Financial Stability of the ProComp Trust Fund, Page 2 of 2
Teacher Compensation Trust Board of Directors
TO: DPSProComp Transition Team
FROM: ProComp Trust Board
Date: June 30, 2012
RE: Financial Performance of the ProComp Trust Fund
The ProComp Trust Board is established by the ProComp Agreement and charged with maintaining the financial stability of the ProComp Trust Fund over time and ensuring the enactment of the ballot language approved by the voters in the mill levy election. Pursuant to that responsibility, the Trust Agreement for the ProComp Trust requires the Board to provide an annual report to the Transition Team on the financial performance of the Trust Fund, which the Transition Team will use to inform its assumptions for the long-term model of the ProComp System and to provide the Transition Team with the assumed rate of return on investment over a 30-year rolling period that will be used in the financial model of the ProComp System.
The Trust Board has received favorable audits from an independent accounting firm from the inception of the Trust Fund through the period ending June 30, 2011. As part of these audits, the firm reviewed the process for computing the amounts due to teachers and the ProComp Trust share of those payments. Based on payments made thus far and projected teacher participation during the year, the Trust Board adopted a budget for the fiscal year ending June 30, 2012.
In accordance with section 7.1(j) of the ProComp Trust Agreement, the Board directs the Transition Team to use an assumed rate of return of 6%, in the financial model of the ProComp System.
The Trust has two methods of meeting its obligations, current mill levy tax revenue and unused principal from the ColoTrust account and the ProComp Investment portfolio.
On June 30, 2011, the ProComp Trust Fund had an ending balance of $67,287,770. As of May 31, 2012, the Trust Fund has received $20,689,473 in mill levy tax receipts. The Trust expects to receive an additional $7,307,975 in mill levy receipts for a total amount of $27,997,448 in mill levy receipts for the FY 2011-2012.
The projected total portfolio ending balance on June 30, 2012, is forecasted to be $61,337,289.
So far in FY 2012, the ProComp Trustinvestment portfolio balance has slowly increased due to more favorable market conditions. On June 30, 2011, the Trust investment portfolio ending balance was $53,397,217 with an unrealized gain of $455,056. As of April 30, 2012, the Trust investment portfolio had an ending balance of $46,687,477which includes an unrealized gain of $297,417.
In August 2011, the Trust Board approved a new Asset Allocation with a Tiered approach. In the past, the asset allocation was between a short term account (ColoTrust) and a long term account(Northern Trust- investment portfolio). The Investment Committee along with theInvestment Advisor, Jake O'Shaughnessy of Arnerich Massena & Assoc., proposed a new structureof four tiers instead of two tiers. The first tier is the short term cash account (ColoTrust), thesecond tier isshort maturity bonds, roughly three months of cash flows. Tier three is more aggressive and managed more appropriately to conserve profit, but has the ability to liquidateto meet short term cash flows. Tier four is the long term bucket that would not be accessed intheory. Also, the portfolio added three new asset classes with thenew structure which actually lowers risk through diversity.
In accordance with section 7.1(k) of the Trust Agreement, the Board wishes to remind the Transition Team that the Transition Team must provide the Board, no later than June 15th of each year, a report on the ProComp assumptions that inform the long-term financial model and the investment strategy for the Trust, including the assumed rate of return on investments made by the Trust.
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David Hart, Chairperson
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Don Gilmore, Vice-Chairperson
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Tom Buescher, Secretary