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<br />INFORMATION <br /> <br />The City makes sure we are sufficiendy liquid by continually updating our forecast on the <br />anticipated cash flow needs over the next five year time horizon. We also build in a reserve <br />balance incase of unexpected expenditures, these funds are maintained in money market <br />accounts through the 4M Fund. We anticipate the fact that we will have two large tax <br />settlements each year, along with the regularly scheduled debt service payments that occur <br />each year. <br /> <br />Over the past couple of months the yield curve has maintained a flat to slight upward <br />sloping shape which has meant long-term securities slighrly exceed returns on short-term <br />instruments. The City has to weight the opportunity cost to invest in longer term <br />investments or ride the yield curve and reinvest at shorter maturity intervals. As the chart <br />indicates the yields have decreased in every time horizon in the past 3 months. This current <br />yield curve provides very lime yield for the additional market risk inherent in longer term <br />maturities within our time horizon. Therefore, we will continue to monitor the yield curve <br />and, if market dictates, start shifting more from short-term/intermediate into longer term <br />investments. See graphical illustration below: http://www.ustreas.gov/offices/domestic_ <br />fInance 1 debt-managementl interest-rate 1 yield_historical.shtml <br /> <br />Treasury Yield Curve <br /> <br />5.00% <br /> <br />4.50% <br /> <br />4.00% <br />3.50% <br /> <br />3.00% <br />2.50% <br />2.00% <br /> <br /> <br />- 12/31/2007 <br /> <br />- 3/31/2008 <br /> <br />1.50% <br /> <br />1.00% <br /> <br />0.50% <br /> <br />0.00% <br /> <br />1mo 3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 30yr <br /> <br />Cities generally use a short horizon benchmark such as the 90 day Treasury Bill (03/31/2008- <br />1.38%) or some similar measure. Our current portfolio yield is roughly 3.93%. This is <br />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 very <br />typical to lag the market as interest rates change. This will lead to more predictability in our <br />interest earnings. <br /> <br />Liquidity has been easy to maintain for the past year because of the inverted yield curve. <br />Over the last six months more leveling out has taken place on the yields. This means that <br />short-term investments are receiving a slighdy lesser return than long-term investments <br />within the City's investment time horizon. As the curve shifts over the next couple of <br />months or even becomes upward sloping we will monitor the rates and invest accordingly. <br />Our primary reserve account is our 4M Fund which is a money market account that various <br />cities pool their funds into. It currendy yields 2.95% with daily withdrawal privileges. This <br />