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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
REGISTRATION NO.
811-07696
IOWA PUBLIC AGENCY INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1415 28th STREET, SUITE 200
WEST DES MOINES, IOWA 50266
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Elizabeth Grob, Esq.
Ahlers & Cooney, P.C.
100 Court Avenue, Suite 600, Des Moines, Iowa 50309
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
Vera Lichtenberger JOHN C. MILES, ESQ.
IOWA PUBLIC AGENCY INVESTMENT TRUST DONALD F. BURT, ESQ.
1415 28th STREET, SUITE 200 CLINE, WILLIAMS, WRIGHT, JOHNSON &
WEST DES MOINES, IOWA 50266 OLDFATHER
1900 U.S. BANK BUILDING,
233 S. 13TH STREET
LINCOLN, NEBRASKA 68508
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (515) 244-5426
DATE OF FISCAL YEAR END: 06/30
DATE OF REPORTING PERIOD: 6/30/2006
ITEM 1. REPORTS TO UNITHOLDERS.
Iowa Public Agency Investment Trust
Diversified Fund
Comprehensive Annual
Financial Report
Direct Government Obligation Fund
Comprehensive Annual
Financial Report
Fiscal Year Ending
June 30, 2006
The Funds are distributed by Investors Management Group.
Shares of the Funds are NOT INSURED BY THE FDIC. Investment products involve
investment risk, including the possible loss of principal. Past performance is
not predictive of future results, and the composition of each Fund's portfolio
is subject to change.
Information not authorized for distribution unless accompanied or preceded by a
current Information Statement also known as a prospectus. An investor should
consider the Funds' investment objectives, risks, and charges and expenses
carefully before investing or sending money. This and other important
information about the investment company can be found in the Fund's Information
Statement. To obtain more information, please call 800-872-4024 or visit the
website: IPAIT.org. Please read the Information Statement carefully before
investing.
IOWA PUBLIC AGENCY INVESTMENT TRUST
Diversified Fund
IPAIT
IOWA PUBLIC AGENCY INVESTMENT TRUST
DIRECT GOVERNMENT OBLIGATION FUND
Comprehensive Annual Financial Report
For the Fiscal Year
Ended June 30, 2006 www.ipait.org
Prepared by the
Iowa Public Agency Investment Trust
Board of Trustees
2
Table of Contents
INTRODUCTORY SECTION
Letter from the Chair.................................................6
Management Report.....................................................9
Board of Trustees....................................................10
Service Providers....................................................12
Organization Chart...................................................13
Certificate of Achievement...........................................14
FINANCIAL SECTION
DIVERSIFIED PORTFOLIO:
Report of Independent Registered Public Accounting Firm..............16
Management's Discussion and Analysis.................................17
Financial Statements.................................................20
Notes to Financial Statements........................................24
Financial Highlights.................................................26
DIRECT GOVERNMENT OBLIGATION PORTFOLIO:
Report of Independent Registered Public Accounting Firm..............27
Management's Discussion and Analysis.................................28
Financial Statements.................................................31
Notes to Financial Statements........................................34
Financial Highlights.................................................36
INVESTMENT SECTION
Fund Facts Summary...................................................38
Diversified Fund and Direct Government Obligation Fund...............39
Introduction.........................................................39
Risk Profile.........................................................41
Performance Summary..................................................42
Fund Expenses........................................................43
Investment Commentary................................................46
IPAIT Investment Policy..............................................47
Investing and Non-Investing Participants.............................51
STATISTICAL SECTION
Statistical Information..............................................54
Changes in Fund Units................................................55
Monthly Comparative Yields...........................................56
Annual Comparative Yields ...........................................57
Annual Net Investment Income.........................................57
Changes in Net Asset.................................................58
Glossary of Investment Terms.........................................60
3
INTRODUCTORY
SECTION
IPAIT
4
August 26, 2006
Dear Fellow IPAIT Participants:
The Iowa Pubic Agency Investment Trust (IPAIT) is pleased to submit the
Diversified Fund and Direct Government Obligation Fund (DGO) Comprehensive
Annual Financial Reports for the fiscal year ended June 30, 2006.
The IPAIT Board of Trustees and service providers are responsible for the
content of the reports.IPAIT has been serving participants' needs since 1987 in
accordance with Iowa Code. Fiscal year 2005-2006 was marked with the Federal
Reserve raising interest rates, which continued throughout the year. The IPAIT
Diversified and DGO Funds maintained yields comparable to other money market
funds during this time while being an educational resource for IPAIT
participants. For a detailed review of the Funds, please refer to the
Management's Discussion and Analysis of each Fund located in the Financial
Section.
Iowa Economy
Growth in the national economy has certainly been felt in the Midwest over the
past few years. While Iowa tends to lag the national economy during times of
rapid economic growth, it also benefits from a lag as the national economy
reverts to more normalized growth patterns. While national GDP growth has slowed
recently, Iowa is moving ahead. Among Midwest states Iowa looks strong with
improving employment growth and continued strengthening of the housing
market.
Iowa's May unemployment rate was 3.4 percent, less than most of its neighbors
and well below the national level of 4.6 percent. Iowa has seen non-farm payroll
growth of 1.8 percent over the past year and May's payroll level of 1,504,700
set a new record for the state. Unemployment claims have risen over the past
year reflected in the high profile layoffs and eventual closure of the Newton
Maytag facility. However, average hourly earnings have also risen indicating an
improving consumer picture. Real personal income is expected to grow by 1.6
percent in 2006.
Midwest housing starts continued to rise over the past twelve months even as
housing on a national scale has been declining. Iowa sales have risen 1.6
percent in the first half of 2006 while nationally sales have fallen 2.1
percent. Median Midwest housing prices rolled over in the first quarter of 2006
along with national prices as higher mortgage rates slowed activity. Farm values
have also risen year-over-year (as of April) with land in the south-central and
south-eastern parts of the state showing strongest growth.
The Federal Reserve's next move depends heavily on the inflation data received
before the meeting. The national consumer price index inflation measure (CPI)
rose 4.2 percent year-over-year whereas Midwest CPI rose only 3.3 percent. Like
most states, although Iowa projects an increase in revenue in 2006 and 2007 the
challenges of meeting rising education and healthcare costs will weigh on
budgets.
Investment Policies and Strategies
IPAIT was created pursuant to Iowa Code Chapter 28E in 1987 to enable eligible
Iowa public agencies to invest their available operating and reserve funds in a
competitive rate environment, safely and effectively. Both the Diversified and
DGO Funds have followed established money market mutual fund investment
parameters designed to maintain a $1 per unit net asset value since
inception.
Investment Safeguards
Both Funds continue to be focused on their investment objectives as stated in
the IPAIT Investment Policy. These goals, in order of priority are: safety of
invested principal, maintenance of liquidity, and maximum yield. Within these
objectives, each Fund strives to provide participants with the best available
rates of return for legally authorized investments. All security settlements
within either Fund are settled on a delivery-versus-payment (DVP) basis. DVP
settlements greatly reduce the possibility of inappropriate transmission of
funds or securities.
Reliability of Investment Section
All commentary and displays in the Investment Section were prepared by IPAIT's
service provider, Investors Management Group (IMG), the program's Investment
Adviser, Administrative Services Provider, and Program Support Provider. IMG has
provided services to the IPAIT program since the program's inception in 1987.
All services provided by IPAIT to participants are subject to rigorous and
regular verification.
5
Statement of Changes in Net Assets
For fiscal year 2005-2006 (FY 05/06) and fiscal year 2004-2005 (FY 04/05) total
interest earned, total operating expenses, and net investment income for the
IPAIT Diversified and the DGO Funds were as follows:
Interest Earned Expenses Net Investment Income
Diversified Fund
FY 05/06 $9,590,801 $1,118,335 $8,472,466
FY 04/05 $4,792,152 $1,058,235 $3,733,917
DGO Fund
FY 05/06 $647,800 $80,459 $567,341
FY 04/05 $475,110 $125,123 $349,987
The increase in year-over-year interest earned for the Funds is primarily
attributed to the higher interest rate environment throughout the year. The
average net assets of the Diversified Fund were higher in FY 05/06 than FY
04/05, resulting in an increase in interest earned and expenses. The average net
assets of the DGO Fund were lower in FY 05/06 than FY 04/05, resulting in lower
expenses in FY 05/06 compared to FY 04/05. IPAIT operates pursuant to Service
Provider agreements for all aspects of operation. Every agreement specifies the
fees to be charged for each component of IPAIT services.
Financial and operating highlights from this past year include:
o Receipt of a ninth consecutive Certificate of Achievement for
Excellence in Financial Reporting by the Government Finance Officers
Association (GFOA).
o Average combined daily investments in the Diversified and DGO Funds of
$245,101,870 up from $243,819,674 in the last fiscal year.
o Placement of 38 portfolio certificates of deposit in Iowa financial
institutions by the Diversified Fund representing over $31,250,000.
o An authorized membership total of 410 public bodies representing 185
municipalities, 82 counties, 92 municipal utilities, and 51 other
eligible public agencies.
o Total funds invested in IPAIT's investment alternatives peaked for the
fiscal year at $438,268,928 on April 11, 2006.
Comprehensive Annual Financial Report Format and Contents
The report is presented in four sections as follows:
Introduction - Contains the Letter of Transmittal, Management Report, a
listing of the IPAIT Board of Trustees and Service Providers and the IPAIT
Organizational Chart.
Financial - Contains the reports of the independent registered public
accounting firm, KPMG LLP, Management's Discussion and Analysis for the
Diversified Fund and DGO Fund, and the Diversified Fund and DGO Fund
financial statements.
Investment - Contains a comprehensive discussion of each Fund's investment
performance and operations including the follwing:
o Fund Facts - a summary of IPAIT's Diversified Fund and DGO Fund
investment strategy, individual fund performance comparison to other
registered money market fund performance benchmarks including the
iMoneyNet Money Fund Report TM and an Economic Environment Overview
for the past fiscal year;
o Complete Portfolio Characteristics portfolio composition and summaries
for each Fund to include portfolio ownership analysis, weighted
average maturity illustrations and comparisons, maturity analysis,
portfolio distribution by security type, historical portfolio asset
growth; and
o The IPAIT Diversified Fund and DGO Fund Investment Policy.
6
Statistical - Includes trend data for the current and prior years for
various program operating components, including total net asset value for
each Fund by type of participant, monthly and annual yield highlights with
benchmark comparisons, summary of changes in net assets, and a glossary of
investment terms.
The GFOA awarded a ninth consecutive Certificate of Achievement for
Excellence in Financial Reporting to the Iowa Public Agency Investment
Trust for its comprehensive annual financial report (CAFR) for the fiscal
year ended June 30, 2005. The Certificate of Achievement is a prestigious
national award, recognizing conformance with the highest standards for
preparation of state and local government financial reports.
In order to be awarded a Certificate of Achievement, a government unit must
publish an easily readable and efficiently organized CAFR, whose contents
conform to program standards. The CAFR must satisfy both generally accepted
accounting principles and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We
believe our current report continues to conform to the Certificate of
Achievement program requirements, and we are submitting it to the GFOA.
Participant Meetings
The participants had two participant meetings (proxy votes) this year, details
of which can be found on page 45 of this report. The participants elected the
Board of Trustees, ratified the selection of auditors and approved changes to
the Joint Powers Agreement in August. In December, the participants approved a
new Investment Advisory Agreement with IMG. The second proxy vote was necessary
because IMG was acquired by West Bancorporation on December 30, 2005. The change
of ownership of the Investment Adviser legally terminates the investment
advisory agreement. The investment advisory agreement is reviewed annually by
the Board of Trustees, and the factors which the Board considers are set forth
in the annual or semi-annual report following the Board action.
Summary
On behalf of IPAIT's Board of Trustees, sponsoring associations and service
providers, we thank you for your continued support of the Iowa Public Agency
Investment Trust. We encourage you to contact us with comments and suggestions
regarding any improvements to the operation of IPAIT. Your involvement in IPAIT
is essential in its ability to provide a competitive investment alternative, and
ongoing program opportunities for association members.
As we begin fiscal year 2006-2007, IPAIT will continue to be guided by its
objectives of: safety, liquidity, and competitive return. In addition, IPAIT
will be an excellent resource as a user-friendly investment alternative and also
an educational resource. The website provides monthly updates as well as access
to the secure IPASonlineTM system. We collectively pledge to continue working
together to provide a safe source of interest income for every participant.
Respectfully,
/s/ Tom Hanafan
Tom Hanafan
Chair, Board of Trustees
7
TO IPAIT PARTICIPANTS:
While IPAIT's Diversified Fund and DGO Fund financial statements and the related
financial data contained in these Comprehensive Annual Financial Reports (CAFR)
have been prepared in conformity with U.S. generally accepted accounting
principles and have been audited by IPAIT's Independent Registered Public
Accounting Firm, KPMG LLP, the ultimate accuracy and validity of this
information is the responsibility of the management of the Iowa Public Agency
Investment Trust Board of Trustees. To carry out this responsibility, the Board
of Trustees maintains financial policies, procedures, accounting systems and
internal controls, which the Board believes provide reasonable, but not
absolute, assurance that accurate financial records are maintained and
investment assets are safeguarded.
In addition, the three ex-officio trustees meet with the Program's service
providers and legal counsel to review all aspects of IPAIT performance each
month. The Board of Trustees meets quarterly to similarly review IPAIT's
performance and compliance. In addition, the IPAIT Board of Trustees regularly
subjects IPAIT to a comprehensive review of all services and costs of operation.
Again this year's CAFR will be submitted to the GFOA for consideration for a
Certificate of Achievement for Excellence in Financial Reporting following
receipt of a ninth consecutive Certificate of Achievement for the fiscal year
ended June 30, 2005.
In the Board's opinion, IPAIT's internal controls are adequate to ensure that
the financial information in this report presents fairly the IPAIT Diversified
and DGO Fund operations and financial condition.
/S/ Robert D. Haug
Robert D. Haug
Secretary, Board of Trustees
Iowa Public Agency Investment Trust
8
Board Photos
The Trustees and officers are not compensated for Board service.
Expenses incurred in attending meetings are paid by the Trust.
9
================== ====================== ==== =========== ========= ======= ================= ========== =============
NUMBER OF
LENGTH PRINCIPAL PORTFOLIOS
POSITION OF OCCUPATION OVERSEEN
HELD WITH TERM OF TIME DURING PAST BY OUTSIDE
NAME ADDRESS AGE IPAIT OFFICE SERVED FIVE YEARS TRUSTEE DIRECTORSHIPS
================== ====================== ==== =========== ========= ======= ================= ========= =============
Robert Hagey 210 Central Ave. SW 55 Trustee Term Since Sioux County 2 None
Orange City, IA Ending 1993 Treasurer
51041 2008
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Thomas Hanafan 209 Pearl Street 57 Trustee, Term Since Council Bluffs 2 None
Council Bluffs, IA Chair Ending 1992 Mayor
51503 2006
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Donald Kerker 3205 Cedar Street 55 Trustee Term Since Director, 2 None
Muscatine, IA 52761 Ending 1999 Finance &
2008 Administrative
Services,
Muscatine Power
and Water
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Wapello County
Treasurer,
101 W. Fourth Street Trustee, Term Since College
Dianne Kiefer Ottumwa, IA 52501 56 Vice Chair Ending 2000 Instructor, 2 None
2007 Buena Vista
University
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Floyd Magnusson 703 Central Avenue 79 Trustee Term Since Webster County 2 None
Fort Dodge, IA 50501 Ending 2000 Supervisor
2006
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Craig Hall 138 Jackson Street 54 Trustee Term Since Manager, 2 None
Brooklyn, IA 52211 Ending 2004 Brooklyn
2007 Municipal
Utilities
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Leon Rodas 712 North 54 Trustee, Term Since General 2 None
Grand Second 2006 Ending Manager,
P.O. Box 222 Vice Chair 2003 Spencer
Spencer, IA 51301 Municipal
Utility
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Jody Smith P.O. Box 65320 53 Trustee Term Since Director of 2 None
West Des Moines, IA Ending 1994 Administrative
50265 2007 Services/City
Clerk, West Des
Moines
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Susan Vavroch 50 Second Ave. 47 Trustee Term Since Cedar Rapids 2 None
Bridge Cedar Ending 2003 City Treasurer
Rapids, IA 52401 2008
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Thomas Bredeweg 317 Sixth Avenue, 58 IPAIT Since Iowa League of
Ste 1400 Des Treasurer 1992 Cities
Moines, IA 50309 Executive
Director
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
William Peterson 501 SW Seventh St, 55 IPAIT Since Iowa State
Ste Q Des Assistant 1994 Association of
Moines, IA 50309 Secretary Counties
Executive
Director
- ------------------ ---------------------- ---- ----------- --------- ------- ----------------- --------- -------------
Robert Haug 1735 NE 70th 58 IPAIT Since Iowa
Avenue Secretary 1986 Association of
Ankeny, IA 50021 Municipal
Utilities
Executive
Director
================== ====================== ==== =========== ========= ======= ================= ========= =============
10
SERVICE PROVIDERS
Sponsoring Associations
Iowa Association of Municipal Utilities
1735 NE 70th Avenue
Ankeny, IA 50021-9353
Robert Haug, Executive Director
orbhaug@iamu.org
515-289-1999
Iowa State Association of Counties
501 SW 7th Street, Suite Q
Des Moines, IA 50309
William Peterson, Executive Director
bpeterson@iowacounties.org
515-244-7181
Iowa League of Cities
317 Sixth Avenue, Suite 800
Des Moines, IA 50309
Thomas Bredeweg, Executive Director
tombredeweg@iowaleague.org
515-244-7282
Legal Counsel
AHLERS & COONEY, P.C.
100 Court Avenue, Suite 600
Des Moines, IA 50309
Elizabeth Grob 515-246-0305
egrob@ahlerslaw.com
Investment Adviser
Administrator
Program Support
Investors Management Group
Century II Building
1415 28th Street, Suite 200
West Des Moines, IA 50266-1461
Jeff Lorenzen 515-224-2718
jlorenzen@img-dsm.com
Ron Shortenhaus 515-224-2724
rshortenhaus@img-dsm.com
Anita Tracy 515-224-2725
atracy@img-dsm.com
Vera Lichtenberger 515-224-2764
vlichtenberger@img-dsm.com
Custodian
Wells Fargo Bank, N.A.
MAC N8200-034
666 Walnut Street, P.O. Box 837
Des Moines, IA 50304-0837
Kristi Boyce 515-245-8504
kristi.j.boyce@wellsfargo.com
Teresa Smith 515-245-3245
teresa.a.smith@wellsfargo.com
Independent Registered Public Accounting Firm
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Sean Vicente 515-697-1108
msvicente@kpmg.com
11
ORGANIZATION CHART
IPAIT Board of Sponsoring
Trustees Associations
-------- ------------
Tom Hanafan, Chair Iowa League of Cities
Dianne Kiefer, Vice Chair Tom Bredeweg
Leon Rodas, Second Vice Chair
Donald Kerker, Board Member Iowa State Association of Counties
Robert Hagey, Board Member William Peterson
Craig Hall, Board Member
Floyd Magnusson, Board Member Iowa Association of Municipal Untilities
Jody Smith, Board Member Robert Haug
Susan Vavroch, Board Member
IPAIT Custodian IPAIT Investment Adviser
--------------- ------------------------
Wells Fargo Bank, N.A. Investors Management Group
Kristi Boyce Jeff Lorenzen
Legal Counsel IPAIT Auditor IPAIT Administration IPAIT Program Support
- ------------- ------------- -------------------- ---------------------
Ahlers & KPMG LLP Investors Management Investors Management
Cooney, P.C. Sean Vicente Group Group
Elizabeth Grob Vera Lichtenberger Ron Shortenhaus
Anita Tracy
12
CERTIFICATE OF ACHIEVEMENT
FINANCIAL SECTION
IPAIT
Independent Registered Public Accounting Firm Report
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Report of Independent Registered Public Accounting Firm
The Board of Trustees and UnitholdersIowa
Public Agency Investment Trust:
We have audited the accompanying statement of net assets, including schedule of
investments, of the Direct Government Obligation Portfolio of the Iowa Public
Agency Investment Trust (the Portfolio) as of June 30, 2006, and the related
statements of operations, and changes in net assets for each of the years in the
two-year period then ended, and financial highlights for each of the years in
the five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board and the standards applicable to financial audits
contained in Government Auditing Standards issued by the Comptroller General of
the United States. Those standards require that we plan and perform our audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Direct Government
Obligation Portfolio of the Iowa Public Agency Investment Trust at June 30,
2006, and the results of its operations and changes in net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years presented, in conformity with U.S. generally accepted
accounting principles.
In accordance with Government Auditing Standards, we have also issued our report
dated August 21, 2006 on our compliance with certain provisions of laws,
regulations, and grant agreements and other matters. The purpose of that report
is to describe the scope of our testing, and not to provide an opinion on the
internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.
Our audit was performed for the purpose of forming an opinion on the Portfolio's
financial statements. The introductory section, other supplementary information,
investment section and statistical section are presented for the purpose of
additional analysis and are not a required part of the financial statements. The
introductory section, other supplementary information, investment section and
statistical section have not been subjected to the auditing procedures applied
by us in the audit of the financial statements and, accordingly, we express no
opinion on them.
The management's discussion and analysis on pages 28 to 30 is not a required
part of the financial statement but is supplementary information required by
U.S. generally accepted accounting principles. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the management discussion and
analysis information. However, we did not audit the information and express no
opinion on it.
Des Moines, Iowa
August 21, 2006
15
THE MANAGEMENT'S DISCUSSION AND ANALYSIS
This section of the IPAIT Diversified Portfolio's annual Financial Statements
presents management's discussion and analysis of the financial position and
results of operations for the fiscal years ended June 30, 2006 (FY 06) and 2005
(FY 05). This information is being presented to provide additional information
regarding the activities of IPAIT, pursuant to the requirements of Governmental
Accounting Standards Board Statement No. 34, Basic Financial Statements - and
Management's Discussion and Analysis - for State and Local Governments,
Statement No. 37, Basic Financial Statements - and Management's Discussion and
Analysis - for State and Local Governments: Omnibus, and Statement No. 38,
Certain Financial Statement Note Disclosures (Statements Nos. 34, 37, and 38).
This discussion and analysis should be read in conjunction with the Report of
Independent Registered Public Accounting Firm, KPMG LLP, the Financial
Statements, and the accompanying notes.
Overview of the Financial Statements
The Management's Discussion and Analysis provides an introduction to and
overview of the basic financial statements of IPAIT's Diversified Portfolio. The
following components comprise the basic financial statements: 1) Schedule of
Investments, 2) Statement of Net Assets,3) Statement of Operations, 4)
Statement of Changes in Net Assets, and 5) Notes to Financial Statements.
o The Schedule of Investments lists each security held by the portfolio
as of the date of current fiscal year end.
o The Statement of Net Assets shows the financial position (assets and
liabilities) of the portfolio as of the date of the current fiscal
year end.
o The Statements of Operations display the results of operations (income
and expenses) of the portfolio for the two most recent fiscal years.
o The Statements of Changes in Net Assets display the results of
additions (net investment income, unit sales, and reinvestments) and
deductions (dividends and unit redemptions) of the portfolio for the
two most recent fiscal years.
o The Notes to Financial Statements describe significant accounting
policies and disclose summary security transaction amounts of the
portfolio.
Condensed Financial Information and Financial Analysis
Year-over-year changes in most financial statement amounts reported in IPAIT's
Diversified Portfolio are most significantly impacted by the level of average
net assets (which fluctuates based on the overall levels of
participant/unitholder invested balances). Additionally, changes in the
short-term interest rate environment (which follows the general trend
established by monetary policy set by the Federal Reserve) contribute to
year-over-year variances in the amount of investment income earned by the
portfolio. Over the last twelve months, the Federal Reserve's Federal Open
Market Committee increased the Federal Funds target rate eight times, from 3.25
percent to 5.25 percent. In the preceding twelve months, the Federal Funds
target was increased nine times, from 1.00 percent to 3.25 percent.
16
Condensed financial information and changes explanations for FY 06, as compared
to FY 05 follows.
Diversified Portfolio
NET ASSETS
PERCENT
JUNE 30, 2006 CHANGE JUNE 30, 2005
-------------- --------- -------------
Total investments $209,699,643 -9% $229,759,603
Excess of other liabilities over
other assets (6,218,102) -6686% (91,637)
-------------- -------------
Net assets held in trust for
pool participants 203,481,541 -11% 229,667,966
============== =============
Average Net Assets $229,267,241 5% $218,666,940
-------------- -------------
Total investments and net assets decreased 9 and 11 percent, respectively,
comparing June 30, 2006 and June 30, 2005 amounts. During FY 06, average net
assets increased 5 percent to $229,267,241 from average net assets of
$218,666,940 during FY 05. The significant increase in excess of other
liabilities over other assets is due to a liability for securities purchased on
June 30, 2006 and settled on July 3, 2006 in the amount of $6,235,663. No such
liability existed on June 30, 2005. The Diversified portfolio experienced a net
redemption of assets in FY 06 due to investors withdrawals of assets out of the
Diversified portfolio for other investment opportunities. During FY 06, bank
investment options, specifically certificates of deposit continued to be
appealing versus money market funds.
PERCENT
CHANGE IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2006 CHANGE JUNE 30, 2005
-------------- --------- -------------
Investment Income $9,590,801 100% $4,792,152
Total Expenses (1,118,335) 6% (1,058,235)
Dividends to unitholders from net
investment income (8,472,466) 127% (3,733,917)
Net decrease in assets derived
from unit transactions (26,186,425) -4% (25,150,144)
Net assets held in trust for pool
participants at beginning of period 229,667,966 -10% 254,818,110
-------------- -------------
Net assets held in trust for pool
participants at end of period $203,481,541 -11% $229,667,966
============== =============
Investment income and net investment income increased 100 percent and 127
percent, respectively, during FY 06 compared to FY 05 due to the higher interest
rate environment. With the increase in Fed Fund rates, money market fund returns
have improved during FY 06. Total expenses are derived based on net assets held
by the Fund. These expenses increased 6 percent during FY 06 commpared to FY 05
due to higher average net assets throughout FY 06. Also, the other fees and
expenses accrual of 0.025 percent had been temporarily suspended for the 16
month period ended December 31, 2004 and reinstated at 0.02 percent January 1,
2005 through June 30, 2005. These full fees and expenses applied for the entire
FY 06. The accrual was at the full 0.025 percent for the entire FY 06. During FY
06 compared to FY 05, units sold and redeemed increased 9 percent and 9 percent,
respectively.
17
Condensed financial information and changes explanations for FY 05 as compared
to the fiscal year ended June 30, 2004 (FY 04) follows.
Diversified Portfolio
NET ASSETS
PERCENT
JUNE 30, 2005 CHANGE JUNE 30, 2004
------------- -------- -------------
Total investments $229,759,603 -10% $254,078,254
Excess of other liabilities over
other assets (91,637) -112% 739,856
------------- -------------
Net assets held in trust for
pool participants 229,667,966 -10% 254,818,110
============= =============
Average Net Assets $218,666,940 $248,770,769
------------- -------------
Total investments and net assets decreased 10 and 10 percent, respectively,
comparing June 30, 2005 and June 30, 2004 amounts. During FY 05, average net
assets decreased 12 percent to $218,666,940 from average net assets of
$248,770,769 during FY 04. The Diversified portfolio experienced a net
redemption of assets in FY 05 due to investors withdrawals of assets out of the
Diversified portfolio for other investment opportunities. During FY 05, bank
investment options, specifically certificates of deposit were exceptionally
appealing versus money market funds.
PERCENT
CHANGE IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2005 CHANGE JUNE 30, 2004
------------- --------- -------------
Investment Income $4,792,152 79% $2,680,795
Total Expenses (1,058,235) -12% (1,202,977)
Dividends to unitholders from net
investment income (3,733,917) 153% (1,477,818)
Net decrease in assets derived
from unit transactions (25,150,144) -357% 9,793,059
Net assets held in trust for pool
participants at beginning of period 254,818,110 4% 245,025,051
------------- -------------
Net assets held in trust for pool
participants at end of period $229,667,966 -10% $254,818,110
============= =============
Investment income and net investment income increased 79 percent and 153
percent, respectively, during FY 05 compared to FY 04 due to the higher interest
rate environment. With the increase in Fed Fund rates, money market fund returns
have improved during FY 05. Total expenses are derived based on net assets held
by the Fund. These expenses decreased 12 percent during FY 05 compared to FY 04
due to lower net assets throughout FY 05. Also, the other fees and expenses
accrual of 0.025 percent had been temporarily suspended for the 16 month period
ended December 31, 2004 and reinstated at 0.02 percent January 1, 2005 through
June 30, 2005. During FY 05 compared to FY 04, units sold and redeemed increased
12 percent and 16 percent, respectively.
Contacting the Portfolio's Financial Management
This financial report is designed to provide IPAIT participants and prospective
investors with a general overview of the Fund's finances and to demonstrate the
Fund's accountability for the resources it receives and manages. If you have
questions about the report or need additional financial information, contact
IPAIT at 800-872-4024 or visit the website at IPAIT.org.
18
Iowa Public Agency Investment Trust - Diversified Portfolio
Schedule of Investments - June 30, 2006
(Showing Percentage of Net Assets)
Yield
Par Time of
Value Description Purchase Due Date Amortized Cost
----- ----------- -------- -------- --------------
DISCOUNTED GOVERNMENT SECURITIES -- 4.88%
$ 3,000,000 Federal National Mortgage Association Discount Note 4.85% 08/09/06 $ 2,984,806
4,000,000 Federal National Mortgage Association Discount Note 4.99% 08/23/06 3,971,557
3,000,000 Federal National Mortgage Association Discount Note 5.34% 08/28/06 2,974,770
--------------
TOTAL (cost -- $9,931,133) $ 9,931,133
--------------
COUPON SECURITIES -- 25.92%
$ 2,000,000 Federal Home Loan Bank, 2.13% 4.72% 07/07/06 $ 1,999,150
500,000 Federal Home Loan Bank, Step Coupon 4.46% 07/21/06 499,616
4,000,000 Federal Home Loan Bank, 2.88% 5.04% 08/15/06 3,989,522
1,220,000 Federal Home Loan Bank, 2.50% 4.64% 09/28/06 1,213,784
2,000,000 Federal Home Loan Bank, 4.01% 5.50% 10/27/06 1,990,345
1,000,000 Federal Home Loan Bank, 3.24% 5.17% 11/22/06 992,594
700,000 Federal Home Loan Bank, 2.02% 5.26% 12/29/06 689,107
1,210,000 Federal Home Loan Bank, 3.18% 5.22% 12/29/06 1,198,117
500,000 Federal Home Loan Bank, 4.30% 5.32% 01/18/07 497,320
3,000,000 Federal Home Loan Bank, 2.62% 5.20% 02/07/07 2,955,009
4,000,000 Federal Home Loan Bank, 4.88% 5.56% 02/15/07 3,983,380
3,000,000 Federal Home Loan Mortgage Corporation, 5.50% 4.74% 07/15/06 3,000,769
3,000,000 Federal Home Loan Mortgage Corporation, 3.88% 4.78% 09/15/06 2,992,906
4,500,000 Federal Home Loan Mortgage Corporation, 2.75% 5.16% 10/15/06 4,469,365
940,000 Federal Home Loan Mortgage Corporation, 2.75% 4.60% 10/15/06 935,127
4,000,000 Federal Home Loan Mortgage Corporation, 3.75% 5.25% 11/15/06 3,978,251
2,200,000 Federal Home Loan Mortgage Corporation, 2.88% 5.52% 12/15/06 2,174,370
1,347,000 Federal Home Loan Mortgage Corporation, 2.25% 5.21% 12/18/06 1,329,017
3,000,000 Federal Home Loan Mortgage Corporation, 5.25% 5.26% 04/27/07 2,999,877
4,000,000 Federal National Mortgage Association, 3.30% 4.57% 07/14/06 3,998,216
520,000 Federal National Mortgage Association, 3.13% 4.60% 07/15/06 519,711
1,000,000 Federal National Mortgage Association, 2.41% 5.42% 08/04/06 997,203
2,235,000 Federal National Mortgage Association, 2.75% 4.29% 08/11/06 2,231,228
1,000,000 Federal National Mortgage Association, 4.38% 5.53% 10/15/06 996,587
2,150,000 Federal National Mortgage Association, 2.63% 5.16% 01/19/07 2,120,939
--------------
TOTAL (cost -- $52,751,510) $ 52,751,510
--------------
See accompanying notes to basic financial statements.
19
Iowa Public Agency Investment Trust - Diversified Portfolio
Schedule of Investments - June 30, 2006
(Showing Percentage of Net Assets)
Yield
Par Time of
Value Description Purchase Due Date Amortized Cost
----- ----------- -------- -------- --------------
CERTIFICATES OF DEPOSIT -- 7.84%
$ 3,000,000 Freedom Bank-Elkader 5.09% 07/05/06 $ 3,000,000
800,000 Exchange Bank-Collins 4.20% 07/06/06 800,000
1,000,000 Premier Bank-Dubuque 4.10% 07/10/06 1,000,000
500,000 Ft. Madison Bank & Trust 4.64% 07/24/06 500,000
500,000 Ft. Madison Bank & Trust 4.67% 07/24/06 500,000
300,000 Farmers State Bank-Hawarden 4.35% 07/25/06 300,000
1,000,000 Quad City Bank & Trust 5.27% 08/21/06 1,000,000
900,000 First State Bank-Ida Grove 5.09% 08/23/06 900,000
500,000 Farmers State Bank-Hawarden 5.31% 08/30/06 500,000
1,000,000 St Ansgar State Bank 5.14% 09/05/06 1,000,000
1,500,000 Union State Bank-Winterset 4.26% 09/07/06 1,500,000
200,000 Farmers State Bank-Hawarden 5.52% 09/19/06 200,000
1,000,000 Community State Bank-Ankeny 4.85% 09/26/06 1,000,000
250,000 Citizens Bank-Sac City 4.61% 10/02/06 250,000
1,000,000 Premier Bank-Dubuque 5.32% 10/18/06 1,000,000
500,000 First American Bank-Ames 5.29% 12/08/06 500,000
2,000,000 Community State Bank-Ankeny 4.87% 12/29/06 2,000,000
--------------
TOTAL (cost -- $15,950,000) $ 15,950,000
--------------
REPURCHASE AGREEMENTS (collateralized by U.S. Govt. Securities) -- 64.41%
$ 46,000,000 Barclays Capital Inc. 5.10% 07/03/06 $ 46,000,000
40,067,000 J.P. Morgan Securities Inc. 5.05% 07/03/06 40,067,000
45,000,000 Bear Stearns and Company Inc. 5.10% 07/03/06 45,000,000
--------------
TOTAL (cost -- $131,067,000) $ 131,067,000
--------------
TOTAL INVESTMENTS -- 103.05% (cost -- $209,699,643) $ 209,699,643
EXCESS OF OTHER LIABILITIES OVER OTHER ASSETS -- (3.05%) (includes
$6,235,663 payable for securities purchased, $55,346 payable to
IMG and $798,354 dividends payable
to unitholders) ($6,218,102)
--------------
NET ASSETS HELD IN TRUST FOR POOL PARTICIPANTS -- 100%
--------------
Applicable to 203,481,541 outstanding units $ 203,481,541
==============
See accompanying notes to basic financial statements.
20
Iowa Public Agency Investment Trust - Diversified Portfolio
Statement of Net Assets - June 30, 2006
Iowa Public Agency Investment Trust - Diversified Portfolio
Statement of Net Assets
June 30, 2006
ASSETS
Investments in securities at amortized cost:
Discounted Government Securities $ 9,931,133
Coupon Securities 52,751,510
Certificates of Deposit 15,950,000
Repurchase Agreements 131,067,000
Cash 569
Interest receivable 901,545
--------------
Total Assets 210,601,757
--------------
LIABILITIES
Investment advisory, administrative,
and program support fees payable 55,346
Custody fees payable 8,620
Distribution fees payable 17,786
Other fees and expenses payable 4,447
Dividends payable 798,354
Other accrued expenses
Securities payable 6,235,663
--------------
Total Liabilities 7,120,216
--------------
NET ASSETS HELD IN TRUST FOR POOL PARTICIPANTS $ 203,481,541
==============
Shares of beneficial interest outstanding 203,481,541
==============
Net asset value - offering and redemption price per share $ 1.00
==============
See notes to accompanying basic financial statements.
21
IOWA PUBLIC AGENCY INVESTMENT TRUST - DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS AND CHANGES IN NEST ASSETS
IOWA PUBLIC AGENCY INVESTMENT TRUST - DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
2006 2005
------------ ------------
INVESTMENT INCOME:
Interest $9,590,801 $4,792,152
------------ ------------
EXPENSES:
Investment advisory, administrative,
and program support fees $721,082 $711,837
Custody Fees $110,670 $105,900
Distribution fees $229,267 $218,667
Other fees and expenses $57,316 $21,831
------------ ------------
Total Expenses $1,118,335 $1,058,235
------------ ------------
NET INVESTMENT INCOME $8,472,466 $3,733,917
============ ============
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
2006 2005
ADDITIONS: --------------- ---------------
From Investment Activities:
Net investment income $8,472,466 $3,733,917
--------------- ---------------
From Unit Transactions:
(at constant net asset value
of $1 per unit)
Units sold $1,151,719,716 $1,055,083,090
Units issued in reinvestment
of dividends from net
investment income $7,815,349 $3,596,059
--------------- ---------------
TOTAL ADDITIONS 1,168,007,531 1,062,413,066
--------------- ---------------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (8472,466) (3,733,917)
--------------- ---------------
From Unit Transactions:
Units redeemed (1,185,721,490) (1,083,829,293)
--------------- ---------------
TOTAL DEDUCTIONS (1,194,193,956) (1,087,563,210)
--------------- ---------------
Net decrease in net assets (26,186,425) (25,150,144)
Net assets held in trust for pool participants
at beginning of period 229,667,966 254,818,110
--------------- ---------------
Net assets held in trust for pool participants
at end of period $203,481,541 $229,667,966
=============== ===============
See notes to accompanying basic financial statements.
22
NOTES TO BASIC FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Iowa Public Agency Investment Trust (IPAIT) is a common law trust
established under Iowa law pursuant to Chapter 28E and Sections 331.555 and
384.21, Iowa Code (1987), as amended, which authorizes Iowa public agencies
to jointly invest monies pursuant to a joint investment agreement. IPAIT is
registered under the Investment Company Act of 1940. IPAIT was established
by the adoption of a Joint Powers Agreement and Declaration of Trust as of
October 1, 1987, and commenced operations on November 13, 1987. The Joint
Powers Agreement and Declaration of Trust was amended September 1, 1988, and
again on May 1, 1993. As amended, IPAIT is authorized to operate and now
operates investment programs, one of which is the Diversified Portfolio. The
accompanying financial statements include activities of the Diversified
Portfolio. The objective of the portfolio is to maintain a high degree of
liquidity and safety of principal through investment in short-term
securities as permitted for Iowa public agencies under Iowa law. Wells Fargo
Bank, N.A. (Wells Fargo), serves as the Custodian, and Investors Management
Group (IMG) serves as the Investment Adviser, Administrator, and Program
Support Provider.
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of net investment income during the year. Actual results could differ from
those estimates.
In reporting financial activity, IPAIT applies applicable Governmental
Accounting Standards Board (GASB) pronouncements, as well as all Financial
Accounting Standards Board and predecessor statements and interpretations
not in conflict with GASB pronouncements.
IPAIT is exposed to various risks in connection with operation of the
Diversified Portfolio and adheres to policies which mitigate market risk in
the portfolio and maintains insurance coverage for fidelity and errors and
omissions exposures. IPAIT has had no claims or settlements under its
insurance coverage since its organization in 1987.
INVESTMENTS IN SECURITIES
The Diversified Portfolio consists of cash and short-term investments valued
at amortized cost, which approximates market value, pursuant to Rule 2a-7
under the Investment Company Act of 1940. This involves valuing a portfolio
security at its original cost on the date of purchase, and thereafter
amortizing any premium or discount on a straight-line basis to maturity. The
amount of premium or discount amortized to income under the straight-line
method does not differ materially from the amount which would be amortized
to income under the interest method. Procedures are followed to maintain a
constant net asset value of $1.00 per unit for the portfolio.
Security transactions are accounted for on the trade date. Interest income,
including the accretion of discount and amortization of premium, is recorded
daily on an accrual basis.
IPAIT is authorized by investment policy and statute to invest public funds
in obligations of the U.S. government, its agencies and instrumentalities;
certificates of deposit and other evidences of deposit at federally insured
Iowa depository institutions approved and secured pursuant to Chapter 12 of
the Code of Iowa; and repurchase agreements, provided that the underlying
collateral consists of obligations of the U.S. government, its agencies and
instrumentalities and that IPAIT's custodian takes delivery of the
collateral either directly or through an authorized custodian.
In connection with transactions in repurchase agreements, it is IPAIT's
policy that its Custodian take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest at all times. If the
seller defaults and the value of the collateral declines, realization of the
collateral by IPAIT may be delayed or limited. At June 30, 2005 and 2006,
the securities purchased under overnight agreements to resell were
collateralized by government agency securities with a value of $148,431,013
and $134,409,317, respectively.
Certificate of deposit amounts up to $100,000 are insured by the Federal
Depository Insurance Company (FDIC). For public funds deposited in Iowa
financial institutions in excess of the $100,000 FDIC insurance, the local
financial institution must comply with Iowa Code Section 12c.22 to insure
appropriate collateralization. As of June 30, 2006, public funds invested in
certificates of deposit not covered by FDIC insurance were $14,750,000.
Public funds not covered by FDIC or collateralization are covered by the
state sinking fund in accordance with Chapter 12C of the Code of Iowa, which
provides for additional assessments against depositories to ensure there
will be no loss of public funds.
23
Under Governmental Accounting Standards as to custodial credit risk, IPAIT's
investments in securities are classified as Category One. Category One
consists of insured or registered securities or securities held by IPAIT or
its agent in IPAIT's name and is the most secure investment category
description. As of June 30, 2006, the Diversified Portfolio security credit
ratings were 25.2 percent AAA, 7.6 percent not rated (representing all
Certificates of Deposit from Iowa financial institutions), and 67.2 percent
NA. Securities which carry an NA rating are government securities which are
deemed to carry the equivalent of A1+/P1 ratings by the IPAIT Board of
Trustees.
UNIT ISSUES, REDEMPTIONS AND DISTRIBUTIONS
IPAIT determines the net asset value of the Diversified Portfolio daily.
Units are issued and redeemed daily at the daily net asset value. Dividends
from net investment income are declared daily and distributed monthly.
INCOME TAXES
IPAIT is exempt from both state and federal income taxes pursuant to Section
115 of the Internal Revenue Code.
FEES AND EXPENSES
Under separate agreements with IPAIT, IMG and Wells Fargo are paid an annual
fee for operating the investment program.
During the period of July 1, 2005 to October 31, 2005, IMG received 0.260
percent of the average daily net asset value up to $150 million, 0.215
percent from $150 to $250 million, and 0.170 percent exceeding $250 million
for investment adviser and administrative fees. IMG also received 0.080
percent of the average daily net asset value for program support fees. By
contract amendment, fees were reduced beginning November 1, 2005 to the
following: IMG receives 0.250 percent of the average daily net asset value
up to $100 million, 0.215 percent from $100 to $250 million and 0.170
percent exceeding $250 million for investment adviser and administrative
fees. In addition, IMG receives 0.080 percent of the average daily net
asset value for program support fees.
Wells Fargo receives .050 percent of the average daily net asset value up to
$150 million, .045 percent from $150 to $300 million, and 0.040 percent
exceeding $300 million for custodial services. For the years ended June 30,
2005 and 2006, the Diversified Portfolio paid $105,900 and $110,670,
respectively, to Wells Fargo for services provided.
Under a distribution plan the public agency associations collectively
receive an annual fee of 0.100 percent of the daily net asset value of the
portfolio. For the years ended June 30, 2005 and 2006, the Diversified
Portfolio paid $129,271 and $121,928, respectively, to the Iowa League of
Cities, $57,372 and $74,269, respectively, to the Iowa State Association of
Counties, and $32,024 and $33,070, respectively, to the Iowa Association of
Municipal Utilities.
IPAIT is responsible for other fees and expenses incurred directly by IPAIT.
The other fees and expenses accrual is 0.025 percent on the average daily
net asset value, and amounted to $21,831 and $57,317, respectively, for the
years ended June 30, 2005 and 2006. The other fees and expenses accrual of
0.025 percent had been temporarily suspended for the 16 month period ended
December 31, 2004 and reinstated at 0.02 percent January 1, 2005 through
June 30, 2005 and reinstated fully to 0.025 percent on July 1, 2005. All
fees are computed daily and paid monthly.
(2) SECURITIES TRANSACTIONS
Purchases of portfolio securities for the Diversified Portfolio aggregated
$35,918,040,369 and $37,888,478,441, respectively, for the years ended June
30, 2005 and 2006. Proceeds from maturities of securities for the
Diversified Portfolio aggregated $35,941,769,240 and $37,909,798,000,
respectively for the years ended June 30, 2005 and 2006.
24
FINANCIAL HIGHLIGHTS
IOWA PUBLIC AGENCY INVESTMENT TRUST - DIVERSIFIED
SELECTED DATA FOR EACH UNIT OF PORTFOLIO
OUTSTANDING THROUGH EACH YEAR ENDED
JUNE 30 2006 2005 2004 2003 2002
----------- ---------- ---------- ---------- --------
Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000 $1.000
Net Investment Income 0.037 0.017 0.006 0.009 0.021
Dividends Distributed (0.037) (0.017) (0.006) (0.009) (0.021)
Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000 $1.000
Total Return* 3.76% 1.70% 0.60% 0.95% 2.14%
Ratio of Expenses to Average Net Assets** 0.49% 0.48% 0.48% 0.56% 0.56%
Ratio of Net Investment Income to Average Net Assets 3.70% 1.71% 0.59% 0.94% 2.07%
Net Assets, End of Period (000 Omitted) $203,482 $229,668 $254,818 $245,025 $253,948
* Total return is calculated by taking the ending value of an initial $1,000
investment including monthly reinvested dividends, minus the initial
investment, divided by the initial $1,000 investment.
** A portion of Other Fees and Expenses was reduced beginning September 1, 2004
through June 30, 2005.
See notes to accompanying basic financial statements.
25
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Unitholders
Iowa Public Agency Investment Trust:
We have audited the accompanying statement of net assets, including schedule of
investments, of the Diversified Portfolio of the Iowa Public Agency Investment
Trust (the Portfolio) as of June 30, 2006, and the related statements of
operations, and changes in net assets for each of the years in the two-year
period then ended, and financial highlights for each of the years in the
five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board and the standards applicable to financial audits
contained in Government Auditing Standards issued by the Comptroller General of
the United States. Those standards require that we plan and perform our audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Diversified Portfolio of
the Iowa Public Agency Investment Trust at June 30, 2006, and the results of its
operations and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years presented,
in conformity with U.S. generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued our report
dated August 21, 2006 on our compliance with certain provisions of laws,
regulations, and grant agreements and other matters. The purpose of that report
is to describe the scope of our testing, and not to provide an opinion on the
internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.
Our audit was performed for the purpose of forming an opinion on the Portfolio's
financial statements. The introductory section, other supplementary information,
investment section and statistical section are presented for the purpose of
additional analysis and are not a required part of the financial statements. The
introductory section, other supplementary information, investment section and
statistical section have not been subjected to the auditing procedures applied
by us in the audit of the financial statements and, accordingly, we express no
opinion on them.
The management's discussion and analysis on pages 17 to 19 is not a required
part of the financial statements but is supplementary information required by
U.S. generally accepted accounting principles. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the management discussion and
analysis information. However, we did not audit the information and express no
opinion on it.
Des Moines, Iowa
August 21, 2006
26
THE MANAGEMENT'S DISCUSSION AND ANALYSIS
This section of the IPAIT DGO Portfolio's annual Financial Statements presents
management's discussion and analysis of the financial position and results of
operations for the fiscal years ended June 30, 2006 (FY 06) and 2005 (FY 05).
This information is being presented to provide additional information regarding
the activities of the IPAIT, pursuant to the requirements of Governmental
Accounting Standards Board Statement No. 34, Basic Financial Statements - and
Management's Discussion and Analysis - for State and Local Governments,
Statement No. 37, Basic Financial Statements - and Management's Discussion and
Analysis - for State and Local Governments: Omnibus, and Statement No. 38,
Certain Financial Statement Note Disclosures (Statements Nos. 34, 37, and 38).
This discussion and analysis should be read in conjunction with the Report of
Independent Registered Public Accounting Firm, KPMG LLP, the Financial
Statements, and the accompanying notes.
Overview of the Financial Statements
The Management's Discussion and Analysis provides an introduction to and
overview of the basic financial statements of IPAIT's DGO Portfolio. The
following components comprise the basic financial statements: 1) Schedule of
Investments, 2) Statement of Net Assets, 3) Statement of Operations, 4)
Statement of Changes in Net Assets, and 5) Notes to Financial Statements.
o The Schedule of Investments lists each security held by the portfolio
as of the date of current fiscal year end.
o The Statement of Net Assets shows the financial position (assets and
liabilities) of the portfolio as of the date of the current fiscal
year end.
o The Statements of Operations display the results of operations (income
and expenses) of the portfolio for the two most recent fiscal years.
o The Statements of Changes in Net Assets display the results of
additions (net investment income, unit sales, and reinvestments) and
deductions (dividends and unit redemptions) of the portfolio for the
two most recent fiscal years.
o The Notes to Financial Statements describe significant accounting
policies and disclose summary security transaction amounts of the
portfolio.
Condensed Financial Information and Financial Analysis
Year-over-year changes in most financial statement amounts reported in IPAIT's
DGO Portfolio are most significantly impacted by the level of average net assets
(which fluctuates based on the overall levels of participant/unitholder invested
balances). Additionally, changes in the short-term interest rate environment
(which follows the general trend established by monetary policy set by the
Federal Reserve) contribute to year-over-year variances in the amount of
investment income earned by the portfolio. Over the last twelve months, the
Federal Reserve's Federal Open Market Committee increased the Federal Funds
target rate eight times, from 3.25 percent to 5.25 percent. In the preceding
twelve months, the Federal Funds target was increased nine times, from 1.00
percent to 3.25 percent.
27
Condensed financial information and changes explanations for the FY 06 as
compared to FY 05 follows.
Net Assets
Percent
June 30, 2006 Change June 30, 2005
------------- --------- -------------
Total investments $17,646,380 19% $14,805,041
Excess of other liabilities over
other assets (697,225) -7351% (9,358)
------------- -------------
Net assets held in trust for pool
participants 16,949,155 15% 14,795,683
============= =============
Average Net Assets $15,834,629 -37% $25,125,734
------------- -------------
Direct Government Obligation Portfolio
Total investments and net assets increased 19 percent and 15 percent,
respectively, comparing June 30, 2006 and June 30, 2005 amounts. During FY 06,
average net assets decreased 37 percent to $15,834,629 from average net assets
of $25,125,734 during FY 05 for the DGO portfolio. The significant increase in
excess of other liabilities over other assets is due to a liability for
securities purchased on June 30, 2006 and settled on July 3, 2006 in the amount
of $701,296. The DGO portfolio experienced a net purchase of assets in FY 06
partially due to the transfer of assets from the Diversified portfolio.
Percent
Change in Net Assets for the years ended June 30, 2006 Change June 30, 2005
------------- -------- -------------
Investment Income $647,800 36% $475,110
Total Expenses (80,459) -36% (125,123)
Dividends to unitholders from net
investment income (567,341) 62% (349,987)
Net increase (decrease) in assets derived
from unit transactions 2,153,472 109% (22,736,565)
Net assets held in trust for pool
participants at beginning of period 14,795,683 -61% 37,532,248
------------- -------------
Net assets held in trust for pool
participants at end of period $16,949,155 15% $14,795,683
============= =============
Investment income increased 36 percent during FY 06 compared to FY 05 due to the
higher interest rate environment. With the increase in Fed Fund rates, money
market fund returns have improved during FY 06. Net investment income increased
62 percent during FY 06 compared to FY 05. Total expenses are derived based on
net assets held by the Fund. These expenses decreased 36 percent during FY 06
compared to FY 05 due to lower average net assets throughout FY 06. Units sold
increased 77 percent and units redeemed decreased 20 percent from FY 05 to FY
06.
28
Condensed financial information and changes explanations for FY 05 as compared
to FY 04 follows.
Net Assets
Percent
June 30, 2005 Change JUNE 30, 2004
------------- --------- --------------
Total investments $14,805,041 -60% $37,465,472
Excess of other liabilities over
other assets (9,358) -114% 66,776
------------- --------------
Net assets held in trust for pool
participants 14,795,683 -61% 37,532,248
============= ==============
Average Net Assets $25,125,734 $50,490,269
------------- --------------
Direct Government Obligation Fund
Total investments and net assets declined 61 percent and 61 percent,
respectively, comparing June 30, 2005 and June 30, 2004 amounts. During FY 05,
average net assets decreased 50 percent to $25,125,734 from average net assets
of $50,490,269 during FY 04 for the DGO portfolio. The DGO portfolio experienced
a net purchase of assets in FY 05 due to a combination of the transfer of assets
to the Diversified portfolio and transfer of assets to other investment options.
During FY 05, bank investment options, especially certificates of deposit, were
exceptionally appealing versus money market funds.
Percent
Change in Net Assets for the years ended June 30, 2005 Change June 30, 2004
------------- -------- -------------
Investment Income $475,110 -9% $520,560
Total Expenses (125,123) -51% (255,306)
Dividends to unitholders from net
investment income (349,987) 32% (265,254)
Net increase (decrease) in assets derived
from unit transactions (22,736,565) -54% (14,758,993)
Net assets held in trust for pool
participants at beginning of period 37,532,248 -28% 52,291,241
------------- -------------
Net assets held in trust for pool
participants at end of period $14,795,683 -61% $37,532,248
============= =============
Investment income decreased 9 percent during FY 05 compared to FY 04. Although
the interest rate environment was higher in FY 05 than FY 04, the reduction in
net assets of the DGO portfolio caused a decrease in investment income. Net
investment income increased 32 percent during FY 05 compared to FY 04 due to the
higher interest rate environment. With the increase in Fed Fund rates, money
market fund returns improved during FY 05. Total expenses are derived based on
net assets held by the Fund. These expenses decreased 51 percent during FY 05
compared to FY 04 due to lower net assets. Also, the other fees and expenses
accrual of 0.025 percent had been temporarily suspended for the 16 month period
ended December 31, 2004 and reinstated at 0.02 percent January 1, 2005 through
June 30, 2005. Both units sold and units redeemed decreased 30 percent and 2
percent.
Contacting the Portfolio's Financial Management
This financial report is designed to provide IPAIT participants and prospective
investors with a general overview of the Fund's finances and to demonstrate the
Fund's accountability for the resources it receives and manages. If you have
questions about the report or need additional financial information, contact
IPAIT at 800-872-4024 or visit the website at IPAIT.org.
29
Financial Statements
Iowa Public Agency Investment Trust - Direct Government Obligation Portfolio
Schedule of Investments - June 30, 2006
(Showing Percentage of Net Assets)
Yield at
Par Time of
Value Description Purchase Due Date Amortized Cost
----- ----------- -------- -------- --------------
DISCOUNTED GOVERNMENT SECURITIES -- 8.46%
$ 500,000 United States Treasury Bill 4.71% 08/17/06 $ 497,026
400,000 United States Treasury Bill 4.91% 08/24/06 397,117
50,000 United States Treasury Bill 4.87% 09/21/06 49,464
500,000 United States Treasury Bill 4.96% 11/16/06 490,848
--------------
TOTAL (cost -- $1,434,455) $ 1,434,455
--------------
COUPON SECURITIES -- 37.05%
$ 300,000 United States Treasury Note, 7.00% 4.67% 07/15/06 $ 300,261
500,000 United States Treasury Note, 7.00% 4.77% 07/15/06 500,409
500,000 United States Treasury Note, 2.38% 4.74% 08/15/06 498,552
300,000 United States Treasury Note, 2.38% 4.03% 08/31/06 299,193
300,000 United States Treasury Note, 2.38% 4.64% 08/31/06 298,851
500,000 United States Treasury Note, 2.38% 4.89% 08/31/06 497,942
500,000 United States Treasury Note, 2.50% 4.64% 09/30/06 497,397
500,000 United States Treasury Note, 2.50% 4.91% 09/30/06 497,065
500,000 United States Treasury Note, 6.50% 4.92% 10/15/06 502,225
300,000 United States Treasury Note, 6.50% 4.98% 10/15/06 301,260
400,000 United States Treasury Note, 6.50% 5.22% 10/15/06 401,409
300,000 United States Treasury Note, 6.50% 5.20% 10/15/06 301,031
500,000 United States Treasury Note, 2.63% 5.02% 11/15/06 495,650
500,000 United States Treasury Note, 3.00% 5.03% 12/31/06 495,055
400,000 United States Treasury Note, 2.25% 5.31% 02/15/07 392,625
--------------
TOTAL (cost -- $6,278,925) $ 6,278,925
--------------
REPURCHASE AGREEMENTS (collateralized by U.S. Govt. Securities) -- 58.60%
$ 5,000,000 Bear Stearns and Company Inc. 4.40% 07/03/06 $ 5,000,000
4,933,000 Barclays Capital Inc. 4.35% 07/03/06 4,933,000
--------------
TOTAL (cost -- $9,933,000) $ 9,933,000
--------------
TOTAL INVESTMENTS -- 104.11% (cost -- $17,620,676) $ 17,646,380
EXCESS OF OTHER LIABILITIES OVER OTHER ASSETS -- (4.11%)
(includes $701,296 payable for securities purchased,
$4,671 payable to IMG and $61,560 dividends payable
to unitholders) ($697,225)
--------------
NET ASSETS HELD IN TRUST FOR POOL PARTICIPANTS -- 100%
Applicable to 16,949,155 outstanding units $ 16,949,155
==============
NET ASSETS VALUE:
Offering and redemption price per unit ($16,949,155
divided by 16,949,155 units outstanding) $ 1.00
==============
See notes to accompanying basic financial statements.
30
Iowa Public Agency Investment Trust - Direct Government Obligation Portfolio
Statement of Net Assets June 30, 2006
ASSETS
Investments in securities at amortized cost:
Discounted Government Securities $ 1,434,455
Coupon Securities 6,278,925
Repurchase Agreements 9,933,000
Cash 634
Interest receivable 72,145
---------------
Total Assets 17,719,159
---------------
LIABILITIES
Investment advisory, administrative,
and program support fees payable 4,671
Custody fees payable 708
Distribution fees payable 1,416
Other fees and expenses payable 353
Dividends payable 61,560
Other accrued expenses
Securities payable 701,296
---------------
Total Liabilities 770,004
---------------
NET ASSETS HELD IN TRUST FOR POOL PARTICIPANTS $ 16,949,155
===============
Shares of beneficial interest outstanding 16,949,155
===============
Net asset value - offering and redemption price per share $ 1.00
===============
See notes to accompanying basic financial statements.
31
Iowa Public Agency Investment Trust - Direct Government Obligation Portfolio
Statements of Operations and Changes in Net Assets
Iowa Public Agency Investment Trust - Direct Government Obligation Portfolio
Statements of Operations
For the Years Ended June 30,
- --------------------------------------------------------------------------------
2006 2005
----------- -----------
INVESTMENT INCOME:
Interest $647,800 $475,110
----------- -----------
EXPENSES:
Investment advisory, administrative,
and program support fees 52,748 85,519
Custody Fees 7,917 12,576
Distribution fees 15,835 25,153
Other fees and expenses 3,959 1,875
----------- -----------
Total Expenses 80,459 125,123
----------- -----------
NET INVESTMENT INCOME $567,341 $349,987
=========== ===========
Dividends to unitholders from:
Net investment income ($567,341) ($349,987)
----------- -----------
Statements of Changes in Net Assets
For the Years Ended June 30,
- --------------------------------------------------------------------------------
2006 2005
ADDITIONS: ------------- -------------
From Investment Activities:
Net investment income $567,341 $349,987
------------- -------------
From Unit Transactions:
(at constant net asset value
of $1 per unit)
Units sold 36,963,154 20,937,983
Units issued in reinvestment
of dividends from net
investment income 536,897 349,987
------------- -------------
TOTAL ADDITIONS 38,067,389 21,637,957
------------- -------------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (567,341) (349,987)
------------- -------------
From Unit Transactions:
Units redeemed (35,346,576) (44,024,535)
------------- -------------
TOTAL DEDUCTIONS (35,913,917) (44,374,522)
------------- -------------
Net increase (decrease) in net assets 2,153,472 (22,736,565)
Net assets held in trust for pool participants
at beginning of period 14,795,683 37,532,248
------------- -------------
Net assets held in trust for pool participants
at end of period $16,949,155 $14,795,683
============= =============
See notes to accompanying basic financial statements.
32
NOTES TO BASIC FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Iowa Public Agency Investment Trust (IPAIT) is a common law trust
established under Iowa law pursuant to Chapter 28E and Sections 331.555 and
384.21, Iowa Code (1987), as amended, which authorizes Iowa public agencies
to jointly invest monies pursuant to a joint investment agreement. IPAIT is
registered under the Investment Company Act of 1940. IPAIT was established
by the adoption of a Joint Powers Agreement and Declaration of Trust as of
October 1, 1987, and commenced operations on November 13, 1987. The Joint
Powers Agreement and Declaration of Trust was amended September 1, 1988, and
again on May 1, 1993. As amended, IPAIT is authorized to operate and now
operates investment programs, one of which is the Direct Government
Obligation Portfolio. The accompanying financial statements include
activities of the Direct Government Obligation Portfolio. The objective of
the portfolio is to maintain a high degree of liquidity and safety of
principal through investment in short-term securities as permitted for Iowa
public agencies under Iowa law. Wells Fargo Bank, N.A. (Wells Fargo), serves
as the Custodian, and Investors Management Group (IMG) serves as the
Investment Adviser, Administrator, and Program Support Provider.
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of net investment income during the year. Actual results could differ from
those estimates.
In reporting financial activity, IPAIT applies applicable Governmental
Accounting Standards Board (GASB) pronouncements, as well as all Financial
Accounting Standards Board and predecessor statements and interpretations
not in conflict with GASB pronouncements.
IPAIT is exposed to various risks in connection with operation of the Direct
Government Obligation Portfolio and adheres to policies which mitigate
market risk in the portfolio and maintains insurance coverage for fidelity
and errors and omissions exposures. IPAIT has had no claims or settlements
under its insurance coverage since its organization in 1987.
INVESTMENTS IN SECURITIES
The Direct Government Obligation Portfolio consists of cash and short-term
investments valued at amortized cost, which approximates market value,
pursuant to Rule 2a-7 under the Investment Company Act of 1940. This
involves valuing a portfolio security at its original cost on the date of
purchase, and thereafter amortizing any premium or discount on a
straight-line basis to maturity. The amount of premium or discount amortized
to income under the straight-line method does not differ materially from the
amount which would be amortized to income under the interest method.
Procedures are followed to maintain a constant net asset value of $1.00 per
unit for the portfolio.
Security transactions are accounted for on the trade date. Interest income,
including the accretion of discount and amortization of premium, is recorded
daily on an accrual basis.
IPAIT is authorized by investment policy and statute to invest public funds
in obligations of the U.S. government, its agencies and instrumentalities;
and repurchase agreements, provided that the underlying collateral consists
of obligations of the U.S. government, its agencies and instrumentalities
and that IPAIT's custodian takes delivery of the collateral either directly
or through an authorized custodian.
In connection with transactions in repurchase agreements, it is IPAIT's
policy that its Custodian take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest at all times. If the
seller defaults and the value of the collateral declines, realization of the
collateral by IPAIT may be delayed or limited. At June 30, 2005 and 2006,
the securities purchased under overnight agreements to resell were
collateralized by government securities with a value of $4,431,730 and
$10,211,923, respectively.
Under Governmental Accounting Standards as to custodial credit risk, IPAIT's
investments in securities are classified as Category One. Category One
consists of insured or registered securities or securities held by IPAIT or
its agent in IPAIT's name and is the most secure investment category
description. As of June 30, 2006, the Direct Government Obligation Portfolio
security credit ratings were 43.7 percent AAA and 56.3 percent NA.
Securities which carry an NA rating are government securities which are
deemed to carry the equivalent of A1+/P1 ratings by the IPAIT Board of
Trustees.
IPAIT's exposure to interest rate risk is mitigated by the fact that
securities are limited under Rule 2a-7 as well as by investment policy and
statute to investment of high quality with durations not to exceed 397
days. Hence any significant change in market interest rates would not
present long-term risk to IPAIT.
33
UNIT ISSUES, REDEMPTIONS AND DISTRIBUTIONS
IPAIT determines the net asset value of the DGO Portfolio daily. Units are
issued and redeemed daily at the daily net asset value. Dividends from net
investment income are declared daily and distributed monthly.
INCOME TAXES
IPAIT is exempt from both state and federal income taxes pursuant to Section
115 of the Internal Revenue Code.
FEES AND EXPENSES
Under separate agreements with IPAIT, IMG and Wells Fargo are paid an annual
fee for operating the investment programs.
During the period of July 1, 2005 to October 31, 2005, IMG received 0.260
percent of the average daily net asset value up to $150 million, 0.215
percent from $150 to $250 million, and 0.170 percent exceeding $250 million
for investment adviser and administrative fees. IMG also received 0.080
percent of the average daily net asset value for program support fees. By
contract amendment, fees were reduced beginning November 1, 2005 to the
following: IMG receives 0.250 percent of the average daily net asset value
up to $100 million, 0.215 percent from $100 to $250 million and 0.170
percent exceeding $250 million for investment adviser and administrative
fees. In addition, IMG receives 0.080 percent of the average daily net
asset value for program support fees.
Wells Fargo receives 0.050 percent of the average daily net asset value up
to $150 million, .045 percent from $150 to $300 million, and 0.040 percent
exceeding $300 million for custodial services. For the years ended June 30,
2005 and 2006, the DGO Portfolio paid $12,576 and $7,917, respectively, to
Wells Fargo for services provided.
Under a distribution plan the public agency associations collectively
receive an annual fee of .100 percent of the daily net asset value of the
portfolio. For the years ended June 30, 2005 and 2006, the DGO Portfolio
paid $23,258 and $15,835,respectively, to the Iowa League of Cities and
$1,895 to the Iowa Association of Municipal Utilities for the fiscal year
ended June 30, 2005 only.
IPAIT is responsible for other fees and expenses incurred directly by IPAIT.
The other fees and expenses accrual is 0.025 percent on the average daily
net asset value, and amounted to $1,875 and $3,959, respectively, for the
years ended June 30, 2005 and 2006. The other fees and expenses accrual of
0.025 percent had been temporarily suspended for the 16 month period ended
December 31, 2004 and reinstated at 0.02 percent January 1, 2005 through
June 30, 2005 and reinstated fully to 0.025 percent on July 1, 2005. All
fees are computed daily and paid monthly.
(2) SECURITIES TRANSACTIONS
Purchases of portfolio securities for the DGO Portfolio aggregated
$3,733,248,538 and $2,489,623,074, respectively for the years ended June 30,
2005 and 2006. Proceeds from maturities of securities for the DGO Portfolio
aggregated $3,755,763,650 and $2,486,901,000, respectively, for the years
ended June 30, 2005 and 2006.
(3) PARTICIPANT CONCENTRATON
As of June 30, 2006, two participants hold all outstanding units of the DGO
Portfolio.
34
FINANCIAL HIGHLIGHTS
Iowa Public Agency Investment Trust - Direct Government Obligation Portfolio
SELECTED DATA FOR EACH UNIT OF PORTFOLIO
OUTSTANDING THROUGH EACH YEAR ENDED
JUNE 30 2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000 $1.000
Net Investment Income 0.035 0.015 0.005 0.009 0.018
Dividends Distributed (0.035) (0.015) (0.005) (0.009) (0.018)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000 $1.000
Total Return* 3.58% 1.54% 0.53% 0.91% 1.85%
Ratio of Expenses to Average Net Assets** 0.51% 0.50% 0.51% 0.58% 0.58%
Ratio of Net Investment Income to Average Net Assets 3.58% 1.39% 0.53% 0.92% 1.79%
Net Assets, End of Period (000 Omitted) $16,949 $14,796 $37,532 $52,291 $66,461
* Total return is calculated by taking the ending value of an initial $1,000
investment including monthly reinvested dividends, minus the initial
investment, divided by the initial $1,000 investment.
** A portion of Other Fees and Expenses was reduced beginning September 1, 2004
through June 30, 2005.
See notes to accompanying basic financial statements.
35
INVESTMENT SECTION
IPAIT
36
Fund Facts Summary
Diversified Fund Facts
as of June 30, 2006
Investment Strategy/Goals: To provide a safe, liquid, effective investment
alternative for the operating and reserve funds for Iowa's municipalities,
counties, municipal utilities and other eligible public agencies by jointly
investing participant funds in a professionally managed portfolio of
short-term, high-quality, legally authorized marketable securities.
Date of Inception: November 13, 1987
Total Net Assets: $203 million
Benchmarks: iMoneyNet U.S. Government & Agencies Money Fund ReportTM, Iowa
Code Chapter 74A 32-89 day Public Fund Rates, and Iowa Code Chapter 74A
90-179 day Public Fund Rates.
Performance Objective: To provide the highest level of current income from
investment in a portfolio of U.S. government and agency securities,
certificates of deposit in Iowa financial institutions, and other
authorized securities collateralized by U.S. government and agency
securities as is consistent with, in order of priority, preservation of
principal and provision of necessary liquidity.
Investment Adviser:
Investors Management Group
Management Fees:
Sliding scale from twelve basis
points (0.12%) to seven basis points (0.07%)
Total Expense Ratio:
Sliding scale from forty-one and one-half basis
points (0.415%) to fifty and one-half basis
points (0.505%)
DGO Fund Factsas
of June 30, 2006
Investment Strategy/Goals: To provide a safe, liquid, effective investment
alternative for the bond proceeds, operating and reserve funds for Iowa's
municipalities, counties, municipal utilities and other eligible public
agencies that are limited to investments in only direct obligations of the
U.S. government by jointly investing participant funds into a
professionally managed portfolio of short-term, eligible marketable
securities.
Date of Inception: September 1, 1988
Total Net Assets: $17 million
Benchmarks: iMoneyNet U.S. Treasury & Repo Money Fund ReportTM, Iowa
Code Chapter 74A 32-89 day Public Fund Rates, and Iowa Code Chapter 74A
90-179 day Public Fund Rates.
Performance Objective: To provide the highest level of income from
investment in a portfolio of U.S. government securities as is consistent
with, in order of priority, preservation of principal and provision of
necessary liquidity.
Investment Adviser: Investors Management Group
Management Fees: Sliding Scale from twelve basis points (0.12%)
to seven basis points (0.07%)
Total Expense Ratio: Sliding scale from forty-one and
one-half basis points (0.415%) to fifty and one-half
basis points (0.505%)
37
DIVERSIFIED FUND AND DIRECT GOVERNMENT OBLIGATION FUND
Introduction
The Diversified Fund and the DGO Fund are each short-term investment
pools of high-quality money market instruments. Each pool has been registered
since May of 1993 with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940. Each is operated in accordance with 17 C.F.R.
Section 270.2a-7 (Rule 2a-7). Each pool complied voluntarily with all Rule 2a-7
money market fund operating guidelines from inception.
The Diversified Fund is made up of a professionally managed portfolio of U.S.
government and federal agency securities, certificates of deposit issued by Iowa
financial institutions, and perfected repurchase agreements, the latter
collateralized by U.S. government and federal agency securities. The Diversified
Fund is typically used for the investment of all public funds subject to the
Iowa public funds statutory provisions invested by a participant unless other
participant-specific investment restrictions exist.
Ownership Analysis as of June 30, 2006
IPAIT Diversified Fund and DGO Fund
Other 28E Entities Municipal Utilities Municipalities Municipalities
- ------------------ ------------------- -------------- --------------
$8,630,126 $24,976,010 $117,251,167 $117,251,167
3.92% 11.33% 53.19% 53.19%
The DGO Fund is identical in every respect to the Diversified Fund except that
it is invested exclusively in direct U.S. government obligations and repurchase
agreements collateralized by direct U.S. government obligations. The DGO Fund is
typically used to invest those public funds of a participant that are subject to
more stringent investment restrictions than those provided by Iowa public fund
statutes, for example bond proceeds whose investment alternatives may be limited
to the types of securities found in the DGO Fund.
The investment objective of both the Diversified Fund and the DGO Fund is to
provide as high a level of current income as is consistent with preservation of
invested principal and provision of adequate liquidity to meet participants'
daily cash flow needs. As a general policy, all purchased securities will be
held until they mature. However, in an effort to increase yields, IPAIT may sell
securities and realize capital gains when there are perceived disparities
between maturities for various categories of authorized investments. Summaries
of all security trades for each Fund are provided quarterly to the IPAIT Board
of Trustees for review.
Historical Portfolio Cash Flow
(expressed in millions)
IPAIT Diversified Fund
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
--------- --------- --------- --------- --------- ---------
July $219 $251 $254 $243 $240 $220
August 215 235 244 227 196 214
September 215 245 245 245 196 206
October 283 300 281 279 228 268
November 259 308 282 251 214 256
December 243 318 285 238 211 231
January 232 308 280 237 198 226
February 231 295 257 220 195 205
March 250 276 248 235 198 211
April 331 294 271 278 261 252
May 316 294 316 288 256 238
June 271 259 254 237 223 216
IPAIT DGO Fund
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
--------- --------- --------- --------- --------- ---------
July 44 58 63 51 36 14
August 42 57 60 47 33 13
September 65 89 82 60 31 14
October 71 93 90 62 31 16
November 71 91 87 58 29 17
December 68 84 79 49 23 14
January 66 81 76 48 21 12
February 65 78 68 47 19 11
March 63 75 66 46 18 18
April 64 73 65 46 18 20
May 64 72 64 45 20 20
June 61 68 55 40 15 17
Both portfolios have been managed by IMG, IPAIT's Des Moines, Iowa-based
investment adviser, since inception. Aggregate cash flows for each Fund are
monitored daily and compared to respective Fund cash flow patterns of previous
periods. Fund cash flow patterns throughout the fiscal period, as compared to
previous years, have traditionally been repetitive. Eighteen years of operating
history create a very helpful tool to gauge necessary pool liquidity needs.
The Diversified Fund actively monitors rates offered by Iowa financial
institutions for public fund certificates of deposit. Institutions experiencing
strong loan demand typically offer rates that are at or above those available
for marketable securities, presenting a helpful portfolio investment
alternative.
To assure adequate liquidity for anticipated and unanticipated participant
withdrawals, IPAIT continually monitors the weighted average maturity (WAM) of
both the Diversified Fund and the DGO Fund. Each Fund's WAM is similarly
compared to the iMoneyNet Money Fund Report TM average for registered money
market funds. Presented next is the WAM for each Fund as compared to the
iMoneyNet Money Fund Report TM average for all similar registered money market
funds for the fiscal period.
38
Weighted Average Maturity (WAM) Comparison
July 2005 - June 2006
IPAIT Diversified Fund vs. iMoneyNet Money Fund
Report TM - US Government & Agency
IMONEYNET
DATE IPAIT MONEY FUND
---------------------------------
Jul-05 DAYS 35 31
Aug-05 33 31
Sep-05 35 28
Oct-05 30 31
Nov-05 35 31
Dec-05 36 31
Jan-06 38 31
Feb-06 38 34
Mar-06 38 32
Apr-06 44 32
May-06 36 31
Jun-06 40 30
IPAIT DGO Fund vs. iMoneyNet Money Fund Report TM -
US Treasury & Repo
IMONEYNET
DATE IPAIT DGO MONEY FUND
----------------------------------
Jul-05 DAYS 34 20
Aug-05 31 18
Sep-05 30 19
Oct-05 35 20
Nov-05 34 21
Dec-05 38 17
Jan-06 35 15
Feb-06 39 15
Mar-06 29 11
Apr-06 39 9
May-06 38 10
Jun-06 43 9
------------------------------
Each Fund accrues interest income daily and pays accrued income monthly to
participant accounts. Interest is paid on the first business day of the month
following accrual. Daily income amounts and investment returns are calculated by
the amortized cost method. Under this method, a security is initially valued at
cost on the date of purchase and, thereafter, any premium or discount is
amortized on a straight-line basis to maturity.
The IPAIT Adviser values each Fund's portfolio weekly at current market value,
based upon actual market quotations. Each Fund's current market valuation is
compared to that Fund's current amortized cost basis. In accordance with the
established operating parameters of Rule 2a-7 and IPAIT's internal controls and
procedures, any deviation in net asset value based upon available market
quotations from each Fund's $1.00 amortized cost per unit is carefully
monitored. Deviations may never exceed 0.5 percent. Illustrated next are the
amortized cost versus market value per unit comparisons for the past three
fiscal years for each Fund.
Amortized Cost vs. Market Value Per Share
July 1, 2003 - June 30, 2006
IPAIT Diversified Fund
Date Per Share
7/31/2003 1.00000
8/31/2003 0.99996
9/30/2003 1.00000
10/31/2003 0.99998
11/30/2003 0.99997
12/31/2003 0.99992
1/31/2004 0.99994
2/29/2004 1.00012
3/31/2004 1.00004
4/30/2004 1.00000
5/31/2004 0.99974
6/30/2004 0.99964
7/31/2004 0.99968
8/31/2004 0.99975
9/30/2004 0.99978
10/31/2004 0.99980
11/30/2004 0.99975
12/31/2004 0.99978
1/31/2005 0.99981
2/28/2005 0.99975
3/31/2005 0.99979
4/30/2005 0.99986
5/31/2005 0.99992
6/30/2005 0.99986
7/31/2005 0.99986
8/31/2005 0.99990
9/30/2005 0.99989
10/31/2005 0.99984
11/30/2005 0.99989
12/31/2005 0.99992
1/31/2006 0.99984
2/28/2006 0.99980
3/31/2006 0.99982
4/30/2006 0.99980
5/31/2006 0.99980
6/30/2006 0.99978
IPAIT DGO Fund
Date Per Share
7/31/2003 1.00013
8/31/2003 1.00004
9/30/2003 1.00004
10/31/2003 0.99997
11/30/2003 0.99997
12/31/2003 0.99993
1/31/2004 0.99984
2/29/2004 1.00034
3/31/2004 1.00010
4/30/2004 0.99988
5/31/2004 0.99971
6/30/2004 0.99954
7/31/2004 0.99957
8/31/2004 0.99972
9/30/2004 0.99968
10/31/2004 0.99965
11/30/2004 0.99963
12/31/2004 0.99959
1/31/2005 0.99960
2/28/2005 0.99945
3/31/2005 0.99959
4/30/2005 0.99973
5/31/2005 0.99985
6/30/2005 0.99978
7/31/2005 0.99968
8/31/2005 0.99980
9/30/2005 0.99993
10/31/2005 0.99970
11/30/2005 0.99984
12/31/2005 0.99993
1/31/2006 0.99972
2/28/2006 0.99962
3/31/2006 0.99985
4/30/2006 0.99984
5/31/2006 0.99980
6/30/2006 0.99975
The Diversified Fund's investment performance is regularly compared to three
established benchmarks, the iMoneyNet Money Fund ReportTM average rate for all
registered Rule 2a-7 money market funds investing in U.S. government and federal
agency securities and the Iowa Code Chapter 74A rate for 32-89 and 90-179 day
certificates of deposit issued by Iowa financial institutions for public funds
in the state.
The DGO Fund is similarly compared to the iMoneyNet Money Fund ReportTM average
rate for all Rule 2a-7 money market funds that invest in only direct obligations
of the U.S. government as well as the Iowa Code Chapter 74A rates for 32-89 and
90-179 day certificates of deposit.
The Iowa Code Chapter 74A rates are distributed monthly by the state Treasurer's
office for various investment periods and are intended to be the minimum rates
at which Iowa financial institutions can accept public funds for timed deposits.
While a public body must commit funds for minimum periods of time to access
Chapter 74A rates, IPAIT's Diversified Fund and the DGO Fund may offer rates at
or above the Chapter 74A benchmarks with complete daily liquidity.
39
IPAIT Diversified Fund vs. Iowa Chapter 74A (90-179 & 32-89 Day)
& iMoneyNet Money Fund Report TM
US Government & Agency Fund
July 2005 - June 2006
iMoneyNet Money Fund Report TM
Date Diversified 74A 90-179 74A 32-89 US Gov't & Agency Fund
Jul-05 2.75% 2.05% 1.85% 2.47%
Aug-05 2.93% 2.20% 1.95% 2.69%
Sep-05 3.10% 2.35% 2.05% 2.84%
Oct-05 3.30% 2.35% 2.05% 3.01%
Nov-05 3.53% 2.60% 2.15% 3.25%
Dec-05 3.69% 2.65% 2.25% 3.43%
Jan-06 3.80% 2.75% 2.30% 3.56%
Feb-06 4.05% 2.80% 2.40% 3.75%
Mar-06 4.06% 2.95% 2.40% 3.82%
Apr-06 4.29% 3.00% 2.70% 3.99%
May-06 4.38% 3.10% 2.80% 4.14%
Jun-06 4.49% 3.15% 2.85% 4.25%
IPAIT DGO Fund vs. Iowa Chapter 74A (90-179 & 32-89 Day) &
iMoneyNet Money Fund Report TM US Treasury & Repo Fund
July 2005 - June 2006
iMoneyNet Money Fund Report TM
Date DGO 74A 90-179 74A 32-89 US Treasury & Repo Fund
Jul-05 2.54% 2.05% 1.85% 2.40%
Aug-05 2.75% 2.20% 1.95% 2.62%
Sep-05 2.88% 2.35% 2.05% 2.77%
Oct-05 3.12% 2.35% 2.05% 2.85%
Nov-05 3.40% 2.60% 2.15% 3.13%
Dec-05 3.50% 2.65% 2.25% 3.29%
Jan-06 3.58% 2.75% 2.30% 3.39%
Feb-06 3.87% 2.80% 2.40% 3.62%
Mar-06 3.95% 2.95% 2.40% 3.72%
Apr-06 4.11% 3.00% 2.70% 3.89%
May-06 4.27% 3.10% 2.80% 4.06%
Jun-06 4.35% 3.15% 2.85% 4.17%
Risk Profile
Both the Diversified Fund and the DGO Fund are low in risk profile. Both Funds
limit portfolio investments to:
1. No single portfolio investment may exceed the 397 days to maturity as
outlined in Rule 2a-7.
2. The weighted average maturity of the portfolio may never exceed 90 days.
In addition to the above investment maturity restrictions common to both Funds,
the Diversified Fund limits itself to U.S. government and federal agency
securities, perfected repurchase agreements collateralized by U.S. government
and federal agency securities, and Iowa financial institution certificates of
deposit. The DGO Fund further limits itself to only direct obligations of the
U.S. government and perfected repurchase agreements collateralized by direct
obligations of the U.S. government. This combination of those average maturities
and extremely high-quality credit instruments provides eligible Iowa public fund
investors with a safe, effective investment alternative.
Maturity Analysis as of June 30, 2006
Diversified DGO
Maturity days % of Portfolio Maturity days % of Portfolio
- ------------- --------------- ------------- ---------------
0-30 days 70% 0-30 days 61%
31-90 days 13% 31-90 days 20%
91-180 days 11% 91-180 days 17%
180+ days 6% 180+ days 2%
----- -----
100% 100%
IPAIT Diversified Fund and DGO Fund
As noted previously, both the Diversified Fund and the DGO Fund carefully limit
themselves to high credit-quality securities. In addition, IPAIT monitors a
broad array of economic indicators as well as activities of the Federal Reserve
Board to be able to position each Fund's WAM to take advantage of projected
interest rate environments.
Distribution by Security Type as of June 30, 2006
IPAIT Diversified Fund
Collateralized Repos 62%
Certificate's of Deposit 8%
Federal Agency Coupon Securities 25%
Federal Agency Discount Securities 5%
------
100.%
IPAIT DGO Fund
US Treas Collateralized Repo 56%
US Treasury Coupon Securities 36%
US Treasury Discount Securities 8%
-----
100%
40
It is important to note that portfolio liquidity needs for the IPAIT must
control evaluation of alternative portfolio management opportunities at all
times. For example, if historical cash flow analysis indicates that participants
will need to withdraw funds, material extension of either Fund's portfolio is
not a viable alternative.
Participation membership by affiliation concentration for both the Diversified
and DGO Portfolios are illustrated in the following graphs.
Participant Membership
IPAIT Diversified Fund and DGO Fund
Municipalities 185%
Municipal Utilities 92%
Counties 83%
Other 51%
Performance Summary
For the one-year period ended June 30, 2006 the Diversified Fund and DGO Fund
reported a ratio of net investment income to average net assets of 3.70 percent
and 3.59 percent, respectively, net of all operating expenses. These figures
exceeded the iMoneyNet Money Fund ReportTM averages for each Fund, which
returned 3.43 percent and 3.33 percent respectively for the fiscal
period.
Although both the Diversified Fund and the DGO Fund are liquidity pools, their
performance over time has consistently exceeded the iMoneyNet Money Fund
ReportTM as illustrated below.
Annual Total Returns
IPAIT Diversified Fund vs. iMoneyNet Fund Report(TM) US
Government & Agency
Annual Total Returns
iMoneyNet Money Fund Report
Year Diversified Fund US Government & Agency
97 4.92% 4.72%
98 5.10% 4.90%
99 4.61% 4.47%
00 5.13% 4.94%
01 5.33% 5.26%
02 2.11% 1.87%
03 0.95% 0.80%
04 0.59% 0.37%
05 1.69% 1.41%
06 3.62% 3.36%
IPAIT DGO Fund vs. iMoneyNet Fund Report(TM)
US Treasury & Repo
Also illustrated below are the historical returns for both the Diversified Fund
and the DGO Fund for the most recent one, three, and five year
periods.
iMoneyNet Money Fund Report
Year DGO Fund US Treasury & Repo
97 4.84% 4.68%
98 4.98% 4.85%
99 4.43% 4.35%
00 4.98% 4.78%
01 5.15% 5.06%
02 1.83% 1.76%
03 0.90% 0.74%
04 0.48% 0.31%
05 1.48% 1.35%
06 3.45% 3.25%
Annualized Total Returns
IPAIT Diversified Fund vs. iMoneyNet Money Fund
iMoneyNet Money Fund Report
Diversified Fund US Government & Agency
1 year 3.70% 3.43%
3 year 1.99% 1.74%
5 year 1.81% 1.58%
Report(TM) US Government & Agency
IPAIT DGO Fund vs. iMoneyNet Money Fund Report(TM)
US Treasury & Repo
iMoneyNet Money Fund Report
DGO Fund US Treasury & Repo
1 year 3.53% 3.33%
3 year 1.84% 1.66%
5 year 1.65% 1.50%
41
Diversified Fund and Direct Government Obligation Fund (cont.)
Fund Expenses
It is important for you to understand the impact of costs on your investment.
All mutual funds have operating expenses. As a shareholder of the fund, you
incur ongoing costs, including management fees, distribution and service fees,
and other fund expenses. Expenses, which are deducted from a fund's investment
income, directly reduce the investment return of the fund.
A fund's expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The following examples are intended to
help you understand the ongoing costs (in dollars) of investing in your fund and
compare these costs with those of other mutual funds. The examples are based on
an investment of $1,000 made at the beginning of the period and held for the
entire period from January 1, 2006 to June 30, 2006. The table illustrates your
fund's costs in two ways:
1. Based on actual fund return. This section helps you to estimate the actual
expenses that you paid over the period. The "Ending Account Value" shown is
derived from the fund's actual return, and the third column shows the dollar
amount that would have been paid by an investor who started with $1,000 in the
fund. You may use the information here, together with the amount you invested,
to estimate the expenses that you paid over the period.
2. Based on hypothetical 5 percent return. This section is intended to help you
compare your fund's costs with those of other mutual funds. It assumes that the
fund had a return of 5 percent before expenses during the period shown, but that
the expense ratio is unchanged. In this case, because the return used is not the
fund's actual return, the results do not apply to your investment. The example
is useful in making comparisons because the Securities and Exchange Commission
requires all mutual funds to calculate expenses based on a 5 percent return. You
can assess your fund's costs by comparing this hypothetical example with the
hypothetical examples that appear in shareholder reports of other funds.
Your fund does not carry a "sales load" or transaction fee. The calculations
assume no shares were not bought or sold during the period. Your actual costs
may have been higher or lower, depending on the amount of your investment and
timing of any purchases or redemptions.
You can find more information about the fund's expenses, including annual
expense ratios for the past five years, in the Financial Highlights section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the appropriate fund Information Statement.
Beginning Ending Expenses Paid Annualized
Account Value Account Value During Period* Expense
Example 1/1/2006 6/30/2006 1/1/06 to 6/30/06 Ratio*
- -------------------------------------------------------------------------------------------------
Based on Actual Fund Return
IPAIT Diversified Fund $1,000.00 $1,020.90 $2.41 0.48%
IPAIT DGO Fund $1,000.00 $1,020.14 $2.50 0.50%
Based on Hypothetical 5 Percent Return
IPAIT Diversified Fund $1,000.00 $1,022.41 $2.41 0.48%
IPAIT DGO Fund $1,000.00 $1,022.32 $2.50 0.50%
* Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied
by 181, the number of days in the most recent fiscal half-year, divided by
365, to reflect the one-half year period.
42
DIVERSIFIED FUND AND DIRECT GOVERNMENT OBLIGATION FUND (CONT.)
Fees and Expenses
All fees are calculated by basis points per net assets.
- --------------------------------------------------------------------------------
Entity Fee Type Fee
IMG Adviser 0.120% up to $100MM;
0.095% on $100 - $250MM;
0.070% on assets exceeding $250MM
IMG Administrator 0.130% up to $100MM;
0.120% on $100 - $250MM;
0.100% on assets exceeding $250MM
IMG Program Support 0.080%
Sponsoring
Association * Sponsoring Associations 0.100%
Wells Fargo Custody 0.050% up to $150MM;
0.045% on $150 - $300MM;
0.040% on assets exceeding $300MM
Administration
Fund Other fees & expenses 0.025%
- --------------------------------------------------------------------------------
*Includes Iowa League of Cities, Iowa State Association of Counties, Iowa
Association of Municipal Utilities
This fiscal year's actual expense for the IPAIT Diversified Fund and DGO Fund
was 0.49 percent and 0.51 percent, respectively based on a sliding fee scale
Actual:
For the fiscal year ended June 30, 2006, the following actual expenses were
incurred by the Funds:
Diversified DGO
----------- ---
Adviser $246,344 $19,002
Administrator $291,324 $21,078
Program Support $183,414 $12,668
Distribution $229,267 $15,835
Custody $110,670 $7,917
Other fees and expenses $57,316 $3,959
---------- ----------
Total $1,118,335 $80,459
========== ==========
43
DIVERSIFIED FUND AND DIRECT GOVERNMENT OBLIGATION FUND (CONT.)
Statement of Additional Information (SAI)
The SAI has additional information about the Funds and is available without
charge, upon request, by calling 800-872-4024.
Schedule of Portfolio Holdings
A complete schedule of portfolio holdings is filed with the SEC for the first
and third quarters on Form N-Q. The portfolio holding for the second and fourth
quarter are available in the semi-annual and annual reports. It is available at
www.sec.gov, or by phone at 800-SEC-0330, or by mail at Public Reference Section
/ SEC / Washington / DC / 20549 (duplicating fee required) or upon request from
IPAIT at 800-872-4024 or at IPAIT.org.
Proxy Voting
The SEC requires an annual report of the proxy voting record of the Trust.
Because the investments allowable under Iowa law restrict the investment for
IPAIT to securities to which proxy voting does not apply, IPAIT does not have a
proxy voting policy and will report no proxy votes on the Form N-PX. The law
requires the filing of the Form N-PX, and this disclosure, even though the Form
N-PX will contain no votes. Form N-PX is available at www.sec.gov, or by phone
at 800-SEC-0330, or by mail at Public Reference Section SEC / Washington / DC /
20549 (duplicating fee required) or upon request from IPAIT at
800-872-4024.
Participant Meeting Results
I. On August 26, 2005, a participant meeting was held at the Wakonda Club in Des
Moines Iowa.
Diversified Fund DGO Fund
------------------- ------------
Favorable responses Favorable responses
in units (59% in units (100%
responding) responding)
Election of the Board of Trustees 131,748,404.94 13,643,116.43
Ratification of the Selection of KPMG LLP
as IPAIT's Auditors 132,037,766.20 13,643,116.43
Approval of Restated Joint Powers Agreement 130,279,340.11 13,643,116.43
Approval of changes to the Joint Powers
Agreement 131,525,819.36 13,643,116.43
All proposals were approved by the participants of both funds.
II. On December 9, 2005 a participant meeting was held at the offices of
Investors Management Group, 1415 28th Street, West Des Moines Iowa.
Proposal
Approval of a new Investment Advisory Agreement with Investors Management Group,
Ltd. To be effective upon the closing of the acquisition of Investors Management
Group, Ltd. by West Bancorporation, Inc.
The proposal was approved at the meeting, with the results outlined below:
Diversified Fund DGO Fund
---------------- --------
Favorable responses Favorable responses
in units (59% responding) in units (100% responding)
157,824,285 17,377,655
44
Investment Commentary
With a new Chairman at the head of the Federal Reserve, the markets are trying
to navigate the end of this rate hike cycle. Chairman Bernanke has declared
himself even more an inflation hawk than former Chairman Greenspan, and
investors are grappling with how aggressive the Fed will be in fighting
inflation while the economy is visibly slowing. With high energy prices and
capacity utilization, inflation will spark significantly higher interest rates
unless growth is curtailed. However, global growth is also moderating and higher
overnight interest rates could push the U.S. toward recession. In today's world
it is a battle of inches as inflation and rates remain in historically low
ranges. After 17 straight increases in the Fed Funds target rate we believe the
Fed is nearing the end of this cycle. Whether the target rate stops at 5.25% (as
is currently the case) or higher depends entirely on growth and inflation
numbers produced between Fed meetings.
The U.S. economy has persistently surprised economists on the upside in recent
years led by a booming housing market and buoyant consumer spending. Widespread
forecasts of a slowdown in the past six months have been premature, leading to
skepticism about current projections of a moderation in growth. Economic
recoveries ebb and flow as do financial markets. Economic reports oscillate
between far better and far worse than consensus, when in reality perhaps the
economy changes very little. We believe the current state of the economy
reflects a milder tone with higher inflation. The current volatility in the
financial markets is likely an early sign of softer growth. However, while
growth will likely soften we are not heading for a recession.
Our optimism surrounding the economy stems from several factors. First, the
consumer remains healthy. While opportunities for mortgage equity withdrawals
due to refinancing have waned, overall income growth continues to move higher.
The job market continues to show solid signs of strength with unemployment
falling to 4.6 percent and year-over-year wages growing at 3.5 percent. The
consumer balance sheet remains strong with the ratios of assets and net worth to
income not far below the peaks of 1999. As long as jobs remain plentiful we
believe the consumer will continue to support economic growth.
Second, the corporate sector has remained very strong. Balance sheets remain
healthy with debt ratios low and cash balances high. Profits, for the third year
in a row, exceed 10 percent growth on the heels of rising industrial production.
Net cash flow to capital spending ratios remain at the highest levels in 20
years, suggesting the corporate sector is capable of boosting growth with a tide
of business spending. It's hard to imagine any disruption in the corporate
sector with balance sheet financials as healthy as they are today.
Third, the federal budget deficit continues to improve, while the trade deficit
weakens. As the federal budget deficit improves less pressure exists to boost
taxes to support future expenditures, which keeps the consumer and corporate
sector active. In terms of the trade deficit, an increasing negative trade
deficit is a direct subtraction from GDP growth as imports exceed exports.
Typically when the US dollar has weakened against foreign currencies we have
seen the trade deficit improve as competition is reduced. With the recent
weakening in the US dollar, one would expect the trade deficit to improve and
add to economic growth. However in today's dollar, 28 percent of our trade
deficit is tied to China which does not allow its currency to free float,
dampening the trade deficit benefits of a weaker dollar. If China becomes more
open in its currency valuation process, the US could see a boost in GDP as a
result of extending the recovery.
Lastly is inflation. Inflation, while still
relatively low from historical standards, has drifted higher as measured by most
common indexes. The Consumer Price Index, Personal Consumption Expenditure
Deflator, and the Gross Domestic Product Deflator all have reached a 15 year
high. When inflation historically reached current levels, 10 year treasury
yields were a full percent higher than they are today. The market has
established a lower threshold for inflation risk than has been seen
historically. If the Fed loses its battle to control inflation, the current risk
premium will likely increase, pushing long-term yields significantly higher.
While we do not see this as the ultimate outcome, we remain cautious with regard
to the potential impact the current inflationary trend can have on the bond and
stock market.
We remain optimistic that the moderate growth economy will endure. While
inflationary pressures are rising, we see this as a temporary shift rather than
a permanent state. We look for short-term interest rates to moderate as we near
the end of the Fed tightening cycle and interest rates to stabilize near current
levels.
/S/ Jeffrey D. Lorenzen
Jeffrey D. Lorenzen, CFA
Investors Management Group
45
IPAIT Investment Policy
SECTION 1 - SCOPE OF INVESTMENT POLICY
The Investment Policy of the Iowa Public Agency Investment Trust (IPAIT) shall
apply to all funds invested on behalf of participants accounted for in the IPAIT
financial statements. Each investment made pursuant to this Investment Policy
must be authorized by applicable law and this written Investment Policy.
This Investment Policy is intended to comply with Iowa Code chapters 28E, 12B,
12C and sections 331.555 and 384.21.
Upon passage and upon future amendment, if any, copies of this Investment Policy
shall be delivered to all of the following:
1. The IPAIT Board of Trustees.
2. All IPAIT depository institutions or fiduciaries.
3. The auditor engaged to audit any fund of IPAIT.
SECTION 2 - FUNDAMENTAL INVESTMENT RESTRICTIONS
A. Unless otherwise specified below, none of the portfolios will:
1. Invest more than 5 percent of the value of their total assets in the
securities of any one federally insured Iowa depository institution
(other than securities of the U.S. government or its agencies or
instrumentalities).
2. Invest 25 percent or more of the value of their total assets in the
securities of issuers conducting their principal business activities
in any one industry, including financial institutions. This
restriction does not apply to securities of the U.S. Government or its
agencies and instrumentalities and repurchase agreements relating
thereto.
3. Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended).
4. Mortgage, pledge or hypothecate their assets.
5. Make short sales of securities or maintain a short position.
6. Purchase any securities on margin.
7. Write, purchase or sell puts, calls or combinations thereof.
8. Purchase or sell real estate or real estate mortgage loans.
9. Invest in restricted securities or invest more than 10 percent of the
Portfolio's net assets in repurchase agreements with a maturity of
more than seven days, and other liquid assets, such as securities with
no readily available market quotation.
10. Underwrite the securities of other issuers.
11. Invest in any securities in contravention of the provisions of Rule
2a-7 of the Investment Company Act of 1940 as it presently exists or
as it may hereafter be amended.
B. Prohibited Investments
Assets of IPAIT shall not be invested in the following:
1. Reverse repurchase agreements.
2. Futures and options contracts.
3. Any security with a remaining maturity exceeding 397 days as provided
in Rule 2a-7.
46
C. Prohibited Investment Practices
The following investment practices are prohibited:
1. Trading of securities for speculation or the realization of short-term
trading gains.
2. Investing pursuant to a contract providing for the compensation of an
agent or fiduciary based upon the performance of the invested assets.
3. If a fiduciary or other third party with custody of public investment
transaction records of IPAIT fails to produce requested records when
requested by IPAIT or its agents within a reasonable time, IPAIT shall
make no new investment with or through the fiduciary or third party
and shall not renew maturity investments with or through the fiduciary
or third party.
D. Management Policies and Procedures
Following are the fundamental management policies and procedures for IPAIT. All
investments shall bemaintained in separate IPAIT custodial accounts, segregated
by Portfolio on behalf of IPAIT Participants.
1. Each purchase of sale of a security must be handled on a delivery
versus payment (DVP) basis. Funds for the purchase of an investment
shall not be released to the seller until the security is delivered to
the IPAIT Custodian. Conversely, a sold security shall not be released
to the buyer until funds for the purchase price of the security have
been received by the IPAIT Custodian.
2. "Free delivery" transactions are prohibited. The Custodian shall never
release assets from the IPAIT custodial accounts until the funds for
the investment are delivered.
3. Any material deviation (greater than .5%) from the amortized cost of
investments shall be promptly reported by the Adviser to the Board of
Trustees. If such deviation exceeds .5%, the Adviser will consider
what action, if any, should be initiated to reasonable eliminate or
reduce material dilution or other unfair results to Participants. Such
action may include redemption of Trust Units in kind, selling
portfolio securities prior to maturity, withholding distributions or
utilizing a net asset value per Trust Unit based upon available market
quotations.
4. The frequent trading of securities, including day trading for the
purpose of realizing short-term gains, the purchase and sale of
futures and options to buy or sell authorized investments, reverse
repurchase agreements, and other similar speculative transactions are
expressly prohibited.
5. IPAIT may not make any investment other than Permitted Investments
authorized by the provisions of the law applicable to the investment
of funds by the Participants, as such laws may be amended from time to
time.
6. IPAIT may not purchase any Permitted Investment if the effect of such
purchase by IPAIT would be to make the average dollar weighted
maturity of a portfolio greater than ninety (90) days.
7. IPAIT may not borrow money or incur indebtedness whether or not the
proceeds thereof are intended to be used to purchase Permitted
Investments.
8. IPAIT may not make loans, provided that IPAIT may make Permitted
Investments.
9. IPAIT may not purchase securities or shares of investment companies or
any entities similar to IPAIT.
The restrictions set forth above are fundamental to the operation and activities
of IPAIT and may not be changed without the affirmative approval, in writing, of
a majority of the Participants entitled to vote, except that such restrictions
may be changed by the Trustees so as to make them more restrictive when
necessary to confirm the investment program and activities of IPAIT to the laws
of the State of Iowa and the United States of America as they may from time to
time be amended.
The above investment restrictions shall not be changed without the vote of a
majority of the Participants in a Portfolio. "Majority" means the lesser of (a)
67 percent of the Trust's or a Portfolio's outstanding Trust Units voting at a
meeting of the Participants at which more than 50 percent of the outstanding
Trust Units are represented in person or by proxy or (b) a majority of the
Trust's or a Portfolio's outstanding Trust Units.
47
Management Policies and Procedures Continued
Provided, however, the Trust may invest Portfolio assets pursuant to the maximum
extent possible by Iowa law governing investments by public agencies and Rule
2a-7 and any change in the restrictions of the Iowa law governing investments by
public agencies and Rule 2a-7 shall be deemed to be adopted by the Trust, and
such change shall not require the approval of the Participants.
Any investment restrictions or limitations referred to above which involves a
maximum percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately after an
acquisition of securities or utilization of assets and results there from.
Section 3 - DELEGATION OF AUTHORITY
The responsibility for conducting IPAIT investment transactions resides with the
IPAIT Board of Trustees. Certain responsibilities have been delegated to the
Administrator, the Adviser, and the Custodian (the "Service Providers") pursuant
to the Administrator Agreement, the Adviser Agreement, the Custodian Agreement,
with amendments as may be adopted from time to time, and the currentInformation
Statement (the "Documents").
Each Service Provider shall individually notify the IPAIT Board of Trustees in
writing within thirty days of receipt of all communications from the auditor of
any Service Provider or any regulatory authority of the existence of a material
weakness in internal control structure of the Service Provider or regulatory
orders or sanctions regarding the type of services being provided to IPAIT by
the Service Provider.
The records of investment transactions made by or on behalf of IPAIT are public
records and are the property of IPAIT whether in the custody of IPAIT or in the
custody of a fiduciary or other third party.
Section 4 - OBJECTIVES OF INVESTMENT POLICY
The primary objectives, in order of priority, of all investment activities
involving the financial assets ofIPAIT shall be the following:
1. Safety: Safety and preservation of principal in the overall portfolio
is the foremost investment objective.
2. Liquidity: Maintaining the necessary liquidity to match expected
liabilities is the second investment objective.
3. Return: Obtaining a reasonable return is the third investment
objective.
Section 5 - PRUDENCE
The Board of Trustees, when providing for the investment of deposit of public
funds in the IPAIT program, shall exercise the care, skill, prudence and
diligence under the circumstances then prevailing that a person acting in a like
capacity and familiar with such matters would use to attain the Section 4
investment objectives.
Section 6 - INSTRUMENTS ELIGIBLE FOR INVESTMENT
Assets of IPAIT may be invested in the following, all as more fully described in
the IPAIT Information Statement:
-- Obligations of the United States government, its agencies and
instrumentalities.
-- Certificates of deposit and other evidences of deposit at federally
insured Iowa depository institutions approved and secured pursuant to
chapter 12C.
-- Repurchase agreements, provided that the underlying collateral
consists of obligations of the United States government, its agencies
and instrumentalities and that the Custodian takes delivery of the
collateral either directly or through an authorized custodian.
All instruments eligible for investment are further qualified by all other
provisions of this Investment Policy, including Section 8, Diversification and
Investment Maturity Limitations.
All instruments eligible for investment are further qualified by all other
provisions of this Investment Policy, including Section 8, Diversification and
Investment Maturity Limitations.
48
Section 7 - DIVERSIFICATION AND INVESTMENT
MATURITY LIMITATIONS
It is the policy of IPAIT to diversify portfolio investments in the Diversified
Portfolio and the Direct Government Obligation (DGO) Portfolio. As described in
the Information Statement, portfolio investments in the Diversified Portfolio
and the Direct Government Obligation Portfolio are limited to the following:
1. No individual investment with maturity in excess of 397 days as
provided in Rule 2a-7.
2. The maximum average maturity of all portfolio investments may not
exceed 90 days. Pursuant to IPAIT policies as disclosed in the
Documents, Participants may also individually invest in Fixed Term
Program investments.
Section 8 - SAFEKEEPING AND CUSTODY
All invested assets of Participants in the Portfolios or in the Fixed Term
Program shall be held in accordance with the Custodian Agreement.
All invested assets eligible for physical delivery shall be secured by having
them held at a third party custodian. All purchased investments shall be held
pursuant to a written third party custodial agreement requiring delivery versus
payment. No assets may be delivered out of the IPAIT account without full
payment (no "free deliveries" shall be permitted).
Section 9 - REPORTING
The Service Providers shall submit all reports required in the Documents.
Section 10 - INVESTMENT POLICY REVIEW AND AMENDMENT
This Investment Policy shall be reviewed on or before December 31, 2005 or more
frequently as appropriate. Notice of amendments to the Investment Policy shall
be promptly given to all parties noted in Section 1.
Section 11 - EFFECTIVE DATE
This Investment Policy shall be effective as of May 1, 1993. Passed and approved
this 20th day of April, 1993.
Amended effective September 1, 2004.
49
Investing and Non-Investing ParticipantsDiversified and Direct Government
Obligation Funds
Owner Name
Investing and Non-Investing Participants
Diversified and Direct Government Obligation Funds
$0-$50,000 Assets Invested
- --------------------------
Cascade Municipal Utilities
City of Ames - DGO
City of Badger
City of Burlington
City of Callender
City of Corydon
City of Dayton
City of Earlham
City of Earlville
City of Evansdale
City of Fairbank
City of Fairfield
City of Grand Mound
City of Grimes
City of Grundy Center
City of Jefferson
City of Letts
City of Lovilia
City of Mallard
City of Maquoketa
City of Martensdale
City of Massena
City of Melcher-Dallas
City of Middletown
City of New Virginia
City of Orange City
City of Panora
City of Red Oak
City of Ringsted
City of Spragueville
City of Springbrook
City of Walnut
City of Wesley
City of Westfield
City Utility of Epworth
City Utility of Fredericksburg
City Utility of Harlan
City Utility of Mallard
City Utility of Martensdale
City Utility of Murray
City Utility of New Hampton
City Utility of Orange City
City Utility of Pella
City Utility of Prairie City
Corning Municipal Utilities
County of Adair
County of Cedar
County of Chickasaw
County of Clarke
County of Dickinson
County of Fremont
County of Greene
County of Hardin
County of Howard
County of Sac
County of Union
Fontanelle Municipal Utility
Geode Resource Conserv. &
Develp., Inc.
Gilbertville Community
Day, Inc.
Gowrie Municipal Utilities
IPPA Administrative
IPPA CMMPA
IPPA IMTG
IPPA ISEP
IPPA MMUA
Johnson Township Barnum
Community Fire
Department
Manilla Municipal Gas Dept.
Manning Municipal Gas Department
North Central Reg. Emerg. Resp. Com.
Northwest Iowa Area Solid Waste Agency
Stuart Municipal Utilities
Waverly Health Center
Webster County Telecommunications Board
$50,000-$250,000 Assets Invested
- --------------------------------
Brooklyn Municipal Utilities
Buena Vista County Solid Waste Commission
Cass County Environment Control Agency
Central IA Juvenile Detention Commission
City of Ackley
City of Agency
City of Albert City
City of Bondurant
City of Boone
City of Brandon
City of Corning City of Dike
City of Fort Dodge
City of Grinnell
City of Griswold
City of Lake Mills
City of Lewis
City of Maynard
City of Montezuma Fire Department
City of Morning Sun
City of Moulton
City of Murray
City of Nora Springs
City of Parnell
City of Readlyn
City of Urbana
City Utility of Corydon
City Utility of Dike
City Utility of Eagle Grove
City Utility of Melcher-Dallas
City Utility of Middletown
City Utility of Orient
City Utility of Urbandale
City Regional Water District
County of Boone
County of Buena Vista
County of Carroll
County of Crawford
County of Des Moines
County of Franklin
County of Jasper
County of Kossuth
County of Plymouth
County of Wright
Denison Municipal Utilities
Des Moines Area MPO
Evansdale Water Works
Hiawatha Water Department
IPAIT Administration Fund
IPPA MMTG
Lamoni Municipal Utilities
North Iowa Area Council of Govts.
Palo Alto County Hospital
South Iowa Detention Service Agency
Southwest Iowa Planning Council
Villisca Municipal Power Plant
Warren County
Warren Lakewood Benefitted
Rec. Lake Dis
$250,000-$500,000 Assets Invested
- ---------------------------------
City of Algona
City of Early
City of Epworth
City of Keystone
City of Orleans
City of Pella
City of Polk City
City of Prairie City
City of Shelby
City of Shenandoah
City of Spencer
City of Walnut
City of Windsor Heights
City Utility of Lake Mills
City Utility of Readlyn
City Utility of Shelby
County of Audubon
County of Cedar
County of Mills
County of Ringgold
County of Tama
Grundy Center Municipal Utilities
La Porte City Utility
Second Judicial Dist Dept. of Correct
South Iowa Area Crime Commission
Urbandale Sanitary Sewer District
Webster County Solid Waste Commission
$500,000-$1,000,000 Assets Invested
- -----------------------------------
Algona Municipal Utilities
City of Adel
City of Altoona
City of Denison
City of Eagle Grove
City of Gilbertville
City of Keokuk
City of La Porte City
City of Riverdale
City of Van Meter
City Utility of Maquoketa
City Utility of Montezuma
City Utility of Traer
County of Calhoun
County of Emmet
County of Hamilton
County of Linn
County of Madison
County of O'Brien
County of Osceola
County of Washington
County of Winneshiek
Knoxville Utility
Orange City Hospital and
Clinic
Resale Power Group of Iowa
Waverly Light and Power
SIMECA
$1,000,000-$5,000,000 Assets Invested
- -------------------------------------
Algona Municipal Utilities
Bluestem Solid Waste Agency
Broadlawns Medical Center
Cedar Falls Utilities
City of Council Bluffs
City of Davenport
City of Forest City
City of Iowa City
City of Keokuk
City of Knoxville
City of Marion
City of Mason City
City of Mitchellville
City of Montezuma
City of Mount Pleasant
City of Oskaloosa
City of Polk City
City of Sioux City
City of Traer
City of Washington
City of Waterloo
City of Waverly
City Utility of Lenox
Clay County
County of Black Hawk
ountyof Buchanan
County of Cass
County of Decatur
County of Henry
County of Jackson
County of Louisa
County of Lyon
County of Monona
County of Muscatine
County of Poweshiek
County of Sioux
County of Wapello
County of Wayne
County of Webster
Dallas County
Fifth Judicial District
IMWCA Group C
Lucas County
Montezuma Municipal Light and Power
North Central Iowa Regional SWA
Waverly Light and Power
West Des Moines Water Works
Xenia Rural Water District
Over $5,000,000 Assets Invested
- -------------------------------
City of Ankeny
City of Bettendorf
City of Cedar Rapids
City of Cedar Rapids - DGO
City of Clinton
City of Coralville
City of Hiawatha
City of Johnston
City of Muscatine
City of Ottumwa
City of West Des Moines
County of Appanoose
County of Dickinson
IMWCA Group C
Spencer Municipal Utility
West Bank as Escrow Agent for Coraiville
50
Non-Investing Participants
- ---------------------------
Audubon County Memorial Hospital
City of Alton City
of Ames City of Anamosa
City of Anthon
City of Atlantic
City of Audubon
City of Bellevue
City of Bloomfield
City of Bussey
City of Camanche
City of Carlisle
City of Carson
City of Carter Lake
City of Cedar Falls
City of Center Point
City of Centerville
City of Charles City
City of Cherokee
City of Clarinda
City of Clive
City of Colfax
City of Colo
City of Creston
City of Denver
City of Des Moines
City of Dubuque
City of Dunkerton
City of Eldon
City of Eldridge
City of Elk Run Heights
City of Ellsworth
City of Fort Madison
City of Grand River
City of Greenfield
City of Harlan
City of Hawarden
City of Hazleton
City of Hudson
City of Humboldt
City of Huxley
City of Independence
City of Indianola
City of Lamont
City of Lehigh
City of Lenox
City of Leon
City of Lisbon
City of Lohrville
City of Manchester
City of Manning
City of Marble Rock
City of Marshalltown
City of Monroe
City of Mount Vernon
City of Nevada
City of New Hampton
City of New London
City of Newton
City of Oelwein
City of Osage
City of Ossian
City of Peosta
City of Perry
City of Pleasant Hill
City of Pleasantville
City of Pocahontas
City of Prescott
City of Preston
City of Rockwell City
City of Sac City
City of Sheldon
City of Slater
City of Spirit Lake
City of St. Charles
City of Storm Lake
City of Sumner
City of Tipton
City of Urbandale
City of Villisca
City of Vinton
City of Webster City
City of Wilton
City of Woodbine
City Utility of Alton
City Utility of Ames
City Utility of Anamosa
City Utility of Anthon
City Utility of Aplington
City Utility of Bloomfield
City Utility of Colfax
City Utility of Coon Rapids
City Utility of Denver
City Utility of Fairbank
City Utility of Graettinger
City Utility of Hawarden
City Utility of Laurens
City Utility of LeClaire
City Utility of Lohrville
City Utility of Preston
City Utility of Sac City
City Utility of Sanborn
City Utility of Slater
City Utility of St. Charles
City Utility of Story City
City Utility of Vinton
City Utility of Wahpeton
Clear Lake Sanitary District
Council Bluffs Airport Authority
County of Butler
County of Cerro Gordo
County of Clinton
County of Davis
County of Dubuque
County of Floyd
County of Greene-Medical Center
County of Grundy
County of Hancock
County of Harrison
County of Iowa
County of Johnson
County of Jones
County of Marion
County of Marshall
County of Mitchell
County of Monroe
County of Page
County of Polk
County of Scott
County of Story
County of Winnebago
County of Worth
Crawford County Memorial Hospital
Des Moines Metropolitan Transit Authority
Des Moines Utility
Eighth Judicial Dist. Dept. of Correct.
Fort Madison Utility
Greenfield Municipal Utilities
Heart of Iowa Reg. Transit Agency
Iowa Northland Reg. Council of Gov.
Iowa Public Employer Health Care Cover
Jefferson County Hosp. Foundation, Inc.
Jefferson County Hospital
Lee County
Manning Municipal Utilities
Midas Council of Governments
Mid-Iowa Development Association COG
Mid-Iowa Regional Housing Authority
Missouri River Energy Services
Mitchell County Regional Health Center
Monroe County Hospital
Mt. Pleasant Municipal Utilities
Muscatine Power and Water
Newton Waterworks
Ogden Municipal Utility
Page County Landfill Association
Plymouth County Solid Waste Agency
Pottawattamie County
Seventh Judicial District
Third Judicial District
Van Buren County Hospital
Washington County Hospital
Winterset Municipal Utilities
51
STATISTICAL INFORMATION
52
STATISTICAL INFORMATION
MAJOR PARTICIPANTS
MAJOR PARTICIPANTS
Top Ten Participants Top Twenty Participants Top Fifty Participants
Diversified Percent Total Assets Percent Total Assets Percent Total Assets
- ----------- ------- ------------ ------- ------------ ------- ------------
2006 32% 65,432,579 47% 95,702,772 75% 152,227,092
2005 48% 112,257,335 63% 144,716,918 83% 191,099,445
2004 59% 151,601,053 72% 182,708,595 88% 225,109,501
2003 56% 137,395,976 68% 166,268,864 85% 209,040,889
2002 47% 120,630,674 61% 157,746,696 81% 207,622,556
2001 43% 115,107,270 58% 152,529,065 79% 208,785,428
2000 40% 87,517,107 56% 122,092,377 79% 170,953,598
Top Ten Participants
DGO Percent Total Assets
- --- ------- ------------
2006 100% 16,949,155
2005 100% 14,795,683
2004 100% 37,532,248
2003 100% 81,053,164
2002 100% 66,461,330
2001 100% 59,975,661
2000 100% 45,366,390
INVESTMENT ADVISER
Investors Management Group (IMG) has served as the sole Investment Adviser to
all investment alternatives within IPAIT since the program's inception in 1987.
As of June 30, 2006 IMG had a total of $3.7 billion in assets under management,
representing a diverse group of institutional clients.
CONSULTANTS
IPAIT does not employ the use of any professional consultants beyond those
service providers detailed in the Notes to Financial Statement Section.
BROKERS
IPAIT does not employ the use of brokers in the operation of its various
investment alternatives.
53
Changes in Fund Units
Changes in Participant Assets Under Management
Diversified Fund and
Direct Government Obligation Fund
Annual Annual
Date IPAIT Div Fund * Change IPAIT DGO Fund ** Change
---- ---------------- ------ ----------------- ------
06/06 $203,481,541 -11.40% $16,949,155 14.55%
03/06 $237,141,015 -1.43% $19,677,059 3.74%
12/05 $242,636,140 9.50% $13,266,181 -40.13%
09/05 $250,171,968 13.12% $15,329,259 -51.02%
06/05 $229,667,966 -9.87% $14,795,683 -60.58%
03/05 $240,589,826 -12.58% $18,967,804 -58.52%
12/04 $221,582,170 -10.52% $22,157,021 -54.54%
09/04 $221,163,016 -18.75% $31,294,779 -49.15%
06/04 $254,818,110 -1.84% $37,532,248 -28.22%
03/04 $275,215,747 10.58% $45,727,070 -40.88%
12/03 $247,626,021 -16.67% $48,744,871 -25.40%
09/03 $272,187,641 7.83% $61,548,710 17.70%
06/03 $259,601,282 2.23% $52,291,241 -21.32%
03/03 $248,884,686 -10.42% $77,348,955 2.26%
12/02 $297,172,601 -6.16% $65,341,840 -20.73%
09/02 $252,426,230 -4.62% $52,291,241 -44.28%
06/02 $253,948,247 -4.20% $66,461,330 10.81%
03/02 $277,835,614 -8.83% $75,641,831 19.10%
12/01 $316,690,866 32.71% $82,432,865 22.23%
09/01 $264,646,237 2.53% $93,847,685 30.47%
06/01 $265,090,819 22.47% $59,975,661 32.20%
03/01 $304,760,387 22.97% $63,510,582 16.53%
12/00 $238,634,980 11.98% $67,438,029 9.11%
09/00 $258,112,751 22.59% $71,931,497 -1.98%
06/00 $216,459,830 14.80% $45,366,390 -48.21%
03/00 $247,826,392 4.02% $54,500,308 -21.87%
12/99 $213,110,138 10.58% $61,810,064 -15.01%
09/99 $210,543,469 10.06% $73,381,984 -5.63%
06/99 $188,558,836 6.52% $87,596,381 5.71%
03/99 $238,242,744 24.18% $69,752,928 48.18%
12/98 $192,712,021 19.02% $72,730,352 39.38%
09/98 $191,295,081 2.07% $77,758,459 35.23%
06/98 $177,018,714 -11.07% $82,865,033 40.87%
03/98 $191,859,267 -20.16% $47,073,726 -5.27%
12/97 $161,914,498 -24.50% $52,182,763 -5.28%
09/97 $187,412,776 -9.27% $57,501,838 -2.32%
06/97 $199,049,090 3.43% $58,825,680 -9.94%
03/97 $240,303,292 6.54% $49,692,437 18.91%
12/96 $214,444,033 14.52% $55,091,929 21.40%
09/96 $206,557,219 12.61% $58,868,709 15.62%
*IPAIT Div Fund inception date 11/13/87
**IPAIT DGO Fund inception date 9/1/88
54
Monthly Comparative Yields
DIVERSIFIED FUND
Div Fund iMoneyNet US Gov't Chapter 74A Chapter 74A
Date Rate (1) & Agency Index (2) 32-89 Day (3) 90-179 Day (3)
---- -------- ------------------ ------------ ---------------
06/06 4.49 4.25 2.85 3.15
05/06 4.38 4.14 2.80 3.10
04/06 4.29 3.99 2.70 3.00
03/06 4.06 3.82 2.40 2.95
02/06 4.05 3.75 2.40 2.80
01/06 3.80 3.56 2.30 2.75
12/05 3.69 3.43 2.25 2.65
11/05 3.53 3.25 2.15 2.60
10/05 3.30 3.01 2.05 2.35
9/05 3.10 2.84 2.05 2.35
8/05 2.93 2.69 1.95 2.20
7/05 2.75 2.47 1.85 2.05
(1) Actual earnings less expenses
(2) iMoneyNet U.S. Government & Agencies Money Fund ReportTM (3) Iowa Code
Chapter 74A minimum public funds deposit rates
DGO FUND
DGO Fund iMoneyNet US Gov't Chapter 74A Chapter 74A
Date Rate (1) & Agency Index (2) 32-89 Day (3) 90-179 Day (3)
---- -------- ------------------ ------------ ---------------
06/06 4.35 4.17 2.85 3.15
05/06 4.27 4.06 2.80 3.10
04/06 4.11 3.89 2.70 3.00
03/06 3.95 3.72 2.40 2.95
02/06 3.87 3.62 2.40 2.80
01/06 3.58 3.39 2.30 2.75
12/05 3.50 3.29 2.25 2.65
11/05 3.40 3.13 2.15 2.60
10/05 3.12 2.85 2.05 2.35
09/05 2.88 2.77 2.05 2.35
08/05 2.75 2.62 1.95 2.20
07/05 2.54 2.40 1.85 2.05
(1) Actual earnings less expenses
(2) iMoneyNet U.S. Treasury & Repo Money Fund ReportTM
(3) Iowa Code Chapter 74A minimum public funds deposit rates
55
Annual Comparative Yields
AVERAGE ANNUAL YIELD FOR THE FISCAL YEARS ENDED JUNE 30,
iMoneyNet U.S.
Diversified iMoneyNet U.S. Govt. Treasury
Fund (1) & Agency Index (2) DGO Fund (1) & Repo Index (3)
-------- ------------------ ------------ ----------------
2006 3.70 3.33 3.53 3.21
2005 1.69 0.01 1.53 0.01
2004 0.59 0.37 0.48 0.31
2003 0.95 0.80 0.90 0.74
2002 2.11 1.87 1.83 1.76
2001 5.33 5.26 5.15 5.06
2000 5.13 4.94 4.98 4.78
1999 4.61 4.47 4.43 4.35
1998 5.10 4.90 4.98 4.85
1997 4.92 4.72 4.84 4.68
(1) Actual earnings less expenses
(2) iMoneyNet U.S. Government & Agencies Money Fund Report TM
(3) iMoneyNet U.S. Treasury and Repo Money Fund Report TM
Annual Net Investment Income
TOTAL NET INVESTMENT INCOME
for the Fiscal Year Ended June 30,
Diversified Fund (1) DGO Fund (1)
-------------------- ------------
2006 8,472,466 567,341
2005 3,733,917 349,987
2004 1,477,818 265,254
2003 2,531,693 658,073
2002 5,854,955 1,381,159
2001 13,455,641 3,216,209
2000 11,001,463 3,199,662
1999 8,975,481 3,374,792
1998 9,260,578 2,723,297
1997 10,527,618 2,709,406
(1) Actual earnings less expenses
56
FOR THE YEARS ENDED JUNE 30,
(dollars in thousands)
DIVERSIFIED PORTFOLIO
2006 2005 2004 2003 2002
----------- ----------- --------- ---------- ---------
ADDITIONS:
From Investment Activities:
Net Investment income $8,472 $3,734 $1,478 $2,532 $5,855
From Unit Transactions:
Units sold 1,151,720 1,055,083 941,862 912,308 895,986
Units issued in
reinvestment of
dividends from net
investment income 7,815 3,596 1,478 2,532 5,855
----------- ----------- --------- ---------- ---------
TOTAL ADDITIONS 1,168,007 1,062,413 944,818 917,372 907,696
----------- ----------- --------- ---------- ---------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (8,472) (3,734) (1,478) (2,532) (5,855)
From Unit Transactions:
Units redeemed (1,185,721) (1,083,829) (933,547) (923,763) (912,984)
----------- ----------- --------- ---------- ---------
TOTAL DEDUCTIONS (1,194,193) (1,087,563) (935,025) (926,295) (918,839)
----------- ----------- --------- ---------- ---------
Changes in net assets (26,186) (25,150) 9,793 (8,923) (11,143)
Net assets at beginning of period 229,668 254,818 245,025 253,948 265,091
----------- ----------- --------- ---------- ---------
Net assets at end of period $203,482 $229,668 $254,818 $245,025 $253,948
=========== =========== ========= ========== =========
DIRECT GOVERNMENT OBLIGATION PORTFOLIO
2006 2005 2004 2003 2002
----------- ----------- --------- ---------- ---------
ADDITIONS:
From Investment Activities:
Net Investment income $567 $350 $265 $658 $1,381
From Unit Transactions:
Units sold 36,963 20,938 30,121 43,658 48,029
Units issued in reinvestment
of dividends from net
investment income 537 350 265 658 1,381
----------- ----------- --------- ---------- ---------
TOTAL ADDITIONS 38,067 21,638 30,651 44,974 50,791
----------- ----------- --------- ---------- ---------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (567) (350) (265) (658) (1,381)
From Unit Transactions:
Units redeemed (35,347) (44,024) (45,145) (58,486) (42,924)
----------- ----------- --------- ---------- ---------
TOTAL DEDUCTIONS (35,914) (44,374) (45,410) (59,144) (44,305)
----------- ----------- --------- ---------- ---------
Changes in net assets 2,153 (22,736) (14,759) (14,170) 6,486
Net assets at beginning of period 14,796 37,532 52,291 66,461 59,975
----------- ----------- --------- ---------- ---------
Net assets at end of period $16,949 $14,796 $37,532 $52,291 $66,461
=========== =========== ========= ========== =========
57
Changes in Net Assets
FOR THE YEARS ENDED JUNE 30,
(dollars in thousands)
DIVERSIFIED PORTFOLIO
2001 2000 1999 1998 1997
----------- ----------- ---------- ---------- ----------
ADDITIONS:
From Investment Activities:
Net Investment income $13,456 $11,002 $8,975 $9,261 $10,528
From Unit Transactions:
Units sold 1,024,910 1,032,835 912,337 735,508 690,468
Units issued in reinvestment
of dividends from net
investment income 13,456 11,002 8,975 9,261 10,528
----------- ----------- ---------- ---------- ----------
TOTAL ADDITIONS 1,051,822 1,054,839 930,287 754,030 711,524
----------- ----------- ---------- ---------- ----------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (13,456) (11,002) (8,975) (9,261) (10,528)
From Unit Transactions:
Units redeemed (989,735) (1,015,936) (909,772) (766,799) (694,398)
----------- ----------- ---------- ---------- ----------
TOTAL DEDUCTIONS (1,003,191) (1,026,938) (918,747) (776,060) (704,926)
----------- ----------- ---------- ---------- ----------
Changes in net assets 48,631 27,901 11,540 (22,030) 6,598
Net assets at beginning of period 216,460 188,559 177,019 199,049 192,451
----------- ----------- ---------- ---------- ----------
Net assets at end of period $265,091 $216,460 $188,559 $177,019 $199,049
=========== =========== ========== ========== ==========
DIRECT GOVERNMENT OBLIGATION PORTFOLIO
2001 2000 1999 1998 1997
----------- ----------- ---------- ---------- ----------
ADDITIONS:
From Investment Activities:
Net Investment income $3,216 $3,200 $3,375 $2,723 $2,709
From Unit Transactions:
Units sold 38,973 12,830 38,064 53,493 20,561
Units issued in reinvestment
of dividends from net
investment income 3,216 3,200 3,375 2,723 2,709
----------- ----------- ---------- ---------- ----------
TOTAL ADDITIONS 45,405 19,230 44,814 58,939 25,979
----------- ----------- ---------- ---------- ----------
DEDUCTIONS:
Dividends to unitholders from:
Net investment income (3,216) (3,200) (3,375) (2,723) (2,709)
From Unit Transactions:
Units redeemed (27,580) (58,260) (36,708) (32,177) (29,762)
----------- ----------- ---------- ---------- ----------
TOTAL DEDUCTIONS (30,796) (61,460) (40,083) (34,900) (32,471)
----------- ----------- ---------- ---------- ----------
Changes in net assets 14,609 (42,230) 4,731 24,039 (6,492)
Net assets at beginning of period 45,366 87,596 82,865 58,826 65,318
----------- ----------- ---------- ---------- ----------
Net assets at end of period $59,975 $45,366 $87,596 $82,865 $58,826
=========== =========== ========== ========== ==========
58
Glossary of Investment Terms
Accrued interest - interest accumulated on all securities in a portfolio since
the most recent payment date for each security.
Administrator - entity that carries out IPAIT policies and provides participant
recordkeeping services.
Amortized Cost - method of accounting that gradually reduces a security's
discount or premium on a straight-line basis.
Assets - items in financial statement with current market value owned by IPAIT.
Certificate of Deposit - debt instrument issued by a financial institution with
an interest rate set by competitive forces in the marketplace.
Collateral - U.S. government or agency securities pledged to IPAIT until
investment is repaid. For instance, the security for a collateralized
certificate of deposit issued by an Iowa financial institution.
Compound Rate - interest calculation based upon investment of principal plus
reinvestment of interest earned from previous period(s). IPAIT portfolio
interest is compounded or reinvested monthly.
Custodian - bank that maintains custody of all IPAIT assets.
Discount - the dollar amount by which the par value of a bond exceeds its market
price.
Diversified - spreading of risk by investing assets in several different
categories of investment and assorted maturities within those categories.
Investment Adviser - Securities and Exchange Commission registered firm that
provides investment advice to IPAIT.
Iowa Code Chapter 74A Rates - Minimum rates at which Iowa financial institutions
may accept deposits of public funds for various periods.
Liabilities - claims on the assets of IPAIT.
Market Value - the current price or value of a security.
Net Investment Income - income from IPAIT investments distributed to
participants after payment of program operating expenses.
Nominal Rate - simple interest calculation based only upon the principal amount
invested without reinvestment of earned interest.
Par Value - value of IPAIT investments at maturity.Portfolio - all investments
owned by IPAIT.
Premium - the dollar amount by which the market price of a bond exceeds its par
value.
Redemptions - withdrawal of funds by participants from IPAIT.
Repurchase Agreement - agreement between IPAIT and a seller of U.S. government
securities, whereby the seller agrees to repurchase the securities at an agreed
upon price at a stated time. The transaction is collateralized by U.S.
government or U.S. agency securities with a market value of at least 102% of the
value of the repurchase agreement.
Straight-Line - conservative accounting procedure to reduce a security's premium
or discount in equal daily increments over its remaining period to maturity.
U.S. Government Agencies - securities issued by U.S. government sponsored
corporations such as the Federal Home Loan Bank and Federal National Mortgage
Association.
U.S. Government Securities - direct obligations of the U.S. government, such as
Treasury bills, notes and bonds.
Yield Curve - graph plotting yields of securities of similar quality on vertical
axis and maturities ranging from shortest to longest on horizontal axis.
59
ITEM 2. CODE OF ETHICS.
(A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING
OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS, REGARDLESS OF
WHETHER THESE INDIVIDUALS ARE EMPLOYED BY THE REGISTRANT OR A THIRD PARTY.
(B) NO COMMENT REQUIRED.
(C) THE CODE OF ETHICS WAS AMENDED DURING THE PERIOD, BUT NOT WITH REGARD TO THE
ITEMS LISTED IN PARAGRAPH B. THE CODE WAS AMENDED TO INCLUDE ALL REQUIRED
SECURITIES TRADING BE REPORTED AS REQUIRED BY LAW, AND THE DEFINITION OF ACCESS
PERSON WAS AMENDED.
(D) THERE WAS NO WAIVER GRANTED UNDER THE CODE OF ETHICS DURING THE REPORTING
PERIOD.
(E) NOT APPLICABLE.
(F)(1) NOT APPLICABLE.
(F)(2) NOT APPLICABLE.
(F)(3) TO REQUEST A FREE COPY OF THE IOWA PUBLIC AGENCY INVESTMENT TRUST CODE OF
ETHICS, PLEASE CALL 1-800-438-6375.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's board of directors has determined that the registrant
has at least one audit committee financial expert serving on its audit
committee. (a)(2) Donald W. Kerker is the independent director named as the only
audit committee financial expert.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)The aggregate fees for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
are listed below. These numbers include professional services for the
preparation of the Registrant's tax returns.
June 30, 2006 $20,025
June 30, 2005 $16,775
(b)NOT APPPLICABLE.
(c)SEE ITEM 4(A)
(D)NOT APPLICABLE.
(E)NOT APPLICABLE.
(F)NOT APPLICABLE.
(G)NOT APPLICABLE.
(H)NOT APPLICABLE.
ITEM 5. NOT APPLICABLE.
ITEM 6. NOT APPLICABLE.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGMENT INVESTMENT COMPANIES. NOT APPLICABLE.
ITEM 8. NOT APPLICABLE.
ITEM 9. Not Applicable.
ITEM 10. Submission of matters to a vote of security holders. NA
ITEM 11. CONTROLS AND PROCEDURES.
(A) THE PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS CONCLUDED THAT THE
REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE BASED ON THEIR
EVALUATION OF THE DISCLOSURE CONTROLS AND PROCEDURES AS OF AUGUST 28, 2006, A
DATE WITHIN 90 DAYS OF THE FILING DATE OF THIS REPORT.
(B) THERE WERE NO SIGNIFICANT CHANGES IN REGISTRANT'S INTERNAL CONTROL OVER
FINANCIAL REPORTING THAT OCCURRED DURING THE PERIOD COVERED BY THIS REPORT THAT
HAS MATERIALLY AFFECTED, OR IS REASONABLY LIKELY TO MATERIALLY AFFECT, THE
REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
ITEM 12. EXHIBITS.
(A) A CERTIFICATION FROM THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL
OFFICER IS ATTACHED AS EXHIBIT A.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934 and the Investment
Company Act of 1940, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IOWA PUBLIC AGENCY INVESTMENT TRUST
By /s/ Tom Hanafan
--------------------------------------------------------
Tom Hanafan, Chair and Trustee
Date: September 1, 2006
Pursuant to the requirements of the Investment Company Act of 1940, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title
/s/ Jeff Lorenzen
- ----------------------------------------------------------
Jeff Lorenzen, Chief Executive Officer, September 1, 2006
/s/ Amy Mitchell
- ----------------------------------------------------------
Amy Mitchell, Chief Financial Officer, September 1, 2006