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INFORMATION <br /> accounts.We anticipate we will have two large tax settlements each year, along with the <br /> regularly scheduled debt service payments. <br /> Over the past couple of years,the search for quality has been the goal.We have avoided <br /> commercial paper for close to two years due to concerns over the credit quality issues. In <br /> addition, for high quality commercial paper, the yield is several basis points below a short- <br /> term CD. The yield curve has remained relatively flat in the 30-day to 2-year range,but the <br /> longer side has increased slightly from December 31, 2012. This may also indicate that <br /> investors still prefer liquidity and will take a lower yield for short-term and secure <br /> investments. <br /> The city has to weigh the opportunity cost to invest in longer term investments or ride the <br /> yield curve and reinvest at shorter maturity intervals. Most recent purchases have been high <br /> credit quality municipals (Mum's) and certificates of deposits (CD's). Muni's and CD's have <br /> been several basis points over Agencies with call features. Investing in shorter-term <br /> investments has presented far fewer options since the decline in the commercial paper <br /> market. Treasury yields are still around historical lows.Three-month notes are yielding <br /> 0.07%and the 10-year notes are 1.87%. See graphical illustration below: <br /> Treasury Yield Curve <br /> 3.50% - <br /> 3.00% - <br /> 2.50% - <br /> 2.00% 12/31/2012 <br /> 1.50% ! <br /> 1.00% .03/28/2013 <br /> 0.50% <br /> 0.00% <br /> 1mo. 3mo. 6mo. 1yr. 2yr. 3yr. Syr. 7yr. 10yr. 30yr. <br /> Cities generally use a short-horizon benchmark such as the two-year Treasury Bill (03/28— <br /> .25%no change from .25%as of 12/31) or some similar measure. Our current portfolio <br /> yield is roughly 1.65%which is several basis points over the treasury yield benchmark.This <br /> is calculated by taking the yield times the current value for each investment and dividing the <br /> resulting amount by the total portfolio value. As investments purchased in earlier years <br /> mature,we will be able to replace them and lock into some longer term interest rates,but <br /> they may have to be reinvested at lower interest rates as market conditions change. It is <br /> typical to lag the market as interest rates change. This will lead to more predictability in our <br /> interest earnings. <br /> Our primary reserve account is our 4M Fund which is a money market account where many <br /> cities pool their funds. It currently yields .02%with daily withdrawal privileges. The city <br /> strives to maintain a strong diversification portfolio so liquidity and exposure risk are <br /> reduced. <br /> pBVEBE1 81 <br /> NATURE <br />