Fort Walton Beach — Comprehensive Financial Report September 30, 2017 — reading text

39,290,925 $ 3,337,207 $ 25,423,466 $ 5,306,829 $ 429,117 $ 419,346 $1,299,032 $ 3,075,928 $ - Investments not subject to interest rate risk Money market funds 2,705,164 Corporate equities 19,248,023 Mutual and exchange- traded funds 42,591,901 Total $103,836,013 Interest Rate Risk – The City's investment policy encourages matching investment maturities with known cash needs and anticipated cash flow requirements in order to manage interest rate risk. Investments of current operating funds shall have maturities of no longer than 24 months. Investments of bond reserves, construction funds, and other non-operating funds shall have a term appropriate to the need for funds and in accordance with debt covenants, but in no event shall the investment duration of these funds exceed five years. The investment policies for the pension trust funds do not specifically address interest rate risk. 42  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Credit Rate Risk – State law limits investments of surplus public funds to those investments described on the previous page. The table below outlines the authorized investments of the pension trust funds. General Police Employees' Officers' Firefighters' Retirement Retirement Retirement Investment Type Fund Fund Fund Minimum rating of Limited to obligations Minimum rating of Money Market or short-term A1 by S&P or backed by full faith & A1 by S&P or investment fund (STIF) options P1 by Moody's credit of US government P1 by Moody's Minimum rating in one Mininum rating of Minimum rating in one of Fixed-income securities of the four highest "investment grade" or the four highest classifications by a higher by a major rating classifications by a major 1 major rating service service rating service (1) No more than 5% of the total portfolio may be invested in securities that fall below these rating guidelines. All pension trust funds were in compliance with respective investment policies regarding credit rate risk as of September 30, 2017. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2017, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds N/A N/A N/A Corporate debt Aa1-A3 Aa1-A3 Aa1-A3 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa Aaa Aaa U.S. government pools N/A N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – The City limits the amount that may be invested in any one issuer based on the type of investment. Investments issued by or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are exempt from concentration of credit risk disclosures. The General Employees’ Retirement Fund and the Firefighters’ Retirement Fund investment policies limit investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 10% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 75% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. The Police Officers’ Retirement Fund investment policy limits investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 3% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 70% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. All pension trust fund plans were in compliance with respective investment policies regarding concentration of credit risk as of September 30, 2017. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – Continued The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – No more than 5% of the total equity portfolio valued at market may be invested in the equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  International Equities – No more than 5% of the total equity portfolio valued at market may be invested in the common equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  Fixed Income Investments – Securities of any one issuer shall not exceed 5% of a total bond portfolio at time of purchase. Investments in Entities That Calculate Net Asset Value (NAV) per Share The fair values of investments in real estate funds held by the pension trust funds are based on the investments’ NAV per share, as provided by the investee. Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Real Estate Funds $ 6,537,052 None Quarterly 0 - 90 days The real estate funds consist of two open-ended commingled funds that invest in office, industrial, retail, and multi-family real estate assets throughout the United States. Although the funds are private investments, they can be redeemed on a quarterly basis, subject to available liquidity. 4. FAIR VALUE OF INVESTMENTS The City measures and records its investments using fair value measurements guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follow:  Level 1 – Quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.  Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly.  Level 3 – Unobservable inputs for an asset. 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 4. FAIR VALUE MEASUREMENTS – CONTINUED The following table presents the investments carried at fair value on September 30, 2017: Fair Value Level 1 Level 2 Level 3 Money market funds $ 2,705,164 $ - $ 2,705,164 $ - Debt securities U.S. Treasury bonds 10,968,537 10,968,537 - - U.S. Government Agency obligations 6,989,699 - 6,989,699 - U.S. Government Agency collateralized mortgage obligations (CMO's) 3,250,887 - 3,250,887 - Commercial paper 1,747,163 - 1,747,163 - Corporate bonds 16,033,139 - 16,033,139 - Municipal bonds 301,500 - 301,500 - Total debt securities 39,290,925 10,968,537 28,322,388 - Equity securities and commingled funds Domestic common stock 12,603,982 12,603,982 - - Foreign common stock 106,989 106,989 - - Mutual funds 42,591,901 - 42,591,901 - * Commingled real estate investment funds 6,537,052 - - - Total equity securities and