June 12 2002

REPORT OF THE PROCEEDINGS

OF THE

OF THE

__________

Regular Meeting - Official Report

Wednesday, June 12, 2002

__________

A regular meeting of the Board of Trustees of the Public School Teachers' Pension and Retirement Fund of Chicago was held Wednesday, June 12, 2002.

The President, Ms. Mary Sharon Reilly, called the meeting to order at 9:13 a.m.

Members present: Ms. Anderson, Ms. Finnegan, Mr. Katsulis, Ms. Knazze, Ms. Nolan, Ms. Reilly, Ms. Rodriguez, Mr. Silver, Mr. Sokolnicki, Mr. Ward--10.

Members absent: Mr. Mayo, Mr. Saffold—2.

Also in attendance were Mr. Michael J. Nehf (Executive Director), Mr. Kevin Huber (Chief Financial Officer), Mr. Joseph Burns and Ms. Anita Tanay of Jacobs, Burns, Orlove, Stanton and Hernandez (Legal Counsel), Mr. Brad Blalock and Mrs. Stephanie Braming of Mercer Investment (Investment Consultant), Mr. Terry Ahern and Mr. Rob Kochis of the Townsend Group (Real Estate consultant). Mr. Sandor Goldstein of Goldstein and Associates (Consulting Actuary), Mr. Mitch Bramstaedt of The Segal Company (Insurance Consultant), and various observers and staff members.

Ms. Ann Marie McCall, a retired teacher, thanked the Trustees for publishing the 5+5 recalculations listing. She also urged the Trustees to continue offering Blue Cross Blue Shield health insurance coverage to annuitants.

On a motion by Mr. Sokolnicki, seconded by Ms. Nolan, and by unanimous vote, the minutes of the meetings on March 21, April 9, and May 9, 2002, were approved and ordered printed. (Ms. Anderson, Ms. Knazze, and Mr. Silver were not present at the time the vote was taken.)

President Reilly reported that the persons listed below made requests to receive materials prepared for meetings of the Board of Trustees in accordance with the Illinois Freedom of Information Act.

Albert Korach

Ann Marie McCall

Antoinette Jackson

Beverly Tunney

Brad Blalock

Christy Carter

Cynthia Asghar

Eugene Barnes

Henry Anselmo

Jacqueline Price Ward

John Moran

John O’Brill

Judith Rice

Kathryn Stevenson

Louis Pyster

Mitch Bramstaedt

Rob Kochis

Robert Bures

Robert Konen

Sandor Goldstein

Sheldon Rosen

Terry Ahern

President Reilly also reported that Albert Korach, a retired teacher, requested a printout of retirees and their pensions in accordance with the Illinois Freedom of Information Act. She indicated that the above requests have been fulfilled.

Mr. Terry Ahern of The Townsend Group introduced Mr. Rob Kochis who is replacing Ms. Michele Dinn as consultant to the Fund. Mr. Ahern reported that Ms. Dinn resigned from The Townsend Group due to her relocating out-of-state.

Mr. Ahern and Mr. Kochis reviewed the real estate investment performance portfolio for the quarter ending December 31, 2001. They addressed questions raised by the Trustees.

Mr. Brad Blalock and Mrs. Stephanie Braming of Mercer Investment Consulting Inc. reviewed the first quarter investment performance report for the periods ending March 31, 2002. They addressed questions raised by the Trustees.

A motion was made by Mr. Sokolnicki, seconded by Ms. Nolan, to terminate the investment services of Woodford Capital Management. The motion passed by the following vote:

Ayes: Ms. Finnegan, Mr. Katsulis, Ms. Nolan, Ms. Reilly, Mr. Sokolnicki, Mr. Ward—6.

Abstentions: Ms. Knazze, Ms. Rodriguez, Mr. Silver—3.

(Ms. Anderson was not present at the time the vote was taken.)

A motion was made by Mr. Silver, seconded by Ms. Finnegan, and unanimously passed, to transfer assets from Woodford Capital Management to the Northern Trust equity index fund. (Ms. Anderson was not present at the time the vote was taken.)

Mr. Blalock and Mrs. Braming reviewed the fixed income structure and made recommendations based on meetings they had with each of the Fund’s fixed income managers.

A motion was made by Mr. Silver, seconded by Ms. Rodriguez, to accept Mercer’s recommendation as follows, and to interview Smith Graham, Bank of America, Wellington Management, Morgan Stanley Asset Management, Western Asset, Pimco, and UBS Asset Management in the fixed income search.

% of Fixed

Portfolio $MM (est)

Index 60% $1770

Enhanced Index 15 440

MDL 5 150

Opportunistic Manager #1* 10 295

Opportunistic Manager #2* 10 295

100% $2950

*pending manager search comparison

Given the following summaries and annual/cumulative results versus other opportunistic managers, Mercer believes it is prudent to evaluate the current managers within a manager search context, with the plan to hire two firms.

Mercer believes this structure best meets the Fund’s needs for the following reasons:

Blends low cost index and enhanced index with targeted opportunistic strategies (high yield and international). Estimated fee savings - $509,000.

Maintains a heavy focus on investment grade strategies, but allows managers with capabilities to invest in non-dollar and high yield.

Reduces number of manager relationships, yet maintains appropriate diversification by organization and strategy.

The motion was approved by the following vote:

Ayes: Ms. Finnegan, Ms. Knazze, Mr. Katsulis, Ms. Nolan, Ms. Reilly, Ms. Rodriguez, Mr. Silver, Mr. Sokolnicki, Mr. Ward—9.

Nays: Ms. Anderson—1.

A special meeting of the Board of Trustees was scheduled for July 24, 2002 at 9:30 a.m. for the purpose of conducting fixed income manager interviews.

President Reilly presented an award to Dr. Walter E. Pilditch for his outstanding service as Trustee of the Public School Teachers’ Pension and Retirement Fund of Chicago from 1995 to 2001.

Mr. Mitch Bramstaedt of The Segal Company reported that he is actively negotiating with the Fund’s insurance carriers to arrive at acceptable renewal rates for the January 1, 2003 open enrollment period. He provided the Trustees with premium rate comparison charts. He also provided Trustees with quotes from two new insurance providers.

Following discussion, a motion was made by Mr. Ward, seconded by Ms. Nolan, and unanimously passed, to accept the Blue Cross Blue Shield proposal for one year at a 5% common increase in all groups.

A motion was made by Mr. Ward, seconded by Mr. Sokolnicki, and unanimously passed, to adopt the HMO Illinois proposal for one year at a 16% rate increase.

A motion was made by Mr. Ward, seconded by Ms. Anderson, and unanimously passed, to adopt the Humana proposal with rider #1.

A motion was made by Mr. Ward, seconded by Mr. Sokolnicki, and unanimously passed, to accept the Pacificare proposal and continue the plan as is with new benefit plans.

The Segal Company was asked to provide information concerning the Fund’s current policy as well as current eligibility and enrollment in its sponsored plans and possible options to alter the policy. Following discussion, the Trustees directed The Segal Company to bring a written report of the potential policy change options to the next Board meeting.

Mr. Sandor Goldstein of Goldstein and Associates reported on projections that he had performed on the expected number of pensioners over the next 10 years. He indicated that, based on the results of the projections, the total number of pensioners is projected to increase from 17,234 as of June 30, 2001 to 23,648 by the year 2011, representing a 37.2% increase over the 10-year period. For comparison purposes, the actuary indicated that over the last 10 years, the total number of pensioners has increased by 50.7%.

The actuary also commented on some alternate health care funding projections that he had been asked to perform. Under one alternate projection, it was assumed that $694,543,000 is reclassified from pension fund assets as of June 30, 2002 and placed into health care funding. Under another alternate projection, it was assumed that beginning in FY2002, revenues from State Appropriations are placed into the health care fund. The actuary provided a summary of each of the alternate projections.

After discussion, a motion was made by Mr. Silver, seconded by Ms. Rodriguez, and unanimously passed, that intergovernmental contributions from the State of Illinois shall be credited to the Public School Teachers’ Pension and Retirement Fund of Chicago health fund for the purpose of funding health care benefits.

Trustee Katsulis informed the Trustees of a luncheon planned with Mr. Michael Scott, President of the Board of Education and Beverly Tunney, President of the Chicago Principals and Administrators Association. Trustees will also meet with Mr. Michael Scott to discuss the increase in pension benefits.

Mr. Katsulis also submitted a mission statement for the Board to review.

The following bills were presented with the recommendation that they be approved.

The Committee on Finance reported that the following persons requested replacement warrants in lieu of the following described warrants which were lost or destroyed. Affidavits certifying these losses and in each case indemnifying the Fund against any liability, damage or expense which may result by reason of issuing such replacement warrants were duly filed. Therefore, the Committee recommended that warrants issued to the persons named below in the amounts indicated be duly recorded in the minutes of this meeting.

Following review and discussion, a motion was made by Mr. Silver, seconded by Ms. Anderson, and unanimously passed, to retain Goldstein and Associates for the 2002-2003 fiscal year at an annual fee of $40,000 to be paid on a quarterly basis; Jacobs, Burns, Orlove, Stanton and Hernandez be retained for the 2002-2003 fiscal year at an hourly rate of $180.00; and authorize the firm of KPMG, certified public accountants, to make an audit of the accounts and records of the Fund for the fiscal year ending June 30, 2002, at a cost not to exceed $36,000, including expenses. The motion passed by the following vote:

Ayes: Ms. Anderson, Ms. Finnegan, Mr. Katsulis, Ms. Knazze, Ms. Nolan, Ms. Reilly, Ms. Rodriguez, Mr. Silver, Mr. Sokolnicki, Mr. Ward-10.

Nays: None.

Abstentions: None.

Mr. Silver moved the Report of the Committee on Finance to the omnibus.

The Committee on Claims and Service Credits reported that applications for pensions were presented for persons, hereinafter listed, with the recommendation that they be approved and granted in the amounts and under the conditions set forth herewith.

In the case of each applicant for service and disability pensions, the employment of the teacher has terminated, the legally prescribed minimum years of teaching service were completed and requirements with respect to age, the Illinois Retirement Systems Reciprocal Act (if applicable), and the Illinois

Pension Code were fulfilled.

In accordance with the provisions of the Illinois Pension Code, each applicant for disability retirement pension was declared by two physicians appointed by the Board to be suffering from a disability which wholly and presumably permanently incapacitates him/her for teaching.

Each applicant for a survivor’s or reversionary pension furnished proper evidence of his/her right to receive such benefits.

The Committee on Claims and Service Credits reported that pursuant to the law, the pensions of the following persons were cancelled upon the date of attainment of legal age or under age 50. The Committee recommended that the cancellations shown below be confirmed and reported in the proceedings of this meeting.

The Committee on Claims and Service Credits reported that House Bill 2157 (Public Act 92-0416) was passed by both houses of the Illinois General Assembly on May 31, 2001 and signed by the Governor on August 17, 2001. It provided for additional benefits to pensioner members who retired under the 1993 Early Retirement Incentive program offered by the Chicago Public Schools.

The Committee recommended that (1) these estimated payments be approved, (2) the records of the Fund be reflected accordingly, and (3) final computation and adjustments be made as soon as practicable.

The Committee on Claims and Service Credits reported that change in salary credit after pension was granted necessitate the following revision. The Committee recommended that (1) this revision be approved, (2) the records of the Fund be changed accordingly, and (3) adjustment be authorized for pension payments made prior to this date, as applicable.

The Committee on Claims and Service Credits reported that documents pertaining to claims for death benefits were examined and verified, and recommended approval thereof.

In support of these claims, the Committee reported that death benefits were for persons whose dates of death were certified and whose heirs, beneficiaries, administrators or executors furnished proper evidence to receive such payments.

The Committee on Claims and Service Credits reported that documents pertaining to claims for refunds listed herewith, were examined and verified, and recommended approval thereof.

In support of these claims, the Committee reported that (1) refunds on separation from service are for persons no longer employed as members of the teaching force…(2) refunds of contributions for survivor’s pensions are for members with no eligible survivors at the time of retirement…(3) refunds of excess contributions are for deductions outside of the statutory requirements and/or overpayments towards the 2.2 upgrade option and…(4) refunds of creditable service withdrawn are for previously validated optional service and . . . (5) refunds of 5+5 contributions are a result of legislative changes enacted in House Bill 2157.

The Committee on Claims and Service Credits reported that affidavits, or other evidence attesting to or certifying service in the public schools of the several states or in schools operated by or under the auspices of the United States outside of the City of Chicago were presented for the persons hereinafter listed.

The Committee recommended that the service described be approved for pension credit provided that the last five years of the member’s service shall have been rendered in a position covered by this Fund, the State Universities Retirement System of the Teachers’ Retirement System of the State of Illinois; a maximum credit of ten years shall be reduced by credit for such service validated by the State of Illinois and three-fifths of the term of service for which an annuity is granted shall be in the public schools of the City.

Ms. Finnegan moved the Report of the Committee on Claims & Service Credits to the omnibus.

REPORT OF COMMITTEE ON INVESTMENTS

The Committee on Investments included the following reports subject to review and approval by the Board of Trustees. These reports shall be recorded in the proceedings of this meeting.

President Reilly disclosed to the Trustees that during the last month she has attended various local Chicago investment manager conferences.

The Financial Secretary presented herewith a report on the Fund’s net assets, changes in net assets, and supporting reports for the nine months ending March 31, 2002, with the recommendation that it be approved and printed in the proceedings of this meeting.

Mr. Silver moved the Report of the Financial Secretary to the omnibus.

On a motion by Mr. Silver, seconded by Mr. Ward, and unanimously passed, the foregoing committee reports which were moved to the omnibus were approved.

Ms. Anita Tanay of Jacobs, Burns, Orlove, Stanton and Hernandez, discussed with the Trustees the disability application of Michael F. Young. A presentation was heard by Mr. Young’s attorneys Mr. Nathan Q. Rugg and Mr. David Bryant of Daley, DeBofsky & Bryant.

Fund counsel requested Mr. Young’s attorneys to verify dates that were discussed and to submit to the Board an opinion as to what Indiana law provides with regard to the finality with the plea as distinguished from the injury of a conviction.

The Board will clarify the facts and report back at the July Board meeting.

On a motion by Mr. Silver, seconded by Ms. Anderson, and unanimously passed, the meeting adjourned at 3:45 p.m.

Respectfully submitted,

Maria J. Rodriguez

Recording Secretary