ANNUAL REPORT OF THE CITY OF BAKERSFIELD Dated as of March 1. 2015 Providing Continuing Disclosure Relating to the Following Bond Issues:

$25,335,000 City of Bakersfield Refunding Cet1i ficates of Participation (Convention Center - Arena Projects) Series 2006A (Tax-Exempt)

$9,470,000 City of Bakersfield Refunding Certificates of Participation (Convention Center - Arena Projects) Series 2006B (Taxable Convertible to Tax-Exempt)

Contact Information:

City of Bakersfield 1600 Truxtun Avenue Bakersfield CA 9330 I Attention: Nelson K. Smi th, Finance Director Telephone: (66\) 326-3740 Fax:(661)852-2040 E-mail: [email protected]

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TABLE OF CONTENTS Page INTRODUCTORY STATEMENT .......................... ....... ... ....... ... ... ....... ... ....... ... ....... ... .... ... .... ... ... I CUSIP NUMBERS .... ... ............................................ ... .... ... ....... ... ... ....... ... ....... ... ....... ... .... ... ....... ... I FORWARD-LOOKING STATEMENTS ............................. ....................... ....... .................... ....... 2 SPECIFIC CONTINUING DISCLOSURE INFORMATION ....................................................... 2 REPORTING OF SIGNIFICANT EVENTS ........ .......................................................................... 4 OTHER MATERIAL INFORMATION ......................................................................................... 4 CERTIFICATION ................. ... ....... ... ... .............. ........................................................................... 5 EXHIBIT A- City's Investment Policy ...................................... ... ...... .... ... .......... ....... ... ........... A-1 EXHIBIT B - City 's Insurance Program ........ .... .......... ... ....... .................................................... B-1

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INTRODUCTORY STATEMENT Th is Annual Rep01t (the "Annual Report"), dated as of March I, 2015, has been prepared pursuant to the Continu ing Disclosure Certificate, dated March 23, 2006 (the "Continuing Disclosure Certificate"), executed by the City of Bakersfield, California (the "City"), re lating to the certificates of participation referenced on the cover page hereof (collectively, the "Certificates"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Continuing Disclosure Certificate o r the Official Statement, dated March 1, 2006 (the "Offi cial Statement"), relating to the Certificates.

CUSIP NUMBERS The following CUSIP (I) numbers have been assigned to the outstanding Certificates by Standard & Poor's CUSIP ( I ) Service Bureau, a div ision of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. The C ity does not assume any responsibility for the accuracy of these CUSIP (ll data. In connection with the Conversion (as defin ed below), which occurred on April I, 2007, the outstanding Series 2006B Certificates were assigned new CUSIP (ll numbers, which are set forth below. See " OTHER MATERIAL INFORMATION" below.

Series 2006A Certificates Maturity Date (April I ) 201S 2016 20 17

CUSIP (I) No. OS7497 EJ4 OS7497 EK I OS7497 EL9

Maturity Date (April I) 2018 20 19 2020

CUSIP (I) No. OS7497 EM7 OS7497 ENS OS7497 EPO

Matu rity Date (April I) 202 1 2022

CUSIP (ll No. OS7497 EQ8 OS7497 ER6

Series 2006B Cert!ficates Maturity Date (April I) 20 1S 20 16 20 17 ( I1

CUSIP Cll No. OS7497 FRS 057497 FS3 OS7497 FTI

Maturity Date (April 1) 20 18 20 19 2022

CUSIP (I) No. OS7497 FU8 OS7497 FY6 OS7497 FW4

CUSrP® is a registered trademark of lhe American Bankers Association. Copyright() 1999-20 15 American Bankers Association. All n ghts reserved. CUS IP® data are provtded by CUSIP Global Services. managed by Standard & Poor's Financial Services LLC on behalf o f the American Bankers Association. These data are not intended to create a database and do not se1ve in any way as a substitute for CUSIP G lobal Services. CUS IP® numbers are provided for conven ience o f reference only. T he Cuy takes no responsibility for the accuracy of such numbers.

[Remainder of Page Intentionally Left Blank]

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FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Annual Report constitute "forwardlooking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21 E of the Un ited States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "i ntend," "expect," "propose," "estimate," "project," "budget," "anticipate," or otJ1er similar words. The achievement of certain resu lts or other expectations contained in such forward- looking statements involves known and unknown risks, uncettainties, and other factors that may cause the actual results, perfonnance, or achievements described to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Updates or revisions to these forward- looking statements may be provided pursuant to the Continuing Disclosure Cetiificate if the expectations, events, conditions, or c ircumstances on wh ich such statements are based change in a material way. The forward-looking statements in this Annual Repoti are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements . READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE fNDICA TED.

SPECIFIC CONTINUING DISCLOSURE INFORMATION The fol lowing information is being provided in compliance w ith the specific requirements contained in Section 4 of the Continuing Disclosure Certificate: Section 4(a):

The audited financial statements of the C ity for the fiscal year ended June 30,2014 (the "Audited Financial Statements"), were filed on February 18, 2015, v ia the Electronic Municipal Market Access ("EMMA") service, and such Audited Financial Statements are incorporated herein by this reference.

Section 4(b):

Item 4(b)(i):

Number of City Employees. Pursuant to the Audited Financia l Statements, as of June 30, 2014, the City had 1,516 full-time equ ivalent employees.

Item 4(b)(ii):

General Fund Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual. See pages 30, 3 1, I 04, I 05, and I 06 of the Audited Financial Statements for the schedules of General Fund revenues and expenditures - budget and actual and changes in fund ba lances for the fiscal year ended J une 30,20 14.

Item 4(b){iii):

Direct and Overlapping Bonded Debt. See page 164 of the Audited Financial Statements for information regarding the City's direct and overlapping bonded debt as of June 30, 2014.

Item 4(b)(iv):

Outstanding Long-Term General Fund Obligations. See Note 11 on pages 71 through 74 in the Audited Financial Statements for a description ofthe City's long-term obligations with a claim to be paid from the General Fund as of June 30, 2014.

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Item 4(bj(v) :

City's Investment Policy. See Exhibit A attached hereto and incorporated herein, wh ich sets forth a description of the City's most recently adopted investment policies.

Item 4(b){vi)

Cash and Investments of the City. See Note 2 on pages 57 through 61 of t he Audited Financial Statements for a description of the cash and investments of the City as of June 30,2014.

Item 4(b)(vii)

Ca/PERS and FRPF Contributions. See Note 16 on pages 78 through 85 of the Audited Financial Statements for a description of the City ' s contributions to CaiPERS and the FRPF.

Item 4(b)(viii): City's Insurance Program. See Exhibit B attached hereto and incorporated herein, wh ich updates the description of the City's insurance program that is set f01th in Appendix A to the Official Statement.

Item 4(b)(ix)

Property Tax Levies, Collections, and Delinquencies. See page 154 of the Audited Financial Statements for infom1ation regarding the property tax levies, collections, and delinquencies in the City for the fiscal years 2004-05 through 20 13-14.

Item 4(b) {-' )

Assessed Valuations. See pages 150 and 15 1 in the Audited F inancial Statements for information regarding the assessed va lue of taxable property in the City for the fiscal years 2004-05 through 20 13- 14.

Item 4(b}(xi)

Intentionally Omittedfrom Continuing Disclosure Certificate.

Item 4(b)(xii)

Intentionally Omittedfrom Continuing Disclosure Certificate.

Item 4(b){xiii) Assessed Valuations of Principal Taxpayers. See page 149 of Audited Financial Statements for information regarding the assessed valuation of property owned by the principal taxpayers in the City as of June 30, 20 14.

Item 4(b)(xiv)

Building Permit Valuations. See page 173 -1 74 of the Audited Financial Statements for infonnation regarding the City's building permit valuations as of June 30, 20 14.

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REPORTING OF SIGNIFICANT EVENTS To the City's best knowledge, the following s ignificant events, including Listed Events referenced in Section 5 of the Continuing Disclosure Certificate and listed below, have occurred w ith respect to the Certificates as of the date of this Annual Report: X

No s ignificant events, including the Listed Events listed below, have occurred with respect to the Certificates. Principal and interest payment delinquencies. Non-payment related defaults. Modifications to rights ofCertificate Holders. Optional, contingent, or unscheduled Cettificate calls. Defeasances. Rating changes. Adverse tax opinions or events adversely affecting the tax-exempt status of the Cettificates. Unscheduled draws on the debt service reserves reflecting financial difficulties. Unscheduled draws on credit enhancements reflecting financial difficulties. Substitution of credit or liquidity providers, or their fa ilure to perform. Release, substitutio n, or sale of property securing repayment of the Cettificates.

OTHER MATERIAL INFORMATION In connection with the initial execution and delivery of the Series 20068 Certificates in March 2006, interest payable with respect to the Series 20068 Certificates was taxable, i.e., such interest was not permitted to be excluded from gross income for federal income tax purposes. On April I , 2007 (the "Conversion Date"), the Conversion occurred with respect to the Series 20068 Certificates. The term "Conversion" means the conversion of the Series 20068 Certificates from Series 20068 Certificates payable from the p01tion of the Series 20068 Lease Payments representing interest that is not excluded from gross income (i.e., taxable) for federal income tax purposes to Series 20068 Certificates payable from the portion of the Series 20068 Lease Payments representing interest that is excluded from gross income (i.e., tax-exempt) for federal income tax purposes. In connection with the Conversion, on the Convers ion Date, the initial Series 20068 Certificates were deemed to have been mandatori ly prepaid fo r federal income tax purposes, and were deemed reissued under federal tax law as cettificates payable from lease payments the portion of which that is designated and paid as interest is excl uded from gross income ( i.e., tax-exempt) for federa l income tax purposes. From and after the Conversio n Date, interest is payable with the respect to the Series 20068 Certificates at the Long-Term Tax-Exempt Rates set forth on the inside cover of the Official Statement under the head ing "Long-Term Tax-Exempt fnterest Rate ." Such interest is not be subject to fUJther adjustment or modification. The foregoing info rmation was initia lly rep01ted in the Annual Report dated as of March l, 2008. The City is not aware of any fmther information that is necessary to make the statements made herein, in the light of the circumstances under wh ich they are made, not misleading.

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CERTIFICATION The undersigned hereby certifies that this Annual Report constitutes the Annua l Report required to be furnished by the City under the Continuing Disclosure Certificate. The fi li ng of this Annual Report does not constitute or imply any representation (i) that all of the information provided is material to investors, (ii) regarding any other financial, operating, or other information about the City or the Certificates, (iii) that no changes, circumstances, or events have occurred as of the date of this Annual Report (other than as contained in this Annual Report), or any other date specified with respect to any of the information contained in this Annual Report. or that no other information exists, which may have a bearing on the security for the Certificates or an investor's decision to buy, sell, or hold the Certificates. ANY OTHER STATEMENTS REGARDING TilE CITY OR THE CERTIFICATES, OTHER THAN STATEMENTS MAD E BY THE CITY IN 1\N OFF ICIAL RELEASE, OR FILED WITH TH E MUNI CIPAL SECUR ITIES RULEMAKING BOARD, ARE NOT AUT! IORIZED BY THE CITY. THE CITY IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS, OR fAIRNESS OF AN Y SUCH UNAUTHORIZED STATEMENTS.

CITY OF BAKERSFIELD, CALIFORNIA

Dated: As of March l, 20 15

By

?M.,(}Lf!L

Nelson K. Smitl;, Finance Director

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EXHIBIT A Investment Policy of the City

I

INTRODUCTION

This Investment Policy is intended to provide guidelines for the prudent investment of the City of Bakersfield' s temporary idle cash, and outline the policies for maximizing the efficiency of the City's cash management system. It is the policy of the City of Bakersfield to invest public funds in a manner which will provide safety of principal and at least a market rate of return while meeting the daily cash flow demands of the City. Investments will conform to all statutes governing the investment of public funds. The primary goals of this policy are: •

To assure compliance with all Federal, State and Local Jaws governing the investment of public funds under the control of the City Treasurer.

•

To maintain the principal value of financial assets and ensure ample liquidity to meet operating expenditures.

•

Within the constraints of safety and liquidity, and within the parameters of this Investment Policy generate a market rate of return.

The ultimate goal is to enhance the economic status of the City of Bakersfield while protecting the safety of its financial assets.

II

SCOPE

This policy applies to the investment activities of the City of Bakersfield and related entities. Idle cash in all funds is pooled for investment purposes except tax exempt bond proceeds, which are separated for arbitrage record keeping as required by Federal tax law, the Firemen's Disability and Retirement Fund which is administered separately under the City of Bakersfield Municipal Code Section 2.92. Other Post-Employment Benefits (OPEB) are administered by a separate Investment Policy per Resolution 008-07. Investments made on a pooled basis include monies of the City of Bakersfield, the Redevelopment Agency and the Public Financing Authority. The pooled funds are accounted for in the City of Bakersfield' s Comprehensive Annual Financial Report (CAFR) and include:

oxx lXX 2XX 3XX 4XX 5XX 6XX

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General Funds Special Revenue Funds Debt Service Funds Capital Project Funds Enterprise Funds lntemal Service Funds Fiduciary-Agency Funds Any new fund created, unless specifically exempted. A-I

All debt issue proceeds will be invested in accordance with the associated trust indenture, and in such a manner that facilitates arbitrage rebate calculations. III

PRUDENCE

Investments shall be made in the context of the ·'prudent person" standard: Investments shall be made with judgment and care, under circumstance then prevailing which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The prudent investment diversification for the City's temporary idle cash vs. the Firemen's Disability and Retirement Fund (FDRF) is different. Up to 40% of the retirement fund may be invested in securities of a single agency ofthe four double A rated United States Government Agencies authorized in this policy. This exception to investment diversification among the highest quality securities is deemed prudent and necessary in order to increase the available options for keeping retirement funds fully invested at or above the 4.0 percent actuarial rate of return. IV

OBJECTIVE

Criteria for selecting investments and the order of priority are:

•

Safety- Safety of principal is the foremost objective ofthe investment program. The City only operates in those investments that are considered very safe. The City shall seek to preserve principal by mitigating the two types of risk, credit risk and market risk. •

Credit Risk- Potential loss due to the failure of an issuer of a security.

•

Market Ri sk- Potential decrease in the value of securities due to changes in the general level of interest rates.

•

Liquiditv - Liquidity refers to the ·'ability to easily sell" at any moment in time with a minimal risk of losing some portion of principal and interest. Liquidity is an important investment quality should the need for cash occur unexpectedly.

•

Yield -Yield is the potential dollar earnings an investment can provide and is sometimes described as the rate of retum.

V

DELEGATION OF AUTHORITY

In accordance with the City of Bakersfield Charter, Municipal Code and subsequent resolutions, the City Treasurer is authorized to invest the City's funds in accordance with California Govemment Code Section 53600 et seq. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

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VI

ETHICS AND CONFLICTS OF INTEREST

All officials involved with the City of Bakersfield's investment program shall exercise their fiduciary responsibly as custodians ofthc public trust. The City Treasurer, or when appropriate the Treasury Supervisor, shall avoid any transactions that might impair public confidence in the C ity 's ability to manage the investment of public funds in an effective manner. The City Treasurer, Treasury Supervisor, or any other official charged with the responsibi lity of making investment decisions, shall have no vested interest in any investment being made involving public funds of the City, and shall gain no financial benefit from such investment decisions.

VII

AUTHORIZED BROKER/ DEALERS AND BAI\!](S

All financial institutions that desire to do business with the City shall be evaluated by the City Treasurer to determine if they are adequately capitalized, meet California Government Code requirements and agree to abide by the conditions set forth in the City of Bakersfield Investment Policy. Whenever reasonable and in keeping with Government Code, investments are placed locally. Broker/dealers are investigated to determine if there is pending legal action against the firm or the individual broker who would be the City' s contact and that the firm offers securities appropriate to the City's needs. All broker/dealers, which may include .. primary" dealers or reg ional dealers that qualify under Securities & Exchange Commission Rule 15c3-l (Uniform Net Capital Rule), who desire to become authorized bidders fo r City investment transactions must supply the C ity Treasurer with the followin g: • • • • •

CutTent audited financial statements Account authorization forms Proof of National Association of Securities Dealers certification Completed broker/dealer questionnaire Certification of having read and agreement to abide by the City of Bakersfield Investment Policy

All banks that desire to become authorized bidders for time certificates of deposit (TCD) must be a qualified public depository as established by State Law and supply the City Treasurer with the following: • • • •

Current audited financial statements Depository contracts A copy ofthe latest FDIC call report Certification of having read and agreement to abide by the Ci ty of Bakersfield Investment Pol icy

Broker/dealer account authorizations and depository contracts will be executed by the C ity of Bakersfield Finance Director as required by City Charter. The City Treasurer will maintain a list of authorized broker/dealers and banks that are approved to do business with the City. An annual review ofthe financial condition of authorized financial institutions will be conducted by the City Treasurer.

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VIII

AUTHORIZED & SUITABLE INVESTMENTS

The City ofBakersticld·s investment program is governed by the California Government Code Sections 53600 et seq. Within the context of these limitations, the fo llowing investments are authorized, as further limited herein (S ingle Asterisk* denotes term or percentage imposed by State statute; Double Asterisk** denotes term or percentage utilized by the City of Bakersfield which is more restrictive than statute):

A.

United States Treasury Bills, Notes and Bonds United State Treasury Bills, Notes and Bonds are securities which have the full faith and credit of the United States pledged for payment of plincipal and interest. Although there is no percentage limitation of the dollar amount that can be invested in these categories, the "prudent person" standard shall apply. Maturities are li mited to five* years fTom sett lement date.

Treasury Bills (T -Bills) are sh011-term debt obligations of the United States Government, issued weekly with maturities up to one year. T-Bills are considered to have virtually no credit risk and to be the most liquid short-term fixed income instrument. Prices on T-Bills are quoted on a discount basis. The difference between the discount plice and the full face value paid at maturity equals the total return. Treasury Note (T-Notes) are initially issued by the auction process with two, five and ten year maturities. T-Notes like Bills have virtually no credit risk and have liquidity through an active secondary market. T -Notes are issued at Par ($1 ,000) with a coupon or fixed rate of interest. The price or market value will fluctuate above or below par depending on the coupon rate and whether interest rates are rising or falling. T-Notes mature at par. Treasury Bonds (T -Bonds) are initially issued by the auction process with thirty year maturities and have characteristics similar toT-Notes. B.

United States Government Agencies United States Government agencies include the Federal Farm Credit Bank System (FFCB), the Federal Home Loan Bank (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC), and the Federal National Mortgage Association (FNMA). Government agencies issue debt in the form of discount notes, much like T-Bi lls, and notes and bonds similar toT-Notes and T-Bonds. Whi le agency debt is not a direct obligation of the U.S. government, it is rated AA. At the time of purchase no more than 20%** of the portfolio may be invested in any single agency name. Maturities are limited to five* years from settlement date.

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C.

Bankers Acceptance Bankers Acceptance (BA) is a time draft or bill of exchange, issued from a letter of credit, and is normally used to finance international trade. When the accepting bank stamps "accepted" on the draft the bank guarantees payment of the draft at a specified future date and thereby creates an acceptance. BA's are considered extremely safe in that there has never been a default on a BJ\. BA's trade on a discount basis and may not exceed 180* days to maturity. No more than 10%** of the portfolio may be invested in BA ·s issued by any one bank. No more than 40%* of the portfolio may be invested in this category. Eligible BA ·s are those issued by banks with a sh01t term rating of the highest letter and number rating provided for by a nationally recognized statistical-rating organization.

D.

Commercial Paper Commercial Paper (CP) is a short-tenn promissory note. CP is sold on a discount basis. The maximum maturity is 270 days with most issued in the 30-50 day maturity range. Eligible CP is ''prime"' quality of the highest letter and number rating provided for by a nationally recognized statistical-rating organization. CP is issued by domestic corporations having assets in excess of$500 million and having an A or higher rating on its debt, other than CP, as provided by Standard and Poor's or Moody's. Purchases of eligible CP may not exceed 270* days to maturity. No more than 10%* of the portfolio may be invested in CP issued by any one corporation. No more than 25%* of the portfolio may be invested in this category.

E.

Repurchase Agreements Repurchase Agreements, commonly called Repos, consist of two simultaneous transactions. One is the purchase of securities by an investor (City of Bakersfield) from a bank or dealer. The other is the commitment by the bank or dealer to repurchase the securities at the same price plus interest at some mutually agreed future date. Normally the securiti es are U.S. Treasury notes or bonds and are he ld by a federal Reserve Bank. Repos can be done with banks or dealers with which the City has entered into a master repurchase contract that specifics terms and conditions of repurchase agreements. The maturity of Repos shall not exceed 90** days. No more than 30%** of the portfolio may be invested in this category.

F.

Local Agency Investment Fund Local Agency Investment Fund (LAIF) is a State of California managed investment pool for local agencies within the State. Investments may be up to the maximum permitted by State Law or 40%** of the portfolio whichever is less. Due diligence will be exercised in monitoring the performance ofLAIF on a continual basis.

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G.

Time Certificates of Deposit Time Certificates of Deposit (TCD's) are similar to a savings certificate that anyone can purchase at a bank where there is a fixed rate of interest and a specified maturity date. In the public funds area, TCD's are collateralized in accordance with California Government Code and are non-negotiable. At the time of purchase no more than I 0%** of the portfolio may be in TCD's of any one institution. Maturity is limited to five* years. No more than 40%** ofthe portfolio may be invested in this category. Section 53652 of the California Government Code also specifics that the City will have a deposit contract with each depository.

H.

Public Agency Savings Account- Demand Deposits Public Agency Savings Account- Demand Deposits are similar to a savings account that anyone can open at a bank. The interest rate is specified at the time of deposit, but is subject to change. All funds can be withdrawn on demand. Like public TCD's, public agency savings accounts are collateralized in accordance with California Government Code requirements. No more than 30%** ofthe portfolio may be invested in this category.

I.

Mutual Funds Mutual Funds are money market funds meeting criteria prescribed in California Government Code Section 5360 I and related legislation. Investment in this category is limited to funds that invest in U.S. Government Securities and maintain a net asset value of one (daily liquidity). The purchase price of shares shall not include any commission that these companies may charge. No more than I 0%* of the portfolio may be invested in the shares of any one mutual fund. No more than 20%* of the portfolio may be invested in this category. Mutual funds are used for the investment of bond proceeds subject to arbitrage reporting. Due di li gence will be exercised in the selection and performance monitoring of mutual funds on a continual basis.

City of Bakersfield Summary Of Maximum Percent and Term Limitations By Investment Type: Term Percent 0 to 100% 5 Years 20% per agency 5 Years 40%(2 ) 180 Days 25% (l) 270 Days 30% 90 Days 40% N/A 40% (l) 5 Years N/A 30% 20% (2) N/A

U.S. Treasury Bills, Notes and Bonds U.S. Government Agency Obligations

Bankers Acceptances(!> Commercial Papcr Repurchase Agreements Local Agency Investment Fund Time Certificates of Deposit Public Agency Demand Accounts Mutual Funds

( I) Short-tem1 debt rating of the highest lener and number rating provided for bra nationally recognized statistical-rating organization. (2) No more than 10% of the portfolio may be invested in any one entity from these cacgorics. (3) Highest letter and number rating provided for by a nati onall y n:cognized stltisti cal-rating organization. 811Q0338

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Should any investment percentage and portfolio limitation be exceeded due to the unexpected fluctuation in portfolio size, the affected securities may be held to avoid losses. When market values are such that no loss is indicated, the Ci ty Treasurer shall consider restructuring the portfolio basing the decision in part on the expected length oftime the portfolio wi ll be imbalanced. Any State of California legislative action that further restricts allowable maturities, investment type or percentage allocations, will be incorporated into this Investment Policy and supersede any and all previous applicable language.

IX

UNAUTHORIZED INVESTMENTS

Ineligible investments are those that arc not described herein, including but not limited to, negotiable time certificates of deposit, non-government agency medium term corporate notes and reverse repurchase agreements.

X

COLLA TERALIZA TION

Collateralization will be required on two types of investments, time certificates of deposit and repurchase agreements. Investment in time certificates of deposit shall be insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Investments in time certificates of deposit in excess of $250,000 shall be properly collateralized. When a depository pledges government securities as collateral, section 53652 of the California Government Code requires the securities to have a market value of at least 10% in excess ofthe City's deposit or 50% in excess of the City's deposit when mortgages are pledged as collateral. Repo collateralization will be at least 102% of market value of principal and accrued interest.

XI

SAFEKEEPING AND CUSTODY

All security transactions entered into by the City of Bakersfield shall be conducted on a deliveryversus-payment (DVP) basis. Securities shall be delivered to the City by book entry, physical delivery or by third party custodial agreement.

XII

DIVERSlFTCATION

To reduce credit and market risk in the overall portfolio, the City will diversify its investments by security type, maturity date and issuer. With the exception ofU.S. Treasury securities, diversification is also achieved by the portfolio percentages and maturity limitations indicated in the Authorized & Suitable Investments section of this policy.

XIII

MAXIMUM MATURITIES

To the extent possible, and within the five year maximum maturity required by California Government Code, the City of Bakersfield will attempt to match investment maturities with anticipated cash flow requirements. As required by California Government Code Section 53601. any investment term longer than five years requires express authority by the City Council to make that investment. This authority must be granted no less than three months prior to making the investment. Investments with

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terms longer than five years will be limited to the lesser of $10 million or I 0% of the portfolio at the time the investment is made.

XIV

INTERNAL CONTROL

Investment transactions are reviewed by the City's external auditor as pati of the annual audit. This review verifies compliance with the City of Bakersfield Investment Pol icy and the California Governn1ent Code.

XV

PERFORMANCESTANDARDS

The cash management system is designed to accurately monitor and forecast expenditures and revenues, thus ensuring the investment of monies to the fullest extent possible, including the estimated float for the Active Account and the Payroll Account. The City attempts to obtain the highest interest yields possible as long as investments meet the criteria required for safety and liquidity, do not exceed a term of five years (unless otherwise authorized by the City Council) and are within portfolio percentage limitations. The City strives to maintain the level of investment of all funds as near I 00% as possible through daily and projected cash flow detetminations. The basic premise underlying the City of Bakersfield Investment Policy is, and will continue to be, to ensure that the money is always safe and available when needed. Because the investment portfolio is designed to operate on a "hold-to-maturity" premise (or passive investment style) and because of the safety, liquidity, and yield priorities, the benchmark that will be used by the City Treasurer to determine whether market yields are being achieved shall be the yield on the U.S. Treasury Bill or Note maturing closest to the weighted average maturity ofthc City's overall portfolio.

XVI

REPORTING

The City Treasurer shall provide the City Council monthly investment reports which provide a clear picture of the status of the cuJTent investm en t portfolio. The Monthly lnvestment Report shall include the following: • • • • • •

A listing of individual securities held at the end of the reporting period by authorized investment category Final maturity of all investments listed Coupon, discount or earnings rate Par value and market value Transactions completed during the month Percentage of the portfolio represented by each investment category

XVII INVESTMENT POLICY ADOPTION The City of Bakersfield Investment Policy shall be reviewed annually by City staff and adopted by Resolution of the City Council.

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XVIII INDEMNIFICATION OF INVESTMENT OFFICIALS The standard of care to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing the overall portfolio. The City Treasurer and his designees' acting in accordance with established procedures and the City of Bakersfield Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.

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EXHfBITB

Insurance

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City established a SelfInsurance Fund (an internal service fund) to account for and finance its uninsured risks of loss. Under this program, the Self Insurance Fund provides coverage for up to $500,000 for each worker's compensation claim and $1,000,000 for each liability claim. The City participates in a joint powers authority for worker's compensation claims in excess of coverage provided by the Self Insurance Fund up to statutory limits and participates in a joint powers authority for any excess liability cla ims. All funds of the City participate in the program and arc charged for their share of claim expenditures. The claims liability of $33,193,165 at June 30, 2014, is based on the requirements of Governmental Accounting Standards Board No. I 0 (GASB 10), which requires that a liability for claims be reported if infonnarion prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. An estimate of incurred but not reported claims has been included in the liability based on the various percentages of loss reserves.

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