2003 ANNUAL REPORT P P CC Public Pension Coordinating Council Public Pension Standards 2003 Award Presented to Employees Retirement System of Georgia In recognition of meeting professional standards for plan design and administration as set forth in the Public Pension Standards. Presented by the Public Pension Coordinating Council, a confederation of National Association of State Retirement Administrators (NASRA) National Conference on Public Employee Retirement Systems (NCPERS) National Council on Teacher Retirement (NCTR) Alan H. Winkle Program Administrator INTRODUCTORY SECTION TABLE OF CONTENTS INTRODUCTORY SECTION Boards of Trustees 2 Letter of Transmittal 3 Legislation 4 ACTUARIAL SECTION Employees' Retirement System 5 Public School Employees Retirement System 8 Legislative Retirement System 11 Georgia Judicial Retirement System 14 Group Term Life Insurance 17 Georgia Military Pension Fund 20 INVESTMENT SECTION Pooled Investment Fund/Structural Analysis 23 Temporary Investments/Bonds 24 Equity Holdings 25 Mortgage/Real Estate Investment 26 FINANCIAL SECTION Independent Auditors' Report 27 Management's Discussion and Analysis 28 General Purpose Financial Statements: Combined Statements of Net Assets 33 Statements of Changes in Net Assets 34 Notes to Combined Financial Statements 35 Required Supplementary Information 46 Additional Information: Combining Statements of Net Assets 51 Superior Court Judges and District Attorneys Retirement Funds - Combining Statements of Net Assets 52 Combining Statements of Changes in Net Assets 53 Superior Court Judges and District Attorneys Retirement Funds - Combining Statements of Changes in Net Assets 54 Administrative Expense Fund - Contributions and Expenses 55 2003 Employees' Retirement System of Georgia 1 INTRODUCTORY SECTION BOARDS OF TRUSTEES Ray Crawford, Jr. Executive Director State Properties Commission Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan Russell W. Hinton, ex-officio Vice-Chairman State Auditor Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan State Employees' Assurance Department Michael D. Kennedy Chairman Korn/Ferry International Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan State Employees' Assurance Department Michael Thurmond, ex-officio Commissioner of Labor State Employees' Assurance Department Barbara Ward Financial Manager City of Atlanta, Department of Finance Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan Bonny T. Wright Attorney-at-Law Schulten Ward & Turner State Employees' Assurance Department Dan Ebersole, ex-officio Director Office of Treasury & Fiscal Services Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan State Employees' Assurance Department Robert E. Keller District Attorney Clayton Judicial Circuit Georgia Judicial Retirement System William F. Roberts Retired Director, Georgia State Finance & Investment Commision Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan Kelly D. Turner State Court Judge Lowndes County Georgia Judicial Retirement System Cynthia D. Wright Superior Court Judge Superior Court of Fulton County Georgia Judicial Retirement System Marjorie Young, ex-officio Commissioner State Merit System Employees' Retirement System Public School Employees Retirement System Georgia Judicial Retirement System Legislative Retirement System Georgia Military Pension Fund State Social Security Trust Fund Georgia Defined Contribution Plan State Employees' Assurance Department 2 2003 Employees' Retirement System of Georgia INTRODUCTORY SECTION LETTER OF TRANSMITTAL 2003 Employees' Retirement System of Georgia 3 INTRODUCTORY SECTION LEGISLATION 4 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Employees' Retirement System 2003 Employees' Retirement System of Georgia 5 ACTUARIAL SECTION VALUATION BALANCE SHEET Employees' Retirement System - as of June 30, 2002 - DOLLAR AMOUNTS IN THOUSANDS ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and members entitled to deferred vested benefits: Service and disability benefits Death and survivor benefits Deferred vested benefits Total (2) Present value of prospective benefits payable on account of present active members: Retirement and survivor allowances Refunds of members= contributions Total (3) TOTAL ACTUARIAL LIABILITIES $ 5,260,707 428,033 101,640 $ 5,790,380 $ 9,032,941 59,095 9,092,036 $ 14,882,416 PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3) - (4) (6) Present value of future member contributions and employer paid member contributions (7) Present value of future employer contributions = (5) - (6) (8) Employer normal contribution rate (9) Present value of future payroll (1%) (10) Prospective normal contributions = (8) x (9) (11) Prospective unfunded accrued liability contributions = (7) - (10) (12) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 12,124,414 $ 2,758,002 $ 1,363,159 6.21% $ 240,374 1,394,843 1,492,723 (129,564) $ 14,882,416 6 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Employees' Retirement System - as of June 30, 2002 - DOLLAR AMOUNTS IN THOUSANDS Valuation Date Active members: Number Annual Compensation Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization Period June 30, 2002 June 30, 2001 71,790 75,132 $ 2,408,306 $ 2,397,169 27,229 25,889 $ 598,493 $ 538,890 $ 11,558,373 $ 12,343,625 12,124,414 11,750,624 $ (129,564) $ (193,369) 13 years 20 years For Fiscal Year Ending Annual required employer contribution rates (ARC): June 30, 2004 June 30, 2003 Old Plan Normal Accrued Liability Total New Plan Normal (includes 4.75% paid for member) Accrued liability Total 6.21% (0.55) 5.66% 10.96% (0.55) 10.41% 6.24% (0.58) 5.66% 10.99% (0.58) 10.41% The valuation reflects 1.5% Ad Hoc COLAs effective July 1, 2002 and January 1, 2003 and the effect of amendments to the System enacted through the 2002 session of the General Assembly. 2003 Employees' Retirement System of Georgia 7 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Public School Employees' Retirement System 8 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Public School Employees' Retirement System - as of June 30, 2002 - ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and terminated members entitled to deferred benefits $ 382,513,139 (2) Present value of prospective benefits payable on account of present active members: Service retirement allowances Disability retirement allowances Refunds of members' contributions Total (3) TOTAL ACTUARIAL LIABILITIES $ 284,193,081 15,300,005 4,993,260 $ 304,486,346 $ 686,999,485 PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets $ 727,529,000 (5) Present value of total future contributions = (3) - (4) $ (40,529,515) (6) Present value of future member contributions to the Members' Contributions Funds 6,210,936 (7) Present value of future employer contributions to the Pension Accumulation Fund = (5) - (6) $ (46,740,451) (8) Employer normal contribution rate $ 292.67 (9) Present value of future membership service 172,526 (10) Prospective normal contributions = (8) x (9) 50,493,184 (11) Prospective unfunded accrued liability contributions = (7) - (10) (97,233,635) (12) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 686,999,485 2003 Employees' Retirement System of Georgia 9 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Public School Employees' Retirement System - as of June 30, 2002- Valuation Date Active members: Number Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period Fiscal Year Ending Employer contribution rate per active member: Normal Accrued Liability Total Annual required employer contributions (ARC): Normal Accrued Liability Total June 30, 2002 June 30, 2001 34,207 38,997 11,784 11,661 $ 35,113,773* $ 34,151,616* $ 697,461,000 $ 748,571,000 727,529,000 708,391,000 $ (97,233,635) $ (95,044,124) 20 years 40 years June 30, 2004 June 30, 2003 $ 292.67 $ 288.48 (268.31) (182.81) $ 24.36 $ 105.67 $ 10,011,363 $ 11,249,855 (9,178,167) (7,129,178) $ 833,196 $ 4,120,677 The valuation takes into account the effect of amendments to the System enacted through the 2002 session of the General Assembly. There have been no changes since the previous valuation. *Does not include increases in benefit accrual rate effective July 1, 2002. The results of the valuation have been adjusted to include this increase. 10 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Legislative Retirement System 2003 Employees' Retirement System of Georgia 11 ACTUARIAL SECTION VALUATION BALANCE SHEET Legislative Retirement System - as of June 30, 2002 - ACTUARIAL LIABILITIES Present value of prospective benefits payable on account of: (1) Present retired members and beneficiaries of deceased members and members entitled to deferred vested benefits (2) Present active members: Service retirement allowances Disability retirement allowances Survivor allowances Refunds of members' contributions Total (3) TOTAL ACTUARIAL LIABILITIES $ 15,325,699 $ 8,101,594 550,480 309,777 343,495 $ 9,305,346 $ 24,631,045 PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3) - (4) $ (6) Present value of future member contributions (7) Present value of future employer contributions = (5) - (6) $ (8) Prospective normal contributions (9) Prospective unfunded actuarial accrued liability contributions = (7) - (8) (10) TOTAL PRESENT AND PROSPECTIVE ASSETS $ (2,005,955) (3,475,719) 26,637,000 1,469,764 1,382,408 (4,858,127) $ 24,631,045 12 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Legislative Retirement System - as of June 30, 2002 - Valuation Date Number of active members Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability (surplus) Amortization period June 30, 2002 209 June 30, 2001 212 192 192 $ 1,240,266 $ 1,108,552 $ 25,467,000 $ 27,777,000 26,637,000 26,034,000 $ (4,858,127) $ (4,423,819) N/A* N/A* For Fiscal Year Ending Employer contribution rate per active member Normal Accrued Liability Total Annual required employer contributions (ARC): Normal Accrued liability Total June 30, 2004 June 30, 2003 $ 502.06 $ 429.86 $ (502.06) (429.86) 0.00 $ 0.00 $ 104,930 $ 91,130 (104,930) (91,130) $ 0.00 $ 0.00 *If the annual required employer contribution (ARC) is based on 40 year amortization of the unfunded accrued liability, the ARC is less than $0, which is not allowed under GASB 25/27. Therefore, the accrued liability contribution has been set such that the total ARC equals $0. The valuation takes into account the effect of amendments to the System enacted through the 2002 session of the General Assembly. 2003 Employees' Retirement System of Georgia 13 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Judicial Retirement System 14 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Georgia Judicial Retirement System - as of June 30, 2002- ACTUARIAL LIABILITIES Present value of prospective benefits payable on account of: (1) Present retired members and beneficiaries of deceased members and members entitled to deferred vested benefits (2) Present active members (3) TOTAL ACTUARIAL LIABILITIES $ 55,534,426 215,575,549 $ 271,109,885 PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3) - (4) $ (6) Present value of future member contributions (7) Present value of future employer contributions = (5) - (6) $ (8) Employer normal contribution rate (9) Present value of future payroll (1%) $ (10) Prospective normal contributions = (8) x (9) (11) Prospective unfunded actuarial accrued liability contributions = (7) - (10) (12) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 228,417,000 42,692,885 $ 15,806,228 20.33% 3,397,380 26,886,657 69,068,735 (53,262,507) $ 271,109,885 2003 Employees' Retirement System of Georgia 15 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Georgia Judicial Retirement System - as of June 30, 2002 - Valuation Date Active members: Number Annual compensation Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period July 1, 2002 July 1, 2001 428 435 $ 38,630,312 $ 37,687,700 134 130 $ 6,166,415 $ 5,615,022 $ 213,611,000 $ 225,173,000 228,417,000 219,288,000 $ (53,262,507) $ (63,204,705) 10 years 10 years For Fiscal Year Ending Annual required employer contribution rates (ARC): Normal Accrued Liability Total June 30, 2004 20.33% (16.48) 3.85% June 30, 2003 20.33% (20.33) 0.00% The valuation takes into account the effect of amendments to the System enacted through the 2002 session of the General Assembly. The valuation reflects the 1.5% Ad Hoc COLA's effective July 1, 2002 and January 1, 2003. 16 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Group Term Life Insurance Plan 2003 Employees' Retirement System of Georgia 17 ACTUARIAL SECTION VALUATION BALANCE SHEET Group Term Life Insurance Plan - as of June 30, 2002 - ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members (2) Present value of prospective benefits payable on account of present active members (3) TOTAL ACTUARIAL LIABILITIES $ 266,936,331 $ 422,881,391 $ 689,817,722 PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of future member premiums (6) Present value of future employer contributions (7) Total present assets and present value of future employee premiums and employer contributions (8) Actuarial (surplus) deficit (9) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 793,005,000 73,961,036 6,438,605 $ 873,404,641 (183,586,919) $ 689,817,722 18 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Group Term Life Insurance Plan Valuation Date Active members: Number Annual compensation Retired members: Number Insurance amount Assets: Market Value Actuarial Value Actuarial (surplus) deficit FISCAL YEAR ENDING Contribution rates: Old Plan Members Employee Employer Total New Plan Members Employee Employer Total - as of June 30, 2002 - June 30, 2002 June 30, 2001 71,999 75,132 $ 2,411,719,724 $ 2,397,168,519 21,832 20,621 $ 734,037,944 $ 652,905,949 $ 754,054,000 $ 790,700,000 793,005,000 753,964,000 $ (183,586,919) $ (242,500,215) June 30,2004 June 30, 2003 0.50%* 0.00 0.50% 0.50%* 0.25 0.75% 0.25% 0.00 0.25% 0.25% 0.25 0.50% * 0.25% paid by employer 2003 Employees' Retirement System of Georgia 19 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Military Pension Fund 20 2003 Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Georgia Military Pension Fund - as of June 30, 2002 - ACTUARIAL LIABILITIES Present value of prospective benefits payable on account of: (1) Present retired members (2) Former members entitled to deferred vested benefits (3) Present active members (4) TOTAL ACTUARIAL LIABILITIES $ 0 154,130 8,377,763 $ 8,531,893 PRESENT AND PROSPECTIVE ASSETS (5) Actuarial value of assets (6) Present value of future employer contributions = (4) - (5) (7) Employer normal contribution rate (8) Present value of future membership service (9) Present value of future normal contributions = (7) X (8) (10) Present value of unfunded accrued liability contributions = (6) - (9) (11) TOTAL PRESENT AND PROSPECTIVE ASSETS $ $ 8,531,893 $ 4.40 47,711 0 209,928 8,321,965 $ 8,531,893 2003 Employees' Retirement System of Georgia 21 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Georgia Military Pension Fund - as of June 30, 2002 - Valuation Date Number of active members included in valuation Retired members: Number Annual allowances June 30, 2002 9,695 0 $ 0 Former members entitled to deferred vested pensions: Number $ Annual deferred pensions Assets: Market Value $ Actuarial Value Unfunded actuarial accrued liability $ Amortization period 33 28,980 0 0 8,321,965 40 years For Fiscal Year Ending Employer contribution rate per active member Normal Accrued Liability Total Annual required employer contributions (ARC): Normal Accrued liability Total June 30, 2004 $ 4.40 64.39 $ 68.79 $ 42,658 624,261 $ 666,919 22 2003 Employees' Retirement System of Georgia INVESTMENT SECTION POOLED INVESTMENT FUND as of June 30, 2003 $ 11,679,683,000 779,032,000 695,093,000 25,613,000 869,000 36,514,000 220,496,000 541,000 Employees' Retirement System State Employees' Assurance Department Public School Employees Retirement System Legislative Retirement System Superior Court Judges Retirement Fund* Georgia Defined Contribution Plan Georgia Judicial Retirement System Georgia Military Pension Fund $ 13,437,841,000 Total Pooled Investments at Fair Value *The Superior Court Judges Retirement Fund was closed on December 31, 1976. As of June 30, 2003 there were two active members remaining in the Fund with retirement payments funded through Department of Administrative Services appropriations. STRUCTURAL ANALYSIS OF INVESTMENTS AT FAIR VALUE TYPE OF INVESTMENT SHORT TERM INVESTMENTS BONDS COMMON STOCKS MORTGAGES AND REAL ESTATE June 30, 2003 1.5% 47.0% 51.5% N il 100.0% 2003 Employees' Retirement System of Georgia 23 INVESTMENT SECTION SHORT-TERM INVESTMENTS - as of June 30, 2003 - Face Amount $ 195,254,000* Issuer United States Government and Corporate Obligations (subject to repurchase agreements due 7/01/03) Fair Value $ 195,254,000* * Consists of Employees' Retirement System $188,292,000 and Georgia Defined Contribution Plan $6,962,000. U.S. GOVERNMENT, CORPORATE AND OTHER BONDS - as of June 30, 2003 - Par Value $ 2,068,282 205,000,000 725,000,000 495,000,000 230,000,000 80,000,000 215,000,000 545,000,000 437,000,000 250,000,000 125,000,000 550,000,000 405,000,000 120,000,000 765,000,000 140,000,000 763,000,000 Issuer General Electric Interest Rate % 8.350 US Treasury Note 1.750 US Treasury Note 1.625 US Treas. Note 1.250 US Treas. Note 1.125 FNMA-CALLABLE 2.330 FNMA-CALLABLE 2.590 US Treas. Note 2.000 US Treas. Note 3.500 FNMA-CALLABLE 2.200 GENERAL ELECTRIC CAP CORP 5.375 US Treas. Note 3.250 US Treas. Note 2.625 FNMA 6.375 US Treas. Note 3.625 US Treas. Bond 6.250 US Treas. Bond 5.375 Year of Maturity 2004 2004 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2008 2009 2013 2030 2031 Fair Value $ 2,142,202 206,793,750 729,988,000 494,693,100 229,137,500 80,224,800 217,687,500 550,793,350 460,624,220 251,172,500 137,563,750 574,062,500 408,669,300 142,125,600 770,974,650 174,300,000 859,092,220 $ 6,052,068,282 5,000,000 $ 6,057,068,282 ERS Fixed Income Securities Defined Contribution Fixed Income Securities Total ERS and Defined Contribution Fixed Income Securities $ 6,290,044,942 5,085,640 $ 6,295,130,582 24 2003 Employees' Retirement System of Georgia INVESTMENT SECTION SHARES 5,340,045 2,614,120 5,200,000 3,019,806 3,462,028 1,324,560 2,457,800 2,122,000 2,022,133 2,195,800 3,576,300 2,257,460 720,600 1,124,523 1,301,480 1,685,800 950,500 3,342,800 981,500 1,346,170 EQUITY HOLDINGS - as of June 30, 2003 - COMPANY PFIZER INC JOHNSON & JOHNSON MICROSOFT CITIGROUP INC EXXON MOBIL CORP PROCTOR & GAMBLE CO COCA COLA CO WAL-MART STORES INC AMERICAN INTERNATIONAL GROUP MEDTRONIC GENERAL ELECTRIC CO PEPSICO INC 3M COMPANY BANK OF AMERICA CORP AMGEN INC SCHLUMBERGER LTD INTL BUS MACHINES INTEL CORP UNITED TECHNOLOGIES WELLS FARGO CO TOTAL - 20 LARGEST HOLDINGS TOTAL - ALL HOLDINGS A complete listing is available upon written request. 2003 Employees' Retirement System of Georgia FAIR VALUE $ 182,362,537 135,150,004 133,328,000 129,247,697 124,321,425 118,124,261 114,066,498 113,887,740 111,581,299 105,332,526 102,568,284 100,456,970 92,942,988 88,871,053 85,819,591 80,193,506 78,416,250 69,563,668 69,519,645 67,846,968 $ 2,103,600,910 $ 6,912,594,038 25 INVESTMENT SECTION Borrower and Mortgaged Property WEST & ABBITT BENT CREEK COL APTS MORTGAGE - as of June 30, 2003 - Interest Rate % 9.5 Year Last Pmt. Due 2004 Balance Outstanding on Loan $ 555,062 Description of Property BETA BUILDING TWO NORTHSIDE 75 ATL (Constitutes one-half interest in property) REAL ESTATE INVESTMENT - as of June 30, 2003 - Fair Value $ 3,744,225 Comments Presently houses the offices of Employees' and Teachers Retirement Systems. The Employees' Retirement System on 7/1/76 acquired a 50% interest in the building. 26 2003 Employees' Retirement System of Georgia FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT Board of Trustees Employees' Retirement System of Georgia: We have audited the accompanying combined statements of net assets of the Employees' Retirement System of Georgia, including all plans and funds administered by the Employees' Retirement System of Georgia (collectively, the "System"), a component unit of the state of Georgia, as of June 30, 2003 and 2002, and the related combined statements of changes in net assets for the years then ended. These combined financial statements are the responsibility of the System's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial status of the System as of June 30, 2003 and 2002, and the changes in financial status for the years then ended in conformity with accounting principles generally accepted in the United States of America. Management's Discussion and Analysis and the required supplementary schedules listed in the Table of Contents are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. This information is the responsibility of the System's management. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of supplementary information. However, we did not audit such information, and we do not express an opinion on it. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information listed in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the System's management. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. The Introductory, Investment and Actuarial Sections listed in the Table of Contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. This additional information is the rDeescpeomnsbiebril2it2y, 2o0f0t3he System's management. Such information has not been subjected to the auditing procedures applied in our audits of the basic financial statements and, accordingly, we express no opinion on them. December 22, 2003 2003 Employees' Retirement System of Georgia 27 FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS This section provides a discussion and analysis of the financial performance of the Employees' Retirement System of Georgia (the "System") for the year ended June 30, 2003. The discussion and analysis of the System's financial performance is within the context of the accompanying financial statements, notes to the financial statements, required supplementary schedules, and additional information following this section. The System is responsible for administering a cost-sharing, multiple-employer defined benefit pension plan for various employer agencies of Georgia, along with six other defined benefit pension plans, a defined contribution plan, and a life insurance plan. The defined benefit pension plans include: Employees' Retirement System ("ERS") Legislative Retirement System ("LRS") Public School Employees' Retirement System ("PSERS") Georgia Judicial Retirement System ("GJRS") Georgia Military Pension Fund ("GMPF") Superior Court Judges Retirement Fund ("SCJRF") District Attorneys Retirement Fund ("DARF") The defined contribution retirement plan is the Georgia Defined Contribution Plan ("GDCP") and the life insurance plan is the State Employees' Assurance Department ("SEAD"). Financial Highlights The following highlights are discussed in more detail later in this analysis: The net assets of the System increased by $179 million, or 1.3%, from $13.3 billion at June 30, 2002 to $13.5 billion at June 30, 2003. The improvement was primarily due to the increase in the fair value of investments. For the year ended June 30, 2003, the total additions to net assets were $907 million and the total deductions were $728 million. The deductions consisted of benefit payments of $684 million, refunds of $15 million, death benefits of $19 million and administrative expenses of $10 million. The additions consisted of employer and member contributions totaling $327 million, insurance premiums of $15 million, net investment income of $564 million and other income of $1 million. Net investment income of $564 million (comprised of interest and dividend income and the change in fair value of investments, reduced by investment expenses) was an improvement over the net investment loss of $562 million for the year ended June 30, 2002. The increase was primarily due to the improved market conditions in 2003 compared to 2002. Benefit payments paid to retirees and beneficiaries increased by $65 million, or 10.6% from $619 million in 2002 to $684 million in 2003. This increase was the result of increases in the number of retirees and beneficiaries receiving benefits across all plans and postretirement cost-of-living increases in benefits. 28 2003 Employees' Retirement System of Georgia FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS Overview of the Financial Statements The basic financial statements include: (1) the combined statements of net assets, (2) the combined statements of changes in net assets, and (3) notes to the financial statements. The System also includes in this report additional information to supplement the basic financial statements. The System prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. These statements provide information about the System's overall financial status. In addition, the System presents two required supplementary schedules, which provide historical trend information about the plans' funding. The two schedules include: (1) a schedule of funding progress and (2) a schedule of employer contributions. Description of the Financial Statements The Combined Statement of Net Assets is the statement of financial position presenting information that includes all of the System's assets and liabilities with the balance representing the Net Assets Held in Trust for Pension Benefits. The investments of the System in this statement are presented at fair value. These statements are presented on page 33. The Combined Statement of Changes in Net Assets reports how the System's net assets changed during the fiscal year. The additions and deductions to net assets are summarized in this statement. The additions include contributions to the retirement plans from employers and members, group life insurance premiums, and investment income (loss), which includes interest and dividends and the net increase (decrease) in the fair value of investments. The deductions include benefit payments, life insurance death benefit payments, refunds of member contributions and interest, and administrative expenses. These statements are presented on page 34. Notes to the financial statements are presented to provide the information necessary for a full understanding of the financial statements. The notes to the financial statements begin on page 35. There are two Required Supplementary Schedules included in this report. These required schedules are applicable to the five defined benefit plans: ERS, PSERS, LRS, GJRS and GMPF. The Schedule of Funding Progress presents historical trend information about the actuarially-determined funded status of the plans from a long-term, on-going plan perspective, and the progress made in accumulating sufficient assets to fund benefit payments as they become due. The Schedule of Employer Contributions presents historical trend information about the annual required contributions of employers and percentage of such contributions in relation to actuarially determined requirements for the years presented. The required supplementary schedules begin on page 46. Notes to Required Supplementary Schedules are presented to provide the information necessary for a full understanding of the supplementary schedules. The notes to required supplementary schedules begin on page 48. Additional information is presented, beginning on page 51. There are three statements included in this section of the report. They are: (1) Combining Statements of Net Assets, (2) Combining Statements of Changes in Net Assets, and (3) Administrative Expense Fund Statement. The combining statements present the financial position and change in financial position for each of the plans and funds administered by the System, including the Pooled Investment Fund that holds and invests funds from each of the participating plans and 2003 Employees' Retirement System of Georgia 29 FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS funds. The Administrative Expense Fund Statement presents the expenses incurred in the administration of these plans and funds, and the contributions from each plan and fund to provide for these expenses. Financial Analysis of the System A summary of the System's net assets is as follows: Assets: Cash and receivables Investments Capital assets, net Net Assets (in thousands) June 30, 2003 2002 $ 104,721 13,407,279 42 $ 108,753 13,195,741 33 Total assets $ 13,512,042 $ 13,304,527 Liabilities: Due to brokers and accounts payable $ 39,339 $ 10,684 Net assets $ 13,472,703 $ 13,293,843 Amount Change $ (4,032) 211,538 9 $ 207,515 Percentage Change (3.7)% 1.6 % 27.3 % 1.6 % $ 28,655 $ 178,860 268.2 % 1.3 % The following table presents the investment allocation at June 30, 2003 and 2002: 2003 2002 Asset Allocation at June 30 (in percentages) Equities Fixed income Short-term securities* Asset Allocation at June 30 (in thousands) Equities Fixed income Short-term securities* *Includes mortgages and real estate 51.5 % 47.0 % 1.5 % 54.1 % 44.1 % 1.8 % $ 6,912,595 6,295,131 199,553 $ 13,407,279 $ 7,140,706 5,815,140 239,895 $ 13,195,741 The total investment portfolio increased $212 million from the prior year, which is due primarily to an increase in the fair value of fixed income investments. 30 2003 Employees' Retirement System of Georgia FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS The investment rate of return in fiscal year ended June 30, 2003 was 4.5%, with a (2.3%) return on equities and a 12.8% return on fixed income investments. The five-year annualized rate of return on investments at June 30, 2003 was 2.3%, with a (2.1%) return on equities, and an 8.1% return on fixed income investments. A summary of the changes in the System's net assets for the years ended June 30 is as follows: Additions: Employer contributions Member's contributions Insurance premiums Net investment income (loss) Other Total additions Changes in Net Assets (in thousands) 2003 2002 Amount Change Percentage Change $ 252,852 74,550 14,847 563,690 909 906,848 $ 247,101 75,704 14,364 (562,199) 940 (224,090) $ 5,751 (1,154) 483 1,125,889 (31) 1,130,938 2.3 % (1.5)% 3.4 % 200.3 % (0.3)% 504.7 % Deductions: Benefit payments Refunds Death benefits Administrative expenses Total deductions Net increase (decrease) in net assets 684,118 14,993 18,924 9,953 727,988 $ 178,860 618,682 13,704 18,227 9,446 660,059 $ (884,149) 65,436 1,289 697 507 67,929 $ 1,063,009 10.6 % 9.4 % 3.8 % 5.4 % 10.3 % 120.2 % Additions--The System accumulates resources needed to fund benefit payments through contributions and returns on invested funds. Total contributions increased 1.4%, reflecting a contribution percentage that remained unchanged with a modest increase in overall salary growth. The net investment income increased by over $1 billion. This increase is principally due to the improved market conditions in 2003 as compared to 2002. Deductions--Deductions increased 10.3%, primarily because of a 10.6% increase in benefit payments. This is due to an increase of approximately 3.7% in the number of retirees receiving benefit payments across all defined benefit plans and to postretirement cost-of-living increases in benefits. Refunds of member contributions increased by 9.4%, which was primarily due to a 19% increase in refunds paid from the Georgia Defined Contribution Plan. Administrative expenses increased by approximately $.5 million, an increase of 5.4% over the prior year due primarily to an increase in management staffing. 2003 Employees' Retirement System of Georgia 31 FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS Funding Status The schedules of funding progress and employer contributions provide information regarding how the plans are performing and funded from an actuarial perspective. The information is based upon actuarial valuations conducted by certified actuaries. The funding ratio, which is presented on the schedule of funding progress, indicates the ratio of the actuarial value of assets and the actuarial accrued liabilities. The higher this ratio, the better position the System is in with regards to its funding requirements. The June 30, 2002 and June 30, 2001 actuarial valuations, the latest valuations available, indicate the actuarial value of assets and funding ratios for the five defined benefit retirement plans were as follows: ERS PSERS LRS GJRS GMPF Actuarial Value of Plan Assets (in thousands) June 30, June 30, 2002 2001 $12,124,414 727,529 26,637 228,417 - $11,750,624 708,391 26,034 219,288 N/A Funding Ratio June 30, June 30, 2002 2001 101.1% 115.4% 122.3% 130.4% 0.0% 101.7% 115.5% 120.5% 140.5% N /A The System continues to be in a strong financial position as evidenced by the funding ratios, and it remains financially sound. A funding ratio over 100% indicates the plans, from an actuarial perspective, have more assets available than will be necessary to satisfy the obligations of the plans. 32 2003 Employees' Retirement System of Georgia FINANCIAL SECTION COMBINED STATEMENTS OF NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) COMBINED STATEMENTS OF NET ASSETS JUNE 30, 2003 AND 2002 (In Thousands) ASSETS CASH RECEIVABLES: Employer and member contributions Interest and dividends Due from brokers for securities sold Total receivables INVESTMENTS--At fair value: Short-term Obligations of the U.S. Government and its agencies, corporate, and other bonds Common stocks Mortgage loans and real estate Total investments CAPITAL ASSETS--Net Total assets LIABILITIES Accounts payable and other Due to brokers for securities purchased Total liabilities NET ASSETS HELD IN TRUST FOR PENSION BENEFITS (A schedule of funding progress is presented on page 46.) See notes to combined financial statements. 2003 $ 4,707 26,467 45,397 28,150 100,014 195,254 6,295,131 6,912,595 4,299 13,407,279 42 13,512,042 12,187 27,152 39,339 $ 13,472,703 2002 $ 5,044 28,600 75,109 - 103,709 235,569 5,815,140 7,140,706 4,326 13,195,741 33 13,304,527 10,684 - 10,684 $ 13,293,843 2003 Employees' Retirement System of Georgia 33 FINANCIAL SECTION COMBINED STATEMENTS OF CHANGES IN NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) COMBINED STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2003 AND 2002 (In Thousands) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS--Beginning of year ADDITIONS: Contributions: Employer Member Insurance premiums Administrative expense allotment Investment income (loss): Net increase (decrease) in fair value of investments Interest and dividends Total investment income (loss) Less investment expenses Net investment income (loss) Total additions DEDUCTIONS: Benefit payments Refunds of member contributions and interest Death benefits Administrative expenses Total deductions NET INCREASE (DECREASE) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS--End of year See notes to combined financial statements. 2003 $ 13,293,843 252,852 74,550 14,847 909 236,390 339,805 576,195 12,505 563,690 906,848 684,118 14,993 18,924 9,953 727,988 178,860 $ 13,472,703 2002 $ 14,177,992 247,101 75,704 14,364 940 (991,765) 441,176 (550,589) 11,610 (562,199) (224,090) 618,682 13,704 18,227 9,446 660,059 (884,149) $ 13,293,843 34 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) NOTES TO COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2003 AND 2002 1. GENERAL The accompanying combined financial statements of Employees' Retirement System of Georgia, including all plans and funds administered by the Employees' Retirement System of Georgia (collectively, the "System"), is comprised of the Employees' Retirement System of Georgia ("ERS"), Public School Employees' Retirement Systems ("PSERS"), Legislative Retirement System ("LRS"), Georgia Judicial Retirement System ("GJRS"), Georgia Military Pension Fund ("GMPF"), Superior Court Judges Retirement Fund ("SCJRF"), District Attorneys Retirement Fund ("DARF"), Georgia Defined Contribution Plan ("GDCP"), and State Employees' Assurance Department ("SEAD"). All significant accounts and transactions among the various systems, departments, and funds have been eliminated. In evaluating how to define the System for financial reporting purposes, the management of the System has considered all potential component units. The decision to include a potential component unit in the reporting entity is made by applying the criteria set forth by Governmental Accounting Standards Board ("GASB") Statement of Governmental Accounting Standards ("SGAS") No. 14. The concept underlying the definition of the reporting entity is that elected officials are accountable. Based on these criteria, the System has not included any other entities in its reporting entity. The System is a component unit of the state of Georgia. Although the System is a component unit of the state of Georgia's financial reporting entity, it is accountable for its own fiscal matters and presentation of its separate, combined financial statements. The Boards of Trustees, comprised of active and retired members and ex-officio state employees, are ultimately responsible for the administration of the System. 2. AUTHORIZING LEGISLATION AND PLAN DESCRIPTIONS Each plan and fund, including benefit and contribution provisions, was established by state law. The following summarizes authorizing legislation and the plan description of each retirement fund: a. ERS is a single-employer, public employee, defined benefit pension plan established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the state of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. 2003 Employees' Retirement System of Georgia 35 FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS Membership--As of June 30, 2003, participation in ERS is as follows: Retirees and beneficiaries currently receiving benefits Terminated employees entitled to benefits but not yet receiving benefits Active plan members Total 28,562 56,525 74,947 160,034 Employers 516 Benefits--The benefit structure of ERS was significantly modified on July 1, 1982. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon state employment that started prior to July 1, 1982 is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old and new plans, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 65. Additionally, there are some provisions allowing for retirement after 25 years of creditable service regardless of age. Retirement benefits paid to members are based upon the monthly average of the member's highest 24 consecutive calendar months multiplied by the number of years of creditable service multiplied by the applicable benefit factor. Postretirement cost-of-living adjustments are also made to members' benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Contributions and Vesting--Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan are 1.25% of annual compensation. The state is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. Employer contributions required for fiscal year 2003 and 2002 were based on the June 30, 2001 and 2000 actuarial valuations, respectively, as follows: Employer: Normal Employer paid for member Accrued liability Total Old Plan New Plan 6.24 % (0.58)% 5.66 % 6.24 % 4.75 % (0.58)% 10.41 % 36 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS Members become vested after ten years of membership service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the actuarial accrued funding excess within 13 years based upon the actuarial valuation at June 30, 2002, on the assumption that the total payroll of active members will increase by 3.5% each year. On November 20, 1997, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan of ERS ("SRBP"). SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code ("IRC 415") as a portion of ERS. The purpose of the SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in this plan whenever their benefits under ERS exceed the limitation on benefits imposed by IRC 415. There were 162 and 132 members eligible to participate in this portion of ERS as of June 30, 2003 and 2002, respectively. Employer contributions of $1,308,000 and $2,802,000 and benefit payments of $1,907,000 and $2,509,000 under the SRBP are included in the combined statements of changes in net assets for the years ended June 30, 2003 and 2002, respectively. Cash of $42,000 and $542,000 under the SRBP is included in the combined statements of net assets for the years ended June 30, 2003 and 2002, respectively. Employer receivables of $96,000 under the SRBP are included in the combined statement of net assets for the year ended June 30, 2002. b. PSERS is a defined benefit pension plan established by the Georgia General Assembly in 1969 for the purpose of providing retirement allowances for public school employees who are not eligible for membership in the Teachers Retirement System of Georgia. PSERS is administered by the ERS Board of Trustees plus two additional trustees. Membership--As of June 30, 2003, participation in PSERS is as follows: Retirees and beneficiaries currently receiving benefits Terminated emplolyees entitled to benefits but not yet receiving benefits Active plan members Total 12,078 40,988 51,175 104,241 Employers 182 Benefits--A member may retire and elect to receive normal monthly retirement benefits after completion of ten years of creditable service and attainment of age 65. A member may choose to receive reduced benefits after age 60 and upon completion of ten years of service. Upon retirement, the member will receive a monthly benefit of $12.50 multiplied by the number of years of creditable service. Death, disability, and spousal benefits are also available through PSERS. Additionally, PSERS makes periodic cost-of-living adjustments to the monthly benefits. 2003 Employees' Retirement System of Georgia 37 FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS Contributions and Vesting--Members contribute $4 per month for nine months each fiscal year. The state of Georgia, although not the employer of PSERS members, is required by statute to make employer contributions actuarially determined and approved and certified by the PSERS Board of Trustees. Employer contributions required for the years ended June 30, 2003 and 2002 were $105.67 and $320.97 per active member, respectively, and were based on the June 30, 2002 and 2001 actuarial valuations, respectively. Members become vested after ten years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contribution, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the actuarial accrued funding excess within 20 years based upon the actuarial valuation at June 30, 2002. c. LRS is a defined benefit plan established by the Georgia General Assembly in 1979 for the purpose of providing retirement allowances for all members of the Georgia General Assembly. LRS is administered by the ERS Board of Trustees. Membership--As of June 30, 2003, participation in LRS is as follows: Retirees and beneficiaries currently receiving benefits 206 Terminated employees entitled to benefits but not yet receiving benefits 155 Active plan members 216 Total 577 Employers 1 Benefits--A member's normal retirement is after eight years of creditable service and attainment of age 65, or eight years of membership service (four legislative terms) and attainment of age 62. A member may retire early and elect to receive a monthly retirement benefit after completion of eight years of membership service and attainment of age 60; however, the retirement benefit is reduced by 5% for each year the member is under age 62. Upon retirement, the member will receive a monthly service retirement allowance of $32 multiplied by the number of years of creditable service reduced by age reduction factors, if applicable. Death, disability, and spousal benefits are also available through the plan. Contributions and Vesting--Member contributions are 8.5% of annual salary. The state pays member contributions in excess of 4.75% of annual compensation. Employer contributions are actuarially determined and approved and certified by the ERS Board of Trustees. There were no employer contributions required for the years ended June 30, 2003 and 2002 based on the June 30, 2001 and 2000 actuarial valuations, respectively. Members become vested after eight years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. 38 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. d. The GJRS is a system created to serve the members and beneficiaries of the Trial Judges and Solicitors Retirement Fund, the Superior Court Judges Retirement System, and the District Attorneys Retirement System (collectively, the "Predecessor Retirement Systems"). As of June 30, 1998, any person who was an active, inactive, or retired member or beneficiary of the Predecessor Retirement Systems was transferred to GJRS in the same status effective July 1, 1998. All assets of the Predecessor Retirement Systems were transferred to GJRS as of July 1, 1998. GJRS is administered by the ERS Board of Trustees and three additional trustees. GJRS is a defined benefit pension plan established by the Georgia General Assembly for the purpose of providing retirement allowances for trial judges and solicitors of certain courts in Georgia, and their survivors and other beneficiaries, superior court judges of the state of Georgia, and district attorneys of the state of Georgia. Membership--As of June 30, 2003, participation in GJRS is as follows: Retirees and beneficiaries currently receiving benefits 148 Terminated employees entitled to benefits but not yet receiving benefits 38 Active plan members 473 Total 659 Employers 5 Benefits--The normal retirement for GJRS is age 60 with 16 years of creditable service; however, a member may retire at age 60 with a minimum of 10 years of creditable service. Retirement benefits paid to members are computed as 66-2/3% of annual salary plus 1% for each year of credited service over 16 years, not to exceed 24 years. Early retirement benefits paid to members are computed as the pro rata portion of the normal retirement benefit, based on service not to exceed 16 years. Death, disability, and spousal benefits are also available. Contributions and Vesting--Members are required to contribute 7.5% of their annual salary plus an additional 2.5% of their annual salary if spousal benefit is elected. Employer contributions are actuarially determined and approved and certified by the GJRS Board of Trustees. There were no employer contributions required for the year ended June 30, 2003 based on the June 30, 2001 actuarial valuation. Members become vested after ten years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the actuarial accrued funding excess within ten years based upon the actuarial valuation at July 1, 2002 assuming that the amount of accrued liability payment increases 3.5% each year. 2003 Employees' Retirement System of Georgia 39 FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS e. The GMPF is a defined benefit pension fund established on July 1, 2002 by the Georgia General Assembly for the purpose of providing retirement allowances and other benefits for members of the Georgia National Guard ("National Guard"). The GMPF is administered by the ERS Board of Trustees. Membership--As of June 30, 2003, GMPF had 17 retirees and beneficiaries currently receiving benefits. Active and inactive plan member information is maintained by one employer, the Georgia Department of Defense. Benefits--A member becomes eligible for benefits upon attainment of age 60 with 20 or more years of creditable service (including at least 15 years of service as a member of the National Guard), having served at least 10 consecutive years as a member of the National Guard immediately prior to discharge, and having received an honorable discharge from the National Guard. The retirement allowance is payable for life in the amount of $50 per month plus $5 per month for each year of creditable service in excess of 20 years. The maximum benefit is $100 per month. Contributions and Vesting--Employer contributions are actuarially determined and approved and certified by the ERS Board of Trustees. There are no member contributions required. f. SCJRF is a defined benefit pension plan established by the Georgia General Assembly in 1945 for the purpose of providing retirement benefits to the superior court judges of the state of Georgia. SCJRF is directed by its own Board of Trustees. The Boards of Trustees for ERS and SCJRF entered into a contract for ERS to administer the plan effective July 1, 1995. Membership--As of June 30, 2003, participation in SCJRF is as follows: Retirees and beneficiaries currently receiving benefits 31 Terminated employees entitled to benefits but not yet receiving benefits 4 Active plan members 2 Total 37 Employers 1 Benefits--The normal retirement for SCJRF is age 68 with 19 years of creditable service with a benefit of two-thirds the salary paid to superior court judges. A member may also retire at age 65 with a minimum of 10 years of creditable service with a benefit of one-half the salary paid to superior court judges. Death, disability, and spousal benefits are also available. Contributions and Vesting--Member contributions are 5.0% of their salary plus an additional 2.5% for the spousal coverage benefit if elected. The state pays member contributions of 5.0% of the member's annual salary. Additional employer contributions are not actuarially determined but are provided on an as-needed basis to fund current benefits. g. DARF is a defined benefit pension plan established by the Georgia General Assembly in 1949 for the purpose of providing retirement benefits to the district attorneys of the state of Georgia. DARF is directed by its own Board of Trustees. The Boards of Trustees for ERS and DARF entered into a contract for ERS to administer the plan effective July 1, 1995. 40 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS Membership--As of June 30, 2003, DARF had eight retirees and beneficiaries currently receiving benefits. Benefits--Persons appointed as district attorney emeritus shall receive an annual benefit of $15,000 or one-half of the state salary received by such person as a district attorney for the calendar year immediately prior to the person's retirement, whichever is greater. Contributions and Vesting--Member contributions were 5.0% of their annual salary plus an additional 2.5% for the spousal coverage benefit if elected. The state paid member contributions of 5.0% of the member's annual salary. Additional employer contributions are not actuarially determined but are provided on an as-needed basis to fund current benefits. h. GDCP is a defined contribution plan established by the Georgia General Assembly in July 1992 for the purpose of providing retirement allowances for state employees who are not members of a public retirement or pension system. GDCP is administered by the ERS Board of Trustees. Membership--As of June 30, 2003, participation in GDCP is as follows: Terminated employees entitled to benefits but not yet receiving benefits Active plan members 76,236 32,840 Total 109,076 Employers 305 Benefits--A member may retire and elect to receive periodic payments after attainment of age 65. The payments will be based upon mortality tables and interest assumptions to be adopted by the ERS Board of Trustees. If a member has less than $3,500 credited to his/her account, the ERS Board of Trustees has the option of requiring a lump-sum distribution to the member. Upon the death of a member, a lump-sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Contribution--Members are required to contribute 7.5% of their annual salary. There are no employer contributions. Earnings will be credited to each member's account as adopted by the ERS Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. i. SEAD was created in 1953 by the Georgia General Assembly to furnish survivors' benefits for eligible members of ERS. SEAD contracts with ERS and LRS to provide group term life insurance coverage for their participants. Death benefit payments are payable to the beneficiary or estate of the insured individual. 3. SIGNIFICANT ACCOUNTING POLICIES AND SYSTEM ASSET MATTERS Basis of Accounting--The System's combined financial statements are prepared on the accrual basis of accounting. Contributions from the employers and members are recognized as additions in the period in which the members provide services. Retirement and refund payments are recognized as deductions when due and payable. 2003 Employees' Retirement System of Georgia 41 FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS Investments--Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price. Investment income is recognized as earned by the System. No investment in any one organization except the U.S. Government represents 5% or more of the net assets available for pension benefits. There are no investments in, loans to, or leases with parties related to the System. Real Estate Investments--An office building that is included in mortgage loans and real estate is owned equally by the System and the Teachers Retirement System of Georgia. The System incurred approximately $437,000 and $341,000 in rental expense for the years ended June 30, 2003 and 2002, respectively, which is included in administrative expenses. The remainder of the building is leased to outside parties, and the rental revenue is included in interest and dividends. Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets and changes therein. Actual results could differ from those estimates. The System utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the combined financial statements. 4. INVESTMENT PROGRAM The System maintains sufficient cash to meet its immediate liquidity needs. Cash not immediately needed is invested in either short-term or long-term investment securities as directed by management. All investments are held by agent custodial banks in the name of the System. Cash--Cash balances are fully insured through the Federal Deposit Insurance Corporation, an agency of the U.S. Government. Fiduciary accounts, such as those of the System, are granted $100,000 of insurance coverage per participant in the System. Temporary cash on hand not committed for a specific purpose is invested overnight. Investments--SGAS No. 3 requires governmental entities to categorize investments as an indication of the level of custodial credit risk assumed by the System at year-end. Category 1 includes investments that are insured or registered or for which the securities are held by the System or its agent in the System's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the System's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty, or by its trust department or agent but not in the System's name. All of the securities held by the System at June 30, 2003 and 2002 are of Category 1 risk level. The System is authorized by its Board of Trustees (through statutes) to invest in a variety of short-term and long-term securities, as follows: (a) Short-Term: - Short-term investments are authorized in the following instruments: Repurchase and reverse repurchase agreements, whereby the System and a broker exchange cash for direct obligations of the U.S. Government or in obligations unconditionally guaranteed by the agencies of the U.S. Government or U.S. corporations. The System or broker promises to repay the cash received plus interest at a specific date in the future in exchange for the same securities. The System held repurchase agreements of $195,254,000 and $235,569,000 at June 30, 2003 and 2002, respectively. 42 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS U.S. Treasury obligations with varying terms up to 360 days. - Other short-term securities authorized, but not currently used, are: Commercial paper, with a maturity of 180 days or less. Commercial paper is an unsecured promissory note issued primarily by corporations for a specific amount and maturing on a specific day. The System considers for investment only commercial paper of the highest quality, rated P-1 and/or A-1 by national credit rating agencies. Master notes, an overnight security administered by a custodian bank and an obligation of a corporation whose commercial paper is rated P-1 and/or A-1 by national credit rating agencies. Investments in commercial paper or master notes are limited to no more than $100 million in any one name. (b) Long-Term: Fixed income investments are authorized in the following instruments: Obligations unconditionally guaranteed by agencies of the U.S. Government and corporate bonds with at least an "A" rating by a national rating agency and limited to no more than 5% of total System assets in any one name. Maturities of these securities vary up to a period of 40 years to provide the System with flexibility necessary to meet changing market conditions. The System held corporate bonds of $139,706,000 and $132,075,000 at June 30, 2003 and 2002, respectively. U.S. and foreign government obligations with terms up to 30 years. Quality and call requirements of corporate bonds are applicable. The System held U.S. Government obligations of $6,155,425,000 and $5,683,065,000 at June 30, 2003 and 2002, respectively. Private placements are authorized under the same general restrictions applicable to corporate bonds. Mortgage investments are authorized to the extent that they are secured by first mortgages on improved real property located in the state of Georgia having a loan-to-value ratio no higher than 75%. Mortgages, as a group cannot exceed 10% of total assets or 1% for any one loan. Equity securities are also authorized (in statutes) for investment as a complement to the System's fixed-income portfolio and as a long-term inflation hedge. By statute, no more than 60% of the total invested assets may be placed in equities and no more than 5% in any one corporation. Equity holdings in any one corporation may not exceed 5% of the outstanding equity of the issuing corporation. The equity portfolio is managed by the Division of Investment Services (the "Division") in conjunction with independent advisors. Buy/sell decisions are based on securities meeting rating criteria established by the Board of Trustees, in-house research considering such things as yield, growth, and sales statistics, and analysis of independent market research. Equity trades are approved and executed by the Division's staff. Common stocks eligible for investment are approved by the Investment Committee of the Board of Trustees before being placed on an approved list. The System held common stocks of $6,912,595,000 and $7,140,706,000 at June 30, 2003 and 2002, respectively. Substantially all of the investments of ERS, PSERS, LRS, SCJRF, GJRS, GMPF, SEAD, and certain investments of GDCP are pooled into one common investment fund. Investments of approximately 2003 Employees' Retirement System of Georgia 43 FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS $12,048,000 and $15,231,000 at June 30, 2003 and 2002, respectively, held by GDCP, are not included in the common investment fund. Units in the pooled common investment fund are allocated to the respective plans based upon the cost of assets contributed, and additional units are allocated to the participating plans based on the market value of the pooled common investment fund at the date of contribution. Net income of the pooled common investment fund is allocated monthly to the participating plans based upon the number of units outstanding during the month. The units and market value of each plan's equity in the pooled common investment fund at June 30, 2003 and 2002 were as follows (dollars in thousands): 2003 Market Value Units Employees' Retirement System Public School Employees' Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department Georgia Military Pension Fund Superior Court Judges Retirement Fund Georgia Defined Contribution Plan $ 11,679,683 695,093 25,613 220,496 779,032 541 869 36,514 6,737,963 400,996 14,776 127,203 449,421 312 501 21,065 $ 13,437,841 7,752,237 2002 Market Value Units $ 11,534,275 6,949,866 697,942 25,507 420,538 15,369 213,359 128,557 752,895 453,650 930 26,874 $ 13,251,782 560 16,193 7,984,733 5. INVESTMENTS LENDING PROGRAM State statutes and Board of Trustees policies permit the System to lend its securities to broker-dealers with a simultaneous agreement to return the collateral for the same securities in the future. The System is presently involved in a securities lending program with major brokerage firms. The System lends equity and fixed income securities for varying terms and receives a fee based on the loaned securities' value. During a loan, the System continues to receive dividends and interest as the owner of the loaned securities. The brokerage firms pledge collateral securities consisting of U.S. Government and agency securities, mortgage-backed securities issued by a U.S. Government agency, and U.S. corporate bonds. The collateral value must be equal to at least 102% to 110% of the loaned securities' value, depending on the type of collateral security. Securities loaned totaled $6,220,148,000 and $5,675,299,000 at fair value at June 30, 2003 and 2002, respectively. The collateral value was equal to 104.2% and 104.9% of the loaned securities' value at June 30, 2003 and 2002, respectively. The loaned securities are classified as Category 1 investments (see Note 4) based on the custodial arrangements for the collateral securities. Loaned securities are included in the accompanying combined statements of net assets since the System maintains ownership. The related collateral securities are not recorded as assets on the System's combined statements of net assets, and a corresponding liability is not recorded, since the System is deemed not to have the ability to pledge or trade the collateral securities. In accordance with the criteria set forth in SGAS No. 28, the System is deemed not to have the ability to pledge or sell the collateral securities since the System's lending contracts do not address whether the lender can pledge or sell the collateral securities without a borrower default, the System has not previously demonstrated that ability, and there are no indications of the System's ability to pledge or sell the collateral securities. 44 2003 Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO COMBINED FINANCIAL STATEMENTS 6. SEAD ACTUARIAL VALUATION According to the SEAD policy terms covering the lives of members, insurance coverage is provided on a monthly, renewable term basis, and no return premiums or cash value are earned. The net assets represent the excess accumulation of investment income and premiums over benefit payments and expenses and is held as a reserve for payment of death benefits under existing policies. The most current actuarial valuation of SEAD is as of June 30, 2002. The valuation indicated that the employee contribution rate of .50% and .25% and the employer contribution rate of .25% of members' salaries for old plan members and new plan members, respectively, as of June 30, 2002 were appropriate. Old plan members were hired prior to July 1, 1982, and new plan members were hired on or after July 1, 1982. 7. CAPITAL ASSETS The following is a summary of capital assets and depreciation information as of June 30, 2003 and 2002 and for the years then ended: Capital assets: Equipment Vehicles Accumulated depreciation for: Equipment Vehicles Capital assets, net Balance at June 30, 2002 Additions Disposals Balance at June 30, 2003 $ 41,597 $ 21,089 $ - 20,551 - - 62,148 21,089 - $ 62,686 20,551 83,237 (18,639) (9,367) - (10,276) (2,935) - (28,915) (12,302) - $ 33,233 $ 8,787 $ - (28,006) (13,211) (41,217) $ 42,020 Capital assets: Equipment Vehicles Accumulated depreciation for: Equipment Vehicles Capital assets, net Balance at June 30, 2001 Additions Disposals Balance at June 30, 2002 $ - - - $ 41,597 $ - 20,551 - 62,148 - $ 41,597 20,551 62,148 - $ - (18,639) - (10,276) - (28,915) - $ 33,233 $ - (18,639) (10,276) (28,915) $ 33,233 2003 Employees' Retirement System of Georgia 45 46 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) REQUIRED SUPPLEMENTARY SCHEDULES (In Thousands) Schedule of Funding Progress Actuarial Valuation Date Actuarial Value of Plan Assets (a) Actuarial Accrued Liability ("AAL") - Entry Age (b) Unfunded AAL/(Funding Excess) (b - a) Funding Ratio (a/b) Annual Covered Payroll (c) Excess) as a Percentage of Covered Payroll [(b-a)/c] FINANCIAL SECTION REQUIRED SUPPLEMENTARY INFORMATION Employees' Retirement System 6/30/1998 6/30/1999 6/30/2000 6/30/2001 6/30/2002 8,613,575 9,848,723 10,999,901 11,750,624 12,124,414 Public School Employees' Retirement System1 6/30/1998 6/30/1999 6/30/2000 6/30/2001 6/30/2002 528,770 599,464 667,642 708,391 727,529 Legislative Retirement System 6/30/1998 6/30/1999 6/30/2000 6/30/2001 6/30/2002 20,375 22,679 24,666 26,034 26,637 Georgia Judicial Retirement System 6/30/1998 6/30/1999 6/30/2000 6/30/2001 6/30/2002 160,171 183,249 204,136 219,288 228,417 Georgia Military Pension Fund 6/30/2002 - This data, except for annual covered payroll, was provided by the System's actuary. 9,093,758 9,695,614 10,573,408 11,557,255 11,994,850 504,779 586,352 615,357 613,347 630,295 19,272 20,129 21,628 21,610 21,779 117,771 129,233 138,427 156,083 175,154 8,322 480,183 (153,109) (426,493) (193,369) (129,564) (23,991) (13,112) (52,285) (95,044) (97,234) (1,103) (2,550) (3,038) (4,424) (4,858) (42,400) (54,016) (65,709) (63,205) (53,263) 8,322 94.7% 101.6% 104.0% 101.7% 101.1% 104.8% 102.2% 108.5% 115.5% 115.4% 105.7% 112.7% 114.0% 120.5% 122.3% 136.0% 141.8% 147.5% 140.5% 130.4% 0.0% 2,055,966 2,152,072 2,304,289 2,397,169 2,408,306 N/A N/A N/A N/A N/A 2,363 2,411 2,411 3,567 3,413 26,226 29,594 34,856 37,688 38,630 N/A 23.4 % (7.1)% (18.5)% (8.1)% (5.4)% N/A N/A N/A N/A N/A (46.7)% (105.8)% (126.0)% (124.0)% (142.3)% (161.7)% (182.5)% (188.5)% (167.7)% (137.9)% N/A Information is shown only for the years available in accordance with the parameters of SGAS No. 25. Additional years will be added as data become available. 1No statistics regarding covered payroll are available. Contributions are not based upon members' salaries, but are simply $4.00 per member per month for nine months each fiscal year. See notes to required supplementary schedules. 2003 Employees' Retirement System of Georgia FINANCIAL SECTION REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) REQUIRED SUPPLEMENTARY SCHEDULES (In Thousands) Schedule of Employer Contributions Employees' Retirement System Public School Employees' Retirement System Legislative Retirement System Georgia Judicial Retirement System This data was provided by the System's actuary. Year Ended June 30, 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1999 2000 2001 2002 State Annual Required Contribution 286,794 304,461 302,332 315,505 233,229 13,638 10,839 9,789 12,874 11,623 164 84 22 - 694 834 1,741 - Percentage Contributed 100% 100% 100% 100% 100% 107% 158% 184% 132% 100% 126% 108% 436% N/A N/A 100% 100% 11% N/A Information is shown only for the years available in accordance with the parameters of SGAS No. 25. Additional years will be added as data become available. 2003 Employees' Retirement System of Georgia 47 FINANCIAL SECTION REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES 1. Schedule of Funding Progress--The actuarial value of assets recognizes a portion of the difference between the fair value of assets and the expected actuarial value of assets, based on the assumed valuation rate of return. The amount recognized each year is 20% of the difference between fair value and expected actuarial value. 2. Schedule of Employer Contributions--The required employer contributions and percent of those contributions actually made are presented in the schedule. 3. Actuarial Assumptions--The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information from the actuarial valuations for the most recent two-year period is as follows: Employees' Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return1 Projected salary increases1 Postretirement cost-of-living adjustment June 30, 2002 Entry age Level percent of pay, open 13 years 5-year smoothed market 7% 5.20-9.00% None June 30, 2001 Entry age Level percent of pay, open 20 years 5-year smoothed market 7% 5.20-9.00% None Public School Employees' Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return1 Projected salary increases Postretirement cost-of-living adjustment June 30, 2002 Entry age Level dollar, open 20 years 5-year smoothed market 7% N/A 3% annually June 30, 2001 Entry age Level dollar, open 40 years 5-year smoothed market 7% N/A 3% annually 48 2003 Employees' Retirement System of Georgia FINANCIAL SECTION REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES Legislative Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return1 Projected salary increases Postretirement cost-of-living adjustment June 30, 2002 Unit credit Level dollar, open N/A 5-year smoothed market 7% N/A 3% annually Georgia Judicial Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return1 Projected salary increases1 Postretirement cost-of-living adjustment July 1, 2002 Entry age Level percent of pay, open 10 years 5-year smoothed market 7% 5.50% None June 30, 2001 Unit credit Level dollar, open N/A 5-year smoothed market 7% N/A 3% annually July 1, 2001 Entry age Level percent of pay, open 10 years 5-year smoothed market 7% 5.50% None 2003 Employees' Retirement System of Georgia 49 FINANCIAL SECTION REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES Georgia Military Pension Fund: Valuation date Actuarial cost method Amortization method Remaining amortization period of the unfunded actuarial accrued liability Asset valuation method Actuarial assumptions: Investment rate of return1 Projected salary increases1 Postretirement cost-of-living adjustment June 30, 2002 Entry age Level dollar, open 40 years 5-year smoothed market 7% N/A None 1Includes inflation rate of 3.50% 50 2003 Employees' Retirement System of Georgia 2003 Employees' Retirement System of Georgia EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) COMBINING STATEMENTS OF NET ASSETS JUNE 30, 2003 WITH COMPARATIVE TOTALS FOR 2002 (In Thousands) ASSETS Plans and Funds Superior Court Judges and Public School Georgia State Georgia District Georgia Employees' Employees' Legislative Judicial Employees' Military Attorneys Pooled Defined Retirement Retirement Retirement Retirement Assurance Pension Retirement Investment Contribution System System System System Department Fund Funds Fund Plan Eliminations Total 2003 2002 FINANCIAL SECTION ADDITIONAL INFORMATION CASH $ 4,101 $ 87 $ 61 $ 54 $ 4 $ 85 $ 195 $ 120 $ 4,707 $ 5,044 RECEIVABLES: Employer and member contributions Interest and dividends Due from brokers for securities sold Unremitted insurance premiums Total receivables INVESTMENTS - at fair value: Short-term Obligations of the U.S. Government and its agencies, corporate, and other bonds Common stocks Mortgage loans and real estate Equity in pooled investment fund Total investments 25,137 8 25,137 8 293 3,795 293 3,795 3,744 11,679,683 695,093 25,613 220,497 779,032 541 11,683,427 695,093 25,613 220,497 779,032 541 1 $ 45,356 28,150 1 73,506 1,028 41 $ 1,069 (3,795) (3,795) 26,467 45,397 28,150 - 100,014 28,600 75,109 - 103,709 188,292 6,290,045 6,912,595 555 869 869 13,391,487 6,962 5,086 36,513 48,561 195,254 (13,437,841) (13,437,841) 6,295,131 6,912,595 4,299 - 13,407,279 235,569 5,815,140 7,140,706 4,326 - 13,195,741 CAPITAL ASSETS, net Total assets 42 11,712,707 695,188 25,674 220,844 782,831 42 33 626 1,065 13,464,993 49,750 (13,441,636) 13,512,042 13,304,527 LIABILITIES Accounts payable and other Due to brokers for securities purchases Insurance premiums payable Total liabilities NET ASSETS HELD IN TRUST FOR PENSION BENEFITS (A schedule of funding progress is presented on page 46.) 11,480 479 18 125 40 3,620 41 134 15,100 479 59 259 40 42 27,152 42 27,152 3 12,187 10,684 27,152 - (3,795) - - 3 (3,795) 39,339 10,684 $ 11,697,607 $ 694,709 $25,615 $ 220,585 $ 782,791 $ 626 $ 1,023 $ 13,437,841 $ 49,747 $ (13,437,841) $ 13,472,703 $ 13,293,843 51 2003 Employees' Retirement System of Georgia 52 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) Superior Court Judges and District Attorneys Retirement Funds COMBINING STATEMENTS OF NET ASSETS JUNE 30, 2003 WITH COMPARATIVE TOTALS FOR 2002 (In Thousands) ASSETS Pension Trust Funds Superior Court District Judges Attorneys Retirement Retirement Fund Fund CASH RECEIVABLES: Employer and member contributions Total receivables INVESTMENTS - at fair value: Equity in pooled investment fund Total assets LIABILITIES ACCOUNTS PAYABLE AND OTHER Total liabilities NET ASSETS HELD IN TRUST FOR PENSION BENEFITS (A schedule of funding progress is presented on page 46.) $ 194 1 1 869 1,064 41 41 $ 1,023 $ 1 1 1 1 $ - Total 2003 2002 $ 195 $ 90 1 1 869 1,065 3 3 930 1,023 42 42 $1,023 45 45 $ 978 FINANCIAL SECTION ADDITIONAL INFORMATION 2003 Employees' Retirement System of Georgia EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) FINANCIAL SECTION ADDITIONAL INFORMATION COMBINING STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2003 WITH COMPARATIVE TOTALS FOR 2002 (In Thousands) Plans and Funds Superior Court Judges and Public School Georgia State Georgia District Employees' Employees' Legislative Judicial Employees' Military Attorneys Pooled Retirement Retirement Retirement Retirement Assurance Pension Retirement Investment System System System System Department Fund Funds Fund Georgia Defined Contribution Plan Eliminations Total 2003 2002 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS - Beginning of year $ 11,558,373 $ 697,461 $ 25,467 $ 213,611 $ 754,054 $ 978 $ 13,251,782 $ 43,899 $ (13,251,782) $13,293,843 $14,177,992 ADDITIONS: Contributions: Employer Member Insurance premiums Administrative expense allotment Investment income (loss): Net increase (decrease) in fair value of investments Interest and dividends Less investment expenses Allocation of investment earnings 246,172 55,456 3,555 1,298 594 43 373 $ 591 2,118 297 3,814 8 14,847 110 175 30 13,677 252,852 74,550 14,847 909 247,101 75,704 14,364 940 1 2 (2,497) (24) (3) (7) 491,107 29,673 1,077 9,347 33,037 41 236,467 339,460 (1) (9,966) 39 (77) 342 (7) 1,640 (565,961) 236,390 339,805 (12,505) - (991,765) 441,176 (11,610) - Net investment income (loss) 488,611 29,649 1,074 9,340 33,039 41 38 565,961 1,898 (565,961) 563,690 (562,199) Total additions 790,239 35,096 1,524 13,702 47,886 632 2,194 565,961 15,575 (565,961) 906,848 (224,090) DEDUCTIONS: Benefit payments Refunds of member contributions and interest Death benefits Administrative expenses 637,243 5,253 8,509 37,021 233 594 1,246 20 110 6,483 70 175 18,924 225 6 2,119 30 9,417 310 684,118 14,993 18,924 9,953 618,682 13,704 18,227 9,446 Total deductions 651,005 37,848 1,376 6,728 19,149 6 2,149 9,727 727,988 660,059 TRANSFERS TO SYSTEMS FROM POOLED INVESTMENT FUND NET INCREASE (DECREASE) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS - End of year 139,234 (2,752) 148 6,974 28,737 626 (379,902) 45 186,059 5,848 379,902 (186,059) 178,860 (884,149) $ 11,697,607 $ 694,709 $ 25,615 $ 220,585 $ 782,791 $ 626 $ 1,023 $ 13,437,841 $ 49,747 $ (13,437,841) $13,472,703 $13,293,843 53 2003 Employees' Retirement System of Georgia 54 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) Superior Court Judges and District Attorneys Retirement Funds COMBINING STATEMENTS OF CHANGES IN NET ASSETS JUNE 30, 2003 WITH COMPARATIVE TOTALS FOR 2002 (In Thousands) Pension Trust Funds Superior Court District Judges Attorneys Retirement Retirement Fund Fund NET ASSETS HELD IN TRUST FOR PENSION BENEFITS Beginning of year ADDITIONS: Contributions: Employer Member Administrative expense allotment Investment income (loss): Interest and dividends Less investment expenses Allocation of investment earnings Net investment income (loss) Total additions DEDUCTIONS: Benefit payments Administrative expenses Total deductions NET INCREASE (DECREASE) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS End of year $ 978 2,005 8 30 (1) 39 38 2,081 2,006 30 2,036 45 $ 1,023 $ 113 113 113 113 $ - Total 2003 2002 $ 978 $ 1,739 2,118 8 30 (1) 39 38 2,194 2,119 30 2,149 45 $ 1,023 2,159 13 30 (3) (745) (748) 1,454 2,185 30 2,215 (761) $ 978 FINANCIAL SECTION ADDITIONAL INFORMATION FINANCIAL SECTION ADDITIONAL INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) Administrative Expense Fund CONTRIBUTIONS AND EXPENSES FOR THE YEARS ENDED JUNE 30, 2003 AND 2002 (In Thousands) Contributions: Employees' Retirement System Public School Employees' Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department Georgia Defined Contribution Plan Superior Court Judges Retirement Fund Total contributions Expenses: Personal services: Salaries and wages Retirement contributions FICA Health insurance Miscellaneous Communications: Postage Publications and printing Telecommunications Travel Professional services: Accounting and investment services Computer services Contracts Actuarial services Medical services Professional fees Legal services 2003 Employees' Retirement System of Georgia 2003 2002 $ 8,509 594 110 175 225 310 30 9,953 $ 7,971 625 110 175 225 310 30 9,446 2,247 235 160 294 40 2,976 1,947 204 138 254 29 2,572 165 155 105 82 96 83 22 23 388 343 2,147 883 1,202 521 163 69 27 5,012 1,758 1,026 1,603 305 168 87 68 5,015 (Continued) 55 FINANCIAL SECTION ADDITIONAL INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) Administrative Expense Fund CONTRIBUTIONS AND EXPENSES FOR THE YEARS ENDED JUNE 30, 2003 AND 2002 (In Thousands) Rentals: Office space Office equipment Other services and charges: Equipment Temporary services Supplies and materials Repairs and maintenance Courier services Board member expenses Depreciation Miscellaneous Total expenses Net Income Balance: Beginning of year End of year 2003 2002 $ 437 1 438 $ 341 3 344 18 611 127 33 13 12 325 1,139 9,953 - 99 580 85 335 11 14 29 19 1,172 9,446 - $ - $ - (Concluded) 56 2003 Employees' Retirement System of Georgia Two Northside Seventy-Five Suite 300 Atlanta, Georgia 30318-7778 404-352-6400 1-800-805-4609 Fax 404-352-6431