Management Report and Recommendations 12/31/1985

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City of Lino Lakes, Minnesota Management Report, Page 7 The City currently has a federally secured investment of the Small Business Administration (SBA). This type of investment is acceptable for Minnesota cities. There have been notices from the SBA that payments from the borrower have been late and therefore payments to the City have been delayed. As stated above, the SBA investment is secured by the Federal government. We recommend that the City monitor compliance with payment terms. The City has also invested $507,366 in a Federal National Mortgage Association Adjustable Rate Mortgage Pool (referred to as Fannie Maes). These notes yield a higher rate than short term rates available. The notes do not mature, however, until 2024. The higher yield could substantially diminish if the City is required to sell these investments under adverse market conditions (i.e., during rising market interest rates). Conversely, during a period of declining interest rates, the City would realize a gain on the sale of this investment. Generally, the amount which a City commits to a long -term investment should be available to maintain in that investment until maturity (or until favorable market con- ditions exist for sale). The City has invested excess bond monies which may require disbursement within one year. Under these circumstances, "risk to market" is a factor. The higher yield available on these long -term investments is attractive, however, the amount invested long term should be made with consideration of City's projected cash flow needs.