INTRODUCTION

This digest covers our financial audit of the Illinois State Board of Investment (ISBI) for the year ended June 30, 2005. A report on the results of our compliance attestation examination for the year ending June 30, 2005 is being issued separately.

Pursuant to the Illinois Pension Code, the Illinois State Board of Investment manages the investments of the State Employees’ Retirement System, General Assembly Retirement System and the Judges’ Retirement System.

NEW LEGISLATION AFFECTING ISBI

Public Act 94-0004 became law June 1, 2005 and addressed the early retirement option (ERO), benefit changes and funding reductions. The Act established specific dollar amounts to be contributed by the State as employer contributions for fiscal years 2006 and 2007, as opposed to the State’s contribution being calculated based on the existing funding formula.

The legislative funding reductions will be approximately $496.4 million and $429.4 million in fiscal years 2006 and 2007, respectively, for employer contributions to the State Employees’, Judges’ and General Assembly Retirement Systems. This will result in an increase in member systems’ withdrawals in fiscal year 2006 and 2007 to meet their respective funding requirements for benefit obligations.

AUDITORS' OPINION

Our auditors state the June 30, 2005 financial statements of the Illinois State Board of Investment are fairly presented.

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WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this audit were KPMG LLP.