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<br /> r <br /> CITY OF ARDEN HILLS <br /> . MEMJR1lNDIJM <br /> DATE: August n, 1994 <br /> TO: Dorothy Person, City lldministrator <br /> FRCM: Terrance Post, Treasurer <br /> SOB.JECT : Sa1e of PaineWebber loh.ttua1 Fund Investment <br /> Backaround <br /> On 12\6\93, the City of Arden Hills wade a $500,000 investment in the <br /> PaineWebber Short Term U.S. Government Fund for Credit Unions. The <br /> investment required. a terrp:>rary up to three year deviation fran the <br /> City Investment Policy because the total investment in the mutual fund <br /> portfolio catego:r:y w::JUld exceed the policy goal. Council granted this <br /> temporary policy deviation. <br /> The rationale for investing in this type of investment was the need to <br /> stay liquid for future facility financing requirerrents and generate <br /> . additional interest incare relative to alternative llDney rrarket <br /> yields. <br /> The original assumptions were that if the $500, 000 were left a rroney <br /> rrarket catego:r:y, approxiwately $42,000 in interest inccrne w::JUld be <br /> generated (assuming a 2.75% rate) . It was estimated that the yield in <br /> this mutual fund w::JUld generate an additional 175 basis points (1.75%) <br /> llDre in interest incare ($28,000) at nominal risk. <br /> O=..nt Status <br /> However, actual perfonnance of the fund for the first eight llDIlths has <br /> been extrerrely disappointing. The value has rem3.ined strang during a <br /> :rocky bond market with net asset value off 2% (purchase price NAV <br /> $10.00 vs. 8\10\94 NAVof $9.82), but dividend yields have <br /> consistently fallen short of expectations. For the first eight <br /> tronths, the fund distributed $n,347.50 in dividends on an average <br /> investment of $504,498 for an average armual yield of 3.37%. This <br /> conpares to average rroney market yields in the satre period of 3.25%. <br /> . <br />