A Permanent Fund of the State of Texas
Texas Permanent School Fund COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the Fiscal Year Ending AUGUST 31, 2020 TEXAS PERMANENT SCHOOL FUND A Permanent Fund of the State of Texas COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDING AUGUST 31, 2020
Physical Address: The Texas Permanent School Fund 400 West 15th Street 11th Floor Austin, Texas 78701-1600
Mailing Address: Texas Education Agency 1701 North Congress Avenue Austin, Texas 78701-1494
http://tea.texas.gov/Finance_and_Grants/Permanent_School_Fund/
Prepared by: Finance Department Texas Permanent School Fund
Financial Reporting & Accounting Department General Land Office
Publication Number FS21 110 01
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ii CONTENTS
Section One Introduction ...... 1 Message from the Commissioner of Education ...... 3 Message from the Executive Administrator ...... 5 Certificate of Achievement ...... 7 Administration ...... 9 Organizational Structure ...... 10
Section Two Financial Statements ...... 11 Independent Auditor’s Report ...... 13 Management’s Discussion and Analysis (Unaudited) ...... 17 Balance Sheet at August 31, 2020 ...... 25 Statement of Revenues, Expenditures, and Changes in Fund Balance for the Fiscal Year Ended August 31, 2020 ...... 26 Notes to Financial Statements ...... 27
Section Three Statistical Summary (Unaudited) ...... 59 A History and Description of the Texas Permanent School Fund ...... 63 An Overview of the Strength of the Texas Permanent School Fund Assets Managed By the State Board of Education (SBOE), Fiscal Years Ended August 31, 2020 and 2019 ...... 66 Asset Allocation Mix-PSF(SBOE), Fiscal Year Ended August 31, 2020 ...... 67 Asset Allocation Mix-Liquid(SBOE), Fiscal Year Ended August 31, 2020 ...... 68 Asset Allocation Mix Including Assets Managed by the School Land Board (SLB), Fiscal Year Ended August 31, 2020 ...... 69 PSF(SBOE) and Liquid(SBOE) Rate of Return for Fiscal Year Ended August 31, 2020 ...... 71 PSF(SBOE) Rate of Return for Fiscal Year Ended August 31, 2020 ...... 72 PSF(SBOE) Rate of Return, Last Five Fiscal Years ...... 73 PSF(SBOE) Time Weighted Returns (Gross of Fees), Last Five Fiscal Years and Selected Cumulative Periods ...... 74 PSF(SBOE) Time Weighted Returns (Net of Fees), Last Five Fiscal Years and Selected Cumulative Periods ...... 75 Liquid(SBOE) Rate of Return (Net of Fees), Fiscal Year Ended August 31, 2020 ...... 76 Liquid(SBOE) Time Weighted Returns (Gross of Fees), Fiscal Year Ended August 31, 2020...... 77 Liquid(SBOE) Time Weighted Returns (Net of Fees), Fiscal Year Ended August 31, 2020...... 78 Total PSF(SLB) Time Weighted Returns, Selected Cumulative Periods ...... 79 PSF(SBOE) Investment Management Fees ...... 80 PSF(SLB) Investment Management Fees ...... 81 Contributions to the Texas Permanent School Fund Assets Managed by the SBOE, Last Ten Fiscal Years ...... 82 Distributions to the Available School Fund (ASF), Last Ten Fiscal Years ...... 83 Fund Balances, Last Ten Fiscal Years ...... 85 Changes in Fund Balances, Last Ten Fiscal Years ...... 86 Average Daily Attendance and Contributions to ASF, Last Ten Fiscal Years ...... 87
Section Four Bond Guarantee Program (Unaudited) ...... 89 An Overview of the Bond Guarantee Program ...... 91 Bond Guarantee Program Comparative Status Summary, Last Ten Fiscal Years ...... 93 Bond Guarantee Program – Issued and Guaranteed...... 94
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Section Five Supplemental Schedules (Unaudited) ...... 105 Schedule of Historical Earned Income PSF(SBOE) ...... 107 Schedule of Texas Permanent School Fund Elements ...... 108 Schedule of Administrative Expenses PSF(SBOE) ...... 110 Compliance Statement ...... 111 Copyright Notice ...... 112 Holdings – may be found at http://tea.texas.gov/Finance_and_Grants/Texas_ Permanent_School_Fund/Texas_Permanent_School_Fund_-_Holdings/
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SECTION ONE
INTRODUCTION
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MESSAGE FROM THE COMMISSIONER OF EDUCATION
December 18, 2020
Dear Governor Abbott, Lieutenant Governor Patrick, Speaker Bonnen, Members of the Texas Legislature, and Citizens of Texas,
It is a privilege to present the Comprehensive Annual Financial Report of the Texas Permanent School Fund (PSF or the Fund) for the fiscal year ending August 31, 2020. Since its initial inception in 1845, the Fund has evolved to provide support for public education in two very important ways: Funding to help pay for the cost of public education and as a financial backstop to the bond issues underwritten by individual school and charter districts. During the 2020 fiscal year, the Fund continued the tradition of maintaining and improving its financial strength and providing valuable financial resources to fund public education in the State of Texas in the face of recent market turmoil. The fund continues to hold its ranking as the largest educational endowment in the country.
This report is designed to provide an overview of the Fund’s financial statements, independently audited by the State Auditor’s Office, to the Fund owners, the citizens of Texas, and other interested parties. The Fund’s financial statements are audited as a best practice. As required for compliance with the U.S. Securities and Exchange Commission Rule 15c2-12, in the Fund’s administration of the Bond Guarantee Program, the Fund discloses these audited financial statements through the Municipal Securities Rulemaking Board as well as on the Texas Education Agency website.
MANAGEMENT RESPONSIBILITY This report consists of PSF management’s representations regarding the PSF’s financial position, results of operations, and program administration. The responsibility for the accuracy, completeness, and fair presentation of this information, including all disclosures, rests with the management of the Fund. To provide reasonable assurance in making these representations, management maintains a comprehensive internal control framework designed to protect PSF assets from loss, theft, or misuse, and to compile sufficient, reliable, and accurate information for the preparation of PSF financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the costs of internal controls should not outweigh related benefits, the PSF’s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.
FINANCIAL INFORMATION The basic financial statements have been prepared in accordance with GAAP applied on a consistent basis as stipulated by the Governmental Accounting Standards Board (GASB). The Management’s Discussion and Analysis (MD&A) includes a narrative introduction, overview, and analysis to accompany the basic financial statements. This letter, as well as the following transmittal letter, is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the independent auditor’s report.
I wish to thank the State Board of Education members for their efforts and continued diligence in fulfilling their fiduciary duty to protect the PSF for future generations of Texas students. The Texas Education Agency is honored and pleased to work with the State Board of Education on the investments and administration of the Fund. We will continue to work with the Board and the State’s leadership to assure the ongoing prudent management of the Fund, and to see that it is well positioned to continue the mission of financing Texas education for the years ahead.
Mike Morath Commissioner of Education
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MESSAGE FROM THE EXECUTIVE ADMINISTRATOR
December 18, 2020
I am honored to present the Comprehensive Annual Financial Report (CAFR) of the Texas Permanent School Fund (PSF) for the year ended August 31, 2020.
The 175-year-old Texas Permanent School Fund (PSF or the Fund) continued on its path of growth and financial strength in domestic and global markets in a challenging environment, and maintained the tradition and obligation of strong support for public education in Texas during fiscal year 2020.
INVESTMENTS
For the 12-month period ending August 31, 2020, the portion of the PSF managed by the State Board of Education (PSF[SBOE]) achieved a return of 7.50%, the Liquid Account (Liquid[SBOE]) achieved a return of 2.35%, and the portion of the PSF managed by the School Land Board (PSF[SLB]) achieved a total return for the year of -12.27% (-13.42% excluding cash). For the past five years, the time-weighted annual return has been 7.55% for the PSF(SBOE) and 2.49% for the PSF(SLB) externally managed investments (6.30% excluding cash). All returns noted above are net of fees.
At the end of fiscal 2020, the Fund balance was $46.7 billion, an increase of $0.2 billion from the prior year. This increase is primarily due to the overall net increase in value of the asset classes in which the Fund is invested. During the year, the SBOE continued implementing the long-term strategic asset allocation, diversifying the PSF(SBOE) to strengthen the Fund. The asset allocation is projected to increase returns over the long run while reducing risk and portfolio return volatility. The Fund is invested in global markets and experiences volatility commensurate with the underlying indices. The Fund is broadly diversified and benefits from the cost structure of its investment program. Changes continue to be researched, crafted, and implemented to make the cost structure more effective and efficient.
PROGRAMS
The Fund serves Texans in two ways. First, a distribution is made every year from the Fund to pay a portion of educational costs in each school district within the state. During the current fiscal year, the Fund distributed approximately $1.7 billion for education. Since 1960, the Fund has distributed about $31.2 billion to help fund the education of Texas students.
Second, the Fund provides a guarantee for bonds issued by participating local school districts. The PSF also guarantees bonds of qualified charter districts. Because of the PSF guarantee, qualified school and charter districts are able to pay lower interest rates when they issue debt since the debt carries an overlay of the PSF’s AAA rating provided by the three major rating agencies. At the end of the fiscal year, PSF assets guaranteed $87.8 billion in school district bonds providing cost savings to 852 public school districts in the State, and $2.5 billion in charter district bonds providing cost savings to 20 Texas charter districts.
COVID-19
The Coronavirus pandemic has created a serious public health crisis and has brought about widespread economic disruption. The Fund continues to closely monitor the potential effects of the COVID-19 pandemic to better manage and mitigate organizational risks it presents. The focus of the Fund remains on our commitment to prudently manage the investments to ensure that a portion of the cost of educating current and future generations of Texas school children is consistently met.
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MESSAGE FROM THE EXECUTIVE ADMINISTRATOR
AWARDS
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Texas Permanent School Fund for its CAFR for the fiscal year ended August 31, 2019. This was the sixth consecutive year that the Fund has achieved this prestigious award. To be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR which meets or exceeds program standards and must satisfy both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.
ACKNOWLEDGMENTS
My thanks and gratitude go to the members of the State Board of Education for its continued wise counsel and efforts to strengthen the Permanent School Fund. I also thank Commissioner of Education Mike Morath and Deputy Commissioner of Finance Mike Meyer for their ongoing support and encouragement. Finally, I want to thank the hard working and dedicated team of professionals within the PSF and other divisions at the Texas Education Agency. I am extremely proud that our organization has adapted to meet the needs of our stakeholders during this difficult and unprecedented time. Despite the related personal and professional disruption, our Fund staff members have exhibited a very high level of dedication and resilience. The Board and Agency staff are committed to provide prudent PSF portfolio management and ethical, transparent delivery of increased Fund value to the school children and citizens of Texas. It is a privilege to work with professionals such as these who embody such a high level of integrity and devotion to service of the Fund’s mission to improve the outlook for all Texans through education of its children.
B. Holland Timmins, CFA Executive Administrator and Chief Investment Officer Texas Permanent School Fund
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8 ADMINISTRATION
STATE BOARD OF EDUCATION COMMITTEES OF THE EXECUTIVE ADMINISTRATOR STATE BOARD OF EDUCATION AND CHIEF INVESTMENT KEVEN ELLIS OFFICER Chair, Lufkin, District 9 COMMITTEE ON INSTRUCTION HOLLAND TIMMINS, CFA MARTY ROWLEY SUE MELTON-MALONE, Chair Vice Chair, Amarillo, DEPUTY CHIEF INVESTMENT District 15 PAM LITTLE, Vice Chair OFFICER, DIRECTOR OF FIXED AICHA DAVIS GEORGINA C. PEREZ INCOME GEORGINA C. PEREZ Secretary, El Paso, District 1 MARTY ROWLEY CARLOS VEINTEMILLAS
LAWRENCE A. ALLEN, JR. DEPUTY EXECUTIVE Houston, District 4 COMMITTEE ON SCHOOL ADMINISTRATOR INITIATIVES
DONNA BAHORICH CATHERINE A. CIVILETTO, Houston, District 6 BARBARA CARGILL, Chair CPA BARBARA CARGILL MARISA B. PEREZ-DIAZ, Vice Conroe, District 8 Chair DIRECTOR OF EQUITIES RUBEN CORTEZ, JR. RUBEN CORTEZ, JR. KEVEN ELLIS KARIM HIRANI Brownsville, District 2 MATT ROBINSON DIRECTOR OF GLOBAL RISK AICHA DAVIS CONTROL STRATEGIES Dallas, District 13 COMMITTEE ON SCHOOL
CARLOS CASTRO PATRICIA HARDY FINANCE / PERMANENT
Ft. Worth, District 11 SCHOOL FUND DIRECTOR OF PRIVATE PAM LITTLE TOM MAYNARD, Chair MARKETS Fairview, District 12 LAWRENCE A. ALLEN, JR., JOHN GRUBENMAN, CFA TOM MAYNARD Vice Chair Florence, District 10 DONNA BAHORICH INVESTMENT COUNSEL PATRICIA HARDY SUE MELTON-MALONE NEPC, LLC Robinson, District 14 KEN MERCER CUSTODIAN AND SECURITIES KEN MERCER TEXAS EDUCATION AGENCY LENDING AGENT San Antonio, District 5
THE BANK OF NEW YORK MARISA B. PEREZ-DIAZ COMMISSIONER OF MELLON Converse, District 3 EDUCATION
MATT ROBINSON MIKE MORATH
Friendswood, District 7 (Executive Officer of the State Board of Education)
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ORGANIZATIONAL STRUCTURE
Texas Permanent School Fund Financial Assets Texas Permanent School Fund Land, Mineral (including Liquid Account Financial Assets) Rights, and Certain Real Assets Investments
Managed by the elected State Board of Managed by the School Land Board, which Education includes the Elected Commissioner of the General Land Office
Administered by the Texas Education Agency, Administered by the General Land Office, which is under the guidance of the under the guidance of the Commissioner of the Commissioner of Education, an appointee of General Land Office the Governor
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SECTION TWO
FINANCIAL STATEMENTS
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Independent Auditor’s Report Lisa R. Collier, CPA, CFE, CIDA, First Assistant State Auditor Members of the State Board of Education
Members of the School Land Board
Report on the Financial Statements
We have audited the accompanying financial statements of the Permanent School Fund
(Fund), as of and for the year ended August 31, 2020, and the related notes to the financial
statements, which collectively comprise the Fund’s basic financial statements as listed in the
table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
Robert E. Johnson Building significant accounting estimates made by management, as well as evaluating the overall 1501 N. Congress Avenue presentation of the financial statements. Austin, Texas 78701
P.O. Box 12067 Austin, Texas 78711-2067 We believe that the audit evidence we have obtained is sufficient and appropriate to provide
Phone: a basis for our audit opinion. (512) 936-9500 Fax: (512) 936-9400 SAO Report No. 21-312 Internet: www.sao.texas.gov
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Fund, a permanent fund of the State of Texas, as of August 31, 2020, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matters
Fund Financial Statements
As discussed in Note 1, the financial statements present only the Fund, a permanent fund of the State of Texas, and do not purport to, and do not, present fairly the financial position of the State of Texas as of August 31, 2020, or the changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Investments with Values that are not Readily Determined
The financial statements include investments valued at approximately $22.7 billion as of August 31, 2020, whose fair values have been estimated by management in the absence of readily determinable fair values. That total includes $16.8 billion as discussed in Note 2 and $5.9 billion discussed in Note 3 (including investments measured at net asset value and estimated mineral values.) Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Fund’s basic financial statements. The Introduction, Statistical Summary, Bond Guarantee Program, and Supplemental Schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements.
The Introduction, Statistical Summary, Bond Guarantee Program, and Supplemental Schedules have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we will issue a separate report on our consideration of the Fund’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Fund’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Fund’s internal control over financial reporting and compliance.
Lisa R. Collier Lisa R. Collier, CPA, CFE, CIDA First Assistant State Auditor
December 18, 2020
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MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
This Management’s Discussion and Analysis (MD&A) The amount outstanding increased 7.0% from the is required by the Governmental Accounting prior fiscal year-end. Standards Board Statement No. 34, Basic Financial Statements – and Management’s Discussion and Required Financial Statements Analysis – for State and Local Governments GASB 34 requires two financial statements for (GASB 34). The purpose of the MD&A is to provide an governmental funds: the balance sheet and the objective and easy to read analysis of the Texas statement of revenues, expenditures, and changes in Permanent School Fund (Fund) financial activities fund balance. These statements report financial based on currently known facts, decisions, and information regarding the Fund’s activities under U.S. conditions. Please read the MD&A in conjunction with Generally Accepted Accounting Principles (GAAP). the transmittal letters from the Commissioner of Education and the Executive Administrator, and the The notes to the financial statements contain Fund’s financial statements. supplemental information that is essential for the fair presentation of the financial statements. On September 1, 2019, the Permanent School Fund established the Liquid Account as authorized by the Balance Sheet Natural Resources Code, Chapter 51, section 51.414 The balance sheet reports the assets, liabilities, th as amended by the 86 Legislature. This statute deferred inflows, and fund balance of the Fund. directs the School Land Board to deposit cash not required for its immediate needs (or next 90 days) into Assets the Liquid Account, which is managed by the SBOE. The assets of the Fund are categorized as cash, The SBOE is required to invest these funds in liquid securities lending cash collateral, receivables, assets only and must send cash back to the School investments, and related assets. Cash and cash Land Board within five business days of a request. equivalents include investments that can be converted into cash within one year and are used primarily to The activity of the Fund directed by the State Board of settle the day-to-day security clearing activities/capital Education (SBOE) shall be referred to throughout as calls of the PSF(SBOE) and the Liquid(SBOE) assets the PSF(SBOE) and the Liquid(SBOE). The activity of and the funding of real assets investments by the the Fund managed by the School Land Board (SLB) PSF(SLB). The PSF(SBOE) engages in securities shall be referred to throughout as the PSF(SLB). The lending activity in order to earn incremental income. SLB manages designated land, mineral interests, and See Note 7 for details on securities lending. real assets investments of the Fund as detailed in the notes to the financial statements. All other Fund PSF(SBOE) and Liquid(SBOE) Investments assets are the management responsibility of the PSF(SBOE) and Liquid(SBOE) investments consist SBOE. The annual report of the Fund is divided into primarily of managed holdings, including public market five sections: the introduction, the financial statements equity, fixed income securities and alternative with accompanying notes preceded by this MD&A, investments, such as absolute return, real estate, statistical summaries and analyses, a summary of the private equity, risk parity, real return and emerging Bond Guarantee Program, and supplemental market equity and debt investments. Liquid(SBOE) schedules. investments consist primarily of fixed income securities. FINANCIAL HIGHLIGHTS
The total fund balance of the Fund increased $0.2 billion or 0.4% during fiscal year 2020.
The Fund, through the PSF(SBOE), provided $1.1
billion to the Available School Fund, derived by The remainder of this column using the total return based distribution method of intentionally left blank the Texas Constitution, Article 7, Section 5(a).
The Fund, through the PSF(SLB), provided $600 million to the Available School Fund, per the Texas Constitution, Article 7, Section 5(g). As of August 31, 2020, $90.3 billion in school and charter district bond issues were guaranteed by the Fund in support of public education in Texas.
17 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
Following are the methodologies used by the infrastructure, and real estate sectors of the real PSF(SBOE) and the Liquid(SBOE) to determine the assets investment universe. fair value of investments. Liabilities Assets Valuation Liabilities represent claims against the Fund as of Equity and fixed income Quoted market prices securities August 31, 2020. The payable for PSF(SBOE) Short-term securities (maturities Amortized cost (approximates fair value) securities lending cash collateral invested is the less than 1 year) Absolute return investments Net asset value (NAV) of fund-of-funds largest category of liabilities and represents the value provided by the investment advisor of the cash collateral provided by the borrowers in Risk parity investments NAV of the fund provided by general partner or investment advisor accordance with the securities lending agreement. Real estate Latest capital account balance or valuation This collateral is returned to the borrowers when the
data* securities are returned from loan. Private equity Latest capital account balance or valuation data* External Commodity NAV provided by the fund's general partner Deferred Inflows of Resources Emerging Market Debt NAV provided by the fund's investment Deferred inflows of resources consist primarily of advisor Emerging Market Equity NAV provided by the fund's investment dividend and interest receivable amounts for which advisor receipt is due more than 60 days subsequent to year- * Adjusted for contributions and withdrawals subsequent to latest valuation or reporting date end.
PSF(SLB) Investments Fund Balance PSF(SLB) investments in real assets represent real The fund balance of the Fund has been classified in property and ownership interests in externally accordance with Governmental Accounting Standards managed real assets investment funds, separate Board Statement No. 54, Fund Balance Reporting and accounts, and co-investment vehicles held for the Governmental Fund Type Definitions (GASB 54). As benefit of the Fund, and are carried at fair value. described more fully in notes 1.D. and 9. of the Sovereign lands and mineral interests are also financial statements, the entire fund balance is reported at fair value. classified as nonspendable except for that portion explicitly allowed to be expended by the Texas Unless determined otherwise, the PSF(SLB) deposits Constitution; that portion is classified as restricted. all proceeds of mineral leases and royalties generated The Texas Constitution allows the Fund to expend from existing and future leases of the Fund’s mineral funds appropriated by the legislature for operating interests into a special fund (Real Estate Special Fund costs, for transfers to the Available School Fund in Account, or RESFA) at the State Treasury. These support of public education, and for payment of proceeds can be used by the SLB to acquire guaranteed debt in the event of default. additional tracts of land; to acquire interests in real property for biological, commercial, geological, TABLE 1 cultural, or recreational purposes; to acquire mineral Summarized Balance Sheet Accounts and royalty interests; to acquire interests in real (in Millions)
estate; to pay for reasonable fees for professional Amount of services related to these investments; or to acquire, As of August 31, As of August 31, Increase Percent 2020 2019 (Decrease) Change sell, lease, trade, improve, maintain, protect, or use ASSETS land, mineral royalty interests, or real assets Investments $ 43,186.0 $ 41,669.0 $ 1,517.0 3.6% investments, an investment or interest in public Securities Lending Cash Collateral Invested 1,354.1 1,733.3 (379.2) -21.9% infrastructure, or other interests, all for the use and Cash, Receivables, benefit of the Fund. Note 3 of the notes to the financial and Other Assets 3,759.2 5,066.1 (1,306.9) -25.8% statements contains a summary of the historical cost TOTAL ASSETS $ 48,299.3 $ 48,468.4 $ (169.1) -0.3% LIABILITIES of the land owned by the Fund. As of August 31, Payables for Investments 2020, the estimated fair value of the land, real assets Purchased $ 63.1 $ 39.3 $ 23.8 60.6% investments and mineral rights (excluding cash) was Payables for Security Lending Cash approximately $6.6 billion and the historical cost was Collateral Invested 1,367.8 1,754.1 (386.3) -22.0% approximately $4.5 billion. PSF(SLB) real assets Other Liabilities 176.7 159.7 17.0 10.6% TOTAL LIABILITIES $ 1,607.6 $ 1,953.1 $ (345.5) -17.7% investments include commingled closed-end funds, DEFERRED INFLOWS commingled open-end funds, separate accounts, and OF RESOURCES $ 16.1 $ 14.9 $ 1.2 8.1% co-investment vehicles that invest in private-market TOTAL FUND BALANCE $ 46,675.6 $ 46,500.4 $ 175.2 0.4% real assets transactions across the energy,
18 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
Comparative Balance Sheet Highlights Comparative Revenue and Expenditure Highlights Total fund balance increased by 0.4% during the For fiscal year 2020, total revenues were $2.0 fiscal year, after transfers out to the Available billion, a decrease of $1.7 billion from fiscal year School Fund ($1.1 billion from the PSF(SBOE) 2019. This decrease is reflective of the performance and $0.6 billion from the PSF(SLB)). of the markets in which the Fund was invested in The change in the fair value of the PSF(SBOE), fiscal year 2020. Liquid(SBOE), and PSF(SLB) investments is Total operating expenditures, net of security lending consistent with the change in value of the markets rebates and fees, decreased 5.6% from $110.4 in which those investments were made. million for the fiscal year ending August 31, 2019, to Securities Lending Cash Collateral Invested $104.2 million for the fiscal year ending August 31, (Assets and Liabilities) decreased by 22.0%, due 2020, primarily due to a decrease in PSF(SLB) primarily to reduced short positions and related SEMP purchased gas for resale expenditure. borrowings in the market. Additionally, Federal Overall, the fund balance increased by $175 million Reserve rate cuts during the year have also for the fiscal year ending August 31, 2020. contributed to relatively relaxed loan demand. Expenditures are paid from the Fund before distributions Statement of Revenues, Expenditures, and are made under the total return formula. Such Changes in Fund Balance expenditures include the costs incurred by the PSF(SLB) The statement of revenues, expenditures, and changes to manage the land endowment and operational costs of in fund balance represents the activity from the the PSF(SBOE), including certain external appropriated PSF(SBOE) and Liquid(SBOE) investment portfolio, management fees. Total return takes into account the and the PSF(SLB) real assets investment portfolio that change in the fair value of the Fund during the year as occurred during the fiscal year. well as all net income generated by PSF(SBOE) investments. Management fees for alternative TABLE 2 investments are paid from the investment assets Summarized Revenue and Expenditure Accounts themselves. (in Millions)
Fiscal Year Fiscal year INVESTMENT MANAGEMENT Ended Ended Amount of August 31, August 31, Increase Percent 2020 2019 (Decrease) Change PSF(SBOE) and Liquid(SBOE) Asset Allocation REVENUES and Portfolio Land Endowment Income $ 794.5 $ 1,068.6 $ (274.1) -25.7% Dividends and Interest In July 2020, the SBOE updated the long term asset Income 1,015.8 1,057.2 (41.4) -3.9% Securities Lending allocation policy, which diversifies the PSF(SBOE) (net of rebates/fees) 6.9 5.2 1.7 32.7% Gain on Sale of assets into alternative asset classes whose returns are Sovereign Land 2.8 1.4 1.4 100.0% not highly correlated to traditional asset classes. Net Increase/(Decrease) in Fair Value of Investments 104.3 1,525.8 (1,421.5) -93.2% Management expects this allocation plan to provide Revenue from Sales of Purchased Gas 54.3 57.3 (3.0) -5.2% incremental total return at reduced risk. Management Settlement of Claims 0.5 0.3 0.2 66.7% anticipates that asset classes will be strategically added Other Income 2.0 1.9 0.1 5.3% TOTAL REVENUES 1,981.1 3,717.7 (1,736.6) -46.7% commensurate with the economic environment and the EXPENDITURES goals and objectives of the SBOE. Investments in PSF(SBOE) Operational Costs 32.4 29.0 3.4 11.7% absolute return were launched during fiscal year 2008 PSF(SLB) Operational Costs 21.9 24.9 (3.0) -12.0% and real estate and private equity launched during the SEMP Gas Supplies latter part of fiscal year 2010. Risk parity strategies and Purchased for Resale 49.9 56.5 (6.6) -11.7% TOTAL EXPENDITURES 104.2 110.4 (6.2) -5.6% real return investments in Treasury Inflation Protected
TOTAL NET TRANSFERS (1,701.7) (1,535.8) (165.9) 10.8% Securities (TIPS) were implemented in the later months
NET CHANGE IN of fiscal year 2011. Real return investments in FUND BALANCE 175.2 2,071.5 (1,896.3) -91.5% commodities were funded in fiscal year 2013 and BEGINNING FUND increased allocations were made to both real estate BALANCE 46,500.4 44,067.5 2,432.9 5.5% Restatements - 361.4 (361.4) -100.0% and private equity. The emerging market debt in local BEGINNING FUND BALANCE, AS RESTATED 46,500.4 44,428.9 2,071.5 4.7% currency asset class was added in 2014. The emerging international equity asset class funding was initiated in ENDING FUND BALANCE $ 46,675.6 $ 46,500.4 $ 175.2 0.4% the later months of fiscal year 2015. In 2018, an internally managed commodities portfolio was initiated. The U.S. Treasuries portfolio was added in 2020.
19 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
The table below provides an overview of the TABLE 4 management of each asset class. Strategic Asset Allocation – Liquid(SBOE) August 31, 2020 Asset Class Asset Management Equity Passive management ASSET CLASS 2020 Domestic equity Internal staff EQUITY International equity External manager Domestic Small/Mid Cap 5.0% Emerging market External manager Domestic Large Cap 20.0% equity Total Domestic Equity 25.0% Fixed income Core fixed income Active management by internal staff International Large Cap 15.0% U.S. Treasuries Active management by internal staff TOTAL PUBLIC MARKET EQUITY 40.0% Short Term Fixed Active management by internal staff FIXED INCOME Income Core Fixed Income 10.0% Emerging market External manager debt Treasury Inflation Protected Securities 5.0% Real Return TIPS Active management by internal staff Short Duration Fixed Income 25.0% Absolute return Held within single member limited liability companies, TOTAL FIXED INCOME 40.0% each with an external investment manager or operating partner Cash Risk parity Limited liability company or limited partnership with an TOTAL CASH 20.0% external manager TOTAL 100.0% Real estate Direct with general partners utilizing limited partnership agreements Actual allocations within the portfolios fluctuate as the Private equity Limited partnerships externally managed, internally managed, or jointly managed markets shift and portfolio rebalancing takes place as Commodities Limited partnerships utilizing external investment needed to adhere to the strategic allocation guidelines. managers, and internally managed Table 3 and Table 4 above indicate the strategic allocations of PSF(SBOE) and Liquid(SBOE), TABLE 3 respectively, reflected here at full implementation, Strategic Asset Allocation – PSF(SBOE) approved by the SBOE in July 2020 and in effect as of August 31, 2020 and 2019 August 31, 2020.
Increase The market value of the PSF(SBOE) and Liquid(SBOE) ASSET CLASS 2020 2019 (Decrease) is directly impacted by the performance of the various EQUITY financial markets in which the assets are invested. In Domestic Small/Mid Cap 6.0% 5.0% 1.0% addition, the PSF(SBOE) and Liquid(SBOE) Domestic Large Cap 14.0% 13.0% 1.0% Total Domestic Equity 20.0% 18.0% 2.0% investments are exposed to various risks, such as International Developed interest rate, market, and credit risks. The most and Emerging Large Cap 14.0% 14.0% 0.0% important factor affecting investment performance is the Emerging International Equities 3.0% 3.0% 0.0% Total International Equity 17.0% 17.0% 0.0% asset allocation decision made by the SBOE. TOTAL PUBLIC MARKET EQUITY 37.0% 35.0% 2.0% Investment return is presented net of fees (NOF).
FIXED INCOME The PSF(SBOE) investment in Domestic Large Cap Core Fixed Income 12.0% 12.0% 0.0% Equity and Domestic Small/Mid Cap Equity securities U.S. Treasuries 3.0% 0.0% 3.0% High Yield Bonds 3.0% 0.0% 3.0% experienced returns of 22.37% and 3.44%, respectively, Emerging Market Debt 7.0% 7.0% 0.0% during the fiscal year. The absolute return investments TOTAL FIXED INCOME 25.0% 19.0% 6.0% yielded a return of 4.43% and real estate and private equity investments returned 2.93% and 4.63%, ALTERNATIVE INVESTMENTS Absolute Return 7.0% 10.0% -3.0% respectively. The return on investment in fixed income Real Estate 11.0% 10.0% 1.0% return was 5.50% for the fiscal year. Risk parity and real Private Equity 15.0% 13.0% 2.0% return portfolios returned 2.41% and 3.33%, Emerging Manager Program 1.0% 0.0% 1.0% respectively. The emerging market debt investment Risk Parity 0.0% 7.0% -7.0% Real Return 4.0% 6.0% -2.0% returned 1.67% while the emerging market and TOTAL ALTERNATIVE INVESTMENTS 38.0% 46.0% -8.0% international equities portfolios returned 15.84% and 8.80%, respectively. Combined, all asset classes TOTAL 100.0% 100.0% 0.0% produced an investment return of 7.50% for the fiscal
year ended August 31, 2020, which is reflective of the market conditions in which the various asset classes operate. Actual performance fell short of the target
20 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) policy NOF benchmark of 8.54% by approximately 104 Table 6 summarizes the compositions of the basis points. Liquid(SBOE) investment portfolio. Comparative data is not available because fiscal year ended August 31, The Liquid(SBOE) investment in Short Term Fixed 2020 was the year of inception. Income realized a return of 2.78%, and the return on cash reserves was 1.62%. Combined, these asset TABLE 6 classes produced an investment return of 2.35%, Investment Schedule – which is reflective of the market conditions in which Liquid(SBOE) (in Millions) these asset classes operate. Actual performance August 31, 2020 exceeded the target policy NOF benchmark of 2.04% by approximately 31 basis points. August 31, Table 5 summarizes the changes in the composition ASSET CLASS 2020 FIXED INCOME of the PSF(SBOE) investment portfolio, including Short-Term Fixed Income $ 1,597.3 cash, receivables and payables during the fiscal year, TOTAL FIXED INCOME 1,597.3 but does not include real assets or cash under the management of the PSF(SLB). The total fair value of UNALLOCATED CASH 2,45 3.3 the PSF(SBOE) investments increased by $1.6 billion TOTAL Liquid(SBOE) (4.5%) from the previous fiscal year. Unallocated INVESTMENTS $ 4,05 0.6 Cash is on hand at fiscal year-end to cover both ASF payments and capital calls. At August 31, 2020, PSF(SLB) Portfolio PSF(SBOE) unfunded commitments to real estate The table below provides an overview of the real investments totaled $2.0 billion and unfunded assets investment portfolio managed by the commitments to the four private equity limited PSF(SLB). partnerships and direct investments in limited partnerships totaled $2.4 billion. Category Description Discretionary real Externally managed real estate, infrastructure, and TABLE 5 assets investments energy/minerals investment funds, separate accounts, Comparative Investment Schedule – and co-investment vehicles; internally managed direct real estate investments, and cash associated with PSF(SBOE) (in Millions) RESFA. August 31, 2020 and 2019 Sovereign and other Lands set aside for the Fund when it was created, and lands other various lands not considered discretionary real Amount of asset investments. August 31, August 31, Increase Percent ASSET CLASS 2020 2019 (Decrease) Change Mineral interests Minerals associated with Fund lands. EQUITY Domestic Small Cap $ 2,005.8 $ 1,645.8 $ 360.0 21.9% Domestic Large Cap 5,106.3 4,643.7 462.6 10.0% PSF(SLB) Discretionary Real Assets Investments – Total Domestic Equity 7,112.1 6, 289.5 822.6 13.1% External International Equity 6,380.9 5, 676.3 704.6 12.4% Approximately $832 million of capital commitments to TOTAL EQUITY 13,493.0 11,965.8 1, 527.2 12.8% externally managed real assets investment funds, FIXED INCOME separate accounts, and co-investment vehicles were Domestic Fixed Income 4,232.6 4, 575.2 ( 342.6) -7.5% funded during fiscal year 2020. At August 31, 2020, the U.S. Treasuries 918.7 - 918.7 N/A Emerging Market Debt 2,450.7 2, 410.4 40.3 1.7% fair value of the externally managed investments was TOTAL FIXED INCOME 7,602.0 6, 985.6 616.4 8.8% approximately $3.8 billion, and PSF(SLB) unfunded ALTERNATIVE INVESTMENTS commitments to real asset investments totaled Absolute Return 3,517.2 3, 622.6 ( 105.4) -2.9% approximately $2.7 billion. Real Estate 3,102 .1 2, 983.5 118.6 4.0% Private Equity 4,761.5 3, 872.8 888.7 22.9% Risk Parity 1,164.9 2, 557.6 (1,392.7) -54.5% PSF(SLB) Discretionary Real Estate Investments – Real Return 2,047 .4 2, 109.3 (61.9) -2.9% Internal TOTAL ALTERNATIVE INVESTMENTS 14,593.1 15, 145.8 ( 552.7) -3.6% At August 31, 2020, there were 14 internally managed
UNALLOCATED CASH 122.9 163.3 (40.4) -24.7% discretionary real estate investments with a fair value of approximately $223.4 million. TOTAL PSF(SBOE) INVESTMENTS $ 35,811.0 $ 34,260.5 $ 1,550.5 4.5%
21 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
PSF(SLB) Sovereign and Other Lands ASF Distribution At August 31, 2020, the sovereign lands portfolio, The Fund annually distributes a predetermined approximately 407,964 acres of primarily land-locked percentage of its asset value to the ASF. For fiscal tracts in West Texas, had a fair value of approximately year 2020, the PSF(SBOE) distribution to the ASF $269.6 million. In addition to the sovereign lands totaled $1.1 billion. The SBOE adopted new portfolio, the PSF(SLB) also manages approximately administrative rules in September 2009 based on 253,977 acres of other lands with a fair value of Attorney General Opinion GA-0707 issued on April 13, approximately $269.6 million. 2009. These rules state the SBOE will determine each year whether a distribution to the ASF is permitted PSF(SLB) Mineral Interests under the Texas Constitution, Article VII, §5(a)(2), and The PSF(SLB) also manages approximately 12.6 million shall be made for the current fiscal year. acres of various submerged, free royalty, mineral- reserved lands, and mineral interest with a risk-adjusted During fiscal year 2020, the PSF(SLB) also distributed fair value of approximately $2.1 billion. $600 million directly to the ASF.
TABLE 7 Bond Guarantee Program Comparative Investment Schedule – PSF(SLB) Through the Bond Guarantee Program (BGP), the August 31, 2020 and 2019 Fund is pledged to guarantee bonds issued by Texas (in Millions) school districts thus enhancing their credit rating. During fiscal year 2014, the SBOE authorized the As of As of Amount of BGP to guarantee qualified charter district bonds. August 31, August 31, Increase Percent Asset Class 2020 2019 (Decrease) Change Since the Program’s inception in 1983, the Fund has Discretionary Real Assets guaranteed 7,719 school district and 70 charter district Investments Externally Managed Real Assets Investment Funds* bond issues for a total of $199.4 billion and $2.7 Energy/Minerals $ 1,164.0 $ 1,667.6 $ (503.6) -30.2% billion, respectively. During the past fiscal year, the Infrastructure 1,485.4 1,226.3 259.1 21.1% Real Estate 1,174.8 1,033.6 141.2 13.7% number of all outstanding issues increased by 14. The Internally Managed Direct dollar amount of all issues outstanding increased by Real Estate Investments 219.5 247.3 (27.8) -11.2% Total Discretionary approximately $5.9 billion (7.0%). This program is Real Assets Investments 4,043.7 4,174.8 (131.1) -3.1% designed for school districts and charter districts with Domestic Equity Received as credit ratings lower than AAA. Bonds issued by In-Kind Distribution 0.9 1.3 (0.4) -30.8% participants and guaranteed under the BGP are rated Sovereign and Other Lands 408.6 372.3 36.3 9.8% AAA, thus allowing participants to borrow at a lower Mineral Interests 2,115.4 3,198.2 (1,082.8) -33.9% cost. Cash at State Treasury** 333.8 4,457.3 (4,123.5) -92.5% Total PSF(SLB) TABLE 8 Investments $ 6,902.4 $ 12,203.9 $ (5,301.5) -43.4% Comparative Summary of the Bond Guarantee Program *The fair values of externally managed real assets investment funds, separate (in Millions except for Number of Issues) accounts, and co-investment vehicles are estimated by management using the most recent valuations available, adjusted for subsequent contributions and Fiscal Year Fiscal Year withdrawals. **Cash at State Treasury represents amounts that have been deposited in the State Ending Ending Amount of Treasury and temporarily invested in short-term investments until called for August 31, August 31, Increase Percent investment by the external real assets investment funds, separate accounts, and 2020 2019 (Decrease) Change co-investment vehicles to which PSF(SLB) has made capital commitments. Prior to September 1, 2019, PSF(SLB) was required by statute to deposit cash designated Number of Issues 3,360 3,346 14 0.4% by the SLB for investment in real assets in the State Treasury until it is drawn for investment. Issues Guaranteed During the Fiscal Year $ 15,860.0 $ 9,799.1 $ 6,060.9 61.9% OTHER PROGRAMS Issues Refunded or Matured During the Fiscal Year $ 9,921.2 $ 4,482.1 $ 5,439.1 121.4% Support Provided to the Public School System Year End Balance $ 90,336.7 $ 84,397.9 $ 5,938.8 7.0% The Fund supports the State's public school system in Total Guarantee Capacity two major ways: Distributions to the Available School (Net of Reserves) $ 111,225.2 $ 111,289.4 $ (64.2) -0.1% Fund (ASF) and the guarantee of school district and charter district issued bonds through the Fund’s Bond Guarantee Program.
22 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)
The capacity of the overall Fund to guarantee bonds certain amount calculated on the date of the Notice, under the BGP is limited in two ways: by State law which totals $117,318,653,038. Additionally, state law (the “State Capacity Limit”) and by the Internal allows for and the SBOE has elected to reserve 5% of Revenue Service (IRS) Notice 2010-5 (Notice) capacity as determined above from use in received by the Texas Education Agency (TEA) on guaranteeing bonds. This reserve is held for purposes December 16, 2009, codified by Internal Revenue detailed in the Texas Administrative Code Title 19 Code 1.148-11(d)(1)(F) on July 18, 2016. The State Part 2 Chapter 33 Subchapter A Rule 33.65. Capacity Limit is currently 3.50 times the latest cost value of the Fund. Texas Education Code Section Charter district capacity is further defined as the lower 45.053(d) provides that the SBOE may, by rule, of the State Capacity Limit or the Internal Revenue increase the capacity of the Guarantee Program to an Service Limit, less the 5% reserve, as described amount not to exceed five times the cost value of the above, multiplied by the ratio of students enrolled in Fund, provided that the increased limit does not charter schools to total students enrolled in all Texas violate federal laws or regulations and does not public schools, as authorized by a five year statutory prevent bonds guaranteed by the BGP from receiving phase-in. This student ratio is to be determined the highest available credit rating, subject to other annually by the Commissioner. constraints. Internal Revenue Code 1.148-11(d)(1)(F) changed the Internal Revenue Service Limit to a sum
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24 TEXAS PERMANENT SCHOOL FUND BALANCE SHEET AUGUST 31, 2020
Assets Cash and Cash Equivalents Cash in Bank $ 56,704,265 Cash in State Treasury 3,209,443,136 Cash Equivalents 280,206,147 Securities Lending Cash Collateral Invested 1,354,075,618 Receivables Interest and Dividends Receivable 68,851,409 Investments Sold 14,146,588 Land Endowment Revenue 117,250,305 Land Sale Notes 74,656 Due from Broker for Margin Collateral 9,592,775 Due From Other Funds 2,976,613 Other 3,320 Prepaid Items 1,053 Investments and Related Assets Investments in Equity, Debt, and Alternative Assets 33,515,245,119 Investments in Real Assets, at fair value 9,670,770,015 Total Assets $ 48,299,341,019
Liabilities, Deferred Inflow Of Resources And Fund Balances Liabilities: Accounts Payable $ 8,217,209 Payroll Payable 2,622,149 Interest Payable 57,523 Payable for Investments Purchased 63,085,107 Unearned Revenue 162,222,899 Due To Other Funds 3,623,453 Payable for Securities Lending Cash Collateral Invested 1,367,807,882 Total Liabilities 1,607,636,222
Deferred Inflow Of Resources Interest and Dividends 16,123,441 Total Deferred Inflow Of Resources 16,123,441
Fund Financial Statement-Fund Balances Nonspendable 45,524,347,281 Restricted for Public School Support 1,151,234,075 Total Fund Balance 46,675,581,356 Total Liabilities, Deferred Inflow of Resources And Fund Balance $ 48,299,341,019
The accompanying notes are an integral part of these financial statements.
25 TEXAS PERMANENT SCHOOL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
Revenues Interest, Dividends and Other Investment Income $ 1,015,762,780 Settlement of Claims 474,631 Securities Lending 26,346,033 Gain on Sale of Sovereign Land 2,766,216 Net Increase/(Decrease) in Fair Value of Investments 104,285,815 Land Endowment Income 794,534,484 Revenue from Sales of Purchased Gas 54,346,652 Other 1,970,213 Total Revenues 2,000,486,824
Expenditures Salaries and Wages 30,778,726 Payroll Related Costs 8,387,475 Professional Fees and Services 10,925,145 Travel 146,375 Materials and Supplies 1,312,665 Communication and Utilities 4,694,795 Gas Supplies Purchased for Resale 49,861,581 Repairs and Maintenance 992,583 Rentals and Leases 1,240,408 Printing and Reproduction 10,548 Securities Lending Rebates and Fees 19,469,369 Other Expenditures (4,273,371) Capital Outlay 53,661 Total Expenditures 123,599,960
Excess of Revenues Over Expenditures 1,876,886,864
Other Financing Sources/(Uses) Transfers Out to Other Funds (1,701,689,657) Sale of Capital Assets 59
Total Other Financing Sources/(Uses) (1,701,689,598)
Net Change in Fund Balance 175,197,266
Fund Financial Statement-Fund Balance Fund Balance-September 1, 2019 46,500,384,090
Fund Balance-August 31, 2020 $ 46,675,581,356
The accompanying notes are an integral part of these financial statements
26 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING referred to within these notes as the PSF(SBOE) and POLICIES the Liquid(SBOE) assets.
A. The Reporting Entity Texas law assigns control of the Fund’s land, mineral The Texas Permanent School Fund (the Fund) was rights, and certain real assets investments to the five- first conceived and implemented in 1845 when Texas member School Land Board (SLB), which includes the joined the United States. Its first significant funding elected Commissioner of the General Land Office came from a $2,000,000 appropriation by the (GLO), and four appointees of the Governor. Legislature of 1854 expressly for the benefit of funding Administrative duties related to the land and mineral public education for present and future generations. rights reside with the GLO, which is under the The Constitution of 1876 stipulated that certain lands guidance of the Commissioner of the GLO. SLB land and all proceeds from the sale of these lands should and real assets investment operations are included in also constitute the Fund. Additional Acts later gave the GLO’s annual financial report for inclusion in the more public domain land and rights to the Fund. In State’s CAFR. The portion of the Fund managed by 1953, the U.S. Congress passed the Submerged the SLB shall be referred to within these notes as the Lands Acts that relinquished to coastal States all PSF(SLB) assets. rights of the U.S. navigable waters within State boundaries. If the State, by law, had set a boundary The 79th Legislature authorized the SLB to manage larger than three miles prior to or at the time of and operate the State Energy Marketing Program admission to the U.S., or if the boundary had been (SEMP) with land sale, lease, and royalty receipts of approved by Congress, then the larger boundary the Fund. This legislation allowed for certain portions applied. Concluding three years of litigation, the U. S. of SEMP accounting to be consolidated into the Fund Supreme Court on May 31, 1960, affirmed Texas’ from a special revenue fund. historic three league (10.35 miles) seaward boundary. Texas proved its submerged lands property rights to The Natural Resources Code, Chapter 51, section three leagues into the Gulf of Mexico by citing historic 51.414 was amended by the 86th Legislature to laws and treaties dating back to 1836. All lands lying authorize establishment of the Permanent School within that limit belong to the Fund. The Fund Fund Liquid Account (the Liquid(SBOE)) on currently owns approximately 13 million total acres. September 1, 2019. This statute directs the School Land Board to deposit cash not required for its The State of Texas (State) Constitution describes the immediate needs (or next 90 days) into the Fund as "permanent" with proceeds produced by the Liquid(SBOE) which is managed by the SBOE. The Fund to be used to complement taxes in financing SBOE is required to invest these funds in liquid assets public education. Under an obligation to maintain trust only and must send cash back to the School Land principal, the Fund’s assets are held in a trustee Board within five business days of a request. capacity for the benefit of public free schools. The annual distribution provided by the Fund is calculated B. Basis of Presentation and Basis of Accounting using a total return methodology as well as other The accompanying financial statements of the Fund provisions in accordance with the Texas Constitution. were prepared to conform to U.S. Generally Accepted Accounting Principles (GAAP) as established by the The Fund’s financial assets are managed by the State Governmental Accounting Standards Board (GASB). Board of Education (SBOE). The SBOE is comprised of fifteen elected members. Administrative duties The Fund is classified as a governmental permanent related to these assets reside with the Fund’s fund. Governmental funds are reported using the Investment Office, a division of the Texas Education current financial resources measurement focus and Agency (TEA), which is under the guidance of the the modified accrual basis of accounting. The Commissioner of Education, an appointee of the Management’s Discussion and Analysis is required as Governor. Investment Office operations are included supplementary information preceding the financial in the TEA’s financial report for inclusion in the State’s statements. Comprehensive Annual Financial Report (CAFR). The Fund’s financial statements are reported as a Measurement focus refers to the definition of the governmental permanent fund in the State’s CAFR. resource flows measured and has to do with the types The portion of the Fund directed by the SBOE shall be of transactions or events reported in the statement of revenues, expenditures, and changes in fund balance. 27 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Basis of accounting refers to the timing of the State Treasury are available upon demand and are recognition of transactions or events. Under the therefore presented as cash. Cash equivalents on the modified accrual basis of accounting, amounts are balance sheet represent cash balances that are recognized as revenues in the period in which they invested in the money market fund managed by the are available to finance expenditures of the current PSF(SBOE) custodian, The Bank of New York Mellon period and are measurable. The Fund considers Corporation (Custodian). Cash held in the money revenues available if they are collected within 60 days market fund is primarily utilized to settle investment of the end of the current period. Accruals whose obligations. Cash and cash equivalents are an integral receipt is due after the 60 day period are classified as part of investment management of the Fund. deferred inflows of resources. Amounts are PSF(SLB) cash and cash equivalents include cash on considered measurable if they can be estimated or hand, cash in local banks, and cash and cash otherwise determined. Expenditures are recognized in equivalents in the State Treasury. the period in which the related fund liability is incurred, if measurable. Receivables The PSF(SBOE) and the Liquid(SBOE) report Preparation of financial statements in conformity with receivables based on revenues earned but not accounting principles generally accepted in the United collected during the fiscal year. States of America requires management to make estimates and assumptions that affect the reported The PSF(SLB) reports receivables based on revenues amounts of assets, liabilities, and disclosure of earned but not collected during the fiscal year. The contingent liabilities at the date of the financial voluntary oil and gas royalty receivables are statements and the reported amounts of income and calculated from production reports or remittance expenditures during the reporting period. Externally advices; the payments and reporting of these royalties managed emerging market debt and emerging market are not legally due until the second month after equity, as well as alternative investments, including production occurs. The receivables for voluntary oil absolute return fund of funds, risk parity strategies, and gas royalties are established based on the commodities (real return investments), private equity information received in the remittance advices from and real estate, are valued by the PSF(SBOE) at fair fiscal year-end through October 2020 for the values as determined by management. The real production months August 2020 and earlier. assets investments are valued by the PSF(SLB) at net asset value (NAV) per share. PSF(SBOE) and the Liquid(SBOE) Investments Investment transactions are recorded on a trade date The GLO and TEA organizations each adopt an basis. Investments are reported at fair value in agency-wide budget for legislative approval. Each of accordance with GASB Statement No. 31, Accounting these agencies’ budgets encompasses operations of and Financial Reporting for Certain Investments and the Fund overseen by their respective Boards. for External Investment Pools and GASB Statement However, there is no legally adopted budget No. 72, Fair Value Measurement and Application specifically for the Fund as a whole. These agency (GASB 72), as applicable. Investments, such as budgets are prepared biennially and represent equities and fixed income securities with readily appropriations authorized by the Legislature and determinable fair values, are valued on the basis of approved by the Governor of Texas (the General market valuations provided by the Custodian. Short- Appropriations Act). term securities, which have maturities less than one year at the time of purchase, are valued at amortized C. Assets, Income, Expenditures, and Transfers cost, which approximates fair value. Cash and Cash Equivalents Cash and cash equivalents consist of money market Fair values of absolute return fund of funds are based instruments, cash held at the State Treasury, cash on the net asset value (NAV) provided to held in a FDIC insured bank account, foreign management by the investment advisors of the funds. currencies and other overnight funds. The PSF(SBOE) and the Liquid(SBOE) cash in bank Fair values of risk parity strategies are based on the balance represents the U.S. dollar equivalent of NAV provided to management by the general partner amounts held in foreign currencies for which trade or the investment advisor, as applicable for each settlement is pending and dividend payment is investment structure. awaiting repatriation. The Fund's deposits with the 28 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Fair values of real estate investments are estimated PSF(SLB) Land Endowment and Other Real by management using the latest valuation provided by Property Investments the general partners, adjusted for contributions and The land endowment is maintained on the Fund’s withdrawals subsequent to the latest available behalf by the SLB, administered by the GLO and is valuation reporting date. generally held to produce income. Public domain appropriated to the Fund, including surface acres, Fair values of private equity investment funds are submerged and offshore lands, and mineral rights, is estimated by management using the investment’s reported at fair value. In accordance with GASB 72, capital account balance at the latest available real estate and minerals held as investments are reporting date, as communicated by the investment reported at fair value. manager or general partner, adjusted for contributions and withdrawals subsequent to the latest available Fair values of the externally managed PSF(SLB) real reporting date. assets investments portfolio are estimated by management using the latest valuations provided by Fair values of externally managed commodity the investment managers, adjusted for contributions investment funds, which are a component of the real and withdrawals subsequent to the latest available return portfolio, are based on the NAV provided to valuation reporting date. management by the general partners of the funds. The fair valuation process of PSF(SLB)’s land surface Fair values of emerging market debt investments are value is based on using a combination of level 2 and based on the NAV provided to management by the level 3 inputs. These inputs consist of market data investment advisor for each investment structure. from a variety of sources and surveys tempered with known transactions in the subject’s competing Fair values of emerging market equity investments are marketplace. Values are based on estimated based on the NAV provided to management by the appraised values or are independently determined by investment advisor for the investment structure. the staff in Appraisal Services using a combination of actual sales and data from studies conducted by the PSF(SBOE) investments are registered in the name of Texas Chapter of the American Society of Farm the Fund or are registered in the nominee name of the Managers and Rural Appraisers, Multiple Listing Custodian of the Fund, and are held in the name of Services throughout the state and CoStar commercial the Fund by the Custodian. Certain physical securities sales data in certain metropolitan areas. Since the are held in the name of the Fund. The absolute return majority of PSF(SLB) lands are vacant, the market investments are held within single member limited approach to value is utilized and applied to the liability companies, each with an external manager. aggregate of properties located in a specific land class The Fund’s ownership interests in the risk parity and region throughout the state. Except for cases strategies are through a limited liability company and where the asset has income production over and a limited partnership, each with an external above the amount to offset holding costs, both the investment manager. Externally managed market and income approaches to value are utilized. commodities are managed in limited partnerships, each with an investment manager. Private equity Because of the inherent uncertainty of valuations, the investments are managed in limited partnerships, value of alternative investments estimated by each with an external investment manager. Real management may differ significantly from the value estate investments are executed directly with general that would have been used had a liquid market for partners utilizing limited partnership agreements. these investments existed and such differences can Emerging market debt investments are executed by be material to the financial statements. Actual results investment advisors under investment management can differ from the estimates. agreements. Emerging market equity investments are held in fund-of-one structures with executed The 77th Legislature amended the Natural Resources investment management agreements with managers. Code (NRC) effective September 1, 2001, to allow the GLO to deposit some or all the proceeds of future mineral leases and royalties generated from existing The remainder of this column and future active leases of the Fund’s mineral interest intentionally left blank. into a special account, now called the Real Estate Special Fund Account (RESFA), to be used to acquire 29 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS additional real assets investments. The 79th PSF(SBOE) appropriated expenditures to administer Legislature further amended the NRC in 2005 to fund assets totaled $32,414,414, which includes clarify the purposes on which the funds can be used, $540,000 paid directly to an external international including adding three additional purposes. For the equity investment manager. PSF(SBOE) appropriated use and benefit of the Fund, the proceeds in the expenditures do not include investment fees incurred RESFA are to be used by the SLB to add to a tract of and charged by general partners or investment public school land, add contiguous land to public managers in externally managed investment school land, acquire, as public school land, interests portfolios. Fees for these portfolios are netted against in real property for biological, commercial, geological, returns for the investments and are reported as part of cultural, or recreational purposes; to acquire mineral the net asset value on the balance sheet. and royalty interests; to protect, maintain, or enhance the value of public school lands; to acquire interests in Under the direction of the GLO, $21,854,596 was real estate; and to pay reasonable fees for spent to manage the PSF(SLB) assets. Additionally, professional services related to Fund investments. SEMP expenditures of $49,861,581, also under the direction of the GLO, include the purchase of gas The 80th Legislature passed HB 3699 which further supplies in the open market and are reflected in the expanded the SLB’s authority to use revenues total expenditures for 2020. See Note 5 for details on generated by lands dedicated to the Fund for deposit SEMP. into the RESFA to acquire, sell, lease, trade, improve, maintain, protect, or use land, mineral and royalty A referendum was held in the State on November 8, interests or interest in public infrastructure, or other 2011 and voters of the State approved non- interests. The RESFA is to be used to make prudent substantive changes to the Texas Constitution to investments in real assets on behalf of the Fund. clarify references to the Fund, and approved an amendment which included an increase to the base Income, Expenditures, and Transfers used to calculate the Fund’s distribution rate by Investment income/loss derived from the PSF(SBOE) adding to the calculation base certain discretionary and the Liquid(SBOE) investment assets consists of real assets and cash in the Fund that is managed by the net increase/(decrease) in the fair value of the entities other than the SBOE (i.e., the SLB). investments and securities lending cash collateral, securities lending revenue, and interest and Article VII, Section 5 of the Texas Constitution dividends. All major revenue sources mentioned in the stipulates two constraints that affect the amount to be paragraphs below are susceptible to accrual. distributed to the Available School Fund (ASF). First, the SBOE is prevented from approving a distribution Land endowment income, derived from the real assets rate or making transfers to the ASF that exceed 6% of administered by the GLO, consists principally of the average of the market value of the Fund, mineral royalties, bonus and delay rental payments, excluding real property, on the last day of each of the commercial lease payments, operating lease sixteen State fiscal quarters preceding the Regular payments, and investment gain/loss. Investment Session of the Legislature that begins before that income/loss derived from the PSF(SLB) investment State fiscal biennium. Second, the total distributions to assets consists of the net increase/(decrease) in the the ASF over the 10-year period as defined in fair value of real assets investments, income, and subsection 5(a)(2) may not exceed the total return on dividends. all investment assets of the PSF(SBOE) over the same 10-year period. Royalty income is recognized upon oil and gas production and the various types of lease income are On November 5, 2019, the voters of the State of recognized during the applicable lease period. SEMP Texas approved a constitutional amendment allowing revenues are generated from the sale of natural gas increased distributions to the ASF. Section 5(g), supplies and enhancements from the sale of Article VII, Texas Constitution was amended to allow generated electricity to school districts and other the SLB to distribute to the ASF an amount not to governmental entities. exceed $600 million per year from PSF(SLB) assets resulting from current year revenue, representing an Operating and investment management expenditures, increase from the prior limit of $300 million. less securities lending rebates and fees incurred by PSF(SBOE) and PSF(SLB) are as follows: 30 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The SBOE set the rate for the 2020-2021 biennium at A. Investment Policies 2.9% based on a commitment of the SLB to transfer The Texas Constitution and applicable statutes $55 million to the PSF(SBOE) during the biennium. delegate to the SBOE the authority and responsibility The SLB transferred $10 million to the PSF(SBOE) for investment of the Fund’s assets excluding during the year ended August 31, 2020. Interfund investment of the land endowment, which is transfers from the PSF(SBOE) to the ASF totaled $1.1 the responsibility of the SLB. In making these billion during the fiscal year and transfers from the investments, the SBOE is charged with exercising the PSF(SLB) to the ASF totaled $600 million. judgment and care under the circumstances then prevailing which persons of ordinary prudence, D. Fund Balance Classification discretion, and intelligence exercise in the GASB Statement No. 54, Fund Balance Reporting management of their own affairs not in regard to and Governmental Fund Type Definitions (GASB 54) speculation, but in regard to the permanent disposition requires that governmental fund balances be of their funds, considering the probable income there classified in the financial statements as from as well as the probable safety of their capital. nonspendable, restricted, committed, assigned and The Fund is authorized to purchase, sell, and invest unassigned. In accordance with GASB 54, fund its funds and funds under its control in accordance balance is classified as nonspendable and restricted with the Texas Administrative Code. The deposit based on provisions in the Texas Constitution which policy of the Fund states that all residual cash must be limit the use of the Fund to the support of public free invested on a daily basis. Permissible investments schools. subject to Constitutional and SBOE imposed restrictions include the following: The Texas Constitution, Article 7 describes the fund as “permanent,” specifically describes how the Fund Equities listed on well recognized principal U.S. or may be spent, and also explicitly restricts the foreign exchanges, including common or preferred legislature from appropriating any part of the Fund to stocks; equity futures; corporate bonds, any other purpose. The Texas Constitution allows the debentures, and convertible preferred corporate Fund to be spent on 1) transfers to the Available stocks that may be converted into equities; and School Fund in accordance with Constitutional investment trusts. requirements, 2) expenses of managing the PSF land Fixed income securities, including U.S. or foreign and investments as appropriated by the Legislature, treasury or government agency obligations, U.S. and 3) guaranteed bond payments in the event of or foreign corporate bonds, asset or mortgage default. Accordingly, that portion of the fund balance is backed securities, taxable municipal obligations, classified as restricted based on Constitutional Canadian bonds, Yankee bonds, supranational provisions that limit the use of the Fund to these bonds denominated in U.S. dollars, 144A purposes. The remainder of the fund balance is securities, and interest rate futures. Fixed income classified as nonspendable, in alignment with the securities, upon purchase, must be rated at least Fund’s permanent nature as described in the BBB by Standard and Poor’s (S&P), Baa3 by Constitution. Moody’s Investors Service (Moody’s) and BBB by Fitch. Fixed income securities may not be 2. DEPOSITS AND INVESTMENTS purchased unless there is a stated par value amount due at maturity. Deposits and investments of the Fund are exposed to Real estate, including investments in real risks that have the potential to result in losses. GASB properties, such as apartments, office buildings, Statement No. 40, Deposit and Investment Risk retail centers, infrastructure, timberlands and Disclosures-An Amendment to GASB Statement No. 3 industrial parks. It also includes investments in establishes and modifies disclosure requirements real estate related securities and real estate related to deposit and investment risks. Deposit risks related debt. include custodial credit and foreign currency risk. Private equity, including venture capital, buy-out Investment risks include credit risk (custodial credit investing, mezzanine financing, distressed debt risk and concentrations of credit risk), interest rate and special situation strategies. risk, and foreign currency risk. This statement applies Absolute return investments which are a to all state and local governments. diversified bundle of primarily marketable
31 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
investment strategies that seek positive returns, Investments other than PSF(SLB) managed land regardless of market direction. endowment and other real property at fair value as of Real return investments which target a return that August 31, 2020, are as follows: exceeds the rate of inflation, measured by the Consumer Price Index (CPI). PSF(SBOE) Investments Fair Value Commodities, including investments in exchange Domestic Equity $ 7,072,113,803 traded futures, and U.S. Government and U.S. International Equity 5,274,178,249 Government agency securities as collateral. International Equity - Emerging Markets 1,062,553,623 Short-term securities held as collateral must be Cash Equivalents - Short-term rated at least A-1 by S&P or P-1 by Moody’s. Investment Facility 149,422,655 Long-term securities held as collateral must be Asset Backed Securities 40,152,084 rated at least A- by S&P or A3 by Moody’s. Collateralized Loan Obligations 309,809,669 Commercial Mortgage Short-term U.S. Government or U.S. Government Backed Securities 23,996,413 agency securities, money market funds, corporate Corporate Obligations 1,207,112,999 discounted instruments, corporate-issued Non-Agency Mortgage commercial paper, U.S. or foreign bank time Backed Securities 115,414,070 deposits, bankers acceptances, and fully Non-U.S. Government Agency collateralized repurchase agreements. Short term Obligations 119,894,380 money market instruments must be rated at least Non-U.S. Government Sovereign Debt A-1 by S&P or P-1 by Moody’s. Obligations 68,261,760 Risk parity strategies. U.S. Government Agency Commercial Mortgage Backed Securities Any new form of investment or non-publicly traded 13,126,656 U.S. Government Agency Mortgage investment approved by the SBOE based on risk Backed Securities 532,234,976 and return characteristics consistent with Fund’s U.S. Government Agency Obligations 66,953,990 goals and objectives. U.S. Taxable Municipal Bonds 65,555,685 Currency hedging strategies, as approved by the U.S. Treasury Securities 2,458,317,461 SBOE, for the international portfolio. U.S. Treasury TIPS 1,078,252,025 Emerging Market Debt 2,450,697,620 B. Investment Value Measurement (PSF(SBOE) Real Estate Investments 3,102,087,880 and Liquid(SBOE)) Risk Parity Strategies 1,164,883,199 Security transactions are recorded on a trade date Real Return Commodities 736,279,047 basis. Public market investments, except those held Absolute Return Investments 3,517,240,318 within the alternative investments, are registered in Private Equity Investments 4,761,465,378 the nominee name of The Bank of New York Mellon, Total PSF(SBOE) Investments $ 35,390,003,940 the Custodian of the Permanent School Fund, at the Depository Trust Company. At the Custodian, the Liquid(SBOE) Investments Fair Value Cash Equivalents - Short-term securities are held in the name of the Permanent Investment Facility $ 130,783,492 School Fund. Certain physical securities are held in Asset Backed Securities 129,311,949 the name of the Fund. Alternative investments are Commercial Mortgage Backed Securities 6,677,030 held within LLCs (limited liability companies) or LPs Corporate Obligations 359,352,311 (limited partnerships) in the name of the Texas Non Agency Mortgage Backed Securities 38,672,672 Education Agency. Non-U.S. Government Agency Obligations 47,974,649 U.S. Government Agency Mortgage Backed Securities 119,003,890 U.S. Government Agency Obligations 10,000,009 U.S. Taxable Municipal Bonds 12,975,611 U.S. Treasury Securities 652,783,593 The remainder of this column Total Liquid(SBOE) Investments $ 1,507,535,206 intentionally left blank. The Fund’s PSF(SBOE) and Liquid(SBOE) managed assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with GASB 72.
32 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
GASB 72 defines “fair value” as the price that would entirety requires judgment and consideration of be received to sell an asset, or paid to transfer factors specific to the investment. a liability, in an orderly transaction between market participants at the measurement date. Where In accordance with GASB 72, valuation techniques available, fair value is based on observable market used for assets and liabilities accounted for at fair prices or parameters or derived from such prices or value are generally categorized into three types: parameters. The availability of valuation techniques and observable inputs can vary from security to Market approach valuation techniques use prices security and is affected by a wide variety of factors and other relevant information from market including the type of security, whether the security is transactions involving identical or comparable new and not yet established in the marketplace, and assets or liabilities. Valuation techniques other characteristics particular to the transaction. consistent with the market approach include comparables and matrix pricing. Comparables use GASB 72 establishes a fair value hierarchy that market multiples, which might lie in ranges prioritizes the inputs to valuation techniques used to with a different multiple for each comparable. measure fair value. The hierarchy gives the highest The selection of where within the range the priority to unadjusted quoted prices in active markets appropriate multiple falls requires judgment, for identical assets or liabilities (Level 1 inputs) and considering both quantitative and qualitative the lowest priority to unobservable inputs (Level 3 factors specific to the measurement. Matrix pricing inputs). The three levels of the fair value hierarchy is a mathematical technique used principally to under GASB 72 are described below: value certain securities without relying exclusively on quoted prices for the specific securities, but Level 1 inputs – Unadjusted, quoted prices in comparing the securities to benchmark or active markets that are accessible at the comparable securities. measurement date for identical, unrestricted Income approach valuation techniques convert assets or liabilities. An active market is defined as future amounts, such as cash flows or earnings, to a market where transactions for the financial a single present amount, or a discounted instrument occur with sufficient frequency and amount. These techniques rely on current market volume to provide pricing information on an expectations of future amounts. Examples of ongoing basis. income approach valuation techniques include Level 2 inputs – Inputs, other than quoted prices present value techniques; option-pricing models, in active markets that are either directly or binomial or lattice models that incorporate present indirectly observable for the asset or liability value techniques; and the multi-period excess through correlation with market data at the earnings method. measurement date and for the duration of the Cost approach valuation techniques are based instrument’s anticipated life. upon the amount that, at present, would be Level 3 Inputs – Prices or valuations that require required to replace the service capacity of an inputs that are both significant to the fair asset, or the current replacement cost. That is, measurement and unobservable. Valuation under from the perspective of a market participant Level 3 generally involves a significant degree of (seller), the price that would be received for the judgment from management. Due to the inherent asset is determined based on the cost to market uncertainty of these estimates, these values may participant (buyer) to acquire or construct a differ materially from the values that would have substitute asset of comparable utility. been used had a ready market for the investments existed.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. The remainder of this column In such cases, an investment’s level within the fair intentionally left blank. value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its
33 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The three approaches described above are consistent valued, and significant expertise and judgment is with generally accepted valuation methodologies. required. For assets accounted for at fair value, the While all three approaches are not applicable to all valuation selected is generally the market or income assets or liabilities accounted for at fair value, approach. where appropriate and possible, one or more valuation techniques may be used. The selection of For the year ended August 31, 2020, the application the valuation method to apply considers the definition of valuation techniques applied to similar assets and of an exit price and the nature of the asset being liabilities has been consistent.
The following table presents information about the PSF(SBOE) and Liquid(SBOE) assets measured at fair value as of August 31, 2020.
PSF(SBOE) Level 1 Level 2 Level 3 Total Domestic Equity Portfolios Advertising, Media, & Publishing $ 138,154,104 $ - $ - $ 138,154,104 Aerospace & Defense 93,812,386 - - 93,812,386 Agriculture & Environment 75,120,813 - - 75,120,813 Banking & Finance 584,002,518 - - 584,002,518 Biotechnology & Chemistry 254,758,713 - - 254,758,713 Business Services 201,107,744 - - 201,107,744 Capital Goods & Vehicles 2,673,134 - - 2,673,134 Construction & Machinery 248,188,232 - - 248,188,232 Consumer Goods 635,786,885 - - 635,786,885 Energy & Utilities 433,495,041 - - 433,495,041 Food & Beverage 203,710,055 - - 203,710,055 Health & Pharmaceutical 785,292,066 - - 785,292,066 Industrial Commodities 53,388,737 - - 53,388,737 Industrial Manufacturing 172,961,766 - - 172,961,766 Information Technology & Electronics 2,190,481,937 - - 2,190,481,937 Insurance 252,904,541 - - 252,904,541 Investment Management 33,485,057 - - 33,485,057 Packaging 21,376,767 - - 21,376,767 Real Estate 319,825,816 - - 319,825,816 Telecommunications 163,465,584 - - 163,465,584 Travel & Entertainment 208,121,907 - - 208,121,907 Subtotal - Domestic Equity $ 7,072,113,803 $ - $ - $ 7,072,113,803
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34 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
PSF(SBOE) - Continued Level 1 Level 2 Level 3 Total International Equity Portfolio Advertising, Media, & Publishing $ 46,500,171 $ - $ - $ 46,500,171 Aerospace & Defense 37,253,732 - - 37,253,732 Agriculture & Environment 16,387,367 - - 16,387,367 Banking & Finance 640,847,372 - - 640,847,372 Biotechnology & Chemistry 183,357,033 - - 183,357,033 Capital Goods & Vehicles 3,266,480 - - 3,266,480 Commercial Services 97,281,839 - - 97,281,839 Communications 204,106,500 - - 204,106,500 Construction & Machinery 308,328,380 - - 308,328,380 Consumer Goods 445,342,288 - - 445,342,288 Energy & Utilities 508,134,643 - - 508,134,643 Food & Beverage 340,094,111 - - 340,094,111 Health & Pharmaceutical 474,486,761 - - 474,486,761 Industrial Commodities 148,981,119 - - 148,981,119 Industrial Manufacturing 223,457,886 - - 223,457,886 Information Technology & Electronics 906,341,720 - - 906,341,720 Insurance 230,744,660 - - 230,744,660 Investment Management 188,086,533 - - 188,086,533 Packaging 1,353,948 - - 1,353,948 Real Estate 103,876,520 - - 103,876,520 Travel & Entertainment 165,949,186 - - 165,949,186 Subtotal - International Equity $ 5,274,178,249 $ - $ - $ 5,274,178,249
Level 1 Level 2 Level 3 Total Fixed Income Portfolio Asset Backed Securities $ - $ 40,152,084 $ - $ 40,152,084 Collateralized Loan Obligations - 309,809,669 - 309,809,669 Commercial Mortgage Backed Securities - 23,996,413 - 23,996,413 U.S. Government Agency Commercial Mortgage Backed Securities - 13,126,656 - 13,126,656 Corporate Obligations - 1,207,112,999 - 1,207,112,999 Non-Agency Mortgage Backed Securities - 115,414,070 - 115,414,070 Non-U.S. Government Agency Obligations - 119,894,380 - 119,894,380 Non-U.S. Government Sovereign Debt Obligations - 68,261,760 - 68,261,760 U.S. Government Agency Obligations - 66,953,990 - 66,953,990 U.S. Government Agency Mortgage Backed Securities - 532,234,976 - 532,234,976 U.S. Taxable Municipal Obligations - 65,555,685 - 65,555,685 U.S. Treasury TIPS 17,364,720 - - 17,364,720 U.S. Treasury Securities 1,544,139,727 - - 1,544,139,727 Subtotal - Fixed Income $ 1,561,504,447 $ 2,562,512,682 $ - $ 4,124,017,129
Real Return - U.S. Treasury TIPS Portfolio U.S. Treasury TIPS $ 1,060,887,305 - - $ 1,060,887,305
Real Return - Commodities Collateral Portfolio U.S. Treasury Securities $ 20,167,578 - - $ 20,167,578
U.S. Treasuries U.S. Treasury Securities $ 894,010,156 - - $ 894,010,156
Cash Equivalents Short-term Investment Facility $ 149,422,655 - - $ 149,422,655
Total PSF(SBOE) investments by fair value level $ 16,032,284,193 $ 2,562,512,682 $ - $ 18,594,796,875
35 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Liquid(SBOE) Level 1 Level 2 Level 3 Total Fixed Income Portfolio Asset Backed Securities $ - $ 129,311,949 $ - $ 129,311,949 Commercial Mortgage Backed Securities - 6,677,030 - 6,677,030 Corporate Obligations - 359,352,311 - 359,352,311 Non-Agency Mortgage Backed Securities - 38,672,672 - 38,672,672 Non-U.S. Government Agency Obligations - 47,974,649 - 47,974,649 U.S. Government Agency Obligations - 10,000,009 - 10,000,009 U.S. Government Agency Mortgage Backed Securities - 119,003,890 - 119,003,890 U.S. Taxable Municipal Obligations - 12,975,611 - 12,975,611 U.S. Treasury Securities 652,783,593 - - 652,783,593 Subtotal fixed income $ 652,783,593 $ 723,968,121 $ - $ 1,376,751,714
Cash Equivalents Short-term Investment Facility $ 130,783,492 $ - $ - $ 130,783,492
Total Liquid(SBOE) investments by fair value level $ 783,567,085 $ 723,968,121 $ - $ 1,507,535,206
Total Investments Other Than PSF(SLB) Managed Land Endowment and Real Property $ 16,815,851,278 $ 3,286,480,803 $ - $ 20,102,332,081
The Fund utilizes the net asset value (NAV) per share a portion of the investment for an amount that is as a method for determining fair value for its different from the NAV. These investments are investments in absolute return, real estate, private exempt from classification within the fair value equity, emerging market debt, emerging market hierarchy. equity, risk parity and externally managed real return strategies. These investments calculate the NAV The following table presents information about the consistent with Financial Accounting Standards Fund’s PSF(SBOE) managed assets measured at Board’s measurement principles for investment NAV at August 31, 2020. companies and the Fund does not intend to sell all or
PSF(SBOE) investments measured at NAV Absolute Return Investments $ 3,517,240,318 Real Estate Investments 3,102,087,880 Private Equity Investments 4,761,465,378 Emerging Market Debt 2,450,697,620 Emerging Market Equity 1,062,553,623 Risk Parity Strategies 1,164,883,199 Real Return - Externally Managed Commodities 736,279,047 Total PSF(SBOE) investments measured at NAV $ 16,795,207,065
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36 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The valuation method for investments measured at the net asset value (NAV) per share (or its equivalent) is presented on the following table.
PSF(SBOE) investments measured at Fair Unfunded Redemption Liquidity NAV Value Commitments Redemption Frequency Notice Expectation Absolute Return Investments Daily, Monthly, Quarterly, Semi-Annual, Credit $ 1,007,753,933 $ - Annual, 2-year, Distribution Provision 48-95 days (1) Relative Value 346,387,123 - Monthly, Quarterly 17-98 days (2) Monthly, Quarterly, Semi-Annual, Multi-Strategy 633,509,654 - Distribution Provision 45-180 days (3) Equity 855,711,101 - Monthly, Quarterly, Annual, Multiple, Other 18-120 days (4) Macro 576,875,910 - Monthly, Quarterly 2-98 days (5) Commodities 41,479,883 - Daily, Quarterly 30-90 days (6) Other 55,522,714 - Not Applicable None (7) Real Estate Investments 3,102,087,880 2,044,454,606 None None 1-17 years (8) Private Equity Investments (9) Large Capital Buy-out 1,108,393,297 340,395,821 None None 2-15 years Mid Capital Buy-out 1,962,164,595 1,198,436,690 None None 2-15 years Special Situation 644,060,576 502,276,445 None None 2-15 years Venture/Growth Capital 1,151,353,402 363,665,467 None None 2-15 years Accumulated Incentive Allocation (104,506,492) - None None Emerging Market Debt 2,450,697,620 - Daily 5 days Emerging Market Equity 1,062,553,623 - Daily 1-3 days Risk Parity Strategies 1,164,883,199 - Monthly 5 days (10) Real Return - Externally Managed Commodities 736,279,047 - Daily 3 days (11) Total PSF(SBOE) investments measured at NAV $ 16,795,207,065 $ 4,449,229,029 (1) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 25.0% of the fair value have redemption restrictions that do not allow for redemption during a restricted time period. Investments representing 36.3% of the fair value have certain gate restrictions ranging from 8.3% to 50.0%. The restriction period at August 31, 2020 ranges from September 29, 2020 to July 1, 2022 for these investments. (2) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 40.2% of the fair value have redemption restrictions that do not allow for redemption during a restricted time period. Investments representing 74.5% of the fair value have certain gate restrictions ranging from 25.0% to 50.0%. The restriction period at August 31, 2020 ranges from September 24, 2020 to April 1, 2021 for these investments. (3) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 43.2% of the fair value have redemption restrictions that do not allow for redemption during a restricted time period. Investments representing 58.0% of the fair value have certain gate restrictions ranging from 5.0% to 25.0%. The restriction period at August 31, 2020 ranges from October 30, 2020 to November 1, 2022 for these investments. (4) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 54.3% of the fair value have redemption restrictions that do not allow for redemption during a restricted time period. Investments representing 67.5% of the fair value have certain gate restrictions ranging from 10.0% to 33.3%. The restriction period at August 31, 2020 ranges from September 25, 2020 to April 29, 2022 for these investments. (5) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 27.9% of the fair value have redemption restrictions that do not allow for redemption during a restricted time period. Investments representing 78.2% of the fair value have certain gate restrictions ranging from 25.0% to 50.0%. The restriction period at August 31, 2020 ranges from September 24, 2020 to January 1, 2021 for these investments. (6) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 79.1% of the fair value have certain gate restrictions of 20.0%. The restriction period at August 31, 2020 is October 2, 2020 to November 1, 2020. (7) Investment includes fund of funds which have been valued using the NAV per share for the fund. Investments representing 5.4% of the fair value do not have redemption provisions and distributions will be made as the underlying investments are liquidated. (8) Investment includes real estate funds that primarily invest in real estate, including commercial, residential and industrial, and real estate financing. Investments are located in the Americas, Asia, Australia, New Zealand, and Europe. The investments have been valued using the NAV per share for the fund. The majority of these investments are in close end funds and cannot be redeemed. Investments representing 42.8% of the fair value are open ended, and require redemption notice ranging from 0 to 90 days. Investments representing 5.2% of the fair value have lock periods of 24 months. Distributions from each fund will be receivedast he underlying investments are liquidated. It is expected that the funds will be liquidated over the next 1-17 years. (9) Investment includes 4 separate private equity fund-of-funds and direct investments in limited partnerships, each utilizing various strategies as listed. There are no redemption provisions with the investment funds, distributions will be made as the underlying investments are liquidated. The underlying assets are expected to be liquidated over the next 1-15 years. The underlying investments are within various industries including communications, consumer services, distressed debt, diversified, energy, financial services, government services, healthcare, industrial, manufacturing, software and technology. Also included is the cumulative incentive allocation due to the fund-of-funds managers. This allocation is not allocable to the various investment strategies. (10) Investment includes one externally managed fund with a redemption notice of 5 days. (11) Investment includes two externally managed funds which have been valued using the NAV.
37 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
C. Custodial Credit Risk for Deposits D. Custodial Credit Risk for Investments The custodial credit risk for deposits is the risk that in (PSF(SBOE) and Liquid(SBOE)) the event of bank failure, the Fund’s deposits may not The custodial credit risk for investments is the risk that be recovered. Except for the requirement to invest in the event of a failure of the counterparty, the Fund cash daily, the State Constitution, applicable statutes, will not be able to recover the value of the investment and the Fund’s investment policies do not contain or securities held as collateral that are in the legal or policy requirements that would limit the possession of an outside party. PSF(SBOE) and exposure to custodial credit risk for deposits. As of Liquid(SBOE) investments are registered in the name August 31, 2020, there was $56,317,363 of of the Fund or are registered in the nominee name of PSF(SBOE) and Liquid(SBOE) uninsured and The Bank of New York Mellon Corporation and held in uncollateralized cash in bank subject to custodial the name of the Fund at The Bank of New York credit risk. This cash in bank balance represents the Mellon Corporation. PSF(SBOE) and Liquid(SBOE) U.S. dollar equivalent of amounts held in foreign investments are not subject to custodial credit risk. currencies and cash received but not yet invested. It is However, the invested securities lending collateral for trades for which settlement is pending, dividend detailed below as of August 31, 2020, is subject to payments that are awaiting repatriation, and cash custodial credit risk because the collateral is invested overnight at the Fund’s custodial bank. The purchased and held by the counterparty, The Bank of remaining PSF(SLB) balance of $386,902 is New York Mellon Corporation is contracted to serve uninsured and uncollateralized cash in bank subject to as both the custodian and the securities lending custodial credit risk. This represents the PSF(SLB) agent. The cost basis of invested securities lending cash portion of a tenancy in common development collateral at August 31, 2020 was $1,367,807,882 and project and other limited partnership development the fair value was $1,354,075,618, which is detailed in projects. the following schedule.
Most of the cash managed by the PSF(SBOE) and the Liquid(SBOE) is deposited in the State Treasury in an external investment pool managed by the Texas Comptroller of Public Accounts (CPA). The CPA invests in authorized investments consistent with applicable law and the CPA investment policy. The CPA pools funds for investment purposes and allocates investment earnings on pooled funds proportionately among the various state agencies whose funds are so pooled. Currently, most pooled funds are invested in repurchase agreements, reverse repurchase agreements, obligations of the United States and its agencies and instrumentalities, and fully collateralized deposits in authorized state The remainder of this column depositories. All investments are marked to market intentionally left blank. daily, using an external pricing service. The State Treasury deposits are not subject to custodial risk because the State Treasury has an arrangement with financial institutions to collateralize state deposits in excess of depository insurance.
The cash attributable to the PSF(SLB) real assets investment portfolio is deposited in the State Treasury and invested as described in the preceding paragraph; therefore, those deposits are not exposed to custodial credit risk.
38 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The Fund measures the fair value of its securities lending program cash collateral by the same methodology described above, as follows:
Invested Securities Lending Collateral Cost Basis Fair Value Level 1 Level 2 Level 3
Asset Backed Floating Rate Notes $ 259,778,494 $ 259,945,756 $ - $ 259,945,756 $ - Certificate of Deposit 155,100,000 155,114,009 - 155,114,009 - Commercial Paper 135,687,189 135,695,290 - 135,695,290 - Corporate Floating Rate Notes 536,221,656 522,297,451 - 522,297,451 - Interest Bearing 15,850,000 15,852,569 - 15,852,569 - Repurchase Agreements 241,570,543 241,570,543 - 241,570,543 - Time Deposits 23,600,000 23,600,000 - 23,600,000 -
Total Securities Lending Collateral $ 1,367,807,882 $ 1,354,075,618 $ - $ 1,354,075,618 $ -
Rating The State Constitution, applicable statutes, and the PSF(SBOE) Investment Type Rating Service Fair Value PSF(SBOE) investment policies do not contain legal Asset Backed Securities AA S&P $ 9,132,142 Asset Backed Securities A S&P 2,308,100 or policy requirements that would limit the exposure to Asset Backed Securities A Fitch 20,651,842 Asset Backed Securities A Moody’s 8,060,000 custodial credit risk for investments, including Collateralized Loan Obligations AAA Fitch 4,850,006 Collateralized Loan Obligations BBB S&P 49,812,934 securities lending collateral investments. Collateralized Loan Obligations Baa Moody’s 172,255,166 Collateralized Loan Obligations BB S&P 11,777,299 Collateralized Loan Obligations Ba Moody’s 71,114,264 E. Credit Risk for Debt Investments (PSF(SBOE) Commercial Mortgage Backed Obligations AAA Fitch 9,948,830 Commercial Mortgage Backed Obligations Aaa Moody’s 8,069,250 and Liquid(SBOE)) Commercial Mortgage Backed Obligations AA Fitch 5,978,333 Corporate Obligations AA S&P 63,661,805 Credit risk is the risk that an issuer or other Corporate Obligations A S&P 147,005,748 counterparty of an investment will not fulfill its Corporate Obligations A Fitch 28,004,713 Corporate Obligations A Moody’s 38,791,746 obligation to pay interest and repay principal. This is Corporate Obligations BBB S&P 650,961,973 Corporate Obligations BBB Fitch 120,749,455 measured by the assignment of a rating by a Corporate Obligations Baa Moody’s 140,041,411 Corporate Obligations BB S&P 8,304,963 nationally recognized statistical rating organization Corporate Obligations Ba Moody’s 9,590,885 (NRSRO). Non Agency Mortgage Backed Securities AAA S&P 14,093,660 Non Agency Mortgage Backed Securities AAA Fitch 36,340,880 Non Agency Mortgage Backed Securities Aaa Moody’s 4,954,801 Non Agency Mortgage Backed Securities AA S&P 6,203,024 The rated debt investments of the PSF(SBOE) and Non Agency Mortgage Backed Securities AA Fitch 2,841,391 Non Agency Mortgage Backed Securities Aa Moody’s 50,980,314 Liquid(SBOE) as of August 31, 2020, are as follows: Non U.S. Government Agency Obligations AAA S&P 35,353,913 Non U.S. Government Agency Obligations AAA Fitch 10,397,824 Non U.S. Government Agency Obligations AA S&P 5,737,500 If ratings are comparable between all NRSROs, Non U.S. Government Agency Obligations AA Fitch 4,328,396 Non U.S. Government Agency Obligations A S&P 5,196,900 the S&P rating scale is used to rate the securities. Non U.S. Government Agency Obligations A Fitch 14,408,410 Non U.S. Government Agency Obligations BBB S&P 21,412,335 On securities with split or different ratings Non U.S. Government Agency Obligations BBB Fitch 16,130,000 Non U.S. Government Agency Obligations BB Fitch 6,929,102 between the NRSROs, the rating indicative of the Non-U.S. Sovereign Government Debt A Moody’s 10,821,560 greatest level of risk is disclosed. Non-U.S. Sovereign Government Debt BBB S&P 18,489,650 Non-U.S. Sovereign Government Debt BBB Fitch 38,950,550 For purposes of this disclosure, ratings have been U.S. Government Agency Commercial Mortgage Backed Securities AA Fitch 9,493,966 aggregated to the base alpha rating. U.S. Government Agency Commercial Mortgage Backed Securities BBB Fitch 3,632,690 U.S. Government Agency Obligations AA S&P 66,953,990 U.S. Government Agency Mortgage Backed Securities AA S&P 532,234,976 U.S. Taxable Municipal Bonds AAA S&P 15,980,447 U.S. Taxable Municipal Bonds AA S&P 15,295,885 U.S. Taxable Municipal Bonds AA Fitch 8,551,815 U.S. Taxable Municipal Bonds Aa Moody’s 14,565,055 U.S. Taxable Municipal Bonds A S&P 5,310,333 The remainder of this column U.S. Taxable Municipal Bonds A Fitch 5,852,150 U.S. Treasury Inflation Protected Securities AA S&P 1,078,252,025 intentionally left blank. U.S. Treasury Securities AA S&P 2,458,317,461 Total Credit Risk Rated Debt Securities $ 6,099,081,868 Withdrawn Corporate Obligations Rating Moody's 300 Total PSF(SBOE) Fixed Income $ 6,099,082,168
39 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Rating Rating Liquid(SBOE) Investment Type Rating Service Fair Value Investment Type Rating Service Fair Value Asset Backed Securities Aaa Moody’s $ 4,534,782 Asset Backed Floating Rate Notes AAA $ 172,651,058 Asset Backed Securities AA S&P 5,085,594 Asset Backed Floating Rate Notes AAA Fitch 87,294,698 Asset Backed Securities A S&P 73,245,450 Certificate of Deposit A-1 102,358,277 Asset Backed Securities A Fitch 10,359,632 Certificate of Deposit P-1 Moody's 52,755,732 Asset Backed Securities BBB S&P 36,086,491 Commercial Paper A-1 135,695,290 Commercial Mortgage Backed Obligations AAA Fitch 2,716,960 Floating Rate Notes AA 115,484,030 Commercial Mortgage Backed Obligations A Fitch 2,974,744 Floating Rate Notes A 322,527,132 Commercial Mortgage Backed Obligations BBB Fitch 985,326 Floating Rate Notes A-1 40,903,202 Corporate Obligations AA S&P 16,192,001 Floating Rate Notes A Fitch 43,383,087 Corporate Obligations A S&P 118,353,454 Interest Bearing A-1 15,852,569 Corporate Obligations A Fitch 3,083,061 Repurchase Agreements Not Rated 241,570,543 Corporate Obligations A Moody’s 17,281,318 Time Deposits P-1 Moody's 23,600,000 Corporate Obligations BBB S&P 116,797,236 Corporate Obligations BBB Fitch 28,721,573 Total Investments $ 1,354,075,618 Corporate Obligations Baa Moody’s 21,990,917 Corporate Obligations BB S&P 16,782,201 Corporate Obligations Ba Moody’s 20,150,550 G. Interest Rate Risk for Debt Investments Non Agency Mortgage Backed Securities AAA Fitch 25,151,998 (PSF(SBOE) and Liquid(SBOE)) Non Agency Mortgage Backed Securities Aaa Moody’s 1,706,214 Non Agency Mortgage Backed Securities Aa Moody’s 11,814,460 Interest rate risk is the risk that changes in interest Non U.S. Government Agency Obligations AA Fitch 4,998,040 rates of debt investments will adversely affect the fair Non U.S. Government Agency Obligations A S&P 3,814,962 Non U.S. Government Agency Obligations BBB S&P 39,161,647 value of the investment. Duration is a measure of the U.S. Government Agency Obligations AA S&P 10,000,009 price sensitivity of a debt investment to changes U.S. Government Agency Mortgage Backed Securities AA S&P 119,003,890 arising from movements in interest rates. U.S. Taxable Municipal Bonds Aa Moody’s 12,975, 611 U.S. Treasury Securities AA S&P 652,783,593 Total Liquid(SBOE) Credit Risk Rated Duration is the weighted average maturity of an Debt Securities $ 1,376,751,714 instrument’s cash flows, where the present value of
F. Credit Risk for Invested Securities Lending the cash flows serves as the weights. The duration of Collateral (PSF(SBOE) only) an instrument can be calculated by first multiplying the The following presents the rated investments of the time until receipt of cash flow by the ratio of the cash collateral as of August 31, 2020. The investment present value of that cash flow to the instrument’s policy of the PSF(SBOE) defines the various total present value. The sum of these weighted time permissible collateral investments including required periods is the duration of the instrument. Effective ratings, at the time of purchase. Negotiable duration extends this analysis to incorporate an option certificates of deposit drawn on certain prescribed adjusted measure of an instrument’s sensitivity to banks, commercial paper, asset backed commercial changes in interest rates. The SBOE approved paper, and short term corporate debt other than Investment Procedures Manual mandates the average commercial paper must carry a “Tier 1” rating, defined duration of the following portfolios be consistent with as the highest short-term rating category by S&P, the following indices: Moody’s or Fitch. Asset backed securities shall be rated Aaa or AAA by Moody’s and S&P, respectively. Core Fixed Income – Bloomberg Barclay’s Reverse repurchase agreements must have a Capital U.S. Aggregate Bond Index counterparty rated Tier 1 and the underlying collateral Real Return (TIPS) - Bloomberg Barclay’s shall be Tier 1 if the security is a short term security Capital U.S. TIPS Index and at least Aa2 Moody’s/AA S&P or better if the U.S. Treasuries – Bloomberg Barclay’s collateral is corporate debt (other than commercial Capital U.S. Long Treasury Total Return paper). Foreign sovereign debt issued by a foreign Liquid Account – Bloomberg Barclay’s Capital government rated Aa2 Moody’s/AA S&P or better is U.S. 1-3 Year Aggregate Total Return permissible collateral. For purposes of this disclosure, Emerging Market Debt – JPM GBI-EM Global ratings have been aggregated to the base alpha Diversified Index rating. As of August 31, 2020, the Bloomberg Barclay’s Capital U.S. Aggregate Bond index duration is 6.09 years, the Bloomberg Barclay’s Capital U.S. TIPS The remainder of this column Index duration is 8.02 years, the Bloomberg Barclay’s intentionally left blank. Capital U.S. Long Treasury Total Return index duration is 19.43, the Bloomberg Barclay’s Capital U.S. 1-3 Year Aggregate Total Return index duration
40 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS is 1.57 and the JPM GBI-EM Global Diversified Index H. Interest Rate Risk for Invested Securities is 5.36 years. Lending Collateral (PSF(SBOE) only) The following provides information about the Investments in fixed income securities by investment interest rate risks and maturities associated with type, fair value, and the effective weighted duration invested securities lending collateral by investment rate as of August 31, 2020, are as follows for the Core type. The PSF(SBOE) investment policy defines the Fixed Income, Real Return, U.S. Treasuries, and maturities of all permissible securities lending Emerging Market Debt in PSF(SBOE) and Fixed collateral investments. The maximum maturity of Income in Liquid(SBOE). invested securities lending collateral is 397 days on fixed rate and 3 years on floating rate securities, Effective except for bank time deposits which is 60 days, We ighted bankers acceptances which is 45 days, and reverse Duration PSF(SBOE) Investment Type Fair Value Years repurchase agreements which is 180 days. The Asset Backed Securities $ 40,152,084 5.514 maximum weighted average maturity of the entire Collateralized Loan Obligations 309,809,669 0.064 collateral portfolio must be 180 days or less. The Commercial Mortgage Backed Securities 23,996,413 1.087 Corporate Obligations 1,207,112,999 7.887 maximum weighted average interest rate exposure of Non-Agency Mortgage Backed Securities 115,414,070 3.898 the entire collateral portfolio must be 60 days or less. Non-U.S. Government Agency Obligations 119,894,380 3.600 Non-U.S. Sovereign Government Debt 68,261,760 7.676 Investment U. S. Government Agency Commercial Investment Maturities Mortgage Backed Securities 13,126,656 2.907 Maturities Less Greater Than U. S. Government Agency Obligations 66,953,990 3.513 Investment Type Fair Value Than One Year One Year U. S. Government Agency Mortgage Asset Backed Floating Backed Securities 532,234,976 3.493 Rate Notes $ 259,945,756 $ 137,985,317 $ 121,960,439 U.S. Taxable Municipal Securities 65,555,685 8.148 Certificates of Deposit 155,114,009 155,114,009 - U. S. Treasury Securities 1,544,139,727 7.002 Commercial Paper 135,695,290 135,695,290 - U. S. Treasury TIPS 17,364,720 1.281 Corporate Floating Rate Notes 522,297,451 522,297,451 - Interest Bearing 15,852,569 15,852,569 - Total PSF(SBOE) Fixed Income Portfolio $ 4,124,017,129 5.988 Repurchase Agreements 241,570,543 241,570,543 - Time Deposits 23,600,000 23,600,000 - Real Return - U. S. Treasury TIPS Portfolio $ 1,060,887,305 7.731 Total $ 1,354,075,618 $ 1,232,115,179 $ 121,960,439
Real Return Commodities - I. Concentration of Credit Risk U.S. Treasury Securities $ 20,167,578 0.441 Concentration of credit risk is the risk of loss due to U.S. Treasuries Portfolio the magnitude of the Fund’s investment in a single U. S. Treasury Securities Treasuries $ 894,010,156 18.608 issuer. The investment policies of the PSF(SBOE) and
Emerging Market Debt Portfolio $ 2,450,697,620 6.370 the Liquid(SBOE) preclude engaging in any purchase transaction after which the cumulative market value of Effective equity securities, fixed income securities, or cash Weighted equivalent securities of a single corporation (excluding Duration the U. S. government or its agencies) exceeds 2.5% Liquid(SBOE) Investment Type Fair Value Years Asset Backed Securities $ 129,311,949 1.225 of the PSF(SBOE) and the Liquid(SBOE) total market Commercial Mortgage Backed Securities 6,677,030 0.504 value or 5.0% of the manager’s total portfolio market Corporate Obligations 359,352,311 1.984 value. Non Agency Mortgage Backed Securities 38,672,672 3.705 Non U.S. Government Agency Obligations 47,974,649 1.809 U. S. Government Agency Obligations 10,000,009 0.669 As of August 31, 2020, the PSF(SBOE) and U. S. Government Agency Mortgage Backed Liquid(SBOE) were not exposed to any credit risk Securities 119,003,890 4.185 U.S. Taxable Municipal Securities 12,975,611 1.039 exceeding parameters described in the preceding U. S. Treasury Securities 652,783,593 1.797 paragraph. Total Liquid(SBOE) Fixed Income $ 1,376,751,714 2.031 J. Investments with Fair Values That Are Highly Sensitive to Interest Rate Changes (PSF(SBOE) and Liquid(SBOE)) In accordance with PSF(SBOE) and Liquid(SBOE) The remainder of this column investment policies, the PSF(SBOE) and intentionally left blank. Liquid(SBOE) may invest in asset-backed and mortgage-backed obligations. The PSF(SBOE) and
41 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Liquid(SBOE) may also invest in investments that K. Foreign Currency Risk for Deposits and have floating rates with periodic changes in market Investments (PSF(SBOE) only) rates, zero coupon bonds, and stripped U.S. Treasury Foreign currency risk is the risk that changes in and Agency securities created from coupon securities. exchange rates will adversely affect the fair value of a As of August 31, 2020, the PSF(SBOE) and deposit or an investment. Exposure to foreign Liquid(SBOE) held investments that are highly currency risk as of August 31, 2020, is as follows: sensitive to interest rate changes. Deposits Amount Mortgage-backed obligations are subject to early Currency principal payment in a period of declining interest Australian Dollar $ 189,820 rates. These securities also tend to increase in Brazil Real 99,620 duration as interest rates rise. The resultant reduction Canadian Dollar 401,665 or extension in expected cash flows will affect the fair Chilean Peso 1,513 value of these securities. As of August 31, 2020, Chinese Yuan Renminbi 1 these securities in PSF(SBOE) and Liquid(SBOE) Colombian Peso 378,329 totaled $849,125,707. Danish Krone (7) Euro Currency Unit 68,254 Collateralized loan obligations are asset-backed Hong Kong Dollar 161,126 Indonesian Rupiah 27,757 securities backed by the receivables on leveraged Israeli Shekel 136,540 business loans and are similar to collateralized Japanese Yen 2,813,605 mortgage obligations. The investor receives scheduled Malaysian Ringgit 381,827 debt payments from the underlying loans but assumes Mexican Peso 206,796 most of the risk in the event that borrowers default. Moroccan Dirham 2 The securities held are in low duration tranches to New Taiwan Dollar 1,124,754 mitigate default risk but are still subject to this risk. New Zealand Dollar 1 As of August 31, 2020, these securities in PSF(SBOE) Norwegian Krone 170,715 totaled $309,809,669. Philippines Peso 37,273 Polish Zloty 19,378 Asset-backed obligations are backed by home equity Pound Sterling 261,932 loans, auto loans, equipment loans, and credit card Qatari Riyal 640,084 receivables. Pre-payments by the obligees of the Russian Ruble (New) (24,408) underlying assets in periods of declining interest rates Singapore Dollar 983,813 could reduce or eliminate the stream of income that South African Rand 158,882 would have been received. Conversely, rising interest South Korean Won 142,764 rates could extend the stream of income that would Swedish Krona 18,458 Swiss Franc 2,033,205 have been received. As of August 31, 2020, these Thailand Baht 7,760 securities in PSF(SBOE) and Liquid(SBOE) totaled Turkish Lira 168,980 $169,464,033. UAE Dirham 145,836 Total Deposits Subject to Foreign Currency Risk $ 10,756,275
The remainder of this column intentionally left blank. The remainder of this column intentionally left blank.
42 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
International Alternative Investments in Equity Securities Equity Investments Fair Value 3. PSF(SLB) INVESTMENT IN LAND, MINERAL Currency INTERESTS AND REAL ASSETS INVESTMENTS Australian Dollar $ 232,557,376 $ 17,264,014 $ 249,821,390 Brazil Real 74,112,811 - 74,112,811 Canadian Dollar 353,038,887 - 353,038,887 The Texas Constitution also establishes the authority Chilean Peso 8,677,327 - 8,677,327 Chinese Yuan Renminbi 80,466,348 - 80,466,348 of the GLO which is responsible for managing most Colombian Peso 3,564,956 - 3,564,956 state-owned lands and minerals and is responsible for Czech Koruna 2,240,902 - 2,240,902 Danish Krone 85,725,548 - 85,725,548 protecting the economic future of the Texas Gulf Egyptian Pound 1,572,476 - 1,572,476 Euro Currency Unit 1,091,993,218 299,746,672 1,391,739,890 Coast by preserving all vital assets and natural Hong Kong Dollar 468,519,138 - 468,519,138 resources from erosion. The GLO administers the Hungarian Forint 2,829,267 - 2,829,267 Indonesian Rupiah 22,937,785 - 22,937,785 land endowment and real assets investments under Israeli Shekel 12,239,429 - 12,239,429 Japanese Yen 846,155,801 - 846,155,801 the direction of the SLB. Before using funds for Malaysian Ringgit 27,436,536 - 27,436,536 prescribed purposes, the SLB must determine, using Mexican Peso 25,438,075 - 25,438,075 New Taiwan Dollar 192,207,682 - 192,207,682 the prudent investor standard, which is the best use of New Zealand Dollar 12,992,337 - 12,992,337 Norwegian Krone 18,906,081 - 18,906,081 the funds for the intended purpose of the Fund. The Philippines Peso 11,698,518 - 11,698,518 PSF(SLB) real assets investments are diversified Polish Zloty 11,014,216 - 11,014,216 Pound Sterling 461,680,404 122,512,480 584,192,884 across the real estate, infrastructure, and Qatari Riyal 14,412,832 - 14,412,832 energy/minerals sectors. Russian Ruble (New) 30,471,334 - 30,471,334 Singapore Dollar 37,600,865 - 37,600,865 South African Rand 65,898,901 - 65,898,901 South Korean Won 177,330,608 - 177,330,608 The historical cost and fair value of PSF(SLB) land, Swedish Krona 112,289,159 - 112,289,159 mineral interests, and real assets investments during Swiss Franc 347,915,726 - 347,915,726 Thailand Baht 30,571,952 - 30,571,952 the year ending August 31, 2020, are included in the Turkish Lira 4,915,312 - 4,915,312 UAE Dirham 10,835,536 - 10,835,536 following table. Permanent improvements may be Total Securities Subject to included in the costs or fair values of the surface Foreign Currency Risk $ 4,880,247,343 $ 439,523,166 $ 5,319,770,509 acres, although such improvements are not The investment policy of the PSF(SBOE) allows for specifically identified. All acreage totals provided are international diversification to improve the risk and approximations. return characteristics of the PSF(SBOE). As such, the PSF(SBOE) investments are exposed to foreign Investment Type Historical Cost Fair Value Investments in Real Assets currency risk. The investment policy of the (1) Sovereign Lands $ 839,948 $ 269,566,579 PSF(SBOE) does not contain legal or policy Discretionary Internal requirements that limit the exposure to foreign Investments (3) 155,411,566 223,422,000 currency risk. With SBOE approval, the Fund is Domestic Equity 7,524,402 912,012 Other Lands 44,169,122 135,098,086 permitted to hedge currency. Hedging currency is a (2) way to limit exposure to foreign currency risk. Minerals 13,435,613 2,115,448,785 Investments with External Currently, foreign currency exchange forward Managers (4) 4,255,437,869 3,824,234,672 contracts are only executed as part of normal trading Total Investments (5) $ 4,476,818,520 $ 6,568,682,134 of foreign denominated equity securities and real estate and private equity investments; therefore, no Cash in State Treasury (6) 333,780,167 333,780,167 hedging occurred. Total Investments and Cash in State Treasury $ 4,810,598,687 $ 6,902,462,301
Consisting of the following: Noncurrent Investments $ 4,476,818,520 $ 6,568,682,134
Total Investments, as above $ 4,476,818,520 $ 6,568,682,134
(1) Historical cost of investments at August 31, 2020 (2) Includes an estimated 1,000,000 acres in freshwater rivers. The remainder of this column (3) Includes commercial real estate investments only. intentionally left blank. (4) Includes investments in commercial real estate, infrastructure, and energy/minerals. (5) Includes an estimated 1,747,600 in excess acreage. (6) Cash in State Treasury is managed by the Treasury Operations Division of the Comptroller of Public Accounts of the state of Texas.
43 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The Fund’s PSF(SLB) managed assets recorded at fair value have been characterized based upon the fair value hierarchy in accordance with GASB 72 as described in the previous table. The following table presents information about the PSF(SLB) managed assets at fair value as of August 31, 2020.
Investments in Real Assets Level 1 Level 2 Level 3 Total Domestic Equity $ 912,012 $ - $ - $ 912,012 Sovereign Lands - - 269,566,579 269,566,579 Discretionary Internal Investments - - 223,422,000 223,422,000 Other Lands - - 135,098,086 135,098,086 Minerals - - 2,115,448,785 2,115,448,785
Total investments by fair value level $ 912,012 $ - $ 2,743,535,450 $ 2,744,447,462
The Fund utilizes the NAV per share as a method for determining the fair value of its PSF(SLB) managed investments with external investment managers. The following table presents information about the Fund’s PSF(SLB) managed assets measured at net asset value.
Investments measured at NAV Investments with external managers Energy $ 1,164,010,823 Real Estate 1,174,815,265 Infrastructure 1,485,408,584
Total investments $ 3,824,234,672
Fair Unfunded Redemption Redemption Liquidity Value Commitments Frequency Notice Expectation Investments with external managers Energy $ 1,164,010,823 $ 1,075,433,361 None None 2-12 years Real Estate: Closed-End 611,307,228 645,532,385 None None 2-12 years Open-End 563,508,037 - Quarterly 45-90 days 2-12 years Infrastructure 1,485,408,584 1,007,042,565 None None 2-12 years Total investments measured at NAV $ 3,824,234,672 $ 2,728,008,311
The current surface real property portfolio of the Fund $200,420,635. In addition to the land surface portfolio, is managed by the PSF(SLB) and consists of 661,940 the Fund also owns approximately 12.6 million acres of surface acres valued at $628,086,665. Of this, 407,964 Relinquishment Act, Submerged, Free Royalty, Mineral acres are sovereign lands with a fair value of Reserved Lands and mineral estates on surface lands $269,566,579 located primarily in West Texas and representing a basis of $13,435,613. representing 61.6 percent of the total acreage, but only 42.9 percent of the total value. Some of this property, Dispositions for the fiscal year ended August 31, 2020, though marginally suitable, has been leased for grazing equaled 2,138 acres sold for net proceeds of $34.3 and hunting purposes. The remainder, most of which is million, resulting in a gain of approximately $24.5 landlocked, has little value other than for adjacent million (based on historical cost). landowners who wish to increase their holdings. Over time, these properties will likely be sold. The fair value of the Fund’s interests in oil and gas is determined by using the present value technique of The September 1, 2019, beginning basis for the Fund's the income approach and is based upon an industry- consolidated (including joint ventures) land surface standard 3P reserve report (i.e. proved, possible, and portfolio value was $216,712,426. Contributions of probable reserves) prepared by a third-party expert, approximately $664 thousand were made to ongoing W.D. Von Gonten & Co., a Houston-based petroleum development projects. The basis of the Fund’s land engineering firm. Employing a methodology for surface portfolio at August 31, 2020, was estimating reserves that conforms to all standards
44 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS established by the Society of Petroleum Engineers, PSF(SLB) is a party to multiple direct single-asset real the World Petroleum Council, the American estate transactions held in its discretionary internally- Association of Petroleum Geologists, and the Society managed real estate portfolio. A discussion of these of Petroleum Evaluation Engineers, Von Gonten transactions can be found in Note 13. The method for estimated future revenues from those estimated determining the fair value of each uses either the reserves and then discounted those estimated future income or market approach and Level 3 inputs as revenues at 10 percent to arrive at a non-risk-adjusted described in the previous table. The fair values are total reserve valuation of $2,363,046,595. included in Discretionary Internal Investments.
The properties evaluated for the purposes of this The PSF(SLB) real assets investments include 72 reserve estimate are located throughout Texas and commingled closed-end funds, commingled open-end produce from various conventional and funds, separate accounts, and co-investment vehicles unconventional reservoirs. The property set includes that invest in private-market real assets transactions approximately 11,957 active Proved Developed across the energy, infrastructure and real assets Producing (PDP) wells with an estimated discounted investment universe. The fair values of these future net revenue value of $1,674,619,458; 242 investments have been determined using the NAV per Proved Undeveloped (PUD) locations with an share (or its equivalent) of the Fund’s ownership estimated discounted future net revenue value of interest in partners’ capital. These types of $314,931,864; 1,535 Probable Undeveloped (PROB) investments generate some income over the lives of locations with an estimated discounted future net the associated partnerships, but are generally illiquid revenue value of $351,384,799; 256 gross Possible until the underlying assets are liquidated. Except for Undeveloped (POSS) locations with an estimated open-ended funds, most of the partnerships have discounted future net revenue value of $16,182,127; specific termination dates, and it is expected that a and 120 Contingent Resources (CONT) locations with majority of the underlying assets of these partnerships an estimated discounted future net revenue value of will be liquidated over the next 12 years. $5,928,346. With regard to Proved Reserves, there should be at least a 90 percent probability that the 4. LEASES quantities actually recovered will equal or exceed the estimate; for Probable Reserves, there should be at The PSF(SLB), through the GLO, manages several least a 50 percent probability that the quantities types of operating leases. The need for each specific actually recovered will equal or exceed the estimate; lease category is based upon the type of action for Possible Reserves, there should be at least a 10 proposed (e.g., pier, dock, agriculture, recreational percent probability that the quantities actually hunting, pipeline, etc.) and the statute under which it recovered will equal or exceed the estimate. will be authorized. Lease categories managed by the Contingent Resources are potentially recoverable but GLO are summarized as follows: are not currently considered to be commercially recoverable due to one or more contingencies. Hard Commercial Leases and Easements (LC) are issued minerals are not included in the estimate and are not for projects that produce revenue from the private use included in the fair value due to their immateriality. of state-owned property. LCs are issued pursuant to Chapters 33 and 51, Texas Natural Resources Code In accordance with CPA Reporting Requirements, the (TNRC), and fees are based on the published SLB non-risk-adjusted reserve valuation for each rate schedule in effect at the time of contract component of the total non-risk-adjusted future net issuance. The rate schedule allows calculation of fees revenue value provided by W.D. Von Gonten & Co. is based upon the amount of state land encumbered and further adjusted by certain mean factors from the 2020 the appraised value of the adjacent littoral property. Annual Survey of Parameters Used in Property LCs cover activities and structures such as marinas, Evaluation report prepared by the Society of bait stands, fishing piers, mooring dolphins, fuel Petroleum Evaluation Engineers (SPEE). Proved docks, dredging activity, restaurants, and navigation Developed and Proved Undeveloped reserves are signs. Contracts for LCs grant the applicant exclusive adjusted using a factor of 1.00; Probable reserves are use of the site for the purposes specified in the adjusted using a factor of 0.35; and Possible reserves contract. are adjusted using a factor of 0.18. Contingent resources are excluded. The risk-adjusted mineral valuation is $2,115,448,785. 45 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Coastal Easements (CE) are issued by the GLO specified in the contract. pursuant to TNRC §33.103(a)(2) and 33.111(a) authorizing owners of private property abutting Holders of the above leases and easements are submerged state-owned lands to place and maintain required to maintain all structures in a safe condition structures on coastal public land adjacent to their and to comply with all terms of the contract. Violation private property. CEs typically cover structures such of the contract terms or failure to submit payment for as piers, decks, docks, rip-rap, pilings, bulkheads, and the required land-use fees may result in delinquent boat lifts. CEs are also issued for activities such as penalties and/or termination of the contract. Removal dredging, filling, and material disposal. Contracts for of the structures may also be required at the expense CEs grant the applicant exclusive use of the structure, of the lease/easement holder. Obtaining said leases but not use of the public land around the structure. and easements from the GLO does not exempt the applicant from complying with all other applicable Coastal Leases (CL) are issued by the GLO pursuant local, state, and federal permitting requirements. to TNRC §33.103(1) and 33.105. CLs are issued to state agencies, eligible cities or counties, nonprofit, Special Documents (SD) are issued for projects on tax-exempt organizations, or scientific or educational state-owned submerged land and state-owned entities to authorize the use of state-owned land for uplands. The SLB has authorized the land public recreation, estuarine preserves, wildlife commissioner to approve, by Special Document, preserves, or scientific research activities. CLs grant erosion response projects administered by the GLO the applicant limited exclusive use of the property for pursuant to the Coastal Erosion Planning and the purposes stated within the contract. The GLO Response Act (CEPRA), codified as TNRC, Chapter may issue other grants of interest for use of the same 33, Subchapter H, and the regulations set forth in property, so long as it does not interfere with the Texas Administrative Code, Title 31, Part 1, Chapter current leaseholder's activities. 15, Subchapter B. SDs are also issued for Highway Use Agreements under Chapter 203, Subchapter D, Surface Leases (SL) are issued by the GLO pursuant Texas Transportation Code for Texas Department of to TNRC §51.011, 51.121, and 51.292. Coastal SLs Transportation projects on land dedicated to the Fund. are issued for activities on submerged coastal public SDs may also be used for projects that do not fall into lands and are typically used to authorize activities not one of the other established categories. associated with littoral property ownership adjacent to state-owned submerged land, and for energy All PSF lands are evaluated for lease potential. As of platforms in the Gulf of Mexico. Examples of activities August 31, 2020, the historical cost of all internally covered by coastal SLs include, but are not limited to: managed properties available for leasing activity was drilling platforms not on a leased mineral tract, $200,420,635. The fair value of the properties was electrical substations, pumping stations, loading $628,086,665. Non-sovereign real estate in the Fund racks, tank farms, artificial reefs, and wildlife is held as an investment and is not depreciated. preserves. Upland SLs typically authorize activities such as hunting, grazing, crop production, timber Contingent rental revenues in the amount of $270,908 production, and other commercial activity. are reported for four leases for the year ended August 31, 2020. Miscellaneous Easements (ME) are issued on both coastal submerged lands and state-owned uplands for projects which require a right-of-way (ROW) on, across, under, or over state-owned lands, pursuant to TNRC §51.291. Fees are based upon a published rate schedule and are calculated based on the width and length of right-of-way, the region of the state, and The remainder of this column the diameter of the pipeline, and the power wattage intentionally left blank. (if applicable). ME contracts cover activities such as oil and gas pipelines, power transmission lines, communication lines, roads, and certain other structures and uses. Contracts for MEs grant the applicant exclusive use of the ROW for the purposes
46 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
A schedule of estimated future lease payments by lease type is presented below in the aggregate and for each of the five succeeding years. The amounts include known lease escalation provisions.
FYs 2026 & Lease Categories FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Beyond Coastal Easements $ 308,042 $ 256,463 $ 219,211 $ 170,197 $ 129,174 $ 282,418 Coastal Leases 1,245 1,245 1,245 1,245 1,245 70,945 Commercial Leases and Easements 1,663,403 1,607,615 1,540,083 1,253,993 1,078,158 6,742,035 Miscellaneous Easements 248,863 298,048 281,273 271,619 221,101 265,254 Special Documents - - 1,116 1,116 1,116 - Surface Leases 3,752,714 3,511,136 3,186,668 2,723,093 2,392,671 23,782,806 Total Lease Payments $ 5,974,267 $ 5,674,507 $ 5,229,596 $ 4,421,263 $ 3,823,465 $ 31,143,458
5. STATE ENERGY MARKETING PROGRAM Upon entering into a futures contract, initial margin deposit requirements are satisfied by segregating The State Energy Marketing Program (SEMP) of the specific securities or cash as collateral for the account SLB is designed to provide additional revenues, or of the FCM broker. During the period the futures enhancements, to the PSF(SLB) and to provide positions are open, the contracts are marked to savings to public customers by offering utility services market daily; that is, they are valued at the close of at a below-market rate. The 79th Legislature business each day, and a gain or loss is recorded authorized the SLB to manage and operate the SEMP between the value of the contracts that day and on the with land sale, lease, and royalty receipts of the Fund. previous day. The daily gain or loss is referred to as Royalty payments due the State on certain leases are the daily variation margin which is settled in cash with received in the form of mineral production instead of the broker each morning for the amount of monetary royalty payments. The SEMP then sells the the previous day’s mark to market. The PSF(SBOE) oil and gas to public retail customers. These executes such contracts on major exchanges through customers include public school districts, state major financial institutions and minimizes market and institutions of higher education, state agencies, and credit risk associated with these contracts through the political subdivisions. managers’ various trading and credit monitoring techniques. 6. DERIVATIVE INSTRUMENTS As of August 31, 2020, the PSF(SBOE) invested in The PSF(SBOE) enters into futures contracts in its S&P 500 Index Futures contracts, S&P 400 Index internally managed portfolios to facilitate various Futures contracts, Interest Rate Futures contracts and trading strategies, primarily as a tool to increase or various Commodity Futures contracts as detailed decrease market exposure to various asset classes, below with the FCM: and therefore classifies its futures contracts as investments. The SBOE approved Investment Change in Procedure Manual defines the parameters for PSF(SBOE) Portfolio Futures Contracts Fair Value Notional Value Equity Domestic stock index investing in futures contracts. The total amount of a futures $ 6,082,583 $ 38,768,190 portfolio’s financial futures contract obligation should Commodity Commodity futures (13,475,127) 251,709,085 not exceed ten percent (10.0%) of the market value of International equity Foreign stock index futures 4,823,366 26,965,527 the portfolio’s total assets. The PSF(SBOE) may Fixed income Interest rate futures 1,632,242 - exceed the ten percent (10.0%) rule during a Total Futures $ (936,936) $ 317,442,802 transition approved by the SBOE. In no instance will the total amount of the contracts be an amount The change in fair value is included in the net greater than the market value of a portfolio’s cash, increase/(decrease) in fair value of investments on the receivables and short-term securities. statement of revenues, expenditures, and changes in fund balance. The futures contracts themselves had 47 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS no fair value at August 31, 2020. If the FCM failed, the electricity per the terms of the contract. The ESP loss that would be recognized at August 31, 2020, provides collateral in form of an irrevocable letter of would be $29,760,325. credit to protect for Power sales.
Foreign currency balances are not maintained by the SEMP has minimal exposure to risk related to sales Fund except for transactions that occur as part of because GLO deals exclusively with PRCs and can normal security transactions (i.e., buys, sales and place a warrant hold on appropriation distributions income payment). Foreign currency exchange (FX) from the State Comptroller to the PRC to satisfy contracts are executed by the external investment delinquent obligations. Exposure to termination risk is manager on the same day as security transactions. also minimal, but nonetheless possible because all The investment manager buys or sells the FX contract contracts with PRCs are Interagency or Interlocal in the currency native to the security transaction. Agreements subject to funding by Legislature that can These foreign exchange contracts hedge against be terminated with 30 days’ notice subject to the risk of currency changes between trade and termination provisions settlement dates. Risks associated with such contracts include movement in the value of the foreign 7. SECURITIES LENDING currency related to the U.S. dollar and the ability of the counterparty to perform. For income payments The PSF(SBOE) is authorized to conduct a securities received in other currencies, the custodian bank lending program in accordance with Article 7, Section executes foreign exchange spot contracts to repatriate 5 of the Texas Constitution. The implementation policy payments to U.S. dollars on actual income payment for the program is further defined in Texas date. Administrative Code Title 19, Part 2, Chapter 33. The PSF(SBOE), through its securities lending agent The As a function of its normal business operations, the Bank of New York Mellon Corporation (Agent), lends GLO manages the SEMP and enters into commodity securities to certain brokers in exchange for transactions for the delivery of natural gas (Gas) and authorized collateral. electric power (Power) to Public Retail Customers (PRCs). In addition, SEMP takes a portion of oil Authorized collateral includes cash, government royalty entitlements as “Take-in-Kind” (TIK) royalty securities, irrevocable letters of credit, and other instead of cash. These transactions meet the assets specifically agreed to by the Agent and the definition of derivative instruments per GASB SBOE. The PSF(SBOE) receives collateral against Statement No. 53 (GASB 53), Accounting and the loaned securities in an amount of 102.0% of the Reporting for Derivative Instruments. However, since fair value plus accrued income for domestic corporate all such contracts result in physical delivery of the securities and 105.0% of the fair value plus accrued derivative instrument’s underlying commodity via income for foreign securities; except in the case of normal purchase and sales contracts, SEMP contracts foreign securities denominated and payable in U.S. identified as derivative instruments under GASB 53 Dollars, the required percentage is 102.0%. Collateral are not subject to the requirements of GASB 53. provided for Reverse Repurchase Agreements is maintained at various percentages depending on the As of August 31, 2020, GLO had outstanding natural type of security provided as collateral. gas commitments/open positions with third parties for 12,553,547 MMBtus (million British Thermal Units) The Agent indemnifies the SBOE against losses as a valued at $10,905,675. Power contracts are priced off result of the broker’s failure to return loaned the Electricity Reliability Council of Texas (ERCOT) securities. Securities collateral cannot be pledged or grid. The fair value of future cash flows from electric sold unless the borrower defaults. All securities within contracts is not reported because the electric service the PSF(SBOE) portfolio are available to be loaned to provider (ESP) is responsible for hedging these brokers based on market demand. The contract does transactions and GLO simply has a credit risk related not restrict the total aggregate value of loaned to these future cash flows. securities outstanding at any one time and loans are made to a specific list of brokers. The PSF(SBOE) The risks associated with these derivative instrument has the option to set a maximum aggregate loan limit transactions include the following: The SEMP program for each broker. is exposed to credit risk in the event a gas supplier fails to honor its obligation or if the ESP fails to deliver
48 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
As defined by the lending agreement, the length of the investment of cash collateral was sufficient to maturities permitted for loans are clearly selected, compensate the lender. If the broker provides defined, and approved by the lender. Loans made in securities or letters of credit as collateral for the this program can be terminated on demand by either securities lent, it pays a negotiated lender fee. party and are considered to have a one-day maturity, Additionally, in certain market conditions, the broker although cash collateral is invested in securities may actually pay a fee or receive a negative rebate on having longer maturities. As of August 31, 2020, the cash collateral. Net income generated from securities Fund invested cash collateral had a weighted average lending transactions is then split between the Fund maturity of 26 days to reset date. and its securities lending agent.
During the fiscal year ending August 31, 2020, the For fiscal year ended August 31, 2020, securities Agent did not experience any losses on securities lending revenue totaled $8,089,907, expenditures for lending activity as a result of borrower defaults. In bank fees and other adjustments totaled $1,213,243, addition, there were no prior losses to recover in the while net securities lending income totaled current fiscal year. $6,876,664.
Certain assets held in the invested cash collateral 8. DEFERRED INFLOWS OF RESOURCES pool experienced a permanent impairment as of September 30, 2008. The original cost basis of these Deferred inflows of resources relate primarily to permanently impaired assets totaled $104,953,800. interest and dividends measurable at year-end and Partial cash recoveries since impairment have due to the PSF(SBOE) and Liquid(SBOE), but which reduced the amortized cost to $71,717,706. Beginning are not available within sixty days subsequent of year- in April 2013, all Fund earnings from the securities end for satisfaction of current liabilities. lending program have been directed to further reduce the amortized cost. At fiscal year-end, these assets 9. FUND BALANCE remain in the cash collateral pool at an amortized cost of $14,046,961; however, the estimated market value The PSF fund balance has been classified on the face is $0 as of August 31, 2020. of the balance sheet in accordance with GASB 54,
As of August 31, 2020, the fair value of securities on which establishes criteria for classifying fund balances loan to brokers equaled $1,522,711,390 against non- into specifically defined classifications detailed above cash collateral with a fair value of $204,855,739 and in Note 1.D., and clarifies definitions for governmental invested cash collateral with a cost basis of fund types. $1,367,807,882 and a fair value of $1,354,075,618. Non-cash collateral received for securities lending Article VII of the Texas Constitution describes the activities is not recorded as assets because the Fund as a permanent school fund set apart for the underlying investments remain under the control of support of public schools, and specifically describes the borrower, except in the event of default. how the Fund may be spent. In accordance with the permanent nature of the Fund, the entirety of the fund At fiscal year-end, the Fund does not have a credit balance is classified as nonspendable, except for risk associated with the securities lending program, those items the Texas Constitution explicitly allows to because the Fund owes the borrowers a total of be spent from the Fund, which are classified as $1,572,553,249 in non-cash and cash collateral while restricted since all Fund spending must be in support the borrowers owe securities back to the Fund with a of public free schools. The items for which the Fund fair value of $1,522,711,390. may be spent are transfers to the Available School Fund, expenses of managing the Fund land and Income is earned in two ways from loaning securities. investments, and guaranteed bond payments in the If the broker provides cash collateral, income is event of default. Since the legislature makes earned by investing the cash collateral, and the broker appropriations on a biennial basis, the unexpended is compensated with a “rebate,” an interest rate paid appropriation for the biennial period is reflected as on the cash collateral given. If the investment of cash restricted. Transfers to the Available School Fund are collateral fails to provide enough income to pay the approved annually by the State Board of Education, rebate, the Fund and its Agent share the difference so the annual transfer amount for the next period is based on the agreed upon earnings split. During the reflected as restricted. year ended August 31, 2020, income generated from 49 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Based on these Constitutional provisions, fund payable to the school district. The amount withheld balance as of August 31, 2020 is classified as follows: will be deposited to the credit of the PSF. To date, no school districts have ever defaulted on their PSF(SBOE) Liquid(SBOE) PSF(SLB) Total guaranteed bonded indebtedness. Nonspendable Fund Balance $ 34,644,311,682 $ 4,048,057,420 $ 6,831,978,179 $ 45,524,347,281 (1) Restricted Fund Balance In 2011, the 82nd Texas Legislature enacted Senate Appropriated Expenditures $ 30,368,908 $ - $ 19,195,510 $ 49,564,418 (2) Transfer to the ASF 1,101,669,657 - - 1,101,669,657 (3) Bill 1, Chapter 4, section 59.01 which established the Bond Defaults - - - - (4) Charter District Bond Guarantee Program as a new Total Restricted Fund Balance $ 1,132,038,565 $ - $ 19,195,510 $ 1,151,234,075 component of the Bond Guarantee Program, and
Total Fund Balance authorized the use of the PSF to guarantee revenue at August 31, 2020 $ 35,776,350,247 $ 4,048,057,420 $ 6,851,173,689 $ 46,675,581,356 bonds issued by or for the benefit of certain open-
The Constitutional authority citation is: enrollment charter schools that are designated as (1) Texas Constitution, Article 7, Sec. 2 “charter districts” by the Commissioner. Charter (2) Texas Constitution, Article 7, Sec. 5.(a) (3) Texas Constitution, Article 7, Sec. 5.(b) district applicants are subject to the same application (4) Texas Constitution, Article 7, Sec. 5.(d) fee structure as described above for school districts. The Texas Constitution, Article 7, Sec. 5.(g), allows Upon meeting certain statutory eligibility requirements the General Land Office to transfer at its sole and approval by the Commissioner, bonds properly discretion up to $600 million each year from revenue issued by a charter district participating in the derived during that year from the land or properties to Program are fully guaranteed by the corpus of the the Available School Fund. Accordingly, since any PSF. Implementation of the Charter District Bond such transfers must be made by the measurement Guarantee Program was deferred pending receipt of date, they are not included as a component of the guidance from the Internal Revenue Service, which restricted fund balance classification detailed above. was received in September 2013, and the establishment of regulations to govern the program, 10. NON-EXCHANGE FINANCIAL GUARANTEES which were published for public comment in December 2013, approved in January 2014, and Bond Guarantee Program became effective in March 2014. In 1983, the voters of the State approved a constitutional amendment which provides for the Statute requires charter district participants in the guarantee of school district bonds by the Permanent Program to contribute a portion of their savings that School Fund. This amendment was statutorily codified result from their participation in the Program to a in the Texas Education Code Title 2, Subtitle I, Charter District Bond Guarantee Reserve Fund. This Chapter 45, Subchapter C. The Guarantee Program is fund is separately managed by TEA. In the event of a administered by the Commissioner. For eligible default by a charter district, the Commissioner shall bonds, including refunding bonds, school districts instruct the CPA to transfer from the Charter District apply for guarantee and pay a processing fee of Bond Guarantee Reserve Fund to the district’s paying $1,500. The Commissioner may endorse bonds for agent the amount necessary to pay the maturing or guarantee only after investigating the accreditation matured principal and/or interest. If funds in the and financial viability of the applying school district. If Charter District Bond Guarantee Reserve Fund are the school district is considered viable and the bonds insufficient to pay the amount due on a bond in are approved by the State of Texas Attorney General, default, the payment process followed is the same as then the guarantee is endorsed at a zero premium for school districts. As with school districts, no charter charge to the district. In the event of a default by a districts have defaulted on their guaranteed bonded school district, and upon proper notice to the indebtedness. Commissioner, the PSF will transfer to the Paying Agent/Registrar an amount necessary to pay the The Internal Revenue Service issued Notice 2010-5 maturing or matured principal and/or interest. Upon on December 16, 2009 stating that it intended to receipt of funds for payment of such principal or propose regulations to replace the previous federal interest, the Paying Agent/Registrar must pay the law limit on the Guarantee program capacity to be no amount due and forward the canceled Bond or more than five times the cost value of the PSF on that evidence of payment of the interest to the CPA. The date. Section 4 of the Notice states that it may be Commissioner will instruct the CPA to withhold the relied on for bonds issued after December 16, 2009. amount paid, plus interest, from the first State money The Notice was codified by Internal Revenue Code 1.148-11(d)(1)(F) on July 18, 2016. 50 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
The 80th Texas Legislature adopted a change in the 11. CONTINGENCIES state law limit, amending Section 45.053 of the Texas Education Code to allow the SBOE to increase the A. Bond Guarantee Program guarantee capacity up to five times the cost value of As described by Note 10 in greater detail, the the PSF, provided that the Board determines that any TEA administers a Bond Guarantee Program for increase will still allow school district bonds to receive qualified school districts and charter districts who the highest rating. Effective March 29, 2018, the choose to participate. The purpose of the Program is SBOE authorized capacity multiplier for the State to ultimately reduce borrowing costs for participating Capacity Limit was adjusted to 3.50 times the cost districts by increasing their credit rating through value of the Fund, including the portion managed by association with the Program. The TEA, through the the SLB. PSF, commits to payment of the next scheduled principal or interest payment on behalf of a As of August 31, 2020, the capacity of the Guarantee participating district in the event of that district’s Program was $117,318,653,038 under Federal law default. and $128,247,002,583 under State law. Total outstanding bonds guaranteed by the PSF under this B. Pending Litigation program totaled $90,336,680,245 at August 31, 2020; The PSF(SBOE) has potential liability in a class action of that, $87,800,478,245 was for school district defense which asserts fraudulent conveyance claims guarantees (852 school districts) and $2,536,202,000 and which seeks to recover moneys paid the was for charter district guarantees (20 charter PSF(SBOE) for the sale of publicly-traded securities in districts). These dollar amounts represent the response to tender offers made in the context of outstanding principal amount of the bonds issued. leveraged buy-outs. While ultimately uncertain They do not reflect any subsequent accretions in whether the PSF(SBOE) will have any liability for this value for the compound interest bonds (zero coupon matter, management believes that it is unlikely that bonds), nor do they include interest on current interest this suit will result in any liability to the Fund during the bonds or variable rate notes. The balances also twelve months subsequent to August 31, 2020, exclude bonds that have been refunded and released therefore, in accordance with GAAP, no accrual for from the Bond Guarantee Program. The balance of this matter is currently reflected in the accompanying bonds guaranteed under the program does not financial statements. The Attorney General's Office is exceed the calculated capacity of the program as of representing the PSF(SBOE) and asserting sovereign August 31, 2020. immunity and other defenses.
Guarantees extend through the maturity dates of the Tribune Company, No. 08-13141; The Official bonds. As of August 31, 2020, the total principal debt Committee of Unsecured Creditors of Tribune guaranteed on bond issues was $90,336,680,245, the Company v. Fitzsimmons, Adv. Pro. No. 10-54010 expected interest to be paid out over the remaining life (Bankr. D. Del); and Deutsche Bank v. Employees of those bond issues was $49,656,254,001, and the Retirement Fund of the City of Dallas, No. 3:11-CV- final maturity is scheduled to occur in the year 2055. 1167-F; (N. D. Tex. Dallas Div.) CONSOLIDATED in: Tribune Company Fraudulent Conveyance Litigation; As of August 31, 2020, no financial liability to the PSF Nos. 11-MD-2296 and 12-MC-2296 (S. D. N. Y.) has been recorded in relation to the Fund’s obligation to stand ready to perform over the term of the The PSF(SBOE) received approximately $3.9 million guarantee. The guarantee functions as a liquidity for Tribune stock. facility and an intercept program that carries very little risk to the PSF. The guarantee is offered at a nominal As of August 31, 2020, certain lawsuits were pending cost to a school district or charter district that properly against the state and/or the Commissioner of the applies, receives endorsement by the Commissioner, GLO, which challenge the Fund’s title to certain real and has its bonds approved by the State of Texas property or past mineral income from that property. Attorney General. The following lawsuits are pending and may represent contingent liabilities:
The remainder of this column The remainder of this column intentionally left blank intentionally left blank
51 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
BHP Billiton Petroleum Properties, (N.A.), LP The possible final amount of loss is indeterminable at v. Rio Oil & Gas (Permian) II, LLC this time. State issued deep rights lease to Defendant; Plaintiff filed suit to quiet title on its belief that it retained some Lone Oak Club, LLC v. Jerry Patterson, et al. of same through a pooling agreement. Petition filed Plaintiff filed a trespass to try title suit, asserting April 4, 2019; GLO petition in intervention filed June ownership to certain property involving the tidally 14, 2019; summary judgment hearing held August 6, influenced boundary in Chambers County, and alleging 2020; trial continued to March 17, 2021. The that the Land Commissioner, through ultra vires acts, probability of liability is reasonably possible. The has wrongfully asserted jurisdiction, title and right to possible final amount of loss is indeterminable at this possession and control over watercourses or navigable time. streams on said properties; has been encouraging the general public to commit trespass and hunt without Cook v. Bentsen, et al. consent on the properties and streambeds and has Plaintiff filed suit to quiet title, also alleging conversion unreasonably interfered with Plaintiff's rights to and bringing a turnover action as to royalty payments possession, use, control and quiet enjoyment. Plaintiff and further seeks declaratory relief related to property seeks title and possession of the disputed property, in Starr County. Petition filed October 8, 2019; Answer pre- and post- judgment interest and reasonable and jurisdictional plea filed May 26, 2020; partial attorney's fees. Lone Oak’s Motion to Retain was summary judgment hearing held August 4, 2020; granted November 19, 2015. On April 14, 2016, Plaintiff granted August 17, 2020; Non-State Defendants filed a filed a motion to substitute counsel and subsequently supplemental summary judgment motion on August 26, substituted Commissioner Bush for Patterson and non- 2020 and noticed the hearing for October 13, 2020. suited all other remaining Defendants. Rule 166 The probability of liability is possible. The possible final Conference held June 30, 2016: claims related to all, amount of loss is indeterminable at this time. but one tract severed and abated. On October 26, 2016, the court granted Lone Oak’s summary judgment Fleming v. Bush, in his Capacity as Texas Land motion, denying the Commissioner’s motion. Judgment Commissioner entered January 26, 2017, following hearing on same. Plaintiff seeks judgment for title to and possession of GLO noticed appeal on February 24, 2017; assigned to identified real property in Nueces County, as well as 1st Court of Appeals. Briefed in full as of November 22, declarations 1) that the title claimed by Land 2017; submitted on briefs January 30, 2018; affirmed Commissioner Bush, if any, is invalid and 2) via Opinion issued February 22, 2018. Supreme Court establishing property boundaries. Petition filed July 18, petition filed June 8, 2018; court-requested response 2018; Answer and jurisdictional plea filed August 17, filed August 20, 2018; Reply filed November 5, 2018. 2018. Jurisdictional plea/summary judgment motion Merits briefing requested: fully briefed on merits as of filed January 15, 2019. On February 4, 2019, Fleming May 20, 2019; submitted September 17, 2019 post-oral filed an amended petition and a jurisdictional argument. Opinion issued April 24, 2020 reversing plea/summary judgment response; Commissioner’s summary judgment in favor of Lone Oak and reply filed February 8, 2019; hearing held February 11, remanding for further district court proceedings. The 2019 and motion taken under advisement. The probability of liability is reasonably possible. The probability of liability is remote. The possible final possible final amount of loss is indeterminable at this amount of loss is indeterminable at this time. time.
Hudspeth County V. GLO & Bush, as Land Signal Drilling, LLC, et al. v. New-Tex Operating, Commissioner LLC, et al. Suit for taking (GLO) and trespass to try title Plaintiff sued for injunctive relief and compensation for (Commissioner) in context of minerals (Sand, gravel, alleged interest in oil, gas, and mineral leases. Answer limestone, igneous rock) produced pursuant to mining filed October 26, 2015. On December 4, 2015, New- lease with Desert Rock Co. to which Plaintiff lays claim Tex Defendants filed a First Amended Answer and a and alleges it has not been compensated for. Petition Second Amended Counterclaim. On December 24, filed July 3, 2018; Answer and jurisdictional plea filed 2015, Signal propounded discovery on the agency and August 1, 2018. Summary judgement motion filed in filed a Second Amended Petition and Applications for support of Commissioner’s plea hearing held May 9, Receivership and Injunctive Relief, in which Jaten Oil 2019.The probability of liability is reasonably possible. Company is also named as a Plaintiff and multiple causes of action are alleged as against the GLO and 52 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
Commissioner Bush. On January 15, 2016, the GLO dissolved the prior injunction between Signal and filed its First Amended Answer/Jurisdictional Plea. On New-Tex, the former of which entered into a new March 21, 2016, the court granted without hearing an agreement as to timelines by when assignee opposed motion for continuance on the GLO’s plea Ponderosa is to timely deposit royalties into the court hearing, previously reset for March 23, 2016. On April registry. GLO plea heard September 12, 2017; 19, 2016, the agency filed a First Amended Motion for continuance granted as to Plaintiffs’ partial summary Protective Order in response to Signal’s attempt to judgment motions previously set for late September. serve a second set of discovery requests; GLO’s plea GLO plea denied October 12, 2017; interlocutory hearing reset for June 8, 2016. On June 7, 2016, the appeal briefed in full as of March 26, 2018; argued court signed an order as to Signal’s nonsuit without September 12, 2018. On March 27, 2019, Riemer prejudice of all claims against the GLO and plaintiff Hap Johnson Royalty Co., LLC filed a plea in Commissioner Bush. On September 8, 2016, the GLO intervention, notwithstanding that the Signal Drilling filed its jurisdictional plea as to Jaten/Riparia claims, lawsuit is currently stayed given the pending noticing a hearing for October 19, 2016. On interlocutory appeal. By opinion issued October 30, September 29, 2016, Signal filed a motion for partial 2019, the 7th Court of Appeals affirmed the denial of summary judgment as against the New-Tex the GLO’s jurisdictional plea. Preliminary briefed in full Defendants, also to be heard October 19, 2016. On at the Supreme Court as of April 27, 2020; via October 13, 2016, the court signed an order on extensions, GLO merits brief filed August 12, 2020; Jaten/Riparia’s nonsuit without prejudice of all claims appellee merits briefs due October 1, 2020. The against the State, the GLO and Commissioner Bush, probability of liability is reasonably possible. The removing all State Defendants from the litigation and possible final amount of loss is indeterminable at this mooting the need for the October 19th jurisdictional time. plea hearing. On November 22, 2016, the New-Tex Defendants filed a motion to dismiss (absence of the State of Texas v. BPX Properties (NA) LP State as an indispensable party) and a partial Suit for breach of lease and declaratory relief summary judgment motion for a declaration that the stemming from a dispute as to whether the lease at subject Jaten Top Lease is void as violative of the rule issue has been terminated at depths below 11,613 against perpetuities. On December 8, 2016, Signal feet. Petition filed November 15, 2019; Defendant filed filed a Third Amended Petition, naming Ponderosa a 91a motion to dismiss January 20, 2020; summary Operating, LLC and Ponderosa Energy, LLC as judgment hearing held August 6, 2020; trial date set defendants, to which New-Tex allegedly assigned its for February 4, 2021. (subject) leasehold interest effective as of May 1, 2016. Ponderosa Energy filed its answer on State v. Riemer December 26, 2016, denying property ownership and State alleged unlawful fencing of the Canadian River arguing indispensability of the State as necessary bed below Sanford Dam; Riemer filed multiple party. On January 26, 2017, Ponderosa Operating, counterclaims. Trial court denied the State's plea to LLC filed a plea in abatement. On February 21, 2017, the jurisdiction. Appellate court reversed, ordering the Signal filed its First Supplemental Petition and trial court to dismiss all claims against the State Application for Declaratory Relief, seeking in part to except Riemer's claim to the surface of the two tracts bring the State and Commissioner Bush back into the as well as select takings claims of other parties who litigation (not seeking “to (re)assert affirmative claims sought class certification. On December 30, 2009, the for relief against the [GLO], but rather merely add trial court denied class certification, a decision them … as a necessary and indispensable party”); affirmed on appeal in May 2011. Counter-Plaintiffs and Ponderosa Operating, LLC filed an amended plea filed a petition for review with the Texas Supreme in abatement. Signal served its supplemental petition Court, which held that the trial court abused its on the Commissioner and the agency on March 16, discretion and reversed and remanded the matter to 2017; answer due April 10, 2017. On March 30, 2017, the Seventh Court of Appeals to address the Signal filed a Motion for Modification of Temporary remaining contested class certification requirements. Injunction Order, noticing a hearing for April 5, 2017. Appellate oral arguments were held on November 4, The GLO filed its answer early, including a 2013. In an opinion issued November 26, 2014, the 7th jurisdictional plea for which a motion to shorten time Court affirmed the denial of class certification. On was also filed to have it heard contemporaneously; January 9, 2015, Riemer filed a petition for review with however, the court continued the plea, allowing for the Texas Supreme Court; the State filed its response limited jurisdictional discovery in the interim and on February 9, 2015; and Riemer filed a reply on 53 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
February 24, 2015. In response to the Court’s request Complaint filed January 22, 2020 as against Bush and for merits briefing (and via extensions granted), Riemer ATI CEO; motion(s) to dismiss filed February 19, filed on July 1, 2015; the State filed its Response on 2020; held in abeyance in tandem with the grant of August 20, 2015 and Riemer filed a Reply on Plaintiffs’ motion for continuance; Defendants’ 12(b) September 25, 2015. On October 23, 2015, the Court dismissal motions briefed in full as of May 11, 2020; denied Riemer’s petition. Riemer’s motion for rehearing case dismissed in full by order signed September 23, was filed December 7, 2015 and denied January 8, 2020. 2016. On February 27, 2017, Riemer filed in district court its 14th Amended Counterclaim and 12th West Gulf Marine, Ltd. v. Texas General Land Office Amended Third Party Petition, as well as motions for & George P. Bush partial summary judgment on limitations and Plaintiff seeks title determination as to certain navigability. Hearing held May 22, 2017, wherein both submerged properties under Galveston Bay, or Riemer partial summary judgments were granted. On alternatively to recover compensation for properties September 20, 2017, Plaintiffs filed a motion to sever allegedly taken. Petition filed December 7, 2018; (properties – albeit not specifically identified – west of answered January 11, 2019; jurisdictional plea filed the Borger-Stinnett Highway from those east); case June 19, 2019; argued August 8, 2019; granted reassigned to Judge Brancheau, who requested case August 14, 2019. West Gulf filed its Notice of Appeal status briefs. State’s plea and Riemer’s motion to sever on September 13, 2019; by extensions, briefed in full heard November 1, 2017; by letter ruling dated as of March 4, 2020. Oral argument set for December 2, 2017, the court granted the motion to October 22, 2020. The probability of liability is sever, denied the State’s plea outright as to the severed reasonably possible. The possible final amount of loss cause (Plaintiffs west of the highway) and granted the is indeterminable at this time. plea as to each Defendant of non-constitutional takings claims in the original cause (Plaintiffs east of the There may be substantial legal obstacles to highway). Interlocutory appeal briefed in full as of March satisfaction of a judgment with Fund monies. The 27, 2018; argued December 5, 2018. Upon receipt of above lawsuits are referenced in this note as Railroad Commission letters communicating a contract contingent liabilities in the interest of full disclosure. award to commence plugging operations on Riemer tracts, Riemer filed in the appellate court an emergency While ultimately uncertain whether the Fund will have motion to lift the automatic stay; briefed in full as of any liability for these matters, management believes February 12, 2019; denied by order issued February that it is unlikely that these suits will result in any 15, 2019. On March 7, 2019, the 7th Court of Appeals liability to the Fund during the twelve months affirmed the trial court’s denial of the GLO’s subsequent to August 31, 2020; therefore, in jurisdictional plea; mandate issued May 24, 2019. accordance with GAAP, no accrual for these matters Discovery is in progress; trial to be reset to 2021. The is currently reflected in the accompanying financial probability of liability is reasonably possible. The statements. The possibility that payment will be possible final amount of loss is indeterminable at this required from the Fund is remote. time. The GLO had a claim amount of $4,702,727 for oil Tap Pilam Coahuiltecan Nation, et al. v. George P. and gas sales transactions related to Enron Bush, et al. Corporation, of which none was accrued as revenue Plaintiffs filed a civil rights action challenging in the year of Enron’s bankruptcy due to the Defendants’ alleged restriction on Plaintiffs’ right to unlikelihood of its collection. Revenues will be participate in Defendants’ adopted Human Remains recognized in the years collections are received. The Protocol, alleging violations of the (US Constitution) GLO received and recognized total cumulative First and 14th Amendments, Texas Religious revenues of $2,771,016 through August 31, 2020. Freedom Protection Act and the American Indian Religious Freedom Act, seeking declaratory and injunctive relief, nominal damages and attorney’s fees. Petition filed September 10, 2019; served September The remainder of this column 16, 2019; awaiting court ruling on Defendants’ 12(b) intentionally left blank motion(s) to dismiss filed October 21, 2019; GLO and Commissioner Bush dismissed without prejudice by order issued December 23, 2019. Amended 54 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
12. SIGNIFICANT COMMITMENTS On August 18, 2020, the SLB adopted a resolution that releases $875 million from the Real Estate In November 2018, the SBOE set the distribution rate Special Fund Account (RESFA) during fiscal year to the ASF for the 2020-2021 biennium at 2.9%. The 2022 and fiscal year 2023 to the Available School PSF(SBOE) will distribute approximately $1.1 billion Fund. The funds are scheduled to be released in four annually for each year of the 2020-2021 biennium. quarterly installments of $103.75 million each on the 25th day (or next succeeding business day if the 25th As of August 31, 2020, the SBOE has approved and is not a business day) of November 2021, February the Fund made cumulative capital commitments to 2022, May 2022, August 2022, and four quarterly externally managed real estate investment funds in a installments of $115 million each on the 25th day (or total amount of $5.7 billion and capital commitments next succeeding business day if the 25th is not a to private equity limited partnerships for a total of $7.5 business day) of November 2022, February 2023, billion, to be implemented over the next several years. May 2023, and August 2023, respectively. Unfunded commitments at August 31, 2020 totaled $2.0 billion in real estate investments and $2.4 billion The current land inventory includes approximately 353 in private equity investments. acres of PSF property that is the remaining inventory of the Paseo Del Este development. This acreage is During the fiscal year, new commitments were subject to a commitment to sell parcels of land over approved for real estate investment funds in the time as the development proceeds. The sales price of amount of $779.9 million, and for private equity limited specific parcels are governed by the terms of a partnerships in the amount of $816.5 million. All such Purchase Contract effective June 1, 1998, and the commitments are subject to successful negotiation of four subsequent contract amendments, and are contracts. subject to an annual seven percent (7%) increase compounded annually, but calculated on a per diem The PSF(SLB) makes investments in certain limited basis. This remaining acreage is reported in inventory partnerships that legally commit it to future capital at a fair value of $13,602,371 as of August 31, 2020. contributions of which approximately $2.73 billion remains unfunded as of August 31, 2020. 13. RELATED PARTIES
On August 21, 2018, the SLB adopted a resolution The PSF(SBOE) is the sole member for certain limited that releases $600 million from the Real Estate liability companies it has elected to establish as Special Fund Account (RESFA) during fiscal year vehicles for investments in the absolute return and 2020 and fiscal year 2021 to the Available School emerging market equity asset classes. The fair value Fund. The funds are scheduled to be released in eight of the investments held by these vehicles is carried in quarterly installments of $75 million each on the 25th the balance sheet and more fully discussed in Note 2 day (or next succeeding business day if the 25th is not above. During the fiscal year, the PSF(SBOE) a business day) of November 2019, February 2020, transferred $269.6 million between these investment May 2020, August 2020, November 2020, February vehicles and invested $179.8 million in two of the 2021, May 2021, and August 2021, respectively. vehicles. At fiscal year-end, there were no outstanding receivables or payables between the PSF(SBOE) and On November 19, 2018, the SLB adopted a resolution these investment vehicles, nor were there any that releases $55 million from the Real Estate Special outstanding commitments to or from the vehicles. Fund Account (RESFA) during fiscal year 2020 and fiscal year 2021 to the State Board of Education for investment in the PSF. The funds are scheduled to be released in four quarterly installments of $2.5 million each on the 25th day (or next succeeding business day if the 25th is not a business day) of November The remainder of this column 2019, February 2020, May 2020, and August 2020, intentionally left blank and four quarterly installments of $11.25 million each on the 25th day (or next succeeding business day if the 25th is not a business day) November 2020, February 2021, May 2021, and August 2021, respectively. 55 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
In accordance with the Investment Vehicle Guidelines Capitol Co-Investments 8, LLC adopted by the School Land Board in July 2018, the On behalf of the State of Texas for the use and benefit GLO can form and utilize special purpose vehicles of PSF(SLB), the GLO has formed an SPV, Capitol (SPVs), such as limited liability companies (LLCs), Co-Investments 8, LLC (the Company). The special purpose corporations, and limited Company’s purpose is to make, hold and dispose of partnerships, to isolate liabilities, limit future funding one or more investments and serve any other lawful obligations, avoid submitting to foreign jurisdictions, purpose for which a limited liability company may be and to enhance the transferability of an investment. organized under Texas Business Organizations Code. Since the State of Texas for the use and benefit of PSF(SLB) is the sole member of the Company; hence PSF(SLB) owns 100% of the SPVs, the GLO and the the GLO, acting on behalf of PSF(SLB), has full SPVs are related parties; however, there are no authority over the Company’s operations. PSF(SLB) is related party transactions between the Fund and the entitled to all distributions and the GLO, acting on SPV’s. behalf of PSF(SLB), elects when the Company may be dissolved. Upon dissolution, title to all property Following is a brief description of each of the currently held by the Company will be transferred to PSF(SLB). active SPVs formed by the GLO: The SLB approved an increase of $180 million in its existing investment in Capitol Co-Investments 8, LLC Capitol Co-Investments 6, LLC at its September 4, 2018 meeting. As of August 31, On behalf of the State of Texas for the use and benefit 2020, Capitol Co-Investments 8, LLC has a net asset of PSF(SLB), the GLO has formed an SPV, Capitol value of $312,820,052. Co-Investments 6, LLC (the Company). The Company’s purpose is to make, hold and dispose of Capitol Co-Investments 9, LLC one or more investments and serve any other lawful On behalf of the State of Texas for the use and benefit purpose for which a limited liability company may be of PSF(SLB), the GLO has formed an SPV, Capitol organized under Texas Business Organizations Code. Co-Investments 9, LLC (the Company). The PSF(SLB) is the sole member of the Company; hence Company’s purpose is to make, hold and dispose of the GLO, acting on behalf of PSF(SLB), has full one or more investments and serve any other lawful authority over the Company’s operations. PSF(SLB) is purpose for which a limited liability company may be entitled to all distributions and the GLO, acting on organized under Texas Business Organizations Code. behalf of PSF(SLB), elects when the Company may PSF(SLB) is the sole member of the Company; hence be dissolved. Upon dissolution, title to all property the GLO, acting on behalf of PSF(SLB), has full held by the Company will be transferred to PSF(SLB). authority over the Company’s operations. PSF(SLB) is As of August 31, 2020, Capitol Co-Investments 6, LLC entitled to all distributions and the GLO, acting on has a net asset value of $26,172,159. behalf of PSF(SLB), elects when the Company may be dissolved. Upon dissolution, title to all property Capitol Co-Investments 7, LLC held by the Company will be transferred to PSF(SLB). On behalf of the State of Texas for the use and benefit As of August 31, 2020, Capitol Co-Investments 9, LLC of PSF(SLB), the GLO has formed an SPV, Capitol has a net asset value of $116,250,000. Co-Investments 7, LLC (the Company). The Company’s purpose is to make, hold and dispose of Capitol Co-Investments 11, LLC one or more investments and serve any other lawful On behalf of the State of Texas for the use and benefit purpose for which a limited liability company may be of PSF(SLB), the GLO has formed an SPV, Capitol organized under Texas Business Organizations Code. Co-Investments 11, LLC (the Company). The PSF(SLB) is the sole member of the Company; hence Company’s purpose is to make, hold and dispose of the GLO, acting on behalf of PSF(SLB), has full one or more investments and serve any other lawful authority over the Company’s operations. PSF(SLB) is purpose for which a limited liability company may be entitled to all distributions and the GLO, acting on organized under Texas Business Organizations Code. behalf of the PSF(SLB), elects when the Company PSF(SLB) is the sole member of the Company; hence may be dissolved. Upon dissolution, title to all the GLO, acting on behalf of PSF(SLB), has full property held by the Company will be transferred to authority over the Company’s operations. PSF(SLB) is PSF(SLB). As of August 31, 2020, Capitol Co- entitled to all distributions and the GLO, acting on Investments 7, LLC has a net asset value of behalf of PSF(SLB), elects when the Company may $65,039,000. be dissolved. Upon dissolution, title to all property held by the Company will be transferred to PSF(SLB). 56 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS
As of August 31, 2020, Capitol Co-Investments 11, As of August 31, 2020, Capitol Co-Investments 14, LLC has a net asset value of $36,601,184. LLC has a net asset value of $28,716,277.
Capitol Co-Investments 12, LLC Capitol Co-Investments 15, LLC On behalf of the State of Texas for the use and benefit On behalf of the State of Texas for the use and benefit of PSF(SLB), the GLO has formed an SPV, Capitol of PSF(SLB), the GLO has formed an SPV, Capitol Co-Investments 12, LLC (the Company). The Co-Investments 15, LLC (the Company). The Company’s purpose is to make, hold and dispose of Company’s purpose is to make, hold and dispose of one or more investments and serve any other lawful one or more investments and serve any other lawful purpose for which a limited liability company may be purpose for which a limited liability company may be organized under Texas Business Organizations Code. organized under Texas Business Organizations Code. PSF(SLB) is the sole member of the Company; hence PSF(SLB) is the sole member of the Company; hence the GLO, acting on behalf of PSF(SLB), has full the GLO, acting on behalf of PSF(SLB), has full authority over the Company’s operations. PSF(SLB) is authority over the Company’s operations. PSF(SLB) is entitled to all distributions and the GLO, acting on entitled to all distributions and the GLO, acting on behalf of PSF(SLB), elects when the Company may behalf of PSF(SLB), elects when the Company may be dissolved. Upon dissolution, title to all property be dissolved. Upon dissolution, title to all property held by the Company will be transferred to PSF(SLB). held by the Company will be transferred to PSF(SLB). As of August 31, 2020, Capitol Co-Investments 12, As of August 31, 2020, Capitol Co-Investments 15, LLC has a net asset value of $50,031,276. LLC has a net asset value of $36,904,064.
Capitol Co-Investments 13, LLC Capitol Co-Investments 16, LLC On behalf of the State of Texas for the use and benefit On behalf of the State of Texas for the use and benefit of PSF(SLB), the GLO has formed an SPV, Capitol of PSF(SLB), the GLO has formed an SPV, Capitol Co-Investments 13, LLC (the Company). The Co-Investments 16, LLC (the Company). The Company’s purpose is to make, hold and dispose of Company’s purpose is to make, hold and dispose of one or more investments and serve any other lawful one or more investments and serve any other lawful purpose for which a limited liability company may be purpose for which a limited liability company may be organized under Texas Business Organizations Code. organized under Texas Business Organizations Code. PSF(SLB) is the sole member of the Company; hence PSF(SLB) is the sole member of the Company; hence the GLO, acting on behalf of PSF(SLB), has full the GLO, acting on behalf of PSF(SLB), has full authority over the Company’s operations. PSF(SLB) is authority over the Company’s operations. PSF(SLB) is entitled to all distributions and the GLO, acting on entitled to all distributions and the GLO, acting on behalf of PSF(SLB), elects when the Company may behalf of PSF(SLB), elects when the Company may be dissolved. Upon dissolution, title to all property be dissolved. Upon dissolution, title to all property held by the Company will be transferred to PSF(SLB). held by the Company will be transferred to PSF(SLB). As of August 31, 2020, Capitol Co-Investments 13, The SLB approved a $75 million increase to its LLC has a net asset value of $54,996,428. original $125 million capital commitment to Capitol Co-Investments 16, LLC on July 23, 2019. As of Capitol Co-Investments 14, LLC August 31, 2020, Capitol Co-Investments 16, LLC has On behalf of the State of Texas for the use and benefit a net asset value of $175,960,059. of PSF(SLB), the GLO has formed an SPV, Capitol Co-Investments 14, LLC (the Company). The Tenancy In Common and Joint Ventures Company’s purpose is to make, hold and dispose of In July 2007, a one-half tenancy in common interest one or more investments and serve any other lawful was formed between the SLB and Cherokee Sugar purpose for which a limited liability company may be Land, LP, for the use and benefit of the PSF. This joint organized under Texas Business Organizations Code. tenancy in common was formed to develop the PSF(SLB) is the sole member of the Company; hence combined tracts of land over several years. The PSF the GLO, acting on behalf of PSF(SLB), has full will pay one-half of the development cost and will authority over the Company’s operations. PSF(SLB) is participate in one-half of all income. Imperial Johnson, entitled to all distributions and the GLO, acting on LLC, the development manager, submits an annual behalf of PSF(SLB), elects when the Company may budget to the PSF for approval. During fiscal 2020, a be dissolved. Upon dissolution, title to all property total of approximately $559 thousand was contributed held by the Company will be transferred to PSF(SLB). to fund development costs. Additionally, a payable of 57 TEXAS PERMANENT SCHOOL FUND NOTES TO THE FINANCIAL STATEMENTS approximately $43 thousand for development costs 14. SUBSEQUENT EVENTS has been accrued as of August 31, 2020. On July 2, 2020, the SBOE updated the Fund’s long- In 2005, the PSF acquired 1,984 acres located in New term strategic asset allocation which included the Braunfels, Texas fee simple, associated with a liquidation of assets held in the Risk Parity investment Development/Disposition Agreement with RS New strategy. Approximately half of the assets held in this Braunfels, LTD and RS New Braunfels, Two, LTD. investment strategy were redeemed and reallocated The purpose of the contractual agreement was for the prior to year-end while the remaining assets totaling agent to obtain necessary entitlements to enhance the approximately $1.1 billion were redeemed and value and marketability of the assets. reallocated in full on October 5, 2020.
In August 2012, Galveston Preserve at West Beach, On September 11, 2020, the State Board of Education Ltd., a Texas limited partnership, was formed between (SBOE), in accordance with Section 43.0051, MP Marquette Galveston LLC and Marquette Education Code, approved the transfer of $300 million Preserve, LP, LLC – both Texas limited liability during fiscal year 2021 from the portion of the PSF companies – and the SLB for the use and benefit of managed by the SBOE to the Real Estate Special the PSF. The PSF contributed 1,031.52 acres to the Fund Account (RESFA) managed by the School Land partnership. The acreage will be used for a mixed use Board (SLB), with the intent that the SLB will then residential/commercial development. distribute this $300 million directly to the Available School Fund (ASF) during fiscal year 2021. The In April 2014, Grand Parkway 1358, LP, a Texas SBOE will make transfers to the RESFA in quarterly limited partnership, was formed between Johnson GP installments of $75 million each prior to the dates 1358, LLC and Johnson 1258 Investors LLC – both previously approved by the SLB in 2018 for its fiscal Texas limited liability companies – and the SLB for the year 2021 releases from the RESFA to the ASF and use and benefit of the Permanent School Fund (PSF). SBOE (i.e., quarterly on the 25th day, or the next The development, known as Harvest Green, is a succeeding business day, of November 2020, mixed use residential/commercial development February 2021, May 2021, and August 2021). located near Sugarland, Texas. The PSF contributed 1,343.679 acres of land to the partnership. The On October 20, 2020, the SLB adopted a resolution infrastructure for the master-planned development that releases the $300 million described in the began in late 2014. immediately preceding paragraph from the RESFA to the ASF during fiscal year 2021 in four quarterly In May 2017, 290 WR Holdings LP, a Texas limited installments of $75 million each on the 25th day, or partnership was formed between Johnson WR the next succeeding business day, of November 2020, Investors LLC, Johnson WR GP LLC, and the SLB for February 2021, May 2021, and August 2021. When the use and benefit of the Permanent School Fund combined with the amounts previously approved by (PSF). The partnership acquired 1,617 acres located the SLB in 2018 for release to the ASF and SBOE in northwest Houston. The property is planned for a during fiscal year 2021, the total amount to be future master-planned community. The master- released by the SLB to the ASF and SBOE during planned development is scheduled to begin fiscal year 2021 is $645 million (i.e., $600 million to construction in 2021. the ASF and $45 million to the SBOE for investment in the PSF).
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SECTION THREE
STATISTICAL SUMMARY (UNAUDITED)
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This part of the Fund’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements and note disclosures says about the Fund’s overall financial position.
Contents A History and Description of the Texas Permanent School Fund
An Overview of the Strength of the Texas Permanent School Fund Assets Managed By the State Board of Education (SBOE), Fiscal Years Ended August 31, 2020 and 2019 (Figure 1) This figure and schedule present information regarding the diversification of the portfolio of assets in the Texas Permanent School Fund managed by the SBOE.
Asset Allocation Mix-PSF(SBOE), Fiscal Year Ended August 31, 2020 (Figure 2) This schedule and figure present information regarding the portfolio mix by asset class as a percentage of total assets.
Asset Allocation Mix-Liquid(SBOE), Fiscal Year Ended August 31, 2020 (Figure 3) This schedule and figure present information regarding the portfolio mix by asset class as a percentage of total assets.
Asset Allocation Mix Including Assets Managed by the School Land Board (SLB), Fiscal Year Ended August 31, 2020 (Figure 4) This schedule and figure present information regarding the portfolio mix by asset class as a percentage of total assets, including assets managed by the SLB.
PSF(SBOE) and Liquid(SBOE) Rate of Return for Fiscal Year Ended August 31, 2020 Summarizes return highlights for the PSF(SBOE) and Liquid(SBOE)
PSF(SBOE) Rate of Return, Fiscal Year Ended August 31, 2020 (Net of Fees) (Figure 5) These figures contain information comparing the actual performance of assets of the Fund to benchmarks, using a time weighted rate of return.
PSF(SBOE) Rate of Return, Last Five Fiscal Years (Net of Fees) (Figure 6) This schedule presents annual composite performance and benchmark data for assets managed over the last five years by the SBOE, net of fees.
PSF(SBOE) Time Weighted Returns, Last Five Fiscal Years (Gross of Fees) and Selected Cumulative Periods This schedule presents information containing the time weighted rate of returns, gross of fees, for assets managed by the SBOE for the last five fiscal years by asset class and also cumulative for three, five and ten years.
PSF(SBOE) Time Weighted Returns, Last Five Fiscal Years (Net of Fees) and Selected Cumulative Periods This schedule presents information containing the time weighted rate of returns, net of fees, for assets managed by the SBOE for the last five fiscal years by asset class and also cumulative for three, five and ten years.
Liquid(SBOE) Rate of Return, Fiscal Year Ended August 31, 2020 (Net of Fees) (Figure 7) These figures contain information comparing the actual performance of assets of the Fund to benchmarks, using a time weighted rate of return.
Liquid(SBOE) Rate of Return, Fiscal Year Ended August 31, 2020 (Net of Fees) (Figure 8) This schedule presents annual composite performance and benchmark data for assets managed over the current fiscal year by the SBOE, net of fees.
61
Liquid(SBOE) Time Weighted Returns, Fiscal Year Ended August 31, 2020 (Gross of Fees) This schedule presents information containing the time weighted rate of returns, gross of fees, for assets managed by the SBOE for the current fiscal year by asset class.
Liquid(SBOE) Time Weighted Returns, Fiscal Year Ended August 31, 2020 (Net of Fees) This schedule presents information containing the time weighted rate of returns, net of fees, for assets managed by the SBOE for the current fiscal year by asset class.
Total PSF(SLB) Time Weighted Returns, Selected Cumulative Periods These schedules present information containing the time weighted rate of returns for assets managed by the SLB for selected cumulative periods.
PSF(SBOE) Investment Management Fees for the 12 Months Ended June 30, 2020 This schedule presents information containing PSF(SBOE) investment management fees and profit sharing paid for the twelve months ended June 30, 2020.
PSF(SLB) Investment Management Fees for the 12 Months Ended August 31, 2020 This schedule presents information containing PSF(SLB) investment management fees and profit sharing paid for the twelve months ended August 31, 2020.
Contributions to the Texas Permanent School Fund Assets Managed by the SBOE, Last Ten Fiscal Years (Figure 9) This figure presents information regarding the contributions made by the SLB to PSF(SBOE) for the past ten fiscal years.
Distributions to the Available School Fund (ASF), Last Ten Fiscal Years (Figure 10) This figure contains information regarding the distributions to the ASF by the SBOE and the SLB for the last ten fiscal years.
Fund Balances, Last Ten Fiscal Years (Figure 11) This figure provides information regarding the breakdown of fund balances for the last ten fiscal years for comparison.
Changes in Fund Balances, Last Ten Fiscal Years (Figure 12) This figure provides trend information including a summarized comparison of the net change in fund balances for the last ten fiscal years.
Average Daily Attendance and Contributions to ASF, Last Ten Fiscal Years (Figure 13) This schedule provides trend information regarding the average daily attendance and distributions to the ASF for the last ten fiscal years in total and per student.
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62 A HISTORY AND DESCRIPTION OF THE TEXAS PERMANENT SCHOOL FUND
The Texas Permanent School Fund (Fund) was program, resulting in substantial savings to the conceived in 1845 when Texas became the 28th state taxpayers of the State through reduced issuance as a perpetual fund to which ten percent of all tax costs and lower borrowing costs. revenue would be devoted. However, the new state had virtually no tax base, so the Fund failed to Over a large portion of the Fund’s history, only the accumulate any significant deposits. The Fund’s initial income produced by the Fund was used to significant funding was the result of a $2,000,000 complement taxes in financing public education. From appropriation by the Legislature of 1854 expressly for 1854 through the 2003 fiscal year, all interest and the benefit of the public schools of Texas. These dividends produced by Fund investments and certain funds were available as a result of a $10 million land related income flowed into the Available School payment from the United States government in Fund (ASF). From the ASF, monies are distributed to exchange for giving up claims to western lands the public schools based on average daily student claimed by the former Republic of Texas. In 1854–55, attendance. the Fund’s first annual per student distribution for public education was 62 cents. By 1861, the Fund On September 13, 2003, the voters of the State of was depleted by railroad loan defaults, collapse of the Texas (State) approved a Constitutional Amendment Confederate monetary system, and eventual loan of that changed the Fund distribution methodology from the Fund to the Civil War effort. The Constitution of an income-based formula to a total return-based 1876 stipulated that certain lands and all proceeds formula (2003 Constitutional Amendment). With the from the sale of these lands should also constitute the approval of the 2003 Constitutional Amendment, Texas Permanent School Fund. Additional Acts later interest and dividends produced by fund investments gave more public domain land and rights to the Fund. and certain land related revenues are additional revenue to the Fund. Beginning in September 2003 to In 1953, the U.S. Congress passed the Submerged present, the Fund transfers on a monthly basis a total Lands Acts that relinquished to coastal States all return amount to the ASF. Revenues earned by the rights of the U.S. navigable waters within State Fund include gains realized on the sale of land and boundaries. Submerged lands were defined to be real estate owned by the Fund; lease payments, those lands beneath and beyond three miles of the bonuses and royalty income received from oil, gas shoreline. If the State, by law, had set a larger and mineral leases; commercial real estate lease boundary prior to or at the time of admission to the revenues; surface lease and easement revenues; Union, or it had been approved by Congress, then the revenues from the resale of natural and liquid gas larger boundary applied. After three years of litigation supplies; dividends, interest, and securities lending (1957–1960), the U.S. Supreme Court on May 31, revenues; the net increase or decrease in the fair 1960, affirmed Texas’ historic three marine leagues market value of the investment portfolio and externally (10.35 miles) seaward boundary. Texas proved its managed real assets investment funds; and other submerged lands property rights to three leagues into miscellaneous fees and income. the Gulf of Mexico by citing historic laws and treaties dating back to 1836. All lands lying within that limit The 86th Legislature amended Chapter 51 of the belong to the Fund. The proceeds from the sale and Natural Resources Code (NRC) through the addition the mineral related rental of these lands, including of Section 51.414 authorizing establishment of the bonuses, delay rentals, and royalty payments, Permanent Fund Liquid Account (Liquid(SBOE)), into become the corpus of the Fund. which the PSF(SLB) deposits quarterly from the real estate special fund account (RESFA) funds not On November 8, 1983, the voters of the State required for its anticipated needs for the upcoming 90 approved a Constitutional Amendment, which days. The Liquid(SBOE) became operational on provides for the guarantee of school district bonds by September 1, 2019. The General Land Office (GLO) the Fund. On approval by the Commissioner of made an initial transfer of $3.9 billion from the RESFA Education, bonds properly issued by a school district to the Liquid(SBOE) on September 3, 2019. The are fully guaranteed by the corpus of the Fund. During SBOE invests these funds in liquid assets in the same 2014, charter district bonds were also included in manner as the investments in the PSF(SBOE). the Fund’s bond guarantee program. The Texas Permanent School Fund has guaranteed over $202 The remainder of this column billion in school bonds since the inception of the intentionally left blank.
63 A HISTORY AND DESCRIPTION OF THE TEXAS PERMANENT SCHOOL FUND
Expenditures are appropriated by the Legislature and Texas law assigns control of the Fund's land, mineral are paid from the Fund. They include operational rights, and certain real assets investments to the costs, investment management fees, and costs five-member SLB, which includes the elected incurred to manage the land endowment and real Commissioner of the GLO, and four appointees of the assets investments. Governor. The assets managed by GLO on behalf of the SLB generally fall into three broad categories: (1) In making investments, the SBOE is charged with discretionary real assets investments, (2) sovereign exercising the judgment and care under the and other lands, and (3) mineral interests. circumstances then prevailing which men of ordinary prudence, discretion, and intelligence exercise in the In 1985, the SLB, through the GLO, was authorized to management of their own affairs, not in regard to use the proceeds of land sales to acquire other speculation, but in regard to the permanent disposition interests in real property. In the ensuing years, the of their funds, considering the expected income as SLB’s investment authority has been modified and well as the probable safety of their capital. The SBOE expanded several times. The current investment employs independent firms for advice on investment authority of the SLB is detailed in Section 51 of the programs, asset allocation, and performance NRC. Additionally, Section 51.402 states that the measurement to assist in the management of market value of the investments in real estate on the PSF(SBOE) assets. The SBOE may appoint a January 1 of each even-numbered year may not Committee of Investment Advisors (CIA) to provide exceed an amount that is equal to 15 percent of the independent review of the Fund’s investment policies, market value of the assets held by the SLB and the procedures, and nature of investments. State Board of Education.
The CIA advises the SBOE members on investment The 77th Legislature amended the NRC effective plans, strategies, and programs. Each member of the September 2001 to allow the SLB to deposit some or SBOE may appoint a single member to the CIA. The all of the proceeds of future mineral leases and CIA members serve at the pleasure of the SBOE royalties generated from existing and future active member that appointed them. leases of the Fund’s mineral interest into a real estate special fund account (RESFA) at the State Treasury. While many factors impact the decision-making The 79th Legislature further amended the NRC in 2005 process, the most important factor is the asset to clarify the purposes for which the RESFA can be allocation strategy. In order to protect the purchasing used, including adding three additional purposes. For power of the PSF(SBOE) and the Liquid(SBOE) the use and benefit of the Fund, proceeds in the assets from inflation while maintaining sufficient RESFA are to be used by the SLB to acquire, as distribution to support the funding of education in public school land: Texas, the SBOE must determine the appropriate Land balance between expected risk and return as the Interests in real property for biological, portfolio is diversified. commercial, geological, cultural or recreational purposes The financial marketplace is very dynamic and To acquire mineral and royalty interests continuously provides new potential investment To protect, maintain, or enhance the value of opportunities. Working closely with investment staff public school lands and investment advisors, the SBOE approved a To acquire interests in real estate revised target asset allocation strategy at the To pay reasonable fees for professional July 2020 Board Meeting, which is expected to services related to Fund investments provide an increased total return at reduced risk. This asset allocation strategy affords the SBOE the In 2007, the 80th Legislature again amended Chapter opportunity to select from a broad range of investment 51 of the NRC with HB 3699, authorizing the SLB and opportunities, thus creating a more diversified the Land Commissioner to designate funds previously portfolio while continuing to meet the Fund’s transferred to PSF(SBOE) for deposit into RESFA and financial objectives for risk, return, and income. The to determine whether to release any funds from the PSF(SBOE) target asset allocation includes Real RESFA to the PSF(SBOE) or to directly transfer funds Estate investments which are funded and managed to the ASF. HB 3699 also expanded the investment separately from the PSF(SLB) Real Assets authority of PSF(SLB) to include the following: investments. Land
64 A HISTORY AND DESCRIPTION OF THE TEXAS PERMANENT SCHOOL FUND
Interests in real property for biological, Townsend Group, to evaluate potential investments commercial, geological, cultural or and make recommendations to the SLB for the recreational purposes investment of money in the RESFA. Following the To acquire mineral and royalty interests formulation of recommendations by the IAC, the To protect, maintain, or enhance the value of chairman of the IAC makes formal presentations and public school lands recommendations to the SLB for its consideration and To acquire interests in real estate approval. To pay reasonable fees for professional services related to Fund investments The SLB’s general investment objective is to invest To acquire, sell, lease, trade, improve, money in the RESFA in land, interests in real estate, maintain, protect, or use land, mineral royalty mineral or royalty interests, real assets investments, interests, or real estate investments, an investments or interest in public infrastructure, or investment or interest in public infrastructure, other interests, in a manner that seeks to maximize or other interests returns within the framework of the prudent investor standard. Given the typical nature of private-markets The legislation became effective June 15, 2007, and real assets investments, it is expected that the was duly implemented by SLB resolution on investment portfolio managed by the SLB will be September 1, 2007. On November 8, 2011, voters characterized by a long term investment horizon and approved amendments to the State Constitution that will be relatively illiquid. included a change that increases the base amount used in calculating the distribution rate from the Money in the RESFA that is awaiting investment by PSF(SBOE) to the Available School Fund (ASF), as the SLB is currently held in an external investment more fully described in Note 1 to the financial pool managed by the Texas Comptroller of Public statements. Accounts consistent with applicable law and the CPA investment policy. The CPA pools funds for In 2019, the 86th Legislature amended Section investment purposes and allocates investment 51.402(c), NRC through HB 4388 and SB 608, earnings on pooled funds. The CPA invests in clarifying the calculation of the maximum amount of authorized investments proportionately among the the investments authorized under Section 51.402 various state agencies whose funds are so pooled. (a)(6) and (8). The market value of the investments in The approximate size of the pool ranges from $17 to real assets on January 1 of each even numbered year $35 billion depending upon seasonal variations in may not exceed an amount that is equal to 15 percent revenues and expenditures. Currently, most pooled of the market value of the assets held by the SLB and funds are invested in the following instruments: the State Board of Education. repurchase agreements, obligations of the United States and its agencies and instrumentalities, The SLB’s written investment policy statement corporate debt, and fully collateralized deposits in (Investment Policy) authorizes the investment of authorized state depositories. All investments are money in the RESFA, in externally managed marked to market daily using an external financial commingled funds and separate accounts, as well as service. in direct investments that are sourced, executed, and managed internally by the GLO. State Street Bank and Trust Company (State Street) provides accounting, performance measurement, and The Investment Policy also authorizes an investment reporting services for the SLB related to its real assets advisory committee (IAC) to review potential investment portfolio. The cash flow data and net asset externally-managed investments and make values used by State Street to provide its accounting recommendations to the SLB for the investment of and performance measurement and reporting money in the RESFA. services, are provided to State Street directly by the SLB's external fund managers with regard to the The current IAC is comprised of four members, SLB's externally managed real assets investments. chaired by the Chief Investment Officer of the GLO. The IAC meets periodically to review potential investments and works in conjunction with the SLB’s real assets investment advisor, currently The
65 AN OVERVIEW OF THE STRENGTH OF THE TEXAS PERMANENT SCHOOL FUND ASSETS MANAGED BY THE STATE BOARD OF EDUCATION (SBOE)
Founded in 1845, the SBOE Texas Permanent School Fund (PSF(SBOE)) has grown from its initial significant capitalization of $2,000,000 to approximately $35.8 billion as of August 31, 2020. See Figure 1 graph and table below for the portfolio diversification at fair value at August 31, 2020 and 2019.
For comparative purposes the Liquid(SBOE) is excluded from this exhibit, and a similar schedule for Liquid(SBOE) is not presented since this was its year of inception and therefore no comparative data is available.
FIGURE 1: TEXAS PERMANENT SCHOOL FUND Portfolio Diversification Fair Value
2020 2019
0.35% 5.60% 0.49% 4.80%
13.31% 11.31% 14.26% 13.55%
9.83% 10.58%
6.16% 13.97% 5.72% 14.84%
3.24% 7.46% 8.66% 2.59% 8.71% 2.97% 13.35% 11.82% 6.83% 7.03% 0.00% 2.57%
Asset Class August 31, 2020 Percent August 31, 2019 Percent Domestic Small-Mid Cap $ 2,005,841,142 5.60% $ 1,645,771,494 4.80% Domestic Large Cap 5,106,246,625 14.26% 4,643,732,247 13.55% International Equity 5,318,340,484 14.84% 4,787,885,568 13.97% International Equity - Emerging Markets 1,062,553,623 2.97% 888,381,242 2.59% Domestic Fixed Income 4,232,645,885 11.82% 4,575,171,155 13.35% U.S. Treasuries 918,666,315 2.57% - 0.00% Emerging Market Debt 2,450,697,619 6.83% 2,410,467,810 7.03% Real Estate 3,102,087,880 8.66% 2,983,448,072 8.71% Risk Parity 1,164,883,199 3.24% 2,557,584,765 7.46% Real Return 2,047,388,865 5.72% 2,109,258,497 6.16% Absolute Return 3,517,240,318 9.83% 3,622,636,890 10.58% Private Equity 4,761,465,378 13.31% 3,872,812,323 11.31% Unallocated Cash 122,908,659 0.35% 163,323,076 0.49% Net Investment Balance $ 35,810,965,992 100.00% $ 34,260,473,139 100.00%
The asset classes include cash that has been allocated to the investment portfolios.
66 TEXAS PERMANENT SCHOOL FUND ASSET ALLOCATION MIX-PSF(SBOE) FISCAL YEAR ENDED AUGUST 31, 2020
ASSET CLASS Book Value Mix Fair Value Mix Equity Public Market Equity Domestic Small-Mid Cap $ 1,524,957,884 5.49% $ 2,005,841,142 5.60% Domestic Large Cap 1,975,772,401 7.11% 5,106,246,625 14.26% Total Domestic Equity 3,500,730,285 12.60% 7,112,087,767 19.86% Developed and Emerging Market International Equity 4,856,938,778 17.48% 6,380,894,107 17.81% Total Public Market Equity 8,357,669,063 30.08% 13,492,981,874 37.67%
Fixed Income Domestic Fixed Income 4,065,096,420 14.63% 4,232,645,885 11.82% U.S. Treasuries 941,102,178 3.39% 918,666,315 2.57% Emerging Market Debt 2,393,023,161 8.62% 2,450,697,619 6.83% Total Fixed Income 7,399,221,759 26.64% 7,602,009,819 21.22%
Alternative Investments Real Estate 2,670,391,678 9.61% 3,102,087,880 8.66% Risk Parity 681,663,729 2.45% 1,164,883,199 3.24% Real Return 2,363,238,061 8.50% 2,047,388,865 5.72% Absolute Return 2,414,770,694 8.69% 3,517,240,318 9.83% Private Equity 3,777,972,805 13.60% 4,761,465,378 13.31% Total Alternative Investments 11,908,036,967 42.85% 14,593,065,640 40.76%
Unallocated Cash 122,908,659 0.43% 122,908,659 0.35%
Fund Total $ 27,787,836,448 100.00% $ 35,810,965,992 100.00% Notes:
The PSF(SBOE) asset classes include cash that has been allocated to the investment portfolios, as well as receivables and payables related to the particular portfolios. Average current and prior fiscal year-end equity holdings as a percentage of average current and prior fiscal year-end Fund total market value was 36.33%, and the percentage of the Fund's current fiscal year-end portfolio managed by external managers was 48.17%.
FIGURE 2: TEXAS PERMANENT SCHOOL FUND Asset Allocation Mix As of August 31, 2020 22.00% 20.00% 17.81% 18.00% 16.00% 14.26% 13.31% 14.00% 11.82% 12.00% 9.83% 10.00% 8.66% 8.00% 6.83% 5.60% 5.72% 6.00% 3.24% 4.00% 2.57% 2.00% 0.35% 0.00% Debt Risk Real
Real Parity Estate Equity Return Private Fixed Return Equity Cash Income Absolute Domestic Domestic Equity Large Cap Domestic Treasuries Small‐Mid Cap Equity Emerging Unallocated Market International
67 TEXAS PERMANENT SCHOOL FUND ASSET ALLOCATION MIX-LIQUID(SBOE) FISCAL YEAR ENDED AUGUST 31, 2020
On September 1, 2019, the Permanent School Fund established the Liquid Account (Liquid(SBOE)) as authorized by the Natural Resources Code, Chapter 51, section 51.414 as amended by the 86th Legislature. This statute directs the SLB to deposit cash not required for its immediate needs (or next 90 days) into the Liquid(SBOE). The SBOE is required to invest these funds in liquid assets only and must send cash back to the School Land Board within five business days of a request. Additionally, investment income and realized capital gains from the Liquid(SBOE) may be deposited for investment in the PSF(SBOE) when market value exceeds net SLB contributions.
Income Realized (incl. accruals) Gains, Year Ended Year Ended Investment Type Book Value Fair Value August 31, 2020 August 31, 2020 Short Term Fixed Income Securities $ 1,590,279,132 $ 1,597,344,979 $ 21,985,297 $ 17,016,273 Cash on Deposit 2,453,286,472 2,453,286,472 47,163,107 -
Total $ 4,043,565,604 $ 4,050,631,451 $ 69,148,404 $ 17,016,273
FIGURE 3: TEXAS PERMANENT SCHOOL FUND Asset Allocation Mix - Liquid(SBOE) as of August 31, 2020
Short Term Fixed Income Securities 39.43%
Cash on Deposit 60.57%
Note: The Liquid(SBOE) asset classes include cash that has been allocated to the investment portfolios, as well as receivables and payables related to particular portfolios. In accordance with governing statute and administrative rules, $73,499,073 in income and realized gains was transferred to the PSF(SBOE) during the fiscal year.
68 TEXAS PERMANENT SCHOOL FUND ASSET ALLOCATION MIX INCLUDING ASSETS MANAGED BY THE SLB AS OF AUGUST 31, 2020
ASSET CLASS Book Value Fair Value Mix
PSF(SBOE) Equity Public Market Equity Domestic Small-Mid Cap Equity $ 1,524,957,884 $ 2,005,841,142 4.29% Domestic Large Cap Equity 1,975,772,401 5,106,246,625 10.92% Total Domestic Equity 3,500,730,285 7,112,087,767 15.21% International Equity 4,856,938,778 6,380,894,107 13.64% Total Public Market Equity 8,357,669,063 13,492,981,874 28.85%
Fixed Income Domestic Fixed Income 4,065,096,420 4,232,645,885 9.05% Treasuries 941,102,178 918,666,315 1.96% Emerging Market Debt 2,393,023,161 2,450,697,619 5.24% Total Fixed Income 7,399,221,759 7,602,009,819 16.25%
Alternative Investments Real Estate 2,670,391,678 3,102,087,880 6.63% Risk Parity 681,663,729 1,164,883,199 2.49% Real Return 2,363,238,061 2,047,388,865 4.38% Absolute Return 2,414,770,694 3,517,240,318 7.52% Private Equity 3,777,972,805 4,761,465,378 10.18% Total Alternative Investments 11,908,036,967 14,593,065,640 31.20%
Unallocated Cash 122,908,659 122,908,659 0.27%
Liquid(SBOE) Fixed Income 1,590,279,132 1,597,344,979 3.42% Cash on Deposit 2,453,286,472 2,453,286,472 5.25%
PSF(SLB) Cash 333,780,167 333,780,167 0.72%
Domestic Equity 7,524,402 912,012 0.00% Land, Real Asset Investments and Minerals Sovereign/Other Lands and Discretionary Internal Investments 200,420,635 628,086,665 1.34% Investments with External Managers 4,255,437,869 3,824,234,673 8.18% Mineral Investments 13,435,613 2,115,448,785 4.52% Total Domestic Equity, Land, Real Assets, and Minerals 4,476,818,519 6,568,682,135 14.04%
FUND TOTAL $ 36,642,000,738 $ 46,764,059,745 100.00%
The PSF(SBOE) and Liquid(SBOE) asset classes include cash that has been allocated to the investment portfolios as well as receivables and payables related to the particular portfolios.
69 TEXAS PERMANENT SCHOOL FUND ASSET ALLOCATION MIX INCLUDING ASSETS MANAGED BY THE SLB AS OF AUGUST 31, 2020
FIGURE 4: TEXAS PERMANENT SCHOOL FUND Asset Allocation Mix As of August 31, 2020
18.00% 16.00% 13.64% 14.04% 14.00%
12.00% 10.92% 10.18% 10.00% 9.05% 7.52% 8.00% 6.63% 6.00% 5.24% 5.25% 4.29% 4.38% 3.42% 4.00% 2.49% 1.96% 2.00% 0.27% 0.72% 0.00% Debt Cash Cash Parity
Equity Equity Estate Equity
Return Return
Income Income
Deposit
Domestic
Treasuries Risk Cap Cap Real Real Fixed Fixed Private Private Equity
PSF(SLB) Absolute Cash Cash on Large Unallocated
International (SLB)
Small- Mid Emerging Market Minerals and
Domestic Domestic Equity Liquid(SBOE) Estate, Liquid(SBOE) Domestic Real
Land,
70 PSF(SBOE) AND LIQUID(SBOE) RATE OF RETURN FOR FISCAL YEAR ENDED AUGUST 31, 2020
The total market value of the PSF(SBOE) at August strategic asset allocation increases the Fund’s 31, 2020, was $35.8 billion. The PSF(SBOE) annual expected return while maintaining an equivalent rates of return for the one-year, five-year and ten- expected return per unit of risk. The strategic asset year periods ending August 31, 2020, were 7.50%, allocation of the PSF(SBOE) includes a 20% 7.55%, and 8.19%, respectively. The Fund returned allocation to domestic equities, 17% allocation to 7.50% for the fiscal year, underperforming its net of international equities including emerging markets, fees (NOF) target benchmark of 8.54% by 25% allocation to fixed income and a 38% allocation approximately -1.04%. to alternative assets. Alternative assets include absolute return, private equity, real estate, and real The total market value of the Liquid (SBOE) at return strategies (TIPS and commodities). August 31, 2020, was $4.1 billion. The Liquid (SBOE) annual rate of return for one-year ending Additional information about performance is included August 31, 2020, was 2.35%. The Liquid (SBOE) in the charts on the following pages. The information outperformed its NOF benchmark return of 2.04% by shown is for fiscal year periods ending August 31 approximately 31 basis points. Because this is the and includes comparisons to established first year of the Liquid(SBOE) operation, no benchmarks for the same time periods, where comparative performance is available or presented. applicable. Benchmark compositions are defined in the footnotes. Investment performance is calculated The capital markets experienced a volatile period of using a time weighted rate of return. Returns are asset class returns because of the COVID-19 calculated using standard industry practices. Total pandemic. All asset classes experienced positive return includes the change in the fair value of the returns. All asset classes outperformed their Fund during the year as well as all net income respective benchmark, except domestic fixed generated by investments. The returns were income, absolute return, private equity and risk updated for the time periods presented with the parity. information that was available as of the publication of this report. During the year, the PSF(SBOE) amended its strategic asset allocation plan. The PSF(SBOE)
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71 PSF(SBOE) RATE OF RETURN FOR FISCAL YEAR ENDED AUGUST 31, 2020
FIGURE 5: PSF(SBOE) Time Weighted Returns by Portfolio (Net of Fees) For Fiscal Year Ended August 31, 2020
24.00%
22.00%
20.00%
18.00%
16.00%
14.00%
12.00%
10.00% Return Percentage
8.00%
6.00%
4.00%
2.00%
0.00% Domestic Domestic Inter‐ Emerging Emerging Small/Mid Fixed Absolute Real Private Real Large Cap national Market Risk Parity Market Cap Income Return Estate Equity Return Equities Equities Equity Debt Equities Performance 22.37% 3.44% 8.80% 15.84% 5.50% 4.43% 2.93% 4.63% 2.41% 3.33% 1.67% Benchmark 21.94% 2.83% 8.31% 14.49% 6.47% 7.19% 1.26% 4.85% 16.20% 2.85% 1.55%
72 PSF(SBOE) RATE OF RETURN LAST FIVE FISCAL YEARS
FIGURE 6: PSF(SBOE) Total Time Weighted Returns (Net of Fees) Fiscal Year Ending August 31, 2020
(Percent)
15.00%
10.00%
5.00%
0.00% 2016 2017 2018 2019 2020 PSF(SBOE) 7.47% 11.80% 6.95% 4.17% 7.50% Target Policy 7.01% 10.95% 7.19% 4.16% 8.54% Benchmark
73 PSF(SBOE) TIME WEIGHTED RETURNS (GROSS OF FEES) LAST FIVE FISCAL YEARS AND SELECTED CUMULATIVE PERIODS
Total PSF(SBOE) Portfolio 1 2016 2017 2018 2019 2020 3 Years 5 Years 10 Years PSF(SBOE) 7.61 11.96 7.23 4.54 8.23 6.66 7.89 8.42 Target Policy Benchmark 2 7.01 10.95 7.19 4.16 8.54 6.61 7.55 8.06 Domestic Large Cap Equities PSF(SBOE) 12.71 16.30 19.83 3.14 22.37 14.78 14.67 15.33 Domestic Equity Benchmark 3 12.55 16.23 19.66 2.92 21.94 14.52 14.46 15.16 Domestic Small/Mid Cap Equities PSF(SBOE) 12.89 12.80 23.95 (8.99) 3.44 5.28 8.24 12.40 Domestic Equity Benchmark 4 12.61 12.60 23.74 (9.20) 2.83 4.93 7.94 12.14 International Equities PSF(SBOE) 3.36 19.04 3.51 (2.92) 8.81 3.02 6.11 5.57 International Equity Benchmark 5 2.92 18.88 3.18 (3.27) 8.31 2.63 5.75 5.26 Emerging Market Equity PSF(SBOE) (inception to date) 10.73 26.28 (1.07) (3.88) 16.07 3.35 9.07 - Emerging Market Equity Benchmark 6 11.83 24.53 (0.68) (4.36) 14.49 2.83 8.66 - Fixed Income PSF(SBOE) 5.98 1.61 (0.78) 10.54 5.50 4.98 4.50 3.88 Fixed Income Benchmark 7 5.97 0.49 (1.05) 10.17 6.47 5.09 4.33 3.65 Absolute Return PSF(SBOE) (0.88) 7.32 6.66 2.74 4.89 4.75 4.10 5.12 Absolute Return Benchmark 8 (2.16) 6.89 4.34 0.54 7.19 3.99 3.30 3.67 Real Estate PSF(SBOE) 12.23 10.52 12.01 9.26 4.26 8.46 9.61 10.79 Real Estate Benchmark 9 9.99 7.57 9.02 5.88 1.26 5.34 6.70 9.05 Private Equity PSF(SBOE) 12.76 16.35 15.94 12.92 8.75 12.50 13.31 15.33 Private Equity Benchmark 10 3.84 12.09 15.64 11.16 4.85 10.46 9.42 9.53 Risk Parity PSF(SBOE) 8.17 8.77 3.43 11.21 2.70 5.71 6.81 - Risk Parity Benchmark 11 10.09 9.74 11.05 6.22 16.20 11.08 10.61 - Real Return PSF(SBOE) 0.26 2.38 0.70 0.85 3.47 1.67 1.53 - Real Return Benchmark 12 (1.71) 1.77 0.73 0.74 2.85 1.44 0.86 - Emerging Market Debt PSF(SBOE) (inception to date) 9.97 11.84 (11.40) 10.72 1.86 (0.03) 4.21 - Emerging Market Debt Benchmark 13 11.33 9.86 (10.05) 11.91 1.55 0.74 4.57 -
1 Time weighted rates of return adjusted for cash flows for the PSF(SBOE) investment assets. Does not include GLO managed real estate or real assets. Returns are gross of fees. 2 As of 8/31/2020, Total PSF weights were fixed with the following: 13.00% S&P 500 Index, 5.00% S&P 1000 Index, 12.00% Barclays Capital U.S. Aggregate Bond Index, 14.00% MSCI All Country World Ex-U.S. Net Dividend Index, 3.00% MSCI Emerging Markets Net Dividend Index, 6.00% Real Return Benchmark, 10.00% Real Estate Benchmark, 4% Risk Parity Benchmark, 10% Absolute Return Benchmark, 13.00% Private Equity Benchmark, 7% JPM GBI EM Global Diversified Index and 3% Bloomberg Barclays U.S. Treasury Long Term Index. For the month of August 2020, Total PSF Composite Benchmark was calculated following the smoothing allocation methodology. This methodology incorporates the existing weightings as of July 31, 2020 and the August 31, 2020 weightings applied on a business day count basis with the new weightings incorporated into the day count beginning August 6, 2020 as a result of liquidating the Risk Parity portfolio and funding the new Treasury portfolio. As of 7/31/2019, Total PSF weights were fixed with the following: 13.00% S&P 500 Index, 5.00% S&P 1000 Index, 12.00% Barclays Capital U.S. Aggregate Bond Index, 14.00% MSCI All Country World Ex-U.S. Net Dividend Index, 3.00% MSCI Emerging Markets Net Dividend Index, 6.00% Real Return Benchmark, 10.00% Real Estate Benchmark, 7% Risk Parity Benchmark, 10% Absolute Return Benchmark, 13.00% Private Equity Benchmark, and 7% JPM GBI EM Global Diversified Index. 3 As of 8/31/2020, Benchmark consists of 100% S&P 500 Index. 4 As of 8/31/2020, Benchmark consists of 100% S&P 1000 Index. 5 As of 8/31/2020, Benchmark consists of 100% MSCI All Country World Ex-US Net Dividend Index. 6 As of 8/31/2020, Benchmark consists of 100% MSCI Emerging Market Net Dividend Index. 7 As of 8/31/2020, Benchmark consists of 100% Barclays Capital U.S. Aggregate Bond Index. 8 As of 8/31/2020, Benchmark consists of 100% HFRI Fund of Funds Composite Index. 9 As of 8/31/2020 Benchmark is calculated by using market value weighting of the Core and Non-Core time weighted return benchmark components. Core real estate benchmark is NCREIF Fund Index Open End Diversified Core Equity, Equally Weighted, Net of Fee time weighted return lagged one quarter. Non-core real estate benchmark is the custom PrivateiQ® time weighted return benchmark, lagged one quarter. 10 As of 8/31/2020, Benchmark represents the Burgiss custom PrivateiQ® benchmark time weighted return, one quarter lagged. 11 As of 8/31/2020, Benchmark consists of 60% S&P 500 and 40% Barclays Capital U.S. Aggregate Bond Index. 12 As of 8/31/2020, Benchmark weights are fixed with the following: 50% Barclays Capital U.S. Treasury: US TIPS Index and 50% Bloomberg Commodity Total Return Index. 13 As of 8/31/2020, Benchmark consists of 100% JPM GBI EM Global Diversified.
74 PSF(SBOE) TIME WEIGHTED RETURNS (NET OF FEES) LAST FIVE FISCAL YEARS AND SELECTED CUMULATIVE PERIODS
Total PSF(SBOE) Portfolio 1 2016 2017 2018 2019 2020 3 Years 5 Years 10 Years PSF(SBOE) 7.47 11.80 6.95 4.17 7.50 6.20 7.55 8.19 Target Policy Benchmark 2 7.01 10.95 7.19 4.16 8.54 6.61 7.55 8.06 Domestic Large Cap Equities PSF(SBOE) 12.71 16.30 19.83 3.14 22.37 14.78 14.67 15.33 Domestic Equity Benchmark 3 12.55 16.23 19.66 2.92 21.94 14.52 14.46 15.16 Domestic Small/Mid Cap Equities PSF(SBOE) 12.89 12.80 23.95 (8.99) 3.44 5.28 8.24 12.40 Domestic Equity Benchmark 4 12.61 12.60 23.74 (9.20) 2.83 4.93 7.94 12.14 International Equities PSF(SBOE) 3.34 19.03 3.50 (2.93) 8.80 3.01 6.10 5.55 International Equity Benchmark 5 2.92 18.88 3.18 (3.27) 8.31 2.63 5.75 5.26 Emerging Market Equity PSF(SBOE) (inception to date) 10.31 25.88 (1.38) (4.15) 15.84 3.07 8.74 - Emerging Market Equity Benchmark 6 11.83 24.53 (0.68) (4.36) 14.49 2.83 8.66 - Fixed Income PSF(SBOE) 5.98 1.61 (0.78) 10.54 5.50 4.98 4.50 3.88 Fixed Income Benchmark 7 5.97 0.49 (1.05) 10.17 6.47 5.09 4.33 3.65 Absolute Return PSF(SBOE) (1.43) 6.81 6.17 2.28 4.43 4.28 3.61 4.51 Absolute Return Benchmark 8 (2.16) 6.89 4.34 0.54 7.19 3.99 3.30 3.67 Real Estate PSF(SBOE) 12.23 10.29 10.41 7.22 2.93 6.81 8.56 10.26 Real Estate Benchmark 9 8.94 5.96 8.08 4.89 1.26 5.34 6.70 9.05 Private Equity PSF(SBOE) 12.39 15.98 15.18 11.93 4.63 10.49 11.95 13.86 Private Equity Benchmark 10 2.39 9.61 13.21 8.72 4.85 10.46 9.42 9.53 Risk Parity PSF(SBOE) 7.85 8.46 3.13 10.89 2.41 5.41 6.50 - Risk Parity Benchmark 11 10.09 9.74 11.05 6.22 16.20 11.08 10.61 - Real Return PSF(SBOE) 0.10 2.21 0.53 0.71 3.33 1.51 1.37 - Real Return Benchmark 12 (1.71) 1.77 0.73 0.74 2.85 1.44 0.86 - Emerging Market Debt PSF(SBOE) (inception to date) 9.55 11.45 (11.71) 10.40 1.67 (0.30) 3.88 - 13 Emerging Market Debt Benchmark 11.33 9.86 (10.05) 11.91 1.55 0.74 4.57 - 1 Time weighted rates of return adjusted for cash flows for the PSF(SBOE) investment assets. Does not include GLO managed real estate or real assets. Returns are net of fees. 2 As of 8/31/2020, Total PSF weights were fixed with the following: 13.00% S&P 500 Index, 5.00% S&P 1000 Index, 12.00% Barclays Capital U.S Aggregate Bond Index, 14.00% MSCI All Country World Ex-U.S. Net Dividend Index, 3.00% MSCI Emerging Markets Net Dividend Index, 6.00% Real Return Benchmark, 10.00% Real Estate Benchmark, 4% Risk Parity Benchmark, 10% Absolute Return Benchmark, 13.00% Private Equity Benchmark, 7% JPM GBI EM Global Diversified Index and 3% Bloomberg Barclays U.S. Treasury Long Term Index. For the month of August 2020, Total PSF Composite Benchmark was calculated following the smoothing allocation methodology. This methodology incorporates the existing weightings as of July 31, 2020 and the August 31, 2020 weightings applied on a business day count basis with the new weightings incorporated into the day count beginning August 6, 2020 as a result of liquidating the Risk Parity portfolio and funding the new Treasury portfolio. As of 7/31/2019, Total PSF weights were fixed with the following: 13.00% S&P 500 Index, 5.00% S&P 1000 Index, 12.00% Barclays Capital U.S. Aggregate Bond Index, 14.00% MSCI All Country World Ex-U.S. Net Dividend Index, 3.00% MSCI Emerging Markets Net Dividend Index, 6.00% Real Return Benchmark, 10.00% Real Estate Benchmark, 7% Risk Parity Benchmark, 10% Absolute Return Benchmark, 13.00% Private Equity Benchmark, and 7% JPM GBI EM Global Diversified Index. 3 As of 8/31/2020, Benchmark consists of 100% S&P 500 Index. 4 As of 8/31/2020, Benchmark consists of 100% S&P 1000 Index. 5 As of 8/31/2020, Benchmark consists of 100% MSCI All Country World Ex-US Net Dividend Index. 6 As of 8/31/2020, Benchmark consists of 100% MSCI Emerging Market Net Dividend Index. 7 As of 8/31/2020, Benchmark consists of 100% Barclays Capital U.S. Aggregate Bond Index. 8 As of 8/31/2020, Benchmark consists of 100% HFRI Fund of Funds Composite Index. 9 As of 8/31/2020 Benchmark is calculated by using market value weighting of the Core and Non-Core time weighted return benchmark components. Core real estate benchmark is NCREIF Fund Index Open End Diversified Core Equity, Equally Weighted, Net of Fee time weighted return lagged one quarter. Non-core real estate benchmark is the custom PrivateiQ® time weighted return benchmark, lagged one quarter. 10 As of 8/31/2020, Benchmark represents the Burgiss custom PrivateiQ® benchmark time weighted return, one quarter lagged. 11 As of 8/31/2020, Benchmark consists of 60% S&P 500 and 40% Barclays Capital U.S. Aggregate Bond Index. 12 As of 8/31/2020, Benchmark weights are fixed with the following: 50% Barclays Capital U.S. Treasury: US TIPS Index and 50% Bloomberg Commodity Total Return Index. 13 As of 8/31/2020, Benchmark consists of 100% JPM GBI EM Global Diversified.
75 LIQUID(SBOE) RATE OF RETURN (NET OF FEES) FISCAL YEAR ENDED AUGUST 31, 2020
FIGURE 7: Liquid(SBOE) Time Weight Returns by Portfolio (Net of Fees) For Fiscal Year Ended August 31, 2020
4.00%
3.50%
3.00%
2.50% Percentage
2.00% Return 1.50%
1.00%
0.50%
0.00% Liquid Short Term Fixed Liquid Transition Cash Income Performance 2.78% 1.62% Benchmark 3.40% 1.26%
FIGURE 8: Liquid(SBOE) Total Time Weighted Returns (Net of Fees) Fiscal Year Ended August 31, 2020 2.50%
2.00%
1.50%
Percent 1.00%
0.50%
0.00% 2020 PSF Liquid Composite 2.35% PSFLIQ Custom Benchmark 1 2.04%
76 LIQUID(SBOE) TIME WEIGHTED RETURNS (GROSS OF FEES) FISCAL YEAR ENDED AUGUST 31, 2020
Total PSF Liquid Account Composite 2020 Total PSF Liquid Account Composite PSF Liquid Composite 2.35 PSFLIQ Custom Benchmark 1 2.04
PSF Liquid Short Term Fixed Income Liquid Short Term Fixed Income 2.78 Bloomberg Barclays US Aggregate 1-3 Year 3.40
PSF Liquid Transition Cash Liquid Transition Cash 1.62 ICE BofAML US 3 Month Treasury Bill 1.26
1 As of 08/31/2020, market value weighted benchmark using PSF Liquid ST FI and PSF Liquid TCash time weighted return benchmark components: Bloomberg Barclays U.S. Aggregate 1-3 Year and ICE BofAML U.S. 3 Month Treasury Bill. From inception of 9/3/2019 through 9/30/2019 the benchmark consisted of 100% ICE BofAML U.S. 3 Month Treasury Bill Index.
77 LIQUID(SBOE) TIME WEIGHTED RETURNS (NET OF FEES) FISCAL YEAR ENDED AUGUST 31, 2020
Total PSF Liquid Account Composite 2020 Total PSF Liquid Account Composite PSF Liquid Composite 2.35 PSFLIQ Custom Benchmark 1 2.04
PSF Liquid Short Term Fixed Income Liquid Short Term Fixed Income 2.78 Bloomberg Barclays US Aggregate 1-3 Year 3.40
PSF Liquid Transition Cash Liquid Transition Cash 1.62 ICE BofAML US 3 Month Treasury Bill 1.26
1 As of 08/31/2020, market value weighted benchmark using PSF Liquid ST FI and PSF Liquid TCash time weighted return benchmark components: Bloomberg Barclays U.S. Aggregate 1-3 Year and ICE BofAML U.S. 3 Month Treasury Bill. From inception of 9/3/2019 through 9/30/2019 the benchmark consisted of 100% ICE BofAML U.S. 3 Month Treasury Bill Index.
78 TOTAL PSF (SLB) TIME WEIGHTED RETURNS SELECTED CUMULATIVE PERIODS
At August 31, 2020, PSF(SLB) discretionary real the RESFA managed by PSF(SLB) are currently assets investments, including invested Cash at the limited by the Natural Resources Code (NRC) to no State Treasury were approximately $4.38 billion, more than 15 percent of the market value of the which was approximately 9.1% of the total Fund assets held by the PSF(SLB) and the PSF(SBOE). assets of approximately $48.3 billion. PSF(SLB) discretionary real assets investments, excluding Cash At June 30, 2020, the time-weighted returns on the at the State Treasury, were approximately $4.04 PSF(SLB) discretionary real assets investment billion, which was approximately 8.4% of the total fund portfolio were as follows: assets. Discretionary real assets investments within
GROSS OF FEES Time-Weighted Returns on the PSF(SLB) Investment Portfolio (Excluding Cash)
1-Year 3-Year 5-Year 10-Year Total PSF(SLB) Portfolio** -12.98% 4.98% 8.44% 13.09%
Returns on Individual Portfolio Sectors 1-Year 3-Year 5-Year 10-Year Energy -36.60% -5.14% -0.08% 8.21% Infrastructure 3.28% 13.25% 17.64% 22.57% Real Estate 4.50% 8.78% 9.38% 12.47%
1-Year 3-Year 5-Year 10-Year Benchmark* Returns 3.52% 5.37% 6.04% 8.95%
Time-Weighted Returns on the PSF(SLB) Investment Portfolio (Including Cash) 1-Year 3-Year 5-Year 10-Year Total PSF(SLB) Portfolio** -12.03% 0.94% 3.51% 6.34%
NET OF FEES Time-Weighted Returns on the PSF(SLB) Investment Portfolio (Excluding Cash)
1-Year 3-Year 5-Year 10-Year Total PSF(SLB) Portfolio** -13.42% 3.25% 6.30% 10.63%
Returns on Individual Portfolio Sectors 1-Year 3-Year 5-Year 10-Year Energy -36.46% -6.08% -1.86% 4.71% Infrastructure 2.52% 9.63% 13.60% 17.80% Real Estate 3.29% 7.22% 7.77% 10.86%
1-Year 3-Year 5-Year 10-Year Benchmark* Returns 3.21% 5.04% 5.67% 8.39%
Time-Weighted Returns on the PSF(SLB) Investment Portfolio (Including Cash)
1-Year 3-Year 5-Year 10-Year Total PSF(SLB) Portfolio** -12.27% 0.13% 2.49% 5.15%
*Benchmark is composite of 67% CPI Index, All Urban Consumers plus 74.10707 basis points quarterly and 33% NFI-All Open End Funds Index. **Total PSF(SLB) portfolio performance is reflective of externally managed investments only.
Note: Until September 1, 2019, PSF(SLB) was legally required to deposit cash designated by the SLB for investment in real assets into the State Treasury for investment in short-term investments until it was ultimately drawn for investment in real assets. It is typical for capital commitments to externally-managed real assets investment funds to be drawn down over a two to five year investment period. This structural delay between commitment and funding can create a negative effect on returns (typically referred to as a “cash drag”) until the committed cash is finally drawn. In an effort to ameliorate this cash drag effect, on September 3, 2019, the SLB released $3.90 billion from the Real Estate Special Fund Account (RESFA) to the Liquid(SBOE) in accordance with Texas Natural Resources Code, Chapter 51, section 51.414 and the terms of a resolution adopted by the SLB on August 29, 2019.
79 PSF(SBOE) INVESTMENT MANAGEMENT FEES FOR THE TWELVE MONTHS ENDED JUNE 30, 2020
Market Value of Assets Under Investment Management at Management Fees Asset Class June 30, 2020 Paid Profit Sharing Paid Emerging Market Equity $ 1,062,553,623 $ 2,322,454 $ - International Equity 5,274,178,249 675,000 - Emerging Market Debt 2,450,697,620 10,368,020 - Real Estate 3,119,677,910 44,374,951 17,975,411 Commodities 736,279,047 2,778,836 - Risk Parity 1,164,883,199 7,038,902 - Absolute Return 3,517,240,318 15,931,319 - Private Equity 4,722,499,428 40,281,227 5,002,700 Totals $ 123,770,709 $ 22,978,111
NOTES: Due to the timing of information received from investment managers/general partners, fees and profit sharing paid in conjunction with investment activities, along with the related market value of assets under management, are presented for the calendar year ended June 30, 2020.
Management fees and profit sharing paid as reflected in this schedule are only for direct, contractual relationships between the external manager/general partner and the PSF(SBOE). Some investment structures carry investments in underlying funds that also incur management fee and profit sharing costs; these are not reflected here due to the lack of a direct legal relationship between the PSF(SBOE) and the underlying fund manager.
Profit sharing paid represents profit that the PSF(SBOE) shared with, and was paid to, external entities in the calendar year ended June 30, 2020 when the target investment returns of the underlying investments were surpassed.
The amount of fees appropriated and paid from the PSF(SBOE) and recorded as an appropriated expenditure for the calendar year ended June 30, 2020 totaled $675,000, for the International Equity portfolio. All other fees and costs reflected in this schedule were paid directly from portfolio assets and are reflected in the recorded net asset value, as reported by the investment manager/general partner.
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80 PSF(SLB) INVESTMENT MANAGEMENT FEES FOR THE TWELVE MONTHS ENDED AUGUST 31, 2020
Management Fees Profit Share Investment Expenses PSF(SLB) Investment Sector (Note A) (Note B) (Note C) Energy $ 19,624,595 $ 86,415 $ 6,057,968 Real Estate 5,602,674 3,520,245 1,798,020 Infrastructure 11,810,932 4,996,011 4,294,368 Totals $ 37,038,201 $ 8,602,671 $ 12,150,356
(A) Amounts represent management fees paid to external investment managers in the current fiscal year. Any unpaid accruals of management fees at the end of the fiscal year are reported as part of the fair value of investments. (B) Amounts represent profits that were shared with, and paid to, external investment managers in the current fiscal year when the target investment returns on the underlying investments were exceeded by the managers. (C) Amounts include partnership expenses, organizational expenses, and other investment-related expenses.
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81 CONTRIBUTIONS TO THE TEXAS PERMANENT SCHOOL FUND ASSETS MANAGED BY THE SBOE, LAST TEN FISCAL YEARS
The School Land Board (SLB) makes contributions to PSF(SBOE) into a special fund account at the State the PSF(SBOE) from the revenue generated by Treasury and to grant investment authority to the SLB royalties, lease payments, and other income derived for this Real Estate Special Fund Account (RESFA). from lands dedicated to the Fund. Legislative actions in the past several years have amended the Natural The 80th Legislature also authorized the SLB and the Resources Code (NRC) several times and have Land Commissioner to determine whether to release impacted the flow of contributions from the PSF(SLB) any funds from the RESFA to the PSF(SBOE). During to the PSF(SBOE). the fiscal year, the PSF(SBOE) received $10 million in contributions from the SLB, which sourced from the H.B. 3558 passed by the 77th Legislature and SLB resolution adopted in November 2018, to release subsequent actions by the 79th and 80th Legislatures to the PSF(SBOE) a total of $55 million from the amended the NRC to grant the SLB authority to RESFA - $10 million in fiscal year 2020 and $45 deposit some or all of the Fund’s land and mineral million in fiscal year 2021. interest proceeds previously transferred to the
FIGURE 9: TEXAS PERMANENT SCHOOL FUND Contributions to PSF(SBOE) and PSF(SLB) (in millions)
1,600
1,400 1,138 1,156
1,200 1,010
1,108 1,000 PSF (SLB)
PSF (SBOE) 800 722 718
551
Contributions in $ Millions 600 332 452 312
400
200
100 250 250 130 150 175 200 235 255 10 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year
82 DISTRIBUTIONS TO THE AVAILABLE SCHOOL FUND (ASF), LAST TEN FISCAL YEARS
Since September 2003, the Fund has calculated its the Fund that is managed by entities other than the annual distribution to the Available School Fund using SBOE (at present, by the SLB). While the amendment a total return methodology. Prior to that year, all provided for an increase in the base for the interest and dividends earned from investments was calculation, no new resources were provided for paid immediately to the ASF. In fiscal year 2020, $1.1 deposit to the PSF(SBOE). The new calculation base billion was distributed to the ASF by the PSF(SBOE). is required to be used to determine all payments to The amount transferred was determined by the SBOE the ASF from the PSF(SBOE) beginning with the under administrative rules adopted in September 2012-13 biennium. The SBOE approved a distribution 2009. rate of 2.9% for the 2020-2021 biennium based on a commitment of the SLB to transfer $55 million to the These rules state the SBOE will determine each year PSF(SBOE) during the biennium. whether a distribution to the ASF is permitted under the Texas Constitution Article VII, §5(a)(2), and if a Changes approved by the voters on November 19, transfer shall be made for the current state fiscal year. 2019 provide authority to the SLB to determine at its The rule adoption was the result of Attorney General sole discretion whether to release each year from Opinion No. GA-0707, dated April 13, 2009, which PSF(SLB) assets to the ASF an amount not to exceed clarified the proper application by the SBOE of Article $600 million, beginning on September 1, 2020. A VII, §5(a)(1) and §5(a)(2). distribution of $600 million was made by the PSF(SLB) during fiscal year 2020. The PSF(SLB) The ASF is distributed during the year to the school adopted a resolution on August 21, 2018, approving districts throughout the state based on their average the release of $300 million to the ASF in fiscal year daily attendance (ADA). For fiscal year 2020, the per 2021. student income earned by the Fund and distributed to school districts was $347, the seventh year in which Additionally, the PSF(SLB) adopted a resolution on charter schools were included in the ADA. In fiscal October 20, 2020, approving the release of an years 2018 and 2019, this amount was $247 and additional $300 million to the ASF in fiscal year 2021. $306 respectively (Figure 10). The total distribution from the PSF(SLB) to the ASF in fiscal year 2021 will be $600 million. On November 8, 2011, Texas voters approved Proposition 6, a constitutional amendment which On August 18, 2020, the PSF(SLB) adopted a increases the base amount used in calculating the resolution, approving the release of $415 million and distribution rate from the PSF(SBOE) to the ASF by $460 million to the ASF in fiscal years 2022 and 2023, adding certain discretionary real assets and cash in respectively.
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83 DISTRIBUTIONS TO THE AVAILABLE SCHOOL FUND (ASF), LAST TEN FISCAL YEARS
FIGURE 10: DISTRIBUTIONS TO AVAILABLE SCHOOL FUND (Millions) (IN MILLIONS) $1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fiscal Year Ending August 31
PSF(SBOE) Distribution PSF(SLB) Distribution
Fiscal Year Ending 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 PSF(SBOE) Distribution $ 1,093 $ 1,021 $ 1,021 $ 839 $ 839 $ 1,056 $ 1,056 $ 1,236 $ 1,236 $ 1,102 PSF(SLB) Distribution $ - $ - $ 300 $ - $ - $ - $ - $ - $ 300 $ 600 Per Student Distribution (dollars) $ 246 $ 221 $ 281 $ 175 $ 173 $ 215 $ 212 $ 247 $ 306 $ 347
84 FUND BALANCES, LAST TEN FISCAL YEARS
This schedule provides information on the modified accrual basis of accounting for the last ten fiscal years for the Fund. The information source of this schedule is the Balance Sheet for each respective fiscal year's audited financial statements. Please see Note 1.B. for the Fund's description of the modified accrual basis of accounting.
FIGURE 11: Comparative Fund Balances (in thousands)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Nonspendable $ 25,857,001 $ 27,739,396 $ 29,676,949 $ 34,069,613 $ 32,682,611 $ 36,155,567 $ 40,083,721 $ 42,783,122 $ 45,295,579 $ 45,524,347 Restricted 1,090,257 1,063,529 924,543 881,607 1,150,932 1,108,362 1,334,246 1,284,357 1,204,805 1,151,234
Total Fund Balance $ 26,947,258 $ 28,802,925 $ 30,601,492 $ 34,951,220 $ 33,833,543 $ 37,263,929 $ 41,417,967 $ 44,067,479 $ 46,500,384 $ 46,675,581
NOTE - During fiscal year 2011 the Fund implemented Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54), which required several prescribed classifications of fund balance. For the years 2011 through 2016, the Fund's corpus was originally the basis used to determine nonspendable fund balance classification. Beginning in 2017, this basis was modified to reflect nonspendable fund balance as that portion that was constitutionally not spendable. Generally, the portion classified as nonspendable represents the Fund's constitutionally permanent nature, and the remainder is classified as restricted since it may only be disposed in accordance with the scope of constitutional and statutory requirements. To aid in comparability between years, for purposes of this schedule fund balance classifications have been restated to reflect this modified approach for years 2011 to 2016.
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85 CHANGES IN FUND BALANCES, LAST TEN FISCAL YEARS
This schedule provides trend information on the modified accrual basis of accounting for Revenues, Expenditures, and net change in Fund Balances. This information included in this schedule is obtained from the Statement of Revenues, Expenditures, and Changes in Fund Balance from each respective fiscal year's audited financial statements. Please see Note 1.B. for the Fund's description of the modified accrual basis of accounting.
FIGURE 12: Comparative Changes in Fund Balance (in thousands)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Revenues: Gain on Sale of Land $ - $ 9,779 $ 2,687 $ 6,949 $ 2,720 $ 2,267 $ 1,466 $ 2,423 $ 1,386 $ 2,766 Dividends and Interest 604,035 598,778 635,529 661,752 560,683 567,493 610,035 1,064,715 1,057,218 1,015,763 Securities Lending 6,341 7,418 10,330 9,408 7,725 8,419 25,238 49,416 49,220 26,346 Land Endowment Income 526,037 390,498 410,447 675,799 580,299 522,433 939,053 994,513 1,068,633 794,534 Sales of Purchased Gas 56,318 46,763 51,121 67,248 83,890 76,978 103,883 67,197 57,253 54,347 Net Increase/(Decrease) in Fair Value of Investments 2,537,670 1,897,573 2,064,158 3,858,498 (1,387,556) 1,507,682 3,691,679 1,868,259 1,525,823 104,286 Other 4,305 1,860 30,491 4,056 9,261 6,039 4,059 2,072 2,152 2,445 Total Revenues 3,734,706 2,952,669 3,204,763 5,283,710 (142,978) 2,691,311 5,375,413 4,048,595 3,761,685 2,000,487
Expenditures: Administrative 34,285 32,542 39,573 38,902 53,202 38,339 48,815 56,509 53,290 54,215 Gas Supplies Purchased for Resale 54,587 42,430 44,137 54,819 78,157 74,450 98,792 66,008 56,484 49,862 Securities Lending Rebates/Fees 946 1,107 1,549 1,411 1,159 1,684 16,366 40,511 43,972 19,469 Debt Service ------Capital Outlay 136 37 50 177 155 610 374 220 608 54 Total Expenditures 89,954 76,116 85,309 95,309 132,673 115,083 164,347 163,248 154,354 123,600
Other Sources/(Uses) Transfers In - - - - - 9 - - - - Transfers Out (1,092,809) (1,020,887) (1,320,887) (838,672) (838,672) (1,056,422) (1,056,412) (1,235,835) (1,535,835) (1,701,690) Sale of Capital Assets - - - - - 4 3 - - - Insurance Recoveries ------6 - Other Financing Sources/(Uses) (1,092,809) (1,020,887) (1,320,887) (838,672) (838,672) (1,056,409) (1,056,409) (1,235,835) (1,535,829) (1,701,690)
Net Change in Fund Balance $ 2,551,943 $ 1,855,666 $ 1,798,567 $ 4,349,729 $ (1,114,323) $ 1,519,819 $ 4,154,657 $ 2,649,512 $ 2,071,502 $ 175,197
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86 AVERAGE DAILY ATTENDANCE AND CONTRIBUTIONS TO THE AVAILABLE SCHOOL FUND, LAST TEN FISCAL YEARS
This schedule provides trend information on the average daily attendance of students attending Texas public schools and contributions made by the PSF to the Available School Fund to support the cost of educating those students. This information included in this schedule is obtained from final Statewide Summary of Finances for each respective school year, and the Statement of Revenues, Expenditures, and Changes in Fund Balance from each respective fiscal year's audited financial statements. Please see Note 1.B. for the Fund's description of the modified accrual basis of accounting.
FIGURE 13: Average Daily Attendance and Distribution to the Available School Fund (Dollars in thousands, except for per student amounts)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Average Daily Attendance 4,440,621 4,618,495 4,699,372 4,780,830 4,854,882 4,924,589 4,971,656 5,004,998 5,019,837 4,905,360
Distribution to the Available School Fund $ 1,092,809 $ 1,020,887 $ 1,320,887 $ 838,672 $ 838,672 $ 1,056,412 $ 1,056,412 $ 1,235,835 $ 1,535,835 $ 1,701,670
Per Student Distribution $ 246 $ 221 $ 281 $ 175 $ 173 $ 215 $ 212 $ 247 $ 306 $ 347
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87
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88
SECTION FOUR
BOND GUARANTEE PROGRAM (UNAUDITED)
89
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90
AN OVERVIEW OF THE BOND GUARANTEE PROGRAM
Since its inception in 1983, the Bond Guarantee Accounts (Comptroller). The Commissioner will Program (BGP) has guaranteed 7,719 school district instruct the Comptroller to withhold the amount paid, bond issues for a total of $199.4 billion. At the end of plus interest, from the first State money payable to fiscal year 2020, there were 3,296 issues of the school district. The amount withheld will be guaranteed school district bonds outstanding with a deposited to the credit of the Fund. To date, no balance of $87.8 billion. This balance represents the school district has ever defaulted on their principal amount of the bonds issued and does not guaranteed bonded indebtedness. reflect any subsequent accretions in value for compound interest bonds (zero coupon securities). Statute requires charter district participants in the The balance also excludes bonds that have been Program to contribute a portion of their savings that refunded and released from the Bond Guarantee result from participation in the Program to a Charter Program. During this fiscal year the total amount of District Bond Guarantee Reserve Fund. This Fund is school district bonds outstanding increased by $5.3 separately managed by TEA. In the event of a billion while the number of outstanding issues default by a charter district, the Commissioner shall guaranteed by the Fund decreased by 1. instruct the Comptroller to transfer from the Charter District Bond Guarantee Reserve Fund to the The BGP has also guaranteed 70 charter district district’s paying agent the amount necessary to pay bond issues for a total of $2.7 billion, since 2014 the maturing or matured principal and/or interest. If when charter districts were added to the program. funds in the Reserve Fund are insufficient to pay the During fiscal year 2020, the amount of charter amount due on a bond in default, the payment district bonds outstanding increased by $676.1 process described above for school districts would million while the number of outstanding issues apply. guaranteed by the Fund increased by 15. At the end of the fiscal year 2020, there were 64 issues of The guarantee maximum capacity of the overall guaranteed charter district bonds outstanding with a Program is limited in two ways. The first limit is the balance of $2.5 billion. As with school district debt, lower of that imposed by the “State Capacity Limit” this amount represents the principal amount of the limiting the amount guaranteed to 350% of the bonds issued and does not reflect any subsequent current historical cost of the assets in the Fund, or accretions in value for compound interest bonds the limit imposed by the Internal Revenue Service, (zero coupon securities). Internal Revenue Code Section 1.148-11(d)(1)(F) or the "IRS Limit" (calculated to be $117,318,653,038). The Commissioner of Education is charged with The second limit is a 5% reserve of the maximum administering the Program. For eligible bonds, capacity set aside by the SBOE for specific including refunding bonds, school districts and purposes as described by Texas Administrative charter districts submit an application for guarantee Code Title 19 Part 2 Chapter 33 Subchapter A Rule and a processing fee of $1,500. The Commissioner 33.65. may endorse bonds for guarantee only after investigating the accreditation and financial viability Charter district capacity is further defined as the of the applying school or charter district. If the district remaining capacity as described above (the lower of is considered viable and the bonds are approved by 3.50 times asset cost or the IRS limit, less the 5% the State of Texas Attorney General, then the reserve), the difference of which is applied against guarantee is endorsed at a zero premium charge to the ratio of charter district students compared to all the district. public school students.
In the event of a default by a school district, and As of August 31, 2020, the ratio of guaranteed debt upon proper notice to the Commissioner, the Fund outstanding to the book value of the Fund was will transfer to the Paying Agent/Registrar an 2.47:1 and the ratio of guaranteed debt to the fair amount necessary to pay the maturing or matured value of the Fund was 1.93:1. principal and/or interest. Upon receipt of funds for payment of such principal or interest, the Paying Agent/Registrar must pay the amount due and The remainder of this column forward the canceled Bond or evidence of payment intentionally left blank. of the interest to the State Comptroller of Public
91 AN OVERVIEW OF THE BOND GUARANTEE PROGRAM
To be eligible for the bond guarantee program, FIGURE 14: school districts and charter districts must be Bond Guarantee Program accredited by the State, have bond ratings below Ten Largest Total Debt Outstanding AAA, and have their applications approved by the Guaranteed Under the Program Commissioner of Education. If a school district or At August 31, 2020 charter district fails to make scheduled payments for any bond issues guaranteed by the Fund, the Fund District Name Balance will make the scheduled debt service payment for the defaulting school district as described above. Cypress-Fairbanks ISD $ 2,971,210,000 The Fund will not accelerate total bond issue Dallas ISD 2,902,695,000 payments. Any State funds subsequently due to the Houston ISD 2,228,810,000 district will instead be paid to the Fund until all Northside ISD [Bexar] 2,038,845,000 monies due the Fund are repaid. Frisco ISD 1,951,558,118 Katy ISD 1,888,706,959 Figure 14 lists the districts with the ten largest North East ISD 1,366,550,000 aggregate amounts of bonds outstanding, which are Fort Bend ISD 1,297,633,767 guaranteed under the program as of August 31, Conroe ISD 1,251,730,000 2020. Lamar CISD 1,138,945,000
NUMBER OF ISSUES Total School Districts Charter Districts
Number of Issues as of September 1, 2019 3,346 3,297 49
Fiscal Year Activity: District Issues Guaranteed During Fiscal Year 346 330 16 District Issues Matured (244) (243) (1) District Issues Refunded (88) (88) -
Number of Issues as of August 31, 2020 3,360 3,296 64
BALANCE
Balance as of September 1, 2019 $ 84,397,900,203 $ 82,537,755,203 $ 1,860,145,000
Fiscal Year Activity: District Issues Guaranteed During Fiscal Year 15,860,029,373 15,150,604,373 709,425,000 District Issues Matured (3,481,657,850) (3,448,289,850) (33,368,000) District Issues Refunded (6,439,591,481) (6,439,591,481) -
Balance as of August 31, 2020 $ 90,336,680,245 $ 87,800,478,245 $ 2,536,202,000
92 BOND GUARANTEE PROGRAM COMPARATIVE STATUS SUMMARY LAST TEN FISCAL YEARS
FIGURE 15: Bond Guarantee Program Comparative Status Summary (Number) (Millions) 3,500 $100,000
$90,000 3,000
$80,000
2,500 $70,000
$60,000 2,000
$50,000
1,500 $40,000
$30,000 1,000
$20,000
500 $10,000
0 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Number of Issues ‐ School District 2,536 2,634 2,789 2,869 3,089 3,244 3,253 3,249 3,297 3,296 Number of Issues ‐ Charter School ‐ ‐ ‐ 10 2835 40 44 49 64 Issued Year‐End Balance ‐ School District 52,654 53,634 55,219 58,062 63,198 67,342 72,884 77,648 82,538 87,800 Issued Year‐End Balance ‐ Charter School ‐ ‐ ‐ 303 758 961 1,381 1,433 1,860 2,536
93 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Abbott ISD $ 3,605,000 Baird ISD $ 4,075,000 Abernathy ISD 17,815,000 Balmorhea ISD 7,235,000 Abilene ISD 220,545,246 Bandera ISD 15,205,000 Academy ISD 18,225,000 Bangs ISD 5,910,000 Adrian ISD 4,560,000 Banquete ISD 4,935,000 Agua Dulce ISD 4,415,000 Barbers Hill ISD 348,115,000 Alamo Heights ISD 171,960,000 Bartlett ISD 855,000 Alba-Golden ISD 1,530,000 Bastrop ISD 144,270,568 Aldine ISD 1,024,820,000 Bay City ISD 128,885,000 Aledo ISD 286,308,275 Beaumont ISD 296,485,000 Alice ISD 37,430,000 Beeville ISD 12,306,261 Alief ISD 299,895,000 Bellevue ISD 4,275,000 Allen ISD 546,363,446 Bells ISD 15,470,000 Alpine ISD 19,525,000 Bellville ISD 17,545,000 Alto ISD 11,700,000 Belton ISD 236,535,000 Alvarado ISD 73,997,000 Ben Bolt-Palito Blanco ISD 3,140,000 Alvin ISD 906,860,000 Benavides ISD 4,760,000 Alvord ISD 5,555,000 Big Sandy ISD [Polk] 1,370,000 Amarillo ISD 239,375,000 Big Sandy ISD [Upshur] 7,057,229 Anahuac ISD 21,890,000 Big Spring ISD 45,575,000 Anderson-Shiro CISD 24,780,000 Birdville ISD 440,974,599 Andrews ISD 23,828,749 Bishop CISD 27,405,000 Angleton ISD 133,040,000 Blackwell CISD 820,000 Anna ISD 135,693,441 Blanco ISD 7,135,000 Anson ISD 4,720,000 Bland ISD 12,716,016 Anthony ISD 4,020,000 Blanket ISD 770,000 Aquilla ISD 932,000 Bloomburg ISD 425,000 Aransas Co ISD 22,735,000 Blooming Grove ISD 945,000 Aransas Pass ISD 15,100,000 Bloomington ISD 7,945,000 Archer City ISD 15,205,000 Blue Ridge ISD 35,490,000 Argyle ISD 185,972,465 Bluff Dale ISD 4,930,000 Arlington ISD 954,391,926 Blum ISD 6,580,000 Arp ISD 17,945,000 Boerne ISD 309,264,647 Aspermont ISD 6,510,000 Boles ISD 3,455,000 Athens ISD 62,470,000 Bonham ISD 32,955,000 Atlanta ISD 10,875,500 Borger ISD 65,246,811 Aubrey ISD 85,385,919 Bosqueville ISD 6,950,000 Austin ISD 804,383,533 Bowie ISD 20,695,000 Austwell-Tivoli ISD 13,830,000 Boyd ISD 18,835,000 Avalon ISD 745,000 Brady ISD 16,170,000 Azle ISD 78,790,000 Brazos ISD 12,249,987
94 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Brazosport ISD $ 338,719,985 Castleberry ISD $ 35,870,000 Breckenridge ISD 3,285,000 Cedar Hill ISD 89,165,460 Bremond ISD 8,275,000 Celeste ISD 6,135,000 Brenham ISD 27,684,638 Celina ISD 171,920,000 Bridge City ISD 12,794,379 Center ISD 30,065,000 Bridgeport ISD 12,545,000 Center Point ISD 800,000 Brock ISD 62,957,639 Centerville ISD [Leon] 13,601,386 Brookesmith ISD 425,000 Central Heights ISD 11,055,000 Brooks Co ISD 27,120,000 Central ISD 9,895,000 Brownfield ISD 40,970,000 Channelview ISD 183,700,000 Brownsboro ISD 20,250,000 Channing ISD 815,000 Brownsville ISD 89,100,000 Chapel Hill ISD [Smith] 13,115,000 Bruceville-Eddy ISD 5,130,000 Chapel Hill ISD [Titus] 2,295,000 Bryan ISD 191,485,000 Charlotte ISD 8,070,000 Bryson ISD 12,194,975 Chico ISD 15,970,000 Buckholts ISD 400,000 Childress ISD 160,000 Buffalo ISD 11,904,070 Chillicothe ISD 9,605,000 Bullard ISD 62,345,533 China Spring ISD 32,694,986 Buna ISD 20,250,000 Chireno ISD 745,000 Burkburnett ISD 37,115,000 Chisum ISD 26,950,000 Burkeville ISD 825,000 City View ISD 11,353,162 Burleson ISD 318,562,015 Claude ISD 1,190,000 Burnet CISD 27,925,000 Clear Creek ISD 893,175,000 Burton ISD 5,125,000 Cleburne ISD 123,822,083 Bushland ISD 15,915,000 Cleveland ISD 243,104,989 Bynum ISD 625,000 Clifton ISD 22,975,000 Caddo Mills ISD 26,248,463 Clint ISD 158,395,811 Calallen ISD 67,725,000 Clyde CISD 19,510,000 Caldwell ISD 38,465,200 Coahoma ISD 13,879,997 Calhoun Co ISD 28,975,000 Coldspring-Oakhurst CISD 17,680,000 Callisburg ISD 16,138,664 College Station ISD 305,935,000 Cameron ISD 15,200,000 Collinsville ISD 7,905,000 Canadian ISD 7,860,000 Colorado ISD 27,040,000 Canton ISD 23,554,000 Columbia-Brazoria ISD 38,520,000 Canutillo ISD 82,804,627 Columbus ISD 7,594,989 Canyon ISD 248,440,000 Comal ISD 722,510,179 Carlisle ISD 9,370,000 Comanche ISD 7,695,000 Carrizo Springs CISD 38,980,000 Comfort ISD 30,594,995 Carroll ISD 275,935,000 Commerce ISD 19,940,000 Carrollton-Farmers Branch ISD 183,065,000 Community ISD 87,940,000 Carthage ISD 19,627,000 Comstock ISD 1,215,000
95 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Connally ISD $ 11,450,000 DeSoto ISD $ 81,104,814 Conroe ISD 1,251,730,000 Detroit ISD 4,800,000 Coolidge ISD 2,030,000 Devers ISD 275,000 Cooper ISD 8,555,000 Devine ISD 9,940,000 Coppell ISD 329,380,981 Deweyville ISD 4,670,000 Copperas Cove ISD 7,904,995 D'Hanis ISD 4,000,000 Corpus Christi ISD 651,049,138 Diboll ISD 14,109,921 Corrigan-Camden ISD 2,180,000 Dickinson ISD 295,390,000 Corsicana ISD 82,421,979 Dilley ISD 33,745,000 Cotulla ISD 27,995,000 Dime Box ISD 2,900,000 Coupland ISD 4,550,000 Dimmitt ISD 32,214,998 Covington ISD 326,000 Dodd City ISD 3,960,000 Crandall ISD 114,836,935 Donna ISD 58,550,000 Crane ISD 3,440,000 Dripping Springs ISD 285,009,999 Crawford ISD 5,795,000 Driscoll ISD 6,933,306 Crockett Co Cons CSD 3,095,000 Dublin ISD 3,875,000 Crockett ISD 10,315,000 Dumas ISD 80,910,000 Crosby ISD 133,510,000 Duncanville ISD 197,615,000 Crosbyton CISD 6,990,000 Eagle Mountain-Saginaw ISD 705,705,711 Cross Roads ISD 4,090,000 Eagle Pass ISD 39,445,000 Crowley ISD 523,298,187 Eanes ISD 119,145,000 Crystal City ISD 43,510,000 Early ISD 15,349,016 Cuero ISD 59,340,000 East Bernard ISD 19,660,000 Culberson Co-Allamoore ISD 28,170,000 East Central ISD 116,638,479 Cumby ISD 1,323,000 East Chambers ISD 13,296,000 Cushing ISD 10,510,000 Eastland ISD 7,680,000 Cypress-Fairbanks ISD 2,971,210,000 Ector Co ISD 154,380,000 Daingerfield-Lone Star ISD 6,229,000 Ector ISD 1,355,000 Dalhart ISD 11,655,000 Edcouch-Elsa ISD 28,550,000 Dallas ISD 2,902,695,000 Edgewood ISD [Bexar] 52,665,000 Danbury ISD 18,505,000 Edgewood ISD [Van Zandt] 2,750,000 Darrouzett ISD 1,950,000 Edinburg CISD 102,845,000 Dawson ISD [Navarro] 7,997,832 Edna ISD 17,700,000 Dayton ISD 81,815,000 El Campo ISD 24,665,000 De Leon ISD 885,000 El Paso ISD 885,195,305 Decatur ISD 28,818,659 Electra ISD 10,525,000 Deer Park ISD 244,350,000 Elgin ISD 34,821,016 Del Valle ISD 268,674,999 Elkhart ISD 12,735,000 Denison ISD 92,906,093 Elysian Fields ISD 5,750,000 Denton ISD 1,052,691,088 Ennis ISD 105,744,620 Denver City ISD 64,390,000 Era ISD 3,980,000
96 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Etoile ISD $ 2,045,000 Garland ISD $ 490,295,000 Eula ISD 3,644,800 Garner ISD 1,020,000 Eustace ISD 37,275,000 Garrison ISD 1,325,000 Evadale ISD 1,582,524 Gary ISD 7,125,000 Everman ISD 117,450,000 Gatesville ISD 23,365,000 Ezzell ISD 3,445,000 George West ISD 27,175,000 Fabens ISD 24,723,000 Georgetown ISD 403,370,000 Fairfield ISD 2,955,000 Giddings ISD 28,310,000 Falls City ISD 25,840,000 Gilmer ISD 43,190,000 Fannindel ISD 895,000 Gladewater ISD 30,245,000 Farmersville ISD 8,000,000 Glasscock Co ISD 9,895,000 Farwell ISD 8,455,000 Glen Rose ISD 11,000,000 Fayetteville ISD 7,040,000 Godley ISD 71,090,000 Ferris ISD 30,039,518 Goldthwaite CISD 20,755,000 Flatonia ISD 16,010,000 Goliad ISD 6,430,000 Florence ISD 10,630,000 Gonzales ISD 20,285,000 Floresville ISD 54,309,990 Goodrich ISD 2,400,000 Flour Bluff ISD 45,169,986 Goose Creek CISD 523,035,000 Floydada ISD 34,325,000 Gorman ISD 3,760,000 Follett ISD 1,340,000 Grady ISD 31,345,000 Forney ISD 311,265,861 Graford ISD 7,845,000 Forsan ISD 15,470,000 Graham ISD 20,310,000 Fort Bend ISD 1,297,633,767 Granbury ISD 97,650,000 Fort Elliott CISD 1,030,000 Grand Prairie ISD 406,495,000 Fort Hancock ISD 915,000 Grand Saline ISD 4,893,000 Fort Stockton ISD 32,865,000 Grandfalls-Royalty ISD 9,980,000 Fort Worth ISD 1,004,100,000 Grandview ISD 11,375,000 Franklin ISD 1,665,000 Grape Creek ISD 10,650,000 Frankston ISD 13,631,275 Grapeland ISD 10,275,000 Fredericksburg ISD 21,005,000 Grapevine-Colleyville ISD 340,580,437 Freer ISD 21,949,908 Greenville ISD 72,150,000 Frenship ISD 188,002,786 Greenwood ISD 53,201,067 Friendswood ISD 83,320,000 Gregory-Portland ISD 124,725,000 Friona ISD 19,115,000 Groesbeck ISD 10,480,000 Frisco ISD 1,951,558,118 Groom ISD 12,425,000 Frost ISD 6,032,000 Gruver ISD 5,500,000 Fruitvale ISD 1,905,000 Gunter ISD 15,490,000 Gainesville ISD 24,670,000 Gustine ISD 770,000 Galena Park ISD 368,848,148 Hale Center ISD 4,541,906 Galveston ISD 61,200,000 Hallettsville ISD 20,195,000 Ganado ISD 23,275,000 Hallsburg ISD 2,065,000
97 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Hallsville ISD $ 91,335,000 Humble ISD $ 830,405,000 Hamlin ISD 3,135,000 Hunt ISD 3,340,000 Hamshire-Fannett ISD 19,490,000 Huntington ISD 13,210,000 Hardin ISD 17,030,000 Huntsville ISD 15,005,000 Hardin-Jefferson ISD 31,300,000 Hurst-Euless-Bedford ISD 271,975,000 Harlandale ISD 156,693,920 Hutto ISD 309,796,172 Harleton ISD 849,000 Idalou ISD 11,155,000 Harlingen CISD 95,860,000 Industrial ISD 19,870,000 Harmony ISD 468,000 Ingleside ISD 39,010,000 Hart ISD 1,860,000 Ingram ISD 12,190,000 Hartley ISD 4,705,000 Iola ISD 8,595,000 Haskell CISD 19,360,000 Iowa Park CISD 32,705,000 Hawkins ISD 17,340,000 Ira ISD 10,355,000 Hawley ISD 5,265,000 Iraan-Sheffield ISD 12,635,000 Hays CISD 447,675,000 Iredell ISD 4,440,000 Hearne ISD 7,285,000 Irion Co ISD 7,545,000 Hempstead ISD 10,409,480 Irving ISD 376,200,000 Henderson ISD 38,415,000 Italy ISD 12,090,000 Henrietta ISD 7,515,000 Itasca ISD 9,740,000 Hereford ISD 20,130,000 Jacksboro ISD 17,435,000 Hermleigh ISD 4,905,000 Jacksonville ISD 83,365,000 Hico ISD 2,500,000 Jarrell ISD 94,070,000 Hidalgo ISD 26,375,000 Jasper ISD 6,965,000 High Island ISD 335,000 Jayton-Girard ISD 1,275,000 Highland ISD 7,550,000 Jefferson ISD 5,490,000 Highland Park ISD [Dallas] 315,600,000 Jim Hogg Co ISD 15,662,000 Highland Park ISD [Potter] 18,390,000 Jim Ned CISD 12,110,000 Hillsboro ISD 33,364,164 Joaquin ISD 11,180,000 Hitchcock ISD 27,572,549 Johnson City ISD 14,160,000 Holland ISD 8,185,000 Joshua ISD 97,670,000 Holliday ISD 16,070,000 Jourdanton ISD 38,770,000 Hondo ISD 34,705,000 Judson ISD 519,294,223 Honey Grove ISD 7,830,000 Karnes City ISD 14,315,000 Hooks ISD 5,495,000 Katy ISD 1,888,706,959 Houston ISD 2,228,810,000 Kaufman ISD 67,780,000 Howe ISD 21,290,828 Keene ISD 10,765,000 Hubbard ISD [Hill] 7,797,999 Keller ISD 906,954,071 Huckabay ISD 7,565,000 Kelton ISD 1,543,000 Hudson ISD 12,115,000 Kemp ISD 18,379,993 Huffman ISD 72,550,000 Kenedy ISD 27,435,000 Hull-Daisetta ISD 795,000 Kennedale ISD 27,040,025
98 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Kerens ISD $ 16,525,000 Liberty ISD $ 34,335,000 Kermit ISD 22,185,000 Liberty-Eylau ISD 22,600,000 Kerrville ISD 91,790,000 Lindale ISD 70,534,093 Kilgore ISD 42,880,000 Lingleville ISD 7,231,000 Killeen ISD 413,710,000 Lipan ISD 7,214,253 Kingsville ISD 60,070,000 Little Cypress-Mauriceville CISD 55,800,000 Kirbyville CISD 21,020,000 Little Elm ISD 304,388,997 Klein ISD 1,067,845,000 Livingston ISD 56,065,000 Klondike ISD 1,910,000 Llano ISD 39,325,000 Knippa ISD 2,825,000 Lockhart ISD 63,520,000 Kountze ISD 8,645,000 Lockney ISD 4,870,000 Kress ISD 2,305,000 Lohn ISD 840,000 Krum ISD 27,883,031 Lometa ISD 3,415,000 La Feria ISD 20,150,000 London ISD 31,701,547 La Grange ISD 30,830,000 Lone Oak ISD 6,680,000 La Joya ISD 199,107,680 Longview ISD 179,380,000 La Porte ISD 234,445,000 Loop ISD 710,000 La Poynor ISD 6,310,000 Loraine ISD 7,955,000 La Pryor ISD 1,695,000 Lorena ISD 27,099,003 La Vega ISD 35,329,642 Los Fresnos CISD 23,640,000 La Vernia ISD 30,655,000 Lovejoy ISD 157,942,326 La Villa ISD 8,185,000 Lovelady ISD 6,795,000 Lago Vista ISD 34,516,431 Lubbock ISD 317,263,770 Lake Dallas ISD 149,857,192 Lubbock-Cooper ISD 279,354,834 Lake Travis ISD 381,825,000 Lueders-Avoca ISD 855,000 Lake Worth ISD 59,138,763 Lufkin ISD 96,555,000 Lamar CISD 1,138,945,000 Luling ISD 30,740,000 Lamesa ISD 15,040,000 Lumberton ISD 38,395,000 Lampasas ISD 29,604,982 Lyford CISD 3,120,000 Lancaster ISD 136,410,000 Lytle ISD 23,635,000 Laredo ISD 226,595,000 Mabank ISD 36,403,529 Lasara ISD 5,220,000 Madisonville CISD 20,345,000 Latexo ISD 194,750 Magnolia ISD 101,320,000 Leander ISD 966,132,213 Malakoff ISD 16,680,000 Lefors ISD 2,420,000 Malone ISD 801,000 Leggett ISD 1,960,000 Malta ISD 670,000 Leon ISD 3,730,000 Manor ISD 437,149,999 Levelland ISD 46,330,000 Mansfield ISD 895,790,000 Lewisville ISD 1,136,061,859 Marble Falls ISD 98,065,000 Lexington ISD 7,250,000 Marfa ISD 5,330,000 Liberty Hill ISD 223,827,642 Marion ISD 31,220,000
99 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FYEAISCAL EAR NDED UGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Marshall ISD $ 87,075,000 Moody ISD $ 9,327,605 Mart ISD 9,825,000 Moulton ISD 12,245,000 Martins Mill ISD 2,280,000 Mount Calm ISD 1,500,000 Martinsville ISD 3,580,000 Mount Enterprise ISD 2,410,000 Mason ISD 3,505,000 Mount Pleasant ISD 72,680,000 Matagorda ISD 4,035,000 Mount Vernon ISD 19,180,000 Mathis ISD 21,995,000 Muenster ISD 14,822,941 Maud ISD 580,000 Muleshoe ISD 14,240,000 May ISD 1,451,000 Munday CISD 6,475,000 Maypearl ISD 10,827,677 Nacogdoches ISD 96,900,000 McAllen ISD 55,860,000 Natalia ISD 10,381,000 McCamey ISD 13,555,000 Navarro ISD 33,780,494 McDade ISD 650,000 Navasota ISD 57,110,000 McGregor ISD 21,994,222 Nazareth ISD 440,738 McKinney ISD 470,350,000 Neches ISD 3,365,000 McLean ISD 1,165,000 Nederland ISD 88,770,000 McMullen Co ISD 10,314,000 Needville ISD 47,050,000 Meadow ISD 785,000 New Boston ISD 12,780,000 Medina ISD 5,315,000 New Braunfels ISD 204,552,233 Medina Valley ISD 156,207,932 New Caney ISD 492,810,000 Melissa ISD 180,130,000 New Diana ISD 7,700,000 Mercedes ISD 45,140,000 New Home ISD 4,650,000 Meridian ISD 5,650,000 New Summerfield ISD 7,255,000 Merkel ISD 10,520,000 New Waverly ISD 4,310,000 Mesquite ISD 748,269,389 Newcastle ISD 4,500,000 Mexia ISD 11,955,000 Newton ISD 2,440,000 Miami ISD 18,445,000 Nixon-Smiley CISD 12,344,500 Midland ISD 181,600,981 Normangee ISD 16,406,984 Midlothian ISD 441,403,728 North East ISD 1,366,550,000 Midway ISD [Clay] 4,115,000 North Hopkins ISD 4,070,000 Midway ISD [McLennan] 205,355,000 North Zulch ISD 3,485,000 Milano ISD 3,575,000 Northside ISD [Bexar] 2,038,845,000 Mildred ISD 18,605,000 Northside ISD [Wilbarger] 1,160,000 Miles ISD 7,070,000 Northwest ISD 1,065,295,272 Miller Grove ISD 3,075,000 Nursery ISD 2,135,000 Millsap ISD 14,944,903 Oakwood ISD 1,315,930 Mineral Wells ISD 47,155,000 Odem-Edroy ISD 25,320,000 Mission CISD 101,795,000 O'Donnell ISD 11,639,000 Monahans-Wickett-Pyote ISD 141,680,000 Olfen ISD 700,000 Monte Alto ISD 12,075,000 Olney ISD 4,545,000 Montgomery ISD 328,960,000 Onalaska ISD 10,762,961
100 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Orange Grove ISD $ 8,560,000 Port Aransas ISD $ 5,662,000 Orangefield ISD 6,545,000 Port Arthur ISD 231,285,000 Ore City ISD 7,810,000 Port Neches-Groves ISD 144,455,000 Overton ISD 7,339,814 Post ISD 34,410,000 Paint Creek ISD 2,120,000 Poteet ISD 23,890,000 Paint Rock ISD 1,890,000 Poth ISD 13,153,000 Palacios ISD 5,115,000 Pottsboro ISD 7,320,000 Palestine ISD 50,145,000 Prairiland ISD 6,625,000 Palmer ISD 16,155,000 Premont ISD 11,065,000 Palo Pinto ISD 2,430,000 Presidio ISD 2,751,910 Pampa ISD 35,455,000 Priddy ISD 1,045,000 Panhandle ISD 2,200,000 Princeton ISD 188,215,781 Panther Creek CISD 635,000 Pringle-Morse CISD 579,000 Paradise ISD 8,300,000 Progreso ISD 20,110,000 Paris ISD 43,905,000 Prosper ISD 913,122,985 Pasadena ISD 752,555,000 Queen City ISD 1,810,000 Pawnee ISD 2,733,000 Quinlan ISD 11,595,000 Pearland ISD 433,230,000 Quitman ISD 12,533,000 Pearsall ISD 20,560,000 Rains ISD 10,520,000 Peaster ISD 19,887,306 Rankin ISD 53,735,000 Pecos-Barstow-Toyah ISD 20,976,817 Raymondville ISD 13,225,000 Perrin-Whitt CISD 3,835,000 Reagan Co ISD 24,225,000 Perryton ISD 16,648,712 Red Lick ISD 4,170,000 Petersburg ISD 12,910,000 Red Oak ISD 93,725,000 Petrolia CISD 2,530,000 Redwater ISD 6,395,000 Pettus ISD 27,140,000 Refugio ISD 19,520,000 Pewitt CISD 825,000 Rice CISD 26,734,996 Pflugerville ISD 621,390,000 Rice ISD 22,934,592 Pharr-San Juan-Alamo ISD 258,090,000 Richardson ISD 522,755,829 Pilot Point ISD 13,210,000 Richland Springs ISD 2,425,000 Pine Tree ISD 44,325,000 Riesel ISD 23,885,000 Pittsburg ISD 17,480,000 Rio Grande City CISD 70,140,000 Plains ISD 26,010,000 Rio Hondo ISD 29,425,335 Plainview ISD 67,155,000 Rio Vista ISD 1,475,000 Plano ISD 661,925,000 River Road ISD 8,715,219 Pleasant Grove ISD 43,210,000 Rivercrest ISD 4,210,000 Pleasanton ISD 53,490,000 Robert Lee ISD 11,110,000 Plemons-Stinnett-Phillips CISD 9,720,000 Robinson ISD 19,530,000 Point Isabel ISD 8,610,000 Robstown ISD 47,423,995 Ponder ISD 14,410,000 Rockdale ISD 21,630,000 Poolville ISD 2,540,000 Rocksprings ISD 830,000
101 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Rockwall ISD $ 507,656,045 Schulenburg ISD $ 7,070,000 Rogers ISD 10,750,191 Scurry-Rosser ISD 5,965,000 Roma ISD 65,945,000 Seagraves ISD 7,885,000 Roosevelt ISD 7,800,000 Sealy ISD 50,965,000 Ropes ISD 8,330,000 Seguin ISD 148,599,858 Roscoe Collegiate ISD 4,320,000 Seminole ISD 11,620,000 Rosebud-Lott ISD 11,829,464 Seymour ISD 2,000,000 Round Rock ISD 751,105,000 Shallowater ISD 25,700,014 Round Top-Carmine ISD 1,450,000 Sharyland ISD 93,485,000 Royal ISD 59,199,994 Shelbyville ISD 705,000 Royse City ISD 122,454,600 Sheldon ISD 391,079,996 Runge ISD 2,500,000 Shepherd ISD 18,875,000 Rusk ISD 7,015,000 Sherman ISD 206,215,000 S & S CISD 25,060,000 Shiner ISD 2,400,000 Sabinal ISD 625,000 Sidney ISD 1,085,000 Sabine ISD 17,745,000 Sierra Blanca ISD 8,700,000 Sabine Pass ISD 21,529,485 Silsbee ISD 28,735,000 Saint Jo ISD 6,430,000 Silverton ISD 6,890,000 Salado ISD 60,960,000 Simms ISD 1,090,000 Sam Rayburn ISD 3,460,000 Sinton ISD 22,980,000 San Angelo ISD 93,115,000 Skidmore-Tynan ISD 8,901,000 San Antonio ISD 1,037,829,987 Slaton ISD 14,880,000 San Augustine ISD 9,000,000 Slidell ISD 880,000 San Benito CISD 94,760,000 Slocum ISD 2,750,000 San Diego ISD 24,435,000 Smithville ISD 38,150,000 San Elizario ISD 26,335,000 Smyer ISD 91,500 San Felipe Del Rio CISD 43,579,993 Snook ISD 14,285,000 San Isidro ISD 182,000 Snyder ISD 7,420,000 San Marcos CISD 210,710,000 Socorro ISD 794,107,685 San Perlita ISD 5,475,000 Somerset ISD 49,535,481 San Saba ISD 3,707,000 Somerville ISD 11,995,000 Sands CISD 2,765,000 Sonora ISD 1,279,828 Sanford-Fritch ISD 7,306,740 South San Antonio ISD 141,294,843 Sanger ISD 18,678,414 Southside ISD 86,910,000 Santa Anna ISD 875,000 Southwest ISD 278,043,271 Santa Fe ISD 80,990,000 Spearman ISD 5,460,000 Santa Gertrudis ISD 2,035,000 Splendora ISD 58,130,000 Santa Maria ISD 10,585,000 Spring Branch ISD 721,575,000 Santa Rosa ISD 7,855,000 Spring Hill ISD 38,011,000 Savoy ISD 900,000 Spring ISD 551,340,000 Schertz-Cibolo-Universal City Springtown ISD 49,915,000 ISD 397,644,650
102 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE SCHOOL DISTRICT NAME BALANCE Spur ISD $ 3,060,000 Trinity ISD $ 13,765,000 Spurger ISD 1,800,000 Troup ISD 5,720,000 Stafford MSD 103,095,000 Troy ISD 30,689,997 Stamford ISD 7,570,000 Tulia ISD 12,300,000 Stanton ISD 20,800,000 Tuloso-Midway ISD 50,825,000 Stephenville ISD 77,355,000 Turkey-Quitaque ISD 2,260,000 Sterling City ISD 14,840,000 Tyler ISD 385,870,000 Stockdale ISD 12,555,000 Union Grove ISD 11,950,000 Stratford ISD 6,570,000 United ISD 458,551,214 Sudan ISD 9,370,000 Uvalde CISD 7,940,000 Sulphur Bluff ISD 455,000 Valley Mills ISD 13,660,000 Sulphur Springs ISD 42,310,000 Valley View ISD [Cooke] 10,385,000 Sunnyvale ISD 92,282,581 Valley View ISD [Hidalgo] 37,780,000 Sunray ISD 15,035,000 Van Alstyne ISD 53,335,000 Sweeny ISD 51,680,000 Van ISD 38,135,000 Sweetwater ISD 5,535,000 Van Vleck ISD 70,830,000 Taft ISD 25,015,000 Vega ISD 15,715,000 Tahoka ISD 13,850,000 Venus ISD 32,564,426 Tarkington ISD 8,325,000 Veribest ISD 930,000 Tatum ISD 15,260,000 Victoria ISD 110,800,000 Taylor ISD 58,945,000 Vidor ISD 11,603,415 Teague ISD 6,545,000 Waco ISD 141,440,000 Temple ISD 173,605,000 Waelder ISD 2,820,000 Tenaha ISD 2,840,000 Walcott ISD 940,000 Terrell Co ISD 2,660,000 Wall ISD 16,635,000 Terrell ISD 52,851,847 Waller ISD 314,855,000 Texarkana ISD 39,032,461 Warren ISD 18,769,881 Texas City ISD 199,500,000 Waskom ISD 11,750,000 Texline ISD 1,780,000 Water Valley ISD 11,035,000 Thrall ISD 14,035,000 Waxahachie ISD 239,522,940 Three Rivers ISD 22,295,000 Weatherford ISD 110,856,325 Tidehaven ISD 41,585,000 Webb CISD 10,580,000 Timpson ISD 8,375,000 Weimar ISD 15,105,000 Tioga ISD 5,545,193 Wellman-Union CISD 17,984,985 Tolar ISD 8,282,814 Wells ISD 2,730,000 Tom Bean ISD 8,610,000 Weslaco ISD 40,775,000 Tomball ISD 587,705,000 West Hardin Co CISD 1,745,000 Tornillo ISD 16,502,340 West ISD 19,287,109 Trent ISD 2,340,000 West Orange-Cove CISD 67,653,543 Trenton ISD 6,035,000 West Oso ISD 31,246,514 Trinidad ISD 705,000 West Rusk Co CISD 13,945,000
103 BOND GUARANTEE PROGRAM --- ISSUED AND GUARANTEED FOR THE FISCAL YEAR ENDED AUGUST 31, 2020
SCHOOL DISTRICT NAME BALANCE CHARTER DISTRICT NAME BALANCE West Sabine ISD $ 7,345,000 A.W. Brown-Fellowship Wharton ISD 53,090,000 Charter School $ 24,855,000 Wheeler ISD 4,775,000 A+ Charter Schools, Inc. 12,450,000 BRAINATION, INC 10,880,000 White Deer ISD 10,950,000 Compass Academy White Oak ISD 18,675,000 Charter School, Inc. 15,715,000 White Settlement ISD 147,248,582 Eagle Advantage Schools, Inc. 18,810,000 Whiteface CISD 8,280,000 Golden Rule Schools, Inc. 26,925,000 Whitehouse ISD 106,695,000 Great Hearts America - Texas 123,570,000 Whitesboro ISD 6,755,000 Harmony Public Schools 291,395,000 Whitewright ISD 6,490,006 IDEA Academy, Inc. 792,015,000 KIPP Texas, Inc. 381,698,000 Whitharral ISD 1,530,000 LIFESCHOOL of Dallas 85,110,000 Whitney ISD 30,820,000 Nova Academy 4,885,000 Wichita Falls ISD 70,255,000 Odyssey Academy 11,560,000 Wildorado ISD 10,745,000 Orenda Education 37,145,000 Willis ISD 141,038,989 Responsive Education Solutions 118,825,000 Wimberley ISD 102,058,645 Riverwalk Education Windthorst ISD 1,590,000 Foundation, Inc. 183,459,000 SER-Ninos, Inc. 7,025,000 Wink-Loving ISD 44,400,000 Trinity Basin Preparatory 62,290,000 Winnsboro ISD 30,500,000 Uplift Education 256,005,000 Winona ISD 25,245,919 YES Prep Public Schools 71,585,000 Woden ISD 8,925,000 Wolfe City ISD 3,265,000 TOTAL CHARTER DISTRICT Woodsboro ISD 10,100,000 AMOUNT OUTSTANDING $ 2,536,202,000 Wortham ISD 5,645,000 Wylie ISD [Collin] 446,291,921 GRAND TOTAL AMOUNT OUTSTANDING $ 90,336,680,245 Wylie ISD [Taylor] 47,205,000
Yoakum ISD 39,225,000 Yorktown ISD 4,085,000 Ysleta ISD 741,023,205 Zapata Co ISD 9,500,000 Zavalla ISD 5,030,000 Zephyr ISD 3,414,649
TOTAL SCHOOL DISTRICT AMOUNT OUTSTANDING $ 87,800,478,245
104
SECTION FIVE
SUPPLEMENTAL SCHEDULES (UNAUDITED)
105
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106 TEXAS PERMANENT SCHOOL FUND SCHEDULE OF HISTORICAL EARNED INCOME – PSF(SBOE) ASSIGNED TO THE AVAILABLE SCHOOL FUND
Increase Total Investment (Decrease) Over Net Income Other Total Income Year Fund 1 Previous Year 2 From Investments 3 Income 4 From Operations Distributions 5 1854 $ 2,000,000 $ - $ - $ - $ - $ - 1900 9,102,873 682,284 337,437 445,705 783,142 - 1910 16,752,407 712,842 628,669 1,341,858 1,970,527 - 1920 25,698,282 2,832,785 899,946 1,988,609 2,888,555 - 1930 38,718,106 2,349,227 1,668,949 1,100,598 2,769,547 - 1940 68,299,082 5,119,511 2,353,046 978,828 3,331,874 - 1950 161,179,979 10,891,509 3,586,117 399,857 3,985,974 - 1961 454,391,643 28,570,043 13,474,481 291,955 13,766,436 4,593,565 1970 842,217,721 43,557,978 34,114,113 648,842 34,762,955 - 1980 2,464,579,397 401,868,617 158,079,171 8,396,255 166,475,426 - 1990 8,930,703,666 (160,746,667) 671,049,192 3,585,802 674,634,994 - 2000 22,275,586,452 2,659,856,111 694,916,560 3,570,745 698,487,305 - 2008 23,142,393,002 (2,169,442,344) - - - 716,534,543 2009 20,545,271,679 (2,597,121,323) - - - 716,533,764 2010 22,107,795,468 1,562,523,789 - - - 60,700,000 2011 24,091,592,601 1,983,797,133 - - - 1,092,809,024 2012 25,502,953,268 1,411,360,667 - - - 1,020,886,917 2013 27,165,474,239 1,662,520,971 - - - 1,020,886,919 2014 30,709,230,670 3,543,756,431 - - - 838,672,346 2015 28,949,453,126 (1,759,777,544) - - - 838,672,334 2016 30,155,990,622 1,206,537,496 - - - 1,056,412,420 2017 32,727,880,581 2,571,889,959 - - - 1,056,412,420 2018 34,012,158,724 1,284,278,143 - - - 1,235,835,058 2019 34,260,473,139 248,314,415 - - - 1,235,835,058 2020 35,810,965,992 1,550,492,853 - - - 1,101,669,657
1 Includes cash, stocks at cost, and bonds at par (1854-1986). Beginning in 1987 and thereafter, the total investment fund is reported using fair values. 2 Includes revenue from GLO, gains and losses on security transactions, and increases/decreases in the fair value of the portfolios. 3 For 2004, income from investments includes interest and dividends on debt and equity securities respectively, interest on funds in the State Treasury, and securities lending proceeds. Due to the change to the total return methodology, the net income from investments is through September 29, 2003 only. For 2003, income from investments includes interest and dividends on debt and equity securities respectively, interest on funds in accrual basis of accounting. For the years 1994-2002, income from investments includes interest and dividends on debt and equity securities respectively, interest on funds in the State Treasury, and securities lending proceeds. For the years 1987-1993, income from investments includes interest and dividends on debt and equity securities, respectively and interest on funds in the State Treasury. For the years 1854-1986, income from investments includes interest and dividends on debt and equity securities, respectively. 4 For the years 1987-2004, other income includes interest on land notes and interest payments and surface rental income from land owned by the Fund. (Surface rental income included beginning with fiscal year 1979). For the years 1854-1986, other income includes interest on funds in the State Treasury, interest on land notes, and interest payments and surface rental income from land owned by the Fund. (Surface rental income included beginning with fiscal year 1979). 5 One percent, or $4,593,565 and $4,625,982 was transferred to the ASF in 1961 and 1962 respectively (Sec. 5, S.B, 1, 57th Legislature, 2nd Called Session). Beginning in fiscal year 2004, the ASF received a total return transfer amount in lieu of actual revenue.
107 TEXAS PERMANENT SCHOOL FUND SCHEDULE OF TEXAS PERMANENT SCHOOL FUND ELEMENTS
PSF(SBOE) Liquid(SBOE) PSF(SLB) Total Assets Cash and Cash Equivalents Cash in Bank $ 56,304,481 $ 12,882 $ 386,902 $ 56,704,265 Cash in State Treasury 338,689,803 2,536,973,166 333,780,167 3,209,443,136 Cash Equivalents 149,422,655 130,783,492 - 280,206,147 Securities Lending Cash Collateral Invested 1,354,075,618 - - 1,354,075,618 Receivables Interest and Dividends Receivable 62,669,390 5,892,512 289,507 68,851,409 Investments Sold 14,146,588 - - 14,146,588 Land Endowment Revenue - - 117,250,305 117,250,305 Land Sale Notes - - 74,656 74,656 Due from Broker for Margin Collateral 9,592,775 - - 9,592,775 Due From Other Funds - - 2,976,613 2,976,613 Other 3,320 - - 3,320 Prepaid Items - - 1,053 1,053 Investments and Related Assets Investments in Equity, Debt, and Alternative Securities 32,138,493,405 1,376,751,714 - 33,515,245,119 Investments in Real Assets, at fair value 3,102,087,880 - 6,568,682,135 9,670,770,015 Total Assets $ 37,225,485,915 $ 4,050,413,766 $ 7,023,441,338 $48,299,341,019
Liabilities, Deferred Inflow Of Resources And Fund Balances Liabilities: Accounts Payable $ 3,240,783 $ - $ 4,976,426 $ 8,217,209 Payroll Payable 1,234,801 - 1,387,348 2,622,149 Interest Payable - - 57,523 57,523 Payable for Investments Purchased 63,085,107 - - 63,085,107 Unearned Revenue - - 162,222,899 162,222,899 Due To Other Funds - - 3,623,453 3,623,453 Payable for Securities Lending Cash Collateral Invested 1,367,807,882 - - 1,367,807,882 Total Liabilities 1,435,368,573 - 172,267,649 1,607,636,222
Deferred Inflow Of Resources Interest and Dividends 13,767,095 2,356,346 - 16,123,441 Total Deferred Inflow Of Resources 13,767,095 2,356,346 - 16,123,441
Fund Financial Statement-Fund Balances Nonspendable 34,644,311,682 4,048,057,420 6,831,978,179 45,524,347,281 Restricted for Public School Support 1,132,038,565 - 19,195,510 1,151,234,075 Total Fund Balance 35,776,350,247 4,048,057,420 6,851,173,689 46,675,581,356
Total Liabilities, Deferred Inflow of Resources And Fund Balance $ 37,225,485,915 $ 4,050,413,766 $ 7,023,441,338 $48,299,341,019
108 TEXAS PERMANENT SCHOOL FUND SCHEDULE OF TEXAS PERMANENT SCHOOL FUND ELEMENTS
PSF(SBOE) Liquid(SBOE) PSF(SLB) Total Revenues Interest, Dividends and Other Investment Income $ 846,620,414 $ 70,660,308 $ 98,482,058 $ 1,015,762,780 Settlement of Claims 474,631 - - 474,631 Securities Lending 26,346,033 - - 26,346,033 Gain on Sale of Sovereign Land - - 2,766,216 2,766,216 Net Increase/(Decrease) in Fair Value of Investments 1,754,352,554 20,896,185 (1,670,962,924) 104,285,815 Land Endowment Income - - 794,534,484 794,534,484 Revenue from Sales of Purchased Gas - - 54,346,652 54,346,652 Other 49 - 1,970,164 1,970,213 Total Revenues 2,627,793,681 91,556,493 (718,863,350) 2,000,486,824
Expenditures Salaries and Wages 16,192,946 - 14,585,780 30,778,726 Payroll Related Costs 3,595,747 - 4,791,728 8,387,475 Professional Fees and Services 6,176,040 - 4,749,105 10,925,145 Travel 106,225 - 40,150 146,375 Materials and Supplies 265,621 - 1,047,044 1,312,665 Communication and Utilities 4,069,526 - 625,269 4,694,795 Gas Supplies Purchased for Resale - - 49,861,581 49,861,581 Repairs and Maintenance 95,369 - 897,214 992,583 Rentals and Leases 981,843 - 258,565 1,240,408 Printing and Reproduction 6,336 - 4,212 10,548 Securities Lending Rebates and Fees 19,469,369 - - 19,469,369 Other Expenditures 925,076 - (5,198,447) (4,273,371) Capital Outlay (315) - 53,976 53,661 Total Expenditures 51,883,783 - 71,716,177 123,599,960
Excess of Revenues Over Expenditures 2,575,909,898 91,556,493 (790,579,527) 1,876,886,864
Other Financing Sources/(Uses) Transfers Out to Other Funds (1,101,669,657) - (600,020,000) (1,701,689,657) Transfers In from Other PSF Elements 83,499,073 4,245,000,000 215,045,000 4,543,544,073 Transfers Out to Other PSF Elements - (288,499,073) (4,255,045,000) (4,543,544,073) Sale of Capital Assets - - 59 59 Total Other Financing Sources/(Uses) (1,018,170,584) 3,956,500,927 (4,640,019,941) (1,701,689,598)
Net Change in Fund Balance 1,557,739,314 4,048,057,420 (5,430,599,468) 175,197,266
Fund Financial Statement-Fund Balance Fund Balance - September 1, 2019 34,218,610,933 - 12,281,773,157 46,500,384,090
Fund Balance - August 31, 2020 $ 35,776,350,247 $ 4,048,057,420 $ 6,851,173,689 $ 46,675,581,356
109 TEXAS PERMANENT SCHOOL FUND SCHEDULE OF ADMINISTRATIVE EXPENSES – PSF(SBOE) (IN MILLIONS)
The Texas Permanent School Fund is required by communication and utilities, rentals and leases, the General Appropriations Act to publish the costs investment management fees paid directly to of administrating the Fund for the current year and external portfolio managers, and other expenses for projections for the following three years. The operation of the Fund. schedule below reflects the current year’s appropriated costs. Projected amounts are based Actual-Fiscal Year 2020 $ 32.4 on the current operating structure and full Projected-Fiscal Year 2021 $ 30.4 implementation of the long-term allocation plan adopted by the State Board of Education. Projected-Fiscal Year 2022 $ 35.4 Projected-Fiscal Year 2023 $ 35.4 The total appropriated PSF(SBOE) administrative expenses include salaries, wages and related costs, professional fees and services,
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110 COMPLIANCE STATEMENT
TITLE VI, CIVIL RIGHTS ACT OF 1964; THE TITLE VII, CIVIL RIGHTS ACT OF 1964 AS MODIFIED COURT ORDER, CIVIL ACTION 5281, AMENDED BY THE EQUAL EMPLOYMENT FEDERAL DISTRICT COURT, EASTERN OPPORTUNITY ACT OF 1972; EXECUTIVE DISTRICT OF TEXAS, TYLER DIVISION ORDERS 11246 AND 11375; EQUAL PAY ACT Reviews of local education agencies pertaining to OF 1964; TITLE IX, EDUCATION AMENDMENTS; compliance with Title VI Civil Rights Act of 1964 REHABILITATION ACT OF 1973 AS AMENDED; and with specific requirements of the Modified Court 1974 AMENDMENTS TO THE WAGE-HOUR LAW Order, Civil Action No. 5281, Federal District Court, EXPANDING THE AGE DISCRIMINATION IN Eastern District of Texas, Tyler Division are EMPLOYMENT ACT OF 1967; VIETNAM ERA conducted periodically by staff representatives of VETERANS READJUSTMENT ASSISTANCE ACT the Texas Education Agency. These reviews cover OF 1972 AS AMENDED; IMMIGRATION REFORM at least the following policies and practices: AND CONTROL ACT OF 1986; AMERICANS WITH DISABILITIES ACT OF 1990; AND THE (1) Acceptance policies on student CIVIL RIGHTS ACT OF 1991. transfers from other school districts; (2) Operation of school bus routes or runs The Texas Education Agency shall comply fully with on a non-segregated basis; the nondiscrimination provisions of all federal and (3) Nondiscrimination in extracurricular state laws, rules, and regulations by assuring that activities and the use of school no person shall be excluded from consideration for facilities; recruitment, selection, appointment, training, (4) Nondiscriminatory practices in the promotion, retention, or any other personnel action, hiring, assigning, promoting, paying, or be denied any benefits or participation in any demoting, reassigning, or dismissing of educational programs or activities which it operates faculty and staff members who work on the grounds of race, religion, color, national with children; origin, sex, disability, age, or veteran status (except (5) Enrollment and assignment of students where age, sex, or disability constitutes a bona fide without discrimination on the basis of occupational qualification necessary to proper and race, color, or national origin; efficient administration). The Texas Education (6) Nondiscriminatory practices relating to Agency is an Equal Employment the use of a student’s first language; Opportunity/Affirmative Action employer. and (7) Evidence of published procedures for hearing complaints and grievances.
In addition to conducting reviews, the Texas Education Agency staff representatives check complaints of discrimination made by a citizen or citizens residing in a school district where it is alleged discriminatory practices have occurred or are occurring.
Where a violation of Title VI of the Civil Rights Act is found, the findings are reported to the Office for Civil Rights, U.S. Department of Education.
If there is a direct violation of the Court Order in Civil Action No. 5281 that cannot be cleared through negotiation, the sanctions required by the Court Order are applied.
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112 “Financing tomorrow’s education with sound investments”
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