project Area 1 &2 - US Bank 1998 RDA Project Area 1 &2 - US Bank 2001 RDA Project Area 1 - US Bank 2002 RDA Project Area 1 - US Bank Assessment Districts - US Bank No Changes to this listing may be made without City Council approval 24 Appendix F 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 % C D's % Mutual Funds % Agencies (specify): 25 % 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. 1 1 . 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 you 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 26 Do you 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 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? 27 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 22 Do you have any relatives who work at the City of La Quinta? Yes No If yes, Name and Department 23. Do you maintain an office in California. Yes 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 to clients. • Complete schedule of fees and charges for various transactions. 'CERTIFICATION' *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. W. Broker Representative Date Title Sales Manager and/or Managing Partner* Date Title 29 Appendix G 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? 30 REPORTING 1 . Is the yield reported to participants of the pool monthly? (If not, how often?) 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)? 31 OPERA TIONS 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? 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? STA TEMENTS 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. 32 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 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? 33 Appendix H GLOSSARY (Adopted from the Municipal Treasurers Association) 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 and/or Government -sponsored enterprises. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. 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): A time deposit with a specific maturity evidenced by a certificate. Large -denomination CD's are typically negotiable. 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. 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. Krn 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. 3 DISCOUNT SECURITIES: Non -interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. 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. 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 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 Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association 35 bonds are issued with various maturities and carry semi-annual coupons. Interest is calculated on a 360-day, 30-day month basis. 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 360-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. notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Association notes (SALLIE-MAEs). FEDERAL DEPOSITOR 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 5,700 commercial banks that are members of the system. 36 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 $30,000,000 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 all cash and securities under the direction of the City Treasurer, including Bond Proceeds. 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 37 broker -dealers, banks and a few unregulated firms. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. 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 (RRP or RevRepo) - A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RRP extensively to finance their positions. Exception: When the Fed is said to be doing RRP, it is lending money, that is, increasing bank reserves. 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. SURPLUS FUNDS: Section 53601 of the California Government Code defines surplus funds as any money .not required for immediate necessities of the local agency. The City has defined immediate necessities to be payment due within one week. TREASURY BILLS: A non -interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. 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. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member M. 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. UNIFORM PRUDENT INVESTOR ACT: The State of California has adopted this Act. The Act contains the following sections: duty of care, diversification, review of assets, costs, compliance determinations, delegation of investments, terms of prudent investor rule, and application. 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 MATURITY is 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.