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HomeMy WebLinkAbout1998 08 31 Financial Report - Local goverrment investment cooperative 08/31/1997 1 KPMG • 2500 City Center Tower II 301 Commerce Street Fort Worth,TX 76102 Independent Auditors' Report The Board of Directors Local Government Investment Cooperative: We have audited the accompanying statements of assets and liabilities of Local Government Investment Cooperative (the Fund), including the statements of investments, as of August 31, 1998 and 1997, and the related statements of operations and changes in net assets for the years then ended. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 1998 and 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of Local Government Investment Cooperative as of August.31, 1998 and 1997, and the results of its operations and the changes in its net assets for the years then ended in conformity with generally accepted • accounting principles. k PAk. L L P October 23, 1998 • • KPMG LIP KPMG LLP a U.S.limited liability partnership,is a member of KPMG International,a Swiss association. LOCAL GOVERNMENT INVESTMENT COOPERATIVE --i Statements of Assets and Liabilities August 31, 1998 and 1997 • 1998 1997 Assets: Investments, at amortized cost which approximates fair value(notes 2 and 3) $ 985,823,949 828,394,909 Accrued interest receivable 1,931,556 2,884,377 987,755,505 831,279,286 Liabilities: Distributions payable 4,785,569 4,351,467 Operating expense payable(note 4) 227,628 241,196 Management fee payable(note 4) 87,504 87,792 Other liabilities 36,160 35,038 5,136,861 4,715,493 Net assets: Net assets(equivalent to$1.00 per unit based on 982,618,644 and 826,563,793 units outstanding in 1998 and 1997,respectively) $ 982,618,644 826,563,793 See accompanying notes to financial statements. 2 LOCAL GOVERNMENT INVESTMENT COOPERATIVE Statements of Investments August 31, 1998 and 1997 1998 Average Carrying Fair Investment type yield value value Repurchase Agreements: P g Fuji Securities 5.93 % $ 257,235,617 257,235,617 First Chicago 5.91 101,055,652 101,055,652 NationsBanc 5.93 217,367,714 217,367,714 Paine Webber 5.93 268,998,646 268,998,646 Total repurchase agreements 844,657,629 844,657,629 U.S. Government Agency Securities: Federal Home Loan Bank 5.67 57,974,033 58,059,400 Federal Home Loan Mortgage Corporation 5.62 34,967,093 34,995,000 Federal National Mortgage Association 5.69 39,723,945 39,741,565 Federal Agricultural Mortgage Corporation 5.52 8,501,249 8,509,374 Total U.S. Government. Agency Securities 141,166,320 141,296,339 Total investments $ 985,823,949 985,953,968 1 (Continued) I _ } 3 LOCAL GOVERNMENT INVESTMENT COOPERATIVE Statements of Investments, Continued August 31, 1998 and 1997 1997 Average Carrying Fair Investment type yield value value Repurchase Agreements: Fuji Securities 5.67 % $ 266,854,840 266,854,840 First Chicago 5.66 50,216,519 50,216,519 Bank of America 5.69 251,595,627 251,595,627 Total repurchase agreements 568,666,986 568,666,986 U.S. Treasury Securities— U.S. Treasury notes 5.67 19,935,062 19,950,000 U.S. Government Agency Securities: Federal Farm Credit Bank 5.46 29,993,860 29,976,600 Federal Home Loan Bank 5.80 35,000,000 34,978,300 Federal Home Loan Mortgage Corporation 5.59 59,997,483 59,974,500 Federal National Mortgage Association 5.50 84,865,010 84,822,677 Federal Agricultural Mortgage Corporation 5.49 9,974,405 9,969,500 Student Loan Marketing Association 5.75 19,962,103 19,956,200 Total U.S. Government Agency Securities 239,792,861 239,677,777 Total investments $ 828,394,909 828,294,763 See accompanying notes to financial statements. • LOCAL GOVERNMENT INVESTMENT COOPERATIVE Statement of Operations Years ended August 31, 1998 and 1997 ik 1998 1997 Investment income- interest,net $ 62,990,775 59,317,236 Expenses(note 4): _ 1 Operating expense 113,221 255,171 Management fee 1,599,172 1,623,448 Total expenses 1,712,393 1,878,619 Net investment income 61,278,382 57,438,617 Net realized gains on investments(note 3) 93,679 30,341 Net increase in net assets resulting from operations $ 61,372,061 57,468,958 See accompanying notes to financial statements. 5 1 LOCAL GOVERNMENT INVESTMENT COOPERATIVE Statements of Change in Net Assets Years ended August 31, 1998 and 1997 1998 1997 Increase in net assets from operations: Net investment income $ 61,278,382 57,438,617 Net realized gains on investments 93,679 30,341 Net increase in net assets resulting from operations 61,372,061 57,468,958 Distributions to participants: Net investment income (61,278,382) (57,438,617) Net realized gains on investments (93,679) (30,341) Net increase from investments: participant Participant transactions(units): Units sold 1,819,626,311 2,235,536,393 Units redeemed (1,724,509,420) (2,271,267,677) Distributions reinvested 60,937,960 56,838,818 Total increase 156,054,851 21,107,534 Net assets: Beginning of year 826,563,793 805,456,259 End of year $ 982,618,644 826,563,793 See accompanying notes to financial statements. 6 7 LOCAL GOVERNMENT INVESTMENT COOPERATIVE Notes to Financial Statements August 31, 1998 and 1997 (1) Organization On September 1, 1989, local government investment pools became authorized investments for the majority of public entities in Texas. The Interlocal Cooperation Act was amended by the 71st Texas Legislature to facilitate the creation of local government investment pools in Texas. This Act permits the creation of investment pools to which a majority of political subdivisions (local governments) in Texas may delegate, by contract, the authority to make investments purchased with local investment funds and to hold legal title as custodian of the investment securities. Local Government Investment Cooperative(the Fund)was organized on May 6, 1994 to conform with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code. The Fund's governing body is a three-member Board of Directors comprised of three government officials or employees. Two advisory board members with expertise in public finance represent the general manager of the Fund. Day to day administration of the Fund is performed by Southwest Securities Group, Inc. (General Manager). The portfolio is managed by Patterson & Associates, Austin, Texas (Subadvisor) and SW Capital Corporation, (Administrator)a subsidiary of Southwest Securities Group,Inc. (2) Summary of Significant Accounting Policies (a) Basis of Accounting The Fund accounts for its assets and liabilities on the accrual basis of accounting. Investment income is recorded when earned and expenses are recorded when incurred. Net investment income is allocated to participant accounts daily on a pro rata basis based on account balance. All gains from sales of securities are allocated to participants' accounts over a maximum of thirty days based on the straight-line amortization method. (b) Expenses Expenses applicable to all participants, which are paid in the form of a management fee (the Management Fee) to the General Manager and an estimated direct fund expense (the Operating Expense), are allocated between all participants as an adjustment to the daily investment yield so 7 that only net income is credited to participants' accounts. The Board has the responsibility under the provisions of the Fund Participation Agreement to approve any modifications or other amendments of the Management Fee structure. 7 (Continued) LOCAL GOVERNMENT INVESTMENT COOPERATIVE Notes to Financial Statements August 31, 1998 and 1997 - The estimate of direct fund expense is accrued monthly to fund the payment of various program costs such as audit expenses, legal fees, custodial fees, insurance premiums and approved start- up expenditures. (c) Investments Investments are stated at amortized cost (carrying value), which does not vary materially from fair value due to the short term nature of the investments, unless there is permanent impairment of value in which case the investments are valued at market. Securities transactions are recorded on a settlement date basis which does not vary materially from the trade date basis which is required by generally accepted accounting principles. (d) Federal Income Taxes The Fund is an entity that is treated as an association taxable as a corporation. However, all of the income of the Fund accrues to the benefit of the state, municipalities and subdivisions thereof and, therefore is excluded from the income of the Fund under Internal Revenue Code Section 115. Accordingly,the Fund does not incur any income tax liability. (e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. (n Fair Value of Financial Instruments Due to the short term nature of the Fund's assets and liabilities, the carrying value as recorded in the statements of assets and liabilities approximates fair value. (3) Investments Investments of the Fund are to be only those authorized by the Texas Public Funds Investment Act governing pools for local governments. The Fund's Board of Directors has further restricted the authorized investments. As stated in the Fund's Information Statement and Investment Policy, the portfolio may include the following: 8 (Continued) LOCAL GOVERNMENT INVESTMENT COOPERATIVE Notes to Financial Statements August 31, 1998 and 1997 1. Obligations of the United States or its agencies and instrumentalities; 2. Other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the United States; 3. Fully collateralized repurchase agreements having a defined termination date, secured by obligations described in(1)or(2)above; and 4. Money market funds, if the Fund receives funds too late to be otherwise invested, authorized by the Public Funds Investment Act, which invest only in obligations described in (1), (2) or (3) above. The Fund is designated to be highly liquid in order to give participants immediate access to their account balance. Therefore, the weighted average maturity of the investments of the Fund cannot exceed 60 days. At August 31, 1998 and 1997,the Fund's investments' weighted average maturity was 25 and 27 days, respectively. The net interest income of the portfolio, as defined in the Fund's Information Statement and Investment Policy, is determined each business day, and consists of the sum of(a) interest accrued, (b) discount earned (including both original issue and market discount), and (c) realized capital gains (amortized over a 30-day period) less the sum of(a).amortization of premium, (b) the estimated expenses of the portfolio applicable to that distribution period, and (c) realized capital losses (amortized over 30 day period). All net interest income of the portfolio is accrued daily and declared as earnings to participants each day. Earnings accrue throughout the month and are distributed on the first business day of the following month, at which time they are reinvested as additional units at the current net asset value, unless the participant has elected to have them paid out. As of August 31, 1998 and 1997, there were no undistributed gains on the sale of investments and total realized gains of$93,679 and $30,341,respectively. Securities purchased under agreements to resell (Repurchase Agreements), which are treated as investments, are collateralized by negotiable and eligible government securities and are carried at the amounts at which the securities were purchased as specified in the respective agreements. The Fund takes possession of collateral on Repurchase Agreements upon entering into the Repurchase Agreement. The collateral is marked to market daily to ensure its market value as being at least equal to 102% of the resale price of the Repurchase Agreement. Agreements for one business day or less require collateral equal to at least 100% of the resale price of the Repurchase Agreement. As of August 31, 1998 and 1997,the Fund's weighted average collateral percentages were 102%. All Repurchase Agreements were made with primary dealers as required by statute and investment policy. 9 (Continued) LOCAL GOVERNMENT INVESTMENT COOPERATIVE Notes to Financial Statements August 31, 1998 and 1997 (4) Management Fee and Operating Expenses The Fund pays a Management Fee to the General Manager for day-to-day administrative services under an administration agreement that provides for fees to be computed at an annual rate of.15% of the Fund's average daily net assets. The General Manager pays fees for investment management and advisory services under investment advisory and subadvisor agreements. ' The Operating Expense fee was revised from .025%to .020% of the Fund's average daily net assets as of May 17, 1997. 10