Investment of State Funds

All funds within the State Treasury are invested in accordance with Georgia law and the investment policy established by the State Depository Board (the “Investment Policy”).  The Investment Policy has four objectives and each portfolio is managed in a manner that is intended to:  (1) preserve principal; (2) ensure adequate liquidity; (3) obtain a market rate of return taking cash flow requirements into consideration; and (4) diversify the portfolio.  The Investment Policy also sets forth various credit constraints and limitations, as discussed more fully below.

Investment of State General Funds.  Under Georgia law the State may invest its general fund monies in:  (i) bankers’ acceptances; (ii) commercial paper; (iii) bonds, bills, certificates of indebtedness, notes, or other obligations of the United States and its subsidiary corporations and instrumentalities or entities  sanctioned  or  authorized  by  the  United  States  government  including,  but  not  limited  to, obligations or securities issued or guaranteed by Banks for Cooperatives regulated by the Farm Credit Administration, the Commodity Credit Corporation, Farm Credit Banks regulated by the Farm Credit Administration, Federal Assets Financing Trusts, the Federal Financing Bank, Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financial Assistance Corporation chartered by the Farm Credit Administration, the Government National Mortgage Association, the Import-Export Bank, Production Credit Associations regulated by the Farm Credit Administration, the Resolution Trust Corporation, and the Tennessee Valley Authority; (iv) obligations of corporations organized under the laws of Georgia or any other state but only if the corporation has a market capitalization equivalent of at least $100 million; provided, however, that such obligation shall be listed as investment grade by a nationally recognized rating agency; (v) bonds, notes, warrants, and other securities not in default which are the direct obligations of the government of any foreign country which the International Monetary Fund lists as an industrialized country and for which the full faith and credit of such government has been pledged for the payment of principal and interest, provided that such securities are  listed  as  investment  grade  by  a  nationally  recognized  rating  agency;  or  (vi) obligations  issued, assumed,  or  guaranteed  by  the  International  Bank  for  Reconstruction  and  Development  or  the International Financial Corporation, provided that such securities are listed as investment grade by a nationally recognized rating agency and are fully negotiable and transferable.  The Depository Board may also permit the lending of any securities of the type identified in this paragraph.

Georgia law also provides that the State may invest in the securities described above by selling and purchasing such obligations under agreements to resell or repurchase the obligations at a date certain in the future at a specific price which reflects a premium over the purchase or selling price equivalent to a stated rate of interest (“Repurchase Agreements”).

Because of the credit constraints and limitations contained in the Investment Policy established by the State Depository Board, the State currently is authorized to invest the monies on deposit in its general fund in:  direct obligations of the United States Treasury; obligations unconditionally guaranteed by agencies of the United States government; obligations of subsidiary corporations and instrumentalities or entities sanctioned or authorized by the United States government; and other permitted investments subject to certain criteria established by statute and the State Depository Board which include, among other  things,  credit  and  diversification  requirements.     Such  other  permitted  investments  include: repurchase agreements, certificates of deposit, commercial paper, negotiated investment deposit agreements, prime bankers’ acceptances, obligations of the State or state agencies, obligations of other political subdivisions of the State, obligations of corporations, obligations issued by the government of any foreign country, obligations issued by the International Bank for Reconstruction and Development or the International Financial Corporation, and other such limitations as determined by the State Treasurer to be necessary for the preservation of principal, liquidity, or marketability of any of the portfolios.

Other State Treasury Investments.  The Office of the State Treasury (“OST”) manages the Local Government Investment Pools (comprised of “Georgia Fund 1” and the “Georgia Extended Asset Pool”). The local government monies invested in Georgia Fund 1 are commingled with State operating funds and State agencies’ funds in the Georgia Fund 1 portfolio.   Georgia Fund 1 maintains Standard & Poor’s ratings of AAAf for fund credit quality and S1+ for fund volatility.  The Georgia Extended Asset Pool consists of deposits of the State, State agencies, and local governments.   The Georgia Extended Asset Pool maintains Standard & Poor’s ratings of AA+f for fund credit quality and S1 for fund volatility.  The OST also manages investment portfolios for the Georgia State Financing and Investment Commission, the Georgia Department of Transportation, the Georgia Lottery for Education Account, the Department of Administration Services’ Risk Management Fund, the Department of Community Health State Health Benefits Plan, the Guaranteed Revenue Debt Common Reserve Fund, and the Revenue Shortfall Reserve Fund.

January 27, 2015