State of Utah, School and Institutional Trust Fundsbillion of institutional investments, has 135 employees, 86 of which are investment professionals, and 22 dedicated to investment

State of Utah, School and Institutional Trust Funds

FINANCIAL STATEMENTS

For the Fiscal Year Ended June 30, 2018

Administered by the School & Institutional Trust Funds Office

FINANCIAL STATEMENTS - JUNE 30, 2018

STATE OF UTAH, SCHOOL AND INSTITUTIONAL TRUST FUNDS

Page

INDEPENDENT AUDITORS' REPORT 3

MANAGEMENT'S DISCUSSION AND ANALYSIS 6


Trust Lands Permanent Fund Combined

Governmental Balance Sheet and Statement of Net Position 11

Governmental Statement of Revenues, Expenditures and Changes in Governmental

Fund Balances and Statement of Governmental Activities 12

Notes to Financial Statements 13

SUPPLEMENTAL SCHEDULES

Trust Lands Permanent Fund Combining Schedule by Beneficiary

Governmental Balance Sheet and Statement of Net Position 31

Governmental Statement of Revenues, Expenditures and Changes in Governmental

Fund Balances and Statement of Governmental Activities 34

Schedule of SITFO Expenditures 37

Schedule of Weighted Investment Returns by Beneficiary 38

Schedule of Weighted Investment Returns by Investment Thematic 39

Schedule of Brokerage Commissions 40

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT

OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS 41

TABLE OF CONTENTS

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Independent Auditor’s Report

To the Board of Trustees

School and Institutional Trust Fund

Salt Lake City, Utah

Report on the Financial Statements

We have audited the accompanying financial statements of the School and Institution Trust Fund, a

component of the State of Utah, which comprise the governmental balance sheet and statement of net position

as of June 30, 2018, and the governmental statement of revenues, expenditures and changes in governmental

fund balances and statement of governmental activities for the year then ended, and the related notes to the

financial statements.

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 opinions 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 significant accounting estimates made by management, as

well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinions.

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Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the fund net

balance and net position of the School and Institutional Trust Fund as of June 30, 2018, and its respective

changes in fund balance and net position for the year then ended in conformity with accounting principles

generally accepted in the United States of America.

Emphasis of Matters

Reporting Entity

As discussed in Note 1, the financial statements of the School and Institutional Trust Fund, a component of

the State of Utah, are intended to present the fund net balance and net position, the changes in fund balance

and net position of only that portion of the State of Utah that is attributable to the transactions of the School

and Institutional Trust Fund. They do not purport to, and do not, present fairly the financial position of the

State of Utah as of June 30, 2018 and the changes in their financial position and their cash flows for the years

then ended in conformity with accounting principles generally accepted in the United States of America. 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 on pages 6-9 be presented to supplement the financial statements. Such information,

although not a part of the financial statements, is required by the Governmental Accounting Standards Board

who considers it to be an essential part of financial reporting for placing the 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

financial statements, and other knowledge we obtained during our audit of the 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 an opinion on the financial statements taken as a whole.

The combining schedule by beneficiary governmental balance sheet and statement of net position, combining

schedule by beneficiary governmental statement of revenues, expenditures and changes in governmental fund

balances and statement of governmental activities, shown on pages 31 through 36 are presented for purposes

of additional analysis and are not a required part of the financial statements.

The schedules included on pages 31 through 36 are the responsibility of management and were derived from

and relate directly to the underlying accounting and other records used to prepare the financial statements.

Such information has been subjected to the auditing procedures applied in the audit of the financial statements

and certain additional procedures, including comparing and reconciling such information directly to the

underlying accounting and other records used to prepare the financial statements or to the financial statements

themselves, and other additional procedures in accordance with auditing standards generally accepted in the

United States of America. In our opinion, the schedules are fairly stated, in all material respects, in relation to

the financial statements taken as a whole.

The supplemental schedule of SITFO expenditures, schedule of weighted investment returns by beneficiary,

schedule of weighted investment returns by investment thematic, and schedule of brokerage commissions on

pages 37 through 40 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 them.

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Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued a report dated November 2, 2018 on

our consideration of the School and Institution Trust Fund’s internal control over financial reporting and on

our tests of its compliance with certain provisions of laws, regulations, contracts, 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 School and Institution Trust 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 School and Institution Trust Fund’s internal control over financial reporting and

compliance.

November 2, 2018


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MANAGEMENT'S DISCUSSION AND ANALYSIS

Fiscal Year Ended June 30, 2018

ANNUAL REPORT - FISCAL YEAR 2018

Welcome to the Annual Financial Report of the State of Utah, School & Institutional Trust Funds Office (“SITFO”). We intend for this report

to be a helpful source of information and to provide insights on our goals and accomplishments each year. We cover a lot of ground in this

report and recommend utilizing our website as an ongoing source of information regarding the agency, our investment policies and

portfolio activities https://sitfo.utah.gov.

Governance

In 2014, the Utah State Legislature passed statutes that created SITFO. SITFO’s purpose is to invest the profits from the School & Institutional Trust

Lands Administration (“SITLA”) for the sole benefit of their respective beneficiaries. While the 11 trusts represent different underlying beneficiaries,

they are managed with a similar asset allocation, as the return and risk objectives are similar. There are significant benefits for the trusts to invest in a

uniform manner, such as greater diversification and operational efficiencies from pooling resources.

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https://sitfo.utah.gov/




















There are currently 3.5 staff members responsible for the day-to-day management of the trusts, and to which the Board of Trustees has delegated

certain decision-making authority. In addition to the investment professionals at SITFO, the Board retains an institutional investment consulting firm,

Fund Evaluation Group (“FEG”), to work with the Board and SITFO staff to develop and implement the agency’s investment program. Additional third-

party providers are utilized as part of the institutional framework necessary for managing the trusts.

Financial Highlights for FY 2018

Trust assets grew modestly over FY 2018 and were primarily driven by SITLA contributions.

Policy Developments

The Utah State Legislature passed statutes that provide for new distribution policies for each of the permanent trusts. The new distribution policy was

in effect for this fiscal year (FY 2018). The new distribution policy is intended to treat each of the trusts as permanent funds, or endowments, and

balance current distributions for current beneficiaries with future growth for future generations. The new distribution policy is intended to allow for

improved diversification and better risk management, while protecting and growing the trusts. Further details on the distribution policy are available

online.

In addition to the change in the distribution policies for the trusts, statutes were also amended to treat contributions from SITLA consistently.

Historically, the School Fund deposited all land revenues into their permanent trust fund while the other ten trusts only deposited money when land

sales were realized; all other land revenue was distributed directly to the respective beneficiaries. The statute change took affect this fiscal year and

allows for consistent treatment of all trusts in which all revenues from land assets are deposited directly into their permanent trust funds.

ADDITIONAL RESOURCES & ADVISORYFUND EVALUATION GROUP - Investment and Risk Consultant

FEG was hired in 2016 to assist with all aspects of policy, asset allocation, investment selection and risk management. FEG a dvises on $66

billion of institutional investments, has 135 employees, 86 of which are investment professionals, and 22 dedicated to invest ment selection

efforts.

INDEPENDENT RESEARCH AND DATA - Bloomberg, eVestment, BCA, Pitchbook

These partners and advisors facilitate the provision of raw data as well as its objective interpretation.

FUND MANAGERS - Strategy Specific Investment Advisory Relationships

The “day-to-day” buying and selling of individual securities are carried out by best in class, specialized, investment managers. These

investment managers are highly scrutinized before and after selection, and carry a fiduciary duty to the trusts.

CUSTODIAN BANK - Northern Trust Company

Northern Trust is one of the largest global custodian banks. They were hired in 2016 to institutionalize custody of assets, and to provide an

independent accounting of the trusts.

RISK MANAGEMENT - Software and Services

SITFO avails itself of software services to provide quantitative risk management analysis. In addition, SITFO utilizes FEG as an independent

party with proprietary tools and dedicated risk management staff to provide performance analysis and risk reporting.

Trusts Market Value Annualized Returns

(as of 6/30/18)

6/30/18 6/30/17 FY18 3Y 5Y 10Y

School Fund $2,379,634,704 $2,285,656,904 5.8% 5.1% 7.9% 6.8%

Utah State University $3,427,289 $3,192,865 5.8% 5.1% 7.7% 6.5%

Deaf School $2,392,235 $2,204,912 5.8% 5.1% 7.7% 6.5%

Institute for the Blind $21,595,342 $20,780,735 5.8% 5.1% 8.1% 7.0%

Industrial School $1,304,308 $1,247,536 5.8% 5.1% 7.8% 6.5%

Normal School $5,320,577 $4,793,179 5.8% 5.1% 7.8% 6.5%

Reservoirs Fund $7,392,480 $6,884,737 5.8% 5.1% 7.8% 6.7%

Utah State Hospital $3,509,730 $3,293,062 5.8% 5.0% 7.8% 6.7%

School of Mines $4,176,935 $3,557,357 5.8% 5.1% 7.8% 6.7%

University of Utah $6,177,954 $5,070,179 5.8% 5.0% 7.6% 6.5%

Miners Hospital $58,456,906 $53,290,500 5.8% 5.2% 8.1% 7.2%

Benchmarks FY18 3Yrs 5Yrs 10Yrs

Primary Objective (Inflation+5%) 7.8% 7.0% 6.6% 6.5%

Target Asset Allocation Index 6.2% 6.1% 8.1% 6.7%

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Distributions from the trusts to their respective beneficiaries (proceeds from SITFO) are shown below.

*Note that the changes in statutes regarding the distribution policy for the School Fund

straddle FYs 2017 and 2018. For financial reporting purposes, the amount recorded in FY

2017 was $39,003,465 with the remainder to be recorded in FY 2018.

Asset Allocation

The asset allocation optimizes the expected amount of return relative to the level of risk the Board views as acceptable. Given the long-term horizon of

the trusts and sophistication of the staff and Board, the trusts are able to take advantage of a myriad of sophisticated investment strategies. The

target asset allocation is not expected to change significantly over short periods of time. Changes that do occur are expected to be modest and

gradual.

Returns for FY 2018 were modest at 5.8%, below our primary objective of CPI+5% and below the returns associated with our strategic asset allocation

target. U.S. equity has been the strongest performer across all markets and contributed strongly to the portfolio in FY 2018. Underperforming our

objectives during FY 2018 was primarily due to our investments in emerging markets which have been a negative short-term contributor to the

portfolio. Valuations in the U.S. continue to be high relative to non-U.S. investments, with emerging markets having higher expected returns over the

long term.

Diversification and long-term investing require patience and the occasional period of underperformance relative to any single asset class is to be

expected. Importantly, our objectives are best considered over an investment cycle and we do not weigh any single year too heavily. Also, we are in a

period of significant transition and thus do not expect to track the strategic asset allocation until we have fully implemented our diversification

program. We expect to be near our private asset targets before 2022.

Contributions to the trusts (proceeds from SITLA) for the prior and current fiscal years are shown in the following chart. It is important to note that the

changes in distribution policy discussed above were not reflected until

FY 2018. Contributions and distributions in FY 2017 did not reflect the current distribution policy.

Contributions to Trusts FY18 FY17

School Fund $ 53,008,646 $ 64,452,493

Utah State University $ 164,723 $ 43,191

Deaf School Fund $ 156,996 $ -

Institute for the Blind $ 292,799 $ 21,603

Industrial School $ 28,910 $ 23,573

Normal School $ 413,040 $ -

Reservoirs Fund $ 349,911 $ 28,276

Utah State Hospital $ 118,946 $ -

School of Mines $ 573,015 $ 1,556

University of Utah $ 1,014,810 $ 397,221

Miners Hospital $ 3,833,136 $ 2,016,891

Distributions to Trusts FY18 FY17

School Fund $ 74,791,921 $ 64,252,246*

Utah State University $ 116,341 $ 55,960

Deaf School Fund $ 83,057 $ 38,162

Institute for the Blind $ 782,583 $ 361,122

Industrial School $ 45,973 $ 21,438

Normal School $ 179,043 $ 83,628

Reservoirs Fund $ 257,069 $ 120,126

Utah State Hospital $ 113,267 $ 57,078

School of Mines $ 133,949 $ 62,281

University of Utah $ 172,518 $ 86,008

Miners Hospital $ 1,983,397 $ 910,516

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The most recent modification of the asset allocation target was adopted in March of 2018. The modification included revisiting targets at the asset

class level within the income and defensive categories, without changing the overall weights of those categories. Within the defensive category, the

CTA target was increased from 5% to 7% with a corresponding decrease to the U.S. Treasury target from 7% to 5%. Within the income category,

insurance linked securities were added as a new asset class with a 4% target.

A detailed breakout of the asset allocation is shown below. On the left is the asset allocation by category. On the right is the mapping of the underlying

asset classes color coded to their respective categories.

We have made significant progress transitioning to the new asset allocation. The GRID level allocations are close to their target weights as we’ve been

actively populating each asset class. However, there are still differences due to the continued building out within each asset class.

The primary laggards are the private asset classes (private equity, private debt, private real estate and private natural resources). Private asset

investing requires averaging-in with a budgeted amount for annual commitments. Currently 16% of the total portfolio is invested in private assets with

the majority of that in U.S. real estate. We expect to reach the targeted 29% in private assets in 2022.

The long-term targets are shown in the pie chart above. What isn’t shown is the underlying diversification which is global in nature and runs across a

wide spectrum of strategies and partnerships. We’re currently invested with 23 general partners across private assets and expect this number to

increase to approximately 40 general partners by 2022.

Using the Financial Statements

The financial statements contained within the annual report are organized to provide the reader with a thorough understanding of the fund. The

statements include: a balance sheet and statement of net position, a statement of revenues, expenditures and changes in governmental fund

balances and statement of governmental activities. The notes explain the history and purpose of the SITFO office, important accounting policies,

investment details and other required information regarding the financial position of the funds. Lastly, the statements reflect SITFO expenditures,

weighted investment returns by beneficiary, investment returns by thematic and brokerage commissions.

Finally

We are grateful to all those who support the work of SITFO. There are too many to name individually, but they include the Board of Trustees, the State

Treasurer’s Office, the School Children’s Trust Section and other professionals within state government and education. To those who have been

instrumental in our work, we appreciate your patience and contributions. We look forward to continuing to work with you to build the trusts, for and

on behalf of the beneficiaries.

Kind regards from the team at SITFO.

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For the Fiscal Year Ended June 30, 2018

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GOVERNMENTAL BALANCE SHEET AND STATEMENT OF NET POSITION

As of June 30, 2018

Assets

$ 209,247

2,494,104,617

Receivable for Unsettled Trades 6,565,392

22,495

Prepaid Operating Expenses 13,703

5,853,964

Total Assets $ 2,506,769,418

Liabilities

6,404,221

899,823

48,251

Total Liabilities 7,352,296

Fund Balances

1,631,239,564

Restricted - Earnings Reserve 868,177,559

Total Fund Balances 2,499,417,122

Total Liabilities and Fund Balances $ 2,506,769,418

Statement of Net Position

$ 1,631,239,564

Restricted for Permanent Trust - Expendable 868,177,559

Total Fund Balances $ 2,499,417,122

Reported figures are rounded to the nearest dollar and totals may not sum due to the impact of rounding.

See Notes to Financial Statements

Payable for Unsettled Trades

TRUST LANDS PERMANENT FUND COMBINED

Cash with the State Treasurer

Investments, at Fair Value

Prepaid Expenses

Net Income Receivable from SITLA

Note:

Accrued Interest and Dividends Payable

Operating Expense Payable

Nonspendable - Permanent Funds

Restricted for Permanent Trust - Nonexpendable

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GOVERNMENTAL STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN GOVERNMENTAL FUND BALANCES

AND STATEMENT OF GOVERNMENTAL ACTIVITIES


TRUST LANDS PERMANENT FUND COMBINED

Revenues

$ 59,954,931

Gains from Investments 133,000,533

Reinvested Gains 5,235,154

Total Revenues 198,190,618

Expenditures

2,040,677

Total Expenditures 2,040,677

Revenues over Expenditures 196,149,940

Other Financing Uses

Distributions to Beneficiaries 103,907,905

Net Increase in Fund Balance 92,242,035

Fund Balances - Beginning of Year 2,407,175,087

Fund Balances - End of Year $ 2,499,417,122

There were no expenses which do not require the use of current financial resources.

The amount for the Change in Net Position (shown below) is the same amount shown

above in the Governmental Statement of Expenditures.

Change in Net Position-Government Activities $ 92,242,035

Note:



Receipts from Trust Lands Administration

Fund Operating Expenses

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NOTES TO FINANCIAL STATEMENTS


NOTE 1 - GENERAL DESCRIPTION OF THE TRUST FUNDS

The School and Institutional Trust Funds Office (SITFO) is charged with the administration and investment of the State of Utah, School

and Institutional Trust Funds (the Trust Funds). The Trust Funds stem from the State of Utah's Enabling Act in 1894, which provided for

the support of public schools and other institutions from lands granted by the federal government at statehood. Expenditures were

limited to Interest for the School Trust Fund. In 1994 the School and Institutional Trust Lands Administration (SITLA) was formed within

statute to administer the lands and investments that were taken into the Office of the State Treasurer. In 2002, the Utah Constitution

was amended within Article X, Section 5 to provide for expenditures of Interest and Dividends.

In 2014, through HB 168 (2014 GS) the Utah State Legislature enacted the School and Institutional Trust Fund Management Act which

created SITFO as an independent agency within the state government. SITFO has a five-person Board of Trustees with the State

Treasurer as Chairperson. The trustees are experienced investment professionals nominated via a robust and independent process

outlined in statute. SITFO’s purpose is to invest the funds received from SITLA for the sole benefit of their respective beneficiaries. While

the Trust Funds are owned by different underlying beneficiaries, they are managed with a similar asset allocation, as the return and risk

objectives are expected to be similar.

In 2016, SITFO retained a custodial and fund accounting agent (Northern Trust) to facilitate the implementation of a new pooled

investment structure to provide for unified investment of the Trust Fund assets, although each beneficiary retains an independent

ownership interest in the Trust Fund and such holdings remain independent trust entities. The pooled structure was implemented on

November 1, 2016. In 2016, the Utah Constitution was again amended (Amendment B) within Article X, Section 5 to permit expenditure

of earnings.

Earnings received from SITLA derived from the sale of lands (and all net revenue for the School Fund) are deposited into trust funds held

for the benefit of the eleven (11) beneficiaries as follows:

- School Fund

- Utah State University

- Deaf School

- Institute for the Blind

- Industrial School

- Normal School

- Reservoirs Fund

- Utah State Hospital

- School of Mines

- University of Utah

- Miners Hospital

The Trust Funds are considered part of the State of Utah's financial reporting entity and are included in the State's Comprehensive

Annual Financial Report (CAFR). The Trust Funds are invested according to an investment policy established by SITFO. This investment

policy is subject to all applicable state and national laws. Specific laws of the State of Utah for reference include: Utah Code Title 53D;

State of Utah Constitution Article VI, Section 29 and Article X, Section 5 and 7; and Utah Code 63G-6a-107 and Utah Code 63E-1-102.

SITFO has no jurisdiction over assets held by SITLA or other agencies; therefore, Trust Funds give accounting recognition only when a

transaction related to land assets has been completed by SITLA for deposit into the Trust Funds.

SITFO employs external investment managers for the management of the Trust Funds.

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NOTE 2 - CONTINGENCIES

The Utah School Bond Guaranty Act (Utah Code Sections 53A-28-101 to 402), which took effect on January 1, 1997, pledges the full faith,

credit and unlimited taxing power of the State to guaranty full and timely payment of the principal and interest on general obligation

bonds issued by qualifying local school boards. The primary purpose of the Guaranty Act is to reduce borrowing costs for local school

boards by providing credit enhancement for Guaranteed Bonds. The local school boards do not meet the criteria for inclusion as part of

the State’s reporting entity.

In the event a school board is unable to make the scheduled debt service payments on its Guaranteed Bonds, the State is required to

make such payments in a timely manner. For this purpose, the State may use any available monies, may use short-term borrowing from

the State Permanent School Fund (part of the permanent Trust Lands Fund), or may issue short-term general obligation notes. The

local school board remains liable to the State for any such payments on Guaranteed Bonds. Reimbursements to the State may be

obtained by intercepting payment of state funds intended for the local school board. The State may also compel the local school board

to levy a tax sufficient to reimburse the State for any guaranty payments.

The State Superintendent of Public Instruction is charged with monitoring the financial condition of local school boards and reporting,

at least annually, its conclusions to the Governor, the Legislature and the State Treasurer. The State Superintendent must report

immediately any circumstances which suggest a local school board may not be able to pay its debt service obligations when due. The

State has not advanced any monies for the payment of debt service on Guaranteed Bonds and does not expect that it will be required

to advance monies for any significant period of time.

Local school boards have $3.248 billion principal amount of Guaranteed Bonds outstanding at June 30, 2018, with the last maturity

date being 2038. The State cannot predict the amount of bonds that may be guaranteed in future years, but no limitation is currently

imposed by the Guaranty Act.

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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The financial statements include all funds for which SITFO is financially accountable, i.e., the Trust Fund investments of the Beneficiary

Trust Funds of the State of Utah, and are prepared in accordance with the Governmental Accounting Standards Board ("GASB")

pronouncements.

The Trust Funds are part of the State of Utah reporting entity based on certain GASB criteria. These Statements present only the Trust

Funds and are not intended to present the financial position and results of operations of the State of Utah in conformity with generally

accepted accounting principles in the United States of America.

Basis of Presentation

The Trust Funds are accounted for and reported as a Permanent Fund as defined by GASB and use the modified accrual basis of

accounting which approximates full accrual. Under this method, revenues are recognized when they are earned, and expenses are

recognized when they are incurred. The statement of net position and the statement of activities display information about the Trust

Funds and include the financial activity of the overall reporting entity. These statements report all activities of the Trust Funds as a

governmental type activity. Given the type of assets and liabilities held by the Trust Funds, there are no adjustments required to convert

from modified accrual basis to full accrual basis as required by GASB.

Expendable and Nonexpendable Net Position

The net position of the Restricted Funds is the expendable assets of the endowment funds. These expendable assets are used for

distributions to the beneficiaries and distributions for expenses of SITFO. The net position for the Permanent Funds is the nonexpendable assets as per the Enabling Act.


The Utah State Treasurer’s Office operates the Public Treasurers’ Investment Fund (PTIF). The PTIF is available for investment of funds

administered by any Utah public treasurer and is not registered with the SEC as an investment company. The PTIF is authorized and

regulated by the Act (Utah Code, Title 51, Chapter 7). The Act established the Money Management Council which oversees the activities

of the State Treasurer and the PTIF and details the types of authorized investments. Deposits in the PTIF are not insured or otherwise

guaranteed by the State of Utah, and participants share proportionally in any realized gains or losses on investments.

The PTIF operates and reports to participants on an amortized cost basis. The income, gains and losses of the PTIF, net of

administration fees, are allocated based upon the participant’s average daily balance. The fair value of the PTIF investment pool is

approximately equal to the value of the pool shares.

Receivable for Unsettled Trades

Receivables from brokers, dealers and clearing organizations include amounts receivable for securities not delivered by the company to

the purchaser by the settlement date and margin deposits.


Contributions to the trusts from SITLA are earned during the fiscal year but deposited in the next fiscal year.


Payables to brokers, dealers and clearing organizations include amounts payable for securities not received by the company from the

seller by the settlement date.

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In accordance with this Title, the Board of Trustees has developed an Investment Policy Statement guided by a Statement of

Investment Beliefs which contains target allocation levels with an associated minimum and maximum range. The current asset

allocation is structured by investment thematics, as follows:

Growth (target 37% / range from 25%-50%)

Investments expected to provide the strongest positive returns during periods of sustained economic growth, as well as presenting the

highest expected risk (e.g., stocks, private equity).

Specific sub-component targets include:

1) US Equity (target 15% / range from 9%-21%) which contains US Large Cap Equity (target 7.5% / range from 4.5%-10.5%) and

US Small Cap Equity (target 7.5% / range from 4.5%-10.5%)

2) International Equity (target 15% / range from 9%-21%) which contains International Developed Equity (target 7.5% / range from 4.5%-

10.5%) and Emerging Markets Equity (target 7.5% / range from 4.5%-10.5%)

3) Private Equity (target 7% / range from 4%-10%)

Real Assets (target 20% / range from 15%-25%)

Investments that have the advantage of being linked to inflation and typically backed by hard assets (e.g., real estate, infrastructure,

commodities, etc.). Real Asset investments present characteristics of income as well as price appreciation and thus have a moderate

risk profile (e.g., commercial real estate, natural resources).


1) Treasury Inflation Protected Securities (TIPS) (target 3% / range 0%-6%)

2) Public Real Assets (Infrastructure/Master Limited Partnerships/REIT) (target 4% / range 1%-7%)

3) Private Real Estate (target 9% / range 6%-12%)

4) Private Natural Resources (target 4% / range 1%-7%)


Expenses that were incurred during the fiscal year for which no invoices had yet been received are considered operating expense

payable.

Cash Equivalents

Treasury bills, money market funds, STIF funds, commercial paper, banker's acceptances, repurchase agreements and certificates of

deposit.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make

estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those

estimates.

Investments

According to policies established by the SITFO Board of Trustees and Utah Code Title 53D Chapter 1, Part 6, Section 601, SITFO is

authorized to invest the Trust Funds. This Title states in part, "Board members, the director and office staff shall act in the best interests

of the beneficiaries and comply with the duty of undivided loyalty to the beneficiaries... A person who manages and invests trust fund

money or assets shall... manage and invest in good faith and with the care a prudent professional in a like position would exercise under

similar circumstances" (Utah Code Title 53D Chapter 1, Part 6, Section 601).

16




Income (target 31% / range from 20%-40%)

Investments expected to generate positive returns during economic growth scenarios through an income stream – an important

component of total return for the overall portfolio in periods of less robust economic growth – and does not present as much risk as

Growth although is still considered a risk-taking investment (e.g., corporate bonds, asset backed securities).


1) Credit Fixed Income (target 7% / range from 4%-10%)

2) Securitized Fixed Income (target 8% / range from 5%-11%)

3) Insurance Linked Securities (target 4% / range from 0%-6%)

4) Non-US Fixed Income (target 5% / range 2%-8%)

5) Private Debt Fixed Income (target 7% / range 4%-10%)

Defensive (target 12% / range from 10%-20%)

Investments intended to do well in negative economic scenarios or periods of market stress which may include such investments as

cash, government bonds and hedging strategies.


1) Long US Treasury (target 5% / range 3%-15%)

2) Commodity Trading Advisor (CTA) investments (target 7% / range 3%-15%)

3) Cash (target 0% / range 0%-5%)

Investment securities are stated at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between two market participants at the measurement date. Purchase and sale transactions are recorded on the

trade date.

17




NOTE 4 - SCHEDULE OF FUND INVESTMENTS (COST AND FAIR VALUE)

The following depicts investments (cost and fair value) by SITFO allocation category at June 30, 2018:

Cost Fair Value with Accruals

Growth $ 848,070,976 $ 923,010,937

Real Assets 421,023,259 484,936,885

Income 762,434,867 783,045,461

Defensive 315,417,734 302,395,176

Total Fund Investments $ 2,346,946,835 $ 2,493,388,460

Receivable for Unsettled Trades (6,565,392)

Prepaid Expenses (22,495)

Payable for Unsettled Trades 6,404,221

Accrued Interest and Dividends Payable 899,823

Grand Total $ 2,346,946,835 $ 2,494,104,617

Note:


18




NOTE 5 - FAIR VALUE OF INVESTMENTS

Total Level 1 Level 2 Level 3

Growth

US Equity 417,522,143$ 417,479,183$ 42,960$ -$

International Equity 404,357,046 248,898,804 155,401,426 56,816

Total Growth 821,879,188 666,377,986 155,444,386 56,816

Real Assets

TIPS 69,473,270 69,473,270 - -

Private Real Estate (9,445) - (9,445) -

Total Real Assets 69,463,825 69,473,270 (9,445) -

Income

Credit 229,871,959 70,322,334 159,313,687 235,938

Securitized 168,799,278 168,799,278 - -

Non-US 87,718,947 88,158,935 (439,988) -

Insurance Linked Securities 414 414 - -

Total Income 486,390,598 327,280,960 158,873,700 235,938

Defensive

Long US Treasury 64,721,189 64,721,189 - -

Cash and Cash Equivalents 50,229,673 14,036,854 36,192,819 -

Total Defensive 114,950,862 78,758,043 36,192,819 -

Total Investments by Fair Value Level 1,492,684,474$ 1,141,890,260$ 350,501,459$ 292,754$

Note:


Assets at Fair Value as of June 30, 2018

The Trust Funds measure and record investments using fair value measurement guidelines established by generally accepted accounting

principles. These guidelines recognize a three-tiered fair value hierarchy, as follows:

• Level 1: Quoted Prices in Active Markets for Identical Assets;

• Level 2: Significant Other Observable Inputs; and,

• Level 3: Significant Unobservable Inputs.

In instances where inputs used to measure fair value fall into different levels in the fair value hierarchy, fair value measurements in their

entirety are categorized based on the lowest level input that is significant to the valuation. The assessment of the significance of particular

inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

At June 30, 2018, the Trust Funds had the following recurring fair value measurements:

19




Growth 6/30/2018

International Equity 64,150,749

Private Equity 36,981,000

Real Assets

Public Real Assets 160,507,057

Private Real Estate 234,923,411

Private Natural Resources 20,042,592

Income

Credit 43,623,399

Securitized 61,849,759

Non-US 50,300,883

Insurance Linked Securities 44,745,982

Private Debt 96,134,841

Defensive

CTA 187,444,314

Total Investments Measured at Net Asset Value 1,000,703,986

Total Investments Measured at Fair Value 2,493,388,460$

Note:


Securities (cash, debt and equity securities, including registered investment companies / mutual funds with daily liquidity holding such

securities) in the Investment Thematic categories classified in Level 1 are valued using prices quoted in active markets for those securities.

Securities (debt and equity securities, including derivative securities and the Trust Funds' proportionate share of securities held in

commingled vehicles with regular liquidity which hold such securities) in the Investment Thematic categories classified in Level 2 are

valued using the following approaches: Mid Evaluation, Bid Evaluation and Theory (a theoretical price calculated by applying a

standardized formula to derive a price from a related security).

Securities (debt and equity securities, including derivative securities and the Trust Funds' proportionate share of securities held in

commingled vehicles with regular liquidity holding such securities) in the Investment Thematic categories classified in Level 3 are valued

using the following approaches: Bid Evaluation and other pricing indications which may be unobservable or with limited volume. Bid

evaluations may include market quotations, yields, maturities, call features and ratings. Debt securities classified in Level 3 are valued and

priced using proprietary information, single source pricing and/or may have nominal value. Equity securities classified in Level 3 are valued

with last trade data having limited trading volume.

Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not classified

in the fair value hierarchy. The Trust Funds have determined the fair value of these investments using the NAV per share of the investments

(or its equivalent) as reported in current period audited statements of the manager, prior period audited statements of the manager

adjusted for subsequent calls and distributions, current period unaudited statements or estimates provided by the underlying investments

using recent observable transaction information for similar investments. The objectives and valuation approach for investments that are

measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are more fully described below.

The following table presents the unfunded commitments, redemption frequency (if currently eligible) and the redemption notice period for

the Entity’s alternative investments measured at NAV:

Investments Measured at Net Asset Value as of June 30, 2018

20




Investments by Fair Value Level Fair Value Unfunded Commitment Redemption Frequency Redemption Notice

Growth

International Equity 64,150,749 30 - 90 Days 90 Days

Private Equity 36,981,000 82,863,982 Limited n/a

Total Growth 101,131,749$ 82,863,982$

Real Assets

Public Real Assets 160,507,057 30 Days 30 Days

Private Real Estate 234,923,411 73,346,513 90 Days, Limited 90 Days, n/a

Private Natural Resources 20,042,592 30,453,699 Limited n/a

Total Real Assets 415,473,060$ 103,800,212$

Income

Credit 43,623,399 180 Days (May 1, Nov 1) 180 Days

Securitized 61,849,759 91 Days (calendar qtr.) 91 Days (1/8 gate)

Non-US 50,300,883 1 Day 0 Days

Insurance Linked Securities 44,745,982 30,942,037 Limited n/a

Private Debt 96,134,841 53,692,587 Limited n/a

Total Income 296,654,864$ 84,634,624$

Defensive

CTA 187,444,314 5 Days

4 Days (30% investor

gate)

Total Defensive 187,444,314$

Total 1,000,703,987$ 271,298,818$

Note:


The description of underlying holdings and valuation methodologies for investments measured at net asset value, detailed above, are

described further as follows:

Growth - International Equity: Consists of one (1) investment in a limited partnership with equity investments and one (1) investment in

units of a pooled investment fund. The fair values of the investments in this type have been determined using the NAV per share (or its

equivalent) of the Trust Funds' investments held or ownership interest in partners' capital.

Growth - Private Equity: Consists of six (6) investments in private equity limited partnerships. Generally speaking, the types of strategies

included in this portfolio include venture capital, opportunistic real estate equity, buyouts and special situations. These investment

commitments were made in 2016 onwards and have an approximate life in excess of 10 years and are considered illiquid. Redemptions are

restricted over the life of the partnership. During the life of the partnership, distributions are received as underlying partnership investments

are realized. The Trust Funds have no plans to liquidate the total portfolio. As of June 30, 2018, it is probable that all the investments in this

type would be sold at an amount different from the NAV per share (or its equivalent) of the Trust Funds ownership interest in partners’

capital.

21




Real Assets - Public Real Assets: Consists of one (1) investment in a limited partnership with underlying equity investments in Master Limited

Partnerships (MLPs) and associated investment strategies. The fair value of the investment in this type has been determined using the NAV

per share (or its equivalent) of the Trust Funds ownership interest in partners' capital.

Real Assets - Private Real Estate: Consists of nine (9) investments in private real estate limited partnerships. Generally speaking, the types of

strategies included in this portfolio include core and value added property interests. These investment commitments were made over a

period ranging from 2008-2015 and have an approximate life in excess of 10 years and are therefore considered illiquid. Redemptions are

restricted over the life of the partnership. During the life of the partnership, distributions are received as underlying partnership investments

are realized. The Trust Funds have no plans to liquidate the total portfolio. As of June 30, 2018, it is probable that all the investments in this

type would be sold at an amount different from the NAV per share (or its equivalent) of the Trust Funds' ownership interest in partners’

capital. This category also includes one (1) investment in pooled investment funds with a focus on real estate property and property

income. The fair value of the investment in this type have been determined using the NAV per share (or its equivalent) of the Trust Funds'

investments ownership interest in partners' capital.

Real Assets - Private Natural Resources: Consists of two (2) investments in limited partnerships. Generally speaking, the types of strategies

included in this portfolio include infrastructure/power generation and opportunistic natural resource investments, including co-

investments. These investment commitments were made over a period ranging from 2016-2017 and have an approximate life in excess of

10 years and are therefore considered illiquid. Redemptions are restricted over the life of the partnership. During the life of the partnership,

distributions are received as underlying partnership investments are realized or co-investment holdings are sold. The Trust Funds have no

plans to liquidate the total portfolio. As of June 30, 2018, it is probable that all the investments in this type would be sold at an amount

different from the NAV per share (or its equivalent) of the Trust Funds' ownership interest in partners’ capital.

Income - Credit: Consists of one (1) investment in a limited partnership with underlying credit/securitized fixed income investments and

associated investments. The fair value of the investment in this type has been determined using the NAV per share (or its equivalent) of the

Trust Funds' ownership interest in partners' capital.

Income - Securitized: Consists of one (1) investment in a limited partnership with underlying lower-quality credit/securitized fixed income

investments and associated strategies. The fair value of the investment in this type has been determined using the NAV per share (or its

equivalent) of the Trust Funds' ownership interest in partners' capital.

Income - Non-US: Consists of one (1) investment in a limited partnership with underlying global derivatives and associated strategies. The

fair value of the investment in this type have been determined using the NAV per share (or its equivalent) of the Trust Funds' ownership

interest in partners' capital.

Income - Insurance Linked Securities: Consists of two (2) investments in a limited partnership with underlying insurance linked securities

investments and associated strategies. The fair value of the investment in this type have been determined using the NAV per share (or its

equivalent) of the Trust Funds' ownership interest in partners' capital.

Income - Private Debt: Consists of six (6) investments in limited partnerships. Generally speaking, the types of strategies included in this

portfolio include securitized credit, asset backed/collateralized loan obligation, mezzanine debt and equity, distressed debt/special

situations and related investments. These investment commitments were made over a period ranging from 2016 onward and have an

approximate life, including lock-ups of three to nearly 10 years and are therefore considered illiquid. The Trust Funds have no plans to

liquidate the total portfolio. As of June 30, 2018, it is probable that all the investments in this type would be sold at an amount different

from the NAV per share (or its equivalent) of the Trust Funds' ownership interest in partners’ capital.

Defensive - CTA: Consists of one (1) investment in a limited partnership with underlying investments in Commodity Trading

Advisor/Systematic and associated investment strategies. The fair values of the investments in this type has been determined using the NAV

per share (or its equivalent) of the Trust Funds' investments held or ownership interest in partners' capital.

22




NOTE 6 - UNFUNDED COMMITMENTS

As of June 30, 2018, the Trust Funds had contractual commitments of $771,497,037 to thirty (30) investments across Private Equity;

Private Credit; Insurance Linked Securities; Private Real Assets - Natural Resources; and Private Real Assets - Real Estate.

Of this amount, an estimated $271,298,818 remained unfunded and subject to call by the funds.

23




NOTE 7 - INTEREST RATE RISK

Investment Category Total Fair Value

Bank Loans $ 34,653,200 5.90

Corporate Bonds 101,539,421 20.10

Corporate Convertible Bonds 2,237,466 30.59

Funds - Corporate Bond 170,928,223 5.74

Funds - Fixed Income ETF 2,972,818 2.77

Funds - Government Agencies 64,721,189 25.10

Funds - Government Bond 157,192,218 5.09

Funds - Municipal/Provincial Bond 2,547,815 20.51

Funds - Short Term Investment 18,122,118 0.33

Government Agencies 1,467,540 9.63

Government Bonds 30,100,643 0.92

Other Fixed Income 36,050,502 0.14

Total $ 622,533,152 9.37

Note:

As of June 30, 2018, the Trust Funds held $324,771,339 in six investments with a fixed income (or related) investment emphasis for

which Weighted Average Maturity details were unavailable and not evaluated. These investments included Bank Loan investment funds

with other assets held, and hedge fund strategies.


Interest rate risk is the risk that changes in interest rates that will adversely affect the fair value of an investment. SITFO manages the Trust Funds' exposure

to fair value loss arising from increasing interest rates through prudent deployment, management and oversight of investments with exposure to interest

rate sensitivity. SITFO does not have a formal policy for interest rate risk.

As of June 30, 2018, the Trust Funds' debt security investments (including the underlying portfolios of indirectly held investments, where available) had the

following weighted average maturities:

Weighted Average Maturity (Years)

24




NOTE 8 - CREDIT RISK

Credit Quality Total Fair Value Bank Loans Corporate Bonds

Corporate

Convertible Bonds

Funds -

Corporate Bond

Funds - Fixed

Income ETF

Funds -

Government

Agencies

Funds -

Government Bond

Funds -

Municipal/

Provincial Bond

Funds - Short

Term Investment

Government

Agencies

AAA 1,208,284$ -$ 1,208,284$ -$ -$ -$ -$ -$ -$ -$ -$

AA+ 483,452 - 483,452 - - - - - - - -

AA 644,474 - 644,474 - - - - - - - -

AA- 1,118,576 - 550,308 - - - - - - - -

A 1,142,218 - 1,142,218 - - - - - - - -

A- 5,781,779 - 5,781,779 - - - - - - - -

BBB+ 8,314,532 - 6,846,992 - - - - - - - 1,467,540

BBB 12,822,754 - 12,822,754 - - - - - - - -

BBB- 26,499,790 3,201,307 23,298,484 - - - - - - - -

BB+ 17,875,062 1,102,471 16,294,954 477,638 - - - - - - -

BB 15,135,891 3,064,276 12,071,615 - - - - - - - -

BB- 16,518,933 7,703,898 7,874,550 940,485 - - - - - - -

B+ 5,295,967 2,083,078 3,212,889 - - - - - - - -

B 8,655,039 7,023,132 1,631,908 - - - - - - - -

B- 5,859,613 - 5,859,613 - - - - - - - -

CCC+ 1,775,911 70,875 1,705,036 - - - - - - - -

CCC 110,113 - 110,113 - - - - - - - -

NR 399,037,199 10,404,163 819,344 170,928,223 2,972,818 - 157,192,218 2,547,815 18,122,118 -

TSY - - - - - - - - - -

AGY - - - - - 64,721,189 - - - -

Subtotal 528,279,587 34,653,200 101,539,421 2,237,466 170,928,223 2,972,818 64,721,189 157,192,218 2,547,815 18,122,118 1,467,540

U.S. Treasuries 29,532,376

Explicit U.S.

Government Agencies

64,721,189

Total debt securities

investments

622,533,152$

Note:

As of June 30, 2018, the Trust Funds held $18,122,118 in the Northern Trust Institutional Funds Treasury Portfolio - Premier

Class, an AAAm rated money market fund.


Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. SITFO manages the Trust Funds' exposure to fair

value loss arising from credit risk through prudent deployment, management and oversight of investments. SITFO does not have a formal policy for credit

risk.

As of June 30, 2018, the fair value of the Trust Funds' debt security investments with exposure to credit risk had the following credit quality ratings (S&P

rating is primary, if not available or not rated by S&P, corresponding Moody's rating is substituted).

25




Credit Quality Government Bonds Other Fixed Income

AAA -$ -$

AA+ - -

AA - -

AA- 568,267 -

A - -

A- - -

BBB+ - -

BBB - -

BBB- - -

BB+ - -

BB - -

BB- - -

B+ - -

B - -

B- - -

CCC+ - -

CCC - -

NR - 36,050,502

TSY 29,532,376 -

AGY - -

Subtotal 30,100,643 36,050,502

U.S. Treasuries

Explicit U.S. Government

Agencies

Total debt securities

investments

26




NOTE 9 - CONCENTRATION OF CREDIT RISK

Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. SITFO manages the Trust

Funds' exposure to fair value loss arising from concentrations of credit risk through prudent deployment, management and oversight of

investments. SITFO does not have a formal policy for concentrations of credit risk.

As of June 30, 2018, the Trust Funds did not hold any credit positions exceeding 5% of the total portfolio.

27




NOTE 10 - CUSTODIAL CREDIT RISK

Type of Investment Fair Value

Cash and Cash Equivalents $ 1,302,687

Type of Investment Fair Value

Other Assets $ 428,224,714

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Trust Funds will not be

able to recover the value of its investments or collateral securities that are in the possession of an outside party. SITFO does not

have a formal policy for custodial credit risk. Investments are registered investments or held by SITFO for the Trust Funds, or by

SITFO's agent in the Trust Funds' name. The State Treasurer is the custodian of investments of the Trust Funds, and the

investments are held under a custodial safekeeping agreement with the Northern Trust Company.

As of June 30, 2018, the data below represents the investments, including accrued income/expense, that have custodial credit risk.

The $1,302,687 frictional cash and cash equivalents subject to custodial credit risk are in foreign banks in the Trust Funds' name.

Because it is in foreign banks, it is subject to custodial credit risk. The Trust Funds do not have an investment policy regarding

custodial credit risk for frictional cash in foreign banks.

As of June 30, 2018, the $428,224,714 other assets represent the investments, including accrued income/expense, that have

custodial credit risk which has not been determined.

28




NOTE 11 - FOREIGN CURRENCY RISK

Short Term Equity Total

$ 77,587 $ 22,371,186 $ 22,448,773

103,992 24,436,050 24,540,042

41,370 5,142,352 5,183,722

930,012 115,379,137 116,309,150

65,562 9,983,681 10,049,244

264,430 33,382,898 33,647,328

57,995 4,009,653 4,067,648

52,468 2,687,512 2,739,979

13,586 5,739,894 5,753,479

82,523 4,469,497 4,552,020

44 150,066 150,110

34,389 11,253,284 11,287,673

188,870 22,194,158 22,383,028

$ 1,912,828 $ 261,199,367 $ 263,112,195

Note:


Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. SITFO manages the

Trust Funds' exposure to fair value loss arising from foreign currency risk through prudent deployment, management and oversight of investments.

SITFO does not have a formal policy for foreign currency risk.

The Trust Funds' exposure to foreign currency (inclusive of pending foreign exchange purchases and sales) as of June 30, 2018 is as follows:

Australian dollar

British pound sterling

Danish krone

Euro

Singapore dollar

South African rand

Swiss franc

Total securities subject to foreign currency risk

Currency

Hong Kong dollar

Japanese yen

New Israeli shekel

New Zealand dollar

Norwegian krone

Swedish krona

29




NOTE 12 - DERIVATIVE FINANCIAL INSTRUMENTS

Risk Type Gross Notional Asset FMV Liability FMV Earnings (Losses)

Equity Rights/Warrants 482,003$ 37,595$ -$ 101,276$

Currency Forwards - - - (118,000)

Options - - - 109,957

SWAPs 7,600,000 235,938 (226,942) (1,825,057)

Futures 5,035,578 - - (43,919)

Total 13,117,581$ 273,533$ (226,942)$ (1,775,743)$

Note:


Futures represent a financial contract obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical

commodity or a financial instrument, at a predetermined future date and price. Futures contracts are valued at their last reported sales

price as of measurement date and are included in the Statements of Changes in Net Position.

Options represent or give buyers the right, but not the obligation, to buy (call) or sell (put) an asset at a preset price over a specified

period. The option’s price is usually a small percentage of the underlying asset’s value. The Trust Funds have exposure to Options

related to Interest Rates and Swaps. As a writer of financial options through external investment manager portfolios (as authorized), the

Trust Funds receive a premium at the outset of the agreement and bear the risk of an unfavorable change in the price of the financial

instrument underlying the option. As a purchaser of financial options through external investment manager portfolios (as authorized),

the Trust Funds pay a premium at the outset of the agreement and the counter-party bears the risk of an unfavorable change in the price

of the financial instrument underlying the option. The option balances are included in the Statements of Changes in Net Position.

Swaps represent an agreement between two or more parties to exchange sequences of cash flows over a period in the future. In the

most common type of interest rate swap arrangement, one party agrees to pay fixed interest payments on designated dates to a

counterparty, who in turn agrees to make return interest payments that float with some reference rate. Gains and losses on swaps are

determined based on market values and are recorded in the Statements of Changes in Net Position. Swap market values are determined

by an independent third party.

Equity Rights are rights given to existing stockholders to purchase newly issued shares in proportion to their holdings at a specific date.

Equity Warrants are certificates entitling the holder to acquire shares of stock at a certain price within a stated period. Warrants often are

made part of the issuance of bonds or preferred or common stock. The balances of equity rights/warrants are included in the

Statements of Changes in Net Position.

The Trust Funds invest in derivative financial instruments through external investment managers retained by the Board and subject to

investment management agreements and other policy requirements. Derivatives are financial arrangements between two parties whose

payments are based on, or “derived” from, the performance of some agreed-upon benchmark. All derivatives are considered

investments. The fair value of all derivative financial instruments is reported in the Statement of Net Position. The Trust Funds do not

have a formal policy for derivative financial instruments.

As of June 30, 2018, the Trust Funds had the following exposure types classified within Derivative Financial Instruments: Equity

Rights/Warrants; Currency Forwards; Options; Swaps and Futures.

Currency forwards represent forward foreign exchange contracts that are entered into in order to hedge the exposure to changes in

foreign currency exchange rates on the foreign currency denominated portfolio holdings. A forward foreign exchange contract is a

commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the

difference between the original contracts and the closing of such contracts is included in the net realized gains or losses on foreign

currency related transactions in the Statements of Changes in Net Position.

Derivative Contracts as of June 30, 2018

30



As of June 30, 2018

SUPPLEMENTAL SCHEDULE

TRUST LANDS PERMANENT FUND COMBINING

SCHEDULE BY BENEFICIARY School Fund Utah State Deaf School Institute

University for the Blind

Assets

$ 459,145 $ 1,621 $ 858 $ 550

2,380,318,188 3,428,273 2,392,922 21,601,545

Receivable for Unsettled Trades 6,265,865 9,024 6,299 56,863

21,469 31 22 195

Prepaid Operating Expenses 13,100 19 13 120

5,402,154 19,245 18,319 1,124

Total Assets 2,392,479,920 3,458,214 2,418,433 21,660,396

Liabilities

6,112,047 8,803 6,144 55,467

858,771 1,237 863 7,793

46,128 65 45 422

Total Liabilities 7,016,946 10,105 7,053 63,683

Fund Balances

1,555,976,594 2,333,442 1,886,106 13,320,995

Restricted - Earnings Reserve 829,486,380 1,114,667 525,274 8,275,718

Total Fund Balances 2,385,462,974 3,448,108 2,411,380 21,596,713

Total Liabilities and Fund Balances $ 2,392,479,920 $ 3,458,214 $ 2,418,433 $ 21,660,396


1,555,976,594 2,333,442 1,886,106 13,320,995

Restricted for Permanent Trust - Expendable 829,486,380 1,114,667 525,274 8,275,718

Total Fund Balances $ 2,385,462,974 $ 3,448,108 $ 2,411,380 $ 21,596,713

Note:


Reported figures are rounded to the nearest dollar and totals may not

sum due to the impact of rounding.


Beneficiary







Prepaid Expenses


31



As of June 30, 2018



SCHEDULE BY BENEFICIARY

Assets


Prepaid Operating Expenses

Total Assets

Liabilities

Total Liabilities

Fund Balances

Restricted - Earnings Reserve

Total Fund Balances

Total Liabilities and Fund Balances


Restricted for Permanent Trust - Expendable

Total Fund Balances

Note:











Prepaid Expenses


Industrial Normal Reservoirs Utah State

School School Fund Hospital

$ 159 $ 1,011 $ 1,412 $ -

1,304,683 5,322,105 7,394,603 3,510,738

3,434 14,010 19,465 9,242

12 48 67 32

7 28 40 19

5,130 12,099 24,222 -

1,313,426 5,349,300 7,439,809 3,520,030

3,350 13,666 18,987 9,015

471 1,920 2,668 1,267

25 98 141 67

3,846 15,684 21,796 10,348

801,158 3,649,929 4,844,966 2,210,295

508,421 1,683,687 2,573,047 1,299,387

1,309,580 5,333,616 7,418,013 3,509,682

$ 1,313,426 $ 5,349,300 $ 7,439,809 $ 3,520,030

801,158 3,649,929 4,844,966 2,210,295

508,421 1,683,687 2,573,047 1,299,387

$ 1,309,580 $ 5,333,616 $ 7,418,013 $ 3,509,682

Beneficiary

32



As of June 30, 2018




Assets


Prepaid Operating Expenses

Total Assets

Liabilities

Total Liabilities

Fund Balances

Restricted - Earnings Reserve

Total Fund Balances

Total Liabilities and Fund Balances


Restricted for Permanent Trust - Expendable

Total Fund Balances

Note:











Prepaid Expenses


School University of Miners

of Mines Utah Hospital TOTAL

$ 4,413 $ 4,433 $ (264,354) $ 209,247

4,178,135 6,179,728 58,473,696 2,494,104,617

10,998 16,267 153,924 6,565,392

38 56 527 22,495

21 29 308 13,703

40,359 63,615 267,696 5,853,964

4,233,965 6,264,129 58,631,797 2,506,769,418

10,728 15,868 150,145 6,404,221

1,507 2,230 21,096 899,823

73 103 1,084 48,251

12,308 18,201 172,325 7,352,296

2,829,689 4,195,855 39,190,536 1,631,239,564

1,391,968 2,050,073 19,268,936 868,177,559

4,221,656 6,245,928 58,459,472 2,499,417,122

$ 4,233,965 $ 6,264,129 $ 58,631,797 $ 2,506,769,418

2,829,689 4,195,855 39,190,536 1,631,239,564

1,391,968 2,050,073 19,268,936 868,177,559

$ 4,221,656 $ 6,245,928 $ 58,459,472 $ 2,499,417,122

33








School Fund Utah State Deaf School Institute

University for the Blind

Revenues

$ 53,008,646 $ 164,723 $ 156,996 $ 292,799

127,114,018 180,621 125,268 1,170,411

5,006,331 6,987 4,825 45,476

Total Revenues 185,128,995 352,331 287,089 1,508,685

Expenditures

1,949,568 2,768 1,924 17,863

Total Expenditures 1,949,568 2,768 1,924 17,863

Revenues over Expenditures 183,179,427 349,563 285,164 1,490,822


Distributions to Beneficiaries 100,040,703 116,341 83,058 782,584

Net Increase in Fund Balance 83,138,724 233,222 202,107 708,238

Fund Balances - Beginning of Year 2,302,324,250 3,214,886 2,209,273 20,888,475

Fund Balances - End of Year $ 2,385,462,974 $ 3,448,108 $ 2,411,380 $ 21,596,713

Change in Net Position-Government Activities $ 83,138,724 $ 233,221.88 $ 202,106.84 $ 708,237.63

Note:




Beneficiary


Gains from Investments

Reinvested Gains


There were no expenses which do not require the use of current financial resources. The amount for the Change in Net Position (shown below) is the same

amount shown above in the Governmental Statement of Expenditures.

34








Revenues

Total Revenues

Expenditures

Total Expenditures

Revenues over Expenditures


Distributions to Beneficiaries

Net Increase in Fund Balance

Fund Balances - Beginning of Year

Fund Balances - End of Year

Change in Net Position-Government Activities

Note:






Reinvested Gains


Industrial Normal Reservoirs Utah State

School School Fund Hospital

$ 28,910 $ 413,040 $ 349,911 $ 118,946

70,050 279,325 392,596 184,373

2,695 10,489 15,066 7,206

101,655 702,854 757,573 310,526

1,073 4,301 6,030 2,834

1,073 4,301 6,030 2,834

100,581 698,552 751,544 307,691

45,973 179,043 257,070 113,268

54,608 519,509 494,474 194,424

1,254,971 4,814,106 6,923,539 3,315,258

$ 1,309,580 $ 5,333,616 $ 7,418,013 $ 3,509,682

$ 54,608 $ 519,509 $ 494,474 $ 194,424

Beneficiary

35








Revenues

Total Revenues

Expenditures

Total Expenditures

Revenues over Expenditures


Distributions to Beneficiaries

Net Increase in Fund Balance

Fund Balances - Beginning of Year

Fund Balances - End of Year

Change in Net Position-Government Activities

Note:






Reinvested Gains


School of University of Miners

Mines Utah Hospital TOTAL

$ 573,015 $ 1,014,810 $ 3,833,136 $ 59,954,931

201,035 301,709 2,981,128 133,000,533

7,785 11,095 117,198 5,235,154

781,835 1,327,614 6,931,462 198,190,618

3,235 4,756 46,324 2,040,677

3,235 4,756 46,324 2,040,677

778,599 1,322,858 6,885,138 196,149,940

133,950 172,519 1,983,397 103,907,905

644,649 1,150,339 4,901,741 92,242,035

3,577,007 5,095,589 53,557,731 2,407,175,087

$ 4,221,656 $ 6,245,928 $ 58,459,472 $ 2,499,417,122

$ 644,649 $ 1,150,339 $ 4,901,741 $ 92,242,035

36


SCHEDULE OF SITFO EXPENDITURES



SITFO Investment Office Budget $ 796,351

Investment Systems and Publications 210,950

Consulting Services 688,000

Custodial Banking Services 345,376

Subtotal Fund Operating Expenses $ 2,040,677

Invoiced Investment Management (IM) Fees

Bramshill $ 541,135

Loomis 525,052

Putnam 310,018

Parametric 941,159

BMO 120,342

Subtotal Invoiced IM Fees $ 2,437,705

Total Fund Operating Expenses and Invoiced IM Fees

$ 4,478,383

Note:

Invoiced Investment Management (IM) Fees are paid out of the assets of the IM accounts.

Fees are also paid on an indirect basis as deductions from the Net Asset Value (or its equivalent) on an indirect basis and are not

reported as SITFO Expenditures.

Fund expenses include budget expenses as well as off budget investment specific expenses.


SCHEDULE OF SITFO EXPENDITURES

37


SCHEDULE OF WEIGHTED INVESTMENT RETURNS BY BENEFICIARY


FY 2018 3 Year Annualized 5 Year Annualized

10 Year

Annualized

Since

Inception Inception Date

Total Fund 5.8 5.1 7.9 6.8 6.8 May 2004

CPI+5% 8.0 7.0 6.6 6.5 7.1

Policy Index* 6.2 6.1 8.1 6.7 7.3

Beneficiary FY 2018 3 Year Annualized 5 Year Annualized

10 Year

Annualized

Since


School Fund 5.8 5.1 7.9 6.8 6.8 May 2004

Utah State University 5.8 5.1 7.7 6.5 6.5 May 2004

Deaf School 5.8 5.1 7.7 6.5 6.6 May 2004

Institute for the Blind 5.8 5.1 8.1 7.0 7.0 May 2004

Industrial School 5.8 5.1 7.8 6.5 6.6 May 2004

Normal School 5.8 5.1 7.8 6.5 6.6 May 2004

Reservoirs Fund 5.8 5.1 7.8 6.7 6.7 May 2004

Utah State Hospital 5.8 5.0 7.8 6.7 6.8 May 2004

School of Mines 5.8 5.1 7.8 6.7 6.8 May 2004

University of Utah 5.8 5.0 7.6 6.5 6.6 May 2004

Miners Hospital 5.8 5.2 8.1 7.2 6.5 May 2004

Investment Rates of Return and Benchmark Returns are as reported by Fund Evaluation Group, LLC

Note:


* Policy Index is comprised of: 7.5% Russell 1000 Index, 7.5% Russell 2000 Index, 7.5% MSCI EAFE Index, 7.5% MSCI Emerging Markets Index, 7.0% Thomson One All

Private Equity Index, 4.5% Bloomberg Barclays Corporate Index, 4.5% Merrill Lynch High Yield Master Index, 4.0% Bloomberg Barclays Securitized Index, 4.0% HFRI RV

Asset Backed Index, 2.5% JPM EMBI Global Index, 2.5% JPM GBI-EM Global Diversified Unhedged Index, 9.0% Thomson One Distressed Debt Index, 3.0% Bloomberg

Barclays US TIPS Index, 4.0% Alerian MLP Index, 9.0% NCREIF Property Index, 4.0% Thomson One Private Natural Resources Index, 7.0% Bloomberg Barclays 20+ US

Treasuries Index, 5.0% Bloomberg Barclays CTA Index.

SCHEDULE OF WEIGHTED INVESTMENT RETURNS BY BENEFICIARY (%, Net of Fees)

38


SCHEDULE OF WEIGHTED INVESTMENT RETURNS BY INVESTMENT THEMATIC


FY 2018 3 Year Annualized 5 Year Annualized

10 Year

Annualized

Since


Total Fund 5.8 5.1 7.9 6.8 6.8 May 2004

CPI+5% 8.0 7.0 6.6 6.5 7.1

Policy Index (1) 6.2 6.1 8.1 6.7 7.3

Investment Theme FY 2018 3 Year Annualized 5 Year Annualized

10 Year

Annualized

Since


Growth 9.8 8.4 11.1 8.0 8.0 May 2004

Growth Blended Index (2) 12.6 10.4 11.6 8.2 8.3

Real Assets 5.3 6.0 9.7 4.8 4.6 Dec 2007

Real Assets Blended Index (3) 4.1 6.4 9.3 5.3 5.2

Income 3.4 3.5 3.4 4.5 4.6 May 2004

Income Blended Index (4) 2.4 5.4 4.6 4.9 4.9

Defensive 1.0 -2.2 -1.2 -0.3 1.0 May 2004

Defensive Blended Index (5) 0.5 -1.9 -1.1 -0.5 0.7

Investment Rates of Return and Benchmark Returns are as reported by Fund Evaluation Group, LLC

Note:

SCHEDULE OF WEIGHTED INVESTMENT RETURNS BY INVESTMENT THEMATIC (%, Net of Fees)

(1) Total Fund Policy Index is comprised of: 7.5% Russell 1000 Index, 7.5% Russell 2000 Index, 7.5% MSCI EAFE Index, 7.5% MSCI Emerging Markets Index, 7.0% Thomson

One All Private Equity Index, 4.5% Bloomberg Barclays Corporate Index, 4.5% Merrill Lynch High Yield Master Index, 4.0% Bloomberg Barclays Securitized Index, 4.0%

HFRI RV Asset Backed Index, 2.5% JPM EMBI Global Index, 2.5% JPM GBI-EM Global Diversified Unhedged Index, 9.0% Thomson One Distressed Debt Index, 3.0%

Bloomberg Barclays US TIPS Index, 4.0% Alerian MLP Index, 9.0% NCREIF Property Index, 4.0% Thomson One Private Natural Resources Index, 7.0% Bloomberg Barclays

20+ US Treasuries Index, 5.0% Bloomberg Barclays CTA Index.

(2) Growth Composite Blended Index is comprised of: 20.3% Russell 1000 Index, 20.3% Russell 2000 Index, 20.3% MSCI EAFE IMI Index, 20.3% MSCI Emerging Markets

Index, 18.8% Thomson One All Private Equity Index.

(3) Real Assets Composite Blended Index is comprised of: 15% Bloomberg Barclays U.S. TIPS Index, 20% Alerian MLP Index, 45% NCREIF Property Index, 20% Thomson

One Private Natural Resources Index.

(4) Income Composite Blended Index is comprised of: 14.5% Bloomberg Barclays Corporate Index, 14.5% Merrill Lynch High Yield Master Index, 13.0% Bloomberg

Barclays Securitized Index, 13.0% HFRI RV Asset Backed Index, 8.0% JPM EMBI Global Index, 8.0% JPM GBI-EM Global Diversified Unhedged Index, 29.0% Thomson One

Distressed Debt Index.

(5) Defensive Composite Blended Index is comprised of: 58.3% Bloomberg Barclays 20+ Year U.S. Treasury Index, 41.7% Barclay CTA Index.

Any benchmark containing a Thomson One private benchmark, NCREIF, or the Barclay CTA Index is subject to change as updated data becomes available.


39


SCHEDULE OF BROKERAGE COMMISSIONS


Broker Name Shares Traded Dollar Volume of Trades

Commission Dollar

Amount

Commission Per

Share

Commission (% of

dollar volume)

Barclays 747,121 11,391,592$ 8,732$ 0.0117$ 0.0767%

Cantor Fitzgerald 91,483 1,174,279 4,048 0.0443 0.3448%

Citi 337,829 17,313,761 27,047 0.0801 0.1562%

Cowen 126,253 3,100,928 8,480 0.0672 0.2735%

Instinet 102,139 5,985,024 9,763 0.0956 0.1631%

ITG 233,742 18,921,435 8,149 0.0349 0.0431%

Loop Capital 79,594 2,014,907 634 0.0080 0.0315%

Morgan Stanley 3,030,284 73,380,506 49,738 0.0164 0.0678%

RBC 243,984 32,281,152 9,679 0.0397 0.0300%

Weeden & Co 170,138 201,862,017 49,091 0.2885 0.0243%

Total 5,162,567 367,425,602$ 175,362$ 0.0340$ 0.0477%

SCHEDULE OF BROKERAGE COMMISSIONS


Note:

Domestic and Global Equity trading only.

No commissions are paid on fixed income trades.

Total does not include mutual fund trade fees.

40


41

Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and

Other Matters Based on an Audit of Financial Statements Performed in

Accordance with Government Auditing Standards




We have audited, 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, the financial statements of the School and Institutional Trust Fund,

a component of the State of Utah, as of and for the year ended June 30, 2018, and the related notes to the

financial statements, which collectively comprise School and Institutional Trust Fund’s basic financial

statements, and have issued our report thereon dated November 2, 2018.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the School and Institutional

Trust Fund’s internal control over financial reporting (internal control) to determine the audit procedures that

are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but

not for the purpose of expressing an opinion on the effectiveness of the School and Institutional Trust Fund’s

internal control. Accordingly, we do not express an opinion on the effectiveness of the School and

Institutional Trust Fund’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management

or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,

misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in

internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial

statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a

deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness,

yet important enough to merit attention by those charged with governance.

Our consideration of internal control over financial reporting was for the limited purpose described in the first

paragraph of this section and was not designed to identify all deficiencies in internal control over financial

reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our

audit we did not identify any deficiencies in internal control that we consider to be material weaknesses.

However, material weaknesses may exist that have not been identified.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the School and Institutional Trust Fund’s financial

statements are free from material misstatement, we performed tests of its compliance with certain provisions

of laws, regulations, contracts, and grant

42

agreements, noncompliance with which could have a direct and material effect on the determination of

financial statement amounts. However, providing an opinion on compliance with those provisions was not an

objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed

no instances of noncompliance or other matters that are required to be reported under Government Auditing

Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and

the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or

on compliance. This report is an integral part of an audit performed in accordance with Government Auditing

Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not

suitable for any other purpose.


November 2, 2018

ae9894

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43

Independent Auditor’s Report on Compliance




Report on Compliance

We have audited the School and Institutional Trust Fund Office’s (SITFO’s) compliance with Utah Code,

Sections 53A-16-101(2)(b)(i) and 53C-3-102(7), requiring a distribution equal to 4% of the average market

value of each permanent over the past 12 consecutive quarters, that could have a direct and material effect on

the Schedule of Permanent Fund Investment Distributions (Schedule) for the year ended June 30, 2018.

Management’s Responsibility

Management is responsible for compliance with the State statutes and the presentation of the Schedule.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance based on our audit of the compliance requirements

referred to above. We conducted our audit of compliance 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 noncompliance with

the compliance requirements referred to above that could have a direct and material effect on the Schedule

occurred. An audit includes examining, on a test basis, evidence about SITFO’s compliance with those

requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance. However, our audit does

not provide a legal determination of SITFO’s compliance.

Opinion on Compliance Requirements

In our opinion, SITFO complied, in all material respects, with the compliance requirements referred to above

that could have a direct and material effect on the Schedule for the year ended June 30, 2018.

November 2, 2018


ae9894

Eide Bailly

Documents

State of Utah, School and Institutional Trust Fundsbillion of institutional investments, has 135 employees, 86 of which are investment professionals, and 22 dedicated to investment