1. (a) Purpose. The comptroller is required by Government Code, §403.1041, to administer the Tobacco Settlement Permanent Trust Account (trust account) and manage the assets of the trust account with the advice of and in consultation with the Tobacco Settlement Permanent Trust Account Investment Advisory Committee (investment advisory committee). The comptroller is also required to adopt rules necessary to implement the comptroller's duties under Government Code, §403.1041, including rules distinguishing the net earnings of the trust account that may be distributed from earnings used for investment expenses and from the money and assets that are the corpus of the trust account. A rule adopted by the comptroller under this subsection must be submitted to the investment advisory committee and may not become effective before the investment advisory committee approves the rule. If the investment advisory committee disapproves a proposed rule, the investment advisory committee is required to provide the comptroller the specific reasons that the rule was disapproved.

2. (b) Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Actual distribution amount--the amount determined pursuant to §18.2 of this title (relating to Trust Account Distributions);
   2. (2) adjusted current income--current income less investment expenses;
   3. (3) average market value of the corpus--the quarterly average market value of the corpus calculated over the life of the corpus not to exceed the most recent 12 calendar quarters;
   4. (4) average trust account balance--the annual average balance of the trust account calculated over the life of the trust account not to exceed the most recent three calendar years;

   5. (5) calculated distribution amount--for any calendar year, the sum of:

      1. (A) fifty percent (50%) of the adjusted current income for such year;
      2. (B) twenty-five percent (25%) of the positive balance of the distribution stabilization account at the beginning of such year, and
      3. (C) twenty-five percent (25%) of the cumulative net gains calculated as of the beginning of such year;

   6. (6) corpus--the value of initial contributions to the trust account, plus:

      1. (A) any future contributions and donations received by the comptroller for deposit in the trust account;
      2. (B) all annual inflation adjustments; and
      3. (C) all amounts transferred from the distribution stabilization account pursuant to §18.2 of this title (relating to Trust Account Distributions);

   7. (7) cumulative net gains--all realized and unrealized gains on investments in the trust account calculated over the life of the trust account, less:

      1. (A) all realized and unrealized losses on such investments during the same period;
      2. (B) all inflation adjustments during the same period;
      3. (C) all such gains included in the amounts actually distributed from the trust account to the political subdivisions during the same period, and
      4. (D) all amounts of current net realized gains transferred to the distribution stabilization account during the same period pursuant to §18.2 of this title (relating to Trust Account Distributions);
   8. (8) current income--the sum of interest and dividend income earned by the trust account;
   9. (9) current net realized gains--for any calendar year, all realized gains on investments in the trust account for such year, less all realized losses on such investments for such year;
   10. (10) distribution stabilization account--a separate account consisting of the amounts of adjusted current income and current net realized gains transferred pursuant to §18.2 of this title (relating to Trust Account Distributions). These amounts are accounted for separately from the corpus and will not be part of the corpus unless otherwise directed by the investment advisory committee;
   11. (11) inflation adjustment--for any calendar year, the dollar amount achieved by multiplying the inflation adjustment factor calculated as of the end of such year by the average market value of the corpus calculated as of the end of such year;
   12. (12) inflation adjustment factor--the average annual percentage change in the United States Consumer Price Index for All Urban Consumers (CPI-U) for the most recent 12 quarters as published by the United States Bureau of Labor Statistics;
   13. (13) investment advisory committee--the Tobacco Settlement Permanent Trust Account Investment Advisory Committee as defined by Government Code, §403.1041;
   14. (14) investment expenses--the portion of the total earnings of the trust account that may be used to pay investment related expenses not to exceed 0.75% of the trust account balance including, but not limited to, transactions fees, custodial fees, and fees for outside money managers, investment consultants, or auditors;
   15. (15) political subdivision--the meaning assigned by Government Code, §403.1041;
   16. (16) total earnings--the sum of all changes in value from an investment including interest, dividends, and market value increases and decreases;
   17. (17) trust account--the Tobacco Settlement Permanent Trust Account as defined by Government Code, §403.1041; and

   18. (18) trust account balance--at any given time, the sum of the corpus and the total earnings calculated over the life of the trust account, less:

       1. (A) all investment expenses during the same period;
       2. (B) the amounts actually distributed from the trust account to the political subdivisions during the same period; and
       3. (C) the balance of the distribution stabilization account.

Source Note:The provisions of this §18.1 adopted to be effective November 16, 2000, 25 TexReg 11292; amended to be effective March 27, 2003, 28 TexReg 2618.