Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2013 — reading text

Fund B from cash equivalent to investment for reporting purposes due to its immaterial balance of approximately $119,000 at September 30, 2013 in comparison to the City's pooled cash of approximately $31 million. As of September 30, 2013, Fund B recorded an unrealized gain on investment in the amount of $25,665. Deposits Custodial Credit Risk - It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow "Qualified Public Depositories" to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with or in the name of the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. At year-end, the value of the City's deposits was $30,516,802, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. Investments As of September 30, 2013, the City's investments consist of those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care Special Revenue Fund. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1-E. 43  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) As of September 30, 2013, the City held the following investments and related maturities: INVESTMENT MATURITIES (YEARS) Fair Value <1 1-5 5-10 10-15 15-20 20-25 25-30 >30 Investments subject to interest rate risk Corporate debt $ 8,515,594 $ 323,433 $ 1,312,290 $ 6,785,878 $ - $ 50,681 $ 5,594 $ 37,718 $ - Corporate CMOs 106,753 - - - - 41,381 33,564 - 31,808 U.S. Treasury 5,417,688 505,493 2,641,523 714,138 - 130,259 144,454 1,281,821 - U.S. Government Agencies 1,437,360 - 1,318,161 119,199 - - - - - U.S. Government Agency Pools 3,439,377 - - 1,603,978 1,648,826 31,890 101,817 52,866 - $ 18,916,772 $ 828,926 $ 5,271,974 $ 9,223,193 $ 1,648,826 $ 254,211 $ 285,429 $ 1,372,405 $ 31,808 Investments not subject to interest rate risk Money market funds $ 171,440 Corporate equities 34,661,564 Mutual funds 14,025,140 48,858,144 Total $ 67,774,916 Interest Rate Risk - The City's investment policy does not limit its investment maturities as a means of managing its exposure to fair value losses arising from changes in interest rates. The City's policy encourages shorter-term investments for operating funds in order to meet the anticipated cash flows requirements. The investment policies for the pension plans do not specifically address interest rate risk. Credit Rate Risk - State law limits investments of surplus public funds to those investments described above. According to the City's General Employees' Pension Plan investment policy, investment in all domestic corporate fixed income securities is limited to those securities rated "A" or higher by Moody, S&P, or Fitch, except that up to 10% of the fixed income securities may have a rating below "A" but not less than "Baa". As of September 30, 2013, the General Employees' Pension Plan held no investments whose rating was below Baa; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investment, whose rating falls below the policy threshold, as soon as it is economically feasible. Investments in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2013, comprised 9.05% of the total cost of fixed income securities in the Plan. The Police Officers' Pension Fund limits investment in fixed income securities to those rated "Baa/BBB" or higher by a major rating service. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "Baa/BBB" or higher by a major rating service. All Pension Plans were in compliance with its respective investment policy regarding credit rate risk as of September 30, 2013. 44  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Credit Rate Risk (Continued) The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2013, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds Aaa-A Aaa-A Aaa-A Corporate CMOs Aaa-Aa1 N/A N/A Corporate debt Aaa-Baa3 Aa2-A3 Aa2-Baa2 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa-A2 Aaa Aaa U.S. government pools A1 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). Concentration Credit Risk - The City places no limit on the amount that may be invested in any one issuer, in regards to its general operations investments. The City encourages portfolio diversification to minimize each of the types of risk related to investments. The General Employees' Pension Fund limits investment of fixed income securities of any single issuer to no more than 5% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and must be backed by mortgage securities rated "Aaa" by Moody's or "AAA" by Standard & Poor's and Fitch rating services. As of September 30, 2013, the largest investment in a single corporate issuer of debt was below 1% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 1.12% of the total market value of the total fixed income portfolio. No more than 5% of the market value of the total fixed income portfolio in the Police Officers' Pension Fund may be invested in the securities of any single corporate issuer. Investments in collateralized mortgage obligations are not specifically permitted by the policy. As of September 30, 2013, the largest investment in a single corporate issuer of debt was 1.39% of the value of all corporate fixed income securities. The Police Officers' Pension Fund did not hold any investments in collateralized mortgage obligations as of September 30, 2013. 45  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Concentration Credit Risk (Continued) No more than 5% of the market value of the total fixed income investments may be held in the Firefighters' Pension Fund may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and are restricted to issues backed by securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), or that are rated "Aaa" by Moody's or "AAA" by Standard & Poor's rating services. As of September 30, 2013, the largest investment in a single corporate issuer of debt was 6.97% of the market value of all fixed income securities; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investments that exceed the policy threshold when it is economically feasible. Total investments in collateralized mortgage obligations were 7% of the total market value of the total fixed income portfolio. 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. 46  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Deposits Held in Florida State Board of Administration's Local Government Investment Pool In addition to the investments subject to credit risk, listed above, the City maintains investments in the Florida State Board of Administration's (SBA) Local Government Surplus Funds Trust Pools, and these deposits are included in the City's pooled cash accounts. At September 30, 2013, the City maintained $105,145 invested in the State Board of