REPORT DIGEST

TEACHERS’ RETIREMENT SYSTEM

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2004

Summary of Findings:

Total findings this report 0

Total findings last report 0

Repeated findings 0

Release Date:

April 28, 2005

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

INTRODUCTION

This digest covers our compliance examination of the System for the year ended June 30, 2004. A financial audit covering the year ending June 30, 2004 was issued separately.

There were no material findings of noncompliance disclosed during our testing. We commend the System for maintaining effective internal controls.

PENSION BONDS

On April 7, 2003, Governor Rod Blagojevich signed House Bill 2660 into law as Public Act 93-0002. This new law authorized the state of Illinois to issue $10 billion of General Obligation Bonds for the purpose of making contributions to designated retirement systems, which included the Teachers’ Retirement System.

On July 1, 2003, the Teachers’ Retirement System received an allocation of $4,330,373,948 from the pension bond obligation proceeds. The Teachers’ Retirement System Board of Trustees initially approved allocating the pension obligation bond proceeds as follows: 51% U.S. equities, 31% fixed income and 18% to international equities.

At June 30, 2004 the pension bond proceeds were allocated as follows: 52.3% U.S. equities, 19% international equities, 28.3% fixed income, .4% private equities. There was also less than 1% of the bond proceeds invested in both real estate and short-term investments. The pension bond proceeds earned an annual rate of return during fiscal year 2004 of 15.4%, net of fees.

AUDITORS’ OPINION

We conducted a compliance attestation examination of the System for the year ended June 30, 2004 as required by the Illinois State Auditing Act. A financial audit covering the year ending June 30, 2004 was issued separately.

__________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

McGladrey & Pullen LLP were our special assistant auditors for this audit.

{Financial Data and Activity Measures are summarized on the reverse page.}

TEACHERS' RETIREMENT SYSTEM OF ILLINOIS

INFORMATION FROM FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2004

OPERATING STATEMENT ANALYSIS	FY 2004	FY 2003
Revenues: Contributions - Members...................... Contributions - State of Illinois.............................. Contributions - School Districts............................ Total Contributions................................... Investment Income - Appreciation in Fair Value.... Investment Income - Income From Investments.... Total Investment Income........................... Investment Expense................................ Total Revenues.................................. Expenses: Total Benefits..................................................... Refunds and Administrative Expenses....... Total Expenses................................... Excess of Revenue over Expenses............................	$ 768,661,300 5,361,851,773 127,573,465 $ 6,258,086,538 3,873,564,792 740,823,119 4,614,387,911 128,658,566 $10,743,815,883 $ 2,262,329,479 61,580,190 $ 2,323,909,669 $ 8,419,906,214	$ 732,020,451 929,709,762 91,552,463 $1,753,282,676 467,463,329 708,800,750 1,176,264,079 115,411,968 $2,814,134,787 $1,998,622,284 56,974,144 $2,055,596,428 $ 758,538,359
INVESTMENT PORTFOLIO ANALYSIS - Fair Value	JUNE 30, 2004	JUNE 30, 2003
Total Government Obligations................................ Total Corporate Obligations.................................. International Notes............................................. Preferred Stock (U.S. & International Combined).... Common Stock - U.S............................................ Common Stock - International................................ Short Term Investments........................................ Real Estate Investments......................................... Private Equity..................................................... Foreign Currency.................................................. Total Investment Portfolio.............................	$ 5,699,920,106 3,047,586,076 341,939,109 170,070,366 13,185,157,414 5,249,363,442 1,036,863,444 2,680,788,703 840,390,782 24,999,284 $32,277,078,726	$ 4,221,372,131 2,806,907,117 286,570,409 122,216,597 9,247,447,414 3,279,688,612 1,032,463,461 2,412,293,598 668,389,537 23,905,527 $24,101,254,403
ADMINISTRATIVE EXPENSES	FY 2004	FY 2003
Personal Services........................................................... Professional Services..................................................... Postage........................................................................ Machine Repair and Rental........................................... Other Contractual Services............................................. Commodities................................................................. Occupancy Expense...................................................... Provision for Depreciation.............................................. Loss on Disposal of Equipment....................................... Total Administrative Expenses.................................	$ 9,855,223 981,402 436,283 503,353 792,565 435,978 182,991 372,751 0 $13,560,546	$ 9,499,683 1,385,493 488,524 553,562 716,257 488,669 194,205 532,511 498 $13,859,402
SELECTED ACCOUNT BALANCES	JUNE 30, 2004	JUNE 30, 2003
Cash............................................................................ Receivables.................................................................. Accrued Investment Income Receivable.......................... Investments............................................................... Collateral from Securities Lending............................ Prepaid Expenses.............................................. Property and Equipment......................................... Total Assets........................................................ Total Liabilities...................................................... Net Assets Held in Trust for Pension Benefits........ Actuarial Accrued Liability................................. Unfunded Actuarial Accrued Liability...................	$ 4,269,329 120,245,572 230,705,401 32,046,373,325 3,466,114,601 2,774,741 2,273,510 $ 35,872,756,479 (4,328,027,194) $ 31,544,729,285 (50,947,451,000) $(19,402,721,715)	$ 3,651,963 118,918,372 165,638,540 23,935,615,863 2,154,422,658 2,212,894 2,630,930 $ 26,383,091,220 (3,258,268,149) $ 23,124,823,071 (46,933,432,000) $(23,808,608,929)
SUPPLEMENTARY INFORMATION	FY 2004	FY 2003
Total investment manager fees............................................. Total time weighted return on investments............................ Average Number of System Employees............................... Number of Retirement Annuitants........................................ Total Brokerage Commissions Paid......................................	$94,549,085 16.5% 165 67,950 $20,544,760	$72,125,033 4.9% 163 64,702 $20,340,971
EXECUTIVE DIRECTOR
During Audit Period: Jon Bauman Currently: Jon Bauman

REPORT DIGEST

PENSION BONDS

SELECTED ACCOUNT BALANCES

SUPPLEMENTARY INFORMATION

FY 2004

FY 2003