FIDUCIARY FUND TYPES

Transactions related to assets held by the State in a trustee or agency capacity are accounted for in fiduciary fund types. Fiduciary
fund types include the following:

1. The expendable trust fund, which reflects the transactions, assets, liabilities and fund equity of the Unemployment Insurance
Program and the Deferred Compensation Plan and is accounted for on a flow of current financial resources measurement
focus. The Unemployment Insurance Program is used to account for the unemployment taxes collected from employers,
federal revenue received and remittance of benefits to the unemployed. The Deferred Compensation Plan, which is included
with a year end of December 31, accounts for participant earnings deferred in accordance with Internal Revenue Code
Sections 457, 403(b), and 401(k). Amounts deferred are invested and are not subject to federal income taxes until paid to
participants upon termination or retirement from employment, death or for an unforeseeable emergency.

2. The investment trust fund, which reflects the transactions, assets, liabilities and fund equities of the Maryland Local
Government Investment Pool (Pool) and is accounted for using the flow of economic resources measurement focus.

3. The State Retirement and Pension System of Maryland and the Mass Transit Administration Pension Plan, which reflect
the transactions, assets, liabilities and fund equities of the retirement and pension plans administered by the State and the
Mass Transit Administration and are accounted for using the flow of economic resources measurement focus.

4. The agency funds, which are custodial in nature and do not present the results of operations or have a measurement focus.
The State uses agency funds to account for the receipt and disbursement of patient and prisoner accounts, the amounts the
State invests for political subdivisions on a pooled basis, various taxes collected by the State for distribution to the Federal
government and political subdivisions and amounts withheld from employees' payroll.

ACCOUNT GROUPS

Account groups are used to establish accounting control and accountability for the State's general fixed assets and the unmatured
principal of its general long-term debt and other long-term obligations of governmental fund types. General fixed assets do not
represent financial resources available for appropriation and expenditure, nor does the unmatured principal of general long-term
obligations require current appropriation and expenditure of governmental fund financial resources.

General Fixed Assets Account Group:

General fixed assets acquired, leased under capital lease agreements or constructed for use by the State in the conduct of its
activities, other than activities accounted for in enterprise funds and the discretely presented component units (proprietary funds and
higher education), are reflected in the general fixed assets account group when acquired. These fixed assets are stated at cost or
estimated historical cost. Donated fixed assets are recorded at their fair value at the time donated. Depreciation is not provided for
general fixed assets, and interest incurred during construction is not capitalized. Infrastructure assets, consisting principally of
highways, roads and bridges, are not recorded in the general fixed assets account group.

General Long-Term Debt Account Group:

General obligation, transportation and Maryland Transportation Authority bonds payable, capital lease obligations, accrued self-
insurance costs and accrued annual leave related to general governmental activities are reflected in the general long-term debt
account group.

2. Summary of Significant Accounting Policies:

A. All Funds:

Investments:

Investments are recorded at fair value in the combined balance sheet and changes in fair value are recognized as revenue in the
combined operating statements. Fair values are based on quotations from national security exchanges and security pricing services,
or by the respective fund managers for securities which are not actively traded.

Retirement Costs:

Substantially all State employees participate in one of several State retirement systems. (See Note 15.) The State also provides
retirement benefits to teachers and certain other employees of its political subdivisions. Retirement expenditures for governmental
fund types represent amounts contributed by the State for the fiscal year. Retirement costs have been provided on the accrual basis,
based upon actuarial valuations.

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