|
<br /> .' ,
<br /> .
<br /> MEMO
<br /> TO: Dorothy A. Person, City Administrator
<br /> FRO~ Terrance R, Post, City Accountant
<br /> DATE: June 15, 1994
<br /> RE: Finance Department Discussion Items for 6/16/94 Council Work Session
<br /> The purpose of this memorandum is to document planned finance discussion items for tomorrow's
<br /> work session meeting,
<br /> A. City Investment in Piper Jaffray Institutional Government Mutual Fund
<br /> 1. The City invested $500,000 in late summer 1991, for this investment, The
<br /> . investment was made about the same time as the City's formal investment policy
<br /> was being implemented, The policy recommended a broadening of investment
<br /> categories - specifically into zero coupon and mutual fund investments,
<br /> 2, Since the dates of the original investment, it has been the Treasury operating
<br /> practice to reinvest dividends and capital gains into additional shares of the fund,
<br /> As the attached schedule indicates, approximately $164,955,15 was reinvested into
<br /> additional shares and $74,516,72 was sold into cash instruments in late 1993, The
<br /> cost basis in this investment is therefore $590,438.43, ($500,000 + $164,955,15 -
<br /> $74,516,72 = $590,438.43),
<br /> 3, The net asset value, (NA V), of the fund has dropped 25% in the last three months,
<br /> (i.e" from a NAV of$1 1.34 on 3/3/94 to a NAV of$8,50 on 6/3/94), Given the
<br /> 55,708,701 shares the City owns and a 6/14/94 market NA V of$8,68 per share,
<br /> the 6/14/94 market value of this investment is $483,551.53, Compared to the cost
<br /> basis, thereis an unrealized loss of $106,886,90, (18,1 % of cost basis),
<br /> 4, Options for dealing with this unrealized loss situation are to sell and realize the
<br /> loss, (hoping to prevent further losses) or to hold the investment in the belief that
<br /> the NA V will rise to the cost basis,
<br /> . My recommendation is to stay in the fund for the following reasons: (1) The underlying
<br /> fund investments are obligations of the U.S, Government or its agencies; (2) the
<br />
|