(a) General principles. The Texas Permanent School
Fund (PSF) is held in public trust for the benefit of the schoolchildren
of Texas. All those charged with the management of the PSF will aspire
to the highest standards of ethical conduct. The purpose of the PSF
code of ethics is to assist and help guide all such persons in the
proper discharge of their duties and to assist them in avoiding even
the appearance of impropriety.
(b) Fiduciary responsibility. The members of the State
Board of Education (SBOE) serve as fiduciaries of the PSF and are
responsible for prudently investing its assets. The SBOE members or
anyone acting on their behalf shall comply with the provisions of
this section, the Texas Constitution, Texas statutes, and all other
applicable provisions governing the responsibilities of a fiduciary.
(c) Compliance with constitution and code of ethics.
The SBOE members are public officials governed by the provisions of
the Texas Government Ethics Act, as stated in the Texas Government
Code, Chapter 572.
(d) Definitions. For purposes of this section, the
following terms shall have the following meanings.
  (1) SBOE Member--For the purposes of the PSF code of
ethics, a member of the SBOE shall be deemed to include the SBOE Member
or a person related to the member within the second degree of affinity
or consanguinity.
  (2) Persons Providing PSF Investment and Management
Services to the SBOE (PSF Service Providers) are the following individuals:

    (A) any person responsible by contract for managing
the PSF, investing the PSF, executing brokerage transactions, or acting
as a custodian of the PSF;
    (B) a member of the Committee of Investment Advisors;
    (C) any person who provides consultant services for
compensation regarding the management and investment of the PSF;
    (D) any person who provides investment and management
advice to an SBOE Member, with or without compensation, if an SBOE
Member:
      (i) gives the person access to PSF records or information
that are identified as confidential; or
      (ii) asks the person to interview, meet with, or otherwise
confer with a PSF Service Provider or Texas Education Agency (TEA)
staff;
    (E) any member of the TEA PSF staff or legal staff
who is responsible for managing or investing assets of the PSF, executing
brokerage transactions, acting as a custodian of the PSF, or providing
investment or management advice or legal advice regarding the investment
or management of the PSF to an SBOE Member or PSF staff; or
    (F) any person who submits a response to a Request
for Proposal (RFP) or Request for Qualifications (RFQ), or similar
types of solicitations, while such response is pending. An applicant
is not required to file reports under this section except as required
in the RFP or RFQ process.
(e) Assets affected by this section. The provisions
of this section apply to all PSF assets, both publicly and nonpublicly
traded investments.
(f) General ethical standards.
  (1) SBOE Members and PSF Service Providers must comply
with all applicable laws, specifically, the following statutes: Texas
Government Code, Chapter 2263 (Ethics and Disclosure Requirements
for Outside Financial Advisors and Service Providers), §572.051
(Standards of Conduct for Public Servants), §552.352 (Distribution
of Confidential Information), §572.058 (Private Interest in Measure
or Decision; Disclosure; Removal from Office for Violation), §572.054
(Representation by Former Officer or Employee of Regulatory Agency
Restricted), §572.002 (General Definitions), §572.004
(Definition: Regulation), and Chapter 305 (Registration of Lobbyists);
Texas Penal Code, Chapter 36 (Bribery, Corrupt Influence, and Gifts
to Public Servants) and Chapter 39 (Abuse of Office, Official Misconduct);
and Texas Education Code, §43.0031 (Permanent School Fund Ethics
Policy), §43.0032 (Conflicts of Interest), and §43.0033
(Reports of Expenditures). The omission of any applicable statute
listed in this paragraph does not excuse violation of its provisions.
  (2) SBOE Members and PSF Service Providers must be
honest in the exercise of their duties and must not take actions that
will discredit the PSF.
  (3) SBOE Members and PSF Service Providers shall be
loyal to the interests of the PSF to the extent that such loyalty
is not in conflict with other duties, which legally have priority.
SBOE Members and PSF Service Providers shall avoid personal, employment,
or business relationships that create conflicts of interest as defined
in subsection (i)(1) of this section. Should an SBOE Member or a PSF
Service Provider become aware of any conflict of interest involving
himself or herself or another SBOE Member or PSF Service Provider,
he or she has an affirmative duty to disclose the conflict to the
SBOE chair and vice chair and the commissioner within seven days of
discovering the conflict and, in the case of a conflict involving
himself or herself, to cure the conflict in a manner provided for
under this section prior to the next SBOE or committee meeting and
such SBOE Member shall take no action nor participate in the RFP or
RFQ process, or similar types of solicitations, that concerns the
conflict.
  (4) SBOE Members and PSF Service Providers shall not
use nonpublic information gained through their relationship with the
PSF to seek or obtain personal gain beyond agreed compensation and/or
any properly authorized expense reimbursement. This should not be
interpreted to forbid the use of PSF as a reference or the communication
to others of the fact that a relationship with PSF exists, provided
that no misrepresentation is involved.
  (5) An SBOE Member shall report in writing the name
and address of any PSF Service Provider, as defined by subsection
(d)(2)(D) of this section, who provides investment and management
advice to that SBOE Member. The SBOE Member shall submit the report
to the commissioner of education for distribution to the SBOE within
30 days of the PSF Service Provider first providing investment and
management advice to that SBOE Member.
  (6) SBOE Members and PSF Service Providers shall report
in writing any action described by the Texas Education Code, §7.108,
to the commissioner of education for distribution to the SBOE within
seven days of discovering the violation.
  (7) A PSF Service Provider shall not make any gift
or donation to a school or other charitable interest on behalf of,
at the request of, or in coordination with an SBOE Member. Any PSF
Service Provider or SBOE Member shall disclose in writing to the
commissioner of education any information regarding such a donation.
  (8) A PSF Service Provider shall disclose in writing
to the commissioner of education for dissemination to all SBOE Members
any business or financial transaction greater than $50 in value with
an SBOE Member, the commissioner of education, or any TEA employee
within 30 days of the transaction. Excluded from this subsection are
checking accounts, savings accounts, credit cards, brokerage accounts,
mutual funds, or other financial accounts that are provided to the
SBOE Member under the same terms and conditions as they are provided
to members of the general public.
  (9) An SBOE Member shall disclose in writing to the
commissioner of education on a quarterly basis any business or financial
transaction greater than $50 in value between the SBOE Member, or
a business entity in which the SBOE Member has a significant ownership
interest, and a PSF Service Provider. A report shall be filed even
if there has not been a business or financial transaction greater
than $50 in value between the SBOE Member, or a business entity in
which the SBOE Member has a significant ownership interest, and a
PSF Service Provider. Excluded from this subsection are checking accounts,
savings accounts, credit cards, brokerage accounts, mutual funds,
or other financial accounts that are provided to an SBOE Member under
the same terms and conditions as they are provided to members of the
general public. The reports shall be filed on or before January 15,
April 15, July 15, and October 15 and shall cover the preceding three
calendar months. The first report filed for each SBOE Member shall
cover the preceding one-year period. Subsection (u) of this section
does not apply to the first report filed. The commissioner of education
shall communicate the information included in the disclosure to all
SBOE Members.
(g) Notification of disclosure. In order to preserve
the integrity and public trust in the PSF, it is deemed necessary
and appropriate to allow all SBOE Members a reasonable time to promptly
review and respond to any disclosures or written inquiries made by
applicants or made by PSF Service Providers as provided in SBOE operating
procedures. In compliance with Texas Government Code, §2156.123,
no SBOE Member or PSF Service Provider should publicly disclose any
submission materials prior to completion of the RFP or RFQ process.
For purposes of this subsection, an RFP or RFQ is completed upon final
award of an RFP, or selection of qualified bidders for an RFQ, or
closure without any selection. This subsection does not allow an SBOE
Member to refrain from publicly disclosing a conflict of interest
as required by subsections (f)(3) and (i)(4) of this section and Texas
Government Code, §572.058.
(h) Disclosure.
  (1) If an SBOE Member solicited a specific investment
action by the PSF staff or a PSF Service Provider, the SBOE Member
shall publicly disclose the fact to the SBOE in a public meeting.
The disclosure shall be entered into the minutes of the meeting. For
purposes of this section, a matter is a prospective directive to the
PSF staff or a PSF Service Provider to undertake a specific investment
or divestiture of securities for the PSF. This term does not include
ratification of prior securities transactions performed by the PSF
staff or a PSF Service Provider and does not include an action to
allocate classes of assets within the PSF.
  (2) In addition, an SBOE Member shall fully disclose
any substantial interest in any publicly or nonpublicly traded PSF
investment (business entity) on the SBOE Member's annual financial
report filed with the Texas Ethics Commission pursuant to Texas Government
Code, §572.021. An SBOE Member has a substantial interest if
the SBOE Member:
    (A) has a controlling interest in the business entity;
    (B) owns more than 10% of the voting interest in the
business entity;
    (C) owns more than $25,000 of the fair market value
of the business entity;
    (D) has a direct or indirect participating interest
by shares, stock, or otherwise, regardless of whether voting rights
are included, in more than 10% of the profits, proceeds, or capital
gains of the business entity;
    (E) is a member of the board of directors or other
governing board of the business entity;
    (F) serves as an elected officer of the business entity;
or
    (G) is an employee of the business entity.
(i) Conflicts of interest.
  (1) A conflict of interest exists whenever SBOE Members
or PSF Service Providers have personal or private commercial or business
relationships that could reasonably be expected to diminish their
independence of judgment in the performance of their duties. For example,
a person's independence of judgment is diminished when the person
is in a position to take action or not take action with respect to
PSF and such act or failure to act is, may be, or reasonably appears
to be influenced by considerations of personal gain or benefit rather
than motivated by the interests of the PSF. Conflicts include, but
are not limited to, beneficial interests in securities, corporate
directorships, trustee positions, or other special relationships that
could reasonably be considered a conflict of interest with the duties
to the PSF. Further, Texas Education Code, §43.0032, requires
disclosure and no participation, unless a waiver is granted, when
an SBOE Member or a PSF Service Provider has a business, commercial,
or other relationship that could reasonably be expected to diminish
a person's independence of judgment in the performance of the person's
responsibilities relating to the management or investment of the PSF.
Such business, commercial, or other relationship is defined to be
a relationship that is prohibited under Texas Government Code, §572.051,
or that would require public disclosure under Texas Government Code,
§572.058, or a relationship that does not rise to this level
but that is determined by the SBOE to create an unacceptable risk
to the integrity and reputation of the PSF investment program.
  (2) Any SBOE Member or PSF Service Provider who has
a possible conflict of interest as defined in paragraph (1) of this
subsection shall disclose the possible conflict to the commissioner
of education and the chair and vice chair of the SBOE on the disclosure
form. The disclosure form is provided in this paragraph entitled "Potential
Conflict of Interest Disclosure Form."
Attached Graphic
  (3) A person who files a statement under paragraph
(2) of this subsection disclosing a possible conflict of interest
may not give advice or make decisions about a matter affected by the
possible conflict of interest unless the SBOE, after consultation
with the general counsel of the TEA, expressly waives this prohibition.
The SBOE may delegate the authority to waive this prohibition. If
an SBOE Member or a PSF Service Provider wishes to seek a waiver or
determination of a possible conflict of interest, the SBOE Member
or PSF Service Provider shall request an opinion from the Texas Ethics
Commission. An SBOE Member will be given the assistance of the TEA
ethics Cont'd...