ILLINOIS MUNICIPAL RETIREMENT FUND

MEETING NO. 01-02

REGULAR MEETING

OF THE

BOARD OF TRUSTEES

The Regular Meeting of the Board of Trustees was held at 9:00 A.M., February 23, 2001, in the Fund Office at 2211 York Road, Suite 400, Oak Brook, Illinois 60523.

Mr. Sonnemaker presided as chairman and called the meeting to order.

Ms. Enright called the roll:

Present: Novak, Ross, Setchell, Shoop, Sonnemaker, Thompson, Bochmann

Absent: Newell

Ms. Grieser and Messrs. Birch and Pontius from Mercer Investment Consulting, Mr. Gallagher from D’Ancona & Pflaum, and Mrs. Bea Koza representing the Illinois League of Municipal Employees (ILME), were also present.

Mrs. Newell entered the meeting at 9:15 A.M.

(01-02-01) (Consent Agenda) The Chairman presented an agenda consisting of a Consent Agenda. The following items remained on the Consent Agenda since no Board member asked for their removal.

Schedule A - Benefit Awards listing official applications for retirement, disability and death benefits, and for refund of employee contributions processed during the preceding calendar month be computed and allowed as provided under Article 7 of the Illinois Pension Code.

Schedule B - Adjustment of Benefit Awards showing adjustments required in benefit awards and the reasons therefore.

Schedule C - Benefit Cancellations.

Schedule D - Expiration of Temporary Disability Benefits terminated under the provisions of Section 7-147 of the Illinois Pension Code.

Schedule E - Total and Permanent Disability Benefit Awards showing proposed total and permanent disability awards as recommended by the Fund's medical consultant as provided by Section 7-152 of the Illinois Pension Code.

Schedule F - Benefits Terminated.

Schedule G - Administrative Benefit Denials.

The Master Trustee Report for the month of December 2000 was prepared by The Northern Trust Company.

2001 Revisions to Authorized Agent Manual

Low Bidder: Chicago Press

Low Bid: $18,257.80

Village of Elkhart

Township: Logan

2001 Rate: 9.48%

It was moved by Mr. Shoop, seconded by Mr. Novak to approve the items on the Consent Agenda.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-02) (Schedule T - Report of Expenditures) The Chairman presented Schedule T, the Report of Expenditures from January 1, 2001 — January 31, 2001 to the Board of Trustees.

After questions and discussion from Board Members, it was moved by Mr. Shoop,

seconded by Mr. Ross, that Schedule T, the Report of Expenditures from January 1, 2001 — January 31, 2001 be approved.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-03)(4^th Quarter Investment Performance Report) Ms. Grieser and Mr. Birch of Mercer Investment Consulting gave an evaluation of IMRF’s investment performance for the period ending December 31, 2000.

Ms. Grieser reported that IMRF’s total investment return for the one-year ending December 31, 2000, was 1.87%.

She further stated that IMRF’s portfolio outperformed its policy level benchmarks for domestic stocks, international stocks, real estate and alternative investments, but trailed the policy level benchmark for fixed-income assets.

The report was followed by discussion from Board Members.

(01-02-04) (Investment Manager Activities — Mercer Investment Consulting) Ms. Grieser of Mercer Investment Consulting, gave the following report to the Board on the activities of IMRF’s large cap growth equity managers (NewBridge Partners, Oak Associates, Lincoln, Holland, and Jacobs Levy); large cap value equity managers (DFA Large Cap Value, Harris, and Iridian); small cap growth equity managers (DFA 9-10, Fidelity, Frontier, and Wall Street); small cap value equity managers (Investment Counselors of Maryland, DFA 6-10); international equity managers (Bank of Ireland, Brandes, and Schroder); global equity manager (Brandes);international small cap equity managers (Capital Guardian, and Schroder); emerging markets equity managers (Capital Guardian); global fixed income (Julius Baer) and U.S. fixed income managers (BlackRock, Wellington, Fidelity High Yield, Payden & Rygel, and MacKay Shields).

(01-02-05) (2001-2002 Projection Report-Death and Disability Rates) The Chief Financial Officer recommended the following:

• maintaining the average death benefit rate for 2002 at 0.22% of payroll

• maintaining the disability benefit rate for 2002 at 0.15% of payroll

He further estimates that:

• Benefit payments will exceed contributions by approximately $78 million in 2001, with the shortfall paid from investment earnings.

• IMRF will transfer approximately $513 million of interest to employer reserves for 2000, and

• The supplemental retirement benefit (13^th Check) for 2001 will be 67 percent of the monthly benefit.

After questions and discussion by Board Members, it was moved by Mr. Shoop, seconded by Mr. Setchell, that the 2002 Death and Disability Rates be approved as presented.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-06) (Disability Examiner Position) The Executive Director reported to the Board that a contingency request in the 2001 Budget Narrative Report to add either a Claims Examiner or Analyst position in the Benefits Department was approved when the Board accepted the 2001 Budget Narrative Report as submitted by staff.

He requested that the Board now approve the hiring of one additional Claims Examiner for the Disability Unit.

After questions and discussion by Board Members, it was moved by Mr. Setchell, seconded by Mr. Shoop, to approve the hiring of one additional Claims Examiner for the Disability Unit.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(Administrative Denial Claim Hearing — Pamela Roesner - Sycamore SD 427

It was moved by Mr. Setchell and seconded by Mrs. Newell that disability benefits should be paid for the period from February 9, 2000 though April 2, 2000. This is the period following the 30-day waiting period through Pamela Roesner’s return to work.

It was moved by Mr. Bochmann and seconded by Mr. Setchell that the Committee denies James Kolb’s claim for temporary disability benefits.

(Disability Claim Review — Jennie Sheffield — Champaign County)

It was moved by Mr. Bochmann and seconded by Mrs. Newell that the Committee terminates Jennie Sheffield’s temporary disability benefits effective March 1, 2001.

(Disability Claim Review — Dana Shane — LaSalle County)

It was moved by Mr. Bochmann and seconded by Mrs. Newell that the Committee denies Dana Shane’s claim for temporary disability benefits.

(Disability Claim Review — Ralph Johnson - City of Edwardsville)

It was moved by Mr. Shoop, seconded by Mr. Bochmann to approve the above recommendations of the Benefit Review Committee.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-08) (Report of the Legislative Committee Meeting) The Legislative Liaison gave a report to the Board on the meeting that was held on February 22, 2001.

The Legislative Liaison presented proposed position papers, and the committee recommends to the Board that the following positions be taken:

After questions and discussion from Board Members, it was moved by Ms. Thompson, seconded by Mrs. Newell, to approve the above positions, but to table taking a position on HB 963 until a cost analysis has been completed.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-09) (Litigation Update) The General Counsel reported to the Board on currently pending litigation.

The following is an update of the currently pending litigation.

An IMRF member filed for an administrative review of the Board’s decision that he is not eligible for temporary disability benefits. The Board determined that Mr. Arbeiter did not have 12 months of service credit before his date of disability.

We filed our answer and the administrative record on January 25.

CENDANT (U.S. District Court, New Jersey)

This is the class action lawsuit brought by various parties against Cendant Corporation based on securities fraud. Cendant has agreed to settle this matter for $2.8 billion.

The settlement fund is now ready for distribution to the class members. Northern Trust has filed for our share of the settlement. The attorneys who represented the class will receive 8.275% of the settlement fund.

Ford County has asked the circuit court to review the Board’s decision regarding the County’s attempt to rescind its ECO resolution for newly elected county officials. The Board determined that the ECO resolution originally passed by Ford County was irrevocable.

The sheriff of Ford County, who is the only official impacted by the County’s original attempt to rescind ECO, was recently convicted of a felony related to his previous IMRF employment with Gibson City. We don’t know yet how this will affect our litigation.

An IMRF member filed suit against IMRF for payment of a disability claim which the Board denied. Because she didn’t file as an administrative review claim, we had the claim dismissed. She then amended her claim to conform with administrative review.

It was the opinion of the medical consultant that Ms. Hall’s condition should not keep her from performing her duties as a medical secretary for the Will County Health Department.

We have filed our response and a brief. The claim has been argued and the judge has not yet made his decision.

A member filed suit against Sangamon County, the Sangamon County Superintendent of Schools and IMRF seeking omitted service credit. There is a dispute as to whether his employer during the period at issue was the Superintendent (whose employees participated in IMRF through Sangamon County) or an educational consortium which did not participate in IMRF at the time.

We filed our answer on October 27, 2000.

This is a class action brought by stockholders against Oxford Health Plans, Inc. based on securities fraud. The lead plaintiffs are Colorado Public Employees Retirement Association and PBHG Funds.

We are a member of the class and will be monitoring the litigation as it proceeds.

This administrative review claim was continued pending a new administrative hearing with the Benefit Review Committee at which a court reporter made a transcript. While this hearing process was on going, new medical documentation was presented to us. Our medical consultant has now advised us that Mr. Rush is medically eligible for IMRF disability benefits. We will have the administrative review claim dismissed.

Skokie Park District has filed an administrative review claim asking the court to order the IMRF Board of Trustees to grant the Park District a moratorium on retirement contributions until the overfunding in its IMRF account is reduced. We filed our response to this claim on April 30, 1999.

We are in the process of settling this litigation.

A group of Lake County sheriff's deputies filed suit against Lake County, the Lake County Sheriff, the Lake County Merit Commission and IMRF because they have not been promoted past the bottom rank of deputy sheriff. They allege that the sheriff, the county and the commission have violated the Sheriff's Merit System Law.

Motions for summary judgment have been filed in this case. Arguments have not yet been scheduled.

An IMRF member filed a claim for administrative review which asks the court to reverse the Board’s decision that he is not eligible for retroactive service credit.

Mr. Whetstone was the assessor for a township which passed a resolution finding that the position of assessor qualified for IMRF participation, but shortly thereafter rescinded that resolution. Mr. Whetstone argues that his position actually did qualify and an improper concern for cost made the township board rescind the resolution.

We filed the answer and administrative record on May 13, 1999.

(01-02-10) (Trustee Participation in IMRF Employee Health Insurance Program) The General Counsel discussed with the Board the participation of Trustees in the staff health insurance program.

He reported that in 1984 a Trustee inquired whether he was eligible to participate in the IMRF staff group health insurance.

The General Counsel stated that IMRF’s in-house legal counsel wrote an opinion concluding that Trustees and their dependents were permitted to participate provided they paid the full premium cost, and a Board resolution was passed in December, 1984 implementing counsel’s opinion.

He stated that the IMRF statute provides that Trustees are to serve without compensation, and this poses some concern.

The General Counsel recommends that the resolution that was adopted December 21, 1984 which permits Trustees and their dependents to participate in the IMRF staff group health insurance program be rescinded, and that Trustees currently participating in the plan be allowed to continue until their rights are concluded.

After discussion among Board Members, it was moved by Mr. Shoop, seconded by Mr. Bochmann, to adopt the following resolution:

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-11) (Report on Fiduciary Counsel) The General Counsel discussed with the Board of Trustees his findings concerning the substitution of fiduciary counsel for fiduciary insurance.

He further stated that the Illinois Pension Code provides for the Trustees indemnification, which includes protection against negligent or wrongful acts, but does not cover willful misconduct or gross negligence.

He reported that the statute permits IMRF to purchase insurance to protect the Trustees against loss and to provide defense, so IMRF purchased fiduciary liability insurance beginning in 1976 and ending in 1996.

The General Counsel stated that staff recommended dropping coverage for several reasons: high cost, high deductibles, limited coverage, lack of claims, and the philosophy that prevention is superior to damage control, and in lieu of insurance hired fiduciary counsel.

He noted that as new Trustees come on board, and as IMRF’s experience changes, it’s fitting to revisit the past decisions of having fiduciary counsel, continuing with D’Ancona & Pflaum, and if the Board is comfortable not purchasing fiduciary insurance.

The General Counsel reported to the Board that by not purchasing fiduciary liability insurance, IMRF has saved approximately $585,000 in premiums. He also reported that the flat rate to attend Board Meeting by D’Ancona & Pflaum has been $6,000 per year or $30,000 to date for a net savings of $555,000.

After researching these issues, staff recommends against the purchase of fiduciary liability insurance, and also recommends the retention of fiduciary counsel and D’Ancona & Pflaum.

After discussion by Board Members, it was moved by Mr. Shoop, seconded by Mrs. Newell to approve the above staff recommendations.

Vote:

Aye: Newell, Novak, Ross, Setchell, Shoop, Sonnemaker, Bochmann

Nay: None

Absent: None

(01-02-12) (Report of Executive Director) The Executive Director reported as follows:

Assets Net assets as of December 31, 2000 at market were $ 16.0 billion.

Benefits During January, the Fund processed 1,907 claims. On February 1, 2001, benefit claims in process totaled 1,018.

Investments The market value of the Fund’s investment portfolio, including short term investments, totaled $16.0 billion on December 31, 2000, which was $1,230.6 million over cost.

Fixed income investments of $1,404.0 million were made in December. The market value of fixed income investments totaled $4,905.9 million, which was $36.5 million over cost.

Domestic equity investments of $498.8 million were made in December. The market value of domestic equity investments totaled $7,107.7 million, which was $719.9 million over cost.

International equity investments of $75.3 million were made in December. The market value of international equity investments totaled $2,857.6 million, which was $327.9 million over cost.

The market value of real estate investments totaled $462.8 million, which was $17.7 million over cost.

The market value of alternative investments totaled $507.9 million, which was $128.6 million over cost.

(01-02-13) (Adjournment) It was the consensus of the Board that the meeting be adjourned to reconvene in the Fund offices, 2211 York Road, Suite 400, Oak Brook, Illinois, on March 23, 2001.