Institutional Index Funds ($335.5 million)
The vast majority of UT System institutional funds are expected to be expended within five years. Nevertheless, a significant portion of funds classified as institutional funds represents long-term capital reserves such as depreciation reserves. For such funds where achievement of replacement cost and preservation of purchasing power are significant objectives, UTIMCO created the Institutional Index Funds. These funds consist of a U.S. debt index fund and a U.S. equity index fund and are designed to offer higher expected returns than those available with the Short Term Fund and the Short Intermediate Term Fund.
Debt Index Fund
The debt index fund is a U.S. debt index fund managed by Barclays Global Investors to replicate the return of the Lehman Brothers Aggregate Bond Index. The debt index fund invests and reinvests primarily in a portfolio of debt securities with the objective of approximating as closely as practicable the total rate of return of the market for debt securities as defined by the medium term bonds that comprise the Lehman Brothers Aggregate Bond Index.
The primary risk of the debt index fund is interest rate risk associated with a modified adjusted duration of roughly 3.9 years. Credit or default risk is a secondary risk which is mitigated in part by the diversification of the debt index fund among 1,000 individual bonds. The total return of the Lehman Brothers Aggregate Bond Index for the fiscal year ended August 31, 2002, was 8.11%.
Equity Index Fund
The equity index fund is an equity index fund managed by Barclays Global Investors to replicate the S&P 500 Index. The equity index fund invests and reinvests in a portfolio of common stocks with the objective of approximating as closely as practicable the capitalization weighted total rate of return of that segment of the United States stock market represented by the S&P 500 Index.
The primary risk of the equity index fund is the potential loss in fund value associated with corporate, industry, and economic factors affecting the value of the portfolio's underlying securities. This risk is partially mitigated by the inherent diversification of investing in 500 individual stocks. The total return of the S&P 500 Index for the fiscal year ended August 31, 2002, was negative at 17.98%.