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<br />. <br /> <br />The report shall exnlain the total investment return and compare the return and comnare <br />the return with budgetarv expectations. <br /> <br />I <br />e <br /> <br />The total return for 1998 was $750,247 on an average portfolio balance (including cash <br />equivalents) of $13,256,498, which equates to an average yield of 5.66% for the year. This <br />compares favorably to 1998 interest income expectations in the range of5.0% to 5.5%. The 1998 <br />yield also compares closely to the benchmark] 998 average rate for a two year U.S. Treasury note <br />of5.l3%. <br /> <br />1998 interest income of $750,247 resulted in a $234,297 positive deviation (45.4%) 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 and public improvements in the Gateway area funded from bond <br />proceeds not being totally completed in 1998. <br /> <br />The report shall contain a discussion ofthe outlook for interest rates and the economic <br />trend for the upcoming year investment strategies to be implemented, and budgetary <br />expectations for investment income. <br /> <br />The general outlook for interest rates in 1999 is for them to be lower than average 1998 levels. <br />Many economists believe the United States economy will be negatively impacted by concerns in <br />other international economies. Slower growth and lower import prices should keep inflation low <br />and stable, around 2%. By year end 1999, we may be seeing the yield curve for all maturities _ <br />mirror the December 1998 range of 4.5% to 5.25%. The estimated annualized rate of return for .. <br />1999 should be in the range of 4.5% to 5.0%. <br /> <br />1999 interest was budgeted at $454,200 on an expected average portfolio balance of$10,100,000 <br />with an expected yield of 4.50%. <br /> <br />Attached Schedules <br /> <br />Attached are related schedules for your further review: <br /> <br />1. Investment Portfolio Analysis, December 31, 1998 <br />2. Annualized Investment Portfolio Return, 1998 <br />3. Investment Ladder, Note and Zero Maturities by Year, 1999-2003. <br /> <br />This report will be discussed with the Finance Cornmittee at their February, 1999 meeting. I <br />herewith submit this annual report to the City Council pursuant to the annual reporting <br />requirement of the Investment Policy. <br /> <br />Terrance R. Post <br />City Treasurer <br />(Enclosures) <br /> <br />e <br /> <br />4 <br />