Office of the State Treasurer Local Government Investment Pool Trust LGIP Trust Financial Statements June 30, 2019 (This page intentionally left blank) Local Government Investment Pool Trust Table of Contents SECTION I FINANCIAL Independent Auditor's Report....................................................................................................................... 1 Management's Discussion and Analysis....................................................................................................... 5 BASIC FINANCIAL STATEMENTS Local Government Investment Pool (LGIP) Trust Financial Statements Combined LGIP Trust: Statement of Net Position ........................................................................ 20 Combined LGIP Trust: Statement of Changes in Net Position...................................................... 21 Notes to the Financial Statements .................................................................................................. 23 SUPPLEMENTARY INFORMATION Combining Statement of Net Position ........................................................................................................ 34 Combining Statement of Changes in Net Position...................................................................................... 35 SECTION II INTERNAL CONTROL AND COMPLIANCE Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards................................................................................................................. 39 i (This page intentionally left blank) SECTION I FINANCIAL (This page intentionally left blank) 2 3 (This page intentionally left blank) Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) The Office of the State Treasurer ("OST") for the State of Georgia provides the Management's Discussion and Analysis of the Local Government Investment Pool ("LGIP") Trust's Financial Statements. The LGIP Trust consists of 3 pools: Georgia Fund 1 ("GF1"), Georgia Fund 1 Plus ("GF1 Plus"), and Georgia Extended Asset Pool Plus ("GEAP Plus") and the LGIP Trust Reserve. This overview and analysis of the LGIP Trust's financial activity is for the fiscal year ended ("FY") June 30, 2019. Financial Highlights GF1 At fiscal year end, GF1 reported a net position in the amount of $14.5 billion. GF1's net position decreased by $4.9 million over the previous fiscal year. Net yield paid to participants ranged from 195 basis points ("bp") to 245 bp for FY19. GF1 Plus At fiscal year end, GF1 Plus reported a net position in the amount of $2.8 billion. The net position for GF1 Plus increased by $1.3 billion over the previous fiscal year. Net yield paid to participants ranged from 181 bp to 268 bp for FY19. GEAP Plus At fiscal year end, GEAP Plus reported a net position in the amount of $1.9 billion. The net yield earned by participants for FY19 was 2.35% 2.70% (see Note 1 to the financial statements). Overview of the Financial Statements The financial statements report the aggregate activities of GF1, GF1 Plus, GEAP Plus, and the LGIP Trust Reserve. GF1 is managed by OST to maintain a stable NAV of $1.00 and is rated AAAf by Standard & Poor's ("S&P"). The primary objective since the pool's inception is preservation of principal. OST continues to operate and report monthly to participants on an amortized cost basis. Per the Governmental Accounting Standards Board ("GASB") 79, to qualify for the use of amortized cost accounting for financial reporting purposes, an investment pool must meet all the criteria listed in GASB 79. GF1 is managed as a stable NAV pool but does not comply with all the requirements listed in GASB 79; therefore, the investments of the pool are reported at fair market value at fiscal year-end. GF1 Plus is primarily managed by OST with a portion of the pool invested by a subadvisor. GF1 Plus is managed to maintain a stable $1.00 NAV and accrues investment income on a daily basis. GF1 Plus distributes income to participants on a monthly basis and reinvests at $1.00 based on the amortized cost of the investments in the pool. Per GASB 79, to qualify for the use of amortized cost accounting for financial reporting purposes, an investment pool must meet all the criteria listed in GASB 79. GF1 Plus is managed as a stable NAV pool but does not comply with all the requirements listed in GASB 79; therefore, the investments of the pool are reported at fair market value at fiscal year-end. GEAP Plus was established on July 1, 2018 and is comprised of a series of individual Target Maturity Portfolios ("TMPs"). GEAP Plus investments are managed by a subadvisor. During FY 19, TMP maturities ranged from six months to five years. Each TMP is managed to provide principal and income at maturity consistent with maintaining preservation of principal if held to maturity. The participant account values and yields are determined by using the amortized cost valuation method. Securities are initially valued at cost. Thereafter discounts are accreted and premiums are amortized to maturity, regardless of the impact of changes in interest rates on the market value of securities. All earned interest is reinvested within the respective TMP and paid at maturity. 5 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) The LGIP Trust's Financial Statements consist of the Statement of Net Position, Statement of Changes in Net Position, and Notes to the Financial Statements. The following is a description of the basic financial statements: Statement of Net Position The Statement of Net Position presents the assets and liabilities of the LGIP Trust. The difference between the assets and liabilities is reported as net position. The Statement of Net Position provides a breakdown of pool participants. Statement of Changes in Net Position The Statement of Changes in Net Position presents information on how the net position changed during the fiscal year. Additions consist of contributions from participants and net investment income. Deductions consist of distributions to participants and operating expenses. Notes to the Financial Statements The Notes to the Financial Statements describe the LGIP Trust as a reporting entity and further clarify financial activity as reported in the financial statements. Net Position GF1 GF1 experienced a decrease in net position of $4.9 million in FY19. Total assets and liabilities were lower compared to last fiscal year. Deposits increased by 17%, and withdrawals increased by 23% in comparison to FY18. GF1's net position is a function of several parameters some of which are independent of the pool's performance. The resulting change in net position is primarily from changes in deposits and withdrawals of the participants in the pool. OST has discretion to transact deposits and withdrawals from the State General Fund account in order to optimize its earnings and maintain sufficient liquidity. GF1 is a voluntary investment option for state entities and municipalities. A summary of the net position for GF1 is presented below (amounts in thousands): Cash and Cash Equivalents Investments in Securities Accrued Interest & Other Receivables Less: Accrued Expenses & Other Payables Net Position 2019 $ 9,427,343 5,031,835 7,727 - $ 14,466,905 2018 $ 13,091,678 1,377,399 3,244 562 $ 14,471,759 Variance $ (3,664,335) 3,654,436 4,483 (562) $ (4,854) 6 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) Below are charts reflecting the assets of GF1, the maturity distribution of holdings, and account holder information at June 30, 2019. Historical information can be found on the website at www.ost.ga.gov. GF1 Asset Detail FHLB 16.20% FHLMC 5.55% Supranationals 19.33% Repos 7 Days 24.57% CP 2.15% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 50.67% Overnight Bank Demand Deposits 27.99% GF1 Maturity Distribution Repos > 7 Days 4.21% 7.08% 2 - 7 days 14.02% 16.15% 7.70% 4.38% 8 - 30 days 31 - 90 days 91 - 180 days 181+ days 7 Counties 21% Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) GF1 Account Holder Distribution College & Univ. 3% Special Dist. 4% State General Funds 8% State Agency Funds 26% Cities 11% Boards of Ed. 27% GF1 Plus GF1 Plus was established as an additional LGIP investment option in FY17 for the state, state agencies, and eligible municipalities looking to benefit from higher yields available by adding credit exposure. GF1 Plus experienced an increase in net position of $1.3 billion in FY19. Total assets were higher compared to last fiscal year. Deposits increased by 75%, and withdrawals decreased by 42% in comparison to FY18. The net position of GF1 Plus is a function of several parameters some of which are independent of the pool's performance. The resulting change in net position is primarily from changes in deposits and withdrawals of the participants in the pool. The decrease in withdrawals was primarily the result of a transfer of approximately $1.6 billion of OPEB funds in FY 18 from GF1 Plus to GF1 for the investment of the OPEB Trust in FY19. A summary of the net position for GF1 Plus is presented below (amounts in thousands): Cash and Cash Equivalents Investments in Securities Accrued Interest & Other Receivables Less: Accrued Expenses & Other Payables Net Position 2019 $ 1,234,393 1,590,144 4,007 22,255 $ 2,806,289 2018 1,128,450 336,265 1,641 139 $ 1,466,217 Variance 105,943 1,253,879 2,366 22,116 1,340,072 8 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) Below are charts reflecting the assets of GF1 Plus, the maturity distribution of holdings, and account holder information at June 30, 2019. Historical information can be found on the website at www.ost.ga.gov. GF1 Plus Asset Detail Bank Demand Deposits 2.03% CP 11.28% CDs 15.89% SBAs 0.09% U.S. Treasuries 1.34% Sovereign Credit 0.35% Supranationals 2.62% Georgia Fund 1 0.63% Asset-Backed Securities 0.53% Commercial Mortgage-Backed Securities 0.01% Corporates 4.84% FHLMC 0.38% Repos > 7 Days 60.01% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4% Overnight GF1 Plus Maturity Distribution 27% 23% 22% 16% 8% 2 - 7 days 8 - 30 days 31 - 90 days 91 - 180 days 181+ days 9 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) GF1 Plus Account Holder Distribution GEFA 29% State General Funds 34% GDOT 10% Revenue Shortfall Reserve 16% Local Government 5% Lottery for Education Reserve 6% GEAP Plus GEAP Plus is a series of TMPs with maturities ranging from 6 months to 5 years. The participant account value and yield are determined by using the amortized cost valuation method. This involves initially valuing a security at cost and thereafter accreting to maturity any discount or amortizing to maturity any premium, regardless of the impact of changes in interest rates affecting the market value of the underlying investments. GEAP Plus is managed by a subadvisor overseen by OST. A summary of the net position for GEAP Plus is presented below (amounts in thousands): Cash and Cash Equivalents Investments in Securities Accrued Interest & Other Receivables Less: Accrued Expenses & Other Payables Net Position 2019 $ 83,886 1,645,681 187,082 236 $ 1,916,413 2018 n/a n/a n/a n/a n/a Variance n/a n/a n/a n/a n/a 10 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) Below are charts reflecting the assets of GEAP Plus, the maturity distribution of holdings, and account holder information at June 30, 2019. Historical information can be found on the website at www.ost.ga.gov. GEAP Plus Asset Detail CD 5.33% Corporate 13.82% FFCB 0.10% GF1 2.87% CP 5.00% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0.20% Overnight U.S. Treasuries 72.88% GEAP Plus Maturity Distribution 0.00% 2 - 7 days 2.20% 31 - 90 days 15.90% 91 - 180 days 81.80% 181+ days 11 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) GEAP Plus Account Holder Distribution OPEB K-12 27% OPEB State 73% LGIP Trust Reserve The LGIP Trust Reserve retains all unexpended administrative fees and interest earned on the reserve balance. According to O.C.G.A 36-83-8(l), "payments of amounts for administrative expenses shall be deemed contractually obligated funds held in trust for the benefit of the local government investment pool and shall not lapse" and will be held in trust for the benefit of the LGIP. The LGIP Trust Reserve is to be maintained for the benefit of all LGIP participants, whether pooled participants or separately managed accounts, and may be utilized at the discretion of the State Treasurer in the interest of the LGIP. As of June 30, 2019, the LGIP Trust Reserve's net position was $23.9 million reflecting an increase in net position of $6.1 million in FY19. The LGIP Trust Reserve's net position is primarily a function of the administrative fees collected from the three pools in the LGIP Trust less operating expenses related to management of the pools. During FY19, OST assessed an administrative fee of 5 basis points on the average daily balances of GF1 participant accounts. For GF1 Plus and GEAP Plus, OST assessed an administrative fee of 5 basis points on the daily fund balance. Change in Net Position GF1 Net investment income (i.e. total investment income plus miscellaneous income less administrative expenses) increased 90% compared to FY18. This rise was primarily due to an increase in GF1's portfolio yield from FY18. Deposits increased by 17%, and withdrawals increased by 23% in comparison to FY18. The Fed Funds target started FY19 at a range of 1.75% - 2.00% and ended the fiscal year at a range of 2.25% - 2.50%. The Fed raised interest rates two times in FY19. These moves in the Fed Funds target led to higher yields for GF1 as well as higher overall investment income and distribution of earnings to participants. GF1 distributes income to participants monthly, based on their average daily balance. Distributions include interest income based on stated rates (both received and accrued), amortization of discounts and premiums on a straight-line basis, realized investment gains and losses calculated on an amortized cost basis, and are net of investment expenses and administrative fees. 12 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) A summary of the changes in the new position for GF1 is presented below (amounts in thousands): Net Investment Income Pool Participant Deposits and Reinvestment of Distributions Less: Distribution of Earnings Less: Pool Participant Withdrawals Change in Net Position 2019 2018 Variance $ 325,521 $ 170,884 $ 154,637 62,917,147 325,022 62,922,500 $ (4,854) 53,648,826 170,685 51,187,194 $ 2,461,831 9,268,321 154,337 11,735,306 $ (2,466,685) GF1 Average Monthly Balances Billions $18 FY 2019 $16 $14 $12 FY 2018 $10 $8 $6 $4 $2 $0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY 2018 FY 2019 GF1 Plus Net investment income (i.e. total investment income plus miscellaneous income less administrative expenses) increased 67% compared to FY18. This rise was primarily due to an increase in the GF1 Plus portfolio yield from FY18. Deposits increased by 75%, and withdrawals decreased by 42% in comparison to FY18. The decrease in withdrawals was primarily the result of a transfer of approximately $1.6 billion of OPEB funds in FY 18 from GF1 Plus to GF1 for the investment of the OPEB Trust in FY19. A summary of the changes in the net position for GF1 Plus is presented below (amounts in thousands): Net Investment Income Pool Participant Deposits and Reinvestment of Distributions Less: Distribution of Earnings Less: Operating Expense Less: Pool Participant Withdrawals Change in Net Position 2019 2018 Variance $ 63,928 $ 38,233 $ 25,695 2,644,161 62,777 239 1,305,000 $ 1,340,073 1,506,754 1,137,407 38,111 24,666 151 88 2,259,643 (954,643) $ (752,918) $ 2,092,991 13 Billions Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) GF1 Plus Average Monthly Balances $3.5 FY 2018 $3.0 $2.5 $2.0 FY 2019 $1.5 $1.0 $0.5 $0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY 2018 FY 2019 GEAP Plus GEAP Plus was established in July of FY19 as an investment for the OPEB Trust. GEAP Plus was initially funded with approximately $1.6 billion of OPEB Trust funds and received another contribution of OPEB funds in January 2019 of approximately $558 million. Earned interest was retained in each of the nine TMPs. In accordance with the OPEB Trust Policy, funds from each TMP as they matured were partly distributed for reinvestment in equity investments managed by the Division of Investment Services of the Teachers Retirement System of Georgia with the remainder principal and interest reinvested in additional TMPs. A summary of the changes in the net position for GEAP Plus is presented below (amounts in thousands): Net Investment Income Pool Participant Deposits and Reinvestment of Distributions Less: Distribution of Earnings Less: Operating Expense Less: Pool Participant Withdrawals Change in Net Position 2019 $ 42,329 3,083,361 41,639 684 1,166,954 $ 1,916,413 2018 n/a n/a n/a n/a n/a n/a Variance n/a n/a n/a n/a n/a n/a LGIP Trust Reserve The LGIP Trust Reserve retains all unexpended administrative fees and interest earned on the reserve balance. The LGIP Trust Reserve grew $6.1 million from $17.8 million in FY18 to $23.9 million in FY19. This resulted in a 34% change in net position of the LGIP Trust Reserve for FY19. Interest income on the LGIP Trust Reserve increased by 122% due to an increase in the yield on its investments. Administrative fees from the pools in the Trust increased by 8% compared to FY18. 14 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) Monthly Yield GF1 The annualized monthly net yield distributed to participants represents the annualized percent return of GF1 investments based on net investment income distributed to participants' average daily balances in the pool. GF1's yield is closely tied to the Fed Funds target which is a rate to which other money market rates are anchored. GF1 invests in high quality investments that are permitted by the OST Investment Policy, as approved by the State Depository Board. These maturities are typically 397 days or less. GF1 Monthly Net Yields 3.00% 2.50% FY 2019 2.00% 1.50% 1.00% FY 2018 0.50% 0.00% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY 2018 FY2019 15 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) GF1 Plus The monthly net yield represents the annualized percent return of GF1 Plus investments. GF1 Plus performance is measured against the net yield for GF1. GF1 Plus Monthly Net Yields 3.00% FY 2019 2.50% 2.00% 1.50% 1.00% FY 2018 0.50% 0.00% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY 2018 FY 2019 GEAP Plus The monthly net yield represents the annualized percent return of GEAP Plus investments. GEAP Plus TMPs are invested in obligations of the U.S. Treasury, obligations of U.S. Government Sponsored Entities, and up to 35% in high quality credit instruments. Each TMP seeks to achieve a return for a given holding period that outperforms the return of a similar maturity U.S. Treasury. GEAP Plus Monthly Net Yield 2.80% 2.70% 2.60% FY 2019 2.50% 2.40% 2.30% 2.20% 2.10% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY 2019 16 Local Government Investment Pool Trust Management's Discussion and Analysis (Unaudited) FY20 Outlook On July 1, 2019 GEAP launched with funding from GEAP Plus. GEAP, an offering of the LGIP Trust, is a series of TMPs that is expected to be offered to state and local government entities in the second half of FY 20. GEAP is an investment vehicle for eligible participants to invest funds for periods of six months to two years. Eligible investments for GEAP may include non-negotiable certificates of deposit ("CDs") through banks doing business with the state of Georgia and its municipalities. Such CDs should increase the TMP portfolio yields and will be secured by either the Georgia Secure Deposit Program or FDIC insurance. 17 (This page intentionally left blank) BASIC FINANCIAL STATEMENTS Local Government Investment Pool Trust Statement of Net Position As of June 30, 2019 (amounts in thousands) Assets Cash and Cash Equivalents $ Investments in Securities Accrued Interest and Other Receivables TOTAL ASSETS Liabilities Accrued Expenses and Other Payables TOTAL LIABILITIES TOTAL NET POSITION $ Net Position Consists of Net Position Held in Trust for Internal Pool Participants $ Net Position Held in Trust for External Pool Participants Restricted Reserve Funds Unrealized Fair Market Value Adjustment TOTAL NET POSITION $ 10,690,434 8,267,660 198,816 19,156,910 22,260 22,260 19,134,650 9,819,089 9,297,256 17,772 533 19,134,650 The notes to the financial statements are an integral part of this statement. 20 Local Government Investment Pool Trust Statement of Changes in Net Position For the Fiscal Year Ended June 30, 2019 (amounts in thousands) Additions Interest Income $ Net Increase (Decrease) in Fair Value of Investments Net Investment Income Pool Participant Deposits and Reinvestment of Distributions TOTAL ADDITIONS $ Deductions Distribution of Earnings $ Operating Expenses Pool Participant Withdrawals TOTAL DEDUCTIONS $ Change in Net Position Net Position Beginning of Year End of Year $ 315,376 125,164 440,540 63,494,801 63,935,341 429,438 3,576 60,321,036 60,754,050 3,181,291 15,953,359 19,134,650 The notes to the financial statements are an integral part of this statement. 21 (This page intentionally left blank) Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (1) Significant Accounting Policies Reporting Entity Georgia Fund 1 ("GF1"), Georgia Fund 1 Plus ("GF1 Plus"), and Georgia Extended Asset Pool Plus ("GEAP Plus") are investment pools of the Local Government Investment Pool Trust (the "LGIP Trust" or "Trust") and are investment pools for the State of Georgia (the "State") and local governments, including state agencies, colleges and universities, counties, school districts, special districts, or any department, agency, or board of a political subdivision. The State Depository Board ("Board") prescribes cash management policies and procedures for the State and provides oversight for the pools. The Board meets regularly and is comprised of the Governor, the State Chief Financial Officer, the State Accounting Officer, the Commissioner of Transportation, the Commissioner of Banking and Finance, the State Revenue Commissioner, and the State Treasurer. The pools are managed by the Office of the State Treasurer ("OST"). The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America as issued by the Governmental Accounting Standards Board ("GASB") which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Subsequent events, if any, through the date the financial statements were issued have been evaluated in the preparation of the financial statements. All applicable pronouncements required by GASB are presented in the financial statements. The pools in the Trust are not registered with the SEC. GF1 is managed as a stable Net Asset Value ("NAV") pool. Investments are restricted to those enumerated in O.C.G.A. 50-5A-7, 50-17-2, and 50-17-63. The primary objectives of the pool are safety of capital, liquidity, investment income, and diversification. GF1 participant deposits are not guaranteed or insured by any bank, the Federal Deposit Insurance Corporation ("FDIC"), the State, or any other government agency. It is possible to lose money investing in GF1. OST operates GF1 and provides monthly statements of balances and interest income to participants on an amortized cost basis. While GF1 transacts at $1.00 based on the amortized cost of the investments in the pool, GF1 participants should report their investments in GF1 at their respective fiscal year end at fair market value. The fair market valuation factor for GF1 at June 30, 2019, was $1.00. GF1 Plus is managed as a stable NAV pool. It was established as an alternative to GF1 to provide higher yields by increasing credit exposure. The credit portion of the pool is managed by a subadvisor. GF1 Plus participant deposits are not guaranteed or insured by any bank, the FDIC, the State, or any other government agency. It is possible to lose money investing in GF1 Plus. Similar to GF1, GF1 Plus transacts at $1.00 based on the amortized cost of the investments in the pool. Participants should report their investments in GF1 Plus at fair value. The current fair market valuation factor for GF1 Plus at June 30, 2019, was $1.00. GEAP Plus is a series of Target Maturity Portfolios ("TMPs") with maturities ranging from 6 months to 5 years. The participant account value and yield are determined by using the amortized cost valuation method. This involves initially valuing a security at cost and thereafter accreting to maturity any discount or amortizing to maturity any premium, regardless of the impact of changes in interest rates in the market value of the underlying investments. GEAP Plus is managed by a subadvisor overseen by OST. The accompanying financial statements present the financial position of only GF1, GF1 Plus, GEAP Plus, and the LGIP Trust Reserve, and they do not include any other agencies or component units of the State or any other funds of OST. In the State's Comprehensive Annual Financial Report, the Trust is not reported as a separate fund. Instead, the State's portion of the Trust is reported on the balance sheet as "Pooled 23 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (1) Significant Accounting Policies (Continued) Investments in State Treasury." The portion of the Trust belonging to external participating institutions is reported as the Investment Trust Fund. Changes in Financial Accounting and Reporting In FY19, the Trust did not implement any new GASB Statements. Basis of Accounting The accompanying statements are prepared based on the flow of economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized in the accounting period in which they are earned and realized. Expenses are recognized in the period incurred. Cash and Cash Equivalents Cash includes bank deposits, which are reported at carrying value. Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near the maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, investments with original maturities of three months or less meet this definition. Investments All pools generally value investments as follows: All investments except repurchase agreements, non-negotiable certificates of deposit ("CD"), direct-issued commercial paper, and other such nonparticipating investments are priced at fair value. Per GASB 31, repurchase agreements, non-negotiable CD's, direct-issued commercial paper, and other such nonparticipating investments are carried at cost because they are nonparticipating contracts that do not capture interest rate changes in their value. Security transactions are accounted for on a trade date basis which means that the purchases and sales of securities are recorded on the day the trade takes place with a corresponding payable or receivable. Investment Income, Gains, and Losses, Expenses, and Distributions GF1 is managed to maintain a stable $1.00 NAV. For purposes of calculating earnings to each participant, all investments are valued at amortized cost. The pool distributes income to participants monthly, based on their average daily balance. Distributions include interest income based on stated rates (both received and accrued), amortization of discounts and premiums on a straight-line basis, realized investment gains and losses calculated on an amortized cost basis, and are net of investment expenses and administrative fees. Unrealized gains (losses) are reported in the equity section of the Statement of Net Position as "Unrealized Fair Market Value Adjustment." Changes in the fair value of marketable securities are recognized at the end of the fiscal year. GF1 Plus is managed to maintain a stable $1.00 NAV and accrues investment income on a daily basis. GF1 Plus distributes income to participants on a monthly basis and reinvests at $1.00 based on the amortized cost of the investments in the pool. GEAP Plus is comprised of a series of individual TMPs. Each TMP is managed to provide principal and income upon maturity consistent with maintaining preservation of principal if held to maturity. The participant account values and yields are determined by using the amortized cost valuation method. 24 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (1) Significant Accounting Policies (Continued) Securities are initially valued at cost. Thereafter any discounts are accreted and any premiums are amortized to maturity, regardless of the impact of changes in interest rates on the market value of securities. All earned interest is reinvested within the respective TMP and paid at maturity. Administrative Fees and LGIP Trust Reserve According to O.C.G.A. 36-83-8(l), "payments of amounts for administrative expenses shall be deemed contractually obligated funds held in trust for the benefit of the local government investment pool and shall not lapse" and will be held in trust (the "LGIP Trust Reserve") for the benefit of the LGIP. The LGIP Trust Reserve shall retain all unexpended administrative fees and interest earned on the reserve balance. During FY19, OST assessed an administrative fee of 5 basis points on the average daily balances of GF1 participant accounts. For GF1 Plus and GEAP Plus, OST assessed an administrative fee of 5 basis points on the daily fund balance. The total fees assessed were $8.3 million, of which $7.1 million were GF1 fees, $1 million were GF1 Plus fees, and $175 thousand were GEAP Plus fees. The LGIP Trust Reserve may be utilized at the discretion of the State Treasurer in the interest of the LGIP. According to the Trust Policy, administrative fees collected from LGIP participants are to be used to fund expenses related to carrying out the investment functions and operations of the OST. The total LGIP Trust expenses paid from the administrative fees collected were $2.6 million resulting in a net increase in the LGIP Trust Reserve of $6.1 million from administrative fees and interest, leaving a balance of $23.9 million in the LGIP Trust Reserve. Investments in Georgia Fund 1 GF1 Plus, GEAP Plus, and the LGIP Trust Reserve invested a portion of their assets in GF1. This portion appears in the Statement of Net Position for GF1 Plus, GEAP Plus, and the LGIP Trust Reserve under the "Cash and Cash Equivalent" account. (2) Subsequent Event On July 1, 2019 GEAP launched with funding from GEAP Plus. GEAP, an offering of the LGIP Trust, is a series of TMPs that is expected to be offered to state and local government entities in the second half of FY 20. GEAP is an investment vehicle for eligible participants to invest funds for periods of six months to two years. Eligible investments for GEAP may include non-negotiable certificates of deposit ("CDs") through banks doing business with the state of Georgia and its municipalities. Such CDs should increase the TMP portfolio yields and will be secured by either the Georgia Secure Deposit Program or FDIC insurance. (3) Investment Disclosures Interest Rate Risk Interest rate risk is the risk associated with changes in interest rates that could adversely affect the fair value of an investment. GF1 and GF1 Plus use the weighted average maturity ("WAM") method to analyze interest rate risk. WAM expresses the average time until maturity for the investments in a portfolio weighted to reflect the dollar size of the individual investments within the portfolio. WAM is an acceptable method for reporting interest rate risk according to GASB 40. OST seeks to match investment terms to the cash requirements of the pool. 25 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (3) Investment Disclosures (Continued) GF1 At June 30, 2019, GF1's WAM was as follows: Investment Type Bank Deposits Held for Investment Purposes Commercial Paper Repurchase Agreements Supranational Obligations U.S. Agency Obligations Total GF1 WAM (Days) GF1 Plus At June 30, 2019, The WAM for GF1 Plus was as follows: Carrying Value (amounts in thousands) $ 4,047,107 310,326 4,161,500 2,795,742 3,144,503 $ 14,459,178 WAM (Days) 1 1 6 56 116 38 Investment Type Asset-Backed Securities Bank Deposits Held for Investment Purposes Commercial Mortgage-Backed Securities Commercial Paper Corporates Negotiable Certificate of Deposit Repurchase Agreements Sovereign Credit Supranational Obligations U.S. Agency Obligations U.S. Agency Obligations Guaranteed U.S. Treasury Obligations Total GF1 Plus WAM (Days) Carrying Value (amounts in thousands) $ 15,005 57,275 403 318,771 135,941 447,696 1,696,250 10,000 74,000 10,799 2,579 37,951 $ 2,806,670 WAM (Days) 236 1 392 83 211 131 73 276 19 201 3624 45 92 26 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (3) Investment Disclosures (Continued) GEAP Plus GEAP Plus uses the duration method, an acceptable method for reporting interest rate risk per GASB 40, to analyze interest rate risk. Duration is the approximate percentage change in value for a 100 basis point change in rates. GEAP Plus is a series of TMPs with an intent to hold securities to maturity. The individual TMPs are not actively managed to respond to interest rate changes. At June 30, 2019, the duration for GEAP Plus was as follows: Investment Type Commercial Paper Corporates Negotiable Certificate of Deposit U.S. Agency Obligations U.S. Treasury Obligations Total Carrying Value (amounts in thousands) $ 95,022 263,620 101,951 2,009 1,212,079 $ 1,674,681 GEAP Plus Duration LGIP Trust Reserve At June 30, 2019, the LGIP Trust Reserve's WAM was as follows: Duration 0.014 0.131 0.017 0.002 0.724 0.888 Investment Type Bank Deposits Held for Investment Purposes LGIP Trust Reserve WAM (Days) Carrying Value (amounts in thousands) $ 17,540 WAM (Days) 1 1 Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the holder of the investment. OST utilizes a counterparty risk assessment model to assess the credit risk of counterparties that have been approved to serve as repurchase agreement counterparties or depositories. OST has assigned credit limits to each counterparty based upon the counterparty risk assessment model which incorporates market indicators, default probabilities, issuer research and issuer ratings to determine maximum credit exposure per institution, term of investment for respective counterparties, and collateralization requirements in accordance with the OST Investment Policy. The nationally recognized statistical rating organizations ("NRSROs") rate the long-term senior debt (with original maturity longer than 1 year) of the government-sponsored enterprises ("GSEs") with split ratings equivalent to AAA and AA+ ratings. In the credit risk disclosure tables, the rating for the long-term senior debt of the GSEs is listed as AA. The short-term rating of the GSEs is equivalent to an A-1+ rating. The issuing GSEs are rated but specific bonds are not always individually rated. 27 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (3) Investment Disclosures (Continued) GF1 At June 30, 2019, the pool's securities and underlying collateral for repurchase agreements were rated as follows (amounts in thousands): Long-Term Ratings Short-Term Credit Risk Investments AAA AA A BBB A-1+ Carrying Value Commercial Paper $ - $ - $ - $ - $ 310,326 $ 310,326 Repurchase Agreements 153,469 2,967,646 127,765 303,747 - 3,552,627 Supranational Obligations 164,782 - - - 2,630,960 2,795,742 U.S. Agency Obligations - 933,919 - - 2,210,584 3,144,503 Total Credit Risk Investments $ 318,251 $ 3,901,565 $ 127,765 $ 303,747 $ 5,151,870 $ 9,803,198 Repurchase Agreements Backed by: U.S. Agency Obligations Explicitly Guaranteed 360,474 U.S. Treasury Obligations 248,399 Total Securities $ 10,412,071 GF1 Plus At June 30, 2019, the pool's securities and underlying collateral for repurchase agreements were rated as follows (amounts in thousands): Credit Risk Investments Asset-Backed Securities Commercial Mortgage-Backed Securities AAA $ 15,005 279 Long-Term Ratings AA A $ - $ - 124 - BBB $ - - A-1+ $ - - Short-Term A-1 $ - - A-2 $ - - Carrying Value $ 15,005 403 Commercial Paper - - - - 29,916 288,855 - 318,771 Corporates Negotiable Certificate of Deposit - 45,929 89,007 1,005 - - - 135,941 - - - - 205,000 227,696 15,000 447,696 Repurchase Agreements 59,037 65,362 354,094 1,197,579 - - - 1,676,072 Sovereign Credit Supranational Obligations - - 10,000 - - - - 10,000 74,000 - - - - - - 74,000 U.S. Agency Obligations - 10,799 - - - - - 10,799 Total Credit Risk Investments $ 148,321 $ 122,214 $ 453,101 $ 1,198,584 $ 234,916 $ 516,551 $ 15,000 $ 2,688,687 U.S. Agency Obligations Explicitly Guaranteed U.S. Treasury Obligations 2,579 37,951 Repurchase Agreements Backed by: U.S. Agency Obligations Explicitly Guaranteed U.S. Treasury Obligations Total Securities 20,177 1 $ 2,749,395 GEAP Plus At June 30, 2019, the pool's securities were rated as follows (amounts in thousands): Long-Term Ratings Short-Term Credit Risk Investments AAA AA A BBB A-1+ A-1 Commercial Paper $ - $ - $ - $ - $ 25,550 $ 69,472 Corporates 2,363 71,220 184,000 6,037 - - Negotiable Certificate of Deposit - - - - 47,000 54,951 U.S. Agency Obligations - 2,009 - - - - Total Credit Risk Investments $ 2,363 $ 73,229 $ 184,000 $ 6,037 $ 72,550 $ 124,423 U.S. Treasury Obligations Total Securities Custodial Credit Risk Carrying Value $ 95,022 263,620 101,951 2,009 $ 462,602 1,212,079 $ 1,674,681 Custodial credit risk for deposits is the risk that, in the event of a bank failure, the Trust's deposits may not be fully recovered. The OST Investment Policy specifies safety of capital, liquidity, investment return and diversification as its objectives. In carrying out these objectives, OST maintains balances in accounts in banks approved for investment by the Board. 28 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (3) Investment Disclosures (Continued) As of June 30, 2019, bank deposits of the Trust were as follows (amounts in thousands): Georgia Fund 1 Georgia Fund 1 Plus GEAP Plus LGIP Trust Reserve Total Insured or Collateralized $ 3,071,043 55,001 24 17,540 $ 3,143,608 Uninsured and Uncollateralized $ 976,064 2,274 - - $ 978,338 Total Bank Balance $ 4,047,107 57,275 24 17,540 $ 4,121,946 Concentration of Credit Risk Concentration of credit risk is the risk associated with losses that may occur due to lack of diversification. Concentration of credit risk is mitigated by limiting the percentage of total investments with any one issuer. OST limits concentration of credit risk by establishing maximum issuer exposure limits based on criteria established using OST's counterparty risk assessment model. GASB 40 requires the disclosure of the concentration of credit risk in any issuer that represents 5% or more of total investments. As of June 30, 2019, the concentration of credit risk for the pools in the Trust is as follows: Approximately 42.2% of GF1 was invested in U.S. agency obligations not explicitly guaranteed by the U.S. Government or in repurchase agreements collateralized with U.S. agency obligations not explicitly guaranteed by the U.S, and 19.3% was invested in supranational obligations. Fair Value Measurements In accordance with GASB 72, some investments in the pools are measured using inputs divided into three fair value hierarchies: Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that a government can access at the measurement date. Level 2 Inputs, other than quoted prices included within Level 1, that are observable for an asset or liability, either directly or indirectly. Matrix pricing is used for the securities classified in Level 2 of the fair value hierarchy in the Trust. Level 3 Unobservable inputs for an asset or liability. Fixed-income securities use price evaluations provided by State Street Corporation, the Trust's custodian. The Trust reports recurring fair value measurements. GF1 At June 30, 2019, GF1 has the following investments reported at fair value (amount in thousands): Investment Type Supranational Obligations U.S. Agency Obligations Total Level 1 $ - - $ - Level 2 $ 2,795,742 3,144,503 $ 5,940,245 Level 3 $ - - $ - Fair Value $ 2,795,742 3,144,503 $ 5,940,245 29 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (3) Investment Disclosures (Continued) GF1 Plus At June 30, 2019, GF1 Plus has the following investments reported at fair value (amount in thousands): Investment Type Level 1 Level 2 Level 3 Fair Value Asset-Backed Securities $ - $ 15,005 $ - $ 15,005 Commercial Mortgage-Backed Securities - 403 - 403 Commercial Paper - 318,771 - 318,771 Corporates - 135,941 - 135,941 Negotiable Certificate of Deposit - 447,696 - 447,696 Sovereign Credit - - 10,000 10,000 Supranational Obligations - 74,000 - 74,000 U.S. Agency Obligations - 10,799 - 10,799 U.S. Agency Obligations Guaranteed - 2,579 - 2,579 U.S. Treasury Obligations 37,951 - - 37,951 Total $ 37,951 $ 1,005,194 $ 10,000 $ 1,053,145 GEAP Plus At June 30, 2019, GEAP Plus has the following investments reported at fair value (amount in thousands): Investment Type Level 1 Level 2 Level 3 Fair Value Commercial Paper $ - $ 95,022 $ - $ 95,022 Corporates - 263,620 - 263,620 Negotiable Certificate of Deposit - 101,951 - 101,951 U.S. Agency Obligations - 2,009 - 2,009 U.S. Treasury Obligations 1,212,079 - - 1,212,079 Total $ 1,212,079 $ 462,602 $ - $ 1,674,681 The remaining investments in the Trust are exempt from GASB 72's disclosure requirement because they are not reported at fair value and are instead valued using cost-based measures (4) Equity of Internal and External Participants Per GASB 31, "The external portion of an external investment pool is the portion that belongs to legally separate entities that are not part of the sponsoring government's financial reporting entity. The internal portion of each external investment pool is the portion that belongs to the primary government and its component units." The following table describes the equity of internal and external participants in the pool's net position, and shows that net position is composed of participants' account balances and the unrealized fair market value adjustment (amounts in thousands): 30 Local Government Investment Pool Trust Notes to the Financial Statements Year Ended June 30, 2019 (4) Equity of Internal and External Participants (Continued) Internal Participants External Participants Restricted Reserve Funds Unrealized Fair Market Value Adjustment Total Net Position Georgia Fund 1 $ 5,321,629 9,144,745 - 531 $ 14,466,905 Georgia Fund 1 Plus $ 2,653,776 152,511 - 2 $ 2,806,289 GEAP Plus $ 1,916,413 - $ 1,916,413 Trust Reserve $ - - 23,936 - $ 23,936 Eliminations Total $ (72,729) $ 9,819,089 - 9,297,256 (6,164) 17,772 - 533 $ (78,893) $ 19,134,650 (5) Involuntary Participation GASB 31 requires the disclosure of any involuntary participation in the Trust. The Statement defines involuntary participants as "those that are required by legal provisions to invest in the external investment pool." O.C.G.A. 50-5A-7 requires certain internal funds to be invested by the State Treasurer but does not require the funds to be invested in the Trust. External participants are voluntary participants of the pools. 31 (This page intentionally left blank) SUPPLEMENTARY INFORMATION Local Government Investment Pool Trust Supplementary Information Combining Statement of Net Position As of June 30, 2019 (amounts in thousands) Assets Cash and Cash Equivalents Investments in Securities Accrued Interest and Other Receivables TOTAL ASSETS Liabilities Accrued Expenses and Other Payables TOTAL LIABILITIES TOTAL NET POSITION Georgia Fund 1 Georgia Fund 1 Plus GEAP Plus Trust Reserve Eliminations Total $ 9,427,343 $ 5,031,835 7,727 14,466,905 1,234,393 $ 83,886 $ 1,590,144 1,645,681 4,007 2,828,544 187,082 1,916,649 23,705 $ - 231 23,936 (78,893) $ - 10,690,434 8,267,660 (231) (79,124) 198,816 19,156,910 $ 14,466,905 $ 22,255 236 22,255 236 2,806,289 $ 1,916,413 $ 23,936 $ (231) (231) (78,893) $ 22,260 22,260 19,134,650 Net Position Consists of Net Position Held in Trust for Internal Pool Participants $ 5,321,629 $ Net Position Held in Trust for External Pool Participants 9,144,745 Restricted Reserve Funds(1) - Unrealized Fair Market Value Adjustment 531 TOTAL NET POSITION $ 14,466,905 $ 2,653,776 $ 1,916,413 $ 152,511 - - - 2 - 2,806,289 $ 1,916,413 $ - $ 23,936 23,936 $ (72,729) $ 9,819,089 (6,164) 9,297,256 17,772 (78,893) $ 533 19,134,650 (1) See Note 1 to the Financial Statements subsection Administrative Fees and LGIP Trust Reserve for more information on the Reserve Funds. 34 Local Government Investment Pool Trust Supplementary Information Combining Statement of Changes in Net Position For the Fiscal Year Ended June 30, 2019 (amounts in thousands) Additions Interest Income Net Increase (Decrease) in Fair Value of Investments Less: Administrative Fees Net Investment Income Pool Participant Deposits and Reinvestment of Distributions TOTAL ADDITIONS Georgia Fund 1 $ 222,738 109,882 (7,099) 325,521 62,917,147 $ 63,242,668 Georgia Fund 1 Plus $ 60,577 4,378 (1,027) 63,928 2,644,161 $ 2,708,089 GEAP Plus Trust Reserve $ 31,600 $ 10,904 (175) 42,329 3,083,361 $ 3,125,690 $ 461 8,301 8,762 8,762 Eliminations $ - - (5,149,868) $ (5,149,868) Total $ 315,376 125,164 - 440,540 63,494,801 $ 63,935,341 Deductions Distribution of Earnings $ 325,022 $ 62,777 $ 41,639 $ Operating Expenses - 239 684 Pool Participant Withdrawals 62,922,500 1,305,000 1,166,954 TOTAL DEDUCTIONS $ 63,247,522 $ 1,368,016 $ 1,209,277 $ - $ - $ 429,438 2,653 - 3,576 - (5,073,418) 60,321,036 2,653 $ (5,073,418) $ 60,754,050 Change in Net Position (4,854) 1,340,073 1,916,413 6,109 (76,450) 3,181,291 Net Position Beginning of Year End of Year 14,471,759 1,466,216 - $ 14,466,905 $ 2,806,289 $ 1,916,413 $ 17,827 23,936 $ (2,443) 15,953,359 (78,893) $ 19,134,650 35 (This page intentionally left blank) SECTION II INTERNAL CONTROL AND COMPLIANCE (This page intentionally left blank) 40