2015 annual report - psdlafa0658257-c2a9-49c5... · contagion risks that operate through the...

PSDLAF ANNUAL REPORT | SEPTEMBER 2015 1

2015 ANNUAL REPORTPENNSYLVANIA SCHOOL DISTRICT LIQUID ASSET FUND

Sponsored by: Pennsylvania School Boards Association | Pennsylvania Association of School Business Officials


TABLE OF CONTENTS

MESSAGE FROM THE CHAIRPERSON 3

MESSAGE FROM THE INVESTMENT ADVISOR 5

OFFICERS, BOARD OF TRUSTEES, SPONSORS & SERVICE PROVIDERS 6

REPORT OF INDEPENDENT AUDITORS 7

MANAGEMENT’S DISCUSSION AND ANALYSIS 9

FINANCIAL STATEMENTS 11

NOTES TO FINANCIAL STATEMENTS 18

FINANCIAL HIGHLIGHTS 22


Dear PSDLAF Settlor,

On behalf of the PSDLAF Board of Trustees, I want to thank you for your continued support and commitment for over thirty years. 2015 was the year of many new and exciting enhancements for your Fund as we welcomed a new vendor partner, PMA Financial Network, Inc., to our successful team.

A PSDLAF icon, Dr. Richard Bauer, also announced his retirement this past year. Dr. Bauer’s leadership and vision has steered this AAA rated program through many decades of change and improvements. After an extensive search, Patrick M. Sable, PRSBA was selected as the new Executive Director for PSDLAF.

The Administrator transition to PMA was successful thanks in large part to every team member who was involved, along with the support and feedback from the Settlors.

Additionally, the Trustees approved numerous enhancements to continue to evolve PSDLAF products and services to meet the demands of today’s financial environment. Noted below are just a few.

PSDLAF 2.0 • New Updated PSDLAF Logo and External Website• Launched a new Secured Online Platform- PSDLAF GPS, which was immediately well received, and

continues to grow based on Settlor’s feedback and ideas. • The Trustees voted to “Freeze the Liquid Series” of the Fund, to improve efficiencies for Settlors. This

change provided an immediate positive impact (higher yields) to Settlors.• PSDMAX dividend payments were changed from Quarterly to Monthly.

EasyProcure also hit a major milestone as royalties topped $1 million as the Program year came to a close as of May 31, 2015. These record-high royalties translated into increased rebate dollars for participating entities. In addition to the incentive, a substantial spending increase of 15 percent contributed to the significant growth of the Program.

PSDLAF’s continued focus is to provide an unrivaled investment option and client service excellence on a daily basis. In conjunction with the Fund’s sponsoring organizations, the Pennsylvania Association of School Business Officials (PASBO) and the Pennsylvania School Boards Association (PSBA), PSDLAF team members have been involved in numerous “Give Back to the School Community” activities such as sponsorships of chapter events, hosting “Lunch and Learn” events throughout the Commonwealth, as well as providing valuable insight as speakers for Webinars and Conference discussions. The Fund was also very involved with the Government Finance Officers Association of PA throughout the year.

One of the largest obstacles that every Local Education Agency (LEA) faced this past year was the State Budget Impasse, as the Commonwealth withheld hundreds of millions of dollars of school subsidies. PSDLAF assisted dozens of LEAs in securing short-term funding to bridge the gap that continued to grow from July 1, 2015 the start of the budget impasse. As of the end of the fiscal year (9/30/2015), there has been very little progress to pass the Commonwealth’s budget.

MESSAGE FROM THE CHAIRPERSON


Thank you once again for your support, and for lending your voice to shape the Fund’s future. I am more confident now, with the power of Team PSDLAF, that the future continues to look bright and exciting. On behalf of the Board of Trustees and the entire PSDLAF Team, I'd like to express deep gratitude to you for making “your Fund” a continued success.

Best Regards,

Chairperson- Pennsylvania School District Liquid Asset FundSchool Board Member- Upper St. Clair Township School District

MESSAGE FROM THE CHAIRPERSON

Even with an estimated $500 million (+) of subsidies owed to PSDLAF Settlors, the Fund still closed its fiscal year with over $4.6 Billion of total assets, which touched the all-time high established in 2014. If the Commonwealth budget was passed on time, PSDLAF would have easily hit another major milestone.

5 Year Trend Line

PSDLAF is sponsored by: PASBO and PSBA


Over the past year, the combination of still-sluggish growth and significant downside risks have created a challenging environment for investors. While the recent stock-market volatility has attracted the bulk of the public’s attention, a wide range of markets have actually been involved in the correction as well. Interest rates on very short investments have remained at exceptionally low levels and bond yields have declined materially since the start of the year. In addition, commodity prices have dropped and currency markets have been in flux. These types of corrections tend to be difficult to anticipate, and it is no easy task to distinguish between garden-variety reactions and the onset of a bear market. In our view, the recent episode appears more likely to be a correction than the beginning of a new bear market. Here are some of the headline factors that have been on our radar.

China Concerns Financial markets shuddered in late August as concerns crystallized around China’s financial markets and slowing economic growth. What do China’s challenges mean for the rest of the world? There are contagion risks that operate through the economic channel. An International Monetary Fund (IMF) model suggests that for every 1.00% deceleration in Chinese growth, the U.S. economy will slow by approximately 0.25%. This suggests that the Chinese developments are relevant but may not be all-consuming for the global economy.

Oil Machinations After a brief price revival in the early summer, oil prices have again slumped. There are a number of factors behind oil’s double-dip decline but the main story remains focused on the matter of excess supply. This has led us to rethink our timing as to when the global oil market will return to supply/demand balance. Whereas the previous market consensus called for equilibrium to be restored by early 2016, this may now be a 2017 proposition.

Lower Growth Forecasts We have lowered our global growth forecasts, with changes to both the developed and emerging market outlook. In the developed world, North American growth prospects have been reduced, where we now see U.S. growth for 2016 lower by 0.25% at 2.25% and Canadian growth at 1.00% from 1.75%. Among emerging economies, Brazil, Mexico, Russia and South Korea have been assigned significantly lower growth forecasts.

Persistent Low Inflation Global inflation has been extraordinarily low in recent years, though in recent months it had begun to demonstrate signs of modestly positive momentum. We have reduced 2015 inflation forecasts to levels approaching 0.0% across the U.S., U.K. and Eurozone region. The strong U.S. dollar is constricting U.S. inflation while exporting higher prices to trading partners in other markets. We look for modestly higher inflation in 2016 as our view is that as commodity prices will reach a bottom point, and wage inflation may become more evident as economic slack begins to fade.

Monetary Policymakers in the Limelight The U.S. Federal Reserve (Fed) continues to debate the timing of when to begin raising its benchmark interest rate from the current 0-0.25% rate, based largely on the strength of the U.S economy, yet also amid the backdrop of geopolitical volatility and economic uncertainty. We believe that the dovish voting members that comprise the Fed’s Open Market Committee’s (FOMC) are inclined to begin gradually tightening rates with one move of 25 basis points at some point in either December 2015 or early 2016 given steady domestic economic progress and a falling unemployment rate.

-RBC Global Asset Management (U.S.) Inc.

MESSAGE FROM THE INVESTMENT ADVISOR


OFFICERS: Barbara L. Bolas – Chairperson School Board Director Upper St. Clair School District Patrick Sable – Executive Director Pennsylvania School District Liquid Asset Fund 1232 Snee Drive Pittsburgh, PA 15236

BOARD OF TRUSTEES: Brett N. Lago – Vice Chairperson Director of Business Affairs Penn-Trafford School District Dr. Richard Frerichs - Trustee School Board Member Penn Manor School District Stacy M. Gober – Trustee Chief Financial Officer Bethlehem Area School District Jay Himes Executive Director - Trustee Pennsylvania Association of School Business Officials

William LaCoff - Trustee School Board Member Owen J. Roberts School District

Charles E. Linderman - Trustee Director of Business Affairs Great Valley School District

Nathan Mains - Trustee Executive Director Pennsylvania School Boards Association Charles E. Peterson - Trustee Chief Financial Officer Central Susquehanna Intermediate Unit Timothy J. Shrom - Trustee Business Manager Solanco School District

Otto Voit - Trustee School Board Member Muhlenberg School District

SPONSORS: Pennsylvania School Boards Association 400 Bent Creek Blvd Mechanicsburg, PA 17050 (717) 506-2450 www.psba.org Pennsylvania Association of School Business Officials 2608 Market Place Harrisburg, PA 17110 (717) 540-9551 www.pasbo.org SERVICE PROVIDERS: Investment Advisor RBC Global Asset Management (U.S.) Inc. 100 South 5th Street, Suite 2300 Minneapolis, MN 55402 (800) 553-2143 www.us.rbcgam.com Administrator PMA Financial Network, Inc. 2135 CityGate Lane, 7th Floor Naperville, IL 60563 (866) 548-8634 www.pmanetwork.com Custodian PNC Bank, N.A. Two PNC Plaza, 620 Liberty Avenue Pittsburgh, PA 15222 (412) 768-1044 www.pncbank.com Legal Counsel Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103-4196 (215) 979-1000 Independent Auditor CliftonLarsonAllen LLP 945 East Park Drive, Suite 202 Harrisburg, PA 17111 (717) 558-0860 www.CLAconnect.com Marketing/Fixed Rate Provider RBC Public Funds Services 2101 Oregon Pike Lancaster, PA 17601 (866) 548-8634 [email protected]

OFFICERS, BOARD OF TRUSTEES, SPONSORS & SERVICE PROVIDERS


REPORT OF INDEPENDENT AUDITOR


This section of the Pennsylvania School District Liquid Asset Fund (“PSDLAF”) Annual Report presents management’s discussion and analysis of the financial position and results of operations for the fiscal years ended September 30, 2015 and 2014. This discussion and analysis should be read in conjunction with the Independent Auditor’s Report, the Financial Statements, the accompanying notes and the Financial Highlights.

PSDLAF is a common law trust organized and existing under the laws of the Commonwealth of Pennsylvania, in accordance with the provisions of the Pennsylvania Intergovernmental Cooperation Act and Section 521 of the Pennsylvania Public School Code of 1949, as amended. PSDLAF provides various types of investment programs offered from time to time through a number of Series: a single Liquid Series, a single MAX Series, multiple Cash Flow Optimization Series, multiple Fixed Term Series, multiple Total Return Management Program Series and multiple Choice Program Series.

The general objective of PSDLAF is to provide its investors with current income while preserving capital in a manner this is compatible with the needs and requirements of public school and local governmental entities in Pennsylvania.

Overview of the Financial StatementsThe financial statements and related notes encompass only the Liquid Series and the MAX Series (the “Fund”). The following components comprise the financial statements of the Fund: Portfolio of Investments, Combined Statement of Net Position, Combining Statement of Operations, Combining Statements of Changes in Net Position, Notes to Financial Statements and Financial Highlights. The Portfolio of Investments lists each security held as of September 30, 2015. The Combined Statements of Net Position displays the assets and liabilities of the Fund as of September 30, 2015. The Combining Statements of Changes in Net Position shows the combining net results of operations and Settlor activity (subscriptions and redemptions) for the two most recent fiscal years. The Notes to Financial Statements describe significant accounting policies of the Fund and other supplemental information. The Financial Highlights provide selected data for one share of beneficial interest in each Series for the five most recent fiscal years.

Condensed Financial Information and Financial AnalysisYear-to year variances in most financial statement amounts are caused by a single variable – the level of the average net position (which fluctuates daily based on changes in the overall levels of Settlor invested balances) in each Series.

Condensed financial information and variance explanations for the Fund for the years ended September 30, 2015 and 2014 follows:

COMBINED LIQUID AND MAX SERIES2015 2014

Net Position $ 1,116,700,870 $ 1,096,250,129Total Assets 1,136,006,972 1,107,553,206Total Liabilities 19,306,102 11,303,077Total Income 2,118,318 1,797,634Total Expenses 2,008,257 1,693,333Net Investment Income 110,061 104,301Dividends to Settlors (110,061) (104,301)Shares Sold (1 per share) 17,401,799,861 11,230,837,519Shares Redeemed (1 per share) (17,381,459,181) (11,400,003,456)

MANAGEMENT DISCUSSION AND ANALYSIS


LIQUID SERIES2015 2014

Net Position $ 62,194,457 $ 38,318,276Average Net Position 44,151,523 47,970,712Total Income 80,071 126,234Total Expenses 77,951 123,621Net Investment Income 2,120 2,613Dividends to Settlors (2,120) (2,613)Shares Sold ($1 per share) 1,438,207,496 823,852,326Shares Redeemed ($1 per share) (1,414,333,435) (843,159,810)

MAX SERIES2015 2014

Net Position $ 1,054,506,413 $ 1,057,931,853Average Net Position 1,023,344,809 1,132,810,236Total Income 2,038,247 1,671,400Total Expenses 1,930,306 1,569,712Net Investment Income 107,941 101,688Dividends to Settlors (107,941) (101,688)Shares Sold ($1 per share) 15,963,592,365 10,406,985,193Shares Redeemed ($1 per share) (15,967,125,746) (10,556,843,646)

The combined net position for the Fund increased 1.87% to $1,116,870 as of September 30, 2015 from $1,096,250,129 as of September 30, 2014.

The average net position for the Liquid Series decreased 7.96% from $47,970,712 in the fiscal year ended September 30, 2014 to $44,151,523 in the fiscal year ended September 30, 2015.

The average net position for the MAX Series decreased 9.66% from $1,132,810,236 in the fiscal year ended September 30, 2014 to $1,023,344,809 in the fiscal year ended September 30, 2015.

Additional informationThe Fund’s Financial Statements are designed to present users with a general overview of the Fund. Additional information about PSDLAF can be found on its website at www.psdlaf.org.

MANAGEMENT DISCUSSION AND ANALYSIS


FINANCIAL STATEMENTSPSDLAF Portfolio of Investments

September 30, 2015

The accompanying notes are an integral part of these financial statements.


FINANCIAL STATEMENTSPSDLAF Portfolio of Investments (continued)


September 30, 2015


FINANCIAL STATEMENTSPSDLAF Combined Statement of Net Position


September 30, 2015


FINANCIAL STATEMENTSPSDLAF Combining Statement of Operations


September 30, 2015


FINANCIAL STATEMENTSPSDLAF Combining Statement of Changes in Net Position

September 30, 2015



FINANCIAL STATEMENTSPSDLAF Combining Statement of Changes in Net Position


September 30, 2014


1. Description of the Fund

The Pennsylvania School District Liquid Asset Fund (“PSDLAF”) was established on January 22, 1982, as a common law trust organized under laws of the Commonwealth of Pennsylvania. In its original form, PSDLAF operated as a single liquid portfolio in a manner similar to a money market fund. On January 30, 1989, the Settlors in the PSDLAF programs approved an amendment to the Fund’s Declaration of Trust to authorize the creation of multiple investment portfolios or “Series” within PSDLAF. PSDLAF currently consists of the Liquid Series, the MAX Series (similar to the Liquid Series except requires a 14-day minimum investment), the Managed Accounts Program and several fixed term series. At a Board of Trustees meeting held April 22, 2005, it was approved that the 14-day minimum investment period be waived for the MAX Series, until further revocation by the Board.

These financial statements and related notes encompass only the Liquid Series and the MAX Series. The term “Fund” used throughout the financial statements and related notes refers only to the Liquid Series and the MAX Series.

Shares of the Fund are offered exclusively to Pennsylvania school districts, intermediate units, area vocational technical schools, community colleges, consortiums, authorities, municipalities and local government agencies. The purpose of the Fund is to enable such organizations to pool their available funds for investment in instruments in accordance with the provisions of the Pennsylvania Intergovernmental Cooperation Act and Section 521 of the Pennsylvania Public School Code of 1949, as amended. The Liquid Series commenced operations on February 2, 1982 and the MAX Series commence operations on August 9, 1990.

At a Board of Trustees meeting held on October 30, 1998, it was approved that the Liquid Series and the MAX Series would combine their investment operation, creating one portfolio. By combining investment operations, the Trustees sought to increase economies of scale of the two Series. This combination resulted in one combined portfolio with each Series having a pro-rata interest in each of the securities held by the combined portfolio.

The portfolio at all times consists solely of instruments in which school entities are permitted to invest pursuant to Section 440.1 of the School Code. Such instruments include the following: (a) United States Treasury bills; (b) Short-term obligations of the United States government or its agencies or instrumentalities; (c) Deposits in savings accounts, time deposits or share accounts of institutions insured by the Federal Deposit Insurance Corporation of the Nations Credit Union Share Insurance Fund to the extent that such accounts are so insured, and, for any amounts above the insured maximum, provided that approved collateral as provided b law therefore shall be pledged by the depository; (d) Obligations of the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or of any political subdivision of the Commonwealth of Pennsylvania or its agencies or instrumentalities backed by the full faith and credit of the political subdivision; (e) Shares of certain investment companies registered under the Investment Company Act of 1940 and the Securities Act of 1933 which invest only in instruments listed in clauses (a) through (d) above, maintain a constant per share net asset value and are rated in the highest category by a nationally recognized rating agency; and (f) Any other investments presently permitted by the provisions of Section 440.1 of the School Code or any other applicable statutes or permitted in the future by reason of the amendment of Section 440.1 or the adoption of any other applicable statute.

2. Significant Accounting Policies

Regulatory OversightThe operation of PSDLAF is governed by an eleven member Board of Trustees, nine of whom are elected and two of whom serve ex officio. The Trustees have full, exclusive and absolute control and authority over the business of the Fund and its assets, subject to the rights of the Settlors as provided in the Declaration of Trust.

PSDLAF is not registered with the Securities and Exchange Commission (SEC); however, PSDLAF follows investment procedures similar to those followed by SEC registered money market funds.

NOTES TO FINANCIAL STATEMENTS


Measurement Focus, Basis of Accounting and Financial Statement PresentationThe financial statements report the financial position and the results of operations using investment trust funds. Investment trust funds are fiduciary funds that are used to account for the assets held in a trustee capacity. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording assets, liabilities, net position, income, expenses and other financing sources and uses. The fiduciary financial statements are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. The fiduciary financial statements of the Fund have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and reporting principles.

Accounting for InvestmentsSecurity transactions are accounted for on the trade date (date the order to buy or sell is executed). In computing the net investment income, the Fund amortizes or accretes any discounts or premiums on securities owned. Gains or losses realized upon the sale of such securities are based on their amortized cost and are determined on the identified cost method.

Valuation of InvestmentsIn accordance with the Government Accounting Standards Board, portfolio securities are valued at amortized cost, which approximates market value as of September 30, 2015. The amortized cost method involves valuing a security at its cost on the date of purchase and recording a constant amortization or accretion to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the investment.

Determination of Net Asset ValueThe net asset value per share of the Fund’s Liquid Series and MAX Series for the purpose of calculating the price at which shares are issued and redeemed is determined by the Administrator each banking day. Such determination is made by subtracting the liabilities from the value of the assets and dividing the remainder by the number of shares outstanding.

The Administrator values the investments by using the amortized cost method, as described above. While this method provides certainty in valuation, it may result in period during which values, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During such periods, the yield to Settlors may differ somewhat from that which would be obtained if the Fund used the market value method for all its portfolio investments.

The Trustees have adopted certain procedures with respect to the Fund’s use of the amortized cost method to value its portfolio. These procedures are designed and intended (taking into account market conditions and the Fund’s investment objectives) to stabilize the net asset value per share as computed for the purpose of investment and redemption as $1.00 per share. The procedures include a weekly valuation of the portfolio by the Administrator and the Custodian using the market value method and a periodic review by the Trustees, in such manner as they deem appropriate and at such intervals as are reasonable in light of current market conditions, of the relationship between the net asset value per share based upon the amortized cost value of the Fund’s portfolio investments and the net asset value per share based upon available indications of market value with respect to such portfolio investments. The Trustees have established procedures to (i) monitor the differences between the amortized cost value and the market price value and (ii) consider what steps, if any, should be taken in the event of a difference of more than 0.5% between the amortized cost value and the market value, it is anticipated that the Trustees will take such steps as they consider appropriate (such as shortening the average portfolio maturity or realizing gains or losses) to minimize any material dilution or other unfair results which might arise from differences between the amortized cost value and the market value.

Unissued Settlor SharesSettlor account subscriptions made after noon Eastern Standard Time are not attributed to the individual Settlor accounts until the following business day, and are therefore reflected in the net asset value calculation the following business day. Such amounts received are reflected as unissued Settlor shares at year-end.



Income AllocationThe net income of the Fund is determined as of noon Eastern Standard Time each banking day (and at such other times the Trustees may determine) and is credited immediately thereafter pro-rata to each Settlor’s Liquid and MAX Series account, as applicable. The net income so credited for the Liquid Series is converted as of the close of business each calendar month into additional shares, which are thereafter held in each Settlor’s Liquid Series account. The net income so credited for the MAX Series from October 1, 2014 through March 31, 2015 was converted as of the close of business each calendar quarter into additional shares, which are thereafter held in each Settlor’s MAX Series account. Beginning May 1, 2015 (and including the amounts credited April 1, 2015 through April 30, 2015), the net income so credited for the MAX Series is converted as of the close of business each calendar month into additional shares, which are thereafter held in each Settlor’s MAX Series account.

Use of Estimates in Financial Statement PreparationThe preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

Income Tax StatusThe Fund is not subject to Federal, state or local income taxes.

Guarantees and IndemnificationsUnder the Fund’s organization documents, its Trustees, officers and employees are indemnified by the Fund against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service provides that contain general indemnification clauses. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

The Board of Trustees has not provided or obtained any legally binding guarantees during the fiscal year ended September 30, 2015.

3. Fund Expenses

Investment Advisory FeePursuant to an Investment Advisory Agreement with the Fund, the Investment Adviser, RBC Global Asset Management (U.S.) Inc. (“RBC/GAM”), provides investment advice and generally supervises the investment program of the Fund. RBC/GAM is paid a fee for these services at an annual rate equal to 0.10% of the first $100,000,000 of the Fund’s average daily net position; 0.09% of its average daily net position on the next $100,000,000; 0.8% of its average daily net position on the next $100,000,000; 0.07% of its average daily net position on the next $100,000,000; 0.06% of its average daily net position on the next $600,000,000; and 0.05% of its average daily net position over $1,000,000,000. Assets of the Liquid Series and the MAX Series will be aggregated for purposes of this calculation. Such fees are calculated daily and paid monthly; however, a portion of the fees have been waived for the year ended September 30, 2015.

Administration FeeThe Administrator services all Settlor accounts, maintains the books and records of the Fund, provides administrative personnel, equipment and office space, determines the net asset value of the Fund on a daily basis, and performs all related administrative services. Under an Administration Agreement effective through April 30, 2015 with the Fund, Bankers Trust Company (“Bankers Trust”) served as Administrator. Under a separate Administration Agreement, and beginning May 1, 2015, PMA Financial Network (“PMA”) serves as Administrator. For their respective tenures, both Bankers Trust and PMA were paid based on the same fee schedule. Those fees for the Liquid Series were paid at an annual rate equal to 0.11% of the first $150,000,000 of the Liquid Series’ average daily net position; 0.10% of its average daily net position on the next $150,000,000; 0.05% of its average daily net position on the next $150,000,000; and 0.03% of its average daily net position over $450,000,000. Those fees for the MAX Series were paid at an annual rate equal to 0.10% of the first $150,000,000 of the MAX Series’ average daily net position; 0.09% of its average daily net position on the next $150,000,000; 0.05% of its daily net position on the next $150,000,000; and 0.03% of its average daily net position over $450,000,000. Such fees are calculated daily and paid monthly; however, a portion of the fees have been waived for the year ended September 30, 2015.



Distribution/Marketing FeeUnder a Marketing Agreement effective with the Fund, certain individuals provide marketing services for which they are paid a fee for each Series. For the Liquid Series, these individuals are paid a fee at an annual rate of 0.10% of the Liquid Series average daily net position. For the MAX Series, these individuals are paid at an annual rate equal to 0.04% of the MAX Series’ average daily net position. Such fees are calculated daily and paid monthly; however a portion of these fees have been waived for the year ended September 30, 2015.

Sponsorship FeeUnder a letter of agreement with the Fund, Pennsylvania Association of School Business Officials (“PASBO”) and Pennsylvania School Boards Association (“PSBA”) provide sponsorship services for which each is paid a fee for each Series. PASBO and PSBA are each paid a fee at an annual rate of 0.01% of the average daily net position for both the Liquid Series and the MAX Series. Such fees are calculated daily and paid quarterly; however, a portion of the fees have been waived for the year ended September 30, 2015.

Other Fund ExpensesThe Fund pays out-of-pocket expenses incurred by its Trustees and Officers (in connection with the discharge of their duties), insurance for the Trustees, custody and cash management fees of the Custodian, audit fees and legal fees. Expenses which are not specifically related to either Series of the Fund are allocated between the Series based on their respective share of total net position.

4. Dividends and Distributions

The Fund determines the net asset value of the portfolio daily. Shares are issued and redeemed at the net asset value. Dividends from net investment income are declared and distributed as described above under “Income Allocation”.

5. Governmental Disclosure

Under Governmental Accounting Standards Statement No. 40, Deposit and Investment Risk Disclosures (GASB 40), the deposits and investments of state and local governments are exposed to risks that have the potential to result in losses. This Statement addresses common deposit and investment risks related to interest rate risk, credit risk, concentration of credit risk and custodial credit risk.

The following table presents the Standard & Poor’s Credit quality ratings and effective durations of the Fund’s investments as of September 30, 2015:

Investment Type Amortized Cost Weighted Average Days to Maturity Rating % of Portfolio

Bank Deposits $ 231,081,058 1 A-1+ 20.72%*Federal Home Loan Bank 465,940,968 53 A-1+ 41.78%*Federal National Mortgage Association 124,446,260 64 A-1+ 11.16%*Federal Home Loan Mortgage Corporation 96,415,059 102 A-1+ 8.65%*Federal Farm Credit Bank 79,933,366 31 A-1+ 7.17%*Overseas Private Investment Corporation 50,615,992 7 A-1+ 4.54% U.S. Treasury Notes 66,663,215 294 A-1+ 5.98%* Total $ 1,115,095,918 100.00%

*Issuer exposure that comprises 5% or more of the overall portfolio

As with any investment, an investment in the Fund involves risks that should be considered prior to investment. As described in more detail in the Fund’s Information Statement, these risks include income risk, market risk, credit risk, repurchase agreement risk, collateral recovery risk and insurance recovery risk. The Fund has implemented policies as a means of limiting its exposure to losses arising from these risks.



FINANCIAL HIGHLIGHTS


Liquid Series

PSDLAF ANNUAL REPORT | SEPTEMBER 2015 23The accompanying notes are an integral part of these financial statements.

FINANCIAL HIGHLIGHTSMAX Series

2015 annual report - psdlafa0658257-c2a9-49c5... · contagion risks that operate through the...

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