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s 331.252 Tlr 2001/02 MONTANA Teachers' Retirement System A Component Unit of the State of Montana Cl'MEHTS COLLcCT:; -" 20 2003 MONTANA STATE LIOKARY 1515 E. 6th AVE. HELENA, MONTANA 59620 ANNUAL REPORT FISCAL YEAR ENDED JUNE 30, 2002 Judy Martz, Governor MONTANASTATELIBRARY |lli|ll|lll||||[||iiini|ii||ii| 3 0864 1001 7932 7 MONTANA Teachers' Retirement System A Component Unit of the State of Montana ANNUAL REPORT FISCAL YEAR ENDED JUNE 30, 2002 David L. Senn Executive Director Tammy Rau Deputy Executive Director Prepared by: The Montana Teachers Retirement System 1500 East Sixth Avenue, P.O. Box 200139 MT Helena, 59620-0139 http://w\vv\.trs.doa.state.mt.us TABLE OF CONTENTS PAGE INTRODUCTIORY SECTION EXECUTIVE DIRECTOR'S LETTER OFTRANSMITTAL BOARD OF DIRECTORS AND PROFESSIONAL CONSULTANTS FINANCIAL SECTION 9 INDEPENDENTAUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS STATEMENT OF FIDUCIARY NET ASSETS STATEMENTOF CHANGES IN FIDUCIARYNETASSETS NOTES TO FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION ACTUARIAL SECTION 31 ANALYSIS OF VALUATION APPENDICES STATISTICAL SECTION 77 REVENUES BY SOURCE AND EXPENSES BY T\TE CONTRIBUTION RATES MEMBERSHIP LOCATION OF BENEFIT RECIPIENTS INTRODUCTORY SECTION EXECUTIVE DIRECTOR'S LETTER OF TRANSMITTAL BOARD OF DIRECTORS AND PROFESSIONAL CONSULTANTS . TEACHERS' RETIREMENT SYSTEM 1500 E.SIXTHAVENUE PO BOX200139 HELENA, MONTANA59620-0139 (406)444-3134 lUDYMARTZ,GOVERNOR OF MONTANA STATE February 5, 2003 Honorable Judy Martz Governor ofMontana Room 204, State Capitol MT Helena, 59620 Dear Governor Martz: On behalfofthe Montana Teachers' Retirement Board, we are pleased to present the Montana Teachers' Retirement System Annual Report for the fiscal year ended June 30, 2002. This report is intended to provide comprehensive information on the financial operations ofthe Montana Teachers' Retirement System (TRS) for the year. Responsibility for the accuracy of the data, and the completeness and fairness ofthe report rests with the management ofthe TRS. This report contains four sections: 1 An Introductory section, which includes this letter oftransmittal and a list ofthe board members, administrative officers and professional consultants. A 2. Financial section containing the independent auditor's report, management's discussion and analysis, and the financial statements with accompanying footnotes and required supplementary information. 3. An Actuarial section representing the results ofour most recent annual actuarial valuation. A 4. Statistical section containing tables ofsignificant data. The TRS was established by state law in 1937 and has completed its 65"^ year ofoperation. The TRS is providing services to over 18,000 active members and managing assets valued in excess ofS2.1 billion. Investment Activitj' Fiscal Year 2002 was another difficult year for public and corporate pension plans. The TRS investment portfolio posted a 7.2 percent negative return, resulting in an overall decrease in the fair market value ofits investments. This negative impact has increased the amortization period to pay offthe unfunded actuarial accrued liability from 15.1 to 23.4 years. •ANEQUALOPPORTUNITYEMPLOYER' The Board ofInvestments invests the TRS and other pension portfolios for the long-term and its investment strategies are designed to provide sufficient returns over time to meet the 8 percent actuarial requirement ofthe TRS pension fund. Despite negative returns for the past two fiscal years, over the past ten-year period, the total annual investment return averaged 8.4 percent. This average is in excess ofthe 8 percent actuarial assumption. However, there is no guarantee offuture investment performance. Even ifthe Board ofInvestments outperforms the stock and bond markets in the future, should the markets be depressed for a significant period oftime, the requirement will not be met. Performance in any given year will depend not only on the Board's investment performance but also on the performance ofthe markets themselves, which are impacted by domestic and global economic conditions, interest rates, and government policies. Unless there is a significant improvement during the next two years, which results in investment returns well above the 8 percent actuarial assumption by July 1, 2004, the amortization period ofthe TRS is likely to exceed 30 years. Conclusion The Teachers' Retirement Board is pleased to submit this 2002 annual report to you reflecting an unqualified opinion from the Legislative Audit Division, which can be found on page 1 1. On behalfofthe Board, I would like to thank the staff, the Board's advisors, and the many people whose commitment, dedication, and proficiency has directly contributed to the successful operation ofthe financial soundness ofthe Montana Teachers' Retirement System. The Teachers' Retirement Board and stafflook forward to continuing to serve the educators of Montana. Sincerely, David L. Senn Executive Director TEACHERS' RETIREMENT SYSTEM BOARD OF DIRECTORS AND PROFESSIONAL CONSULTANTS BOARD OF DIRECTORS TIM RYAN 07-01-00to 07-01-04 CHAIR JAMES TURCOTTE 07-01-01 to 07-01-05 VICE CHAIR EMILY BOGUT 07-01-02 to 07-01-07 SCOTT DUBBS 07-01-99 to 07-01-03 RANDY DURR 08-01-01 to 07-01-06 BARBARA FOSTER 08-01-01 to 07-01-06 PROFESSIONAL CONSULTANTS MILLIMAN USA Actuaries & Consultants WA Seattle. 98101 ICEMILLER & Legal Business Advisors Indianapolis, IN 46282 Alternative accessible formats ofthis document will be provided upon request.