Teachers Retirement System of Georgia, comprehensive annual financial report, fiscal year ended June 30, 2004 [Dec. 10 2004]

Teachers Retirement System of Georgia
Teachers Retirement System of Georgia
Comprehensive Annual Financial Report
A Component Unit of the State of Georgia
CompreheFinscsailvYeearAEnndneudaJulnFei3n0a, 2n0c0i4al Report
A Component Unit of the State of Georgia Fiscal Year Ended June 30, 2004

TEACHERS RETIREMENT
SYSTEM OF GEORGIA
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
A Component Unit of the State of Georgia F i s c a l Y e a r E n d e d J u n e 3 0 , 2004
Jeffrey L. Ezell Executive Director Teachers Retirement System of Georgia Two Northside 75, Suite 100 Atlanta, Georgia 30318
(404) 352-6500 (800) 352-0650 www.trsga.com

Introductory Section
Table of Contents
INTRODUCTORY SECTION
Certificate of Achievement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Board of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Letter of Transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Your Retirement System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 System Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Administrative Staff & Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Summary of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL SECTION
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 General Purpose Financial Statements:
Statements of Plan Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Statements of Changes in Plan Net Assets . . . . . . . . . . . . . . . . . . . . . . . . 20 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Additional Information - Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . 29
INVESTMENT SECTION
Investment Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Time-Weighted Rates of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Asset Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Portfolio Detail Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ACTUARIAL SECTION
Actuary's Certification Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Summary of Actuarial Assumptions & Methods . . . . . . . . . . . . . . . . . . . . . . . . . 35 Actuarial Valuation Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
STATISTICAL SECTION
Member Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Benefit Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Revenues & Expenses Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Retired Members by Type of Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Participating Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2 Teachers Retirement System of Georgia

Introductory Section
Certificate of Achievement
3
Teachers Retirement System of Georgia 3

Introductory Section
Board of Trustees

*Dr. Sandra G. Gustavson CHAIR
Associate Dean for Faculty & Research Terry College of Business The University of Georgia
339 Brooks Hall Athens, Georgia 30602

*Mr. Russell W. Hinton VICE-CHAIR State Auditor
254 Washington Street, S.W. Suite 214
Atlanta, Georgia 30334

Mrs. Brenda B. Barrow Reading Recovery Teacher Leader
Effingham County Schools Guyton Elementary School 719 Central Blvd., P.O. Box 9
Guyton, Georgia 31312

*Mr. Paul E. DeMersseman Vice President
Peachtree Planning Corporation P.O. Box 5457
Athens, Georgia 30604

Dr. Virginia J. Dixon Retired Educator 2415 Carver Drive
Fort Valley, Georgia 31030

*Mr. W. Daniel Ebersole Director
Office of Treasury & Fiscal Services Suite 1202, West Tower, Floyd Bldg.
Atlanta, Georgia 30334

*Ms. MiMi Gudenrath Director
Elam Alexander Academy 3769 Ridge Ave.
Macon, Georgia 31204

Board composition as of December 10, 2004. 4 Teachers Retirement System of Georgia

*Mr. Charles E. Sward Retired Businessman 1837 Cedar Canyon Drive Atlanta, Georgia 30345
* Investment Committee Member

Introductory Section
Letter of Transmittal

December 10, 2004
Board of Trustees Teachers Retirement System of Georgia Atlanta, Georgia
I am pleased to present the Comprehensive Annual Financial Report of the Teachers Retirement System of Georgia (the "System") for the fiscal year ended June 30, 2004. Responsibility for both the accuracy of the data, and completeness and fairness of the presentation, including all disclosures, rests with the management of the System. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the System. I trust that you will find this report helpful in understanding your retirement system.
The Comprehensive Annual Financial Report is presented in five sections: (1) the Introductory Section includes this letter of transmittal, principal officials, consultants and advisors, and a summary of plan provisions; (2) the Financial Section includes the auditors' report, management's discussion and analysis, the financial statements, and required supplementary information; (3) the Investment Section includes a report on investment activity, investment policies, investment results, and various investment schedules; (4) the Actuarial Section includes the actuary's certification letter and actuarial assumptions, methods, and valuation data; and (5) the Statistical Section includes selected retirement data and other significant data pertaining to the System presented on a multi-year basis.
Certificate of Achievement
The Government Finance Officers Association
of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Teachers Retirement System of Georgia for its Comprehensive Annual Financial

Jeffrey L. Ezell Executive Director
Report for the fiscal year ended June 30, 2003. This was the sixteenth consecutive year that the System has achieved this prestigious award.
In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.
Legislation
During the 2004 session, the Georgia General Assembly passed three pieces of legislation that were signed into law by the Governor that substantially impacted the System. Unless otherwise noted, these changes were effective July 1, 2004.
First, a member may elect at retirement to receive a lump-sum distribution, in exchange for a reduced lifetime monthly benefit. The member's age and plan of retirement are used to determine the reduction in the benefit. The amount of the lump-sum distribution cannot exceed the sum of 36 monthly benefit payments that the member would have received if he or she had not elected the partial lump-sum option plan.
Second, a member who retired on a service retirement as of December 31, 2003, may return to work as a classroom teacher, principal, superintendent, counselor or librarian and continue receiving

Teachers Retirement System of Georgia 5

Introductory Section
Letter of Transmittal

monthly retirement benefits. A member who retired as a principal cannot be re-employed as a principal at the same school where he or she was employed prior to retirement. Also, a member who retired as a superintendent cannot be re-employed as a superintendent for the school system in which he or she was employed prior to retirement.
Third, a member employed on July 1, 2004, as an assistant coach by the athletic department of a state university may elect to transfer his or her TRS membership to the Board of Regents of the University System of Georgia Optional Retirement Plan (ORP). TRS is required to transfer all employee and employer contributions made by or on behalf of the transferring member to his or her account in the ORP, plus regular interest. The election had to be made by August 31, 2004, and is irrevocable.
Financial Information
The management of the System is charged with the responsibility of maintaining a sound system of internal accounting controls. The objectives of such a system are to provide management with reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorizations, and that they are recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Even though there are inherent limitations in any system of internal control, the management of the System makes every effort to ensure that through systematic reporting and internal reviews, errors or fraud are quickly detected and corrected.
Please refer to Management's Discussion and Analysis starting on page 15 of this report for an overview of the financial status of the System including a summary of the System Net Assets, Changes in Net Assets, and Asset Allocations.
INVESTMENTS -- The System has continued to invest in a mix of high quality bonds and stocks as it historically has done. These types of investments have allowed the System to participate in rising markets, while moderating the risks on the downside. New funds continue to be invested in high quality securities. A high quality balanced fund has proven to be a successful strategy in a variety of markets over a long period of time.
6 Teachers Retirement System of Georgia

As in previous years, maintaining quality was a primary goal and was successfully met. "Conservation of Capital" and "Conservatism" continue to be the principal guides in investment decisions. The System continued to use a diversified portfolio to accomplish these objectives. In summary, the investment status of the System is excellent.
FUNDING -- The System's funding policy provides for employer contributions at rates that, expressed as a percentage of annual covered payroll, are sufficient to provide resources to pay benefits when due.
A useful indicator of the funded status of a retirement system is the relationship between the actuarial value of assets and the actuarial accrued liabilities. The greater the level of funding, the larger the ratio of the actuarial value of assets to the actuarial accrued liabilities.
The System continues to remain strong as evidenced by the ratio of the actuarial value of assets to the actuarial accrued liabilities. This ratio changed from 102.0% in the fiscal year ended June 30, 2002, to 101.1% in the fiscal year ended June 30, 2003.
The ultimate test of the financial soundness of a retirement system is its ability to pay all promised benefits when due. I am proud to say that through the continued wisdom and the support of Governor Sonny Purdue and the General Assembly of the State of Georgia, the System has been and continues to be funded on an actuarially sound basis, thus providing the membership the comfort and security they expect from their retirement system.
Initiatives
Fiscal year 2004 included a number of initiatives and milestones. For example, the new pension administration system or "PASS" project, which began in fiscal year 2002, went "live" in June. PASS has allowed TRS to reengineer our business processes to be more efficient and effective. With the implementation of PASS, we are able to:
Access member accounts instantly
Increase efficiency in work processing
Respond quickly to customer requests
Customers benefit from an increase in the level of customer service they receive from TRS.

Introductory Section
Letter of Transmittal

The System also continues to enhance its website and is currently working to provide active members and retirees the ability to view and update account information online, as well as enabling employers with the ability to report member and employer contributions online.
The TRS Call Center became operational this year and was the proud recipient of the Call Center Team Award for Customer Service Excellence presented by the International Customer Service Association. TRS is extremely proud to have won this award and will continue to strive to be the provider of the best customer service available.
Other Information
INDEPENDENT AUDIT -- The Board of Trustees requires an annual audit of the financial statements of the System by independent, certified public accountants. The accounting firm of KPMG LLP was selected by the Board. The independent auditors' report on the statements of plan net assets and the related statements of changes in plan net assets is included in the Financial Section of this report.
ACKNOWLEDGMENTS -- The compilation of this report reflects the combined effort of the staff under the leadership of the Board of Trustees. It is intended to provide complete and reliable information as a basis for making management decisions, as a means of determining compliance with legal provisions, and as a means for determining responsible stewardship of the assets contributed by the System's members, their employers, and the State of Georgia.
Copies of this report can be obtained by contacting the System, or may be downloaded from the System's website.

I would like to take this opportunity to express my gratitude to Governor Sonny Perdue, members of the Georgia General Assembly, the staff, the advisors, and to the many people who have worked so diligently to ensure the successful operation of the System.
Sincerely,

Jeffrey L. Ezell Executive Director

Teachers Retirement System of Georgia 7

Introductory Section
Your Retirement System

Financial Highlights
Member Contributions Employer Contributions Net Increase in Fair Value
of Investments Interest and Dividend Income Benefits Paid to Retired Members Member Withdrawals Interest Credited to Member
Contributions
Statistical Highlights
Active Membership Members Leaving the System Retired Members Average Monthly Annuity

2004

June 30,

2003

$ 448,929,000 $ 782,301,000

$ 438,998,000 $ 768,673,000

$ 2,882,187,000 $ 948,105,000 $ 1,598,467,000 $ 42,580,000

$ 725,370,000

$ 976,321,000

$ 1,434,640,000

$

40,883,000

$ 188,530,000

$ 179,974,000

% Change + 2.3 + 1.8
+ 297.3 - 2.9 + 11.4 + 4.2
+ 4.8

208,927 7,805
61,590 $ 2,163

207,522 7,714
57,692 $ 2,072

+ 0.7 + 1.2 + 6.8 + 4.4

8 Teachers Retirement System of Georgia

Introductory Section
System Assets
Growth of Total System Assets (in billions)

Total System Assets at June 30 (in thousands)

Equities Fixed Income Other(1)
Total System Assets

1999

2000

2001

2002

2003

2004

$23,093,979 $25,288,274 $22,309,783 $20,142,071 $20,058,758 $25,120,626

14,807,428 15,642,757 16,379,674 16,446,346 17,961,576 16,469,405

1,050,235

879,233

976,595 1,248,540 1,270,063 1,053,021

$38,951,642 $41,810,264 $39,666,052 $37,836,957 $39,290,397 $42,643,052

(1) Includes receivables, cash, short-term securities, mortgage loans and real estate. * Six years shown
Teachers Retirement System of Georgia 9

Introductory Section
Administrative Staff & Organization

Jeffrey L. Ezell Executive Director

Michael A. Plant Deputy Executive Director

Charles W. Cary, Jr. Chief Investment Officer Division of Investment Services

Stephen J. Boyers Controller
Financial Services Division

Diann F. Green Director
Retirement Services Division

Lisa M. Hajj Director
Communications Division

M. Cathy Hart Director
Employer Services Division

J. Gregory McQueen Director
Information Technology Division

Consulting Services
Actuary Mellon Human Resources
& Investor Solutions
Auditor KPMG LLP
Medical Advisors Gordon J. Azar, M.D.
Atlanta, Georgia Arthur S. Booth, Jr., M.D.
Atlanta, Georgia Joseph W. Stubbs, M.D.
Albany, Georgia

10 Teachers Retirement System of Georgia

Tonia T. Morris Director
Human Resources Division

Charles P. Warren Director
Contact Management Division

Investment Advisors
Albritton Capital Management Atlanta Capital Management Diaz-Verson Capital Investments Evergreen Investments State Street Global Advisors Montag & Caldwell EARNEST Partners NCM Capital Management Group Synovus Investment Advisors Trusco Capital Management

Introductory Section
Summary of Plan Provisions

Purpose
The Teachers Retirement System of Georgia (the "System") was established in 1943 by an act of the Georgia General Assembly for the purpose of providing retirement allowances and other benefits for teachers of this state. The System has the power and privileges of a corporation, and the right to bring and defend actions.
The major objectives of the System are (1) to timely pay monthly benefits due retirees, (2) to soundly invest retirement funds to insure adequate financing for future benefits due and for other obligations of the System, (3) to provide statewide counseling services for System members, (4) to accurately account for the status and contributions of all active and inactive members, and (5) to process refunds due terminated members.
Administration
State statutes provide that the administration of the System be vested in a ten-member Board of Trustees comprised as follows:
Ex officio members:
the State Auditor,
the Director of the Office of Treasury and Fiscal Services,
Governor's appointees:
two active members of the System who are classroom teachers and not employees of the Board of Regents,
one active member of the System who is a public school administrator,
one active member of the System who is not an employee of the Board of Regents,
one member to be selected by the Governor,
Board of Regents appointee:
one active member of the System who is an employee of the Board of Regents,
Trustee appointees:
one member who has retired under the System,

one individual who is a citizen of the state, not a member of the System and experienced in the investment of money.
A complete listing of the current Board of Trustees is included on page 4 of this report.
Management of the System is the responsibility of the Executive Director who is appointed by the Board and serves at its pleasure. On behalf of the Board, the Executive Director is responsible for the proper operation of the System, engaging such actuarial and other services as shall be necessary to transact business, and paying expenses necessary for operations. A listing of the administrative staff is included on page 10 of this report.
Membership
All personnel in covered positions of the state's public school systems, technical colleges, RESA units and all colleges and universities comprising the University System of Georgia who are employed one-half time or more, except those professors and principal administrators electing to participate in the Board of Regents of the University System of Georgia Optional Retirement Plan, are required to be members of the System as a condition of employment.
Eligibility
Service Retirement
Active members may retire and elect to receive monthly retirement benefits after one of the following conditions: 1) completion of 10 years of creditable service and attainment of age 60, or 2) completion of 25 years of creditable service.
Disability Retirement
Members are eligible to apply for monthly retirement benefits under the disability provision of the law if they are an active member, have at least 10 years of creditable service, and are permanently disabled.
The Formula
Normal Retirement
Any member who has at least 30 years of creditable service or who has at least 10 years of creditable service and has attained age 60 will receive a benefit calculated by using the percentage of salary formula.

Teachers Retirement System of Georgia 11

Introductory Section
Summary of Plan Provisions

Simply stated, two percent (2%) is multiplied by the member's years of creditable service established with the System, including partial years (not to exceed 40 years). The product is then multiplied by the average monthly salary for the two highest consecutive membership years of service. The resulting product is the monthly retirement benefit under the maximum plan of retirement.
Early Retirement
Any member who has not reached the age of 60 and has between 25 and 30 years of creditable service will receive a reduced benefit. The benefit will be calculated using the percentage of salary formula explained above. It will then be reduced by the lessor of 1/12 of 7% for each month the member is below age 60, or 7% for each year or fraction thereof the member has less than 30 years of creditable service. The resulting product is the monthly retirement benefit under the maximum plan of retirement.
Disability Retirement
Disability retirement benefits are also calculated using the percentage of salary formula explained above. The resulting product is the monthly disability retirement benefit under the maximum plan. There is no age requirement for disability retirement.
Plan A - Maximum Plan of Retirement
This plan produces the largest possible monthly benefit payable to the member only during his or her lifetime. There are no survivorship benefits under this plan.
Plan B - Optional Plans of Retirement
Upon retirement a member of the System may elect one of six optional plans that provide survivorship benefits. The election of an optional form of payment is made upon application for retirement and it becomes irrevocable upon distribution of the first benefit check. The six options are as follows:

Option 1
The retiring member accepts a relatively small reduction from the maximum monthly benefit in order to guarantee to the estate, beneficiary or beneficiaries named on the retirement application, a lump-sum refund of any remaining portion of member contributions and interest.
Option 2
This plan offers the retiring member a reduced monthly benefit, based on the ages of the member and the beneficiary, payable for life. It further provides a guarantee to the surviving named beneficiary that, at the death of the retired member, the beneficiary will receive the same basic monthly retirement allowance the member received at the date of retirement plus any cost-of-living increases the member received up to the time of death.
Option 2 Pop-Up
Any member may elect a reduced retirement allowance to be designated "Option 2 Pop-Up" with the provision that if the beneficiary dies prior to the retiree that the basic benefit payable to the retiree shall increase to an amount as though the retiree had not selected an optional plan of retirement.

12 Teachers Retirement System of Georgia

Introductory Section
Summary of Plan Provisions

Option 3
This plan of retirement offers a reduced monthly benefit that is based on the ages of the member and the beneficiary. The resulting benefit is paid to the retired member for life, with the guarantee to the surviving named beneficiary that at the time of the retired member's death, the beneficiary will receive a payment for life of one-half of the initial monthly benefit received by the member at the time of retirement plus one-half of any cost-of-living increases the member received up to the time of death.
Option 3 Pop-Up
Any member may elect a reduced retirement allowance to be designated "Option 3 Pop-Up" with the provision that if the beneficiary dies prior to the retiree that the basic benefit payable to the retiree shall increase to an amount as though the retiree had not selected an optional plan of retirement.
Option 4
This plan allows the retiring member to select a specific monthly amount other than provided for in the other options, which will be paid for life following a retiree's death to the living beneficiary. The beneficiary would also receive a pro-rata share of any costof-living increases the member received up until the

time of death, or the benefit will be divided among the beneficiaries in accordance with the percentage or specific dollar designations made by the member at the time of retirement. One major difference in this plan is that the retiring member may actually elect that following his or her death, a certain amount of money can be paid monthly to a beneficiary rather than a percentage.
Financing the System
The funds to finance the System come from member contributions, currently 5% of annual salary; employer contributions, currently 9.24% of annual salary; and investment income.

Teachers Retirement System of Georgia 13

Financial Section
Independent Auditors' Report

KPMG LLP Suite 2000 303 Peachtree Street, NE Atlanta, GA 30308 www.kpmg.com
The Board of Trustees Teachers Retirement System of Georgia:
W e have audited the accompanying statement of plan net assets of the Teachers Retirement System of Georgia (the System), a component unit of the State of Georgia, as of June 30, 2004, and the related statement of changes in plan net assets for the year then ended. These financial statements are the responsibility of the System's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the System as of June 30, 2003, were audited by other auditors whose report dated September 5, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and those standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 audit provides a reasonable basis for our opinion.
In accordance with Government Auditing Standards, we have also issued our report dated October 8, 2004, on our consideration of the System's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government

Auditing Standards and should be considered in assessing the results of our audits.
In our opinion, the 2004 financial statements referred to above present fairly, in all material respects, the financial status of the System as of June 30, 2004, and the changes in financial status for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The 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 accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no 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, actuarial, and statistical sections have not been subjected to the auditing procedures applied by us in the audit of the basic financial statements and, accordingly, we express no opinion on them.
October 8, 2004

14 Teachers Retirement System of Georgia

Financial Section
Management's Discussion & Analysis

T his section provides a discussion and analysis of the financial performance of the Teachers Retirement System of Georgia (the "System") for the years ended June 30, 2004 and 2003. The discussion and analysis of the System's financial performance is within the context of the accompanying financial statements and disclosures following this section.
Financial Highlights
The following highlights are discussed in more detail later in this analysis.
At June 30, 2004, the System's assets exceeded its liabilities by $42.6 billion (reported as "net assets") as compared to the net assets of $39.2 billion at June 30, 2003, representing an increase of $3.4 billion. At June 30, 2003, the System's assets exceeded its liabilities by $39.2 billion, as compared to the net assets of $37.8 billion at June 30, 2002, representing an increase of $1.4 billion.
Contributions from members increased by $10 million or 2.3% from $438.9 million in 2003 to $448.9 million in 2004. Contributions by employers increased by $13.6 million or 1.8% from $768.7 million in 2003 to $782.3 million in 2004. Contributions from members increased by $35 million or 8.7% from $403.9 million in 2002 to $438.9 million in 2003. Contributions by employers increased by $51.8 million or 7.2% from $716.9 million in 2002 to $768.7 million in 2003. These increases are due to increases in membership and higher average payrolls during each of the fiscal years ended June 30, 2004 and 2003. Pension benefits paid to retirees and beneficiaries for the years ended June 30, 2004 and 2003 were $1.6 billion and $1.4 billion, representing increases of 11.4% and 11.7%, respectively. This is due to increases in the number of retirees and beneficiaries receiving benefit payments and postretirement benefit adjustments.
OStvaetrevmieewntosf the Financial
The basic financial statements include: (1) the statements of plan net assets, (2) the statements of changes in plan 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 an accrual basis in accordance with accounting principles generally accepted in the United States

of America promulgated by the Governmental Accounting Standards Board. 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 plan's funding. The two schedules include: (1) a schedule of funding progress, and (2) a schedule of employer contributions.
Statements of Plan Net Assets
The Statement of Plan Net Assets is the statement of financial position, presenting information that includes all of the System's assets and liabilities, with the balance reported as and 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 19.
Statements of Changes in Plan Net Assets
The Statement of Changes in Plan Net Assets reports how the System's net assets changed during the fiscal year. The additions and the deductions to net assets are summarized in this statement. The additions include contributions and investment income, which includes the net increase in the fair value of investments. The deductions include benefit payments, refunds of member contributions, and administrative expenses. These statements are presented on page 20.
Notes to the Financial Statements
The accompanying notes to the financial statements provide information essential to a full understanding of the System's financial statements. The notes to the financial statements begin on page 21 of this report.
Required Supplementary Schedules
A brief explanation of the two required schedules found beginning on page 27 of this report follows: Schedule of Funding Progress
This schedule includes historical trend information for the last six consecutive fiscal years about the actuarially funded status of the plan from a longterm, ongoing plan perspective, and the progress made in accumulating sufficient assets to pay benefits when due. Schedule of Employer Contributions
This schedule presents historical trend information for the last six consecutive fiscal years about the annual required contributions of employers and the contributions made by employers in relation to the requirement.

Teachers Retirement System of Georgia 15

Financial Section
Management's Discussion & Analysis

Financial Analysis of the System
A summary of the System's net assets is as follows:

Assets:

Net Assets (in thousands)

June 30,

2004

2003

2002

Cash and receivables $ 361,337 $ 360,598 $ 465,844

Investments

42,270,634 38,923,340 37,369,054

Capital assets, net

11,081

6,459

2,059

2004
Amount Percentage change change

2003
Amount Percentage change change

$

739

3,347,294

4,622

0.2 % 8.6 % 71.6 %

$ (105,246) 1,554,286 4,400

(22.6)% 4.2 %
213.7 %

Total assets

42,643,052 39,290,397 37,836,957 3,352,655 8.5 % 1,453,440

3.8 %

Liabilities:
Due to brokers and accounts payable

54,974

71,857

5,529

(16,883) (23.5) %

66,328 1,199.6 %

Net Assets

$ 42,588,078 $39,218,540 $37,831,428 $3,369,538 8.6 % $1,387,112

3.7 %

As indicated above, the $3.4 billion and $1.4 billion increases in net assets in 2004 and 2003, respectively, are principally related to the increase in the fair value of investments. The increase in investments is analyzed below.

The following table presents the investment allocation at June 30, 2004, 2003, and 2002:

Asset Allocation at June 30 (in percentages)
Equities Fixed income Short-term securities*

2004
59.4 % 39.0 %
1.6 %

2003
51.5 % 46.2 %
2.3 %

2002
53.9 % 44.0 %
2.1 %

Asset Allocation at June 30 (in thousands) Equities Fixed income Short-term securities*
*Includes real estate 16 Teachers Retirement System of Georgia

$ 25,120,626 16,469,405 680,603
$ 42,270,634

$ 20,058,758 17,961,576 903,006
$ 38,923,340

$ 20,142,071 16,446,346 780,637
$ 37,369,054

Financial Section
Management's Discussion & Analysis

Asset Allocation at June 30 cont.
The total investment portfolio increased $3.3 billion from June 30, 2003, which was due primarily to the increase in the fair value of equity investments.
The total investment portfolio increased $1.6 billion from June 30, 2002, which was due primarily to the increase in the fair value of fixed income investments.
The investment rate of return in fiscal year 2004 was 9.9%, with a 20.0% return for equities and (1.4%) return for fixed income compared to an investment rate of return in fiscal year 2003 of 4.6%, with a (2.1%) return for equities and 12.8% return for fixed income. The five-year annualized rate of return on investments at June 30, 2004, was 2.4% with (1.6)% return on equities and a 7.7% return on fixed income.
The investment rate of return in fiscal year 2003 was 4.6%, with a (2.1%) return for equities and 12.8% return for fixed income compared to an investment rate of return in fiscal year 2002 of (4.0%), with a (14.6%) return for equities and 10.9% return for fixed income. The five-year annualized rate of return on investments at June 30, 2003, was 2.6%, with a (1.6%) return on equities and an 8.1% return on fixed income.
A summary of the changes in System's net assets for the years ended June 30 are as follows:

Additions:
Member Contributions Employer Contributions Net investment income
(loss)

Changes in Net Assets (in thousands)

June 30,

2004

2003

2002

2004
Amount Percentage change change

2003
Amount Percentage change change

$ 448,929 $ 438,998 $ 403,952 $ 9,931

782,301

768,673

716,917

13,628

2.3 % $ 35,046

1.8 %

51,756

8.7 % 7.2 %

3,794,733 1,669,768 (1,610,477) 2,124,965 127.3 % 3,280,245 203.7 %

Total additions 5,025,963 2,877,439

(489,608) 2,148,524 74.7 % 3,367,047 687.7 %

Deductions:
Benefit payments Refunds Administration
Total deductions

1,598,467 42,580 15,378
1,656,425

1,434,640 40,883 14,804
1,490,327

1,284,371 41,250 15,966
1,341,587

163,827 1,697 574
166,098

11.4 % 4.2 % 3.9 %
11.1 %

150,269 (367)
(1,162)
148,740

11.7 % (0.9)% (7.3)%
11.1 %

Net increase (decrease) in plan net assets

$3,369,538 $1,387,112 $(1,831,195) $1,982,426 142.9 % $3,218,307 175.7 %

Teachers Retirement System of Georgia 17

Financial Section
Management's Discussion & Analysis

Additions
The System accumulates resources needed to fund benefits through contributions and returns on invested funds. Member contributions increased 8.7% and 2.3% in 2003 and 2004, respectively, primarily because of increased membership from 201,278 in 2002 to 207,522 in 2003 and to 208,927 in 2004 and a higher average payroll in both years. Employer contributions likewise increased 7.2% and 1.8% from 2003 and 2004, respectively, also as a result of increased membership and a higher average payroll. The employer contribution rate remained constant at 9.24% for 2003 and 2004. The employer contribution rate was recommended by the actuary and approved by the System's Board of Trustees. The net investment income was a result of the strong equity market.

Deductions
Deductions increased 11.1% in 2003 and 2004, primarily because of the 11.7% and 11.4% increase in benefit payments resulting from an increase in the number of retirees and beneficiaries receiving benefit payments from 54,222 in 2002 to 57,692 in 2003 to 61,590 in 2004 and postretirement benefit increases in both years.
Funding Status
The schedule of funding progress and schedule of employer contributions provide information regarding how the plan is 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 between the actuarial value of assets and the actuarial accrued liabilities. The higher this ratio, the better funded the System is from an actuarial perspective.
The June 30, 2003, actuarial valuation, which is the latest valuation available, indicates that the actuarial value of assets was $42.4 billion and that the actuarial accrued liability was $41.9 billion. This results in a funding ratio of 101.1%. The June 30, 2002, actuarial valuation indicated that the actuarial value of assets was $40.5 billion and that the actuarial accrued liability was $39.7 billion, which resulted in a funding ratio of 102.0% as compared to 103.9% from the previous year.
The System continues to be in a strong financial position as evidenced by the funding ratio.

18 Teachers Retirement System of Georgia

June 30, 2004 and 2003 (in thousands)

Financial Section
Statements of Plan Net Assets

Assets
Cash Receivables:
Interest and dividends Due from brokers for securities sold Member and employer contributions Due from Fulton County School Employees Pension Fund
Total receivables
Investments - at fair value:
Short-term Obligations of the U.S. Government and its agencies,
corporate, and other bonds Common stocks Real estate
Total investments
Capital assets, net
Total assets
Liabilities
Due to brokers for securities purchased Accounts payable and other
Total liabilities
Net Assets Held in Trust for Pension Benefits
(A Schedule of Funding Progress is presented on page 27.) See accompanying notes to financial statements.

2004

2003

$ 6,204 $ 2,721

184,772 26,121 96,889 47,351

131,145 70,100
100,975 55,657

355,133

357,877

676,859
16,469,405 25,120,626
3,744

899,262
17,961,576 20,058,758
3,744

42,270,634 38,923,340

11,081

6,459

42,643,052 39,290,397

53,246 1,728
54,974

64,575 7,282
71,857

$42,588,078 $39,218,540

Teachers Retirement System of Georgia 19

Financial Section
Statements of Changes in Plan Net Assets

Net Assets Held in Trust for Pension Benefits - Beginning of year
Additions:
Contributions: Employer Member
Investment income: Net increase in fair value of investments Interest, dividends, and other
Total
Less investment expense
Net investment income
Total additions
Deductions:
Benefit payments Refunds of member contributions Administrative expenses, net
Total deductions
Net Increase
Net Assets Held in Trust for Pension Benefits - End of year

2004
$ 39,218,540
782,301 448,929
2,882,187 948,105
3,830,292 35,559
3,794,733 5,025,963
1,598,467 42,580 15,378
1,656,425 3,369,538
$ 42,588,078

For the Years Ended June 30, 2004 and 2003
(in thousands)
2003
$ 37,831,428
768,673 438,998
725,370 976,321 1,701,691
31,923 1,669,768 2,877,439
1,434,640 40,883 14,804
1,490,327 1,387,112
$ 39,218,540

See accompanying notes to financial statements.

20 Teachers Retirement System of Georgia

Financial Section
Notes to Financial Statements As of and for the Years Ended
June 30, 2004 and 2003

A. Plan Description:
Teachers Retirement System of Georgia (the "System") was created in 1943 by an act of the Georgia Legislature (the Act) to provide retirement benefits for teachers who qualify under the Act. The System is administered as a cost-sharing, multipleemployer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 25. On October 25, 1996, the Board of Trustees created the Supplemental Retirement Benefit Plan of the Georgia Teachers ("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 the System. The purpose of SRBP is to provide retirement benefits to employees covered by the System whose benefits are otherwise limited by IRC 415. 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 financial statements. A Board of Trustees comprised of active and retired members and exofficio state employees is ultimately responsible for the administration of the System.
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 GASB Statement No.14. The concept underlying the definition of the reporting entity is that elected officials are accountable. The decision to include a potential component unit in the reporting entity is also made by applying specific criteria as outlined in GASB No. 39, including consideration of the nature and significance of the relationship of potential component units. Based on those criteria, the System has not included any other entities in its reporting entity.
Eligibility and Membership:
All teachers in the state public schools, the University System of Georgia (except those professors and principal administrators electing to participate in an optional retirement plan), and certain other designated employees in educational-related work
are eligible for membership.

Retirement Benefits:
The System provides service retirement, disability retirement, and survivor's benefits. Title 47 of the Official Code of Georgia assigns the authority to establish and amend the provisions of the System to the State Legislature. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60, or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. Options are available for distribution of the member's monthly pension at a reduced rate
to a designated beneficiary on the member's death.
Death and Disability Benefits:
Retirement benefits also include death and disability benefits.
A disabled member is entitled to receive a benefit based on the member's creditable service (minimum of ten years of service) and compensation up to the time of disability.

As of June 30, 2004, participation in the System is as follows:

Retirees and beneficiaries currently receiving benefits
Terminated employees entitled to benefits but not yet receiving benefits
Active plan members

61,590
47,411 208,927

Total Employers

317,928 371

Teachers Retirement System of Georgia 21

Financial Section
Notes to Financial Statements As of and for the Years Ended June 30, 2004 and 2003

A. Plan Description:
Death and Disability Benefits (continued):
The death benefit is the amount that would be payable to the member's beneficiary had the member retired on the date of death on a service retirement allowance and chosen a 100% survivorship option. The benefit is based on the member's creditable service (minimum of ten years of service) and compensation up to the date of death.
Contributions:
The System is funded by member and employer contributions as adopted and amended by the Board of Trustees.
Contributions required for fiscal year 2004 were based on the June 30, 2002, actuarial valuation as follows:

Employer: Normal Unfunded accrued liability Expenses Total

10.03 % (0.94) % 0.15 % 9.24 %

Members become fully vested after ten years of service. If a member terminates with less than ten years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions with accumulated interest are reported as net assets
held in trust designated for that purpose.
SRBP:
Beginning July 1, 1997, all members and retired former members in the System are eligible to participate in this plan whenever their benefits under the System exceed the limitation on benefits imposed by IRC 415. At June 30, 2004 and 2003, there were 17 and 10 members, respectively, eligible to participate in this portion of the System. Employer contributions of $139,000 and $82,000 and retirement payments of $139,000 and $82,000 under the SRBP are included in the statement of changes in plan net assets for the years ended June 30, 2004
and 2003, respectively.

B. Summary of Significant Accounting Policies and Plan Asset Matters:
Basis of Accounting:
The System's financial statements are prepared on the accrual basis of accounting. Contributions from the employers and the members are recognized as additions when due pursuant to formal commitments as well as statutory or contractual requirements. Retirement and refund payments are recognized as deductions when due and payable.
Investments:
Investments are reported at fair value. Shortterm 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. 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:
Real estate consists of an office building that is owned equally by the System and the Employees' Retirement System of Georgia. The System incurred approximately $724,000 and $689,000 in rental expense for the years ended June 30, 2004 and 2003, 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.
Capital Assets:
Capital assets, including software development costs, are stated at cost less accumulated depreciation. Depreciation on capital assets is computed using the straight-line method over estimated useful lives of three to seven years. Depreciation expense is included in administrative expenses. Maintenance and repairs are charged to administrative expenses when incurred. When assets
are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statements of changes in plan net assets in the period of disposal.

22 Teachers Retirement System of Georgia

Financial Section
Notes to Financial Statements As of and for the Years Ended
June 30, 2004 and 2003

B. Summary of Significant Accounting Policies and Plan Asset Matters:
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 plan 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 financial statements.
C. 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 the Board of Trustees. 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:
GASB 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 investment securities held by the System at June 30, 2004 and 2003 are of Category 1 risk level. The System's investment in real estate is not securities as defined by GASB No. 3 and is therefore not categorized. 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 obligations unconditionally guaranteed by 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 $676,859,000 and $899,262,000 at June 30, 2004 and 2003, respectively.
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.

Teachers Retirement System of Georgia 23

Financial Section
Notes to Financial Statements As of and for the Years Ended June 30, 2004 and 2003

C. Investment Program:
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 agency and corporate bonds of $5,145,756,000 and $2,374,435,000 at June 30, 2004 and 2003, 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 $11,323,649,000 and $15,587,141,000 at June 30, 2004 and 2003, 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 matters 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.
D. Investments Lending Program:
State statutes and Board of Trustees' policies permit the System to lend its securities to brokerdealers 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 $15,638,669,751 and $17,735,199,020 at market value at June 30, 2004 and 2003, respectively. The collateral value was equal to 104.8% and 104.3% of the loaned securities' value at June 30, 2004 and 2003, respectively. The loaned securities are classified as Category 1 investments (see note C) based on the custodial arrangements for the collateral securities.
Loaned securities are included in the accompanying statements of plan net assets since the System maintains ownership. The related collateral securities are not recorded as assets on the System's statements of plan 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 GASB No. 28, the System is deemed not to have the ability to pledge or sell 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.

24 Teachers Retirement System of Georgia

Financial Section
Notes to Financial Statements As of and for the Years Ended
June 30, 2004 and 2003

E. Capital Assets:
The following is a summary of capital assets and depreciation information as of June 30 and for the years then ended:

Balance at June, 2003

Capital Assets:
Furniture and fixtures Computer equipment Software under development

$ 253,378 630,034
5,855,757 6,739,169

Accumulated Depreciation for:
Furniture and fixtures Computer equipment

(124,810 )
(155,690 ) (280,500 )

Additions
$ 80,597 91,334
4,612,579 4,784,510
(36,197) (126,007) (162,204)

Disposals

Balance at June, 2004

$

- $ 333,975

-

721,368

-

10,468,336

-

11,523,679

-

(161,007 )

-

(281,697)

-

(442,704)

Capital Assets, Net

$6,458,669

$4,622,306

$

- $11,080,975

Balance at June, 2002

Capital Assets:
Furniture and fixtures Computer equipment Software under development

$ 230,208 453,325
1,524,841 2,208,374

Accumulated Depreciation for:
Furniture and fixtures Computer equipment

(100,019)
(49,730) (149,749)

Additions
$ 41,991 176,709
4,330,916 4,549,616
(35,546) (105,960) (141,506)

Capital Assets, Net

$2,058,625

$4,408,110

Disposals

Balance at June, 2003

$(18,821) -
(18,821)

$ 253,378 630,034
5,855,757 6,739,169

10,755 -
10,755

(124,810) (155,690) (280,500)

$ (8,066) $6,458,669

Teachers Retirement System of Georgia 25

Financial Section
Notes to Financial Statements As of and for the Years Ended June 30, 2004 and 2003

F. Due from Fulton County School Employees Pension Fund:
As of July 1, 1988, substantially all members of the Fulton County School Employees Pension Fund became members in the System. The transfer involved 3,990 members at a total cost to the Fulton County School Employees Pension Fund of $168,976,347. The employer's portion of contributions plus accrued interest (maximum 9%) is payable over 24 remaining annual installments.
G. Administrative Expenses:
Administrative expenses are reported in the financial statements; however, the actual accounting for the expenses is performed in a separate expense fund. Administrative expenses paid out of System earnings are as follows:

F. Contingencies:
The System is subject to legal actions in the ordinary course of its business. In the opinion of management, the System has adequate legal defenses and insurance coverage with respect to such actions and their final outcome will not have a material adverse effect upon the financial status of the System.

2004

2003

Salaries and Employee Benefits Other Operating Expenses

$ 12,608,113 $10,436,483 5,430,599 6,559,917

Total Administrative Expenses 18,038,712 16,996,400

Less Reimbursement by other State Retirement Systems for services rendered on their behalf

2,660,822

Net Administrative Expenses $ 15,377,890

2,191,992 $14,804,408

26 Teachers Retirement System of Georgia

See Independent Auditors' Report

Financial Section
Required Supplementary Information

Schedule of Funding Progress (in thousands)

Actuarial Valuation
Date
6/30/98 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03

Actuarial Value of Plan Assets
(a)
$ 27,894,985 31,832,431 35,675,729 38,584,834 40,502,333 42,372,661

Actuarial Accrued Liability (AAL) -Entry Age
(b)
$ 28,798,984 32,763,470 34,876,171 37,153,421 39,706,523 41,905,676

Unfunded

AAL

(UAAL)/

Funding

(Funding Excess) Ratio

(b-a)

(a/b)

$ 903,999 931,039 (799,558)
(1,431,413)
(795,810)
(466,985)

96.9 % 97.2 % 102.3 % 103.9 % 102.0 % 101.1 %

UAAL/

(Funding Excess)

Annual

as a

Covered Percentage of

Payroll Covered Payroll

(c)

[(b-a)/c]

$ 5,951,898 6,832,672 7,218,644 7,306,855 7,617,869 8,261,961

15.2 % 13.6 % (11.1) % (19.6) % (10.4) % (5.7) %

This data, except for annual covered payroll, was provided by the System's actuary.

Schedule of Employer Contributions (in thousands)

Years Ended June 30,
1998 1999 2000 2001 2002 2003

State Annual Required
Contribution
$ 710,409 776,178 779,571 808,480 716,917 768,673

Percentage Contributed
100 % 100 % 100 % 100 % 100 % 100 %

See accompanying notes to required supplementary schedules.

Teachers Retirement System of Georgia 27

Financial SectioFinnancial Section
RReeqquuiirreedd (SSSeueuIpnpdpepplelenedmmenteeAnundtittaoarsrr'yRyepIIonnrt)ffoorrmmaatitoionn

See Independent Auditors' Report

Notes to Required Supplementary Schedules
Schedule of Funding Progress
The actuarial value of assets recognizes a portion of the difference between the market 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 market value and expected actuarial value. The actuarial value of assets is limited to a range between 80% and 120% of market value.
Schedule of Employer Contributions
The required employer contributions and percent of those contributions actually made are presented in the schedule.
Actuarial Assumptions
The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Since the previous valuation on June 30, 2002, the investment rate of return and the rate of salary increases were revised to more closely reflect the actual and anticipated experience of the System and the remaining amortization period was reduced from 15 years to 13 years. Additional information from the actuarial valuations for the most recent two-year period is as follows:

Valuation Date Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method Actuarial Assumption:
Investment Rate of Return Projected Salary Increases Inflation Rate Post-Retirement Cost-of-Living Adjustments

June 30, 2003 Entry Age Level Percent of Pay, Open 13 Years 5-Year Smoothed Market
7.50% 3.75 to 8.00% 3.75% 3% Annually

June 30, 2002 Entry Age Level Percent of Pay, Open 15 Years 5-Year Smoothed Market
7.25% 3.5 to 7.75% 3.75% 3% Annually

28 Teachers Retirement System of Georgia

For the Years Ended June 30, 2004 and 2003

Financial Section
Additional Information - Administrative Expenses

Personal Services:
Salaries and wages Retirement contributions Health insurance FICA Miscellaneous
Total personal services
Communications:
Postage Publications and printing Telecommunications Travel
Total communications
Professional Services:
Computer services Contracts Actuarial services Audit fees Legal services Medical services
Total professional services
Rentals:
Office space Office equipment
Total rentals
Other Services and Charges:
Temporary services Repairs and maintenance Supplies and materials Courier services Depreciation expense Miscellaneous
Total other services and charges
Total Administrative Expenses
Less reimbursement by other State Retirement Systems for services rendered on their behalf Net Administrative Expenses
See accompanying independent auditors' report.

2004
$ 9,696,531 1,006,945 1,269,018 607,663 27,956
12,608,113
250,103 216,618 180,403
40,349 687,473
3,113,570 29,484
101,108 72,166 36,036
144,745 3,497,109
723,975 843
724,818
70,552 31,429 148,149 11,735 162,204 97,130 521,199 18,038,712
2,660,822 $15,377,890

2003
$ 7,924,623 847,692
1,035,133 543,689 85,346
10,436,483
246,126 255,346 265,699
44,555 811,726
3,480,583 504,021 96,516 71,051 36,006 104,133
4,292,310
688,085 1,289
689,374
361,691 55,355
139,226 10,963
141,506 57,766
766,507 16,996,400
2,191,992 $14,804,408

Teachers Retirement System of Georgia 29

Investment Section
Investment Overview

T he financial markets continued to be volatile, as has been the case over the last ten years. The System has continued to invest in a mix of high quality bonds and stocks as it has historically done.
These types of investments have allowed the System to participate in rising markets while moderating the risks on the downside. New funds continue to be invested in high quality securities. A high quality balanced fund has proven to be a successful strategy in a variety of markets over a long period of time.
As in previous years, maintaining quality was a primary goal and was successfully met. "Conservation of Capital" and "Conservatism" continue to be the principal guides in investment decisions. The Board of Trustees continued to use a diversified portfolio to accomplish these objectives.
Both U.S. and worldwide economic growth rates have shown improvement over the last year. U.S. employment growth has improved somewhat, but remained below trend for this point in the recovery. Inflation levels also increased to around 3%. The dichotomy of strong consumer spending and weak capital or business spending, particularly on technology, continued throughout the year, despite a greater increase in GDP than last year. U.S. corporate profits continued their significant improvement. Rising energy prices in the last half of the year not only impacted inflation, but also began to have an effect on various economic sectors.
Studies undertaken to evaluate the investment returns of pension funds over very long time horizons indicate that the asset allocation decision has the most impact on the fund's returns. Although the returns for the various asset categories vary from year to year, over the long term, equities have outperformed fixed income and cash by a very wide margin. For that reason, the System has maintained a maximum equity exposure with the remainder of the fund in fixed-income securities designed to generate income and preserve capital.
Returns for rolling three- and five-year periods are presented in this section. These longer time periods, in our opinion, allow for more valid evaluation of returns, both in absolute terms and relative to an asset class index, by reducing emphasis on the short-term volatility of markets.

Rates of return are calculated by using a modified "Dietz time-weighted method," which is in accordance with the Association for Investment Management and Research (AIMR) objectives.
Equity markets rebounded sharply in the first half of the year, and performed well for the full year ended June 30, 2004. Among individual companies, returns varied depending upon the company's size, industry, and exposure to global markets. In a reversal from the prior year, the MSCI EAFE, which includes only foreign stocks, was one of the best performing indexes, rising 32%. The S&P 500 and the Dow Jones Industrials both increased about 19%, but the better performing indexes were the S&P Mid-Cap and Small-Cap, up 28% and 35%, respectively.
Returns for the fixed-income markets were low this year as yields on long-term Treasury bonds rose from 4.6% in June 2003 to 5.3% at the end of June 2004. The 10-year U.S. Treasury Note returned (3)% and the 30-year U.S. Treasury Bond returned (6)%. Our primary benchmark, the Lehman Government / Credit Index returned (1)%. It is a shorter maturity index containing higher yielding corporate bonds as well as Treasuries. As in equities, lower quality outperformed higher quality as evidenced by the 7.2% return for BBB & BB credits versus (1.0)% for AAA & AA bonds.
In summary, the investment status of the System is excellent. The high quality of the System's investments is consistent with the continued policy of "Conservatism" and "Conservation of Capital."
Prepared by the Division of Investment Services

30 Teachers Retirement System of Georgia

Investment Section
Time-Weighted Rates of Return

3-Year: Equities S&P 500
5-Year: Equities S&P 500
3-Year: Equities S&P 500
5-Year: Equities S&P 500

2002 2003 2004 -7.7% -10.6% .1% -9.2% -11.2% -.6% 3.6% -1.6% -1.6% 3.7% -1.6% -2.1% 2000 2001 17.8% 3.2% 19.9% 3.9% 22.7% 13.6% 23.9% 14.5%

2002

3-Year:

Fixed Income

9.2%

Lehman Govt/Credit 7.9%

5-Year:

Fixed Income

9.3%

Lehman Govt/Credit 7.5%

2003 11.3% 10.8%
8.1% 7.8%

2004 7.2% 6.7% 7.7% 7.1%

2000

3-Year:

Fixed Income

8.6%

Lehman Govt/Credit 6.0%

5-Year:

Fixed Income

7.5%

Lehman Govt/Credit 6.1%

2001 5.7% 6.0% 8.8% 7.4%

3-Year: Total Portfolio CPI
5-Year: Total Portfolio CPI

2002 -.7% 2.7% 6.1% 2.3%

2003 2004 -1.6% 3.3% 2.2% 2.1% 2.6% 2.4% 2.4% 2.7%

2000

3-Year:

Total Portfolio 13.8%

CPI

2.4%

5-Year:

Total Portfolio 15.9%

CPI

2.5%

2001 4.3% 3.0% 11.5% 2.6%

Note Rates of return are calculated by using a modified "Dietz time-weighted method," which is in accordance with AIMR objectives.
Teachers Retirement System of Georgia 31

Investment Section
Asset Allocation

AAsssseet tAAllollcoactiaotnioatnJautneJu30n,e 30,
Equities Fixed Income
Short-Term Securities (1)

1999

2000 2001

2002

59.9% 38.4%
1.7%

61.2% 37.8%
1.0%

56.9% 41.7%
1.4%

53.9% 44.0%
2.1%

2003

2004

51.5% 46.2%
2.3%

59.4% 39.0%
1.6%

AAsssseet tAlAlolcloatciaontiaotnJuanteJ3u0n, e(I3n 0m,il(lionnms)illions)

Equities

$23,094

Fixed Income

14,807

Short-Term Securities (1)

640

Total Investments

$38,541

$25,288 15,643 412
$41,343

$22,310 16,380 541
$39,231

$20,142 16,446 781
$37,369

$20,059 17,961 903
$38,923

$25,121 16,469 681
$42,271

(1) Short-term securities include mortgages and real estate.

32 Teachers Retirement System of Georgia

Investment Section
Portfolio Detail Statistics

Twenty Largest Equity Holdings*

Shares
14,064,800 11,939,142
8,120,969 8,435,078 12,619,800 4,970,941 6,372,576 6,204,180 6,260,500 13,219,600 4,135,200 9,103,200 4,366,420 4,806,000 2,540,800 3,132,000 3,266,508 2,173,290 4,851,176 2,665,000

Company
General Electric Pfizer, Inc. Citigroup Inc. Exxon Mobil Microsoft Corp. American International Group Procter & Gamble Johnson & Johnson Coca Cola Co. Cisco Systems Schlumberger LTD Intel Corp. Pepsico Inc. Medtronic, Inc. 3M Company Qualcomm Inc. Eli Lilly Illinois Tool Works Gillette Co. United Parcel Service

Total of 20 Largest Equity Holdings

Total Equity Holdings

Fair Value
$ 455,699,520 409,273,788 377,625,059 374,601,814 360,421,488 354,328,675 346,923,037 345,572,826 316,030,040 313,304,520 262,626,552 251,248,320 235,262,710 234,148,320 228,697,408 228,573,360 228,361,574 208,396,778 205,689,862 200,328,050
$ 5,937,113,701
$ 25,120,626,458

Ten Largest Fixed-Income Holdings*

Description
U.S. Treasury Bond U.S. Treasury Note U.S. Treasury Note FNMA-Callable U.S. Treasury Note U.S. Treasury Note FNMA-Callable General Electric Cap Corp FHLMC-Callable U.S. Treasury Note

Maturity Date
02/15/31 10/31/05 05/15/08 01/30/07 11/15/06 08/15/08 12/04/06 02/02/09 02/09/07 12/31/04

Interest Rate (%)
5.375% 1.625 2.625 2.710 3.500 3.250 2.200 3.500 2.750 1.750

Par Value
$2,980,000,000 2,468,000,000 1,939,000,000 1,110,000,000 1,031,000,000 824,000,000 750,000,000 595,000,000 574,000,000 540,000,000

Fair Value
$ 3,005,151,200 2,446,405,000 1,878,406,250 1,090,230,900 1,044,207,110 813,700,000 729,607,500 575,757,700 563,777,060 540,167,400

Total of 10 Largest Fixed-Income Holdings
Total Fixed-Income Holdings

$ 12,687,410,120 $ 16,469,405,190

* A complete listing is available upon request.

Teachers Retirement System of Georgia 33

Actuarial Section
Actuary's Certification Letter

200 Galleria Parkway, N.W., Suite 1900 Atlanta, Georgia 30339-5945
May 26, 2004 Board of Trustees Teachers Retirement System of Georgia Suite 100, Two Northside 75 Atlanta, Georgia 30318
Members of the Board:
S ection 47-3-23 of the law governing the operation of the Teachers Retirement System of Georgia provides that the actuary shall make annual valuations of the contingent assets and liabilities of the Retirement System on the basis of regular interest and the tables last adopted by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the System prepared as of June 30, 2003. The report indicates that annual employer contributions at the rate of 9.24% of compensation for the fiscal year ending June 30, 2005, are sufficient to support the benefits of the System. In addition, the 9.24% contribution rate will be payable for the fiscal year ending June 30, 2006, due to a Board decision that changes the contribution period to which the valuation applies, to the fiscal year which begins 24 months after the valuation date. The June 30, 2004, valuation will set the contribution rate for the fiscal year ending June 30, 2007. In preparing the valuation, the actuary relied on data provided by the System. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report.
In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. Since the previous valuation, the interest rate assumption has been increased to 7.50% from 7.25%, with a corresponding increase of 0.25% in the assumed salary scale at all ages. The valuation takes into account the effect of all amendments to the System enacted through the 2003 session of the General Assembly.

The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a percent of payroll. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a level percent of payroll. Gains and losses are reflected in the unfunded accrued liability, which is negative and being amortized as a level percent of payroll within a 13-year period.
The System is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the System is operating on an actuarially sound basis. Assuming that contributions to the System are made by the employer from year to year in the future at the rates recommended on the basis of the successive actuarial valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the System may be safely anticipated.
This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. Sincerely yours,
Edward A. Macdonald Principal, Consulting Actuary

34 Teachers Retirement System of Georgia

Actuarial Section
Summary of Actuarial Assumptions & Methods

T he laws governing the Teachers Retirement System of Georgia (the "System") provide that an actuary perform an annual valuation of the contingent assets and liabilities of the System and perform at least once every five years an actuarial investigation of the mortality, service, and compensation experience of the members and beneficiaries of the System. The latest actuarial valuation of the System prepared as of June 30, 2003, was made on the basis of disability retirement mortality tables approved by the Board of Trustees on June 20, 1962, interest rate assumption and salary increase tables approved by the Board on November 19, 2003, service retirement mortality tables approved by the Board on May 22, 1996, and rates of separation approved by the Board on May 17, 2000.
The more pertinent facts and significant assumptions underlying the computations included in the June 30, 2003, report are as follows:
a) Actuarial Method UsedThe actuarial cost method used to determine funding is the entry age actuarial cost method. Gains and losses are reflected in the unfunded accrued liability. Adopted December 30, 1976.
b) Investment Return71/2% per annum, compounded annually. Adopted November 19, 2003.
c) Earnings ProgressionSalaries are expected to increase 33/4% to 8% annually depending upon the employee's age. Includes inflation at 33/4%. Adopted November 19, 2003.
d) Death, Disability and Withdrawal RatesDeath, disability and withdrawal rates for active employees and service retirement tables are based upon the System's historical experience. The death-after-retirement rates are based on the 1983 Group Annuity Mortality Table (set back one year for males). Adopted May 22, 1996.
e) Asset Valuation Method5-year smoothed market actuarial value. The actuarial value of assets recognizes a portion of the difference between the market value of the assets and the expected value of assets, based on the assumed valuation rate of return. The amount recognized each year

is 20% of the difference between market value and actuarial expected value. The actuarial value of assets is limited to a range between 80% and 120% of market value. Adopted May 26, 1996.
f) Service Retirement BenefitThe service benefit (pension) paid to members is an annuity that is owed to them at retirement that will provide a total annual pension equal to 2% of the average of the member's two consecutive highest paid years of service multiplied by the number of years of creditable service up to 40 years. It is also assumed that certain cost-of-living adjustments will be made in future years.
g) Actuarially Determined Unfunded Accrued Liability (Funding Excess)The present value of the funding excess, based on unaudited data provided the actuary by the System, was approximately $467 million at June 30, 2003.
h) Required Contributions (% of compensation) Adopted May 26, 2004. Contributions required by the annual actuarial valuation as of June 30, 2003, to be made for the year ended June 30, 2005:

(1) Member (2) Employer:
Normal Unfunded accrued
liability Expenses

5.00%
9.65%
(0.56) .15
9.24%

Teachers Retirement System of Georgia 35

Actuarial Section
Summary of Actuarial Assumptions & Methods

Service Retirement
Adopted May 12, 1996

Annual Rate*

Age

Men

Women

50

23%

22%

55

21

22

60

20

20

61

20

20

62

30

30

63

20

25

64

24

25

Annual Rate*

Age

Men

Women

65

40%

40%

66

30

30

67

30

30

68

30

30

69

30

30

70

100

100

*It is also assumed that 5% of eligible active members will retire each year with a reduced early retirement benefit and that an additional 15% of active members will retire in their first year of eligibility for unreduced retirement.

Separation Before Service Retirement
Adopted May 17, 2000

Annual Rate of

Withdrawal

Age

Death

Disability

0-4 Yrs

5-9 Yrs

10+ Yrs

MEN

20

0.04%

0.09%

39.42%

--

--

25

0.04

0.09

17.62

16.52%

--

30

0.06

0.14

14.13

7.07

4.71%

35

0.08

0.14

13.54

6.35

2.96

40

0.11

0.18

12.61

5.12

1.84

45

0.19

0.23

10.70

4.63

1.44

50

0.35

0.50

9.00

3.89

1.21

55

0.57

1.05

10.28

4.50

1.80

60

0.84

--

--

--

--

64

1.24

--

--

--

--

WOMEN

20

0.02%

0.05%

27.32%

--

--

25

0.03

0.06

14.97

11.22%

--

30

0.03

0.07

14.29

7.79

4.55%

35

0.05

0.09

11.84

6.62

3.09

40

0.07

0.13

10.00

4.94

2.31

45

0.10

0.22

8.61

4.00

1.56

50

0.17

0.39

8.49

3.47

1.35

55

0.25

0.63

10.32

3.50

1.57

60

0.42

--

--

--

--

64

0.64

--

--

--

--

36 Teachers Retirement System of Georgia

Active Members

Fiscal Year(1)
1998 1999 2000 2001 % 2002 2003

Members
180,417 186,822 190,911 192,654 199,029 205,453

Actuarial Section
Actuarial Valuation Data

Annual Payroll (000's)

Active Members
Average Pay

$ 5,951,898 6,832,674(2) 7,218,644 7,306,855 7,617,869 8,261,961

$ 32,990 36,573 37,812 37,927 38,275 40,213

% Increase
4.7%% 10.9%
3.4% 0.3% 0.9 5.1

Retirants and Beneficiaries

Added to Roll

Removed from Roll

Annual

Annual

Fiscal

Allowances

Allowances

Year (1) Number (000's) Number (000's)

1998 3,388 $ 93,104 1,246 $ 18,066

Roll- End of Year Annual

% Increase

Allowances in Annual

Number

(000's) Allowances

41,420 $ 785,705 10.6%

Average Annual Allowance
$ 18,969

1999 3,614 105,400 1,302 19,976 43,732

871,129 10.9

19,920

2000 4,814 187,262 1,441 25,067 47,105 1,033,324 18.6

21,937

2001 5,246 171,642 1,584 26,671 50,767 1,178,295 14.0

23,210

2002 4,858 169,833 1,403 26,286 54,222 1,321,842 12.2

24,378

2003 5,097 188,458 1,627 30,581 57,692 1,479,719 11.9

25,649

*
(1) Fiscal year refers to the actuarial valuation performed as of June 30 of that year and determines the funding necessary for the subsequent fiscal year. An actuarial valuation for the fiscal year ended June 30, 2004, is currently in process and was not available for this analysis.
(2) Includes pay raises averaging 6% granted to teachers July 1, 1999.

Teachers Retirement System of Georgia 37

Actuarial Section
Actuarial Valuation Data

Solvency Test (in thousands)

Fiscal Year*

Aggregate Actuarial Accrued Liabilities For

(1) Active Member

(2) Retirants
and

(3) Active Members Actuarial (Employer-Financed Value of

Contributions Beneficiaries

Portion)

Assets

Portion of Accrued
Liabilities Covered by Assets

(1)

(2)

(3)

1998 1999 2000 2001 2002 2003

$ 3,647,880 3,897,847 4,092,231 4,251,816 4,487,248 4,739,109

$ 9,943,066 11,124,459 12,657,649 14,075,798 15,915,320 17,581,264

$ 15,208,038 17,741,164 18,126,291 18,825,807 19,303,955 19,585,303

$ 27,894,985 31,832,431 35,675,729 38,584,834 40,502,333 42,372,661

100.0% 100.0% 94.1% 100.0 100.0 94.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

* Fiscal year refers to the actuarial valuation performed as of June 30 of that year and determines the funding necessary for the subsequent fiscal year. An actuarial valuation for the fiscal year ended June 30, 2004, is currently in process and was not available for this analysis.

Member and Employer Contribution Rates

Fiscal Year
1999 2000 2001 2002 2003 2004

Member
5.00% 5.00 5.00 5.00 5.00 5.00

Employer
11.95% 11.29 11.29
9.24 9.24 9.24

38 Teachers Retirement System of Georgia

Actuarial Section
Actuarial Valuation Data

Analysis of Financial Experience (in millions)

Item

Analysis of the Change in Unfunded Accrued Liability Increase (Decrease) During the Years Ended June 30,

2003

2002

2001

2000

1999

1998

Interest added to previous unfunded accrued liability
Accrued liability contribution

$ (57.7) $(103.8) $ (60.0) $ 65.2 $ 63.3 $ 173.9

77.4

41.1

(169.1) (164.5)

(224.3)

(235.2)

Experience: Valuation Asset Growth Pensioners' Mortality Turnover and Retirements New Entrants Salary Increases Method Changes Amendments (1) Assumption Changes (2)
Total Increase (Decrease)

788.5 (30.0) 277.0 149.1 372.4
-- 78.7 (1,326.6)
$ 328.8

667.7 (35.1) (236.5) 99.9 202.3
-- -- --
$ 635.6

(269.4) (10.9) (553.8) 92.7
(319.3) -- --
657.9

(1,533.0) 3.4
643.8 106.4 106.7
-- -- (958.6)

$ (631.9) $(1,730.6)

(1,779.3) 9.0
639.9 111.1 1,207.3
-- -- --
$ 27.0

(3,567.4) 6.1
494.5 102.3 277.7
-- 550.4 702.8
$(1,494.9)

(1) Amendments 1998 - Reflects an ad hoc cost-of-living adjustment of 3% to 10% depending upon date of retirement and to provide credit for unused sick leave.
(2) Assumption Changes 2003 - Reflects an increase in interest rate assumption from 7 1/4% to 7 1/2% and an increase in the salary increase assumption by 1/4% at each age.
2001 - Reflects a reduction in interest rate assumption from 7 1/2%, to 7 1/4% and a decrease in the salary increase assumption by 1/4% at each age.
2000 - Rates of separation from active service and rates of salary increase have been revised to more closely reflect the actual and anticipated experience of the System. In addition, the interest rate assumption has been changed from 7% to 7 1/2%.
1998 - Reflects a reduction in interest rate assumption from 7 1/4% to 7% and a decrease in the salary increase assumption by 1/4% at each age.

Teachers Retirement System of Georgia 39

Statistical Section
Member Data
Benefit Payment Statistics
40 Teachers Retirement System of Georgia

Member Withdrawal Statistics

Statistical Section
Member Data

Teachers Retirement System of Georgia 41

Statistical Section
Benefit Data

Benefit Expense by Type (in thousands)

Fiscal Year 1999 2000 2001 2002 2003 2004

Service $ 786,963
923,049 1,058,683 1,181,838 1,323,871 1,481,710

Type of Retirement

Disability $ 30,302
34,160 37,118 40,418 43,545 47,002

Survivor Benefit $ 41,852
48,063 52,528 57,178 62,223 65,821

Supplemental Payments (1)
$ 4,628 4,334 3,881 3,582 3,120 2,757

(1) Supplemental payments to retirees who belong to a local retirement system.

Lump Sum Death
Settlement

Total

$ 1,446 $ 865,191

1,962 1,011,568

1,166 1,153,376

1,355 1,284,371

1,881 1,434,640

1,177 1,598,467

Average Monthly Benefit Payments

Effective Retirement Dates
For Fiscal Years Ended June 30,

10-15

16-20

Years Credited Service

21-25

26-30 Over 30

1999 Average monthly benefit Number of new retirants
2000 Average monthly benefit Number of new retirants
2001 Average monthly benefit Number of new retirants
2002 Average monthly benefit Number of new retirants
2003 Average monthly benefit Number of new retirants
2004 Average monthly benefit Number of new retirants

$ 633.16 $ 995.24 $1,417.05 $2,265.15 $2,901.89

591

426

522

1,147

928

$ 631.36 $1,074.51 $1,432.55 $2,373.56 $3,121.26

687

414

657

1,819

1,237

$ 639.66 $1,184.73 $1,549.76 $2,474.70 $3,198.55

751

447

633

2,017

1,398

$ 669.01 $1,129.23 $1,646.88 $2,624.62 $3,322.04

721

445

614

1,795

1,283

$ 783.71 $1,526.45 $1,859.12 $2,604.05 $3,462.68

807

483

545

1,714

1,661

$1,405.03 $1,351.04 $1,895.12 $2,763.31 $3,557.04

906

579

630

1,864

1,611

Total
$1,889.58 3,614
$2,076.92 4,814
$2,183.38 5,246
$2,258.01 4,858
$2,418.00 5,210
$2,527.79 5,590

42 Teachers Retirement System of Georgia

Statistical Section
Revenues & Expenses Data

Revenues by Source (in thousands)

Fiscal Year
1999 2000 2001 2002 2003 2004

Member Contributions
$ 330,517 355,948 369,006 403,952 438,998 448,929

Employer Contributions

Dollar Amount

Percentage Of Annual Covered
Payroll

$ 776,178 779,571 808,480 716,917 768,673 782,301

11.95% 11.29 11.29
9.24 9.24 9.24

Net Investment Income (loss)
$ 3,889,927 2,788,202 (2,099,972) (1,610,477) 1,669,768 3,794,733

Total
$ 4,996,622 3,923,721 (922,486) (489,608) 2,877,439 5,025,963

Expenses by Type (in thousands)

Fiscal Year
1999 2000 2001 2002 2003 2004

Benefit Payments
$ 865,191 1,011,568 1,153,376 1,284,371 1,434,640 1,598,467

Net Administrative
Expenses
$ 7,810 9,058
10,502 15,966 14,804 15,378

Refund Payments
$ 42,911 44,718 58,831 41,250 40,883 42,580

Total
$ 915,912 1,065,344 1,222,709 1,341,587 1,490,327 1,656,425

Contributions were made in accordance with actuarially determined contribution requirements.

Teachers Retirement System of Georgia 43

Statistical Section
Retired Members by Type of Benefit

Amount of Number of Type of Retirement (1)

Monthly Benefit Retirees A

B

C

D Maximum Opt-1

Option Selected (2) Opt-2 Opt-3 Opt-4

Opt-2 Pop-Up

Opt-3 Pop-Up

$0,001 - 1,250 1,024 331

42 347

251 - 1,500 4,096 3,024 366 676

501 - 1,750 4,545 3,357 388 700

751 - 1,000 4,071 3,065 378 545

1,001 - 1,250 3,564 2,742 335 454

1,251 - 1,500 3,524 2,859 283 375

1,501 - 1,750 3,626 3,047 283 293

1,751 - 2,000 3,643 3,133 266 243

2,001 - 2,250 4,246 3,831 210 205

2,251 - 2,500 4,483 4,162 151 170

2,501 - 2,750 4,776 4,581

99

96

2,751 - 3,000 4,266 4,136

47

83

3,001 - 3,250 3,449 3,352

35

62

3,251 - 3,500 2,667 2,603

17

47

3,501 - 3,750 2,041 1,990

13

38

3,751 - 4,000 1,502 1,463

12

27

4,001 - 4,250 1,200 1,170

5

25

4,251 - 4,500

995 970

2

23

4,501 - 4,750

834 817

1

16

4,751 - 5,000

650 635

2

13

Over 5,000 2,388 2,341

6

41

Totals

61,590 53,609 2,941 4,479

304 601

8

30 2,996

69

100 3,280

109

83 2,930

109

33 2,480

110

7 2,482

108

3 2,593

127

1 2,599

134

3,139

157

3,343

183

3,643

247

3,292

212

2,659

191

2,012

139

1,501

109

1,091

86

815

71

676

60

541

61

429

39

1,435

135

561 44,537 2,464

240 689 755 605 567 498 454 443 429 403 307 295 231 176 160 120 105
94 81 58 260 6,970

46 172 234 221 225 234 249 231 261 235 258 202 203 163 152 115 108
94 83 70 305 3,861

57 45 42 38 40 47 50 52 74 69 105 84 57 67 50 35 39 30 29 31 131 1,172

22 78 67 95 79 77 91 92 96 123 107 84 46 38 35 22 28 20 15
7 39 1,261

8 47 58 73 63 78 62 92 90 127 109 97 62 72 34 33 34 21 24 16 83 1,283

(1) Type of Retirement A - Service B - Disability C - Survivor benefit D - Supplemental payments to retirees who belonged to a local retirement system.
(2) Refer to Introductory Section, pages 12 and 13 for descriptions of Options.

44 Teachers Retirement System of Georgia

Statistical Section
Participating Employers

Universities and
Colleges
Abraham Baldwin Agricultural College
Albany State University Armstrong Atlantic State
University Atlanta Metropolitan College Augusta State University Bainbridge College Clayton College and
State University Coastal Georgia
Community College Columbus State University Dalton State College Darton College East Georgia College Floyd College Fort Valley State University Gainesville College Georgia College and
State University Georgia Institute of Technology Georgia Perimeter College Georgia Southern University Georgia Southwestern State
University Georgia State University Gordon College Kennesaw State University Macon State College Medical College of Georgia Middle Georgia College North Georgia College and
State University Savannah State University University System of
Skidaway Institute South Georgia College Southern Polytechnic State
University University of Georgia Valdosta State University Waycross College State University of West Georgia

Boards of Education
Appling County Atkinson County Atlanta City Bacon County Baker County Baldwin County Banks County Barrow County Bartow County Ben Hill County Berrien County Bibb County Bleckley County Brantley County Bremen City Brooks County Bryan County Buford City Bulloch County Burke County Butts County Calhoun City Calhoun County Camden County Candler County Carroll County Carrollton City Cartersville City Catoosa County Charlton County Chatham County Chattahoochee County Chattooga County Cherokee County Chickamauga City Clarke County Clay County Clayton County Clinch County Cobb County Coffee County Colquitt County Columbia County Commerce City Cook County Coweta County Crawford County Crisp County Dade County

Dalton City Dawson County Decatur City Decatur County DeKalb County Dodge County Dooly County Dougherty County Douglas County Dublin City Early County Echols County Effingham County Elbert County Emanuel County Evans County Fannin County Fayette County Floyd County Forsyth County Franklin County Fulton County Gainesville City Georgia Military College Gilmer County Glascock County Glynn County Gordon County Grady County Greene County Griffin-Spalding County Gwinnett County Habersham County Hall County Hancock County Haralson County Harris County Hart County Heard County Henry County Houston County Irwin County Jackson County Jasper County Jeff Davis County Jefferson City Jefferson County Jenkins County Johnson County Jones County

Teachers Retirement System of Georgia 45

Statistical Section
Participating Employers

Boards of Education cont.
Lamar County Lanier County Laurens County Lee County Liberty County Lincoln County Long County Lowndes County Lumpkin County Macon County Madison County Marietta City Marion County McDuffie County McIntosh County Meriwether County Miller County Mitchell County Monroe County Montgomery County Morgan County Murray County Muscogee County Newton County Oconee County Oglethorpe County Paulding County Peach County Pelham City Pickens County Pierce County Pike County Polk County Pulaski County Putnam County Quitman County Rabun County Randolph County Richmond County Rockdale County Rome City Schley County Screven County Seminole County Social Circle City Stephens County Stewart County Sumter County Talbot County Taliaferro County

Tattnall County Taylor County Telfair County Terrell County Thomas County Thomasville City Thomaston-Upson County Tift County Toombs County Towns County Treutlen County Trion City Troup County Turner County Twiggs County Union County Valdosta City Vidalia City Walker County Walton County Ware County Warren County Washington County Wayne County Webster County Wheeler County White County Whitfield County Wilcox County Wilkes County Wilkinson County Worth County
Public Libraries
Athens Regional Library Barnesville-Lamar County Library Bartow County Library Bartram Trail Regional Library Brooks County Library Brunswick Regional Library Camden County Library Chatsworth-Murray County
Library Chattooga County Library Cherokee Regional Library Chestatee Regional Library Clayton County Regional Library Coastal Plains Regional Library Cobb County Public Library Conyers-Rockdale Library Dalton Regional Library

DeKalb County Public Library Desoto Trail Regional Library Dougherty County Public Library East Central Georgia Regional
Library Elbert County Public Library Fitzgerald-Ben Hill County Library Flint River Regional Library Forsyth County Public Library Gwinnett County Public Library Hall County Library Hart County Library Hawkes Library Henry County Library Houston County Public Library Jefferson County Library Kinchafoonee Regional Library Lake Blackshear Regional Library Lee County Public Library Lincoln County Library Live Oak Public Library M.E. Roden Memorial Library Mary Vinson Memorial Library Middle Georgia Regional Library Moultrie-Colquitt County Library Mountain Regional Library Newnan-Coweta Public Library Newton County Library Northeast Georgia Regional
Library Ocmulgee Regional Library Oconee Regional Library Ohoopee Regional Library Okefenokee Regional Library Peach Public Library Piedmont Regional Library Pine Mountain Regional Library Roddenberry Memorial Library Sara Hightower Regional Library Satilla Regional Library Screven-Jenkins Regional Library Sequoyah Regional Library South Georgia Regional Library Southwest Georgia Regional
Library Statesboro Regional Library Thomas County Public Library Three Rivers Regional Library Toccoa-Stephens County Public
Library

46 Teachers Retirement System of Georgia

Statistical Section
Participating Employers

Public Libraries cont.
Troup-Harris-Coweta Regional Library
Uncle Remus Regional Library Victoria Evans Memorial Library Warren County Public Library West Georgia Regional Library
Technical Colleges
Albany Technical College Altamaha Technical College Athens Technical College Atlanta Technical College Augusta Technical College Central Georgia Technical College Chattahoochee Technical College Columbus Technical College Coosa Valley Technical College DeKalb Technical College East Central Technical College Flint River Technical College Georgia Aviation & Technical
College Griffin Technical College Gwinnett Technical College Heart of Georgia Technical
College Lanier Technical College Middle Georgia Technical College Moultrie Area Technical College North Georgia Technical College North Metro Technical College Northwestern Technical College Ogeechee Technical College Okefenokee Technical College Pickens Technical College Sandersville Technical College Savannah Technical College South Georgia Technical College Southeastern Technical College Southwest GA Technical College Swainsboro Technical College Thomas Technical College Valdosta Technical College West Central Technical College West Georgia Technical College

Regional Educational Service Agencies
Central Savannah River Area Chattahoochee Flint Coastal Plains First District Griffin Heart of Georgia Metro Middle Georgia North Georgia Northeast Georgia Northwest Georgia Oconee Okefenokee Pioneer Southwest Georgia West Georgia
Other
Atlanta University Center Academy Charter School
Baconton Community Charter School
Board of Regents Charles Drew Charter School Charter Conservatory for Liberal
Arts and Technology, Inc. Cooperative Extension Service Department of Community Health Department of Corrections Department of Industry, Trade
and Tourism Department of Juvenile Justice Department of Natural Resources Department of Public Safety Fulton County, CHS for Math &
Science Georgia Association of Educators Georgia Dept of Education Georgia Dept of Human Resources Georgia Dept of Labor Georgia Dept of Technical and
Adult Education Georgia High School Association Georgia Public Telecommunications Georgia Regional Transportation
Authority Georgia Sport Hall of Fame

Georgia Student Finance Commission
Georgia Technology Authority Kidspeace Charter School Kipp Path Academy MARDS Charter School Neighborhood Charter School Odessey Charter School Office of Planning and Budget Office of School Readiness Professional Standards
Commission The School for Integrated
Academics and Technologies at Georgia, Inc. Secretary of State South East Health Unit Victory Charter School

Teachers Retirement System of Georgia 47

48 Teachers Retirement System of Georgia

Teachers Retirement System of Georgia

ement System of Georgia hside 75, Suite 100 Georgia 30318-7901 ww.TRSGA.com 6500; (800) 352-0650

Comprehensive Annual Financial Report
Teachers Retirement System of Georgia A Component Unit of the State of Georgia Fiscal Year Ended June 30, 2004
Teac(4hAATT0ewtwt4rllsa)aoonnR3NNtt5ewwaaoot2,,rwriw-rttGG6ehwhwe5emss..o0oiiTTdderr0RRegegn;SSiita7a7(GG8S55A3A30y,,0.0.s0ccS3tS3)ooeuu11m3mmii88tt5-e-e27o7-11f9900000G60011e5o0rgia
(404) 352-6500; (800) 352-0650