*Excludes survivors and beneficiaries.

In 1989, the System had 4.3 active members for everyone drawing a benefit, which decreased to 3.7 in 1999. We anticipate that this trend will continue to decrease to about 3.5 active members per retiree in the next few years.

A comparison of active members by employer type for 1989 and 1999 is as follows:

Contribution Rates - As of July 1, 1999, contribution rates for regular and police/fire members under the two contribution plans were as follows:

Contribution rates will remain the same through June 2001 for all members regardless of contribution plan.

Investments - The System has a funding objective to provide a total rate of return which exceeds the Consumer Price Index (CPI) by 3% each year over the long-term future. Our investment objective to achieve that funding is to capture market returns for each asset class. For domestic common stocks, it is the return of the S & P 500; for U.S. bonds, the Lehman Aggregate; and for real estate, the National Council of Real Estate Investment Fiduciaries (NCREIF) index. International stocks are measured against the Morgan Stanley Europe, Australia, and Far East Index, non-U.S. Bonds against the Salomon Bros. Non-Dollar Government Bond Index. Total return for the year was 11.0%.

Financial - During the 1999 fiscal year, the total fund balance changed as follows:
1999 Statement of Changes
In Plan Net Assets

Major Initiatives

Legislation

The 1999 Nevada legislature passed several measures of importance to the Public Employees' Retirement System. Assembly Joint Resolution (AJR 10) urged Congress to oppose coverage on newly hired state and local government employees under Social Security. AB 189, the System's technical bill contained several changes and pension reform measures. They include: allowing rollovers from 401(a) defined benefit plans and IRAs, increases to survivor benefits, removal of marriage penalties for surviving spouses, and modification to the benefit formula for re-employed retirees upon meeting certain conditions.

Technology Improvements

The System is midway through implementation of a complete technology replacement project entitled C*A*R*S*O*N (Computer Automated Retirement System of Nevada). Already successfully installed are a new financial accounting system, a new local area network and a new website with online versions of plan documents and other information about the System (www.nvpers.org). The membership portion of the computer system went live midsummer, 1999. The benefits portion of the system is scheduled for implementation in late 2000. The project will be complete in mid 2001.

C*A*R*S*O*N began with the procurement process and contract award in 1997. The System uses a structured management style to monitor the project. A staff member is assigned full time to project management and uses several committees to assist in the management of C*A*R*S*O*N. A user group handles daily issues, while the project management committee meets weekly to review resource allocation and schedule issues. The steering committee meets monthly to evaluate progress against deliverables in the contract. Quality assurance consulting provides review of all deliverables and maintains oversight on project schedules and costs. A performance bond remains in full force and effect for the duration of the contract.

Strategic Planning

The System's strategic planning efforts continue to focus on a broad range of policy and operational issues. Mandatory Social Security coverage of state and local government employees remains a concern during the horizon of PERS' 5 year strategic plan. Initial steps were taken to address the issue in the form of a 1998 study by The Segal Company on financial impact of mandatory coverage.

The System also incorporated a review of pension portability and benefit preservation into its strategic planning exercise. The central focus of the exercise will be to address the ability of short-term public employees to retain more control over their retirement benefits and to preserve the value of those benefits.

Operationally, PERS continues to assess its staffing needs, most importantly, in the Las Vegas metropolitan area. The phenomenal growth in this area suggests the need for additional staff within the strategic planning cycle.

BENEFIT CHECK MAILING DATES FOR 2000

RETIREES, IT'S TIME TO REVIEW YOUR INCOME TAX WITHHOLDING

That time is here again. We need your instructions for federal income tax withholding. Unless we receive written instructions to do otherwise, we will continue to withhold (or not withhold) according to your previous instructions. If you have instructed us to calculate your withholding based on your marital status and number of exemptions, you saw a recalculated deduction from your January benefit. If in the past you requested a flat dollar deduction, you need to provide new instructions. You may ask us to deduct based on marital status and number of exemptions plus a flat amount. If you have questions or wish to change your deduction, please call the Benefits Division and request a Tax Withholding Certificate.

PENSION MAXIMIZATION

If you meet with a personal financial planner to discuss your retirement, you will likely hear the term "pension maximization" as something you should consider. What's the concept behind this term? Why all the debate? Here's a simple explanation and some things to think about.

At retirement, you have the choice of selecting one of several retirement plans. The unmodified plan (Option 1) provides you with a lifetime benefit but provides no continuing payment to a beneficiary after your death. The remaining retirement plans (Option 2 through 7) provide you with a benefit reduced from the amount you would receive from Option 1, but with benefits continuing after your death to your beneficiary for the remainder of their lifetime.

The concept behind the term "pension maximization" is not to elect any of the Options 2 through 7 at retirement. Instead, take the higher income provided by Option 1 and, with some of the extra money you receive by choosing this rather than one of Options 2 through 7, buy an insurance policy on your life. The pitch is that you will enjoy the advantages of higher income during your retirement and an insurance policy that protects your spouse with a lifetime benefit.

Why all the debate? Although the "pension maximization" concept sounds great on the surface, most of you will probably find that few life insurance policies exist that will guarantee coverage equal to the spousal benefits offered by PERS, i.e. a policy that provides the same protection as PERS' spousal benefit for a premium that does not exceed the savings realized by choosing Option 1. Some plans may claim to do this but again they are probably not guaranteed. Insurance payouts from these plans are contingent upon dividend rates and may not be as high as expected. There is no way to know in advance if these plans will work the way they were represented to you.

Some other things to consider are:

1. Life is uncertain. What happens if you don't budget properly and can no longer afford to pay the life insurance premiums?
2. Can the insurance policy match the cost-of-living increases that will be given by PERS?
3. How would any future income tax rate increases lower the difference gained from selecting Option 1?
4. Your health at retirement. Can you qualify for life insurance?
5. How well is your beneficiary protected if you die immediately after retirement?
6. How stable is the life insurance company?

As they say, "The only guarantees in life are death and taxes." Keep this in mind the next time you are approached with the concept of "pension maximization". This concept might be alright in your individual case, but be sure to look at all of your PERS' and life insurance options and make an informed decision that you can live with.

Investment Manager Profile...
Axe-Houghton Associates, Inc.

Twelve years ago, following a study by PERS’ consultant, Callan Associates, the Retirement Board voted to expand our portfolio of equity investments to include the shares of foreign companies. This decision was based on research suggesting that, by including international equities, the overall portfolio’s volatility could be reduced without a commensurate diminution of return.

Having had considerable success indexing a portion of our domestic (U.S.) equity investments, PERS decided to interview a number of experienced investment managers offering passive international products. Working with Callan and Staff the Board selected and hired Axe-Houghton Associates, Inc. as PERS' first international equity manager. Today, Axe-Houghton remains our largest international equity manager responsible for over $580 million of PERS’ assets.

A distinctive characteristic of Axe-Houghton’s international equity investment style is their exclusive use of American Depositary Receipts, or ADRs. As dollar-denominated securities traded on the U.S. markets, ADRs each represent ownership in a specific foreign company. A large number of international stocks are available as ADRs, and by utilizing them, PERS has been able to capture the benefits of international diversification.

Today, Axe-Houghton’s 15 professionals manage approximately $4 billion in separate account employee benefit assets for 32 clients. Along with the passive international ADR portfolios they manage for PERS and other clients, Axe runs an S&P 500 Index Fund. Complementing their passive products, Axe-Houghton manages portfolios concentrated in small-cap growth equities, diversified small-cap value equities, diversified mid-cap value equities and balanced funds of large-cap growth equities and conservative fixed-income securities.

Axe-Houghton Associates traces its roots back to 1932 and a personal investment advisory firm founded by Ruth Houghton Axe, a multi-lingual financial analyst with AT&T and her husband, Emerson Wirt Axe, a Harvard educated economist working from the kitchen table of their home in Brooklyn, New York. When Emerson Axe died in the 1960’s, the company was managing five mutual funds and personal assets of over $400 million. Mrs. Axe maintained management control of the company until her death in the early 1970’s. After some ownership transition in the late 80's and early 90's Axe-Houghton was purchased by the Hoenig Group Inc. (a publicly traded financial services company) in 1993.

The investment team on our account has been working together for over twenty-two years. Seth Lynn and Bob Windsor originally met while managing index funds at Bankers Trust Company in New York. Bob has an MS in engineering and a Ph.D. in astrophysics. Seth was an experienced active equity and bond manager. Recognizing that technology was a key to successful index fund management, in 1980 Seth and Bob recruited Lloyd Buchanan, then in charge of the bank's computer center. They have now been working as a team for Nevada PERS for over twelve years. During that time they have captured the diversification of international equities in an efficient and cost effective portfolio design and even achieved performance results that modestly outperformed their benchmark. We appreciate our long-standing successful relationship with Axe-Houghton.