Mayor Nick Lalich said the shortfall was not a loss but a ``reduction in revenue compared to that budgeted''.

Fluctuations in the market have also seen two accounts in the council's managed fund portfolio fall to below the ``A'' credit rating required by the council's policy, with one falling from A to BBB+ and the other from AA to B-.

The council's independent adviser has opted to retain the accounts, which have $1million invested in each.

``As the market value for the investments are lower than their face value, to withdraw them in the current market would mean that the council may crystallise a capital loss,'' the advisor reported to council.

``It is proposed to continue to hold these investments as they continue to provide the stated coupon interest returns. These investments were purchased to hold until maturity and provided there is no default the full face value will be returned to council.''

The recent Cole Inquiry into council investment practices found that managed funds are not ``in any way necessarily indicative of imprudent investment behaviours''.