Archives of Maryland, Volume 0197, Page 0054 - Report of the Comptroller, 1997-98

Report of the Comptroller, 1997-98

Volume 197, Page 54 View pdf image (33K)

Borrowing brokers must transfer collateral in the form of cash, other securities or letters of credit valued at a
minimum of 102% of the fair value of domestic securities and international fixed income securities, or 105% of the
fair value of international equity securities on loan. Collateral is marked-to-market daily. If the fair value of the
pledged collateral falls below the specified levels, additional collateral is required to be pledged by the close of the
next business day. In the event of default by a borrowing broker, the Funds' custodial bank is obligated to
indemnify the Funds if, and to the extent that, the fair value of collateral is insufficient to replace the loaned
securities. The Funds have not experienced any loss due to credit or market risk on securities lending activity since
inception of the program. Further, as of year end the Funds held collateral in excess of the fair-value of the loaned
securities. As of June 30, 1998, the fair value of loaned securities and the related collateral were as follows
(amounts expressed in thousands).

	FairValue Loaned	Collateral	Percent
Securities International equity.............................................................................. Domestic and international fixed.............................................................................	Securities $ 844,273 1,790,158 $2,634,431	Received $ 889,246 1,834,653 $2,723,899	Collateralized 105.3% 102.5%

The Funds may invest in derivatives as permitted by guidelines established by the Board of Trustees of the
State Retirement Pension System of Maryland. Compliance with these guidelines is monitored by the Fund's staff.
At times, the Funds invest in foreign currency forward contracts, options, futures, collateralized mortgage
obligations, mortgage-backed securities, interest-only securities and principal-only securities. No derivatives were
purchased with borrowed funds.
Derivatives are used to hedge against foreign currency risk, improve yield, adjust the duration of the fixed
income portfolio, or hedge against changes in interest rates. These securities are subject to changes in value due to
changes in interest rates or currency valuations. The mortgage-backed securities are subject to prepayment risk
when interest rates are falling. Credit risk for derivatives held by the Funds result from the same cunsideiations aa
other counterparty risk assumed by the Funds, which is the risk that the counterparty will be unable to meet its
obligations.
The Funds invest in foreign currency forward contracts to hedge the currency risk in its international and
global portfolios. The following summary shows the foreign currency forward contracts outstanding as of June 30,
1998 (amounts expressed in thousands).

	Purchases	rurchase Amount	Fair Value
Currency Australian dollar...................................................................................... Canadian dollar....................................................................................... Danish krone............................................................................................ Deutsche mark......................................................................................... French franc............................................................................................. Hong Kong dollar.................................................................................... Italian lira................................................................................................. Japanese yen............................................................................................ Malaysian ringgit................................................................................ Netherlands guilder....................................................................... New Zealand dollar................................................................................. Norwegian krone..................................................................................... Pound sterling.......................................................................................... Spanish peseta........................................................................................ Swedish krona......................................................................................... Swiss franc............................................................................................... U.S. dollar............................................................................................		(In Local Currency) 30,496 52,227 83,111 454,351 104,681 26,000 50,673,227 25,223,233 21,700 21,500 690 26,840 65,860 5,848,272 77,259 103,179 1,551,308	as of June 30, 1998 $ 18,899 38,969 12,116 252,257 17,359 3,336 28,511 182,488 5,080 10,611 358 3,503 109,793 38,279 9,711 68,176 1,551,308
Total purchases...............................................................................			$2,350,754

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Report of the Comptroller, 1997-98

Volume 197, Page 54 View pdf image (33K)

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