FY 2005 - University of Missouri System

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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 4(net of inflations) from investments. However, to achieve uniformity in amounts to spend from one year to the next,the actual amount available to spend in any given year will not be less than 96% or more than 106% of the prior year’sexpenditure.At June 30, 2005, the University held investments, by investment type, as follows (in thousands of dollars):Carrying Valueas ofJune 30, 2005Government Obligations $ 571,579Corporate Bonds and Notes 197,249Corporate Stocks 563,042Other 22,519Total Short-Term and Long-Term Investments 1,354,389Commercial Paper 179,590Repurchase Agreements 11,903Total Cash and Cash Equivalents 191,493Total Investments $ 1,545,882Custodial Credit Risk – The custodial credit risk for investments is the risk that in the event of failure of thecounterparty to a transaction, the University will not be able to recover the value of the investments. In accordance withUniversity policy, the University minimizes its custodial credit risk on deposits by establishing limitations on the typesof instruments held with qualifying institutions. Repurchase agreements must be collateralized by U.S. Governmentissues and/or U.S. Government Agency issues. Certificates of deposit must be collateralized and held at a bank withwhich the University has a depository agreement. The University’s investment of $179,590,000 in commercial paper isuninsured and uncollaterialized. The University’s investment of $11,903,000 in repurchase agreements is held by theinvestment’s counterparty, not in the name of the University. All of the remaining University investments are insuredand registered and are held by the University or an agent in its name.Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of aninvestment. The University’s Pooled General Investments consist primarily of fixed income securities, with a specificlimitation that no more than 15% of the pool consists of variable rate securities. As a means of ensuring the safety ofprincipal invested in the Pooled Endowment Investments, the University’s investment policy requires diversificationof the investment portfolio.At June 30, 2005, the maturities of the University’s investments are as follows (in thousands of dollars):As of June 30, 2005Less than1 Year 1-5 Years 6-10 YearsMore than10 Years Carrying ValueU.S. Agency Obligations $ 141,148 $ 263,293 $ 33,964 $ 15,364 $ 453,769U.S. Treasury Obligations 6,248 27,162 8,221 9,834 51,465Foreign Government Obligations 637 30,807 22,997 11,904 66,345U.S. Corporate Bonds & Notes 55,945 101,741 12,340 6,121 176,147Foreign Corporate Bonds & Notes 1,952 6,979 7,050 5,121 21,102Total $ 205,930 $ 429,982 $ 84,572 $ 48,344 $ 768,828Credit Risk – The credit risk of investments is the risk that the issuer or other counterparty will not meet its obligations.This credit risk is typically measured by the credit quality ratings of investments in debt securities as described by anational recognized statistical rating organization such as Standard and Poor’s (S&P) and Moody’s. For portions of theUniversity’s investments, specifically the Endowment Fund, the University’s policy states that investments in corporatebonds and other fixed income securities must have an S&P rating of A or better.2 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 29
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 4However, the University has elected to use Moody’s Investors Service investment ratings in the following Credit Riskreport. Several securities within the Pooled Endowment have Moody’s ratings of Baa or Ba and Standard and Poor’sratings in the A range (A-, A, & A+), which places those bonds within the parameters specified in the University’spolicy.The following represents the University’s investment exposure to credit risk, based on Moody’s investment ratings (inthousands of dollars):As of June 30, 2005Aaa Aa A Baa Ba Unrated TotalU.S. Agency Obligations $ 377,698 $ 54,979 $ 35 $ - $ - $ 21,057 $ 453,769U.S. Treasury Obligations 51,465 51,465Foreign Government Obligations 50,083 1,331 11,582 3,349 66,345U.S. Corporate Bonds & Notes 22,870 67,706 82,691 245 2,635 176,147Foreign Corporate Bonds & Notes 11,315 2,877 3,189 680 3,041 21,102Total $ 461,966 $ 126,893 $ 97,497 $ 925 $ - $ 81,547 $ 768,828Foreign Currency Risk – Foreign currency risk is the risk that changes in exchange rates will adversely affect the fairvalue of a foreign investment. University policy allows 15-25% of the investment portfolio to be invested in internationalinvestments (12.1% and 12.2% denominated in foreign currency in fiscal years 2005 and 2004, respectively). To reducethe risk related to fluctuations in currency exchange rates, the University has entered into forward foreign currencycontracts throughout the year. As of June 30, 2005 and 2004, 4.7% or $63,383,000 and 4.6% or $61,571,000, respectively,of the University’s total investment portfolio is invested in forward foreign currency contracts. These contracts aremarked to market and the changes in their market value are recorded in investment and endowment income on theStatements of Revenues, Expenses and Changes in Net Assets. The following represents the University’s exposure toforeign currency risk (in thousands of dollars):Foreign Currency RiskInternational Investment Securities at Fair Value(in thousands of dollars)Currency 2005Australian Dollar $ 2,856British Pound Sterling 27,112Canadian Dollar 2,814Chilean Peso 21Danish Krone 911Euro 65,203Hong Kong Dollar 2,978Israeli Shekel 166Japanese Yen 42,062Mexican New Peso 301New Taiwan Dollar 42New Zealand Dollar 67Norwegian Krone 589Polish Zloty 135South African Comm Rand 425Singapore Dollar 898South Korean Won 98Swedish Krona 4,527Swiss Franc 12,124Total $ 163,329302 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
Page 2 and 3: Table of ContentsGOVERNING BOARD AN
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Page 20 and 21: S tatements of Net AssetsA S O F J
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Page 24 and 25: S Ftatements of Cash FlowsO R T H E
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FY 2005 - University of Missouri System

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