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<br /> The report shall explain the total investment return and compare the return and compare <br />. the return with budgetary expcctations. <br /> The total return for 1997 was $587,193 on an average portfolio balance (including cash <br /> equivalents) of $1 0,036, 160, which equates to an average yield of 5.85% for the year. This <br /> compares favorably to 1997 interest income expectations in the range of 5.5% to 6.0%. The 1997 <br /> yield also compares closely to the benchmark 1997 average rate for a two year U.S. Treasury <br /> note of 5.99%. <br /> 1997 interest income of$587, 193 resulted in a $94,443 positive deviation (19.2%) against <br /> budget. The primary reasons for this performance were slightly higher than expected yields and a <br /> larger than expected portfolio balance arising from construction start delays for the City Hall <br /> facility construction project. <br /> The report shall contain a discussion of the outlook for interest rates and the economic <br /> trend for the upcoming year investment strategics to be implemented, and budgetary <br /> expectations for investment incomc. <br /> The general outlook for interest rates in 1998 is for them to remain close to year end 1997 levels. <br /> Many economists believe the economy will shake off the "Asian Flu" because of strong <br /> economic fundamentals. Slower growth and lower import prices should keep inflation low and <br /> stable, around 2%. By year end 1998, we may be seeing the yield curve for all maturities mirror <br /> the December 1997 range of 5.25% to 6.00%. The estimated annualized rate of return for 1997 <br />. should be in the range of5.0% to 5.5%. <br /> 1998 interest was budgeted at $515,950 on an expected average portfolio balance of $9,850,000 <br /> with an expected yield of 5.25%. <br /> Attached Schedules <br /> Attached are related schedules for your further review: <br /> 1. Investment Portfolio Analysis, December 31, 1997 <br /> 2. Annualized Investment Portfolio Return, 1997 <br /> 3. Investment Ladder, Note and Zero Maturities by Year, 1998-2002. <br /> This report will be discussed with the Finance Committee at their February, 1998 meeting. I <br /> herewith submit this annual report to the City Council pursuant to the annual reporting <br /> requirement of the Investment Policy. <br /> Terrance R. Post <br /> City Treasurer <br /> (Enclosures) <br />. 4 <br /> - <br />