ST A T E O F L O U ISIA N A L E G ISL A T IV E A U D IT O R

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1 ST A T E O F L O U ISIA N A L E G ISL A T IV E A U D IT O R Louisiana Public Em ployees D eferred C om pensation Plan State of Louisiana Baton Rouge,Louisiana June Financialand C om pliance A udit D ivision D anielg.k yle,p h.d.,c PA, C FE Legislative A uditor

2 LEG ISLATIVE A UDIT A DVISO RY C O UNCIL M EM BERS Representative Francis C.Thom pson Acting Chairm an and Vice Chairm an SenatorRobert J.Barham SenatorW ilson E.Fields SenatorThom as A.G reene Senator C raig F.Rom ero Representative F.Charles M cm ains,jr Representa tive Edw in R.M urray Representative W arren J.Triche,Jr. DanielG.Kyle,Ph.D.,C PA,C FE DIRECTO R O F FINA NCIA L A ND CO M PLIA NCE A UDIT A lbert J.Robinson,Jr.,CPA This docum entis produced by the Legislative Auditor,State oflouisiana,post O fice Box 94397, Baton Rouge, Louisiana in accordance w ith Louisiana Revised Statute 24:513. Twenty-eightcopies ofthis public docum ent were produced atan approximate costof$ This m aterialwas produced in acco rdance w ith the standards forstate agencies established pursuantto R.S. 43:31. A copy ofthis docum entis available on the Legislative Auditor's W eb site atwww.la state.la.us. in com pliance w ith the Am ericans W ith Disabilities Act, if you need special assistance relative to this docum ent,orany docum ents ofthe Legislative Auditor, please contactw ayne "Skip"Irw in,directorofadm inistration,at225/

3 LO UISIA NA PUBLIC EM PLOY EES D EFER R ED C O M PENSA TIO N PLA N STA TE O F LO U ISIA NA Baton Rouge,Louisiana G eneralpurpose FinancialStatem ent and IndependentAuditor's Reports As ofdecem ber31,1998 W ith Required Supplem entary Inform ation Underthe provisions ofstate law,this reportis a public docum ent. A copy ofthis reporthas been subm itted to the G overnor,to the Attorney G eneral,and to other public ofi cials as required by state law. A copy ofthis report has been m ade avaitable for public inspection at the Baton Rouge ofi ce of the Legislative,L~uditor. June 9,1999

4 LO UISIA NA PUBLIC EM PLO YEES D EFER R ED C O M PENSA TIO N PLA N STATE O F LO UISIA NA G eneralpurpose FinancialStatem ent and IndependentAuditor's Reports As ofdecem ber31,1998 W ith Required Supplem entary Inform ation CO NTENTS Statem ent Page N o ndependenta uditor's Report on the FinancialStatem ent 2 G eneralpurpose Financia(Statem ent Balance Sheet-A lfund Types and AccountG roups A Notes to the FinancialStatem ent Supplem entary Inform ation Required by the G overnm entalaccounting Standards Board Required Supplem entary Inform ation -Year2000 Issue 15 Exhibit O therreport Required by G overnm enta uditing Standards - Reporton Com pliance and on internalcontrolo verfinancial Reporting Based on an A uditofthe FinancialStatem ent Perform ed in Accordance W ith G overnm entauditing Standards A

5 )ANIEI,G.KYLli,PILD.,CPA,CFE I,EGISI,ATIVE AUDITOR OFFICE OF LEG ISLA TIV E A U D ITO R STA TE O F LO UISIA N A BATON ROU GE,LOU ISIAN A "/ M ay 26, NORTI1TIIIRD STRI~ET POST OFFICE BOX TELEPIIONI~.:(225) FACSIMILE: (225) ndependenta uditor's Report on the FinancialStatem ent LO UISIA NA PUBLIC EM PLOYEES DEFERRED CO M PENSATIO N CO M M ISSIO N LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLAN STATE O F LO UISIANA Baton Rouge,Louisiana W e have audited the accom panying generalpurpose financialstatem entofthe Louisiana Public Em ployees Deferred C om pensation Plan,a com ponent unit of the State of Louisiana,as of Decem ber31,1998,as listed in the foregoing table ofcontents. This financialstatem entis the responsibility ofm anagem entofthe Louisiana Public Em ployees Deferred C om pensation Plan. O urresponsibility is to express an opinion on this financialstatem entbased on ouraudit. W e did notauditthe financialstatem ents ofthe G overnm entg uaranteed Fund IV,an investm ent productm anaged by G reat-w estlife & Annuity Insurance Com pany,w hich represents 17.6% of the totalassets of the Louisiana Public Em ployees D eferred C om pensation Plan A gency Fund. Those statem ents w ere audited by otherauditors w hose report has been furnished to us, and our opinion, insofar as it relates to the am ounts included for the G overnm ent G uaranteed F:und IV,is based on the report ofthe otherauditors. W e conducted our audit in accordance w ith genera ly accepted auditing standards and the standards applicable to financialaudits contained in G overn m enta uditing Standards,issued by the Com ptro ler G eneralof the United States. Those standards require that we plan and perform the auditte obtain reasonable assurance aboutw hetherthe financialstatem entis free ofm aterialm isstatem ent. An auditincludes exam ining,on a testbasis,evidence supporting the am ounts and disclosures in the financialstatem ent. An audit also includes assessing the accounting principles used and significant estim ates m ade by m anagem ent, as we l as evaluating the overa lfinancialstatem entpresentation. W e believe thatourauditand the report ofthe otherauditors provide a reasonable basis forouropinion. In our opinion,based on our audit and the report of the other auditors,the generalpurpose financial statem ent referred to above presents fairly, in a l m aterial respects, the financial position ofthe Louisiana Public Em ployees Deferred Com pensation Plan as ofdecem ber31, 1998,in conform ity w ith genera ly accepted accounting principles.

6 LEGISLATIVE A UDITOR LO UISIANA PUBLIC EM PLOYEES D EFERRED CO M PENSATIO N CO M M ISSIO N LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STA TE O F LO UISIA NA AuditReport,Decem ber31,1998 In accordance w ith G overnm ent A uditing Standards, w e have also issued a report dated M ay 26,1999,on ourconsideration ofthe Louisiana Public Em ployees Deferred Com pensation Plan's internalcontrolover financialreporting and on ourtests of its com pliance w ith certain previsions oflaw s,regulations,and contracts. The Year 2000 supplem entary inform ation on page 15 is not a required part of the basic financialstatem ent,butis supplem entary inform ation required by the G overnm entalaccounting Standards Board. W e have applied certain lim ited procedures,w hich consisted principa ly of inquiries of m anagem ent regarding the m ethods of m easurem ent and presentation of the supplem entary inform ation. However,we did notauditthe inform ation and do notexpress an opinion on it. In addition,we do notprovide assurance thatthe Louisiana Public Em ployees Deferred Com pensation Plan is orw ilbecom e Year2000 com pliant,thatthe plan's Year2000 rem ediation eforts w ilbe successfulin w hole orin part,orthatparties w ith w hich the plan does business are orw ilbecom e Year2000 com pliant. BQ D:THC:PEP:ss [DErCOMP) Legislative A uditor

7 Statem ent A LO UISIA NA PUBLIC EM PLO YEES DEFERRED C O M PENSATIO N PLA N STATE O F LO UISIA NA A LL FUND TYPES A ND A CCO UNT G RO UPS Balance Sheet,Decem ber31,1998 FIDUCIARY FUND - ACCOUNT DEFERRED GROUP - COM PENSATION GENERAL PLAN - FIXED AGENCY FUND ASSETS TOTAL M EMORANDUM ONLY) ASSETS Cash (note 2) )nvestments (note 3) Cash surrendervalue oflife insurance (note 3) Contributions reco ivable Fixed assets-equipment(note 4) $204, ,747,462 1,067,376 1,431,162 $3,737 $204, ,747,462 1,067,376 1,431, TOTALASSETS $339,450,105 $3,737 $339,453,842 LIABILITfES AND FUND EQUITY Liabilities: Accounts payable Due to co mmission activity account(note 12) Due to participants TotalLiabilities Fund Equity -investm entin general fixed assets $204,105 64, ,161, NONE NONE $3,737 $204,105 Co4, ,161, TOTAL LIABILITIES AND FUND EQULTY $339,450,105 $3,737 $339,453,842 The accom panying notes are an integralpartofthis statem ent 4

8 LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STATE O F LO UISIA NA N otes to the FinancialStatem ent As ofdecem ber NTRO DUCTIO N As required by Louisiana Revised Statutes (R.S.) 42:130% 1309, the Louisiana Public Em ployees Deferred Com pensation Plan is supervised by the Louisiana Public Em ployees Deferred Com pensation Com m ission,a politicalsubdivision ofthe State oflouisiana w ithin the executive branch ofgovernm ent. The com m ission is com posed ofseven board m em bers w ho serve w ithout com pensation. The plan w as established to a low em ployees ofthe state to voluntarily electto contribute,through payro ldeductions,a portion oftheircom pensation into the plan forthe purpose ofdeferring the paym entoffederaland state incom e taxes on the contributions untilsuch tim e as they are w ithdraw n by the em ployees. AtDecem ber31,1998, there are approxim ately 24,307 participants in the plan. O n August20,1986,the com m ission selected G reat-w estlife & Annuity Insurance Com pany as the plan adm inistratorfor a term ofthree years beginning on January 1, 1987,and had extended the contract through Decem ber 31, O n June 19, 1995, the com m ission selected,through a bid process,g reat-w estlife & Annuity Insurance Com pany as the plan adm inistratorfora term ofthree years beginning on January 1,1996. O n O ctober20,1998,the com m ission exercised the firstoftw o options to extend this contractforthree years beginning on January 1,1999. The com m ission has no em ployees. SUIVlM A RY O F SIG NIFICA NT ACCO UNTING PO LICIES A. BA SIS O F PRESENTATIO N The accom panying financialstatem enthas been prepared in accordance w ith genera ly accepted accounting principles (GAAP). The GovernmentalAccounting Standards Board (GASB) is the accepted standard seting body forestablishing governmental accounting and reporting principles. B. REPO RTING ENTITY GASB Codification Section 2100 has defined the governm entalreporting entity to be the State of Louisiana. The Louisiana Public Em ployees Deferred C om pensation Plan is considered a componentunit(agency fund)ofthe State oflouisiana because the state ha,~financialaccountability as folows: (1)fourofseven board members are elected or appointed oficials from the executive branch ofstate government;(2)the State of Louisiana has fiduciary responsibility forthe exercise ofdue care in the adm inistration of the plan;and (3)underthe provisions ofsection 457 ofthe InternalRevenue Code,al

9 LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLAN STA TE O F LO U ISIA NA Notes to the FinancialStatement(Continued) assets of the plan m ay be used to satisfy debts of the state. The accom panying financialstatem entpresents inform ation only as to the balances ofthe Louisiana Public Em ployees D eferred C om pensation Plan,a com ponent unit ofthe State of Louisiana. Annualy,the State of Louisiana issues generalpurpose financialstatem ents,w hich include the activity contained in the accem panying financialstatem ent. The general purpose financialstatem ents are audited by the Louisiana Legislative A uditor. C. FUND A CCO UNTING The Louisiana Public Em ployees Deferred Com pensation Plan uses a fiduciary fund (agency fund)and an accountgroup to reporton its financialposition.the agency fund accounts for the receipt of contributions and the paym ent of benefits to participants. Benefits are funded through em ployee contributions and investm entearnings on these contributions. D. BA SIS O F A CCO UNTING The accounting and financialreporting tre atm entapplied to a fund is determ ined by its measurementfocus. Agency funds are custodialin nature (assets equalliabilities)and do notinvolve m easurem entofresults ofoperations. They are accounted forusing the m odified accrualbasis ofaccounting. Accordingly,assets and liabilities are recognized w hen they occur,regardless ofthe tim ing ofrelated cash flow s. E. CA SH A ND INVESTM ENTS Cash includes dem and deposits. Understate law,the plan m ay depositfunds w ithin a fiscalagentbank organized underthe law s of the State of Louisiana,the law s ofany other state in the Union,orthe law s ofthe United States. The plan is authorized to investin various investm entproducts,including m utualfunds,united States Treasury bils ornotes,life insurance,fixed orvariable annuities,and otherinvestm ents approved by the com m ission. Investm ents in the fixed earnings and vadable earnings options are valued atthe fixed earnings rates or variable unit values as reported by the investm ent carriers,w hich approxim ates fairvalue. These values representcontributions received plus investm ent incom e earned to date less applicable charges and am ounts w ithdraw n. Purchases and sales offixed and variable earnings investm ents are recorded on the trade date. Assets held in the payoutannuity contracts are forparticipants w ho have annuitized and are valued at am ounts reported by the insurance carriers,w hich approxim ates fair value. These values represent the reserves established by the insurance carriers and are based on actuarialassum ptions as to anticipated m ortality,w ithdraw als,and investm ent

10 LO UISIA NA PUBLIC EM PLOYEES DEFERRED CO M PFNSATIO N PLA N STATE O F t.o UISIA NA Notes to the FinancialStatement(Continued) yield, Such assum ptions are periodica ly review ed and updated by the insurance carriers. F. FIXED A SSETS Fixed assets are accounted forin the generalfixed assets accountgroup,ratherthan in the agency fund. No depreciation has been provided on generalfixed assets. A lfixed assets are valued athistoricalcost.the accountgroup is nota fund, Itis concerned only w ith the m easurem entoffinancialposition,notw ith the m easurem entofresults of operations. G. TO TA L C O LUM N O N BA LA NCE SH EET 2, CASH The totalcolumn on the balance sheetis captioned Memorandum Only (overview)to indicate thatitis presented only to facilitate financialanalysis. Data in this colum n does not present financial position in conform ity w ith genera ly accepted accounting principles. Neitheris such data com parable to a consolidation. At Decem ber 31, 1998,the plan has cash in dem and deposits totaling $204,105. The com m ission has directed thatthe deposits ofthe plan in excess offederalinsurance be secured by the pledge ofsecurities owned by the fiscalagentbanks. Depositbalance s (bank balances) of$1,791,496 atdecember31,1998,are fuly secured by federaldepositinsurance (GASB Category 1). 3. INVESTM ENTS Investm ents of$336,747,462,as presented on Statem enta,are valued atfairvalue. The plan m aintains investm ents w ith severalproduct com panies offering diferent types of investm ent options. "]he fo low ing item izes the various product com panies, the carry ing value of the investm ents at Decem ber 31, 1998,the valuation m ethod used in determ ining the carry ing value,and the fairvalue ofinvestm ents atdecem ber31,1998:

11 LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STA TE O F LO U ISIA NA Notes to the FinancialStatement(Continued) nvestmentsnotcategorized: Gre~:t-W estlife & Annuity Insurance Com pany Insl.}rance contracts -fixed annuity Ma~(irn Sedes Fund -m utualfund American Century -Twentieth Century Ultra Investor's Fund -m utualfund Fidelity AdvisorGrowth Opportunities Fund -m utualfund Annuity contracts TotalGreat-W estlife & Annuity Insurance Com pany Govern mentguaranteed Fund IV -United States govern mentobligations CommercialLife Insurance Company anhuity 3otallnvestments Valuation M ethod Fairvalue Fairvalue Fairvalue Fairvalue Fairvalue Am ortized cost Fairvalue Carying Value el Decem ber $79,214, Fair Value at Decem ber $ ,516,732 54,239,078 84,239,078 10,468,959 6,582,473 10, ,582, ,022, ,022,042 58,784,150 59,657,194 68,226 $ $336,747,462 The plan also has an investm ent in life insurance w ith Reliance Standard Life Insurance C om pany. This investm entis valued atthe cash surrendervalue ofthe life insurance policies, w hich is $ atdecem ber C HA NG ES IN G ENERA L FIXED A SSETS Fixed assets of the plan, adm inistered by the Louisiana Public Em ployees Deferred Com pensation Com m ission,total$3,737 atdecem ber31,1998,which rem ain unchanged from Decem ber CHANG ES IN ASSETS AND LIABILITIES The fo low ing represents changes in assets and liabilities forthe Louisiana Public Em ployees Deferred C om pensation Plan occurring during the yearended D ecem ber31,1998:

12 LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STATE O F I_O UISIA NA Notes to the FinancialStatement(Continued) Balance at January 1,1998 Balance at Additions Deductions Dece m ber Assel~s Cash Investments,atfairvalue Cash surrendervalue of life hsurence Accounts receivable: Participant Otherreceivables $239, ,695,992 1,285,807 1,669, $58,748, ,431, $58,783,246 16,741, ,546 1,669,476 2,593,964 $204, ,747, ,376 TotalAssets $272,913,238 $146,776,587 $80,239,720 $339,450,105 Liabilities Acce ~nls payable Due to Comm ission Activity Fund Due Io participants $240,190 96, ,576,821 $18,041,846 2,474,899 83,652,868 $16,077,931 2,566,365 17,048,450 $204,105 64, TotalLiabilities $272,913,238 $102,169,613 $35,632,746 $339,450,105 6, PLA N RESTRICTIO NS The deferred com pensation plan is authorized undersection 457 ofthe InternalRevenue C ode. Am ounts deferred by participants are lim ited to the lesser of $8,000, or 33 1/3% of the participants'includible compensation.any amounts deferred are notsubjectto federalorstate incom e tax w ithholdings,norare they includible as gross incom e untilactua ly paid orotherw ise m ade available to trle participant. The State oflouisiana contributes an em ployer's m atch to certain em ployees' contributions lim ited to 6.2% of the em ployees' com pensation. Contributions by the state forthe yearended Decem ber31,1998,totaled $774,986. A lassets ofthe plan are subjectto the cognizable claims ofgeneralcreditors ofthe State of Louisiana;may be used in satisfaction ofthe debts ofthe state;and are subjectto the operation oflaw,attachment,levy,judgments,garnishments,executions,orany otherprocess oflaw that m ay be em ployed by creditors ofthe state orany person orentity claim ing by,through,orunder such creditors. Participantrights underthe plan are equalto those ofgeneralcreditors ofthe state in an am ountequalto the fairvalue ofthe deferred accountfor each participant. The SmalBusiness Job Protection Actof1996 (Public Law 10A-188)amended Section 457 ofthe InternalRevenue Code to require thatam ounts deferred undera Section 457 plan be held in trust for the exclusive benefit of participating em ployees and not be accessible by the governm entor its creditors. However,the trustprovision ofthis Actfor plans existing as of August20,1996,does notapply untiljanuary 1,1999. As a result,gasb Statem ent32 was issued in O ctober1997,w hich requires thatthe plan be reported as an expendable trustfund efective forperiods beginning afterdecem ber31,1998,orearlierupon im plem entation of the

13 LO UISIANA PUBLIC EM PLOYEES DEFERRED CO M PI-NSATIO N PLA N STA TE O F L.O U ISIA NA Notes to the FinancialStatement(Continued trust provisions of the Act. The trust provisions of the Act w ere Im pfem ented by the Plan efective January 1,1999. As ofapril 1, 1987,the Governm ent Securities Fund was closed to new plan participants. Participants joining the plan afterthis date are restricted to the Great-W estlife investment options. Tile G overnm ent Securities Fund is now reported as the G overnm ent G uaranteed Fund IV. 7. INV E'STM ENT EA RNING S The annualrates of interestcredited to participant accounts on investm ents w ith the various productcom panies forthe yearended Decem ber31, 1998,are as fo low s: Proc~ a~ G overnm entg uaranteed Fund IV G reat-w estlife & Annuity Insurance Com pany.g uaranteed Fund Product Various investm ents: January -M arch April-June July -Septem ber O ctober -D ecem ber Fixed annuity: January -M arch April-June July -Septem ber October-Decem ber InterestRate 5.45% 5.45% 5.45% 5.35% 5.44% 5.44% 5.39% 5.33% 10

14 LO UISIANA PUBLIC EM PLOYEES D EFERRED CO M PENSATIO N PLA N STA TE O F LO U ISIA NA Notes to the FinancialStatement(Continued) Investm entearnings forthe M axim Series Fund,Am erican Century -Twentieth Century Ultra Investors Fund, and Fidelity Advisor G rowth O pportunities Fund are not expressed as a percentage because earnings resultfrom gains orlosses arising from investm enttransactions and fluctuations in fair value of the applicable investm ents. Investm ent earnings for the G overnm ent G uaranteed Fund IV and G reat-w est Life & A nnuity Insurance C om pany - G uaranteed Fund are reported atnet,less the adm inistrative charges ofthe plan,as disclosed in note 8 below. 8. A DM INISTRATIVE C HA RG ES The contract betw een the com m ission and G reat-w est Life & Annuity Insurance Com pany provides forcharges of.85% ofassets in the G overnm entg uaranteed Fund IV and a lg reat- W est Life 8,A nnuity funds that are calculated and deducted daily on a pro rata basis. The contractw as am ended O ctober20,1998,to reduce the adm inistration fee from.85% to.55% of assets.this change w as efected fora lvariable assets on Decem ber11,1998. A lfixed funds reflected the.85% charge through Decem ber31,1998. During the yearended Decem ber31, 1998,adm inistrative charges of$2,441,234 were paid to G reat-w estlife & Annuity Insurance Com pany. As ofjanuary 1,1996,the com m ission entered into an agreem entforthe G reat-w est Life & A nnuity Insurance Com pany to provide m anagem ent advisory services for the G overnm ent G uaranteed Fund IV. The annualfee forthese services includes a.15% fund m anagem entfee and a.22% insurance w rapperfee on investm ents in the fund to be paid to the adm inistratorat the end of each quarter on a pro rata basis. "rhe insurance w rapper guarantees that each G overnm entg uaranteed Fund IV participantw ilreceive the fu lbook value ofhis/heraccount upon transfer and/or distribution from the plan. During the yearended Decem ber 31,1998, m anagem ent and insurance w rapperfees of $196,194 were charged by G reatw est Life & A nnuity Insurance C om pany. 9. RELATED PA RTY TRA NSA CTIO NS In addition to acting in the capacity of plan adm inistrator ofthe Louisiana Public Em ployees Deferred Com pensation Plan,G reat-w estlife Assurance Com pany,through its w ho ly-ow ned subsidiary,g reat-w estlife & Annuity Insurance Com pany,ofers fixed annuity and m utualfund products to plan participants. AtDecem ber31,1998,investm ents in these products represent 99.2% of totalplan assets. O f this figure,75.8% represents m onies held in separate asset accounts,which are notsubjectto the generalcreditors ofgreat-w estlife & Annuity Insurance Com pany. 11

15 LO U ISIA NA PU BLIC EM PLO Y EES DEFERRED CO M PENSATIO N PLA N STA TE O F LO U ISIA NA Notes to the FinancialStatement(Continued) 10. G O VERN M ENT G UA RA NTEED FUND IV DISTRIBUTIO NS At Decem ber 31, 1998, the participant account balances, w hich com prise the G overnm ent G uaranteed Fund IV,total$58,208,813. The fairvalue ofthe netassets ofthe G overnm ent G uaranteed Fund IV as ofdecem ber31,1998,is $59,657,194. Participantdistributions are based on the am ountoftheiraccountbalance,w hereas distributions as a resultofterm ination ofthe group annuity contractare based on netassets attributable to the contractand can be made to the plan through (1)transferofthe underlying securities and any remaining cash balance or(2)transferofthe cash balance aftersale ofthe fund's securities. 11. LITIG ATIO N There is no pending litigation atdecem ber31, CO M M ISSIO N A CTIVITY A CCO UNT The Louisiana Public Em ployees Deferred Com pensation Com m ission m aintains a com m ission activity account to fund the expenses of the com m ission and to pay adm inistrator fees. Balances ofthis accountare included w ithin the agency fund balances show n on Statem enta. The fo low ing represents a sum m ary of additions and deductions to the com m ission activity accountbalances during the yearended D ecem ber31,1998: Balance atjanuary 1,1998 Additions: Interestearnings Productcom pany fees D eductions: Adm inistratorfees O therexpenses Balance atd ecem ber $96,227 $4, ,441, $64, CHANG ES IN INVESTM ENT PRO DUCTS Effective A pril 1, 1998, the fo low ing investm ent options w ere m ade available: M axim Conservative Profile Fund, M axim M oderately Conservative Profile Fund, M axim M oderate Profile Fund,M axim M oderately Aggressive Profile Fund,and the M axim Aggressive Profile Fund. During the fiscalyearended Decem ber31,1998,the com m ission elected to discontinue the Maxim Midcap Portfolio (Growth Fund I)efective February 5,

16 LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STA TE O F L.O U ISIA NA Notes to the FinancialStatement(Concluded) 14. SUBSEQ UENT EVENT Efective January 1, 1999,the plan im plem ented the provisions of the Sm a lbusiness Job Protection Act of 1996 (Public Law ),which amended Section 457 ofthe Internal Revenue C ode to require thatam ounts deferred undera Section 457 plan be held in trustfor the exclusive benefitofparticipating em ployees and notbe accessible by the governm entorits creditors. In accordance w ith GASB Statem ent32,w hich w as issued in response to the Act, the plan w ilbe reported as an expendable trustfund forthe fiscalyearending Decem ber31,

17 SUPPLEM ENTA RY INFO RM ATIO N REQ UIRED BY THE G O VERNM ENTA L A CCO UNTING STA NDA RDS BO A RD The fonow ing pages contain supplem entary inform ation as required by TechnicalBu letin 98-1, issued by the GovernmentalAccounting Standards Board (GASB) in October The provisions of the G A SB technical bu letin, effective for financial statem ents dated after O ctober31, 1998, require disclosures in the notes to the financial statem ents about the governm entalentity's readiness in addressing Year2000 issues forits com putersystem s and other electronic equipm ent. In M arch 1999, G ASB issued Technical Buletin 99-1, w hich a low ed the disclosure ofyear2000 issues in required supplem entary inform ation. 14

18 LO UISIA NA PUBLIC EM PLO YEES D EFER R ED CO M PEN SA TIO N PLA N STATE O F LO UISIA NA REQ UIRED SUPPLEM ENTA RY INFO RM ATIO N Forthe YearEnded Decem ber31,1998 Y EA R 2000 ISSUE The Year2000 issue is the resultofshortcom ings and other equipm ent that m ay adversely afect C om pensation Plan's operations as early as n m any electronic data processing system s the Louisiana Public Em ployees Deferred Plan data is held in the Innovative Strategic InvestmentSystem (ISIS)ofGreat-W estlife & Annuity Insurance Company (the plan administrator),which currently uses a four-digityear form at. Although the data is already stored in a four-digitform at,the associated applications w ere analyzed,assessed,rem ediated as needed,tested,and validated to ensure Year2000 readiness. A s ofd ecem ber15,1998,this process w as com plete. The costofthis process w as absorbed by the plan adm inistrator. In addition to the above,the plan adm inistratorobtained w ritten assurances from parties w ith w hom the plan does business thatthey w ilachieve Year2000 readiness in tim e to m eetthe needs ofthe plan. M anagem entbelieves thatthe plan w ilbe able to process date and/ordate-related inform ation correctly before,during,and afterjanuary 1,2000. How ever,because ofthe unprecedented nature ofthe Year2000 issue,its efects and the success ofrelated rem ediation eforts w ilnot be fu ly determ ined untilthe Year 2000 and thereafter. Consequently,m anagem ent cannot guarantee thatthe plan is orw ilbe Year2000 ready,thatthe plan's rem ediation eforts w ilbe successfulin w hole or in part,orthat parties w ith w hom the plan does business w ilbe Year 2000 ready. 15

19 OTHER REPO RT REQ UIRED BY G O VERNM EN T A UDI71N G S TA NDA RDS The fo low ing pages contain a reporton com pliance w ith law s and regulations and on internal controls as required by G overnm enta uditing Standards,issued by the C om ptro lerg eneralof the United States. This report is based solely on the audit of the financialstatem ent and includes,w here appropriate,any reportable conditions and/or m aterialw eaknesses in internal controlorcom pliance m atters thatw ould be m aterialto the presented financialstatem ent.

20 )AN IEI.G.KYI.E,PII.D.,CPA,CI:[! I.EGISI.A'IIVE AUDIJO R OFFICE OF LEG ISLA TIV E A UD ITO R STA TE O F LOU ISIAN A BATON ROUGE,LOU ISIAN A M ay 26, N OR'I'tlTH IRD S'IRE[:I' POST OFFICI~BOX TELEPIIONE:(225) FACSIMILE: (225) Reoorton C om Dliance and on InternalC ontrolo ve FinancialReporting Based on an A uditofthe FinancialStatem en Perform ed in Accordance W ith Governm entauditina Standards LO UISIA NA,PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N CO M M ISSIO N LO UISIA NA PUBLIC EM PLO YEES DEFERRED CO M PENSATIO N PLA N STATE O F LO UISIA NA Baton Rouge,Louisiana W e have audited the generalpurpose financialstatem ent ofthe Louisiana Public Em ployees Deferred C om pensation Plan,a com ponentunitofthe State oflouisiana,as ofdecem ber31, 1998,and have issued our report thereon dated M ay 26, W e conducted our auditin accordance w ith genera ly accepted auditing standards and the standards applicable to financial audits contained in G overnm ent A uditing Standards, issued by the C om ptro ler G eneralofthe United States. C om pliance As part of obtaining reasonable assurance about whether the Louisiana Public Em ployees Deferred C om pensation Plan's general purpose financial statem ent is free of m aterial m isstatem ent,w e perform ed tests ofits com pliance w ith certain provisions oflaw s,regulations, and contracts, noncom pliance w ith w hich could have a direct and m aterial efect on the determ ination offinancialstatem entam ounts. However,providing an opinion on com pliance with those provisions was notan objective ofouraudit,and,accordingly,we do notexpress such an opinion. The results of ourtests disclosed no instances of noncom pliance that are required to be reported underg overnm enta uditing Standards. nternalc ontrolo verfinancialreporting In planning and perform ing ouraudit,w e considered the Louisiana Public Em ployees I)eferred Com pensation Plan's internalcontroloverfinancialreporting in orderto determ ine ourauditing procedures for the purpose of expressing our opinion on the general purpose financial statem ent and notto provide assurance on the internalcontrolover financialreporting. O ur consideration ofthe internalcontroloverfinancialreporting w ould not necessarily disclose a l m atters in the internalcontroloverfinancialreporting that m ight be m aterialw eaknesses. A m aterialw eakness is a condition in w hich the design oroperation ofone orm ore ofthe internal EXHIBIT A

21 LEGISLATIVE A UDITOR LO UISIA NA PUBLIC EM PLO Y EES D EFER R ED C O M PENSA TIO N C O M M ISSIO N LO UISIA NA PUBLIC EM PLOY EES DEFERRED CO M PENSATIO N PLA N STATE O F LO UISIA NA C om pliance and InternalC ontrolreport M ay 26,1999 Page 2 controlcom ponents does not reduce to a relatively low levelthe risk that m isstatem ents in am ounts thatw ould be m aterialin relation to the generalpurpose financialstatem ent being audited m ay eccur and not be detected w ithin a tim ely period by em ployees in the norm al course of perform ing their assigned functions. W e noted no m atters involving the internal controloverfinancialreporting and its operations thatw e considerto be m aterialw eaknesses. This report is intended forthe inform ation and use ofthe plan and its m anagem entand is not intended to be and should not be used by anyone other than these specified parties. By provisions of state law, this report is a public docum ent, and it has been distributed to appropriate public officials. itted BQ D:THC:PEP:ss DanielG.Kyle,C PA,CFE Legislative A uditor EXH IBIT A