FY 2005 - University of Missouri System

N otes to Combined Financial StatementsF o r t h e y e a r s e n d e d J u n e 3 0 , 2 0 0 5 a n d 2 0 0 42. CASH AND CASH EQUIVALENTSCash & Cash Equivalents – University – The University’s cash and cash equivalents include bank deposits, repurchaseagreements and investments maturing in three months or less.Custodial Credit Risk – Deposits – University – The custodial credit risk for deposits is the risk that in the event ofbank failure, the University’s deposits may not be recovered. State law requires collateralization of all deposits withfederal depository insurance, bonds and other obligations of the U.S. Treasury, U.S. Agencies and instrumentalities ofthe state of Missouri; bonds of any city, county, school district or special road district of the state of Missouri; bonds ofany state; or a surety bond having an aggregate value at least equal to the amount of the deposits. The following chartpresents cash and cash equivalent deposits balances as of June 30, 2005 (in thousands of dollars):2005Uninsured andUncollateralizedUnsecured andCollateralized withSecurities held byPledging Institution’sTrust Department Notin the University’sNameCollateralizedand Fully InsuredBank BalancesTotal CarryingValueCash and Cash EquivalentDeposits $ 532 $ - $ 148,974 $ 149,506Total $ 532 $ - $ 148,974 $ 149,506Custodial Credit Risk – Deposits – University of Missouri Retirement Trust – The University of MissouriRetirement Trust held deposits, consisting of cash and cash equivalents in the amount of $211,062,000 as of June 30,2005. These balances are fully secured and collateralized and are not exposed to custodial credit risk.3. INVESTMENTSUniversity of MissouriInvestments - The investment policies of the University are established by its governing board, the Board of Curators.The policies are established to ensure that the University funds are managed in accordance with Section 105.688 of theRevised Statutes of Missouri. Investments for the University are managed in two major categories:Pooled General Investments – The general investment pools, managed by the University, averaged a total return of3.53% and .87%, including unrealized gains and losses, for the years ended June 30, 2005 and 2004, respectively.Pooled Endowment Investments – Endowment and similar funds are pooled for investment purposes when appropriateand permissible. The investment objective is to achieve long-term total returns sufficient to preserve principal, afteradjusting for inflation, and to meet the endowment spending targets. The endowment pools, managed by outsidemanagers, are the balanced pool and the fixed income pool and earned a total return of 9.6% and 4.8%, respectively,including unrealized gains and losses, for the year ended June 30, 2005, and 17.4% and 0.0%, respectively, for the yearended June 30, 2004.If the donor has not provided specific instructions or restrictions, state law permits the Board of Curators to appropriatefor expenditure an amount of net appreciation, realized and unrealized, of the investments of endowment funds asthe Board considers to be prudent. When administering the power to spend net appreciation, the Board is requiredto consider the University’s long- and short-term needs, present and anticipated financial requirements, expectedtotal return on its investments, price level trends, and general economic conditions. Any net appreciation expended isrequired to be spent for the purposes for which the endowment was established. The net appreciation on investments ofdonor-restricted endowments authorized for expenditure in fiscal year 2005 is approximately $26,949,000.The Board of Curators has adopted a total return philosophy in determining the spendable return for the endowmentsand similar funds. The spending formula distributes annually 5% of a trailing 12-quarter average of the endowment’stotal market value, with the understanding that this spending rate over the long term will not exceed total real return282 0 0 5 F i n a n c i a l R e p o r t : U n i v e r s i t y o f M i s s o u r ia c o m p o n e n t u n i t o f t h e S t a t e o f M i s s o u r i