Comprehensive Annual Financial Report - City of Santa Monica

CITY OF SANTA MONICA, CALIFORNIA
Notes to Basic Financial Statements, Continued
For the fiscal year ended June 30, 2009
Maximum Maximum
Authorized Maximum percentage Investment
investment type maturity allowed in one issuer
U.S. Treasury obligations None None None
U.S. agency securities None None None
Common stock None 60% None
Corporate bonds None None None
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair
value to changes in market interest rates. The fair value of callable securities is also sensitive to market
changes in that if interest rates decrease between the time of purchase and the call date, the likelihood
that a bond will be called and reinvested at a lower interest rate increases. The City’s portfolio also
includes certain callable structured investments for which the coupon interest rate increases if the
investments are not called be certain pre-determined dates. The fair value of these investments is also
sensitive to market changes. One of the ways that the City manages its exposure to interest rate risk is
by purchasing a combination of shorter term and longer term investments and by timing cash flows from
maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as
necessary to provide the cash flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the City’s investments (including investments held
by bond trustee and Charnock funds held jointly with another party in an escrow account) to market
interest rate fluctuations is provided by the following table that shows the distribution of the City’s
investments by maturity. For purposes of the schedule shown below, any callable securities are assumed
to be held to maturity.
Investment type
Amount
12 Months
or Less
Remaining maturity (in months)
13 to 24 25 to 60
Months Months
More than
60 Months
Held by City:
Federal agency securities $ 442,178,911 128,256,113 118,835,996 195,086,802 —
Corporate medium term notes 58,274,990 — 12,320,890 45,954,100 —
State investment pool 78,773,687 78,773,687 — — —
Money market funds 42,064,361 42,064,361 — — —
Held by others:
Treasury notes/ bonds 798,119 131,494 — 192,383 474,242
Federal agency securities 5,826,363 5,332,850 — 493,513
Corporate medium term notes 1,410,627 — 507,325 731,266 172,036
Common stock 3,739,949 3,739,949 — — —
Money market funds 15,229,433 15,229,433 — — —
Total $ 648,296,440 273,527,887 131,664,211 241,964,551 1,139,791
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