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McGLADREY & PULLEN Certified Public Accountants and Consultants To the City Council City of Colton Colton, California We have applied certain agreed-upon procedures, as discussed below, solely to assist you in connection with your analysis of the investment transactions executed by Prudential-Bache Securities and Denman & Company on behalf of the City of Colton. It is understood that this report is solely for your information and is not to be referred to or distributed for any purpose to anyone who is not a member of management of the City of Colton. Our procedures are summarized as follows: a) We prepared a summary of investment activity with Prudential-Bache Securities for the period of March 1, 1986 through December 31, 1988 from account statements provided by the City Treasurer. As requested for this same time period, we have computed the yield on a sample of one year certificates of deposit owned by the City. In addition, we determined the decline in portfolio value from February 8, 1988, the date Prudential-Bache Securities was first notified of the City's intent to terminate the relationship, to December 28, 1988, when activity ceased. b) We compared the investment activity of Prudential-Bache Securities for the City of Colton to allowable investment activity as outlined in their investment agreements and have reported our findings. c) We prepared a summary of investment activity with Denman & Company for the period February 17, 1988 through July 15, 1988 from brokerage statements provided by the City Treasurer. In addition, we were able to obtain through the City Treasurer statements from REFCO Securities, Inc., the actual trading broker, confirming transactions reported by Denman & Company from April 15, 1988 through July 15, 1988. For investment yield comparison purposes, we obtained the average yield on jumbo certificates of deposit marketed by Merrill Lynch. d) We compared the investment activity of Denman & Company for the City of Colton to allowable investment activity as outlined in various documents appearing to represent part of the investment agreement between the two parties and have reported our findings. e) We attempted, but were unable to obtain a contract between Denman & Company and the City that detailed the method of calculating the commissions to Denman & Company. Therefore, we were not able to recompute or determine the accuracy of commissions retained by Denman & Company.