TRS 2011 Comprehensive Annual Financial Report

TEACHER RETIREMENT SYSTEM OF TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT 2011
Notes to the Financial Statements
Effective Weighted
Investment Type Fair Value Duration Rate*
U.S. Government Obligations $ 19,253,593,496 11.49
U.S. Government Agency Obligations 12,532,454 8.99
Asset and Mortgage Backed Obligations 979,350,073 4.32
Corporate Obligations 169,086,716 5.55
International Government Obligations 12,249,634 7.65
International Corporate Obligations 15,435,212 6.32
Total Fixed Income (Exhibit I) $ 20,442,247,585 11.09
*The effective weighted duration rate is an option-adjusted measure of a bond’s (or portfolio’s) sensitivity to changes in interest rates.
It is calculated as the average percentage change in a bond’s value (price plus accrued interest) under shifts of the Treasury curve +/-
100 bps. It incorporates the effect of embedded options for corporate bonds and changes in prepayments for mortgage backed securities
(including pass-throughs, CMOs and ARMs).
The table below shows the maturities of the system’s Swap contracts at August 31, 2011.
Maturities in Years
Less than 1 Year 1-5 6-10 11-20 Total
$ (64,093,651) $ 2,076,453 $ 589,996 $ (626,393) $ (62,053,595)
Investments Highly Sensitive to Interest Rate Changes
The system’s investments in long-term Asset and Mortgage Backed Obligations are subject to prepayments by the obligees of
the underlying assets in periods of decreasing interest rates. The resultant reduction in expected cash flows will affect the fair value of
these securities. Prepayments by the obligee of the underlying assets in periods of declining interest rates could reduce or eliminate the
stream of income that would have been received. As of August 31, 2011, these securities totaled $979,350,073.
The system invests in Commingled Funds which hold a preponderance of investments with fair values that are highly sensitive to
market conditions. The fair value of the Commingled Fund fluctuates as market conditions fluctuate. Interest rate changes are a part of
changes in market conditions. As of August 31, 2011, these funds totaled $163,226,503.
The system’s investments in Swap contracts have various reference rates based on various interbank offered rates and Treasury
Bill rates. As these reference rates fluctuate, the payments due to/from the system fluctuate. At August 31, 2011, the notional amount
and fair value of these contracts appear on the following page.
FINANCIAL SECTION
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