NEW YORK STATE AND LOCAL RETIREMENT SYSTEMS 2002 ANNUAL REPORT SUPPLEMENT H. Carl McCall State Comptroller CONTENTS FINANCIAL SECTION ................. 1 ACTUARIAL SECTION .............. 65 Independent Auditors’ Report ....................... 1 Actuarial Funding and Valuation .................. 66 Statements of Plan Net Assets ........................ 2 Actuarial Valuation Balance Sheets .............. 68 Statements of Changes in Plan Net Assets ..... 3 Employer Final Contribution Rates ............. 70 Notes to Financial Statements ........................ 4 Employer Contributions .............................. 72 Schedule of Funding Progress ...................... 10 Changes In Contributions ............................ 74 Schedule of Employer Contributions .......... 11 Historical Trends .......................................... 75 Investment Results ....................................... 76 STATISTICAL SECTION ............. 12 Combined Systems Participants ................... 12 INVESTMENT SECTION ............ 76 Membership by Age and Years of Service..... 13 Domestic Stock Performance ....................... 77 Membership by Tier ..................................... 14 International Stock Performance ................. 78 Membership by Status .................................. 14 Global Equity Performance .......................... 78 Membership by Employer Type ................... 15 Domestic Bonds ........................................... 79 Average Salary by Employer Type ................. 15 Private Equity Investments Summary ........... 79 Members and Salaries by Plan—ERS ............ 16 Real Estate Portfolio ..................................... 79 Members and Salaries by Plan—PFRS .......... 17 Domestic And International Stocks ............. 80 Pensioners and Beneficiaries by Age ............ 18 Bonds 2001–2002 ....................................... 105 Pension Benefits by State of Residence ....... 18 Mortgage Holdings ..................................... 115 Pension Benefits by County of Residence.... 19 Real Estate Investments.............................. 119 Benefit Recipients Outside the United States Private Equity Investments ......................... 121 and Territories .......................................... 19 Short-Term Investments ............................. 125 Service Retirees (ERS) .................................. 20 Domestic Equity Commissions .................. 126 Service Retirees (PFRS)................................. 21 International Equity Commissions ............ 129 Disability Retirees (ERS) ............................... 22 Domestic Bond Transactions ..................... 131 Disability Retirees (PFRS) ............................. 23 Fees ............................................................. 132 Pensioners And Beneficiaries—ERS ............. 24 Investor Responsibility ............................... 134 Pensioners And Beneficiaries—PFRS ........... 25 Total Benefit Payments 1993–2002 .............. 26 Average Pension Benefits Paid During Year Shown ....................................................... 27 New Benefits — ERS .................................... 28 New Benefits—PFRS ..................................... 29 New Benefits—Retirements by Age and Service....................................................... 30 New Benefits — Ordinary and Accidental Death ........................................................ 31 Option Selections ......................................... 32 Option Selections—Total Payments ............. 33 Local Government Salaries and Billings —ERS ........................................................ 34 Local Government Salaries and Billings —PFRS ...................................................... 35 Contributions Recorded 1993–2002 ............ 36 Participating Employers ............................... 37 Statement of the Actuary .............................. 65 515 Broadway Albany, NY 12207 Independent Auditors’ Report Trustee New York State and Local Retirement Systems: We have audited the accompanying statements of plan net assets of the New York State and Local Retirement Systems (the Systems) as of March 31, 2002, and the related statements of changes in plan net assets for the year then ended. These financial statements are the responsibility of the Systems’ management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net assets of the Systems, as of March 31, 2002, and the changes in plan net assets for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated June 21, 2002 on our consideration of the Systems’ internal control over financial reporting and our tests of its compliance with certain laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The required supplementary information on schedules 1 and 2 is not a required part of the financial statements, but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consist principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit this information and express no opinion on it. June 21, 2002 KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG International, a Swiss association. FINANCIAL SECTION 1 Statements of Plan Net Assets March 31, 2002 (in thousands) Employees’ Police and Fire Retirement Retirement Assets ___System___ ___System___ ___Total___ Investments: Short-term investments $ 1,208,130 220,830 1,428,960 Government bonds 18,565,829 3,393,592 21,959,421 Corporate bonds 8,352,989 1,526,817 9,879,806 Domestic stocks 46,013,748 8,410,713 54,424,461 International stocks 10,104,159 1,846,908 11,951,067 Alternative investments 4,717,247 862,251 5,579,498 Real property 3,649,527 667,086 4,316,613 Mortgage loans ___1,376,977 ___251,693 ___1,628,670 Total investments 93,988,606 17,179,890 111,168,496 Securities lending collateral, invested 6,526,184 1,192,901 7,719,085 Forward foreign exchange contracts 323,619 59,153 382,772 Receivables: Employers’ contributions 197,478 39,543 237,021 Employees’ contributions 21,635 156 21,791 Member loans 893,659 1,028 894,687 Investment interest and dividends 510,661 93,342 604,003 Investment sales 187,471 34,267 221,738 Other _____63,975 ____27,461 _____91,436 Total receivables 1,874,879 195,797 2,070,676 Other assets _____34,784 _____6,358 _____41,142 Total assets 102,748,072 18,634,099 121,382,171 Liabilities Securities lending collateral, due to borrowers 6,526,184 1,192,901 7,719,085 Forward foreign exchange contracts 322,073 58,871 380,944 Investment purchases 167,751 30,663 198,414 Benefits payable 84,733 16,619 101,352 Other liabilities ____227,205 ____30,278 ____257,483 Total liabilities ___7,327,946 __1,329,332 ___8,657,278 Net assets held in trust for pension benefits $__95,420,126 _17,304,767 _112,724,893 See accompanying notes to financial statements. 2 F I N A N C I A L Statements of Changes in Plan Net Assets Year Ended March 31, 2002 (in thousands) Employees’ Police and Fire Retirement Retirement System System Total Additions: Investment activities: Interest income $ 1,527,046 280,117 1,807,163 Dividend income 591,734 108,546 700,280 Securities lending income 323,286 59,303 382,589 Other income ___310,733 ___57,000 ___367,733 2,752,799 504,966 3,257,765 Less net depreciation in fair value of investments (10,411) (2,062) (12,473) Less securities lending expenses (300,144) (55,058) (355,202) Less investment expenses __(134,471) __(24,667) __(159,138) Net investment income 2,307,773 423,179 2,730,952 Contributions: Employers 214,592 49,254 263,846 Employees 206,018 4,184 210,202 Interest on accounts 7,213 991 8,204 Other ____97,800 ___13,362 ___111,162 Total contributions ___525,623 ___67,791 ___593,414 Net additions 2,833,396 490,970 3,324,366 Deductions: Benefits paid: Retirement allowances (3,597,437) (739,018) (4,336,455) Death benefits (139,058) (12,738) (151,796) Other ___(83,453) ___(4,668) ___(88,121) Total benefits paid (3,819,948) (756,424) (4,576,372) Administrative expenses ___(56,527) __(10,085) ___(66,612) Total deductions _(3,876,475) _(766,509) _(4,642,984) Net decrease (1,043,079) (275,539) (1,318,618) Net assets held in trust for pension