Callan Associates Inc. - SDCERSthe smaller cap Russell 2000 (+4.4%) and the Russell MidCap (+5.3%). The S&P 500 rose 6.3%. Based on the Russell style indices, growth-oriented stocks

Callan Associates Inc.Investment Measurement Service

Quarterly Review

San Diego City Employees’ Retirement SystemJune 30, 2007

The following report was prepared by Callan Associates Inc. ("CAI") using information from sources thatinclude the following: fund trustee(s); fund custodian(s); investment manager(s); CAI computer software;CAI investment manager and fund sponsor database; third party data vendors; and other outside sourcesas directed by the client. CAI assumes no responsibility for the accuracy or completeness of theinformation provided, or methodologies employed, by any information providers external to CAI.Reasonable care has been taken to assure the accuracy of the CAI database and computer software. Inpreparing the following report, CAI has not reviewed the risks of individual security holdings or thecompliance/non-compliance of individual security holdings with investment policies and guidelines of afund sponsor, nor has it assumed any responsibility to do so. Copyright 2007 by Callan Associates Inc.

Executive SummaryExecutive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Capital Markets ReviewCapital Markets Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Total FundTotal FundThree Year Asset Allocation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Asset Allocation Across Investment Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Actual vs. Target Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Performance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Cumulative Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Quarterly Total Fund Attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Cumulative Total Fund Attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Asset Class Rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Domestic EquityDomestic EquityMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Delta Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44INTECH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46TCW Concentrated Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Dodge & Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50GlobeFlex Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52TCW MidCap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Putnam Small Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Wall Street Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Putnam Small Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60DFA Small Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

International EquityInternational EquityMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Brandes Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68McKinley Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70GlobeFlex Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72GMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Nicholas-Applegate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Domestic Fixed-IncomeDomestic Fixed-IncomeMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Met West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82PIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Pyramis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86Salus Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90SSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Nicholas-Applegate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

International Fixed-IncomeInternational Fixed-IncomeMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Rogge International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Real EstateReal EstateComposite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105Private Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106RREEF REITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

AppendixAppendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

DisclosuresDisclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Callan Research/EducationCallan Research/Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Executive Sum

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PERFORMANCE SUMMARY PERIODS ENDED JUNE 30, 2007

General Market & Economic Conditions During the second quarter, the S&P 500 Index eclipsed the historical peak it set in March 2000. However, investor concerns over rising interest rates, a slowing housing market, the run-up of crude oil and the continuing subprime implosion resulted in a late-quarter slide that pushed the index down from its record high. As a counter-punch to the gloom of declining market sentiment, job growth was strong during the quarter and average hourly earnings were up from a year ago. The broad U.S. equity markets, as represented by the Russell 3000 (+5.8%) benchmark, advanced for the fourth consecutive quarter. The largest capitalization stocks in the Russell Top 50 (+6.2%) outperformed the smaller cap Russell 2000 (+4.4%) and the Russell MidCap (+5.3%). The S&P 500 rose 6.3%. Based on the Russell style indices, growth-oriented stocks topped value-oriented stocks across all capitalization ranges for the first time in six quarters. With crude oil again exceeding $70 per barrel again, Energy (+13.2%) led all sectors for the quarter. Industrials (+10.1%) moved higher on broad-based results led by Capital Goods (+11.5%). Technology (+10.0%) also experienced also a strong quarter, aided by the buzz around Apple’s (+31.4%) release of the iPhone. Financials (+1.1%) was a mixed bag for the quarter as both REITs (-8.7%) and Banks (-2.2%) began to feel the impact of higher interest rates. Falling consumer confidence may have hurt both Consumer Discretionary (+3.5%) and Consumer Staples (+2.9%), which posted mixed results for the quarter. Non-US equity markets, as represented by the MSCI EAFE Index, climbed 6.4% in the second quarter. Global markets continued to benefit from strong economic growth, healthy M&A activity and solid corporate earnings. Continuing the trend from previous quarters, dollar-based returns were boosted by weakness in the U.S. dollar. For the second consecutive quarter, growth (+6.6%) beat value (+6.1%). However, small cap (+4.2%) significantly underperformed the larger cap EAFE Index — a rare occurrence during the past five years. Regionally, the MSCI Europe Index led developed regions, advancing 8.3% in dollar terms. M&A activity continued to support prices, while June’s monetary tightening caused increased volatility. Central banks across the region tightened further. The MSCI Pacific Basin Index (+2.2% in dollar terms) lagged the broader market, with a weakening yen detracting from performance. Japan, up +3.9% in local terms, was down -0.6% in U.S. dollar terms; Japan was the only developed country with a negative dollar-based return. Surpassing all regions, the MSCI Emerging Markets Index rose an impressive 15.1% in the second quarter, as domestic economies, robust earnings and strong currencies outweighed inflationary pressures and rising interest rates. In a repeat of last quarter, Latin America (+19.8%) led the way, thanks to a strong Materials sector. Brazil (+23.9%) benefited from a soaring real and the continuing global commodity boom. China (+24.5%) and India (+20.8%) posted 11.1% and 9.1% annualized increases in GDP growth, respectively. Russia was flat (+0.3%) with fears of rising oil production costs offsetting strong steel demand.

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The U.S. fixed income market had a tumultuous quarter marked by remerging interest rate volatility, a surge in economic optimism and inflation concerns. The U.S. investment grade bond market, as measured by the Lehman Aggregate, fell 0.5%. The 10-year U.S. Treasury experienced an increase in volatility in the quarter, with yields reaching a high of 5.30%, before ending the second quarter at 5.03%. The Fed remains hawkish amid tight labor markets and strong capacity utilization. Initially, Fed watchers expected interest rates to ease by year-end, but by mid-June that sentiment had changed to a rate hike, only to revert back to neutral by quarter-end. The subprime mortgage market continues to dominate the headlines but it only modestly affected asset-backed securities, which advanced 0.1%, as measured by the Lehman ABS Index. Mortgage-backed securities had the toughest quarter among spread sectors, underperforming US Treasuries by 56 basis points. Housing woes, increased volatility and a lack of foreign interest in the market created unfavorable supply and demand dynamics. Commercial mortgage-backed securities (CMBS) also struggled in the second quarter, trailing US Treasuries by 44 basis points. Corporates ended the quarter slightly ahead of US Treasuries, facilitated by solid fundamentals, strong earnings, good economic data and robust equity markets. High yield, as represented by the Lehman Brothers High Yield Index, returned 0.2% for the quarter. Beyond high yield, non-benchmark or “plus” sectors did not fare as well. Treasury inflation-protected securities (TIPS) declined 0.8% this quarter, based in part on an increase in real rates. Non-US and emerging markets debt declined as bond yields rose around the globe in response to a rebounding U.S. economy and continued strength in Europe. The Citi Non-U.S. World Government Bond Index fell 1.6% in local terms and 1.8% in U.S. dollar terms. The dollar-denominated emerging debt market, as measured by the JPMorgan EMBI Global Index, lost 1.4% during the quarter. There was an inversion between the public and private real estate markets during the second quarter. The domestic REIT market, as measured by the FTSE NAREIT Equity Index, fell 9.0% during the three-month period and 5.9% year-to-date, which many cited as a much needed pricing correction. Specialty (+2.1%) was the only sector in the black and the weakest sectors were Self Storage (-17.3%) and Retail (-14.6%). Private capital continued to chase the “overpriced” public markets at unprecedented levels. Global real estate securities also experienced a downturn, albeit less rampant, due to differing dynamics in each region. The FTSE EPRA/NAREIT Global Real Estate Index declined 5.9% for the quarter. Conversely, the private real estate landscape looked as solid as ever. The NCREIF Property Index advanced 4.6% and the NCREIF Open-End Diversified Core Equity Index rose a healthy 5.2%. All NCREIF property sectors exhibited positive returns. The best performing sectors were Office (+5.9%), Industrial (+5.1%) and Hotel (+5.0%). All NCREIF regions reported positive returns as well. The top regions were the East (+4.3%) and West (+5.6%). It remains to be seen whether the public real estate turmoil will spill over into the broader direct market, and whether pricing and supply swells will shake the fundamental balance. Asset Allocation As of quarter end, the assets of the Fund were valued at $4.916 billion. This represents an increase from the March 31 value of $4.769 billion. While over $41 million was withdrawn from the System during the quarter, the System experienced a net investment gain of over $188 million due to the combination of income and realized and unrealized gains/losses. The Fund ended the quarter closely tracking its long-term strategic target of 38% Domestic Equity, 17% International Equity, 30% Domestic Bonds, 4% International Bonds, and 11% Real Estate.

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Total Fund Performance SDCERS’ second quarter return of +3.9% followed a modest first quarter return of +2.6% (excluding private real estate, whose valuations are lagged one quarter) and exceeds the Total Fund Benchmark’s +3.7% return. For the fiscal year ending June 30, the System gained 16.2%, an excellent return on an absolute basis. On a relative basis, the System was essentially flat to its benchmark’s return of 16.3% and ranks in the 69th percentile of the public fund universe. Contributions to this strong absolute trailing year came from many sources. In particular, both international equities (particularly small cap) and real estate have been strong contributors to performance over the year. Domestic equities, which returned a strong 18.9%, were the biggest detractors to relative performance over the trailing year. Longer-term results for the System continue to be very strong relative to the benchmark, the public fund universe, and the long-term actuarial return target of 8.0%. The System ranks in the top decile of the public fund universe for the ten-year period ended 6/30/2007 while outperforming the benchmark. For the trailing ten years ended June 2007, the Fund returned +9.9% on an annualized basis, which ranks in the 2nd percentile of the public fund universe and exceeds the total fund benchmark by approximately 1.2% on an annualized basis. The System’s volatility in returns over all of this period has been slightly less than the public fund median, the result of which has created excellent risk-adjusted returns as well. Domestic Equity SDCERS’ domestic equity portfolio improved on a relative basis in the second quarter. During the quarter ended June, the portfolio returned +6.8%, outperforming the benchmark return of +5.8% and ranking 8th percentile in the public fund universe. Second quarter relative outperformance came from TCW (both large and mid-cap), Delta, GlobeFlex, Wall Street and Putnam (small cap value). Continued weakness from INTECH’s large cap core portfolio, which missed the benchmark by 2.2%, weighed on relative performance. For the year, a mid and small cap bias combined with underperformance from several managers contributed to the below median ranking relative to the public fund universe. For the trailing five years ended June 2007, in what has been a dynamic environment for the US stock markets, the domestic equity portfolio exceeded its benchmark by 1.9% per annum and ranks in the 4th percentile of the public fund universe. For the trailing ten-year period, the portfolio has compounded at +9.9% on an annualized basis. International Equity International equity continues to be a strong contributor to the absolute and relative returns of the Fund. SDCERS’ international equity portfolio advanced 7.7%, trailing the benchmark return of +7.9% but ranking in the 37th percentile in the public fund universe for the period. In their first full quarter of performance, McKinley posted a strong return of +8.9% compared to the MSCI ACW ex-US Index of 8.4%. The small cap managers were mixed with Nicholas Applegate returning +16.2% while GlobeFlex returned +5.5%. Subsequent to the end of the quarter, Nicholas Applegate announced that the international small cap team had been acquired by UBS. As a result of the departures, the assets were transitioned to GlobeFlex in July. For the trailing year, the international portfolio returned an impressive +32.3%, outperforming the benchmark and ranking in the 5th percentile of the public fund universe. Longer-term results for the international equity portfolio for periods measured are also quite favorable relative to the benchmark and peer universe. The portfolio ranks in the top decile of the public fund universe over the trailing five-year period. For the trailing ten-year period, the portfolio has compounded at an impressive +13.0%, outperforming its benchmark by 4.0% per annum and ranking in the top decile versus other public funds.

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Domestic Fixed Income Bond yields rose during the quarter as investor consensus changed from anticipating a Fed easing to no change or a modest tightening. Increasing concerns over the troubles in the sub-prime mortgage area hit the market particularly hard in June. The overall domestic fixed income portfolio returned +0.7% for the period, ahead of the benchmark’s +0.2% return and ranking in the 5th percentile of the public fund universe. The market neutral equity program was a significant positive contributor for the quarter with Pyramis and Salus up 3.1% and 2.1%, respectively. SSI continues to underperform relative to the benchmark and peers. For the quarter, the convertibles portfolio managed by Nicholas Applegate contributed as well with a return of +6.0%. The portfolio’s return of +7.3% (compared to +6.1% for the Lehman Aggregate) over the trailing year is 0.4% greater than the benchmark and ranks in the 17th percentile of the public fund universe. Performance for the trailing three and five year periods has also met objectives. Additionally, the risk-adjusted performance for the portfolio remains very attractive. For the trailing ten year period ended June 2007, the portfolio has compounded annually at +6.5%, placing in the 21st percentile of the public plan universe while experiencing considerably less volatility in return than the benchmark and the median public plan. International Fixed Income The international fixed income portfolio is managed by Rogge International. During the quarter global interest rates moved up while the dollar fell. Rogge’s portfolio returned –1.1%, outperforming the Citigroup Non-US Government Bond Index return of –1.7%. This places the portfolio in the 26th percentile of the peer universe for the quarter. Results for the last year are ahead the benchmark, and SDCERS’ longer-term results for Rogge since inception are favorable compared to the index and place the portfolio in the top quartile of the non-US fixed income peer group. Also worth noting, SDCERS’ non-U.S. bond portfolio has generated a meaningful premium over U.S. bonds over the past five year period, mainly fueled by a weakening U.S. dollar as well as the strong contributions from the emerging market debt sector. Real Estate Given data timing issues, the returns on the private real estate assets of SDCERS are lagged one quarter. Through March, the long-term returns on the overall real estate portfolio have been stellar. The overall real estate portfolio remains one of the best performing asset class for SDCERS for the trailing five years, returning +19.9% annualized over this period. This has been driven to a large extent by SDCERS’ public real estate portfolio, which has returned +22.1% per annum for the five years ended June. Comments on Watch List Managers

• Delta Large Cap Core – Delta has been placed on the watchlist due to their three-year relative rank to peers. A significant reason for this poor relative ranking has been the higher capitalization of the Delta portfolio when compared to peers. Delta has consistently ranked in the top decile of the large cap core style group in terms of weighted median market capitalization for the past several years. As has been discussed with the Board previously, the majority of this period has been marked by meaningful outperformance from smaller stocks. Over the trailing year, large cap stocks have reversed the longer-term trend and have outperformed smaller stocks. In this environment, we have seen Delta’s performance improve. For the trailing year, the portfolio has outperformed the S&P 500 by 1.0% and ranks in the 33rd percentile of the large cap core style group. It was important to see how the portfolio would respond to a change in size leadership within the market, and we are pleased to see the positive results.

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• TCW Large Cap Growth – after a very poor 2006 and difficult first quarter of 2007, the TCW large cap growth portfolio rebounded with a stellar +9.6% return for the second quarter, ranking in the 1st percentile of the large cap growth style group. The calendar year to date number is now 1.0% ahead of the Russell 1000 Growth Index and the portfolio is performing close to the top quartile of the style group. The trailing one and three year returns still rank well into the bottom quartile. TCW’s concentrated portfolio of 25-30 stocks and lower turnover approach tends to produce a volatile return pattern over time. Since their inception for SDCERS, the portfolio has added significant value over the Russell 1000 Growth Index and ranks in the top decile of the large growth style. We do not recommend any changes with this strategy at this time, but we will continue to monitor performance and the team closely.

• TCW Mid Cap Core Value – like the large cap growth portfolio, TCW’s mid cap core value portfolio has also tended to exhibit a more volatile performance pattern over time. The portfolio has performed admirably year-to-date, returning +10.5% and ranking in the 46th percentile of the mid cap value style group. However, since inception returns fall short of the index and style median in what has been a remarkable period for returns within the asset class. We believe this relative underperformance is more the result of their investment style being out-of-favor than any particular issues at the firm. The co-portfolio managers for this portfolio, Nick Gallucio and Susan Suvall, have been working together since the mid 1980’s and have consistently applied their investment process since that time. Long-term results for the strategy remain very strong. We continue to monitor the portfolio closely, but we remain very comfortable with the team and its process.

• Putnam Small Cap Value and Growth – like the two TCW portfolios, we have seen a turnaround in year-to-date performance for both Putnam small cap portfolios. As you will recall from recent summaries and discussions with the Investment Committee, we have highlighted some concerns with these strategies as well as our belief that improvements in performance in 2007 are important. We are pleased to see both portfolios post very strong results during the first six months of the year. Additionally, we continue to monitor the impact of Putnam’s sale (formally completed on Aug 3) to Great West Lifeco Inc., a subsidiary of Canadian-based Power Financial Corporation. We expect the impact to be minimal in the short term as Putnam will continue to be based in Boston and will retain its brand, operations, investment/business professionals and offices.

• Met West Core Plus Bonds – Met West Asset Management (MWAM) was added to the watchlist earlier this year for five year relative underperformance. This underperformance is solely attributable to the second and third quarters of 2002. Since that point in time, Met West has been one of the strongest performing bond managers in the marketplace, significantly outperforming the Lehman Aggregate Index and ranking in the top decile of the core plus bond style group. We remain very comfortable with MWAM in this role for SDCERS and do not recommend any changes at this time.

• SSI Market Neutral Equity – SSI’s performance woes have continued so far this year. The portfolio has underperformed its 90 Day T-Bills plus 3% benchmark considerably and ranks in the bottom quartile of the market neutral style group. As we have mentioned before, SSI’s return since their inception also falls well short of the benchmark and ranks in the bottom quartile of the style group. The portfolio has trailed median in four of the five calendar year periods. Our position has been to monitor performance closely each quarter but too date, we have not seen the improvements we were hoping to see. At this point we would encourage SDCERS to strongly consider alternatives for this assignment.

Summary and Conclusions Unexpected strong returns from the equity markets through the first six months of 2007 have driven SDCERS to a fine +6.9% returns over this period as the System continues to add to its admirable long-term performance record. The annualized return on the overall portfolio for the trailing three, five, and

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ten-year periods is well in excess of the long-term actuarial expected return target of 8.0%, the total fund benchmark, and the median public plan. Equally important, SDCERS risk over this period has been comparable to its long-term benchmark, the result being very strong risk-adjusted returns over longer-term periods measured. For the past five years we have witnessed a tremendous rebound in the performance of the global equity markets as well as in other riskier investments such as private equity, real estate, and hedge funds. The appetite for risk from the investment arena has been robust. Given the length and magnitude of this cycle, we think it is a particularly opportune time for our clients to focus on risk management. We continue to advocate discipline, diversification, and focus on the long-term. In September, we will have the opportunity to review the results of our asset allocation and liability study with you. This is a very important exercise in which we take a very close look at the expected future obligations for SDCERS and frame the risks associated with capital market behavior in meeting these obligations. We look forward to taking you through the process and conclusions and we encourage all the Board members to actively engage in the process. The establishment of the long-term asset allocation policy is the Board’s primary statement of your risk tolerance. As always, we greatly appreciate our relationship with SDCERS. Please do not hesitate either of us if you have any questions. We look forward to seeing you at the August meeting to discuss these results in greater detail. Best Regards, James A. Callahan, CFA Janet Becker-Wold, CFA Executive Vice President Senior Vice President Dated August 6, 2007

Capital M

arkets Review

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Not Dead YetGDP ground to a halt in the first quarter, but rebounded to 3.4% in thesecond quarter of 2007, fueled by non-residential construction, businessinvestment spending and exports. However, the decline in the housingmarket continues to deepen with delinquency rates for subprime mortgagesapproaching 20%.

Over the Top and Back DownThe broad Russell 3000 (+5.8%) benchmark advanced for the fourthconsecutive quarter. Energy (+13.2%) led all sectors. The largestcapitalization stocks in the Russell Top 50 (+6.2%) outperformed thesmaller cap Russell 2000 (+4.4%). Based on the Russell style indices,growth-oriented stocks topped value-oriented stocks across allcapitalization ranges for the first time in six quarters.

Volatility ReturnsInterest rates increased in the second quarter, which was marked by a returnof interest rate volatility. As a result, the Lehman Aggregate fell 0.5%. Thesecond quarter was also marked by a return of interest rate volatility.Subprime residential and lower quality asset-backed securities (ABS)performed poorly versus non-residential and higher quality ABS. Theinvestment grade credit market eked out a positive, yet meager 4 basispoints of excess return, facilitated by solid fundamentals, strong earningsand robust equity markets.

The Price Is Right?The domestic REIT market, as measured by the FTSE NAREIT EquityIndex, fell 9.0% in the second quarter. Specialty (+2.1%) was the onlysector in the black. The FTSE EPRA/NAREIT Global Real Estate Index(-5.9%) also experienced a downturn. However, the private real estatelandscape looked as solid as ever. The NCREIF Property Index advanced4.6% and the NCREIF Open-End Diversified Core Equity Index rose5.2%.

Re-emergence of Emerging?The MSCI EAFE Index climbed 6.4% in the second quarter, benefitingfrom strong economic growth, healthy M&A activity and solid corporateearnings. Emerging markets (+15.1%) outpaced EAFE, a reversal from lastquarter. Regionally, the MSCI Pacific Basin Index (+2.2% in dollar terms)lagged the broader market.

Global Rates Rise, While the Dollar Is MixedCentral banks raised rates in many developed markets in response to arebounding U.S. economy and continued strength in Europe. As a result,the Citi Non-U.S. Government Bond Index declined 1.6% in local termsand 1.8% in U.S. dollar terms in the second quarter. The dollar-denominated emerging debt market, as measured by the JPMorgan EMBIGlobal Index, lost 1.4%.

Private Equity MarketFundraising leapt forward in the second quarter of 2007, with $93.3 billionin new commitments and 133 new funds. The investment pace by fundsinto companies during the quarter was the third largest on record. Exitactivity was moderate.

Hedge Funds Surge Despite Subprime MessEquity market gains driven by strong corporate profits, record-breakingM&A deal flow, and trending commodity markets created plenty ofcatalysts for most hedge fund strategies. Representing broadly diversifiedhedge fund programs, the median manager in Callan’s Hedge Fund-of-Funds Database advanced 4.4% last quarter, net of fees.

A Positive OutlookFor the second quarter, fund sponsors with more aggressive assetallocations came out on top. The median endowment/foundation (+4.6%)led its institutional counterparts. Weighed down by greater bondallocations, the median Taft-Hartley plan (+4.0%) trailed its peers.

-4%

-2%

-0%

2%

4%

6%

8%

3.22%

1.28%

-0.52%

6.40%

U.S. Equity(Russell 3000)

Non-U.S. Equity(MSCI EAFE)

U.S. Fixed(LB Aggregate)

Non-U.S. Fixed(Citi Non-U.S.)

Real Estate(Callan Real Estate)

Cash(90-Day T-Bills)

Ret

urn

-1.84%

5.19%

Hedge Funds(CSFB/T HFI)

5.77%

Broad Market Returns – Second Quarter 2007

Second Quarter 2007

Capital MarketReview

Capital Market Review • Second Quarter 2007

Over the Top and Back DownDuring the second quarter, the S&P 500 Index eclipsed the historical peak itset in March 2000. However, investor concerns over rising interest rates, aslowing housing market, the run-up of crude oil and the continuing subprimeimplosion resulted in a late-quarter slide that pushed the index down from itsrecord high. As a counter-punch to the gloom of declining market sentiment,job growth was strong with over 440,000 non-farm jobs added during thequarter, while average hourly earnings were up 3.9% from a year ago.

The broad Russell 3000 (+5.8%) benchmark advanced for the fourthconsecutive quarter. The largest capitalization stocks in the Russell Top 50(+6.2%) outperformed the smaller cap Russell 2000 (+4.4%) and the RussellMidCap (+5.3%). “Mega-cap” Russell Top 50 stocks also beat the broadmarket. The S&P 500 rose 6.3%.

With crude oil again exceeding $70 per barrel again, Energy (+13.2%) wasthe leading sector for the quarter. In the vanguard were Equipment & Services(+17.2%) followed by industry stalwarts such as Exxon (+11.7%),ConocoPhillips (+15.5%) and Chevron (+14.7%).

Aided by the buzz around Apple’s (+31.4%) release of the iPhone,Technology (+10.0%) experienced a strong quarter. Dell jumped 23% asinvestors were optimistic regarding founder and chairman Michael Dell’splans to turn the computer firm around. Digital marketing firm aQuantive(+129.0%) leapt when Microsoft (+6.1%) announced that it would acquire thecompany. Tech bellweather Intel (+24.7%) reported solid earnings as it tookmarket share from rival AMD (+9.0%). Telecom (+7.7%) was also up withsector leaders AT&T (+6.2%) and Verizon (+9.7%) both in the black.

Helped by continuing strong global demand, Industrials (+10.1%) movedhigher on broad-based results led by Capital Goods (+11.5%), which climbedon solid earnings from 3M (+14.2%), Joy Global (+36.3%) and Caterpillar(+17.3%). Materials (+8.6%) increased as interest and demand for ethanol-based alternative fuels continues to grow, driving Agricultural Chemicals up26.5%.

Financials (+1.1%) was a mixed bag for the quarter as both REITs (-8.7%)and Banks (-2.2%) began to feel the impact of higher interest rates. Buckingthe trends were Capital Markets (+6.1%) and Insurance (+4.9%). ConsumerFinance (+11.6%) received a lift from the announcement that Sallie Mae(+40.8%) would be taken private by a group of private equity firms.

Falling consumer confidence may have hurt both Consumer Discretionary(+3.5%) and Consumer Staples (+2.9%), which posted mixed results.Automotive (+14.6%) rose from recent lows while Homebuilders (-9.3%)were seeing the downside of the recent real estate bubble.

Based on the Russell style indices, growth-oriented stocks topped value-oriented stocks across all capitalization ranges for the first time in six quarters.To compare value and growth, Russell divides the capitalization indices tocreate subsectors of growth- and value-oriented stocks. Among smallerstocks, the Russell 2000 Small Cap Growth Index (+6.7%) trumped itsvalue counterpart (+2.3%). In the large stock arena, the Russell 1000 GrowthIndex (+6.9%) bested the Russell 1000 Value Index (+4.9%).

Large Cap-Growth Large Cap-Value Small Cap-Growth Small Cap-Value Style Style Style Style 10th Percentile 8.28 8.01 12.49 6.25 25th Percentile 7.38 7.02 9.77 5.81 Median 6.20 6.25 8.22 4.50 75th Percentile 5.26 5.55 6.38 3.27 90th Percentile 4.34 4.70 4.86 1.79 R1000 Growth R1000 Value R2000 Growth R2000 Value Benchmark 6.86 4.93 6.69 2.30

0%

3%

6%

9%

12%

15%

Callan Style Group Returns – Second Quarter 2007

Tota

l Ret

urn

0%

2%

4%

6%

8%

10%

100%80%60%40%20%0%

Russell 3000

Russell 1000

Rus

sell

2000

Capitalization Sector PerformanceSecond Quarter 2007

Rolling One-Year Relative Returns vs. Russell 1000

02 0387 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Rel

ativ

e R

etur

ns v

s. S

&P

500

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Russell 1000Russell 1000 ValueRussell 1000 Growth

04 05 06 07

Economic Sector Exposure (Russell 3000)Second Quarter 2007

Telecommunications 3.5%Materials 3.6%

Utilities 3.7%

Energy10.1%

ConsumerStaples 8.1%

ConsumerDiscretionary

11.4%Industrials

11.9%Health Care11.5%

InformationTechnology

15.5%

Financials20.6%

U.S. EQUITYStyle Median and Index Returns* for Periods ended June 30, 2007

U.S. Equity Index Characteristics as of June 30, 2007

S&P 1500 S&P 500 S&P 400 S&P 600 Rus 3000 Rus 1000 Rus Midcap Rus 2000

Cap Range 65 – 472,519 1,652 – 472,519 509 – 10,660 65 – 5,013 13 – 472,519 357 – 472,519 357 – 19,707 13 – 3,317Number of Issues 1,500 500 400 600 2,976 1,023 818 953% of S&P 1500 100% 88% 8% 4% 100% 91% 28% 9%Wtd Avg Mkt Cap $90.6B $102.4B $4.1B $1.6B $81.9B $89.4B $8.8B $1.3BPrice/Book Ratio 2.8 2.9 2.6 2.4 2.8 2.9 2.8 2.3P/E Ratio (forecasted) 15.1 14.8 17.5 18.1 15.7 15.3 18.1 21.6Dividend Yield 1.8% 1.9% 1.2% 0.9% 1.7% 1.8% 1.3% 1.2%5-Yr Earnings (forecasted) 12.3% 11.9% 15.2% 16.5% 12.9% 12.6% 14.3% 16.1%

Last Last Last Last 3 Last 5 Last 10Quarter 2 Quarters Year Years Years Years

Large Cap Equity

Large Cap–Broad Style 6.25 7.54 20.46 13.17 11.67 8.74Large Cap–Growth Style 6.20 7.86 16.72 9.19 8.75 6.77Large Cap–Value Style 6.25 7.31 22.00 15.70 13.18 9.86Aggressive Growth Style 8.20 11.67 17.26 11.74 13.72 8.51Contrarian Style 6.97 7.93 23.89 15.21 13.76 10.58Core Style 6.47 7.42 20.87 12.77 11.66 8.43Yield Style 6.33 7.69 22.83 14.96 13.21 9.79Russell 3000 5.77 7.11 20.07 12.44 11.53 7.62Russell 1000 5.90 7.18 20.43 12.34 11.33 7.55Russell 1000 Growth 6.86 8.13 19.04 8.70 9.28 4.39Russell 1000 Value 4.93 6.23 21.86 15.93 13.31 9.87S&P Composite 1500 6.20 7.41 20.22 12.08 11.14 7.68S&P 500 6.28 6.96 20.59 11.68 10.71 7.13NYSE 7.42 9.43 23.66 16.91 14.23 9.32Dow Jones Industrials 9.11 8.76 23.04 11.21 10.18 7.85

Mid Cap Equity

Mid Cap–Broad Style 7.19 12.38 20.94 16.42 15.28 12.85Mid Cap–Growth Style 8.40 13.96 20.07 14.81 14.34 11.76Mid Cap–Value Style 5.39 10.30 22.29 17.82 16.70 13.64Russell Midcap 5.30 9.90 20.83 17.16 16.39 11.86S&P MidCap 400 5.84 11.98 18.51 15.15 14.17 13.37

Small Cap Equity

Small Cap–Broad Style 6.02 9.79 17.55 14.70 15.09 12.16Small Cap–Growth Style 8.22 12.03 17.55 12.90 13.28 9.45Small Cap–Value Style 4.50 7.78 17.41 15.53 16.12 13.77Russell 2000 4.42 6.45 16.43 13.45 13.88 9.06S&P SmallCap 600 5.18 8.56 16.04 14.46 14.36 11.27NASDAQ 7.70 8.17 20.70 9.12 12.92 6.59

Russell 3000 Sectors

Consumer Staples 2.85 5.44 15.67 9.12 7.60 6.77Consumer Discretionary 3.53 4.39 20.07 9.44 9.04 7.23Industrials 10.05 12.40 18.64 14.80 13.13 8.84Energy 13.22 16.09 25.35 29.78 22.42 14.58Materials 8.56 19.55 33.38 19.89 15.73 8.14Information Technology 9.95 9.98 25.31 7.74 10.92 5.12Utilities -0.24 8.95 25.94 21.97 14.77 9.62Financials 1.13 -1.42 13.09 11.58 11.28 10.42Telecommunications 7.65 14.99 37.59 20.78 14.36 3.99Health Care 4.49 5.98 16.86 7.20 7.95 7.33

Capital Market Review • Second Quarter 2007* Returns less than one year are not annualized.

0 305 10 15 20 254.0%

4.5%

5.0%

5.5%

Maturity (Years)

Yie

ld (%

)

End 2nd Quarter 2007Beginning 2nd Quarter 2007End 2nd Quarter 2006


Volatility ReturnsThe U.S. fixed income market had a tumultuous quarter marked by remerginginterest rate volatility, a surge in economic optimism and inflation concerns.The U.S. investment grade bond market, as measured by the LehmanAggregate, fell 0.52%. The 10-year U.S. Treasury experienced an increase involatility in the quarter. The 10-year Treasury yield reached a high of 5.30%,before ending the second quarter at 5.03%, precipitated by concerns over thefloundering housing market.

The U.S. economy grew at 3.4% in the second quarter, driven by a decreasein imports (which are subtracted from GDP) and a rise in business andgovernment spending. The core rate of inflation, excluding the volatile foodand energy components, came in at a tame 1.4%, but the Fed remains hawkishamid tight labor markets and strong capacity utilization. Consequently,interest rate volatility increased along with changing market expectations.Initially, Fed watchers expected interest rates to ease by year-end, but by mid-June that sentiment had changed to a rate hike, only to revert back to neutralby quarter-end.

Treasury inflation-protected securities (TIPS) declined 0.76% this quarter.Contributing to the negative return for TIPS was an increase in real rates. Thereal rate on the 10-year TIPS increased 44 basis points to finish at 2.65%.

The subprime mortgage market continues to dominate the headlines but itonly modestly affected asset-backed securities, which advanced 0.14%, asmeasured by the Lehman ABS Index. However, there is still uncertaintyregarding the degree the contagion effect will have on the economy. Already,the lower quality asset-backed securities are starting to feel pricing pressure.During the quarter, subprime residential and lower quality ABS performedpoorly versus non-residential and higher quality ABS. Rising defaults anddelinquencies, higher interest rates, declining home values and tighter lendingstandards contributed to the spreads widening for subprime residential ABS.

Mortgage-backed securities had the toughest quarter among spread sectors,with negative 56 basis points in excess return versus Treasurys. Housingwoes, increased volatility and a lack of foreign interest in the market createdunfavorable supply and demand dynamics. Commercial mortgage-backedsecurities (CMBS) also struggled in the second quarter, underperformingTreasurys by 44 basis points. The CMBS curve continued to steepen withgrowing apprehension over credit fundamentals and fears of a weakeningdemand due to subprime concerns.

The credit market eked out 4 basis points of excess return versus Treasurys,facilitated by solid fundamentals, strong earnings, good economic data androbust equity markets. April and May were strong, but the inflammation of thesubprime market in June reduced the 34 basis point outperformance to 4 basispoints. Option-adjusted spread widened 6 basis points to 89 basis points at theend of the quarter for the credit market. Again, April and May were strongmonths for the Lehman Brothers High Yield Index, but it succumbed tomarket woes, falling 1.76% in June to finish the last quarter return at 0.22%.

Effective Yield Over Treasurys

Effe

ctiv

e Y

ield

Ove

r Tr

easu

rys

3Q06

4Q01

1Q02

2Q02

4Q02

1Q03

2Q03

3Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

1Q07

0%

2%

4%

6%

8%

10%

3Q02

LB High YieldLB Credit Baa BondsLB Credit A BondsLB Credit Aaa Bonds

4Q03

2Q01

1Q01

4Q00

3Q00

4Q06

2Q07

3Q01

U.S. Treasury Yield Curves

-1.2%

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

-0.33%

Tota

l Ret

urn

LB Gov Bd LB Credit LB HighYield LB MBS

LB Universal = -0.49%LB Aggregate = -0.52%

LB ABS LB CMBS

-0.73%

-1.05%

-0.50%

0.14%0.22%

Sector Performance – Second Quarter 2007

-3.5%

-3.0%-2.5%

-2.0%-1.5%

-1.0%-0.5%

0.0%

0.5%1.0%1.5%

Intermediate Core Bond Core Plus Ext Maturity High Yield Style Style Style Style Style 10th Percentile -0.10 -0.36 -0.15 -1.47 1.19 25th Percentile -0.16 -0.44 -0.37 -1.62 0.68 Median -0.19 -0.49 -0.52 -1.72 0.49 75th Percentile -0.25 -0.58 -0.65 -2.04 0.05 90th Percentile -0.34 -0.65 -0.97 -3.20 -0.25 LB Inter Agg LB Agg LB Agg LB G/C Long LB High Yield Benchmark -0.35 -0.52 -0.52 -1.85 0.22



Broad Fixed Income

Core Bond Style -0.49 1.09 6.27 4.26 4.77 6.23Core Bond Plus Style -0.52 1.08 6.73 4.83 5.57 6.46LB Aggregate -0.52 0.98 6.12 3.98 4.48 6.02LB Govt/Credit -0.49 0.97 6.00 3.84 4.70 6.08LB Govt -0.33 1.10 5.56 3.62 4.09 5.85LB Credit -0.73 0.76 6.71 4.17 5.51 6.31Citi Broad Investment Grade -0.60 0.89 6.08 4.03 4.55 6.04

Long Term

Extended Maturity Style -1.72 -0.68 6.95 5.42 6.98 7.65LB Gov/Credit Long -1.85 -0.88 6.99 5.36 6.55 7.35LB Gov Long -1.98 -0.98 6.04 5.21 6.01 7.36LB Credit Long -1.71 -0.79 8.08 5.54 7.26 7.15

Intermediate Term

Intermediate Style -0.19 1.45 5.77 3.73 4.23 5.83LB Intermediate Aggregate -0.35 1.22 5.99 3.77 4.15 5.77LB Gov/Credit Intermediate -0.15 1.44 5.76 3.43 4.15 5.66LB Gov Intermediate 0.00 1.53 5.43 3.19 3.50 5.35LB Credit Intermediate -0.40 1.28 6.34 3.79 5.01 6.07

Short Term

Defensive Style 0.74 2.20 5.52 3.51 3.34 5.02Active Cash Style 1.17 2.57 5.39 3.86 3.04 4.56Money Market Funds (net of fees) 1.19 2.38 4.86 3.38 2.32 3.45ML Treasury 1–3 Year 0.70 2.11 5.07 2.91 2.77 4.6190-Day Treasury Bills 1.28 2.54 5.21 3.77 2.76 3.80

High Yield

High Yield Style 0.49 3.16 11.07 8.69 10.88 6.83LB High Yield 0.22 2.87 11.55 9.03 11.91 6.29ML High Yield Master 0.31 3.00 11.63 8.93 11.47 6.57

Mortgage/Asset-Backed

Mortgages Style -0.46 1.10 6.35 4.41 4.43 6.15LB MBS -0.50 1.05 6.39 4.27 4.15 5.87LB ABS 0.14 1.55 5.60 3.63 3.86 5.80LB CMBS -1.05 0.43 5.75 3.77 4.82 6.76

Municipal

LB Muni -0.67 0.14 4.70 4.56 4.61 5.44LB Muni 1–10 Year -0.26 0.63 4.16 3.22 3.46 4.64LB Muni 3 Year 0.27 1.25 3.85 2.42 2.56 3.93


U.S. Fixed Income Index Characteristics as of June 30, 2007

Yield Modified Adj. Average % of % ofLehman Brothers Indices to Worst Duration Maturity LB G/C LB Aggregate

LB Aggregate 5.67 4.70 7.27 100.00% 100.00%LB Govt/Credit 5.44 5.10 7.78 100.00% 55.87%

Intermediate 5.33 3.67 4.53 80.26% 44.85%Long-Term 5.86 10.89 21.00 19.74% 11.03%

LB Govt 5.12 4.48 6.37 60.50% 33.80%LB Credit 5.92 6.03 9.94 39.50% 22.07%LB Mortgage 5.99 4.13 6.78 — 37.86%LB Asset-Backed 5.68 2.85 3.34 — 0.98%LB Commercial Mortgage 5.80 4.98 6.18 — 5.29%LB Corp High Yield 8.10 4.57 7.84 — —

U.S. FIXED INCOMEStyle Median and Index Returns* for Periods ended June 30, 2007

* Returns less than one year are not annualized.


Re-emergence of Emerging?The MSCI EAFE Index climbed 6.4% in the second quarter. Global marketscontinued to benefit from strong economic growth, healthy M&A activity andsolid corporate earnings. Stocks surged in April and May, only to fade in June.Interest rate concerns and less attractive financing sources for hedge fundsdecelerated the quarter’s torrid start. Continuing the trend from previousquarters, dollar-based returns were boosted by weakness in the U.S. dollar.The euro soared to its highest level, the Canadian dollar achieved a 30-yearrecord, and the British pound eclipsed $2. For the second consecutive quarter,growth (+6.6%) beat value (+6.1%).

Emerging markets (+15.1%) outpaced developed EAFE regions, a reversalfrom last quarter, on strength from the Materials and Energy sectors.However, small cap (+4.2%) significantly underperformed the larger capEAFE Index—a rare occurrence during the past five years. Portugal(+17.6%), Germany (+16.2%) and Finland (+15.6%) led developed Europe,as did New Zealand (+13.0%) and Australia (+10.3%) in the Pacific; Japan (-0.6%) continued to trail EAFE.

Europe

Regionally, the MSCI Europe Index led developed regions, advancing 8.3%in dollar terms. M&A activity continued to support prices, while June’smonetary tightening caused increased volatility. M&A news includedDaimlerChrysler’s plans to sell a majority interest in Chrysler to privateequity firm Cerberus Capital. Central banks across the region tightenedfurther. The European Central Bank raised short-term rates to 4%, the Bankof England increased to 5.5% and the Swedish and Swiss banks followed suit.

Asia

The MSCI Pacific Basin Index (+2.2% in dollar terms) lagged the broadermarket, with a weakening yen detracting from performance. Japan, up +3.9%in local terms, was down -0.6% in U.S. dollar terms; Japan was the onlydeveloped country with a negative dollar-based return. Japanese Energy,Technology and Industrials gained, while Financials, Telecom and Utilities allfell. Price deflation fears lingered with the Bank of Japan keeping overnightrates at 0.5% after raising them in the first quarter. Australia (+10.3%) andNew Zealand (+13.0%) saw contributions from currencies since both offeredsome of the highest interest rates in the developed world. New Zealandincreased rates twice during the quarter, settling at 8%, while Australiaremained unchanged at 6.25%.

Emerging Markets

Surpassing all regions, the MSCI EMF Index rose an impressive 15.1% inthe second quarter, as domestic economies, robust earnings and strongcurrencies outweighed inflationary pressures and rising interest rates. In arepeat of last quarter, Latin America (+19.8%) led the way, thanks to a strongMaterials sector. Brazil (+23.9%) benefited from a soaring real and thecontinuing global commodity boom. China (+24.5%) and India (+20.8%)posted 11.1% and 9.1% annualized increases in GDP growth, respectively.Russia was flat (+0.33%)—fears of rising oil production costs offset strongsteel demand. Russian steel giant, Magnitogorsk Iron and Steel Works,delivered a successful $1 billion IPO, the fourth major Russian steel IPO ofthe year.

Rolling One-Year Relative Returns vs. MSCI EAFE US$

Rol

ling

One

-Yea

r R

elat

ive

Ret

urns

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

MSCI EAFE

MSCI Pacific

MSCI Europe

02 0387 88 89 90 91 92 93 94 95 96 97 98 99 00 01 04 05 06 07

Major Currencies vs. US$Cumulative Returns over Last 25 Years

02 038283 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Cum

ulat

ive

Ret

urns

vs.

US$

-50%

0%

50%

100%

150%

200%

Japanese yen German mark/euro*UK sterling

04 05 06*Euro returns from 1Q99

07

-5%

0%

5%

10%

15%

20%

15.05%

9.50%

-0.64%

8.31%

MSCI Europe MSCI Japan MSCI PacEx Japan

MSCI EmergMarkets

Tota

l Ret

urn

MSCI ACW ex-U.S. = 8.42%MSCI EAFE = 6.40%

Sector Performance – Second Quarter 2007

Global Equity Non-U.S. Equity Emerging Markets Small Cap Style Style Eq Style Style 10th Percentile 8.04 8.70 17.46 8.51 25th Percentile 7.80 7.91 16.07 7.59 Median 7.26 6.78 15.16 7.31 75th Percentile 6.44 5.62 14.44 5.62 90th Percentile 6.23 4.37 13.26 5.31 MSCI MSCI MSCI MSCI EAFE World EAFE Emg Mkts Small Cap Benchmark 6.51 6.40 15.05 4.23

0%

5%

10%

15%

20%



International Equity

Global Style 7.26 9.80 25.77 16.95 14.84 9.09Non-U.S. Style 6.78 10.69 26.88 22.77 18.20 9.60Core Style 6.81 10.67 26.44 22.50 17.72 9.58MSCI EAFE–Unhedged 6.40 10.74 27.00 22.24 17.73 7.66MSCI EAFE–Local 5.92 9.46 23.05 20.24 12.74 6.43MSCI EAFE Growth –Unhedged 6.66 11.94 25.29 20.68 15.37 5.18MSCI EAFE Value–Unhedged 6.14 9.55 28.65 23.75 20.05 9.97MSCI World–Unhedged 6.51 9.17 23.59 16.73 14.00 7.05MSCI World–Local 5.95 8.18 21.53 15.52 11.69 6.54MSCI AC World ex-U.S.–Unhedged 8.42 12.58 30.15 25.03 19.93 8.58MSCI AC World–Unhedged 7.42 10.19 25.83 18.57 15.44 7.64

Pacific Equity

Pacific Basin Style 4.14 6.25 16.09 19.92 16.20 4.70Japan Style 0.18 3.42 5.86 12.10 13.01 5.90Pacific Rim Style 16.70 19.79 46.48 32.21 23.49 7.76MSCI Pacific–Unhedged 2.22 6.89 15.84 17.38 15.59 3.17MSCI Pacific–Local 4.47 7.98 19.31 19.33 14.14 3.29MSCI Japan–Unhedged -0.64 2.85 7.23 12.80 12.37 1.56MSCI Japan–Local 3.92 6.59 15.84 17.55 13.04 2.33

Europe Equity

Europe Style 8.03 12.54 32.82 24.54 19.01 12.59MSCI Europe–Unhedged 8.31 12.49 32.44 24.53 18.72 10.30MSCI Europe–Local 6.59 10.17 24.91 20.65 12.18 8.39

Emerging Markets

Emerging Markets Style 15.16 18.27 47.03 40.12 32.21 12.51MSCI Emerging Markets–Unhedged 15.05 17.75 45.45 38.67 30.66 9.40MSCI Emerging Markets–Local 12.63 15.26 39.46 33.47 25.83 12.36

International Small Cap Equity

Small Cap Style 7.31 14.41 33.61 29.62 26.23 15.53MSCI EAFE Small Cap–Unhedged 4.23 11.63 25.20 24.82 24.31 —


INTERNATIONAL EQUITYStyle Median and Index Returns* for Periods ended June 30, 2007

Return Attribution for EAFE CountriesSecond Quarter 2007

Country Total Local Currency Weighting

Australia 10.31% 5.04% 5.02% 6.18%Austria 4.97% 3.46% 1.46% 0.64%Belgium 4.49% 2.99% 1.46% 1.24%Denmark 6.51% 4.85% 1.59% 0.85%Finland 15.60% 13.94% 1.46% 1.65%France 9.85% 8.28% 1.46% 10.38%Germany 16.17% 14.50% 1.46% 8.40%Greece 6.56% 5.03% 1.46% 0.68%Hong Kong 5.77% 5.82% -0.05% 1.73%Ireland 3.58% 2.09% 1.46% 0.83%Italy 4.23% 2.73% 1.46% 3.78%Japan -0.64% 3.92% -4.39% 21.17%Netherlands 8.35% 6.79% 1.46% 3.50%New Zealand 12.99% 4.58% 8.05% 0.16%Norway 14.69% 10.98% 3.35% 1.05%Portugal 17.64% 15.95% 1.46% 0.38%Singapore 10.52% 11.32% -0.72% 1.09%Spain 4.37% 2.87% 1.46% 4.01%Sweden 8.30% 5.85% 2.32% 2.57%Switzerland 3.18% 3.59% -0.39% 6.61%UK 7.59% 5.17% 2.29% 23.12%



Global Fixed

Global Style -1.02 0.11 3.33 4.00 6.91 5.83Citi World Govt–Unhedged -1.54 -0.41 2.86 3.32 6.30 5.33Citi World Govt–Local -1.31 -0.83 2.00 2.59 3.23 4.54

Non-U.S. Fixed

Non-U.S. Style -1.68 -0.67 2.37 3.36 7.29 5.32Citi Non-U.S. World Govt–Unhedged -1.84 -0.77 2.20 3.26 6.91 4.95Citi Non-U.S. World Govt–Local -1.55 -1.31 1.12 2.33 2.98 4.10

Europe

Citi Euro Govt Bond–Unhedged -0.43 0.66 6.41 6.55 11.11 —Citi Euro Govt Bond–Local -1.86 -1.72 0.74 2.90 4.33 —

Emerging Markets Fixed

JPM Emerg Mkts Bond Plus -1.88 0.58 11.94 12.66 15.19 10.00


Global Rates Rise, While the Dollar Is MixedNon-U.S. developed country bond yields rose around the globe inresponse to a rebounding U.S. economy and continued strength inEurope. As a result, vigilant policy makers, leery of buildinginflationary pressure, raised central bank rates in many of the developedmarkets. Due to the increase in yields, the Citi Non-U.S. WorldGovernment Bond Index declined 1.55% in local terms and 1.84% inU.S. dollar terms. Weighed by the twin deficits (budget/trade) and flowsto higher yielding and commodity rich countries, the U.S. dollardropped against most currencies but gained ground versus the low-yielding Japanese yen.

Strong economic growth and central bank actions pushed Europeanbond yields higher. Inflation worries were the impetus for both theEuropean Central Bank and the Bank of England to raise rates by 25basis points to 4.0% and 5.5%, respectively. With the expectation offurther tightening, both the 10-year German bund and U.K. gilt yields

increased roughly 50 basis points to 4.57% and 5.46%, respectively.The euro continued to gain against the dollar as did the pound sterling,which reached a 26-year high versus the dollar, and broke the $2 mark.

The Australian, Canadian and New Zealand dollar each surged againstmajor currencies, propelled by high relative yields and demand for theircommodity rich exports. The Royal Bank of New Zealand raised ratestwice during the quarter, each time by a quarter of a point. Benchmark10-year government bond yields in Canada and Australia increased byroughly 40 basis points to 4.55% and 6.27%, respectively.

The Bank of Japan held rates static at 0.5% for the second quarter;however, the market is pricing a quarter-point rate hike in the thirdquarter as the government appears optimistic regarding currenteconomic growth. Japanese yields rose in the quarter with the 10-yearbond up 22 basis points to 1.88%. The yen fell relative to mostcurrencies, including the dollar.

The dollar-denominated emerging debt market, as measured by theJPMorgan EMBI Global Index, lost 1.42% during the quarter. Yieldstrended higher, following the sell-off in the developed global bondmarkets and a late quarter increase in risk aversion. However, theJPMorgan GBI-EM Index, which tracks local currency emergingdebt, surged 5.36%, supported by appreciating emerging currenciesrelative to the U.S. dollar.

Global Fixed Non-U.S. Fixed Style Style 10th Percentile -0.38 -0.38 25th Percentile -0.71 -1.05 Median -1.02 -1.68 75th Percentile -1.31 -2.09 90th Percentile -1.79 -2.31 Citi World Gov Unhedged Citi Non-U.S. World Gov Unhedged Benchmark -1.54 -1.84

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%Callan Style Group Returns – Second Quarter 2007

INTERNATIONAL FIXED INCOMEStyle Median and Index Returns* for Periods ended June 30, 2007

Return Attribution for Non-U.S. Govt IndicesSecond Quarter 2007

Country Total Local Currency** Weighting

Australia 5.08% 0.06% 5.02% 0.47%Austria -0.80% -2.22% 1.46% 1.89%Belgium -0.46% -1.89% 1.46% 3.36%Canada 6.79% -1.53% 8.45% 2.44%Denmark -0.07% -1.63% 1.59% 0.95%Finland 0.39% -1.05% 1.46% 0.74%France -0.42% -1.85% 1.46% 10.68%Germany -0.23% -1.66% 1.46% 12.61%Greece -0.30% -1.73% 1.46% 2.47%Ireland -0.70% -2.13% 1.46% 0.41%Italy -0.72% -2.15% 1.46% 11.29%Japan -5.23% -0.88% -4.39% 33.20%Malaysia*** — — — 0.50%Netherlands -0.20% -1.63% 1.46% 2.88%Norway 2.07% -1.23% 3.35% 0.36%Poland 3.63% -0.46% 4.11% 0.99%Portugal -0.13% -1.56% 1.46% 1.17%Singapore 0.28% 1.01% -0.72% 0.43%Spain -0.47% -1.90% 1.46% 4.11%Sweden 0.54% -1.74% 2.32% 0.90%Switzerland -3.07% -2.69% -0.39% 0.70%UK -0.48% -2.71% 2.29% 7.47%

* Returns less than one year are not annualized.** Derived from MSCI EAFE data.*** As of December 2006, the Malaysia Government Bond Index satisfied all three WGBI requirements: size, credit, and barriers to entry. With the March 2007 Index, theMalaysian Government Bond Index has met all WGBI criteria for three consecutive months; thus, it will become the twenty-third government bond market to enter the WGBI,effective July 2007.

The Price Is Right?There was an inversion between the public and private real estate marketsduring the second quarter. The domestic REIT market, as measured by theFTSE NAREIT Equity Index, fell 9.04% during the three-month period and5.89% year-to-date, which many cited as a much needed pricing correction.Specialty (+2.06%) was the only sector in the black and the weakest sectorwas Self Storage (-17.32%) followed by Retail (-14.55%). Private capitalcontinued to chase the “overpriced” public markets at unprecedented levels.During May, Tishman Speyer and Lehman Brothers made an all cash offer tobuy Archstone Smith for more than $22 billion. Also, four hotel REITtakeouts were announced throughout the course of the quarter. Such activitycontinues to reinforce the REIT bulls who have maintained their favorableview on REIT valuations.

Global real estate securities also experienced a downturn, albeit less rampant,due to differing dynamics in each region. The FTSE EPRA/NAREITGlobal Real Estate Index crossed the quarter-end finish line down -5.85%.Europe (+0.47%) managed to stay positive, but Asia’s downward spiral (-11.09%) proved detrimental. The North American component was also adetractor (-8.40%), but with the continued shift from U.S. public to private,this segment becomes a smaller and smaller piece of the global pie.

Alternatively, the private real estate landscape looked as solid as ever. TheNCREIF Property Index advanced 4.59% and the NCREIF Open-EndDiversified Core Equity Index rose a healthy 5.17%. The trailing 12-month returns for the indices were 17.24% and 17.80%, respectively.Office transactions demonstrated the highest volume during the secondquarter, afloat favorable sector impressions and the continued Equity OfficeProperties swell. All NCREIF property sectors exhibited positive returns. Thebest performing sectors were Office (+5.93%), Industrial (+5.14%) and Hotel(+5.00%). All NCREIF regions reported positive returns as well. The topregions were the East (+4.30%) and West (+5.62%). It remains to be seenwhether the public real estate turmoil will spill over into the broader directmarket, and whether pricing and supply swells will shake the fundamentalbalance.


Private Real Estate

Real Estate Database (net of fees) 3.22 6.50 15.24 18.08 14.06 12.77NCREIF Property 4.59 8.38 17.24 17.98 14.39 13.05

Public Real Estate

REIT Database -8.87 -5.69 12.24 23.30 20.63 15.66NAREIT Equity -9.04 -5.89 12.57 21.14 18.63 13.16

Global Real Estate

REIT Global Database -6.17 0.21 25.85 30.21 28.01 14.61FTSE EPRA/NAREIT Global -5.85 0.01 25.36 27.70 24.15 12.16


-20% -15% -10% -5% 0% 5%

Self Storage

Retail

Health Care

Industrial/Office

Diversified

Lodging/Resorts

Residential

Specialty

Return

2.06%

-2.93%

-4.43%

-5.53%

-9.29%

-12.95%

-14.55%

-17.32%

NAREIT Equity Sector PerformanceSecond Quarter 2007

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Real Estate Database REIT Database Global REIT Database 10th Percentile 5.36 -7.29 1.86 25th Percentile 4.24 -8.33 -3.71 Median 3.22 -8.87 -6.17 75th Percentile 2.61 -9.79 -7.45 90th Percentile 1.98 -10.18 -9.70 NCREIF Property NAREIT Equity EPRA/NAREIT Global Benchmark 4.59 -9.04 -5.85


02 0394 95 96 97 98 99 00 01

Rol

ling

One

-Yea

r R

etur

ns (M

ean)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Real Estate Database

REIT Database

04 05 06 07

Rolling One-Year Returns

REAL ESTATEStyle Median and Index Returns* for Periods ended June 30, 2007


Overall Capitalization RatesSector 2nd Quarter 2007 One Year AgoIndustrial 6.58% 7.04%Apartment 5.80% 6.01%CBD Office 6.83% 7.23%Suburban Office 7.29% 7.82%Strip Shopping Center 7.35% 7.36%

Source: Korpacz Real Estate Investor Survey®Rates based on unleveraged, all-cash transactions.

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

April 2007 May 2007 June 2007 10th Percentile 2.21 3.42 1.19 25th Percentile 1.89 2.48 0.96 Median 1.58 2.01 0.58 75th Percentile 1.30 1.69 0.24 90th Percentile 0.97 1.30 -0.12 3-Month T-Bill 0.44 0.44 0.39

A (90) A (98) A (63)


Hedge Funds Surge Despite Subprime Mess Equity market gains driven by strong corporate profits, record-breaking M&A deal flow, and trending commodity markets createdplenty of catalysts for most hedge fund strategies. Aggravated bymarket turmoil in subprime lending, rising long-term interest rates anda weakening dollar also affected the playbook of many hedge funds.Representing broadly diversified hedge fund programs, the medianmanager in Callan’s Hedge Fund-of-Funds Database advanced4.37% last quarter, net of fees.

In last quarter’s market environment, long-short equity and event-driven strategies comfortably led the Credit Suisse/Tremont HedgeFund Index (+5.19%). The average Long-Short Equity fund jumped5.72%, slightly behind the S&P 500 (+6.28%), but ahead of theRussell 2000 (+4.42%). For the quarter, Distressed (+4.67%) andMulti-Strategy Event-Driven managers (+6.45%) also performed wellin this equity market’s continuing private equity buyout frenzy.

Providing an epitaph to the legacy of subprime lending, a few hedgefunds were caught in the subprime mortgage meltdown last quarter.Most prominent were two funds managed by Bear Stearns AssetManagement, where leverage combined with illiquidity finally provedto be a lethal cocktail.


Convertibles

Convertibles Database 4.74 7.31 14.79 10.27 10.75 9.64ML Convertible, All Qualities 4.35 6.90 15.38 8.09 9.22 8.33

Absolute Return Strategies

Hedge Fund-of-Funds Database 4.37 8.10 14.43 10.21 9.03 10.76Market Neutral Equity Style 1.30 3.08 4.93 5.64 3.83 5.51CSFB/Tremont Equity Market Neutral 2.34 5.15 9.44 8.93 8.02 10.07CSFB/Tremont Long/Short Equity 5.72 9.71 19.28 14.30 12.25 13.06CSFB/Tremont Event-Driven 5.57 10.80 19.45 14.97 13.99 11.37CSFB/Tremont Convertible Arb 2.04 5.17 11.84 5.94 7.22 9.00CSFB/Tremont Fixed Income Arb 1.46 3.74 6.71 5.12 5.45 5.3190-Day T-Bills 1.28 2.54 5.21 3.77 2.76 3.80

OtherAlternative Investment Benchmarks

WP/VE Post-Venture Cap 9.17 10.88 20.69 10.78 16.61 5.32GS Commodity 1.34 6.61 -13.99 5.75 13.12 8.06MLM Managed Futures 1.31 0.87 1.61 2.41 3.29 5.05Dow Jones–AIG Commodity -1.33 1.90 -2.06 5.61 11.26 3.61

Monthly Net Returns: CAI Hedge FoF Database

ALTERNATIVE INVESTMENTSStyle Median and Index Returns* for Periods ended June 30, 2007


Funds Closed January 1 through June 30, 2007Strategy # of Funds $ Amt (mil) %Venture Capital 62 10,018 7%Acquisition/Buyouts 78 83,897 61%Subordinated Debt 6 2,301 2%Distressed Debt 13 23,677 17%Other 8 5,658 4%Fund-of-funds 32 11681 9%Totals 199 137,232 100%Source: The Private Equity Analyst

Private Equity MarketPrivate equity fundraising continued to surge forward in the secondquarter of 2007 due to $93.3 billion in new commitments and theestablishment of 133 funds. Commitment totals through the first halfof 2007 are $137 billion, with 199 funds being raised—well ahead oflast year’s pace of $96 billion in commitments and 147 funds.According to The Private Equity Analyst, Goldman Sachs CapitalPartners VI raised $20 billion, representing 24% of the first half-yearcommitment total. Distressed managers are gaining popularity ascredit markets become more volatile and appear to be weakening.

The investment pace by funds into companies was quite rapid andrepresented the third largest quarter on record; however, theinvestment pace may start to slow as current debt markets may be aharbinger of a slowdown. According to Buyouts newsletter, buyout-sponsored U.S. acquisitions with announced values totaled $95 billionin 92 transactions. Six transactions accounted for over half thequarter’s total, the largest being the $27.5 billion closing of MorganKinder. Year-to-date, buyout investments with disclosed values total$197 billion, accounting for 62% of last year’s total.

Exit activity was moderate during the quarter. Thompson Financialreports that nine buyout-backed companies went public, raising $2.2billion, and 26 venture-backed companies had IPOs totaling $4.2billion. Venture-backed merger activity totaled 67 transactions, ofwhich 28 had announced values totaling $2.7 billion.

Please see our upcoming issue of Private Markets Trends for more in-depth coverage.

Not Dead YetThe economy clearly slowed in the first quarter of 2007, with revisedGDP growth coming in at a mere 0.7% annual rate. The list of potentialwoes afflicting the economy as the second quarter unfolded includedincreased stock market volatility, the ever-expanding effect of risingdelinquencies in the subprime mortgage market, high and risingenergy prices, high consumer debt levels and the threat that the fallingdollar would increase the potential for non-U.S. investors and centralbanks to dump dollar-denominated assets, in particular Treasurybonds. The end of the expansion is nigh, or so says an increasingnumber of bearish commentaries. While these woes are not trivial andthe economy faces the prospect that the housing market downturn mayworsen before improving, and extend well into 2008, it may bepremature to declare the current expansion over. To paraphrase MontyPython in “Life of Brian,” it’s not dead yet. In fact, GDP growth,fueled by non-residential construction, business investment spendingand exports, rebounded to 3.4% in the second quarter of 2007, as theeconomies of our trading partners are growing faster than anticipated.It should be noted, however, that when looking at a broad view of theeconomy, the second quarter rebound was driven largely byinventories and net exports, rather than by resurgence in domesticdemand. Indeed, few observers believe the second quarter growth ratewill continue into the third and fourth quarters of the year, and 2007 isstill expected to register as the soft spot in the current expansion,generating annual GDP growth for the whole year of under 2.5%.

Growth in the economy ground to a halt in the first quarter as a resultof a sharp jump in imports (a subtraction from GDP), a slowdown inexport growth, an actual decline in federal government spending andsoftness in consumer spending. Interestingly, the biggest impact onconsumer spending came from a cutback in nondurable goods, ratherthan on residential fixed and durable goods that go along with housing.The order of things has reversed, however, and consumer spending onhousing and big-ticket durable goods was likely the weakest link in thesecond quarter. The Purchasing Managers’ Index (PMI) formanufacturing, as reported in the ISM Report on Business, bottomedout at 49.3 in January of 2007 (50 is the dividing line betweenexpansion and contraction), but has steadily risen to a level of 56 byJune. Capital goods orders have not yet jumped, but the PMI is one ofthe more reliable leading indicators of future economic activity. Therelated index for non-manufacturing similarly rebounded in the secondquarter from a first quarter decline. Construction activity outside ofhousing remains robust. Stronger than expected growth in economiesaround the globe, coupled with the declining dollar, fueled exports inthe second quarter, with exports gaining ground on imports. The

current account deficit is now expected to decline during 2007 afterpeaking in 2006.

The decline in the housing market continues to deepen, and theconsumer response in residential fixed spending and on durable goodsis just one of the ways in which housing is expected to hold back theeconomy through the end of 2007 and into 2008. Builders are seeingsubstantial declines in sales and are cutting prices, which placedownward pressure on construction activity, retail spending andrelated finance, insurance and real estate services. One remarkable factextracted from the housing data is that while home prices haveperiodically declined within regions of the U.S., the national averagehas not registered a decline since the Great Depression. Until now.According to the National Association of Realtors, the median salesprice of existing single family homes fell by 1.8% on a year-over-yearbasis through the first quarter of 2007. Granted, the decline is smalland comes after an historic run-up in the national median home price,but we have entered uncharted waters.

Integral to the story of the housing downturn is the problem with thesubprime mortgage market. Delinquency rates for subprime mortgagesare approaching 20% and spurring foreclosures, fueling both the stressin the financial markets and a further decline in housing prices. Thebiggest fear among homeowners and lenders is that the troubles in thesubprime market will contaminate the “prime” mortgage markets,hence deepening and lengthening the housing downturn. The biggestfear among investors is that the failure of two large hedge funds tied tosubprime investments may be the tip of the iceberg. One fallout of thesubprime meltdown caused lending standards to be tightened, meaningmore borrowers will be unable to buy or refinance homes, which couldlengthen and deepen the housing recession.


028283 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

PPI (All Commodities)

CPI (All Urban Consumers)

03 04 05 06 07

Inflation – Year Over Year

3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07Economic Indicators (seasonally adjusted)

CPI–All Urban Consumers (year-over-year) 4.7% 3.4% 3.4% 4.3% 2.1% 2.5% 2.8% 2.7%PPI–All Commodities (year-over-year) 9.8% 8.5% 5.5% 7.7% 2.0% 1.8% 4.6% 4.5%Employment Cost–Total Compensation Growth 2.9% 2.8% 2.4% 3.2% 3.6% 3.2% 2.3% 3.5%Non-farm Business–Productivity Growth 4.4% -0.1% 4.3% 1.2% -0.5% 2.1% 1.0% 2.0%GDP Growth 4.2% 1.8% 5.6% 2.6% 2.0% 2.5% 0.7% 3.4%Manufacturing Capacity Utilization (level%) 78.6 79.6 80.1 80.6 80.9 80.1 79.8 80.0Consumer Sentiment Index (1966=1.000) 0.875 0.824 0.889 0.838 0.840 0.925 0.922 0.869

U.S. ECONOMYRecent Quarterly Indicators

A Positive OutlookThe U.S. stock market gained in the second quarter despite rising bond yields,continued problems in the housing market and escalating oil prices. Themarket advanced on moderating inflation, strength in the private equitymarket and a uptick in manufacturing. Stock markets outpaced their bondcounterparts, both at home (Russell 3000: +5.77% versus Lehman BrothersAggregate: -0.52%) and abroad (MSCI EAFE: +6.40% versus Citi Non-U.S.World Government Bond: -1.84%). As a result, those fund sponsors withgreater equity exposure surpassed their more conservatively invested peers.

Using the median manager returns from the latest quarter and ending assetallocations from the prior quarter, Callan estimates the recent total returns ofthe institutional investor community.

The adjacent graph—illustrating the range of returns for public, corporate andTaft-Hartley pension plans, as well as endowments/foundations—shows solidgains across the board. The table below compares the returns of four types ofinstitutional fund sponsors to several benchmarks over longer time periods.Choices in asset allocation explain much of the difference in performance. Forthe second quarter, fund sponsors with more aggressive asset allocations cameout on top. The median endowment/foundation (+4.57%) led its institutionalcounterparts, with an average public equity allocation of 66%. With slightlylower public equity allocations, public and corporate plans were not farbehind, gaining 4.27% and 4.19% in the median case, respectively. Weigheddown by greater bond allocations, the median Taft-Hartley plan (+4.03%)trailed its peers in the second quarter.

Callan’s balanced manager groups generally maintain well-diversifiedportfolios and attempt to add value by underweighting or overweighting assetclasses, as well as through stock selection. In the recent quarter, both globaland domestic balanced managers beat their static 60% equity and 40% fixedincome benchmarks.


Plan Sponsor

Public Database 4.27 6.60 17.17 12.57 11.49 8.46Corporate Database 4.19 6.27 16.83 12.15 11.25 8.39Endowment/Foundation Database 4.57 7.05 17.59 12.59 11.63 8.89Taft-Hartley Database 4.03 6.34 15.90 11.24 10.23 8.10

Diversified Manager

Asset Allocator Style 5.15 6.82 18.17 11.32 10.78 9.02Domestic Balanced Database 4.28 5.70 15.56 10.22 9.61 7.97Global Balanced Database 4.16 6.22 16.85 13.42 13.07 9.1760% S&P 500 + 40% LB Aggregate 3.25 4.66 14.38 9.08 8.96 7.4560% MSCI World + 40% Citi World Govt 3.55 5.64 15.77 11.62 11.16 6.92


101 CALIFORNIA ST., SUITE 3500, SAN FRANCISCO, CALIFORNIA 94111 415.974.5060 FAX 415.291.4017 www.callan.com

U.S. Equity Non-U.S.Equity

U.S. Fixed Non-U.S.Fixed

Real Estate Alt. Inv Cash

PublicCorporateEndowment/FoundationTaft-Hartley

0%

10%

20%

30%

40%

50%

Average Asset Allocation as of March 31, 2007

Public Plan Corporate Plan Endow/Found Taft-Hartley Database Database Database Database 10th Percentile 4.79 4.80 5.49 4.54 25th Percentile 4.50 4.41 5.02 4.40 Median 4.27 4.19 4.57 4.03 75th Percentile 3.81 3.76 4.26 3.54 90th Percentile 3.29 3.34 3.90 2.52

2%

3%

4%

5%

6%


The Capital Market Review is published quarterly for professionals of the institutionalinvestment community, both domestic and international. The Capital Market Reviewfocuses primarily on the latest quarterly performance of market indices and Callan stylegroups for each of the major asset classes used by institutional investors. Capital MarketReview contributors are as follows:

Jay Kloepfer, EconomyBob Shaw, U.S. EquityLin Fitzenhagen and Andy Iseri, Non-U.S. EquityJon Salstrom, U.S. Fixed Income, Non-U.S. Fixed IncomeSarah Snyder, Real EstateGary Robertson, Private Equity

Jim McKee, Hedge FundsJulia Moriarty, Diversified Accounts, CMR Performance DataMary Schaefer, Editor in ChiefTanja Eisenhardt, Publication Layout

Callan Associates is an innovative, nationally recognized leader in the institutionalinvestment consulting industry. Callan provides consulting services through five lines ofbusiness: Fund Sponsor Consulting, Independent Adviser Group, Institutional ConsultingGroup, Callan Investments Institute, and the Trust Advisory Group. Callan isheadquartered in San Francisco, Calif., and maintains four regional offices located inDenver, Chicago, Atlanta, and Florham Park, N.J. © 2007 Callan Associates Inc.

DIVERSIFIED ACCOUNT DATABASEStyle Median and Index Returns* for Periods ended June 30, 2007


Total Fund

‘

22

SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMASSET ALLOCATION TARGET WEIGHTINGSDOMESTIC EQUITYTarget Benchmark = 60% S&P 500, 20% S&P 400 Mid Cap, 20% Russell 2000

% of % of Domestic Equity Total Fund

Large Cap Core 20% 7.6%Large Cap Value 20% 7.6%Large Cap Growth 20% 7.6%Mid Cap Core Value 10% 3.8%Mid Cap Core Growth 10% 3.8%Small Cap Value 10% 3.8%Small Cap Growth 10% 3.8%

100.0% 38.0%

INTERNATIONAL EQUITYTarget Benchmark = 80% MSCI All Country World ex U.S., 20% Citigroup EMI World Ex-U.S.

% of % of International Equity Total Fund

Large Cap Core Value 40.0% 6.8%Large Cap Core Growth 40.0% 6.8%Small Cap Value 6.7% 1.1%Small Cap Core 6.7% 1.1%Small Cap Growth 6.7% 1.1%

100.0% 17.0%DOMESTIC FIXED INCOMETarget Benchmark = 60% Lehman Aggregate, 30% Merrill Lynch 1-5 Govt/Corp, 10% ML Convertible

% of % of Domestic Fixed Total Fund

Core Fixed 60.0% 18.0%Market Neutral Equity 30.0% 9.0%Convertibles 10.0% 3.0%

100.0% 30.0%

* C o re F ixe d Inc o m e m a na ge rs , purs ua nt to the ir individua l guide line s , m a y ho ld no n-Le hm a n Aggre ga te s e c to rs s uc h a s High Yie ld, no n-U.S . a nd Em e rging M a rke t s e c uritie s .

INTERNATIONAL FIXED INCOMETarget Benchmark = 100% Citigroup Non-U.S Govt

% of % of International Fixed Total Fund

Developed Non-U.S 100.0% 4.0%100.0% 4.0%

* Inte rna tio na l m a na ge r ha s dis c re tio n to us e e m e rging m a rke t s e c uritie s

REAL ESTATETarget Benchmark = 75% NCREIF, 25% Wilshire REIT

% of % of Real Estate Total Fund

Core 30.0% 3.3%Value Added/Enhanced 45.0% 5.0%REIT's 25.0% 2.8%

100.0% 11.0%

La rge C a pC o re Gro wth

40%

La rge C a pC o re Va lue

39%

S m a ll C a pGro wth

7%

S m a ll C a pVa lue

7% S m a ll C a p

C o re7%

La rge C a pC o re20%

La rge C a pVa lue20%

La rge C a pGro wth

20%

M id C a p C o reVa lue10%

S m a ll C a pVa lue10%

S m a ll C a pGro wth

10%

M id C a p C o reGro wth

10%

C o re F ixe d60%

C o nve rtible s10%

M a rke tNe utra l Equity

30%

Develo ped No n-U.S

100%

R EIT's25%

/ Va lue Adde dEnha nc e d

45%

C o re30%

Investment Manager Asset AllocationThe table below contrasts the distribution of assets across the Fund’s investment

managers as of June 30, 2007, with the distribution as of March 31, 2007. The change inasset distribution is broken down into the dollar change due to Net New Investment and thedollar change due to Investment Return.

Asset Distribution Across Investment Managers

June 30, 2007 March 31, 2007Market Value Percent Net New Inv. Inv. Return Market Value Percent

Domestic Equities $1,945,315,945 39.57% $(13,500,000) $124,514,946 $1,834,300,999 38.46%Delta Asset Mgmt. 200,277,952 4.07% (5,000,000) 14,093,016 191,184,936 4.01%INTECH 200,171,248 4.07% (0) 7,779,504 192,391,745 4.03%TCW Asset Mgmt. 375,754,801 7.64% 0 32,967,023 342,787,778 7.19%Dodge & Cox 386,301,362 7.86% (8,500,000) 21,445,228 373,356,134 7.83%GlobeFlex Capital 204,038,393 4.15% 0 14,543,755 189,494,637 3.97%TCW - Mid Cap Value 195,358,788 3.97% (0) 10,602,258 184,756,531 3.87%Putnam - Small Cap Growth 96,825,561 1.97% 0 7,011,047 89,814,514 1.88%Wall Steet Associates 94,310,319 1.92% (0) 7,892,983 86,417,335 1.81%Putnam - Small Cap Value 97,498,357 1.98% (0) 5,294,488 92,203,869 1.93%DFA - Small Cap Value 94,779,164 1.93% 0 2,885,642 91,893,521 1.93%

International Equity $928,150,885 18.88% $(24,693,991) $67,725,088 $885,119,788 18.56%Brandes Investment 382,956,221 7.79% (11,900,000) 19,579,713 375,276,508 7.87%McKinley Capital 353,088,278 7.18% 0 28,761,013 324,327,265 6.80%Putnam Int’l 34,998 0.00% (2,543,991) 59,136 2,519,853 0.05%Globeflex International 38,135,897 0.78% 0 2,002,110 36,133,787 0.76%Grantham, Mayo, Van Otterloo 73,430,454 1.49% (5,125,000) 5,544,390 73,011,063 1.53%Nicholas-Applegate 80,505,037 1.64% (5,125,000) 11,778,725 73,851,312 1.55%

Domestic Fixed-Income $1,438,076,632 29.25% $(174,726) $9,773,616 $1,428,477,741 29.95%Met West 438,827,602 8.93% 0 (1,663,025) 440,490,627 9.24%PIMCO 406,008,603 8.26% 0 (5,375,346) 411,383,949 8.63%Fidelity 147,087,370 2.99% (174,726) 4,487,395 142,774,701 2.99%Salus Capital 153,080,640 3.11% 0 3,164,128 149,916,511 3.14%SSI 138,114,183 2.81% 0 396,919 137,717,264 2.89%Nicholas-Applegate 154,958,233 3.15% 0 8,763,545 146,194,688 3.07%

International Fixed $180,628,918 3.67% $0 $(1,970,207) $182,599,124 3.83%Rogge International 180,628,918 3.67% 0 (1,970,207) 182,599,124 3.83%

Real Estate $423,373,323 8.61% $(2,329,626) $(12,753,803) $438,456,753 9.19%California Smart Growth IV* 3,321,042 0.07% 0 0 3,321,042 0.07%Capmark* 5,029,912 0.10% 0 0 5,029,912 0.11%Cornerstone* 10,704,355 0.22% 0 0 10,704,355 0.22%INVESCO* 47,269,993 0.96% 0 0 47,269,993 0.99%INVESCO Enhanced* 23,378,787 0.48% 0 0 23,378,787 0.49%RREEF Funds* 196,181,351 3.99% 0 0 196,181,351 4.11%SSR Realty* - - 0 0 - -US Realty* 11,092 0.00% 0 0 11,092 0.00%Mortgage Account 3,008 0.00% (988) 50 3,945 0.00%RREEF REITs 137,473,784 2.80% (2,328,639) (12,753,853) 152,556,275 3.20%

Securities Lending - - $(500,446) $500,446 - -

Cash Account $184,827 0.00% $(297,020) $16,591 $465,256 0.01%

Total Fund $4,915,730,529 100.0% $(41,495,809) $187,806,677 $4,769,419,662 100.0%

* Current quarter’s valuation is not available; 03/31/2007 valuation, provided by SDCERS’Real Estate Consultant, is used.

23San Diego City Employees’ Retirement System

Actual vs Target Asset AllocationThe top left chart shows the Fund’s asset allocation as of June 30, 2007. The top

right chart shows the Fund’s target asset allocation as outlined in the investment policystatement. The bottom chart ranks the fund’s asset allocation and the target allocationversus the CAI Public Fund Sponsor Database.

Actual Asset Allocation

Domestic Equity40%

International Equity19%

Domestic Fixed29%

International Fixed4%

Real Estate9%

Cash and Equivalents0%

Target Asset Allocation

Domestic Equity38%

International Equity17%

Domestic Fixed30%

International Fixed4%

Real Estate11%

$000s Percent Percent Percent $000sAsset Class Actual Actual Target Difference DifferenceDomestic Equity 1,945,316 39.6% 38.0% 1.6% 77,338International Equity 928,151 18.9% 17.0% 1.9% 92,477Domestic Fixed 1,438,077 29.3% 30.0% (0.7%) (36,643)International Fixed 180,629 3.7% 4.0% (0.3%) (16,000)Real Estate 423,373 8.6% 11.0% (2.4%) (117,357)Cash and Equivalents 185 0.0% 0.0% 0.0% 185Total 4,915,731 100.0% 100.0%

Asset Class Weights vs CAI Public Fund Sponsor Database

Wei

ghts

(10%)

0%

10%

20%

30%

40%

50%

60%

70%

Domestic Domestic Cash Real International International AlternativeEquity Fixed and Equivalents Estate Equity Fixed

(66)(73)

(31)(27)

(100)(100)

(40)(14)

(58)(69)

(57)(54)

10th Percentile 56.47 36.83 5.48 11.26 25.60 11.33 12.4225th Percentile 49.10 31.25 2.12 9.94 22.49 7.23 9.08

Median 42.95 24.46 0.76 7.43 19.42 4.63 6.0675th Percentile 37.43 19.69 0.20 4.86 16.00 1.96 4.0390th Percentile 29.64 16.27 0.06 3.65 12.21 1.09 1.76

Fund 39.57 29.25 0.00 8.61 18.88 3.67 -

Target 38.00 30.00 0.00 11.00 17.00 4.00 -

% Group Invested 96.49% 96.49% 46.90% 49.56% 92.92% 30.09% 44.25%

* Current Quarter Target = 22.8% S&P 500, 18.0% L/B Agg, 13.6% MSCI ACWI ex-US, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF Total Index, 7.6% Russell2000, 7.6% S&P Mid Cap 400, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8% Dow Jones Wilshire REIT.


Actual vs Target Historical Asset AllocationThe Historical asset allocation for a fund is by far the largest factor explaining its

performance. The charts below show the fund’s historical actual asset allocation, the fund’shistorical target asset allocation, and the historical asset allocation of the average fund inthe CAI Public Fund Sponsor Database.

Actual Historical Asset Allocation

0% 0%

10% 10%

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30% 30%

40% 40%

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60% 60%

70% 70%

80% 80%

90% 90%

100% 100%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Cash and EquivalentsReal EstateInternational FixedDomestic FixedInternational EquityDomestic Equity

Target Historical Asset Allocation

0% 0%

10% 10%

20% 20%

30% 30%

40% 40%

50% 50%

60% 60%

70% 70%

80% 80%

90% 90%

100% 100%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Real EstateInternational FixedDomestic FixedInternational EquityDomestic Equity

Average CAI Public Fund Sponsor Database Historical Asset Allocation

0% 0%

10% 10%

20% 20%

30% 30%

40% 40%

50% 50%

60% 60%

70% 70%

80% 80%

90% 90%

100% 100%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Global BalancedShort Term-CashOther AlternativesIntl Fixed-IncReal EstateIntl EquityDomestic FixedDomestic Broad Eq



TOTAL FUNDPERIOD ENDED JUNE 30, 2007

Investment PhilosophyThe Public Fund Sponsor Database consists of public employee pension total funds including both

CallanAssociates client and surveyed non-client funds. The current quarter for the Performance Benchmark consists of22.8%S&P 500, 18.0% Lehman Aggregate, 13.6% MSCI ACW ex US Free, 9.0% ML 1-5 Govt/Corp, 7.6% Russell 2000,7.6%S&P MidCap 400, 8.25% NCREIF Classic, 4.0% Citigroup Non-U.S. Govt, 3.4% Citigroup EMI World ex US,2.75%Wilshire REIT, and 3.0% ML Convertible Index. The Total Fund return for current quarter does not include privatereal estate. The private real estate values for the current quarter are not available. The valuations for prior periods forprivate real estate are provided by SDCERS’ Real Estate Consultant.

Quarterly Summary and HighlightsTotal Fund’s portfolio posted a 3.94% return for the quarter placing it in the 72 percentile of the CAI PublicFund Sponsor Database group for the quarter and in the 69 percentile for the last year.

Total Fund’s portfolio outperformed the Performance Benchmark by 0.26% for the quarter andunderperformed the Performance Benchmark for the year by 0.03%.

Performance vs CAI Public Fund Sponsor Database

0%

5%

10%

15%

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25%

Last Last Last 3 Last 5 Last 10 Last 18-1/4Quarter Year Years Years Years Years

A(72)B(72)(81)

A(69)B(69)(69)

A(33)B(33)(60)

A(12)B(12)

(52) B(2)A(2)(36)

B(4)A(16)(84)

10th Percentile 4.79 18.80 14.49 13.05 9.36 11.0025th Percentile 4.50 18.31 13.54 12.32 8.96 10.83

Median 4.27 17.17 12.57 11.49 8.46 10.3075th Percentile 3.81 15.83 11.28 10.55 8.01 10.0290th Percentile 3.29 14.33 9.51 9.02 7.49 9.66

Total Fund A 3.94 16.22 13.22 12.97 9.94 10.94Total ex Options B 3.94 16.22 13.22 12.97 10.09 11.28

Performance Benchmark 3.68 16.25 12.20 11.44 8.72 9.79

Relative Return vs Performance Benchmark

Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 0607

Total Fund

CAI Public Fund Sponsor DatabaseAnnualized Eighteen And One-Quarter Year Risk vs Return

5 6 7 8 9 10 11 128.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

Total Fund

Total ex Options

Performance Benchmark

Standard Deviation

Ret

urns


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMPERFORMANCE VS CAI PUBLIC FUND SPONSOR DATABASE

RECENT PERIODS

Return RankingThe chart below illustrates fund rankings over various periods versus the CAI Public Fund Sponsor Database. The

bars represent the range of returns from the 10th percentile to the 90th percentile for each period for all funds in the CAIPublic Fund Sponsor Database. The numbers to the right of the bar represent the percentile rankings of the fund beinganalyzed. The table below the chart details the rates of return plotted in the graph above.

0%

5%

10%

15%

20%

25%

30%

35%

12/2006- 6/2007 2006 2005 2004 2003

(40)(71)

(44)(45)

(18)(62)

(4)(32)

(4)

(31)

10th Percentile 7.78 15.77 9.37 13.14 26.1925th Percentile 7.18 15.06 8.61 12.33 24.08

Median 6.60 13.91 7.55 11.55 21.2575th Percentile 5.94 12.37 5.88 10.27 19.6290th Percentile 5.10 10.37 4.25 8.23 14.22

Total Fund 6.85 14.25 8.86 13.97 28.58

Total Fund Benchmark 6.18 14.19 7.08 12.18 23.08

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2002 2001 2000 1999 1998

(38)(25)

(24)(24)

(20)(51)

(18)

(56)

(92)

(64)

10th Percentile (3.00) 0.30 5.82 18.54 20.0225th Percentile (5.72) (1.77) 3.76 16.94 17.25

Median (8.26) (3.97) 1.46 14.18 14.7175th Percentile (9.46) (5.54) (0.75) 11.03 12.7990th Percentile (11.47) (6.67) (2.18) 7.73 9.94

Total Fund (7.20) (1.75) 4.57 17.90 9.76

Total Fund Benchmark (5.66) (1.74) 1.29 13.67 13.82


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMTOTAL FUND RISK ADJUSTED RETURN ANALYSIS

Risk Adjusted Return Measures vs Performance BenchmarkRankings Against CAI Public Fund Sponsor Database

Five Years Ended June 30, 2007


Ten Years Ended June 30, 2007

Risk Adjusted Return Measures vs Performance BenchmarkRankings Against CAI Public Fund Sponsor DatabaseEighteen And One-Quarter Years Ended June 30, 2007

(4)

(2)

0

2

4

6

8

10

12

Alpha TreynorRatio

(34)

(36)

10th Percentile 1.54 10.5525th Percentile 0.80 9.60

Median 0.14 8.8075th Percentile (0.58) 8.0390th Percentile (1.15) 7.37

Total Fund 0.46 9.11

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

Information Sharpe Excess ReturnRatio Ratio Ratio

(34)

(31) (11)

10th Percentile 0.98 1.21 0.9725th Percentile 0.61 1.11 0.57

Median 0.12 1.02 0.0375th Percentile (0.41) 0.93 (0.49)90th Percentile (0.90) 0.85 (0.86)

Total Fund 0.42 1.07 0.96

(3)(2)(1)

01234567

Alpha TreynorRatio

(13)

(16)


Median (0.28) 4.5775th Percentile (0.72) 4.1290th Percentile (1.21) 3.60


(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.81.0


(9)(15) (2)


Median (0.13) 0.47 (0.11)75th Percentile (0.39) 0.42 (0.26)90th Percentile (0.60) 0.38 (0.40)

Total Fund 0.51 0.60 0.65

(2)(1)

012345678

Alpha TreynorRatio

(14)

(16)




(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(12)

(16)

(7)


Median 0.11 0.65 0.2275th Percentile (0.04) 0.60 0.0890th Percentile (0.20) 0.57 (0.05)

Total Fund 0.48 0.74 0.56

28

SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMPERFORMANCE VS CAI PUBLIC FUND SPONSOR DATABASE

RECENT PERIODS

Return RankingThe chart below illustrates fund rankings over various periods versus the CAI Public Fund Sponsor Database. The

bars represent the range of returns from the 10th percentile to the 90th percentile for each period for all funds in the CAIPublic Fund Sponsor Database. The numbers to the right of the bar represent the percentile rankings of the fund beinganalyzed. The table below the chart details the rates of return plotted in the graph above.

0%

5%

10%

15%

20%

25%

30%

35%

12/2006- 6/2007 2006 2005 2004 2003

(40)(71)

(44)(45)

(18)(62)

(4)(32)

(4)

(31)



Total Fundex Options 6.85 14.25 8.86 13.97 28.58

Total Fund Benchmark 6.18 14.19 7.08 12.18 23.08

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2002 2001 2000 1999 1998

(38)(25)

(24)(24)

(20)(51)

(18)

(56)(81)

(64)

10th Percentile (3.00) 0.30 5.82 18.54 20.0225th Percentile (5.72) (1.77) 3.76 16.94 17.25

Median (8.26) (3.97) 1.46 14.18 14.7175th Percentile (9.46) (5.54) (0.75) 11.03 12.7990th Percentile (11.47) (6.67) (2.18) 7.73 9.94

Total Fundex Options (7.20) (1.75) 4.57 17.90 12.09

Total Fund Benchmark (5.66) (1.74) 1.29 13.67 13.82


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMTOTAL FUND RISK ADJUSTED RETURN ANALYSIS


Five Years Ended June 30, 2007

(4)(2)

02468

1012

Alpha TreynorRatio

(34)

(36)



Total Fundex Options 0.46 9.11

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5


(34)

(31) (11)



Total Fundex Options 0.42 1.07 0.96



(3)(2)(1)

01234567

Alpha TreynorRatio

(13)

(16)




(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.81.0


(5) (16)(1)




Risk Adjusted Return Measures vs Performance BenchmarkRankings Against CAI Public Fund Sponsor DatabaseEighteen And One-Quarter Years Ended June 30, 2007

(2)(1)

012345678

Alpha TreynorRatio

(11)

(15)




(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(3)(13) (1)


Median 0.11 0.65 0.2275th Percentile (0.04) 0.60 0.0890th Percentile (0.20) 0.57 (0.05)


30

Investment Manager Returns and Peer Group RankingsThe table below details the rates of return and peer group rankings for the

Sponsor’s investment managers over various time periods ended June 30, 2007. Negativereturns are shown in red, positive returns in black. Returns for one year or greater areannualized. The first set of returns for each asset class represents the composite returns forall the fund’s accounts for that asset class.

Returns and Rankings for Periods Ended June 30, 2007

Market Last LastValue Ending Last Last 3 5

$(Dollars) Weight Quarter Year Years YearsDomestic EquityLarge Cap Core

Delta* 200,277,952 - 7.43% 21.58% 11.43% 10.70%18 33 85 73INTECH 200,171,248 - 4.04% 18.41% - -92 66 Standard & Poor’s 500 - - 6.28% 20.59% 11.68% 10.71%55 53 76 72CAI Large Cap Core Style - - 6.47% 20.87% 12.77% 11.66%50 50 50 50

Large Cap GrowthTCW* 375,754,801 - 9.62% 12.04% 5.04% -1 92 99 Russell 1000 Growth - - 6.86% 19.04% 8.70% 9.28%41 28 64 39CAI Lrg Cap Growth Style - - 6.20% 16.72% 9.19% 8.75%50 50 50 50

Large Cap ValueDodge & Cox 386,301,362 - 5.74% 20.28% 16.56% -67 79 29 Russell 1000 Value - - 4.93% 21.86% 15.93% 13.31%86 54 46 46CAI Large Cap Value Style - - 6.25% 22.00% 15.70% 13.18%50 50 50 50

Mid Cap Core GrowthGlobeFlex 204,038,393 - 7.67% 25.22% 21.12% 16.79%37 16 5 28 S&P MidCap 400 - - 5.84% 18.51% 15.15% 14.17%74 74 65 64CAI Mid Cap Style - - 7.19% 20.94% 16.42% 15.28%50 50 50 50

Mid Cap ValueTCW* 195,358,788 - 5.74% 19.73% 11.74% -43 75 99 Russell Midcap Value - - 3.65% 22.09% 19.32% 17.17%90 51 29 30CAI Mid Cap Value Style - - 5.39% 22.29% 17.82% 16.70%50 50 50 50

Small Cap GrowthPutnam* 96,825,561 - 7.81% 19.59% 13.08% 13.18%54 34 47 52Wall Street Micro Cap 94,310,319 - 9.13% 21.32% 20.11% 13.74%35 26 6 43 Russell 2000 Growth - - 6.69% 16.83% 11.76% 13.08%71 55 66 53CAI Sm Cap Growth Style - - 8.22% 17.55% 12.90% 13.28%50 50 50 50

Small Cap ValueDFA 94,779,164 - 3.14% 18.18% 18.09% 19.47%79 42 16 7Putnam* 97,498,357 - 5.74% 20.82% 16.42% 16.02%27 30 38 54 Russell 2000 Value - - 2.30% 16.05% 15.02% 14.62%88 59 64 82CAI Small Cap Value Style - - 4.50% 17.41% 15.53% 16.12%50 50 50 50

Domestic Equity**Total Domestic Equity 1,945,315,945 - 6.79% 18.93% 13.26% 13.99%8 64 21 4 Domestic Equity Benchmark - - 5.82% 19.41% 12.78% 12.09%52 51 32 36 Russell 3000 Index - - 5.77% 20.07% 12.44% 11.53%58 33 53 58Public Fund - Dom Equity - - 5.87% 19.47% 12.47% 11.69%50 50 50 50

* indicates watchlist manager** Total Domestic Equity returns includes the historical performance of the Options Program






$(Dollars) Weight Quarter Year Years YearsInternational EquityCore/Emerging

Brandes 382,956,221 - 5.22% 28.60% 23.36% 22.01%82 31 41 11McKinley Capital 353,088,278 - 8.87% - - -7Putnam^^ 34,998 - - - - - MSCI AC Wld Free exUS Idx - - 8.42% 30.15% 25.03% 19.93%14 17 22 26 Custom Intl Benchmark*** - - 8.42% 30.15% 25.03% 19.94%14 17 22 25CAI Non-U.S. Equity Style - - 6.78% 26.88% 22.77% 18.20%50 50 50 50

Small CapGlobeFlex International 38,135,897 - 5.54% - - -78GMO (Gross) 73,430,454 - 7.80% 40.15% 30.98% -15 3 30Nicholas-Applegate 80,505,037 - 16.19% 44.93% 34.58% 27.09%1 1 10 41 Int’l Small Cap Benchmark+ - - 5.94% 31.74% 27.72% 24.83%67 61 66 61CAI Int’l Small Cap Style - - 7.31% 33.61% 29.62% 26.23%50 50 50 50

International EquityTotal Intl Equity 928,150,885 - 7.67% 32.29% 25.68% 21.52%37 5 7 2 Int’l Equity Benchmark - - 7.92% 30.48% 25.57% 20.92%22 10 7 3Public Fund - Intl Equity - - 7.26% 28.48% 23.32% 18.07%50 50 50 50

* indicates watchlist manager*** Custom Benchmark consists of 85% EAFE/15% Emerging through 12/31/03 and100% All Country World Free thereafter.+ Int’l Equity Benchmark consists of Goldman Sachs World Med-Small Cap ex US Index through 12/31/01and Citigroup Extended Market Index ex US thereafter.^^ Manager was terminated during the 1st quarter, 2007.






$(Dollars) Weight Quarter Year Years YearsDomestic Fixed IncomeCore Plus

Met West* 438,827,602 - (0.38%) 7.42% 5.07% 5.36%27 14 22 63PIMCO 406,008,603 - (1.31%) 5.40% 4.45% 5.53%97 94 75 52 Lehman Aggregate - - (0.52%) 6.12% 3.98% 4.48%49 72 93 98CAI FI Core Plus Style - - (0.52%) 6.73% 4.83% 5.57%50 50 50 50

Market NeutralPyramis* 147,087,370 - 3.14% 5.63% 10.21% -8 49 8Salus 153,080,640 - 2.11% 9.83% 5.99% 4.94%25 15 40 30SSI* 138,114,183 - 0.29% (1.30%) 2.56% 2.15%79 96 84 78 Merrill 1-5 Yr Govt/Corp - - 0.40% 5.55% 3.17% 3.51%78 49 78 62CAI Market Neutral Sty - - 1.30% 4.93% 5.64% 3.83%50 50 50 50

ConvertiblesNicholas Applegate 154,958,233 - 5.99% 19.83% 13.23% 12.98%27 11 8 17 Convertible Benchmark++ - - 4.35% 15.38% 8.34% 10.88%64 31 72 46CAI Convertible Bond DB - - 4.74% 14.79% 10.27% 10.75%50 50 50 50

Total Domestic FixedDomestic Fixed 1,438,076,632 - 0.68% 7.30% 5.95% 5.52%5 17 6 27 Domestic Fixed Benchmark - - 0.24% 6.90% 4.14% 4.66%13 31 73 70Public Fund - Dom Fixed - - (0.37%) 6.42% 4.38% 4.96%50 50 50 50

International Fixed IncomeRogge 180,628,918 - (1.08%) 2.72% 3.99% 7.82%26 35 22 29 SSB Non-U.S. Govt Bond - - (1.84%) 2.20% 3.26% 6.91%63 59 52 68CAI Non-U.S. F-I Style - - (1.68%) 2.37% 3.36% 7.29%50 50 50 50

Real EstateTotal Real Estate**** 423,373,323 - 3.17% 18.70% 21.96% 19.87% Real Estate Benchmark***** - - 3.65% 17.95% 18.94% 15.44%

Total FundTotal Fund 4,915,730,529 - 3.94% 16.22% 13.22% 12.97%72 69 33 12TF Ex Private Real Estate 4,629,833,997 - 4.19% 16.69% 12.95% 12.79%59 61 43 14 Total Fund Benchmark - - 3.68% 16.25% 12.20% 11.44%81 69 60 52Public Fund Sponsor DB - - 4.27% 17.17% 12.57% 11.49%50 50 50 50

* indicates watchlist manager**** Total Real Estate valuation data uses Private Real Estate data, provided by SDCERS’ Real EstateConsultant, through March 31, 2007, and Public Real Estate data through June 30, 2007.Return and ranking data is calculated as of period ended March 31, 2007.***** Real Estate Benchmark return and ranking data calculated as of period ended March 31, 2007.++ Convertible Benchmark consists of First Boston Convertible Index through December 31, 2004 andthe Merrill Lynch Convertible Index, All Qualities thereafter.


Cumulative Performance Relative to TargetThe first chart below illustrates the cumulative performance of the Total Fund

relative to the cumulative performance of the Fund’s Target Asset Mix. The Target Mix isassumed to be rebalanced each quarter with no transaction costs. The difference betweenthe Total Fund return and the Target Mix return is explained by the performance attributionon the next page. The second chart below shows the return and the risk of the Total Fundand the Target Mix, contrasted with the returns and risks of the funds in the CAI PublicFund Sponsor Database.

Cumulative Returns Actual vs Target

Cum

ulat

ive

Ret

urns

0%

100%

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300%

400%

500%

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89 1990199119921993199419951996199719981999200020012002200320042005200607

Total FundTotal Fund TargetActuarial Expected Return

Eighteen And One-Quarter Year Annualized Risk vs Return

5% 6% 7% 8% 9% 10% 11% 12%8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

Total Fund

Total Fund Target

Standard Deviation

Ret

urns

Triangles represent membership of the CAI Public Fund Sponsor Database



Quarterly Total Fund AttributionIn general, the actual return for the Total Fund will differ from the return for the

Total Fund Target. This deviation is caused by two factors: The managers outperformingor underperforming their targets (Manager Selection Effect); or the actual asset allocationbeing different from the target asset allocation (Asset Allocation Effect). The table andcharts below dissect the Total Fund return into smaller components to quantify each ofthese effects over the most recent quarter.

Asset Class Under or Overweighting

(3%) (2%) (1%) 0% 1% 2%

Domestic Equity 0.5%

Domestic Fixed 0.1%

Real Estate (1.8%)

International Equity 1.4%

International Fixed (0.2%)

Cash and Equivalents 0.0%

Domestic Equity

Domestic Fixed

Real Estate


International Fixed

Cash and Equivalents

Total

Actual vs Target Returns

(5%) 0% 5% 10%

6.8%5.8%

0.7%0.2%

(2.9%)1.1%

7.7%7.9%

(1.1%)(1.8%)

1.3%1.3%

3.9%3.7%

Actual Target

Attribution by Asset Class

(0.6%) (0.4%) (0.2%) 0.0% 0.2% 0.4% 0.6%

0.39%0.01%

0.14%(0.00%)

(0.39%)0.05%

(0.05%)0.07%

0.03%0.01%

(0.00%)

0.12%0.14%

Manager Effect Asset Allocation

Attribution for Quarter ended June 30, 2007

Effective Target Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 38% 38% 6.79% 5.82% 0.39% 0.01%Domestic Fixed 30% 30% 0.68% 0.24% 0.14% (0.00%)Real Estate 9% 11% (2.92%) 1.10% (0.39%) 0.05%International Equity 18% 17% 7.67% 7.92% (0.05%) 0.07%International Fixed 4% 4% (1.08%) (1.84%) 0.03% 0.01%Cash and Equivalents 0% 0% 1.26% 1.26% 0.00% (0.00%)

Total = + +3.94% 3.68% 0.12% 0.14%



Cumulative Total Fund AttributionThe charts below accumulate the Quarterly Total Fund Attribution Analysis (shown

earlier) over multiple periods. By examining these cumulative results, the Fund Sponsorcan quantify and understand the long-term impact of asset allocation differences from thetarget, as well as the contribution of the Fund’s managers to total return. In general,assuming the Fund Sponsor is pursuing a disciplined rebalancing program, the assetallocation effects should be close to zero. The manager effects should be larger, assumingthe Sponsor is not using index funds. All analysis is for the period ended June 30, 2007.

One Year Cumulative Attribution Effects

(0.6%) (0.4%) (0.2%) 0.0% 0.2% 0.4% 0.6%

Domestic Equity(0.16%)

0.01%

Domestic Fixed0.12%

(0.06%)

Real Estate(0.44%)

0.02%

International Equity0.29%

0.14%

International Fixed0.02%0.03%

Cash and Equivalents (0.00%)

Total(0.16%)

0.14%


Cumulative Attribution Effects

(1.0%)

(0.8%)

(0.6%)

(0.4%)

(0.2%)

0.0%

0.2%

0.4%

2006 2007

Manager EffectAsset AllocationTotal

One Year Cumulative Attribution Effects

Effective Avg Trgt Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 38% 38% 18.93% 19.41% (0.16%) 0.01%Domestic Fixed 31% 31% 7.30% 6.90% 0.12% (0.06%)Real Estate 9% 11% 11.40% 16.09% (0.44%) 0.02%International Equity 18% 17% 32.29% 30.48% 0.29% 0.14%International Fixed 4% 4% 2.72% 2.20% 0.02% 0.03%Cash and Equivalents 0% 0% 5.93% 5.93% 0.00% (0.00%)

Total = + +16.22% 16.25% (0.16%) 0.14%



Cumulative Total Fund AttributionThe charts below accumulate the Quarterly Total Fund Attribution Analysis (shown

earlier) over multiple periods. By examining these cumulative results, the Fund Sponsorcan quantify and understand the long-term impact of asset allocation differences from thetarget, as well as the contribution of the Fund’s managers to total return. In general,assuming the Fund Sponsor is pursuing a disciplined rebalancing program, the assetallocation effects should be close to zero. The manager effects should be larger, assumingthe Sponsor is not using index funds. All analysis is for the period ended June 30, 2007.

Five Year Annualized Cumulative Attribution Effects

(0.5%) 0.0% 0.5% 1.0% 1.5% 2.0%

Domestic Equity0.79%

0.04%

Domestic Fixed0.24%

(0.01%)

Real Estate0.25%

(0.02%)

International Equity0.10%0.09%

International Fixed0.05%

0.02%

Cash and Equivalents (0.02%)

Total1.42%

0.11%


Cumulative Attribution Effects

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2002 2003 2004 2005 2006 2007

Manager EffectAsset AllocationTotal

Five Year Annualized Cumulative Attribution Effects

Effective Avg Trgt Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 38% 38% 13.99% 12.09% 0.79% 0.04%Domestic Fixed 31% 32% 5.52% 4.66% 0.24% (0.01%)Real Estate 9% 10% 18.49% 15.28% 0.25% (0.02%)International Equity 16% 15% 21.52% 20.92% 0.10% 0.09%International Fixed 5% 5% 7.82% 6.91% 0.05% 0.02%Cash and Equivalents 0% 0% 2.85% 2.85% 0.00% (0.02%)

Total = + +12.97% 11.44% 1.42% 0.11%



Asset Class RankingsThe charts below show the rankings of each asset class component of the Total

Fund relative to appropriate comparative databases. In the upper left corner of each graphis the weighted average of the rankings across the different asset classes. The weights ofthe fund’s actual asset allocation are used to make this calculation. The weighted averageranking can be viewed as a measure of the fund’s overall success in picking managers andstructuring asset classes.

Total Asset Class PerformanceOne Year Ended June 30, 2007

Ret

urns

0%

5%

10%

15%

20%

25%

30%

35%

40%

Public Fund Public Fund Public Fund CAI Non-- Dom Equity - Intl Equity - Dom Fixed U.S. F-I Style

(64)(51)

(5)(10)

(17)(31)

(35)(59)

10th Percentile 21.46 30.49 7.99 5.1125th Percentile 20.25 29.64 7.01 3.42

Median 19.47 28.48 6.42 2.3775th Percentile 18.62 27.26 6.13 1.8790th Percentile 17.53 25.69 5.81 0.82

Asset ClassComposite 18.93 32.29 7.30 2.72

Composite Benchmark 19.41 30.48 6.90 2.20

WeightedRanking

35

Total Asset Class PerformanceFive Years Ended June 30, 2007

Ret

urns

0%

5%

10%

15%

20%

25%

Public Fund Public Fund Public Fund CAI Non-- Dom Equity - Intl Equity - Dom Fixed U.S. F-I Style

(4)(36)

(2)(3)

(27)(70)

(29)(68)

10th Percentile 13.47 20.19 6.69 8.6325th Percentile 12.41 19.32 5.69 8.24

Median 11.69 18.07 4.96 7.2975th Percentile 11.13 17.11 4.60 6.8890th Percentile 10.59 16.36 4.45 6.57

Asset ClassComposite 13.99 21.52 5.52 7.82

Composite Benchmark 12.09 20.92 4.66 6.91

WeightedRanking

13

* Current Quarter Target = 22.8% S&P 500, 18.0% L/B Agg, 13.6% MSCI ACWI ex-US, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIFTotal Index, 7.6% Russell 2000, 7.6% S&P Mid Cap 400, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index,3.0% ML All Conv and 2.8% Dow Jones Wilshire REIT.


Dom

estic Equity

‘

DOMESTIC EQUITYActive Management Overview

Active vs the IndexA strong start to the second quarter, galvanized by strong corporate earnings and mergers and acquisitions speculation,was undermined by a strained housing market, unimpressive retail sales, and a rise in bond yields. Active managerscapitalized on market volatility as median funds surpassed their benchmarks across most styles and capitalizations. Forthe quarter, the median Small Cap Growth fund returned 8.22%, while the S&P 600 Growth gained 6.22%. For theone-year ended June 30, 2007, median Small Cap funds bested their respective benchmarks across all capitalizations,while median Large Cap funds were near or behind their benchmarks. The greatest difference, 2.65%, was experiencedby the Large Cap Growth fund which returned 16.72% versus 19.37% for the S&P 500 Growth Index. For the year, themedian Mid Cap Broad fund outdistanced its index, the S&P Mid Cap, by 243 basis points.

Large Cap vs Small CapThe success of large technology and heavy industrial companies this quarter resulted in the median Large Cap Corefund (6.47%) besting its Small Cap Broad (6.02%) counterpart. Due in part to the continued defaults of sub-primemortgages and increased housing inventories, Small Cap lagged behind Large Cap in both Value and Broad styles by175 and 45 basis points, respectively. For the twelve months ended June 30, 2007, the median Large Cap Value andBroad funds beat out their Small Cap counterparts by 4.59% and 3.32%, respectively. However, Small Cap Growthoutperformed Large Cap Growth for the quarter and the last twelve months.

Growth vs ValueThe median Growth fund outperformed the median Value fund in the Small and Mid Cap arenas in the second quarterof 2007, while Large Cap Growth and Value were virtually identical, 6.20% vs. 6.25%. Despite the energy sector’ssolid performance, the financial services and utility sectors underperformance allowed Small and Mid Cap Growthfunds to vault ahead of their Value counterparts. Small Cap Growth’s return of 8.22% surpassed Small Cap Value’sreturn of 4.50%. Mid Cap Growth outperformed Mid Cap Value by 301 basis points while Large Cap Growth laggedLarge Cap Value by 5 basis points. For the last twelve months, however, Value continues to stay ahead of Growth inthe Mid and Large Cap arenas. Small Cap Value lagged Small Cap Growth by a 14 basis points. Mid Cap Valuereturned 22.29% compared to Mid Cap Growth’s return of 20.07%. Finally, the widest margin in Growth and Valuewas Large Cap with a difference of 5.28%.

Separate Account Style Group Median Returnsfor Quarter Ended June 30, 2007

0%

2%

4%

6%

8%

10%8.22%

Small CapGrowth

4.50%

Small CapValue

6.02%

Small CapBroad

8.40%

Mid CapGrowth

5.39%

Mid CapValue

7.19%

Mid CapBroad

6.20%

Large CapGrowth

6.25%

Large CapValue

6.47%

LargeCap Core

Ret

urns

S&P 500: 6.28%S&P 500 Growth: 6.63%S&P 500 Value: 5.95%S&P Mid Cap: 5.84%S&P 600: 5.18%S&P 600 Growth: 6.22%S&P 600 Value: 4.24%

Separate Account Style Group Median Returnsfor One Year Ended June 30, 2007

0%

5%

10%

15%

20%

25%

30%

17.55%

Small CapGrowth

17.41%

Small CapValue

17.55%

Small CapBroad

20.07%

Mid CapGrowth

22.29%

Mid CapValue

20.94%

Mid CapBroad

16.72%

Large CapGrowth

22.00%

Large CapValue

20.87%

LargeCap Core

Ret

urns

S&P 500: 20.59%S&P 500 Growth: 19.37%S&P 500 Value: 21.77%S&P Mid Cap: 18.51%S&P 600: 16.04%S&P 600 Growth: 15.94%S&P 600 Value: 16.13%


DOMESTIC EQUITY COMPOSITEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyThe Domestic Equity Benchmark is comprised of 60% Standard & Poor’s 500, 20% Standard & Poor’s Mid Cap

Index and 20% Russell 2000.

Quarterly Summary and HighlightsDomestic Equity Composite’s portfolio posted a 6.79% return for the quarter placing it in the 8 percentile ofthe Public Fund - Domestic Equity group for the quarter and in the 64 percentile for the last year.

Domestic Equity Composite’s portfolio outperformed the Blended Benchmark by 0.98% for the quarter andunderperformed the Blended Benchmark for the year by 0.48%.

Performance vs Public Fund - Domestic Equity

0%

5%

10%

15%

20%

25%

Last Year to Last Last 3 Last 5 Last 10 Last 18-1/4Quarter Date Year Years Years Years Years

A(8)B(8)(52)

A(4)B(4)

(25)

A(64)B(64)

(51)

A(21)B(21)(32)

A(4)B(4)

(36)B(4)A(6)

(23)

B(4)A(20)

(63)



DomesticEquity Composite A 6.79 9.28 18.93 13.26 13.99 9.86 12.55

DomesticEquity: Ex-Options B 6.79 9.28 18.93 13.26 13.99 10.23 13.26

Blended Benchmark 5.82 7.86 19.41 12.78 12.09 8.88 11.45

Relative Return vs Blended Benchmark

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Domestic Equity Composite

Public Fund - Domestic EquityAnnualized Ten Year Risk vs Return

14 15 16 17 18 19 206.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

Domestic Equity Composite

Blended Benchmark

Domestic Equity: Ex-Options

Standard Deviation

Ret

urns


DOMESTIC EQUITY COMPOSITERETURN ANALYSIS SUMMARY

Return AnalysisThe graphs below analyze the manager’s return on both a risk-adjusted and unadjusted basis. The first chart

illustrates the manager’s ranking over different periods versus the appropriate style group. The second chart shows thehistorical quarterly and 12 quarter rolling manager returns versus the appropriate market benchmark. The last two chartsillustrate the manager’s ranking relative to their style using various risk-adjusted return measures.

Performance vs Public Fund - Domestic Equity

(40%)(30%)(20%)(10%)

0%10%20%30%40%50%60%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

A(4)B(61)25

B(24)A(96)

33 A(10)B(69)58

A(6)B(72)25

A(1)B(55)18

B(60)A(60)25

A(17)B(81)

23A(5)B(84)35

A(24)B(45)52 B(20)

A(92)47

10th Percentile 8.66 16.66 9.34 14.74 36.19 (18.74) (5.66) 1.06 27.75 28.0125th Percentile 7.85 15.66 8.02 13.49 32.98 (20.25) (7.02) (1.55) 22.67 23.34

Median 7.36 14.61 6.56 12.62 31.26 (21.16) (9.67) (4.61) 20.74 19.1175th Percentile 6.85 13.81 5.96 11.70 29.98 (22.29) (11.07) (6.53) 17.32 15.4490th Percentile 6.67 13.22 5.12 10.81 28.41 (23.54) (12.72) (8.82) 13.87 10.68

DomesticEquity Composite A 9.28 11.38 9.39 16.00 43.68 (21.56) (6.19) 2.97 22.68 9.30

Russell 3000 Index B 7.11 15.72 6.12 11.95 31.06 (21.54) (11.46) (7.46) 20.90 24.14

Blended Benchmark 7.86 15.32 6.36 13.49 33.69 (20.24) (6.78) (2.87) 20.05 20.07

Rolling 12 Quarter and Quarterly Relative Return vs Blended Benchmark

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Domestic Equity Composite Domestic Equity Composite Russell 3000 Index Public Fund - Dom Equity

Risk Adjusted Return Measures vs Blended BenchmarkRankings Against Public Fund - Domestic Equity


(4)

(2)

0

2

4

6

8

Alpha TreynorRatio

A(10)

B(62)

A(12)

B(59)



DomesticEquity Composite A 0.89 5.91

Russell 3000 Index B (1.04) 3.96

(1.0)

(0.5)

0.0

0.5


A(8)

B(74)

A(12)B(58)

A(1)

B(75)

10th Percentile 0.26 0.33 0.2025th Percentile 0.04 0.29 (0.03)


DomesticEquity Composite A 0.27 0.32 0.29

Russell 3000 Index B (0.46) 0.22 (0.50)


Investment Manager ReturnsThe table below details the rates of return for the Sponsor’s investment managers

over various time periods ended June 30, 2007. Negative returns are shown in red, positivereturns in black. Returns for one year or greater are annualized. The first set of returns foreach asset class represents the composite returns for all the fund’s accounts for that assetclass.

Returns for Periods Ended June 30, 2007

Last Last LastLast Last 3 5 9-1/2

Quarter Year Years Years YearsLarge Cap Equity 6.94% 17.44% 10.90% 12.63% 6.81%

Standard & Poor’s 500 6.28% 20.59% 11.68% 10.71% 6.38%CAI Large Capitalization Style 6.25% 20.46% 13.17% 11.67% 7.93%

Mid Cap Equity 6.72% 22.48% 16.53% 16.01% 11.18%S&P Mid Cap 400 Index 5.84% 18.51% 15.15% 14.17% 12.25%CAI Mid Capitalization Style 7.19% 20.94% 16.42% 15.28% 12.16%

Small Cap Equity 6.41% 19.98% 17.00% 15.96% 14.62%Russell 2000 Index 4.42% 16.43% 13.45% 13.88% 8.36%CAI Small Capitalization Style 6.02% 17.55% 14.70% 15.09% 11.28%


DELTA ASSET MGMTPERIOD ENDED JUNE 30, 2007

Investment PhilosophyDelta Asset Management’s top-down discipline guides the selection of issues in their portfolios. Economic sectors

are over/underweighted depending on the economic outlook within the current phase of the business cycle.

Quarterly Summary and HighlightsDelta Asset Mgmt’s portfolio posted a 7.43% return for the quarter placing it in the 18 percentile of the CAILarge Cap Core Style group for the quarter and in the 33 percentile for the last year.

Delta Asset Mgmt’s portfolio outperformed the S&P 500 by 1.15% for the quarter and outperformed the S&P500 for the year by 0.99%.

Performance vs CAI Large Cap Core Style

0%

5%

10%

15%

20%

25%

30%

Last Year to Last Last 3 Last 5 Last 10 From 3-95Quarter Date Year Years Years Years Inception

(18)(55)

(31)(60)

(33)(53)

(85)(76)(73)(72)

(73)(89)

(51)(82)



Delta Asset Mgmt 7.43 8.00 21.58 11.43 10.70 7.90 12.11

S&P 500 6.28 6.96 20.59 11.68 10.71 7.13 11.27

Relative Return vs S&P 500

Rel

ativ

e R

etur

ns

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Delta Asset Mgmt

CAI Large Cap Core StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 225%

6%

7%

8%

9%

10%

11%

12%

Delta Asset Mgmt

S&P 500

Standard Deviation

Ret

urns


DELTA ASSET MGMTRETURN ANALYSIS SUMMARY




(40%)(30%)(20%)(10%)

0%10%20%30%40%50%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

31606553

8182 6040

539

4235

153 4358

56455439



Delta Asset Mgmt 8.00 14.98 4.99 9.27 31.48 (22.69) (5.07) (8.15) 20.62 26.10

S&P 500 6.96 15.79 4.91 10.88 28.68 (22.10) (11.89) (9.11) 21.04 28.58

Rolling 12 Quarter and Quarterly Relative Return vs S&P 500

Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Delta Asset Mgmt CAI Large Cap Core Style

Risk Adjusted Return Measures vs S&P 500Rankings Against CAI Large Cap Core Style


(2)(1)

012345678

Alpha TreynorRatio

(77)

(79)


Median 1.44 4.8475th Percentile 0.78 4.0890th Percentile (0.33) 2.97

Delta Asset Mgmt 0.71 3.97

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(77) (79) (62)


Median 0.35 0.28 0.3175th Percentile 0.22 0.24 0.1690th Percentile (0.06) 0.17 (0.07)

Delta Asset Mgmt 0.22 0.23 0.22


INTECHPERIOD ENDED JUNE 30, 2007

Investment PhilosophyINTECH believes their highly disciplined, mathematical investment strategy offers equity investors the

opportunity to achieve long-term returns in excess of the target benchmark, while reducing the risk of significantunderperformance. INTECH was hired during 4th quarter, 2005. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsINTECH’s portfolio posted a 4.04% return for the quarter placing it in the 92 percentile of the CAI Large CapCore Style group for the quarter and in the 66 percentile for the last year.

INTECH’s portfolio underperformed the S&P 500 by 2.23% for the quarter and underperformed the S&P 500for the year by 2.18%.


0%

5%

10%

15%

20%

25%

30%

Last Year to Last Fr 12-05 Last 3 Last 5 Last 10Quarter Date Year Inception Years Years Years

(92)

(55) (76)(60)

(66)

(53)

(67)(47)

(42)(76) (24)

(72)(24)

(89)



INTECH 4.04 6.07 18.41 13.96 13.23 12.36 9.67

S&P 500 6.28 6.96 20.59 15.33 11.68 10.71 7.13

Relative Return vs S&P 500

Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

INTECH

CAI Large Cap Core StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 225%

6%

7%

8%

9%

10%

11%

12%

INTECH

S&P 500

Standard Deviation

Ret

urns


INTECHRETURN ANALYSIS SUMMARY




(40%)(30%)(20%)(10%)

0%10%20%30%40%50%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

76607253

23825

40

3839

435

1453

3158

36452139



INTECH 6.07 14.70 9.18 15.60 28.82 (18.46) (6.73) (4.38) 21.53 31.49

S&P 500 6.96 15.79 4.91 10.88 28.68 (22.10) (11.89) (9.11) 21.04 28.58

Rolling 12 Quarter and Quarterly Relative Return vs S&P 500

Rel

ativ

e R

etur

ns

(4%)

(2%)

0%

2%

4%

6%

8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

INTECH CAI Large Cap Core Style

Risk Adjusted Return Measures vs S&P 500Rankings Against CAI Large Cap Core Style


(2)(1)

012345678

Alpha TreynorRatio

(29)

(30)



INTECH 2.46 5.99

(0.4)(0.2)

0.00.20.40.60.81.01.21.4


(2)

(24)

(2)



INTECH 1.17 0.35 1.14


TCW CONCENTRATED COREPERIOD ENDED JUNE 30, 2007

Investment PhilosophyTCW looks to achieve superior long-term returns by investing in high-quality companies that possess

opportunities for growth that are not fully reflected in market valuations. TCW Core Equity was hired during 3rd quarter,2002. Earlier performance until 1st quarter, 2001, is based on their Commingled Fund history, and prior performance isbased on their separate account composite returns.

Quarterly Summary and HighlightsTCW Concentrated Core’s portfolio posted a 9.62% return for the quarter placing it in the 1 percentile of theCAI Large Cap Growth Style group for the quarter and in the 92 percentile for the last year.

TCW Concentrated Core’s portfolio outperformed the Russell 1000 Growth by 2.76% for the quarter andunderperformed the Russell 1000 Growth for the year by 7.01%.

Performance vs CAI Large Cap Growth Style

0%

5%

10%

15%

20%

25%

Last Year to Last Last 3 From 9-02 Last 5 Last 10Quarter Date Year Years Inception Years Years

(1)

(41)

(28)(43)

(92)

(28)

(99)

(64)

(9)

(42)

(15)

(39) (10)

(88)



TCWConcentrated Core 9.62 9.15 12.04 5.04 17.30 11.66 9.90

Russell 1000 Growth 6.86 8.13 19.04 8.70 13.63 9.28 4.39

Relative Return vs Russell 1000 Growth

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

TCW Concentrated Core

CAI Large Cap Growth StyleAnnualized Ten Year Risk vs Return

10 15 20 25 30 352%

4%

6%

8%

10%

12%

14%

16%

18%

TCW Concentrated Core

Russell 1000 Growth

Standard Deviation

Ret

urns


TCW CONCENTRATED CORERETURN ANALYSIS SUMMARY



Performance vs CAI Large Cap Growth Style

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

284398

25 69671065

1

26

51534450

2790

1743

630



TCWConcentrated Core 9.15 (4.39) 4.96 13.84 50.83 (27.62) (19.41) (4.25) 42.88 50.98

Russell 1000 Growth 8.13 9.07 5.26 6.30 29.75 (27.88) (20.42) (22.42) 33.16 38.71

Rolling 12 Quarter and Quarterly Relative Return vs Russell 1000 Growth

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

TCW Concentrated Core CAI Lrg Cap Growth Style

Risk Adjusted Return Measures vs Russell 1000 GrowthRankings Against CAI Large Cap Growth Style


0

1

2

3

4

5

6

7

8

Alpha TreynorRatio

(10)(21)


Median 2.47 2.8775th Percentile 0.84 1.6990th Percentile 0.02 0.48

TCWConcentrated Core 6.01 5.20

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(5)

(14)

(10)


Median 0.37 0.13 0.3275th Percentile 0.17 0.08 0.1590th Percentile 0.00 0.02 (0.02)

TCWConcentrated Core 0.74 0.23 0.61


DODGE & COXPERIOD ENDED JUNE 30, 2007

Investment PhilosophyDodge & Cox believes that increased earnings are a primary factor driving increased valuations over the long

term. To effect this policy, the firm relies on thorough fundamental research and a valuation discipline. Dodge & Cox washired during 2nd quarter, 2003. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsDodge & Cox’s portfolio posted a 5.74% return for the quarter placing it in the 67 percentile of the CAI LargeCap Value Style group for the quarter and in the 79 percentile for the last year.

Dodge & Cox’s portfolio outperformed the Russell 1000 Value by 0.82% for the quarter and underperformedthe Russell 1000 Value for the year by 1.58%.

Performance vs CAI Large Cap Value Style

0%

5%

10%

15%

20%

25%

30%


(67)(86)

(37)(76)

(79)(54)

(29)(46)

(7)

(47)(7)

(46) (1)

(50)



Dodge & Cox 5.74 7.62 20.28 16.56 19.75 15.77 13.77

Russell 1000 Value 4.93 6.23 21.86 15.93 17.21 13.31 9.87

Relative Return vs Russell 1000 Value

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Dodge & Cox

CAI Large Cap Value StyleAnnualized Ten Year Risk vs Return

10 12 14 16 18 20 225%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

Dodge & Cox

Russell 1000 Value

Standard Deviation

Ret

urns


DODGE & COXRETURN ANALYSIS SUMMARY



Performance vs CAI Large Cap Value Style

(40%)(30%)(20%)(10%)

0%10%20%30%40%50%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

3776

5518

2866

824

450

526

2

61

1850

4

43 8432

10th Percentile 8.99 23.59 13.30 19.14 34.46 (12.77) 3.93 19.60 18.56 24.5325th Percentile 8.41 21.11 10.80 16.30 31.88 (15.47) 0.16 14.29 13.16 17.91

Median 7.31 19.31 8.24 14.68 30.06 (18.49) (4.02) 6.82 5.92 13.3575th Percentile 6.26 17.17 5.76 12.05 28.18 (21.93) (6.73) 2.96 1.74 8.4390th Percentile 5.36 14.63 4.10 11.04 26.33 (24.35) (10.65) (3.95) (1.64) 4.80

Dodge & Cox 7.62 19.03 10.05 19.95 35.42 (10.58) 9.26 17.09 19.75 6.01

Russell 1000 Value 6.23 22.25 7.05 16.49 30.03 (15.52) (5.59) 7.01 7.35 15.63

Rolling 12 Quarter and Quarterly Relative Return vs Russell 1000 Value

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Dodge & Cox CAI Large Cap Value Style

Risk Adjusted Return Measures vs Russell 1000 ValueRankings Against CAI Large Cap Value Style


(4)

(2)

0

2

4

6

8

10

12

Alpha TreynorRatio

(1)

(1)



Dodge & Cox 3.99 10.44

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(4)(1) (3)


Median 0.02 0.38 (0.00)75th Percentile (0.19) 0.32 (0.22)90th Percentile (0.39) 0.24 (0.45)

Dodge & Cox 0.72 0.64 0.66


GLOBEFLEX CAPPERIOD ENDED JUNE 30, 2007

Investment PhilosophyGlobeFlex Capital, L.P. utilizes an active stock selection process through identification of companies across style,

industry, and capitalization. The investment approach incorporates both growth and value criteria.

Quarterly Summary and HighlightsGlobeFlex Cap’s portfolio posted a 7.67% return for the quarter placing it in the 37 percentile of the CAI MidCapitalization Style group for the quarter and in the 16 percentile for the last year.

GlobeFlex Cap’s portfolio outperformed the S&P Mid Cap 400 by 1.83% for the quarter and outperformed theS&P Mid Cap 400 for the year by 6.71%.

Performance vs CAI Mid Capitalization Style

0%

5%

10%

15%

20%

25%

30%


A(37)

B(82)(74)

A(18)

B(81)

(54)

A(16)

B(53)

(74)

A(5)

B(38)

(65)

A(28)B(35)

(64) A(30)

B(60)(41) A(58)

B(65)(42)



GlobeFlex Cap A 7.67 15.14 25.22 21.12 16.79 13.71 13.55Russell Mid-Cap Index B 5.30 9.90 20.83 17.16 16.39 11.86 13.09

S&P Mid Cap 400 5.84 11.98 18.51 15.15 14.17 13.37 14.27

Relative Return vs S&P Mid Cap 400

Rel

ativ

e R

etur

ns

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

GlobeFlex Cap

CAI Mid Capitalization StyleAnnualized Ten Year Risk vs Return

10 15 20 25 30 35 40 454%

6%

8%

10%

12%

14%

16%

18%

20%

22%

S&P Mid Cap 400

Russell Mid-Cap Index

GlobeFlex Cap

Standard Deviation

Ret

urns


GLOBEFLEX CAPRETURN ANALYSIS SUMMARY



Performance vs CAI Mid Capitalization Style

(60%)(40%)(20%)

0%20%40%60%80%

100%120%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

1854 5568238 2055

4646

46403241

2135 476085

18


Median 12.38 13.40 11.39 17.28 35.26 (17.85) (3.36) 12.41 20.46 9.0675th Percentile 10.64 8.35 8.73 13.04 31.13 (26.84) (19.66) (0.21) 6.92 0.1890th Percentile 8.40 5.63 6.54 10.06 29.11 (32.71) (32.73) (16.02) (2.96) (6.10)

GlobeFlex Cap 15.14 12.09 21.04 21.23 35.65 (17.13) 2.41 21.21 23.38 (3.81)

S&P Mid Cap 400 11.98 10.31 12.56 16.48 35.62 (14.51) (0.60) 17.50 14.73 19.11

Rolling 12 Quarter and Quarterly Relative Return vs S&P Mid Cap 400

Rel

ativ

e R

etur

ns

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GlobeFlex Cap CAI Mid Cap Style

Risk Adjusted Return Measures vs S&P Mid Cap 400Rankings Against CAI Mid Capitalization Style


(10)

(5)

0

5

10

15

20

Alpha TreynorRatio

(42)

(45)



GlobeFlex Cap 0.96 10.05

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(45)

(49)

(30)


Median 0.04 0.43 (0.06)75th Percentile (0.14) 0.32 (0.21)90th Percentile (0.34) 0.19 (0.37)

GlobeFlex Cap 0.09 0.44 0.03


TCW MID CAP VALUEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyThe underlying philosophy of the TCW Value Opportunities strategy is that every company has an "intrinsic

value" based on its inherent assets, its absolute level of recurring earnings, or its earnings growth potential. TCW MidCapValue was hired during 4th quarter, 2002. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsTCW Mid Cap Value’s portfolio posted a 5.74% return for the quarter placing it in the 43 percentile of the CAIMid Cap Value Style group for the quarter and in the 75 percentile for the last year.

TCW Mid Cap Value’s portfolio outperformed the Russell Mid-Cap by 0.44% for the quarter andunderperformed the Russell Mid-Cap for the year by 1.10%.

Performance vs CAI Mid Cap Value Style

0%

5%

10%

15%

20%

25%

30%

35%

Last Year to Last Last 3 Fr 12-02 Last 5 Last 10Quarter Date Year Years Inception Years Years

A(43)B(90)

(56)

A(46)B(72)

(57)

B(51)

A(75)(63)

B(29)

A(99)

(62)

B(29)

A(78)(55)

B(30)

A(91)

(57)A(19)

B(63)(75)



TCW Mid Cap Value A 5.74 10.49 19.73 11.74 19.82 14.05 15.47Russell Midcap

Value Index B 3.65 8.69 22.09 19.32 22.73 17.17 13.06

Russell Mid-Cap 5.30 9.90 20.83 17.16 21.51 16.39 11.86

Relative Return vs Russell Mid-Cap

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

TCW Mid Cap Value

CAI Mid Cap Value StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22 24 268%

10%

12%

14%

16%

18%

20%

TCW Mid Cap Value

Russell Midcap Value Index

Russell Mid-Cap

Standard Deviation

Ret

urns


TCW MID CAP VALUERETURN ANALYSIS SUMMARY



Performance vs CAI Mid Cap Value Style

(40%)(30%)(20%)(10%)

0%10%20%30%40%50%60%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

A(46)B(72)57

B(9)A(88)72 B(25)

A(77)25

B(24)A(93)

44

A(5)B(28)22

B(41)

A(92)82

A(4)

B(62)92

A(7)

B(48)90

A(10)

B(60)

15B(32)A(47)

22


Median 10.30 16.80 9.87 19.55 34.33 (11.20) 9.47 18.83 1.35 0.4675th Percentile 8.53 15.17 7.56 16.18 30.45 (13.49) (0.47) 15.31 (3.46) (4.76)90th Percentile 7.51 13.88 5.45 12.85 24.90 (25.28) (4.53) 8.66 (7.58) (11.86)

TCW Mid Cap Value A 10.49 14.02 7.03 12.41 48.86 (26.09) 35.43 39.78 26.52 2.04Russell Midcap

Value Index B 8.69 20.22 12.65 23.71 38.07 (9.64) 2.33 19.18 (0.11) 5.08

Russell Mid-Cap 9.90 15.26 12.65 20.22 40.06 (16.19) (5.62) 8.25 18.23 10.09

Rolling 12 Quarter and Quarterly Relative Return vs Russell Mid-Cap

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

35%

99 2000 2001 2002 2003 2004 2005 2006 2007

TCW Mid Cap Value TCW Mid Cap Value Russell Midcap Value Index CAI Mid Cap Value Style

Risk Adjusted Return Measures vs Russell Mid-CapRankings Against CAI Mid Cap Value Style


0

5

10

15

20

25

Alpha TreynorRatio

A(53)B(58)

B(56)A(68)



TCW Mid Cap Value A 3.39 10.49Russell Midcap

Value Index B 2.85 12.10

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


B(48)A(69)

B(49)A(72)

A(35)B(56)


Median 0.38 0.58 0.1675th Percentile 0.14 0.45 (0.00)90th Percentile 0.11 0.42 (0.07)

TCW Mid Cap Value A 0.27 0.48 0.26Russell Midcap

Value Index B 0.40 0.58 0.13


PUTNAM SMALL CAP GROWTHPERIOD ENDED JUNE 30, 2007

Investment PhilosophyPutnam believes that they can achieve maximum capital appreciation through investments in high-quality

companies with superior earnings growth expectations and market capitalizations generally between $50 million and $750million at the time of initial purchase.

Quarterly Summary and HighlightsPutnam Small Cap Growth’s portfolio posted a 7.81% return for the quarter placing it in the 54 percentile ofthe CAI Small Cap Growth Style group for the quarter and in the 34 percentile for the last year.

Putnam Small Cap Growth’s portfolio outperformed the Russell 2000 Growth by 1.12% for the quarter andoutperformed the Russell 2000 Growth for the year by 2.77%.

Performance vs CAI Small Cap Growth Style

0%

5%

10%

15%

20%

25%

30%


(54)(71)

(31)

(85)

(34)

(55)

(47)(66)

(52)(53)

(38)

(95)

(25)

(100)



Putnam SmallCap Growth 7.81 13.73 19.59 13.08 13.18 10.17 14.98

Russell 2000 Growth 6.69 9.33 16.83 11.76 13.08 5.28 8.25


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Putnam Small Cap Growth

CAI Small Cap Growth StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 40 450%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Russell 2000 Growth

Putnam Small Cap Growth

Standard Deviation

Ret

urns


PUTNAM SMALL CAP GROWTHRETURN ANALYSIS SUMMARY




(100%)

(50%)

0%

50%

100%

150%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

3185 7530 3880 42333229

77614244 5488

22

60

4169

10th Percentile 17.26 20.46 15.27 19.10 54.88 (19.39) 2.27 13.02 126.69 16.1825th Percentile 14.26 14.42 10.68 15.42 49.88 (23.55) (1.75) 3.08 79.00 11.29

Median 12.03 12.49 7.24 12.16 45.84 (28.16) (10.75) (8.18) 51.05 5.3675th Percentile 9.95 8.12 5.24 7.73 39.18 (32.89) (20.93) (14.56) 34.28 (1.15)90th Percentile 7.77 6.09 0.61 1.54 33.90 (38.97) (31.38) (24.80) 8.97 (6.83)

Putnam SmallCap Growth 13.73 8.09 8.76 12.94 47.89 (33.49) (8.23) (9.67) 88.74 6.69

Russell 2000 Growth 9.33 13.35 4.15 14.31 48.54 (30.26) (9.23) (22.43) 43.09 1.23


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Putnam Small Cap Growth CAI Sm Cap Growth Style

Risk Adjusted Return Measures vs Russell 2000 GrowthRankings Against CAI Small Cap Growth Style


0

2

4

6

8

10

12

14

Alpha TreynorRatio

(41) (54)



Putnam SmallCap Growth 5.22 5.59

0.00.10.20.30.40.50.60.70.80.91.0


(31)

(53)

(25)


Median 0.47 0.20 0.4275th Percentile 0.30 0.13 0.2490th Percentile 0.14 0.08 0.07

Putnam SmallCap Growth 0.61 0.19 0.57


WALL STREET ASSOCIATESPERIOD ENDED JUNE 30, 2007

Investment PhilosophyWall Street invests in lesser cap growth companies exhibiting: extraordinary earnings growth; financial strength;

management vision; and the probability for earnings surprise.

Quarterly Summary and HighlightsWall Street Associates’s portfolio posted a 9.13% return for the quarter placing it in the 35 percentile of theCAI Small Cap Growth Style group for the quarter and in the 26 percentile for the last year.

Wall Street Associates’s portfolio outperformed the Russell 2000 Growth by 2.44% for the quarter andoutperformed the Russell 2000 Growth for the year by 4.50%.


0%

5%

10%

15%

20%

25%

30%


(35)

(71)

(80)(85)

(26)

(55)

(6)

(66)

(43)(53)(11)

(95)

(12)

(93)



Wall StreetAssociates 9.13 9.80 21.32 20.11 13.74 14.48 14.46

Russell 2000 Growth 6.69 9.33 16.83 11.76 13.08 5.28 6.02


Rel

ativ

e R

etur

ns

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Wall Street Associates

CAI Small Cap Growth StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 40 45 500%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Wall Street Associates

Russell 2000 Growth

Standard Deviation

Ret

urns


WALL STREET ASSOCIATESRETURN ANALYSIS SUMMARY




(100%)

(50%)

0%

50%

100%

150%

200%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

8085 4730 280 5533

929

98615644 36

88

6

608

69

10th Percentile 17.26 20.46 15.27 19.10 54.88 (19.39) 2.27 13.02 126.69 16.1825th Percentile 14.26 14.42 10.68 15.42 49.88 (23.55) (1.75) 3.08 79.00 11.29

Median 12.03 12.49 7.24 12.16 45.84 (28.16) (10.75) (8.18) 51.05 5.3675th Percentile 9.95 8.12 5.24 7.73 39.18 (32.89) (20.93) (14.56) 34.28 (1.15)90th Percentile 7.77 6.09 0.61 1.54 33.90 (38.97) (31.38) (24.80) 8.97 (6.83)

Wall StreetAssociates 9.80 12.79 22.96 11.95 56.41 (43.41) (12.36) (3.75) 152.96 18.35

Russell 2000 Growth 9.33 13.35 4.15 14.31 48.54 (30.26) (9.23) (22.43) 43.09 1.23


Rel

ativ

e R

etur

ns

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Wall Street Associates CAI Sm Cap Growth Style

Risk Adjusted Return Measures vs Russell 2000 GrowthRankings Against CAI Small Cap Growth Style


0

2

4

6

8

10

12

14

Alpha TreynorRatio

(7)

(35)



Wall StreetAssociates 11.03 7.52

0.00.10.20.30.40.50.60.70.80.91.0


(25)

(34)

(35)


Median 0.47 0.20 0.4275th Percentile 0.30 0.13 0.2490th Percentile 0.14 0.08 0.07

Wall StreetAssociates 0.68 0.25 0.52


PUTNAM SMALL CAP VALUEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyPutnam Investments Small Cap Value Equity I focuses on dividend-paying companies with consistent records and

superior financial statistics. They believe by limiting their investments to dividend paying companies, this strategy will beable to create portfolios with limited volatility and competitive returns.

Quarterly Summary and HighlightsPutnam Small Cap Value’s portfolio posted a 5.74% return for the quarter placing it in the 27 percentile of theCAI Small Cap Value Style group for the quarter and in the 30 percentile for the last year.

Putnam Small Cap Value’s portfolio outperformed the Russell 2000 Value by 3.44% for the quarter andoutperformed the Russell 2000 Value for the year by 4.77%.

Performance vs CAI Small Cap Value Style

0%

5%

10%

15%

20%

25%

30%

Last Year to Last Last 3 Last 5 Last 10 Fr 12-91Quarter Date Year Years Years Years Inception

(27)

(88)

(24)

(81)

(30)

(59) (38)(64)

(54)(82) (44)

(91)

(62)(77)



Putnam SmallCap Value 5.74 10.15 20.82 16.42 16.02 14.23 15.21

Russell 2000 Value 2.30 3.80 16.05 15.02 14.62 12.14 14.95


Rel

ativ

e R

etur

ns

(5%)

0%

5%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Putnam Small Cap Value

CAI Small Cap Value StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22 24 2610%

11%

12%

13%

14%

15%

16%

17%

18%

19%

Putnam Small Cap Value

Russell 2000 Value

Standard Deviation

Ret

urns


PUTNAM SMALL CAP VALUERETURN ANALYSIS SUMMARY




(30%)(20%)(10%)

0%10%20%30%40%50%60%70%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

2481

5212

5983

3056

3128

7874

2863

4336

7272 1973

10th Percentile 10.95 24.47 14.39 28.47 58.59 0.21 29.59 33.13 19.43 4.2925th Percentile 10.01 21.48 11.04 25.39 49.19 (2.63) 22.40 24.85 10.88 (0.56)

Median 7.78 18.75 9.23 22.78 42.49 (6.98) 18.16 21.59 2.71 (5.04)75th Percentile 5.13 14.65 5.40 19.12 38.84 (11.96) 9.11 13.87 (2.16) (6.70)90th Percentile 2.52 12.88 3.01 16.09 33.76 (19.09) 4.52 5.02 (5.35) (9.67)

Putnam SmallCap Value 10.15 18.01 7.48 25.17 45.38 (11.99) 22.16 22.09 (1.57) 0.96

Russell 2000 Value 3.80 23.48 4.71 22.25 46.03 (11.43) 14.02 22.83 (1.49) (6.45)


Rel

ativ

e R

etur

ns

(5%)

0%

5%

10%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Putnam Small Cap Value CAI Small Cap Value Style

Risk Adjusted Return Measures vs Russell 2000 ValueRankings Against CAI Small Cap Value Style


(2)02468

10121416

Alpha TreynorRatio

(53)

(55)



Putnam SmallCap Value 1.88 10.24

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(42)(48)

(29)


Median 0.33 0.52 0.2875th Percentile 0.08 0.44 0.1190th Percentile (0.08) 0.41 0.00

Putnam SmallCap Value 0.42 0.53 0.44


DFA SMALL CAP VALUEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyDFA’s investment philosophy stems from academic research conducted by Professors Eugene Fama of the

University of Chicago, and Kenneth French of Massachusetts Institute of Technology that finds that high book/marketvalue stocks have higher expected returns than growth stocks. DFA’s quantitative investment strategy in highly diversifiedportfolio of small companies with "deep" value characteristics is designed to capture the returns of small value stocks.

Quarterly Summary and HighlightsDFA Small Cap Value’s portfolio posted a 3.14% return for the quarter placing it in the 79 percentile of theCAI Small Cap Value Style group for the quarter and in the 42 percentile for the last year.

DFA Small Cap Value’s portfolio outperformed the Russell 2000 Value by 0.84% for the quarter andoutperformed the Russell 2000 Value for the year by 2.12%.


0%

5%

10%

15%

20%

25%

30%

Last Year to Last Last 3 Last 5 Last 10 Fr 12-95Quarter Date Year Years Years Years Inception

(79)(88)

(57)

(81)

(42)

(59)

(16)

(64)

(7)

(82)(12)

(91)

(10)

(92)



DFA SmallCap Value 3.14 6.50 18.18 18.09 19.47 16.19 17.65

Russell 2000 Value 2.30 3.80 16.05 15.02 14.62 12.14 13.71


Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

DFA Small Cap Value

CAI Small Cap Value StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22 24 2610%

11%

12%

13%

14%

15%

16%

17%

18%

19%

Russell 2000 Value

DFA Small Cap Value

Standard Deviation

Ret

urns


DFA SMALL CAP VALUERETURN ANALYSIS SUMMARY




(30%)(20%)(10%)

0%10%20%30%40%50%60%70%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

5781

1212

4383

1656

8

28

5774

2963 79

3612

72 6373

10th Percentile 10.95 24.47 14.39 28.47 58.59 0.21 29.59 33.13 19.43 4.2925th Percentile 10.01 21.48 11.04 25.39 49.19 (2.63) 22.40 24.85 10.88 (0.56)

Median 7.78 18.75 9.23 22.78 42.49 (6.98) 18.16 21.59 2.71 (5.04)75th Percentile 5.13 14.65 5.40 19.12 38.84 (11.96) 9.11 13.87 (2.16) (6.70)90th Percentile 2.52 12.88 3.01 16.09 33.76 (19.09) 4.52 5.02 (5.35) (9.67)

DFA SmallCap Value 6.50 23.65 9.79 27.53 59.06 (7.98) 22.02 10.79 14.09 (5.46)

Russell 2000 Value 3.80 23.48 4.71 22.25 46.03 (11.43) 14.02 22.83 (1.49) (6.45)


Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

DFA Small Cap Value CAI Small Cap Value Style

Risk Adjusted Return Measures vs Russell 2000 ValueRankings Against CAI Small Cap Value Style


(2)02468

10121416

Alpha TreynorRatio

(30)

(39)



DFA SmallCap Value 2.97 10.82

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(30) (33) (18)


Median 0.33 0.52 0.2875th Percentile 0.08 0.44 0.1190th Percentile (0.08) 0.41 0.00

DFA SmallCap Value 0.50 0.56 0.59



‘

INTERNATIONAL EQUITYActive Management Overview

Active vs. the IndexDespite skyrocketing energy prices and a global rise in interest rates, the world markets gained momentum in thesecond quarter. The median Emerging Markets fund led International Equity Styles this quarter with a 15.17% surge,besting the MSCI Emerging Markets index by 12 basis points. The median Core International fund beat the MSCIEAFE index by 41 basis points for the quarter returning 6.81% and 6.40%, respectively.

EuropeEuropean Central Banks continued to raise interest rates, as the euro and the British pound hit new highs against thedollar. European securities have become havens for investors seeking to benefit from the current foreign exchangeenvironment. The median Europe fund posted a quarterly gain of 8.03%, but lagged behind the 8.31% return of theMSCI Europe index. The one-year return for the median Europe fund bested its benchmark with returns of 32.82% and32.44%, respectively.

PacificThe median Pacific Basin fund posted an 4.14% quarterly return and outperformed the MSCI Pacific index return of2.22%, as the index includes Japan’s poor performance. Japan continues to be the biggest drag on the region, posting aslightly postive quarterly return of 0.18% due to weakened consumer spending and the rollback of numerous taxrebates. The one-year return for the median Pacific Basin fund lagged the median Europe fund by 16.73%, while theMSCI Europe index outpaced the MSCI Pacific index by 16.60%.


0%

5%

10%

15%

20%

8.03%

Europe

6.81%

Core Int’l

6.85%

Core Plus

4.14%

PacificBasin

0.18%

JapanOnly

15.17%

EmergingMarkets

7.21%

GlobalEquity

Ret

urns

MSCI AC World Index 7.42%MSCI ACW ex US Free: 8.42%MSCI EAFE: 6.40%MSCI Europe: 8.31%MSCI Pacific: 2.22%MSCI Emerging Markets: 15.05%


0%

10%

20%

30%

40%

50%

60%

32.82%

Europe

26.44%

Core Int’l

27.51%

Core Plus

16.09%

PacificBasin

5.86%

JapanOnly

47.35%

EmergingMarkets

24.87%

GlobalEquity

Ret

urns

MSCI AC World Index 25.83%MSCI ACW ex US Free: 30.15%MSCI EAFE: 27.00%MSCI Europe: 32.44%MSCI Pacific: 15.84%MSCI Emerging Markets: 45.45%


INT’L EQUITY COMPOSITEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyThe International Equity Benchmark is currently comprised of 80% MSCI ACW ex US Free Index, and 20%

Citigroup Extended Market ex-US Index.

Quarterly Summary and HighlightsInt’l Equity Composite’s portfolio posted a 7.67% return for the quarter placing it in the 37 percentile of thePublic Fund - International Equity group for the quarter and in the 5 percentile for the last year.

Int’l Equity Composite’s portfolio underperformed the Blended Benchmark by 0.25% for the quarter andoutperformed the Blended Benchmark for the year by 1.81%.

Performance vs Public Fund - International Equity

0%

5%

10%

15%

20%

25%

30%

35%

40%

Last Year to Last Last 3 Last 5 Last 10 Last 12Quarter Date Year Years Years Years Years

(37)(22)

(1)(6)

(5)(10)

(7)(7)

(2)(3)

(8)

(53)

(8)

(80)



Int’l EquityComposite 7.67 13.58 32.29 25.68 21.52 13.01 14.50



Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Int’l Equity Composite

Public Fund - International EquityAnnualized Ten Year Risk vs Return

15 16 17 18 19 20 21 22 234%

6%

8%

10%

12%

14%

16%

18%

Int’l Equity Composite

Blended Benchmark

Standard Deviation

Ret

urns


INT’L EQUITY COMPOSITERETURN ANALYSIS SUMMARY



Performance vs Public Fund - International Equity

(40%)(30%)(20%)(10%)

0%10%20%30%40%50%60%

12/06- 6/07 2006 2005 2004 2003 2002 2001

(1)(6)

(4)(22)(43)(15)

(7)(10)

(7)(7)

(31)(34) (23)(47)

10th Percentile 12.26 28.56 19.15 22.85 41.42 (8.74) (11.50)25th Percentile 11.99 27.33 16.80 20.59 39.69 (12.00) (15.87)

Median 11.38 26.47 15.84 19.56 37.15 (14.23) (17.95)75th Percentile 10.78 25.15 13.76 17.95 33.25 (16.05) (20.29)90th Percentile 10.17 23.22 12.16 16.64 31.21 (17.64) (22.31)

Int’l EquityComposite 13.58 29.29 16.02 24.15 43.53 (12.90) (15.53)

Blended Benchmark 12.68 27.62 18.11 22.82 43.62 (13.00) (17.77)


Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Int’l Equity Composite Public Fund - Intl Equity

Risk Adjusted Return Measures vs Blended BenchmarkRankings Against Public Fund - International Equity


(4)

(2)

0

2

4

6

8

10

12

Alpha TreynorRatio

(10)

(16)



Int’l EquityComposite 3.76 8.93

(0.6)(0.4)(0.2)

0.00.20.40.60.81.01.2


(13)

(16)

(7)



Int’l EquityComposite 0.74 0.45 0.77


BRANDES INVESTMENTPERIOD ENDED JUNE 30, 2007

Investment PhilosophyBrandes employs a bottom-up approach to building international equity portfolios. The firm utilizes fundamental

research to select undervalued companies in the developed and emerging markets. The Custom Benchmark is comprised of85% MSCI AC Wld ex US Free and 15% MSCI Emerging Markets Index through 12/31/03, and MSCI AC Wld ex USFree thereafter.

Quarterly Summary and HighlightsBrandes Investment’s portfolio posted a 5.22% return for the quarter placing it in the 82 percentile of the CAINon-U.S. Equity Style group for the quarter and in the 31 percentile for the last year.

Brandes Investment’s portfolio underperformed the Custom Benchmark by 3.20% for the quarter andunderperformed the Custom Benchmark for the year by 1.55%.

Performance vs CAI Non-U.S. Equity Style

0%

5%

10%

15%

20%

25%

30%

35%

40%


B(14)

A(82)

(14)

B(18)A(53)

(18)

B(17)A(31)

(17)

B(22)A(41)

(22)

A(11)B(26)(25)

A(4)

B(70)(79)

A(2)

B(88)(95)



Brandes Investment A 5.22 10.56 28.60 23.36 22.01 15.27 16.95MSCI AC Wld

ex US Free B 8.42 12.58 30.15 25.03 19.93 8.58 9.41

Custom Benchmark 8.42 12.58 30.15 25.03 19.94 8.26 8.99

Relative Return vs Custom Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Brandes Investment

CAI Non-U.S. Equity StyleAnnualized Ten Year Risk vs Return

10 15 20 25 304%

6%

8%

10%

12%

14%

16%

18%

20%

MSCI AC Wld ex US Free

Brandes Investment

Custom Benchmark

Standard Deviation

Ret

urns


BRANDES INVESTMENTRETURN ANALYSIS SUMMARY




(40%)

(20%)

0%

20%

40%

60%

80%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

5318

18428737

332

222

5245 1136

9

67

17

62

5174

10th Percentile 13.20 31.58 23.03 25.22 44.13 (6.39) (11.21) (0.74) 60.30 23.7025th Percentile 12.00 29.08 18.64 22.06 40.89 (11.56) (16.00) (7.74) 46.41 19.73


Brandes Investment 10.56 29.98 11.99 28.53 52.42 (15.09) (11.36) 0.94 53.45 16.32

Custom Benchmark 12.58 27.16 17.11 21.36 41.15 (14.42) (18.59) (16.75) 32.76 12.39

Rolling 12 Quarter and Quarterly Relative Return vs Custom Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

20%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brandes Investment CAI Non-U.S. Equity Style

Risk Adjusted Return Measures vs Custom BenchmarkRankings Against CAI Non-U.S. Equity Style


(2)

0

2

4

6

8

10

12

14

Alpha TreynorRatio

(4)

(9)



Brandes Investment 6.78 11.24

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2


(5)

(7)

(1)



Brandes Investment 0.96 0.54 0.93


MCKINLEY CAPITALPERIOD ENDED JUNE 30, 2007

Investment PhilosophyMcKinley Capital believes that excess market returns can be achieved through the construction and active

management of a diversified portfolio of inefficiently priced common stocks whose earnings growth rates are acceleratingabove market expectations. McKinley Capital was hired during 1st quarter, 2007. Earlier performance is based on theircomposite returns.

Quarterly Summary and HighlightsMcKinley Capital’s portfolio posted a 8.87% return for the quarter placing it in the 7 percentile of the CAINon-U.S. Equity Style group for the quarter and in the 9 percentile for the last year.

McKinley Capital’s portfolio outperformed the MSCI ACWI ex-US by 0.45% for the quarter andoutperformed the MSCI ACWI ex-US for the year by 2.13%.


0%

5%

10%

15%

20%

25%

30%

35%

40%

Last Year to Last Last 3 Last 5 Last 10Quarter Date Year Years Years Years

A(7)B(12)(14)

A(1)

B(9)(18)

A(9)

B(30)(17)

A(11)

B(37)(22) A(2)

B(58)(26)

A(19)

B(98)(70)



McKinley Capital A 8.87 16.38 32.27 27.22 24.57 12.47MSCI ACW ex

US Free Gr B 8.56 13.36 28.79 23.56 17.67 6.33

MSCI ACWI ex-US 8.42 12.58 30.15 25.03 19.93 8.58

Relative Return vs MSCI ACWI ex-US

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

35%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

McKinley Capital

CAI Non-U.S. Equity StyleAnnualized Ten Year Risk vs Return

10 15 20 25 304%

6%

8%

10%

12%

14%

16%

18%

20%

MSCI ACWI ex-US

MSCI ACW ex US Free Gr

McKinley Capital

Standard Deviation

Ret

urns


MCKINLEY CAPITALRETURN ANALYSIS SUMMARY




(40%)

(20%)

0%

20%

40%

60%

80%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

A(1)B(9)18

A(33)B(74)42 A(28)

B(38)37A(4)B(72)32

A(12)B(57)

22

A(12)B(48)47 A(61)

B(71)46 A(83)

B(96)56

A(16)B(50)66

B(46)A(92)

66

10th Percentile 13.20 31.58 23.03 25.22 44.13 (6.39) (11.21) (0.74) 60.30 23.7025th Percentile 12.00 29.08 18.64 22.06 40.89 (11.56) (16.00) (7.74) 46.41 19.73


McKinley Capital A 16.38 28.59 18.35 26.18 43.77 (7.47) (22.05) (21.10) 54.21 6.40MSCI ACW ex

US Free Gr B 13.36 23.96 17.08 17.07 34.91 (14.73) (23.43) (24.85) 35.72 16.93

MSCI ACWI ex-US 12.58 27.16 17.11 21.36 41.41 (14.67) (19.50) (15.08) 30.91 14.46

Rolling 12 Quarter and Quarterly Relative Return vs MSCI ACWI ex-US

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007

McKinley Capital McKinley Capital MSCI ACW ex US Free Gr CAI Non-U.S. Equity Style

Risk Adjusted Return Measures vs MSCI ACWI ex-USRankings Against CAI Non-U.S. Equity Style


(4)(2)

02468

101214

Alpha TreynorRatio

A(19)

B(98)

A(29)

B(98)



McKinley Capital A 3.95 7.60MSCI ACW ex

US Free Gr B (2.21) 2.37

(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.81.0


A(40)

B(98)

A(34)B(98)

A(35)

B(98)



McKinley Capital A 0.32 0.35 0.29MSCI ACW ex

US Free Gr B (0.49) 0.12 (0.47)


GLOBEFLEX INTERNATIONALPERIOD ENDED JUNE 30, 2007

Investment PhilosophyGlobeFlex Capital, L.P. utilizes an active stock selection process through identification of companies across style,

industry, and capitalization. The investment approach incorporates both growth and value criteria. GlobeFlex Capital washired during 1st quarter, 2007. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsGlobeFlex International’s portfolio posted a 5.54% return for the quarter placing it in the 78 percentile of theCAI International Small Cap Style group for the quarter and in the 68 percentile for the last year.

GlobeFlex International’s portfolio underperformed the EMI World ex US Index by 0.40% for the quarter andunderperformed the EMI World ex US Index for the year by 1.57%.

Performance vs CAI International Small Cap Style

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Last Year to Last Last 3 Last 5 Last 10Quarter Date Year Years Years Years

(78)(67)

(73)(62)

(68)(61)

(16)

(66)

(10)

(61)

(33)

(88)



GlobeFlexInternational 5.54 12.28 30.17 34.05 32.51 16.85

EMI World ex US Index 5.94 13.02 31.74 27.72 24.83 11.44

Relative Return vs EMI World ex US Index

Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

GlobeFlex International

CAI International Small Cap StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 4010%

12%

14%

16%

18%

20%

22%

24%

GlobeFlex International

EMI World ex US Index

Standard Deviation

Ret

urns


GLOBEFLEX INTERNATIONALRETURN ANALYSIS SUMMARY




(50%)

0%

50%

100%

150%

200%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

73621048 1064 1464

3867

1750 15391959

7877 1723

10th Percentile 17.70 34.33 34.07 37.81 67.75 3.97 (5.70) 9.65 145.35 17.1825th Percentile 16.35 33.37 30.50 34.81 62.58 (0.65) (11.91) (0.39) 73.36 10.89

Median 14.41 29.21 25.19 29.87 57.04 (7.28) (16.57) (6.07) 49.55 7.1375th Percentile 12.16 25.23 21.23 26.84 52.37 (14.03) (24.12) (17.07) 30.42 1.3790th Percentile 10.99 21.04 14.62 19.91 49.37 (16.43) (28.50) (24.52) 10.53 (4.57)

GlobeFlexInternational 12.28 34.33 34.15 36.41 60.20 2.17 (7.71) 1.11 20.42 13.71

EMI World ex US Index 13.02 29.43 22.10 28.74 53.73 (7.28) (15.70) (10.32) 23.50 12.15

Rolling 12 Quarter and Quarterly Relative Return vs EMI World ex US Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GlobeFlex International CAI Int’l Small Cap Style

Risk Adjusted Return Measures vs EMI World ex US IndexRankings Against CAI International Small Cap Style


(5)

0

5

10

15

20

Alpha TreynorRatio

(33)

(17)



GlobeFlexInternational 5.39 13.66

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(6)

(6)(5)



GlobeFlexInternational 0.87 0.70 0.80


GMO (GROSS)PERIOD ENDED JUNE 30, 2007

Investment PhilosophyGMO uses the reasoned combination of quantitative analysis with rigorous fundamental research to produce a

structured portfolio. Asset growth and portfolio turnover are tightly controlled to safeguard value added. The strategy uses abottom up process for both stock and country selection. It has delivered 60% value added from stock selection and 40%from country selection. GMO was hired during 3rd quarter, 2002. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsGMO (Gross)’s portfolio posted a 7.80% return for the quarter placing it in the 15 percentile of the CAIInternational Small Cap Style group for the quarter and in the 3 percentile for the last year.

GMO (Gross)’s portfolio outperformed the EMI World ex US Index by 1.86% for the quarter andoutperformed the EMI World ex US Index for the year by 8.41%.


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


A(15)B(67)(67)

A(36)B(60)(62)

A(3)

B(53)(61) A(30)

B(67)(66)

A(52)B(69)(71)

A(39)B(56)(61)

A(28)

B(77)(88)



GMO (Gross) A 7.80 16.18 40.15 30.98 33.39 27.54 17.68EMI World

ex US Value B 5.91 13.39 33.26 27.52 32.14 25.60 13.03

EMI World ex US Index 5.94 13.02 31.74 27.72 31.55 24.83 11.44


Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

GMO (Gross)


15 20 25 30 35 4010%

12%

14%

16%

18%

20%

22%

24%

GMO (Gross)

EMI World ex US Value


Standard Deviation

Ret

urns


GMO (GROSS)RETURN ANALYSIS SUMMARY




(50%)

0%

50%

100%

150%

200%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

A(36)B(60)62

A(6)B(55)48 A(78)

B(78)64B(42)A(47)64

B(46)A(78)67

A(11)B(32)50 A(2)

B(20)39B(27)A(56)59

A(69)B(89)77 B(25)

A(54)23



GMO (Gross) A 16.18 36.68 20.02 30.09 51.58 3.48 4.51 (6.89) 42.37 5.36EMI World

ex US Value B 13.39 29.01 19.70 31.26 57.27 (1.40) (9.33) (0.81) 11.41 11.12



Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

20%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GMO (Gross) GMO (Gross) EMI World ex US Value CAI Int’l Small Cap Style



(5)

0

5

10

15

20

Alpha TreynorRatio

A(17)

B(67)

A(8)

B(61)



GMO (Gross) A 6.77 16.06EMI World

ex US Value B 1.99 10.00

(0.4)(0.2)

0.00.20.40.60.81.01.21.41.6


A(1)

B(53)

A(1)

B(49)

A(2)

B(70)



GMO (Gross) A 1.25 0.82 0.95EMI World

ex US Value B 0.42 0.52 0.29


NICHOLAS-APPLEGATE INTERNATIONALPERIOD ENDED JUNE 30, 2007

Investment PhilosophyNicholas-Applegate Capital Management (NACM) believes that bottom-up stock selection focused on companies

undergoing positive fundamental change with sustainable growth characteristics and timely market recognition will resultin outstanding capital appreciation over time. The firm searches worldwide for successful growing companies managingchange advantageously and poised to exceed expectations. Nicholas-Applegate was hired during 2nd quarter, 2002. Earlierperformance is based on their composite returns.

Quarterly Summary and HighlightsNicholas-Applegate International’s portfolio posted a 16.19% return for the quarter placing it in the 1percentile of the CAI International Small Cap Style group for the quarter and in the 1 percentile for the lastyear.

Nicholas-Applegate International’s portfolio outperformed the EMI World ex US Index by 10.25% for thequarter and outperformed the EMI World ex US Index for the year by 13.19%.


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


A(1)

B(68)(67)

A(2)

B(70)(62)

A(1)

B(69)(61)A(10)

B(77)(66) A(41)

B(77)(61)

A(41)B(77)

(61)

A(64)

B(100)(88)



Nicholas-ApplegateInternational A 16.19 24.67 44.93 34.58 27.09 27.09 14.17EMI World

ex US Growth B 5.88 12.55 30.10 25.78 22.77 22.77 9.00

EMI World ex US Index 5.94 13.02 31.74 27.72 24.83 24.83 11.44


Rel

ativ

e R

etur

ns

(20%)

(10%)

0%

10%

20%

30%

40%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Nicholas-Applegate International


15 20 25 30 35 406%

8%

10%

12%

14%

16%

18%

20%

22%

24%

Nicholas-Applegate International

EMI World ex US Growth


Standard Deviation

Ret

urns


NICHOLAS-APPLEGATE INTERNATIONALRETURN ANALYSIS SUMMARY




(50%)

0%

50%

100%

150%

200%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

A(2)B(70)62

A(41)B(73)48 A(30)

B(67)64 B(77)A(80)64

B(88)A(88)67

B(69)A(92)

50 B(59)A(87)

39 B(81)A(87)

59

A(26)B(74)77 A(1)

B(19)23



Nicholas-ApplegateInternational A 24.67 31.42 28.97 24.37 49.86 (17.88) (27.58) (23.62) 69.73 23.65EMI World

ex US Growth B 12.55 26.75 21.42 26.20 50.14 (13.07) (22.71) (19.02) 35.51 13.16



Rel

ativ

e R

etur

ns

(20%)

(10%)

0%

10%

20%

30%

40%

1999 2000 2001 2002 2003 2004 2005 2006 2007

Nicholas-Applegate International Nicholas-Applegate International EMI World ex US Growth CAI Int’l Small Cap Style



(5)

0

5

10

15

20

Alpha TreynorRatio

A(63)

B(99)

A(68)

B(98)



Nicholas-ApplegateInternational A 2.84 9.56EMI World

ex US Growth B (2.51) 4.86

(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.81.0


A(76)

B(98)

A(77)B(97) A(76)

B(97)



Nicholas-ApplegateInternational A 0.20 0.42 0.19EMI World

ex US Growth B (0.56) 0.26 (0.48)


Dom

estic Fixed-Income

‘

DOMESTIC FIXED-INCOMEActive Management Overview

Active vs the IndexThe first half of 2007 ended with the Federal Open Market Committee’s decision to hold the Fed Funds rate at 5.25%.This hold on interest rates was largely expected by the markets and investors alike. Considering continued uncertaintyabout the future of core inflation, economic expansion, and impending geo-political issues, this monetary policy islikely to continue through the second half of 2007. Overall, bond yields fell from last quarter making way for a run upin the domestic equity market. The Lehman Aggregate return lagged the median Core Bond return by just 3 basispoints and both were slightly negative for the quarter. For the year ended June 30, 2007, the Lehman Aggregate andCore Bond returns are separated by just 15 basis points at 6.12% and 6.27%, respectively.

Short vs Long DurationThe second quarter of 2007 has proven to be a transition from last quarter’s slightly inverted yield curve to a morenormal curve with long-term bonds yielding slightly above those of short-term. While the yield curve was relativelyflat for most of the quarter, long-term bond yields advanced past short-term yields in the middle of June. On the whole,this late rebound was not enough to help the median Extended Maturity fund which lagged the median Intermediatefund with quarterly returns of -1.72% and -0.19%, respectively. Returns for the year ended June 30, 2007 show a morenormal correlation, with Extended Maturity ahead of Intermediate by 118 basis points.

Mortgages and High YieldAs the housing market continues to rebound from the setback in the sub-prime lending market and excess inventories,most investors believe the worst is behind us. This continued correction in the housing market led the median MortgageBacked fund to finish with a three month return of -0.46%, 4 basis points ahead of the Lehman Mortgage index returnof -0.50%. For the year ended June 30, 2007, the Lehman Mortgage index beat the median Mortgage Backed fund withreturns of 6.39% and 6.35%, respectively. The median High Yield fund posted a quarterly return of 0.49%, contributingto its twelve month return of 11.07%, the best performing style group for the year.


(3%)

(2%)

(1%)

0%

1%

2%

1.17%

ActiveCash

0.74%

Defensive

(0.19%)

Intermed

(0.49%)

CoreBond

(0.52%)

CorePlus

(1.72%)

ExtendedMaturity

(0.39%)

ActiveDuration

(0.46%)

MortgageBacked

0.49%

HighYield

Ret

urns

Lehman Universal: (0.49%)Lehman Aggregate: (0.52%)Lehman Govt/Credit: (0.49%)Lehman Mortgage: (0.50%)Lehman High Yield: 0.22%


0%

2%

4%

6%

8%

10%

12%

14%

5.39%

ActiveCash

5.52%

Defensive

5.77%

Intermed

6.27%

CoreBond

6.73%

CorePlus

6.95%

ExtendedMaturity

6.27%

ActiveDuration

6.35%

MortgageBacked

11.07%

HighYield

Ret

urns

Lehman Universal: 6.62%Lehman Aggregate: 6.12%Lehman Govt/Credit: 6.00%Lehman Mortgage: 6.39%Lehman High Yield: 11.55%


DOMESTIC FIXED COMPOSITEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyThe Domestic Fixed-Income Benchmark is currently comprised of 60% Lehman Brothers Aggregate, 30% Merrill

Lynch 1-5 Yr Govt/Corp and 10% Merrill Lynch Convertible Index, All Qualities.

Quarterly Summary and HighlightsDomestic Fixed Composite’s portfolio posted a 0.68% return for the quarter placing it in the 5 percentile of thePublic Fund - Domestic Fixed group for the quarter and in the 17 percentile for the last year.

Domestic Fixed Composite’s portfolio outperformed the Blended Benchmark by 0.44% for the quarter andoutperformed the Blended Benchmark for the year by 0.39%.

Performance vs Public Fund - Domestic Fixed

(2%)

0%

2%

4%

6%

8%

10%

12%

Last Year to Last Last 3 Last 5 Last 10 Last 18-1/4Quarter Date Year Years Years Years Years

A(5)

B(77)(13)

A(4)

B(86)

(10)

A(17)

B(76)(31)

A(6)

B(87)(73)

A(27)

B(88)(70)

A(21)B(76)(75)

B(59)A(74)

(56)

10th Percentile 0.30 1.88 7.99 5.37 6.69 6.73 9.1125th Percentile (0.22) 1.48 7.01 4.92 5.69 6.48 7.83

Median (0.37) 1.29 6.42 4.38 4.96 6.26 7.6375th Percentile (0.50) 1.05 6.13 4.08 4.60 6.04 7.2990th Percentile (0.65) 0.88 5.81 3.91 4.45 5.86 7.02

DomesticFixed Composite A 0.68 2.62 7.30 5.95 5.52 6.54 7.30

Lehman Aggregate B (0.52) 0.98 6.12 3.98 4.48 6.02 7.46



Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Domestic Fixed Composite

Public Fund - Domestic FixedAnnualized Ten Year Risk vs Return

0 2 4 6 8 104.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Blended Benchmark

Domestic Fixed Composite

Lehman Aggregate

Standard Deviation

Ret

urns


DOMESTIC FIXEDRETURN ANALYSIS SUMMARY



Performance vs Public Fund - Domestic Fixed

(5%)

0%

5%

10%

15%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

410

1237 5

938592

3546 94

738982

9489

56

1556

10th Percentile 1.88 6.72 4.30 6.91 10.18 10.82 9.12 12.66 2.45 10.3325th Percentile 1.48 5.32 3.17 5.55 6.88 10.10 8.68 12.10 0.65 9.49

Median 1.29 4.64 2.82 4.83 4.94 9.45 8.29 11.51 (0.46) 8.8075th Percentile 1.05 4.42 2.48 4.32 4.53 7.86 7.52 10.57 (1.80) 7.9990th Percentile 0.88 4.15 2.27 4.00 3.67 5.54 6.55 9.08 (2.61) 7.32

Domestic Fixed 2.62 6.53 5.51 4.13 6.47 4.36 6.57 8.59 4.43 9.90

Blended Benchmark 1.86 4.97 2.06 3.73 5.19 7.98 7.14 9.26 3.63 8.60


Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Domestic Fixed Public Fund - Dom Fixed

Risk Adjusted Return Measures vs Blended BenchmarkRankings Against Public Fund - Domestic Fixed


(2)

(1)

0

1

2

3

4

5

6

Alpha TreynorRatio

(4)

(4)



Domestic Fixed 1.32 4.50

(0.5)

0.0

0.5

1.0

1.5

2.0


(1)(1)

(11)


Median (0.09) 0.66 0.1075th Percentile (0.21) 0.62 (0.00)90th Percentile (0.27) 0.56 (0.09)

Domestic Fixed 1.09 1.34 0.30


MET WESTPERIOD ENDED JUNE 30, 2007

Investment PhilosophyMetropolitan West Asset Management (MWAM) attempts to add value by limiting duration, managing the yield

curve, rotating among bond market sectors and using proprietary quantitative valuation techniques. Metropolitan WestAsset Management was hired during 3rd quarter, 2001. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsMet West’s portfolio posted a (0.38)% return for the quarter placing it in the 27 percentile of the CAI CoreBond Plus Style group for the quarter and in the 14 percentile for the last year.

Met West’s portfolio outperformed the L/B Agg by 0.14% for the quarter and outperformed the L/B Agg forthe year by 1.30%.

Performance vs CAI Core Bond Plus Style

(4%)

(2%)

0%

2%

4%

6%

8%

10%

Last Year to Last Last 3 From 9-02 Last 5 From 9-01 Last 10Quarter Date Year Years Years Inception Years

(27)(49)

(34)(70)

(14)

(72)

(22)

(93)

(10)

(98)

(63)

(98) (89)(97)

(35)(88)

10th Percentile (0.15) 1.55 7.74 5.37 6.26 6.50 6.49 6.9625th Percentile (0.37) 1.36 7.06 5.01 5.62 5.89 5.75 6.69

Median (0.52) 1.08 6.73 4.83 5.02 5.57 5.33 6.4675th Percentile (0.65) 0.90 6.06 4.43 4.67 5.25 4.94 6.1690th Percentile (0.97) 0.59 5.49 4.21 4.37 4.92 4.70 5.99

Met West (0.38) 1.27 7.42 5.07 6.24 5.36 4.72 6.56

L/B Agg (0.52) 0.98 6.12 3.98 3.74 4.48 4.57 6.02

Relative Return vs L/B Agg

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Met West

CAI Core Bond Plus StyleAnnualized Ten Year Risk vs Return

2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.85.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Met West

L/B Agg

Standard Deviation

Ret

urns


MET WESTRETURN ANALYSIS SUMMARY




(4%)(2%)

0%2%4%6%8%

10%12%14%16%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999

(34)(70)

(3)(92)

(48)(82)

(52)(95)

(5)

(100)

(99)

(16)(44)(34)

(62)(39)

(16)(94)

10th Percentile 1.55 6.23 3.48 6.96 10.09 11.12 9.83 13.14 1.1525th Percentile 1.36 5.80 3.22 5.62 8.60 9.97 8.92 12.01 0.41

Median 1.08 5.26 2.98 5.25 7.00 8.53 8.21 11.36 (0.07)75th Percentile 0.90 4.67 2.50 5.08 5.83 7.80 7.74 10.28 (0.52)90th Percentile 0.59 4.37 2.30 4.84 5.36 5.73 7.33 9.07 (0.73)

Met West 1.27 6.36 3.03 5.23 11.49 0.91 8.27 11.06 0.90

L/B Agg 0.98 4.33 2.43 4.34 4.10 10.26 8.43 11.63 (0.82)

Rolling 12 Quarter and Quarterly Relative Return vs L/B Agg

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Met West CAI FI Core Plus Style

Risk Adjusted Return Measures vs L/B AggRankings Against CAI Core Bond Plus Style


0

1

2

3

4

5

6

Alpha TreynorRatio

(7)

(1)



Met West 1.49 4.91

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2


(61)

(57)

(67)



Met West 0.55 0.81 0.17


PIMCOPERIOD ENDED JUNE 30, 2007

Investment PhilosophyPIMCO emphasizes adding value by rotating through the major sectors of the domestic and international bond

markets. They also seek to enhance returns through duration management.

Quarterly Summary and HighlightsPIMCO’s portfolio posted a (1.31)% return for the quarter placing it in the 97 percentile of the CAI Core BondPlus Style group for the quarter and in the 94 percentile for the last year.

PIMCO’s portfolio underperformed the L/B Agg by 0.79% for the quarter and underperformed the L/B Aggfor the year by 0.72%.


(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%


(97)(49)

(99)(70)

(94)(72)

(75)(93)

(52)

(98)

(14)(88)

(8)

(98)

10th Percentile (0.15) 1.55 7.74 5.37 6.50 6.96 8.8625th Percentile (0.37) 1.36 7.06 5.01 5.89 6.69 8.27

Median (0.52) 1.08 6.73 4.83 5.57 6.46 8.1675th Percentile (0.65) 0.90 6.06 4.43 5.25 6.16 8.0690th Percentile (0.97) 0.59 5.49 4.21 4.92 5.99 7.94

PIMCO (1.31) 0.39 5.40 4.45 5.53 6.77 8.94

L/B Agg (0.52) 0.98 6.12 3.98 4.48 6.02 7.46

Relative Return vs L/B Agg

Rel

ativ

e R

etur

ns

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

PIMCO

CAI Core Bond Plus StyleAnnualized Ten Year Risk vs Return

2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.85.5%

6.0%

6.5%

7.0%

7.5%

8.0%

L/B Agg

PIMCO

Standard Deviation

Ret

urns


PIMCORETURN ANALYSIS SUMMARY




(4%)(2%)

0%2%4%6%8%

10%12%14%16%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

9970

6792 1182

1295

67100

13161834

4839

6294

537

10th Percentile 1.55 6.23 3.48 6.96 10.09 11.12 9.83 13.14 1.15 9.7225th Percentile 1.36 5.80 3.22 5.62 8.60 9.97 8.92 12.01 0.41 9.27

Median 1.08 5.26 2.98 5.25 7.00 8.53 8.21 11.36 (0.07) 8.3175th Percentile 0.90 4.67 2.50 5.08 5.83 7.80 7.74 10.28 (0.52) 7.4990th Percentile 0.59 4.37 2.30 4.84 5.36 5.73 7.33 9.07 (0.73) 7.03

PIMCO 0.39 4.83 3.38 6.15 6.31 10.72 9.20 11.39 (0.39) 9.97

L/B Agg 0.98 4.33 2.43 4.34 4.10 10.26 8.43 11.63 (0.82) 8.70

Rolling 12 Quarter and Quarterly Relative Return vs L/B Agg

Rel

ativ

e R

etur

ns

(2%)

(1%)

0%

1%

2%

3%

4%

5%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

PIMCO CAI FI Core Plus Style

Risk Adjusted Return Measures vs L/B AggRankings Against CAI Core Bond Plus Style


0.00.51.01.52.02.53.03.54.04.5

Alpha TreynorRatio

(53)

(54)



PIMCO 0.73 2.98

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2


(40)(48)

(24)



PIMCO 0.73 0.83 0.74


PYRAMISPERIOD ENDED JUNE 30, 2007

Investment Philosophy The Select Equity Market Neutral strategy is an investment approach combining active management with

quantitative risk control. They believe that intensive analysis of individual companies will identify securities that willeither outperform or underperform in the future. Pyramis was hired during 4th quarter, 2002. Earlier performance is basedon their composite returns.

Quarterly Summary and HighlightsPyramis’s portfolio posted a 3.14% return for the quarter placing it in the 1 percentile of the CAI DefensiveFixed-Inc Style group for the quarter and in the 28 percentile for the last year.

Pyramis’s portfolio outperformed the ML 1-5 Govt/Corp by 2.75% for the quarter and outperformed the ML1-5 Govt/Corp for the year by 0.08%.

Performance vs CAI Defensive Fixed-Inc Style

0%

2%

4%

6%

8%

10%

12%


A(1)

B(1)

(91)

A(1)B(1)

(84)

B(1)

A(28)(47)

A(1)

B(1)

(89)

B(1)

A(5)

(70)

B(1)

A(83)(33)

B(1)A(1)

(21)



Pyramis A 3.14 4.76 5.63 10.21 3.72 3.01 6.44Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.87 5.76 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 2.82 3.51 5.22

Relative Return vs ML 1-5 Govt/Corp

Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Pyramis

CAI Defensive Fixed-Inc StyleAnnualized Ten Year Risk vs Return

0 1 2 3 4 5 6 74.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Pyramis

Treasury Bills 90 Day + 3%

ML 1-5 Govt/Corp

Standard Deviation

Ret

urns


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMPERFORMANCE VS CAI DEFENSIVE FIXED-INC STYLE

RECENT PERIODS

Return RankingThe chart below illustrates fund rankings over various periods versus the CAI Defensive Fixed-Inc Style. The bars

represent the range of returns from the 10th percentile to the 90th percentile for each period for all funds in the CAIDefensive Fixed-Inc Style. The numbers to the right of the bar represent the percentile rankings of the funds beinganalyzed. The table below the chart details the rates of return plotted in the graph above.

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

12/2006- 6/2007 2006 2005 2004 2003

A(1)B(1)

(84)

B(1)A(1)

(95)

A(1)

B(1)

(98)B(1)

A(100)

(44)B(10)

A(100)

(17)



Pyramis A 4.76 7.17 19.58 (1.74) (10.66)Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

(5%)

0%

5%

10%

15%

20%

25%

2002 2001 2000 1999 1998

B(92)

A(99)

(5)

A(1)

B(93)(21)

A(1)

B(6)(14) B(1)

A(100)

(91)

A(1)

B(6)(10)



Pyramis A 0.63 12.21 18.77 (1.05) 11.09Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


PYRAMISPERIOD ENDED JUNE 30, 2007

Investment Philosophy The Select Equity Market Neutral strategy is an investment approach combining active management with

quantitative risk control. They believe that intensive analysis of individual companies will identify securities that willeither outperform or underperform in the future. Pyramis was hired during 4th quarter, 2002. Earlier performance is basedon their composite returns.

Quarterly Summary and HighlightsPyramis’s portfolio posted a 3.14% return for the quarter placing it in the 8 percentile of the CAI MarketNeutral Style group for the quarter and in the 49 percentile for the last year.

Pyramis’s portfolio outperformed the ML 1-5 Govt/Corp by 2.75% for the quarter and outperformed the ML1-5 Govt/Corp for the year by 0.08%.

Performance vs CAI Market Neutral Style

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%


A(8)B(26)

(78)

A(24)B(27)

(77)

B(26)

A(49)(49)

A(8)

B(28)

(78)

B(22)

A(55)(70)

B(22)

A(65)(62)

B(9)A(11)

(56)


Median 1.30 3.08 4.93 5.64 3.86 3.83 5.5175th Percentile 0.64 2.23 1.29 3.64 2.52 2.79 4.1190th Percentile (0.77) (1.38) (0.04) 2.30 0.06 0.54 2.75

Pyramis A 3.14 4.76 5.63 10.21 3.72 3.01 6.44Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.87 5.76 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 2.82 3.51 5.22


Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Pyramis

CAI Market Neutral StyleAnnualized Ten Year Risk vs Return

0 5 10 151%

2%

3%

4%

5%

6%

7%

8%

ML 1-5 Govt/Corp

Pyramis


Standard Deviation

Ret

urns


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMPERFORMANCE VS CAI MARKET NEUTRAL STYLE

RECENT PERIODS

Return RankingThe chart below illustrates fund rankings over various periods versus the CAI Market Neutral Style. The bars

represent the range of returns from the 10th percentile to the 90th percentile for each period for all funds in the CAI MarketNeutral Style. The numbers to the right of the bar represent the percentile rankings of the funds being analyzed. The tablebelow the chart details the rates of return plotted in the graph above.

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

12/2006- 6/2007 2006 2005 2004 2003

A(24)B(27)

(77)

B(34)A(49)

(73)

A(9)

B(33)

(67)B(33)

A(95)

(76)B(23)

A(96)

(25)


Median 3.08 7.08 3.80 2.65 1.5175th Percentile 2.23 3.89 0.87 1.81 (1.50)90th Percentile (1.38) 1.34 (2.01) 0.64 (7.86)

Pyramis A 4.76 7.17 19.58 (1.74) (10.66)Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2002 2001 2000 1999 1998

B(60)A(72)

(45)A(27)

B(44)(34)

A(14)

B(37)(37) B(24)

A(55)(30)

A(32)B(49)(50)


Median 7.10 6.89 5.05 (0.90) 7.7375th Percentile (0.84) 2.75 (0.04) (7.08) 0.8590th Percentile (3.92) (3.00) (4.50) (11.27) (2.68)

Pyramis A 0.63 12.21 18.77 (1.05) 11.09Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


SALUS CAPITALPERIOD ENDED JUNE 30, 2007

Investment PhilosophySalus attempts to offer superior returns to short-term Treasurys by taking long positions in undervalued stocks

while shorting corresponding positions in overvalued stocks. Salus was hired during 2nd quarter, 1998. Earlierperformance is based on their composite returns.

Quarterly Summary and HighlightsSalus Capital’s portfolio posted a 2.11% return for the quarter placing it in the 1 percentile of the CAIDefensive Fixed-Inc Style group for the quarter and in the 1 percentile for the last year.

Salus Capital’s portfolio outperformed the ML 1-5 Govt/Corp by 1.71% for the quarter and outperformed theML 1-5 Govt/Corp for the year by 4.28%.


0%

2%

4%

6%

8%

10%

12%

Last Year to Last Last 3 Last 5 From 6-98 Last 10Quarter Date Year Years Years Inception Years

A(1)B(1)

(91)

B(1)

A(1)

(84)

A(1)

B(1)

(47)

B(1)A(1)

(89)

B(1)

A(2)

(33)

B(1)

A(87)(32)

B(1)

A(4)(21)



Salus Capital A 2.11 3.22 9.83 5.99 4.94 4.52 5.58Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.76 6.63 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 3.51 4.97 5.22


Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Salus Capital


0 1 2 3 4 54.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Salus Capital


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



0%

2%

4%

6%

8%

10%

12%

14%

12/2006- 6/2007 2006 2005 2004 2003

B(1)A(1)

(84)

A(1)

B(1)

(95)

B(1)A(1)

(98)

B(1)

A(99)(44)

B(10)

A(88)

(17)



Salus A 3.22 11.49 5.31 0.60 1.95Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

(2%)

0%

2%

4%

6%

8%

10%

12%

2002 2001 2000 1999 1998

A(5)

B(92)

(5) A(76)B(93)

(21) B(6)

A(100)

(14)B(1)

A(100)

(91)

B(6)

A(99)

(10)



Salus A 7.68 8.05 2.35 (0.55) 3.58Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


SALUS CAPITALPERIOD ENDED JUNE 30, 2007

Investment PhilosophySalus attempts to offer superior returns to short-term Treasurys by taking long positions in undervalued stocks

while shorting corresponding positions in overvalued stocks. Salus was hired during 2nd quarter, 1998. Earlierperformance is based on their composite returns.

Quarterly Summary and HighlightsSalus Capital’s portfolio posted a 2.11% return for the quarter placing it in the 25 percentile of the CAI MarketNeutral Style group for the quarter and in the 15 percentile for the last year.

Salus Capital’s portfolio outperformed the ML 1-5 Govt/Corp by 1.71% for the quarter and outperformed theML 1-5 Govt/Corp for the year by 4.28%.


(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

Last Year to Last Last 3 Last 5 From 6-98 Last 10Quarter Date Year Years Years Inception Years

A(25)B(26)

(78)

B(27)A(49)

(77)

A(15)

B(26)

(49)

B(28)A(40)

(78)

B(22)A(30)

(62)

B(7)

A(51)(36)

B(9)

A(48)(56)



Salus Capital A 2.11 3.22 9.83 5.99 4.94 4.52 5.58Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.76 6.63 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 3.51 4.97 5.22


Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Salus Capital


0 5 10 151%

2%

3%

4%

5%

6%

7%

8%


Salus Capital

ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

12/2006- 6/2007 2006 2005 2004 2003

B(27)A(49)(77)

A(15)

B(34)

(73)B(33)A(41)

(67)B(33)

A(91)(76)B(23)A(43)(25)



Salus A 3.22 11.49 5.31 0.60 1.95Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2002 2001 2000 1999 1998

A(46)B(60)

(45) A(41)B(44)

(34) B(37)

A(64)

(37) B(24)

A(48)(30)

B(49)

A(70)(50)



Salus A 7.68 8.05 2.35 (0.55) 3.58Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


SSIPERIOD ENDED JUNE 30, 2007

Investment PhilosophySSI’s Investment Philosophy is built upon three key beliefs: 1) quantitative models provide the most effective

framework for identifying superior value in securities markets; 2) fundamental research is essential in the selection ofsecurities; and 3) experienced professionals add significant value to portfolio management. SSI was hired during 4thquarter, 2001. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsSSI’s portfolio posted a 0.29% return for the quarter placing it in the 93 percentile of the CAI DefensiveFixed-Inc Style group for the quarter and in the 100 percentile for the last year.

SSI’s portfolio underperformed the ML 1-5 Govt/Corp by 0.11% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 6.85%.


(4%)

(2%)

0%

2%

4%

6%

8%

10%

Last Year to Last Last 3 Last 5 Fr 12-01 Last 10Quarter Date Year Years Years Inception Years

B(1)

A(93)(91)

B(1)

A(86)(84)

B(1)

A(100)

(47)

B(1)

A(100)(89)

B(1)

A(99)

(33)

B(1)

A(99)

(25)

B(1)A(1)

(21)



SSI A 0.29 1.86 (1.30) 2.56 2.15 2.68 6.20Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.76 5.67 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 3.51 3.73 5.22


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

SSI


0 1 2 3 4 5 6 74.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

SSI


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(4%)

(2%)

0%

2%

4%

6%

8%

10%

12/2006- 6/2007 2006 2005 2004 2003

B(1)

A(86)(84)

B(1)

A(100)

(95)

A(1)B(1)

(98)

B(1)

A(100)

(44)

B(10)

A(100)

(17)



SSI A 1.86 0.17 6.19 (1.50) 1.23Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2002 2001 2000 1999 1998

A(8)

B(92)

(5) B(93)

A(100)

(21)

A(1)

B(6)(14) A(1)B(1)

(91)

A(1)

B(6)(10)



SSI A 7.04 5.21 14.59 8.04 16.08Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


SSIPERIOD ENDED JUNE 30, 2007

Investment PhilosophySSI’s Investment Philosophy is built upon three key beliefs: 1) quantitative models provide the most effective

framework for identifying superior value in securities markets; 2) fundamental research is essential in the selection ofsecurities; and 3) experienced professionals add significant value to portfolio management. SSI was hired during 4thquarter, 2001. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsSSI’s portfolio posted a 0.29% return for the quarter placing it in the 79 percentile of the CAI Market NeutralStyle group for the quarter and in the 96 percentile for the last year.

SSI’s portfolio underperformed the ML 1-5 Govt/Corp by 0.11% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 6.85%.


(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

Last Year to Last Last 3 Last 5 Fr 12-01 Last 10Quarter Date Year Years Years Inception Years

B(26)

A(79)(78)

B(27)

A(78)(77)

B(26)

A(96)

(49)B(28)

A(84)(78)

B(22)

A(78)

(62)

B(31)

A(87)(68)

B(9)A(14)

(56)



SSI A 0.29 1.86 (1.30) 2.56 2.15 2.68 6.20Treasury Bills90 Day + 3% B 2.03 4.04 8.21 6.77 5.76 5.67 6.80

ML 1-5 Govt/Corp 0.40 1.97 5.55 3.17 3.51 3.73 5.22


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

SSI


0 5 10 151%

2%

3%

4%

5%

6%

7%

8%

SSI


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

12/2006- 6/2007 2006 2005 2004 2003

B(27)A(78)(77)

B(34)

A(94)

(73)A(32)B(33)

(67)B(33)

A(95)(76)

B(23)A(52)

(25)



SSI A 1.86 0.17 6.19 (1.50) 1.23Treasury Bills90 Day + 3% B 4.04 7.85 6.07 4.33 4.15

ML 1-5 Govt/Corp 1.97 4.26 1.43 1.76 3.30

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2002 2001 2000 1999 1998

A(51)B(60)

(45) B(44)A(67)

(34)

A(24)

B(37)(37) A(21)B(24)

(30)

A(10)

B(49)(50)



SSI A 7.04 5.21 14.59 8.04 16.08Treasury Bills90 Day + 3% B 4.78 7.42 9.18 7.85 8.25

ML 1-5 Govt/Corp 7.91 8.98 8.87 2.19 7.69


NICHOLAS-APPLEGATEPERIOD ENDED JUNE 30, 2007

Investment PhilosophyIn its Growth and Income Convertible product, Nicholas-Applegate identifies growth companies with significant

return potential. As the portfolio’s performance is driven primarily by the returns of the underlying securities, the securityselection focus is on companies with earnings acceleration, sustainable growth and positive price momemtum. TheConvertible Benchmark is comprised of the First Boston Convertible Index through 12/31/04, and the Merrill LynchConvertible Index, All Qualities thereafter.

Quarterly Summary and HighlightsNicholas-Applegate’s portfolio posted a 5.99% return for the quarter placing it in the 27 percentile of the CAIConvertible Bonds Database group for the quarter and in the 11 percentile for the last year.

Nicholas-Applegate’s portfolio outperformed the Convertible Benchmark by 1.64% for the quarter andoutperformed the Convertible Benchmark for the year by 4.45%.

Performance vs CAI Convertible Bonds Database

0%

5%

10%

15%

20%

25%


(27)(64)

(8)

(64)

(11)

(31)

(8)

(72)

(17)

(46) (28)

(88)

(27)

(89)



Nicholas-Applegate 5.99 11.16 19.83 13.23 12.98 10.94 12.25

Convertible Benchmark 4.35 6.90 15.38 8.34 10.88 7.91 8.77

Relative Return vs Convertible Benchmark

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Nicholas-Applegate

CAI Convertible Bonds DatabaseAnnualized Ten Year Risk vs Return

8 10 12 14 16 18 207%

8%

9%

10%

11%

12%

13%

14%

15%

16%

Nicholas-Applegate

Convertible Benchmark

Standard Deviation

Ret

urns


NICHOLAS-APPLEGATERETURN ANALYSIS SUMMARY



Performance vs CAI Convertible Bonds Database

(40%)(20%)

0%20%40%60%80%

100%120%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

864 1719 8881260

2121

8565 9063 6986

25296

69

10th Percentile 10.27 14.13 7.60 12.35 33.57 5.50 14.91 14.09 90.80 19.9025th Percentile 7.65 12.19 5.26 9.18 27.38 (2.67) 5.83 9.19 51.09 14.67

Median 7.31 11.01 3.97 7.44 20.21 (6.47) (2.54) 0.97 24.45 10.4175th Percentile 5.91 9.91 1.54 5.28 14.66 (9.67) (8.73) (3.62) 13.38 6.0290th Percentile 5.48 7.83 (0.01) 3.73 9.40 (17.17) (15.03) (15.87) 5.66 0.04

Nicholas-Applegate 11.16 13.58 8.44 11.71 28.09 (13.03) (14.86) (1.71) 49.84 20.93

Convertible Benchmark 6.90 12.83 1.01 6.92 27.99 (8.13) (6.46) (7.83) 42.27 6.56

Rolling 12 Quarter and Quarterly Relative Return vs Convertible Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Nicholas-Applegate CAI Convertible Bond DB

Risk Adjusted Return Measures vs Convertible BenchmarkRankings Against CAI Convertible Bonds Database


(2)

0

2

4

6

8

10

12

14

Alpha TreynorRatio

(42)

(53)



Nicholas-Applegate 2.85 6.84

(0.4)(0.2)

0.00.20.40.60.81.01.21.41.6


(49)(54)

(23)



Nicholas-Applegate 0.55 0.42 0.56


International

‘

Fixed-Income

‘

INTERNATIONAL FIXED-INCOMEActive Management Overview

Active vs. the IndexIn the second quarter of 2007, the International Fixed-Income market produced mostly negative returns across theboard. The U.S. housing market showed continued weakness, while the dollar spiraled downward versus the euro, andthe yen strengthened against the euro from a near record low. Australian and New Zealand dollars also rose. Despiteconcerns of inflation failing to moderate, the Fed left interest rates unchanged at 5.25%. Emerging-market economiesmoved surplus currency reserves out of the bond market. The median Non-U.S. Fixed-Income fund returned -1.68%,lagging the Citi Non-U.S. Hedged Index return of -0.93%, but performing better than the Citi Non-US GovernmentIndex return of -1.84%. The median Global Fixed-Income fund returned -1.02%, besting the Citi World GovernmentIndex return of -1.54%. For the last twelve months, the median Global Fixed-Income fund outperformed its index by 47basis points, 3.33% versus 2.86%.

Emerging MarketsThe median Emerging Debt fund (0.25%) underperformed its index (3.74%) by 349 basis points in the second quarter of2007. In an effort to prevent their currencies from appreciating too rapidly against the U.S. dollar, Asian central bankshave invested their surplus reserves in U.S. Treasuries. Developing economies such as China are beginning to diversifyout of bonds. The money is flowing into equity and other higher returning asset classes such as commodities and realestate. For the year ended June 30, 2007, the median Emerging Debt fund returned 15.71%, which lagged the indexreturn of 16.34%.


(2.5%)

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

(1.68%)

Non-USFixed-Income

(1.02%)

GlobalFixed-Income

0.25%

Emerging Debt

(0.49%)

DomesticCore Bond

Ret

urns

Citi World Govt: (1.54%)Citi Non-US Govt: (1.84%)Citi Non-US Hedged: (0.93%)JP Morgan Emerging Mkt: 3.74%


0%

5%

10%

15%

20%

2.37%

Non-USFixed-Income

3.33%

GlobalFixed-Income

15.71%

Emerging Debt

6.27%

DomesticCore Bond

Ret

urns

Citi World Govt: 2.86%Citi Non-US Govt: 2.20%Citi Non-US Hedged: 4.02%JP Morgan Emerging Mkt: 16.34%


ROGGE INTERNATIONALPERIOD ENDED JUNE 30, 2007

Investment PhilosophyRogge believes that early identification of opportunities can be achieved through relative value analysis across

countries. Their process is based on long term financial and economic trends and their implications for bond and currencymarkets.

Quarterly Summary and HighlightsRogge International’s portfolio posted a (1.08)% return for the quarter placing it in the 26 percentile of the CAINon-U.S. Fixed-Inc Style group for the quarter and in the 35 percentile for the last year.

Rogge International’s portfolio outperformed the Citi Non-US Gvt Bd Idx by 0.76% for the quarter andoutperformed the Citi Non-US Gvt Bd Idx for the year by 0.53%.

Performance vs CAI Non-U.S. Fixed-Inc Style

(4%)

(2%)

0%

2%

4%

6%

8%

10%


(26)(63)

(34)(53)

(35)(59)

(22)(52)

(29)

(68)

(37)(80)

(36)(97)

10th Percentile (0.38) 0.78 5.11 5.38 8.63 6.49 6.7925th Percentile (1.05) 0.07 3.42 3.82 8.24 5.96 6.25

Median (1.68) (0.67) 2.37 3.36 7.29 5.32 5.2575th Percentile (2.09) (0.96) 1.87 2.80 6.88 5.01 4.9590th Percentile (2.31) (1.43) 0.82 2.46 6.57 4.85 4.85

Rogge International (1.08) (0.32) 2.72 3.99 7.82 5.59 5.50

Citi Non-US Gvt Bd Idx (1.84) (0.77) 2.20 3.26 6.91 4.95 4.70

Relative Return vs Citi Non-US Gvt Bd Idx

Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

Rogge International

CAI Non-U.S. Fixed-Inc StyleAnnualized Ten Year Risk vs Return

8.8 9.0 9.2 9.4 9.6 9.84.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Rogge International

Citi Non-US Gvt Bd Idx

Standard Deviation

Ret

urns


ROGGE INTERNATIONALRETURN ANALYSIS SUMMARY



Performance vs CAI Non-U.S. Fixed-Inc Style

(20%)

(10%)

0%

10%

20%

30%

40%

12/06- 6/07 2006 2005 2004 2003 2002 2001 2000 1999 1998

34537542

3462

1368

23883065

9268 57817214

641

10th Percentile 0.78 9.60 (7.83) 14.86 23.21 25.99 (0.84) 0.15 (4.28) 21.4625th Percentile 0.07 7.18 (8.22) 13.07 20.65 23.63 (1.85) (1.27) (5.88) 19.64

Median (0.67) 6.71 (8.83) 12.47 20.03 22.22 (2.94) (2.06) (7.05) 17.6375th Percentile (0.96) 6.04 (9.36) 11.78 19.30 21.24 (3.66) (2.25) (8.33) 15.8590th Percentile (1.43) 4.40 (10.09) 10.54 18.46 19.41 (4.82) (3.25) (11.02) 10.12

Rogge International (0.32) 6.04 (8.53) 13.94 20.71 23.05 (5.41) (2.11) (8.23) 23.71

Citi Non-US Gvt Bd Idx (0.77) 6.95 (9.21) 12.14 18.52 21.99 (3.54) (2.63) (5.07) 17.79

Rolling 12 Quarter and Quarterly Relative Return vs Citi Non-US Gvt Bd Idx

Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Rogge International CAI Non-U.S. F-I Style

Risk Adjusted Return Measures vs Citi Non-US Gvt Bd IdxRankings Against CAI Non-U.S. Fixed-Inc Style


(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Alpha TreynorRatio

(38)

(38)



Rogge International 0.62 1.75

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(30)(37)

(29)



Rogge International 0.30 0.19 0.31


Real E

state

‘

TOTAL REAL ESTATEPERIOD ENDED MARCH 31, 2007

Investment PhilosophyThe Total Real Estate Benchmark is currently comprised of 75% NCREIF Property Index and 25% Wilshire REIT

Index.

Quarterly Summary and HighlightsTotal Real Estate’s portfolio posted a 3.17% return for the quarter placing it in the 43 percentile of the TotalReal Estate DB group for the quarter and in the 39 percentile for the last year.

Total Real Estate’s portfolio underperformed the Real Estate Benchmark by 0.48% for the quarter andoutperformed the Real Estate Benchmark for the year by 0.75%.

Performance vs Total Real Estate DB

0%

10%

20%

30%

40%

50%

60%

Year to Last Last 3 Last 5 Last 10 From 3-89Date Year Years Years Years Inception

(43)(32)

(39)(42)

(27)(38) (15)

(32) (22)(51)

(22)(49)



Total Real Estate 3.17 18.70 21.96 19.87 14.87 11.29

Real Estate Benchmark 3.65 17.95 18.94 15.44 12.80 8.86

Relative Return vs Real Estate Benchmark

Rel

ativ

e R

etur

ns

(5%)

0%

5%

10%

97 1998 1999 2000 2001 2002 2003 2004 2005 200607

Total Real Estate

Total Real Estate DBAnnualized Ten Year Risk vs Return

0 10 20 30 40 500%

5%

10%

15%

20%

25%

30%

35%

Real Estate Benchmark

Total Real Estate

Standard Deviation

Ret

urns


PRIVATE REAL ESTATEPERIOD ENDED MARCH 31, 2007

Investment PhilosophyThe Private Real Estate Composite consists of BlackRock Realty, Cornerstone Hotel, INVESCO, INVESCO

Enhanced, RREEF Funds, and U.S. Realty.

Quarterly Summary and HighlightsPrivate Real Estate’s portfolio posted a 2.98% return for the quarter placing it in the 44 percentile of the TotalReal Estate DB group for the quarter and in the 50 percentile for the last year.

Private Real Estate’s portfolio underperformed the NCREIF Total Index by 0.64% for the quarter andunderperformed the NCREIF Total Index for the year by 1.02%.

Performance vs Total Real Estate DB

0%

10%

20%

30%

40%

50%

60%

Year to Last Last 3 Last 5 Last 10 Fr 12-90Date Year Years Years Years Inception

(44)(33)

(50)(48)(37)

(48) (27)(41) (32)(47)

(36)(53)



Private Real Estate 2.98 15.57 19.85 16.26 13.72 10.38

NCREIF Total Index 3.62 16.59 17.42 13.73 12.86 8.85

Relative Return vs NCREIF Total Index

Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

97 1998 1999 2000 2001 2002 2003 2004 2005 200607

Private Real Estate

Total Real Estate DBAnnualized Ten Year Risk vs Return

0 10 20 30 40 500%

5%

10%

15%

20%

25%

30%

35%

Private Real Estate

NCREIF Total Index

Standard Deviation

Ret

urns


RREEF REITPERIOD ENDED JUNE 30, 2007

Investment PhilosophyRREEF Securities’ philosophy is to maximize returns to clients by investing in a select number of real estate

securities with strong cash flow growth potential and, therefore, the capacity for sustained dividend increases. They seek touncover hidden value or earnings surprises by understanding the companies’ existing portfolios and potential to acquire ordevelop assets under attractive terms.

Quarterly Summary and HighlightsRREEF REIT’s portfolio posted a (8.47)% return for the quarter placing it in the 34 percentile of the CAI RealEstate-REIT DB group for the quarter and in the 6 percentile for the last year.

RREEF REIT’s portfolio outperformed the Dow Jones Wilshire REIT by 0.89% for the quarter andoutperformed the Dow Jones Wilshire REIT for the year by 4.37%.

Performance vs CAI Real Estate-REIT DB

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%


(34)(71)

(38)(59)

(6)

(63)

(29)(68) (21)

(79)

(19)(79)

(27)(83)

10th Percentile (7.29) (4.05) 15.11 25.47 22.71 17.01 18.7325th Percentile (8.33) (4.85) 13.99 24.40 21.91 16.04 17.83

Median (8.87) (5.69) 12.24 23.30 20.63 15.66 16.7975th Percentile (9.79) (6.93) 11.08 21.56 19.64 14.01 15.7590th Percentile (10.18) (8.08) 9.86 19.95 17.70 13.15 14.31

RREEF REIT (8.47) (5.24) 16.05 24.14 22.09 16.18 17.81

Dow JonesWilshire REIT (9.36) (5.97) 11.68 22.26 19.24 13.91 15.42

Relative Return vs Dow Jones Wilshire REIT

Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

97 1998 1999 2000 2001 2002 2003 2004 2005 2006 07

RREEF REIT

CAI Real Estate-REIT DBAnnualized Ten Year Risk vs Return

12 14 16 18 20 2211%

12%

13%

14%

15%

16%

17%

18%

19%

20%

RREEF REIT

Dow Jones Wilshire REIT

Standard Deviation

Ret

urns


Appendix

‘

Callan Associates Inc. Public Fund Database

June 2007 * Callan's Public Fund Database is represented by both Callan and non-Callan clients. Certain information in the database is received from other database sources.

Air Force Village West Alabama PACT Trust Fund Alameda Contra Costa Transit District Alameda County Emp. Ret. System Alaska Permanent Fund Alaska State - Judicial Pension Alaska State - Military Pension Alaska State - Public Employees Ret. Alaska State - Teachers Ret. Plan Anchorage Police & Fire Department Arizona State Retirement System Arkansas - Judicial Arkansas PERS Arkansas State Police Retirement System Aurora General Employees’ Ret. Plan Baltimore Elected Officials’ System Baltimore Employee Retirement System California Public Employees’ Ret System Charlotte Firefighters Ret. System City of Clearwater Employees’ Pension Fund City of Fort Pierce City of Tulsa City of Valdez City of Wyoming City Sanitation District of Orange County Clayton County Public Employees Colorado Fire & Police D.C. Retirement Board Dekalb County Denver Employees’ Retirement Denver Public School Ret. System East Pacific Investment Company Employees’ Retirement System of Jersey City Fulton County (GA) Employees’ Ret. System Georgia Interlocal Risk Mgmt. Agency Georgia Municipal EBS GMA Workers’ Compensation Fund Gwinnett Retirement System (Georgia) Gwinnett County Pension Plan Harris County Hospital

Hawaii Employee Retirement System Idaho Judges Retirement System Illinois State Universities Ret. System Illinois Teachers’ Retirement System Indiana Teachers’ Retirement Fund Kansas City Firefighters’ Pension Kern County Employees Retirement Assoc. Louisiana State Employees' Ret. System Lowry Trust Marin County Employees’ Ret. Association Missouri Local Govt. Employees’ Retirement Nevada Judicial Nevada Legislators Nevada Public Employees' Ret. System New York State Common Retirement Fund North Dakota State Investment Board NYC Employees Retirement System Orange County Public Employees’ Ret System of Idaho Public ERS of Mississippi Puerto Rico Teachers Sacramento Regional Transit – Salaried San Bernardino County Employee Retirement San Diego City Employees’ Retirement System San Diego County Employees Retirement Assoc. South Carolina Retirement System South Dakota Investment Council St. Paul Teachers' Ret. Fund Association State of Wisconsin Investment Board Texas Employees’ Retirement System TML Risk Management Pool Town of Palm Beach ERS U.S. Army NAF Employee Ret Fund University of Colorado at Boulder University of Puerto Rico Retirement System Utah State Retirement System Wichita Employees’ Retirement Board 43 Other Public Funds*

EQUITY MARKET INDICATORS

The market indicators included in this report are regarded as measures of equity or fixed-incomeperformance results. The returns shown reflect both income and capital appreciation.

Dow Jones Industrial Average is a composite of 30 major industrial companies. The index is aprice-weighted average of the issues in the index.

FRMS Universe Index is composed of all common stock issues used in the Fundamental RiskMeasurement Service (FRMS) by BARRA. The index contains about 5,700 companies and iscapitalization-weighted.

MSCI US Small + Mid Cap 2200 Index The MSCI US Small + Mid Cap 2200 Index representsthe universe of small and medium capitalization companies in the US equity market. This indextargets for inclusion 2200 companies and represents, as of October 29, 2004, approximately 27%of the capitalization of the US equity market. The MSCI Small + Mid Cap 2200 Index is theaggregation of the MSCI US Small Cap 1750 and Mid Cap 450 Indices.

New York Stock Exchange Index is composed of all common stock issues listed on the NewYork Stock Exchange. The index is capitalization-weighted.

Russell 1000 Growth measures the performance of those Russell 1000 companies with higherprice-to-book ratios and higher forecasted growth values.

Russell 1000 Value measures the performance of those Russell 1000 companies with lowerprice-to-book ratios and lower forecasted growth values.

Russell 2000 Growth contains those Russell 2000 securities with a greater than average growthorientation. Securities in this index tend to exhibit higher price-to-book and price-earning ratios,lower dividend yields and higher forecasted growth values than the Value universe.

Russell 2000 Value contains those Russell 2000 securities with a less than average growthorientation. Securities in this index tend to exhibit lower price-to-book and price-earning ratios,higher dividend yields and lower forecasted growth values than the Growth universe.

Russell Mid Cap Growth measures the performance of those Russell Mid Cap Companies withhigher price-to-book ratios and higher forecasted growth values. The stocks are also members ofthe Russell 1000 Growth Index.

Standard & Poor’s 500 Index is designed to measure performance of the broad domesticeconomy through changes in the aggregate market value of 500 stocks representing all majorindustries. The index is capitalization-weighted, with each stock weighted by its proportion of thetotal market value of all 500 issues. Thus, larger companies have a greater effect on the index.

Standard & Poor’s MidCap Index is a composite of 400 medium-capitalization, domesticcommon stocks. Stocks in this index are not included in the Standard & Poor’s 500 Index. Theindex is capitalization-weighted.

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FIXED-INCOME MARKET INDICATORS

90-Day U.S. Treasury Bills provide a measure of riskless return. The rate of return is the averageinterest rate available on the beginning of each month for a Treasury Bill maturing in ninety days.

Citigroup Government Bond Index is a composite that covers investments in all types of U.S.Government Debt outstanding. The index offers total returns on a broad base of governmentfixed-income securities with maturities of at least one year.

Citigroup Long Term High-Grade Bond Index is a composite of approximately 800 industrial,financial, and utility bonds. The issues are rated AA or AAA and have a maturity of at least 12years. The index is weighted by the outstanding principal amount of each issue.

Lehman Brothers 1-3 Year Government Index is composed of agency and Treasury securitieswith maturities of one to three years.

Lehman Brothers Aggregate Bond Index is a combination of the Mortgage Backed SecuritiesIndex and the intermediate and long-term components of the Government/Credit Bond Index.

Lehman Brothers Govt/Credit Bond Index is a composite of all publicly issued, fixed rate,non-convertible, domestic bonds. The issues are rated at least BBB, have a minimum outstandingprincipal of $100 million for U.S. Government issues or $50 million for other bonds, and have amaturity of at least one year. The index is capitalization-weighted.

Lehman Brothers Govt/Credit Intermediate Index is one of the components of theGovernment/Credit Index which includes only bonds with maturities between one to ten years.

Salomon Brothers Broad Investment-Grade Bond Index is a composite of all institutionallytraded U.S. Treasury, agency, mortgage, and corporate securities. The issues are rated BBB- orbetter, have remaining maturities of one year or longer and at least $25 million outstanding. Theindex is capitalization-weighted.

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GENERAL PRICE LEVEL MARKET INDICATORS

Consumer Price Index is a measure of the average change in prices for a fixed market basket ofgoods and services. This market basket is based on the spending patterns of urban wage earnersand clerical workers, who represent 40 percent of the total civilian population.

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INTERNATIONAL EQUITY MARKET INDICATORS

FT-Actuaries World Index is composed of at least 70% of the aggregate market value of everycountry’s domestic exchange-listed companies’ shares of stock, approximately 2400 commonstocks. The index includes only markets, companies and securities where direct holdings ofcapital by foreign nationals is permissible. The index is capitalization-weighted; includescurrency changes and is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) EAFE Index is composed of approximately1000 equity securities representing the stock exchanges of Europe, Australia, New Zealand andthe Far East. The index is capitalization-weighted and is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) Europe Index is composed of approximately600 equity securities representing the stock exchanges of 14 European countries. The index iscapitalization-weighted and is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) Japan Index is composed of approximately 270equity securities representing the stock exchanges of Japan. The index is capitalization-weightedand is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) Pacific Index is composed of approximately350 equity securities representing the stock exchanges of Japan, Hong Kong, Singapore, Malaysia,plus approximately 70 Australian and New Zealand securities. The index iscapitalization-weighted and is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) United Kingdom Index is composed ofapproximately 140 equity securities representing the stock exchanges of the United Kingdom.The index is capitalization-weighted and is expressed in terms of U.S. dollars.

Morgan Stanley Capital International (MSCI) World Index is composed of approximately1500 equity securities representing the stock exchanges of the USA, Europe, Canada, Australia,New Zealand and the Far East. The index is capitalization-weighted; includes currency changesand is expressed in terms of U.S. dollars.

Morgan Stanley Capital Intl (MSCI) Emerging Markets Free Index is composed of about 549equity securities representing the stock exchanges of 13 countries in Central Asia and the Far East,Latin America, Europe, and the Middle East. Only 20% of Korea’s market capitalization isincluded in this index. The index is market capitalization-weighted and is expressed in terms ofU.S. dollars.

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INTERNATIONAL FIXED-INCOME MARKET INDICATORS

CitiGroup Non-U.S. Dollar World Government Bond Index is composed of the CitiGroupWorld Government Bond Index excluding U.S. bonds. The index includes all fixed-rategovernment bonds in 10 countries having remaining maturities of one year or longer with amountsoutstanding of at least the equivalent of US$ 100 million. The index is capitalization-weightedand is expressed in terms of U.S. dollars.

CitiGroup UnHedged Goverment Bond Index is composed of fixed rate government bonds in11 countries (including the U.S.) having remaining maturities of one year or more with amountsoutstanding of at least the equivalent of US $100 million. The index is capitalization-weightedand is expressed in U.S. dollars.

Citigroup Global Markets Non-U.S. Dollar Hedged Government Bond Index is composed ofthe Unhedged Index with the addition of rolling one-month forward exchange contracts as hedginginstruments.

Citigroup Global Markets World Broad Investment Grade Index is composed of Governmentbonds, Eurobonds and foreign bonds rated at least AA with remaining maturities of 5 or moreyears. The index is weighted by the outstanding principal amount of each issue and is expressedin terms of U.S. dollars.

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CALLAN ASSOCIATES DATABASES

In order to provide comparative investment results for use in evaluating a fund’s performance,Callan Associates gathers rate of return data from investment managers. These data are thengrouped by type of assets managed and by the type of investment manager. Except for mutualfunds, the results are for tax-exempt fund assets. The databases, excluding mutual funds, representinvestment managers who handle over 80% of all tax-exempt fund assets.

EQUITY FUNDS

Equity funds concentrate their investments in common stocks and convertible securities. Thefunds included maintain well-diversified portfolios.

Domestic Equity Database - The Domestic Equity Database is a broad collection of activelymanaged separate account domestic equity products.

International Emerging Markets Equity - The International Emerging Market Equity Databaseconsists of all separate account international equity products that concentrate on newly emergingsecond and third world countries in the regions of the Far East, Africa, Europe, and Central andSouth America.

International Equity - Global - The Global International Equity Database consists of all activelymanaged separate account international equity that generally include U.S. equities in theirinvestment mix.

International Equity - Non-U.S. - The Non-U.S. International Equity Database consists ofseparate account international equity products that do not generally invest in U.S. equities.

FIXED-INCOME FUNDS

Fixed-Income funds concentrate their investments in bonds, preferred stocks, and money marketsecurities. The funds included maintain well-diversified portfolios.

Cash Management Funds - The Cash Management Funds Database consists of actively managedshort-term funds, money market mutual funds, and short term bank funds. These funds invest inlow-risk, highly liquid, short-term financial instruments.

Convertible Bond - Managers who invest in convertible bonds. Convertible bonds offer thedownside floor price of a "straight" bond while potentially allowing the holder to share in priceappreciation of the underlying common stock. This conversion feature makes it possible for thebondholder to convert the bond to shares of the issuer’s common stock.

Domestic Fixed-Income Database - The Domestic Fixed-Income Database is a broad collectionof separate account domestic fixed-income products.

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CALLAN ASSOCIATES DATABASES

International Emerging Markets Fixed Income - The International Emerging MarketFixed-Income Database consists of all separate account international fixed-income products thatconcentrate on newly emerging second and third world countries in the regions of the Far East,Africa, Europe, and Central and South America.

International Global Fixed-Income - The International Global Fixed-Income Database consistsof all actively managed separate account international fixed-income funds that generally includeU.S. fixed-income securities in their investment mix.

International Non-U.S. Dollar Fixed-Income - The International Non-U.S. Dollar Fixed-IncomeDatabase consists of all separate account international fixed-income funds that do not generallyinvest in U.S. fixed-income securities.

BALANCED FUNDS

Balanced funds diversify their investments among common stocks, bonds, preferred stocks andmoney market securities. The funds included maintain well-diversified equity and fixed-incomeportfolios.

Domestic Balanced Database - The Domestic Balanced Database consists of all separate accountdomestic balanced funds.

Global Balanced Database - The Global Balanced Database consists of all separate accountbalanced funds that invest in international and domestic equity and fixed-income securities.

International Balanced Database - The International Balanced Database consists of all activelymanaged separate account balanced funds that invest in international equity and internationalfixed-income securities. International Balanced managers do not generally invest in U.S.securities.

Mutual Fund Balanced Funds - The Mutual Fund Balanced Fund Database consists of open-endmutual fund balanced products.

REAL ESTATE FUNDS

Real estate funds consist of open or closed-end commingled funds. The returns are net of fees andrepresent the overall performance of commingled institutional capital invested in real estateproperties.

CAI Total Real Estate Funds - The Total Real Estate Funds Database consists of both open andclosed-end commingled funds managed by real estate firms.

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RISK/REWARD STATISTICS

The risk statistics used in this report examine performance characteristics of a manager or aportfolio relative to a benchmark (market indicator) which assumes to represent overallmovements in the asset class being considered. The main unit of analysis is the excess return,which is the portfolio return minus the return on a risk free asset (3 month T-Bill).

Alpha measures a portfolio’s return in excess of the market return adjusted for risk. It is ameasure of the manager’s contribution to performance with reference to security selection. Apositive alpha indicates that a portfolio was positively rewarded for the residual risk which wastaken for that level of market exposure.

Beta measures the sensitivity of rates of portfolio returns to movements in the market index. Aportfolio’s beta measures the expected change in return per 1% change in the return on the market. If a beta of a portfolio is 1.5, a 1 percent increase in the return on the market will result, onaverage, in a 1.5 percent increase in the return on the portfolio. The converse would also be true.

Downside Risk stems from the desire to differentiate between "good risk" (upside volatility) and"bad risk" (downside volatility). Whereas standard deviation punishes both upside and downsidevolatility, downside risk measures only the standard deviation of returns below the target. Returnsabove the target are assigned a deviation of zero. Both the frequency and magnitude ofunderperformance affect the amount of downside risk.

Excess Return Ratio is a measure of risk adjusted relative return. This ratio captures the amountof active management performance (value added relative to an index) per unit of activemanagement risk (tracking error against the index.) It is calculated by dividing the manager’sannualized cumulative excess return relative to the index by the standard deviation of theindividual quarterly excess returns. The Excess Return Ratio can be interpreted as the manager’sactive risk/reward tradeoff for diverging from the index when the index is mandated to be the"riskless" market position.

Information Ratio measures the manager’s market risk-adjusted excess return per unit of residualrisk relative to a benchmark. It is computed by dividing alpha by the residual risk over a giventime period. Assuming all other factors being equal, managers with lower residual risk achievehigher values in the information ratio. Managers with higher information ratios will add valuerelative to the benchmark more reliably and consistently.

R-Squared indicates the extent to which the variability of the portfolio returns are explained bymarket action. It can also be thought of as measuring the diversification relative to the appropriatebenchmark. An r-squared value of .75 indicates that 75% of the fluctuation in a portfolio return isexplained by market action. An r-squared of 1.0 indicates that a portfolio’s returns are entirelyrelated to the market and it is not influenced by other factors. An r-squared of zero indicates thatno relationship exists between the portfolio’s return and the market.

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RISK/REWARD STATISTICS

Relative Standard Deviation is a simple measure of a manager’s risk (volatility) relative to abenchmark. It is calculated by dividing the manager’s standard deviation of returns by thebenchmark’s standard deviation of returns. A relative standard deviation of 1.20, for example,means the manager has exhibited 20% more risk than the benchmark over that time period. Aratio of .80 would imply 20% less risk. This ratio is especially useful when analyzing the risk ofinvestment grade fixed-income products where actual historical durations are not available. Byusing this relative risk measure over rolling time periods one can illustrate the "implied" historicalduration patterns of the portfolio versus the benchmark.

Residual Portfolio Risk is the unsystematic risk of a fund, the portion of the total risk unique tothe fund (manager) itself and not related to the overall market. This reflects the "bets" which themanager places in that particular asset market. These bets may reflect emphasis in particularsectors, maturities (for bonds), or other issue specific factors which the manager considers a goodinvestment opportunity. Diversification of the portfolio will reduce or eliminate the residual riskof that portfolio.

Sharpe Ratio is a commonly used measure of risk-adjusted return. It is calculated by subtractingthe "risk-free" return (usually 3 Month Treasury Bill) from the portfolio return and dividing theresulting "excess return" by the portfolio’s risk level (standard deviation). The result is a measureof return gained per unit of risk taken.

Sortino Ratio is a downside risk-adjusted measure of value-added. It measures excess return overa benchmark divided by downside risk. The natural appeal is that it identifies value-added per unitof truly bad risk. The danger of interpretation, however, lies in these two areas: (1) the statisticalsignificance of the denominator, and (2) its reliance on the persistence of skewness in returndistributions.

Standard Deviation is a statistical measure of portfolio risk. It reflects the average deviation ofthe observations from their sample mean. Standard deviation is used as an estimate of risk since itmeasures how wide the range of returns typically is. The wider the typical range of returns, thehigher the standard deviation of returns, and the higher the portfolio risk. If returns are normallydistributed (ie. has a bell shaped curve distribution) then approximately 2/3 of the returns wouldoccur within plus or minus one standard deviation from the sample mean.

Total Portfolio Risk is a measure of the volatility of the quarterly excess returns of an asset.Total risk is composed of two measures of risk: market (non-diversifiable or systematic) risk andresidual (diversifiable or unsystematic) risk. The purpose of portfolio diversification is to reducethe residual risk of the portfolio.

Tracking Error is a statistical measure of a portfolio’s risk relative to an index. It reflects thestandard deviation of a portfolio’s individual quarterly or monthly returns from the index’sreturns. Typically, the lower the Tracking Error, the more "index-like" the portfolio.

Treynor Ratio represents the portfolio’s average excess return over a specified period divided bythe beta relative to its benchmark over that same period. This measure reflects the reward over therisk-free rate relative to the systematic risk assumed.

Note: Alpha, Total Risk, and Residual Risk are annualized.

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COMMON STOCK PORTFOLIO CHARACTERISTICS

All Portfolio Characteristics are derived by first calculating the characteristics for each security,and then calculating the weighted average of these values for the portfolio.

Cash Flow/Sales - Cash flow divided by sales. Cash flow is the cash generated by a companyafter all cash expenses, including income taxes and minority interest, but before provision fordividends. Expenses do not include non-cash expenses such as depreciation. Sales represent grosssales reduced by cash discounts, returned sales, etc.

Current Ratio - The Current Ratio is used for liquidity analysis in that it evaluates the adequacyof a firm’s cash resources relative to its cash obligations. The Current Ratio is equal to CurrentAssets divided by Current Liabilities. Current Assets are those assets of a company which arereasonably expected to be realized in cash or sold or consumed during the normal operating cycleof the business. Current Assets include cash, temporary investments, receivables, inventories, andprepaid expenses. Current Liabilities are monies owed and payable by a company, usually withinone year, deposits and advances from customers, and dividends declared but unpaid.

Debt to Capital Ratio - The Debt to Capital ratio is a measure of the level of total debt of acompany as a portion of the total capital. The Debt to Capital Ratio is equal to Total Debt dividedby Total Capital. Total Debt includes both current and long term debt. Total Capital is equal toall invested capital. The invested capital includes: 1)Total Debt; 2) the carrying value (par orstated value per share) or preferred stock; 3) the par or stated value of preferred or common stocksnot owned by the parent company; and 4) common equity, which includes common stock, capitalsurplus, and retained earnings.

Dividends/Cash Flow - The Dividend/Cash Flow ratio is a measure of the sustainability or safetyof a given dividend payment amount. Common stock dividends divided by cash flow. Thecommon stock dividends are the total dollar amount of dividends for a stock over the precedingtwelve months. Cash flow is the cash generated by a company after all cash expenses, includingincome taxes and minority interest, but before the provision for dividends.

Earnings/Sales - Earnings/Sales is a measure of a company’s profitability, specifically measuringthe relationship between the firm’s costs and its sales. The value is equal to the earnings of acompany divided by net sales. Earnings represent the income of a company after all expenses,income taxes, and minority interest, but before provisions for common and/or preferred stockdividends. Sales represent gross sales reduced by cash discounts, returned sales, etc.

Forecasted Earnings Yield - This "yield" is a forward-looking valuation measure of acompany’s common stock. It expresses the amount of earnings estimated for next year per dollarof current share price as a percentage yield. This value is calculated by dividing, for each stock,the consensus (mean) analysts’ earnings forecasts for the next year by the current share price.These earnings estimates are for recurring, non-extraordinary earnings per primary common share. The individual earnings yields (E/P) are then weighted by their respective portfolio market valuesin order to calculate a weighted average representative of the portfolio as a whole.

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Forecasted Long-Term Earnings Growth - This growth rate is a measure of a company’sexpected long-term success in generating future year-over-year earnings growth. This growth rateis a market value weighted average of the consensus (mean) analysts’ long-term earnings growthrate forecast for each company in the portfolio. The definition of long-term varies by analyst butis limited to a 3-8 year range. This value is expressed as the expected average annual growth ofearnings in percent.

Forecasted Price/Earnings Ratio - This ratio is a forward-looking valuation measure of acompany’s common stock. It encapsulates the amount of earnings estimated for next year perdollar of current share price. This value is calculated by dividing the present stock price of eachcompany in the portfolio by the consensus (mean) analysts’ earnings forecasts for the next year.These earnings estimates are for recurring, non-extraordinary earnings per primary common share.

Growth in Assets - This value represents a weighted average five year annual growth rate ofassets per common stock share. The rates of growth in assets for trailing twelve month periods arecalculated using the assets-per-share values for each time period. The five-year growth in assetsfigure is calculated for each security in a portfolio. From these individual values, a weightedaverage value is calculated for the portfolio. The number of shares in each time period is adjustedto reflect any splits, mergers, or other capital changes. Total Assets includes the sum of current,non-current, and intangible assets.

Growth in Book Value - This value represents a weighted average five year annual growth rate ofbook value per common stock share. The rates of growth in book value for trailing twelve monthperiods are calculated using the book value-per-share values for each time period. The five-yeargrowth in book value figure is calculated for each security in a portfolio. From these individualvalues, a weighted average value is calculated for the portfolio. The number of shares in eachtime period is adjusted to reflect any splits, mergers, or other capital changes. Total Book Value isthe sum of the common stock outstanding, capital surplus, and retained earnings.

Growth in Cash Flows - This value represents a weighted average five year annual growth rate ofcash flow per common stock share. The rates of growth in cash flow for trailing twelve monthperiods are calculated using the cash flow-per-share values for each time period. The five-yeargrowth in cash flow figure is calculated for each security in a portfolio. From these individualvalues, a weighted average value is calculated for the portfolio. The number of shares in eachtime period is adjusted to reflect any splits, mergers, or other capital changes. Cash flow is thecash generated by a company after all cash expenses, including income taxes and minorityinterest, but before provision for dividends. In this case, common shares are the shares used tocalculate primary earnings per share. Primary earnings per share are earnings per share that arenot diluted, because it is assumed that securities that are convertible into equities are notconverted.

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Growth in Sales - This value represents a weighted average five year annual growth rate of salesper common stock share. The rates of growth in sales for trailing twelve month periods arecalculated using the sales-per-share values for each time period. The five-year growth in salesfigure is calculated for each security in a portfolio. From these individual values, a weightedaverage value is calculated for the portfolio. The number of shares in each time period is adjustedto reflect any splits, mergers, or other capital changes. Sales represent gross sales reduced by cashdiscounts, return sales, etc. In this case, common shares are the shares used to calculate primaryearnings per share. Primary earnings per share are earnings per share that are not diluted, becauseit is assumed that securities that are convertible into equities are not converted.

Interest/Pretax Earnings - This value is used as a measure of the ability of a company to meetinterest payments out of earnings. The ratio is equal to the interest expense divided by earnings.Earnings are the value before: 1) interest expense, the expense of securing both short andlong-term debt; 2) state, federal, and foreign taxes; 3) extraordinary items and discontinuedoperation; 4) provision for common and preferred dividends; and 5) minority interests, which isthat portion of the consolidated subsidiary income applicable to common stock not owned by theparent company.

MSCI Combined Z-Score is a holdings-based measure of the "growthyness" or "valueyness" ofan individual stock or portfolio of stocks based on fundamental financial ratio analysis. TheCombined Z-Score is the difference between the MSCI Growth Z-Score and the MSCI ValueZ-Score (Growth-Value). The underlying Growth Z-Score is an aggregate score based on 5financial fundamentals: Long Term Forward Earnings Growth, Short Term Forward EarningsGrowth, Current Internal Growth Rate, Long Term Historical Earnings Growth and Long TermHistorical Sales Growth. The underlying Value Z-Score is an aggregate score based on 3 financialfundamentals: Price/Book, Price/Forward Earnings, and Dividend Yield. The MSCI CombinedZ-Score usually ranges between +2 and -2. A significantly positive Combined Z-Score impliessignificant portfolio "growthyness". A Combined Z-Score close to 0.0 (positive or negative)implies "core-like" characteristics, and a significantly negative Combined Z-Score impliesportfolio "valueyness".

MSCI Growth Z-Score is a holdings-based measure of the "growthyness" of an individual stockor portfolio of stocks based on fundamental financial ratio analysis. The Growth Z-Score is anaggregate score based on the growth scores of 5 separate financial fundamentals: Long TermForward Earnings Growth, Short Term Forward Earnings Growth, Current Internal Growth (ROE* (1-payout ratio)), Long Term Historical Earnings Growth and Long Term Historical SalesGrowth. The MSCI Growth Z-Score usually ranges between +3 and -3. A significantly positiveGrowth Z-Score implies significant "growthyness" in the stock or portfolio. A Growth Z-Scoreclose to 0.0 (positive or negative) implies "core-like" style characteristics, and a significantlynegative Growth Z-Score implies more "valueyness" in the stock or portfolio (although the MSCIValue Z-Score should be used to confirm this).

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MSCI Value Z-Score is a holdings-based measure of the "valueyness" of an individual stock orportfolio of stocks based on fundamental financial ratio analysis. The Value Z-Score is anaggregate score based on the value scores of 3 separate financial fundamentals: Price/Book,Price/Forward Earnings, and Dividend Yield. The MSCI Value Z-Score usually ranges between+3 and -3. A significantly positive Value Z-Score implies significant "valueyness" in the stock orportfolio. A Value Z-Score close to 0.0 (positive or negative) implies "core-like" stylecharacteristics, and a significantly negative Value Z-Score implies more "growthyness" in thestock or portfolio (although the MSCI Growth Z-Score should be used to confirm this).

Market Capitalization (weighted median) - The weighted median market cap is the point atwhich half of the market value of the portfolio is invested in stocks with a greater market cap, andconsequently the other half is invested in stocks with a lower market cap.

Payout Ratio - The Payout Ratio describes the portion of earnings over a twelve month periodthat is paid out as dividends and addresses the sustainability of a given dividend level. The ratio isequal to ex-dividends per share divided by fully diluted earnings per share, excludingextraordinary items and discontinued operations. Ex-dividend implies that the dividend isdeclared but not paid and that a buyer of a stock after an ex-dividend does not receive thedividend. Fully diluted earnings per share are earnings that are reduced or diluted, by assumingthe conversion of all securities that are convertible into equities.

Plant and Equipment/Assets - This ratio shows the portion of Total Assets that consists ofcapital goods permanently employed in the business of a company. The ratio is equal to the bookvalue of gross plant and equipment assets divided by the total assets. Plant and equipmentincludes land, buildings, machinery, and any other equipment permanently employed in thebusiness of a company. Total assets includes the sum of all current, non-current, and intangibleassets.

R & D/Sales - Research and development expenditures divided by sales. Research anddevelopment expenses are costs that relate to the development of new products or services. Salesrepresent gross sales reduced by cash discounts, returned sales, etc.

S & P Rating - This is the Standard and Poor’s market weighted average rating of all of the ratedsecurities in the portfolio. Stock ratings are intended to provide an objective measure of the riskof a company in terms of the perceived level of stability in earnings and dividends. Securitieswhich are not rated by Standard and Poor’s are excluded from the weighted average rating.

Sales - Equal to gross sales and earnings from interest, dividends, and rents. Gross sales is theamount of actual billings to customers for delivery of products and services in exchange for cash,a promise to pay, or a money equivalent, reduced by returns, allowances, and discounts. Earningsfrom interest, dividends, and rents is net of transaction costs.

Total Assets - Everything a company owns or is due. Includes all current, non-current, andintangible assets. Current assets include cash, temporary investments, receivables, inventories,and prepaid expenses. Non-current assets include fixed assets such as buildings and machinery.Intangible assets include such items as patents and goodwill.

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Value of Holdings - This represents the total market value of all the securities in the portfolio,computed as the sum of the products of the closing value per share and the number of shares ofeach security held in the portfolio.

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FIXED-INCOME PORTFOLIO CHARACTERISTICS

All Portfolio Characteristics are derived by first calculating the characteristics for each security,and then calculating the market value weighted average of these values for the portfolio.

Allocation by Sector - Sector allocation is one of the tools which managers often use to add valuewithout impacting the duration of the portfolio. The sector weights exhibit can be used to contrasta portfolio’s weights with those of the index to identify any significant sector bets.

Average Coupon - The average coupon is the market value weighted average coupon of allsecurities in the portfolio. The total portfolio coupon payments per year are divided by the totalportfolio par value.

Average Moody’s Rating for Total Portfolio - A measure of the credit quality as determined bythe individual security ratings. The ratings for each security, from Moody’s Investor Service, arecompiled into a composite rating for the whole portfolio. Quality symbols range from Aaa+(highest investment quality - lowest credit risk) to C (lowest investment quality - highest creditrisk).

Average Option Adjusted (Effective) Convexity - Convexity is a measure of the portfolio’sexposure to interest rate risk. It is a measure of how much the duration of the portfolio willchange given a change in interest rates. Generally, securities with negative convexities areconsidered to be risky in that changes in interest rates will result in disadvantageous changes induration. When a security’s duration changes it indicates that the stream of expected futurecash-flows has changed, generally having a significant impact on the value of the security. Theoption adjusted convexity for each security in the portfolio is calculated using models developedby Lehman Brothers and Salomon Brothers which determine the expected stream of cash-flowsfor the security based on various interest rate scenarios. Expected cash-flows take into accountany put or call options embedded in the security, any expected sinking-fund paydowns or anyexpected mortgage principal prepayments.

Average Option Adjusted (Effective) Duration - Duration is one measure of the portfolio’sexposure to interest rate risk. Generally, the higher a portfolio’s duration, the more that its valuewill change in response to interest rate changes. The option adjusted duration for each security inthe portfolio is calculated using models developed by Lehman Brothers and Salomon Brotherswhich determine the expected stream of cash-flows for the security based on various interest ratescenarios. Expected cash-flows take into account any put or call options embedded in the security,any expected sinking-fund paydowns or any expected mortgage principal prepayments.

Average Price - The average price is equal to the portfolio market value divided by the number ofsecurities in the portfolio. Portfolios with an average price above par will tend to generate morecurrent income than those with an average price below par.

Average Years to Expected Maturity - This is a measure of the market-value-weighted averageof the years to expected maturity across all of the securities in the portfolio. Expected years tomaturity takes into account any put or call options embedded in the security, any expectedsinking-fund paydowns or any expected mortgage principal prepayments.

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FIXED-INCOME PORTFOLIO CHARACTERISTICS

Average Years to Stated Maturity - The average years to stated maturity is the market valueweighted average time to stated maturity for all securities in the portfolio. This measure does nottake into account imbedded options, sinking fund paydowns, or prepayments.

Current Yield - The current yield is the current annual income generated by the total portfoliomarket value. It is equal to the total portfolio coupon payments per year divided by the currenttotal portfolio market value.

Duration Dispersion - Duration dispersion is the market-value weighted standard deviation of theportfolio’s individual security durations around the total portfolio duration. The higher thedispersion, the more variable the security durations relative to the total portfolio duration("barbellness"), and the smaller the dispersion, the more concentrated the holdings’ durationsaround the overall portfolio’s ("bulletness"). The purpose of this statistic is to gauge the"bulletness" or "barbellness" of a portfolio relative to its total duration and to that of its benchmarkindex.

Effective Yield - The effective yield is the actual total annualized return that would be realized ifall securities in the portfolio were held to their expected maturities. Effective yield is calculated asthe internal rate of return, using the current market value and all expected future interest andprincipal cash flows. This measure incorporates sinking fund paydowns, expected mortgageprincipal prepayments, and the exercise of any "in-the-money" imbedded put or call options.

Weighted Average Life - The weighted average life of a security is the weighted average time topayment of all remaining principal. It is calculated by multiplying each expected future principalpayment amount by the time left to the payment. This amount is then divided by the total amountof principal remaining. Weighted average life is commonly used as a measure of the investmentlife for pass-through security types for comparison to non-pass-through securities.

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EQUITY MANAGEMENT STYLE GROUPS

Aggressive Growth - Managers who invest in growth securities with significantly higherrisk/return expectations than the broader market. Sometimes makes concentrated "bets" byselecting a small number of securities or by investing in only a few specific sectors. Selects fromcompanies with market capitalizations significantly below the broader market. Invests incompanies with P/E ratios, Price-to-Book values, and Growth-in-Earnings values above thebroader market. The companies typically have zero dividends or dividend yields below thebroader market. Invests in securities which exhibit greater volatility than the broader market asmeasured by the risk statistics Beta and Standard Deviation.

Contrarian - Managers who invest in stocks that are out of favor or which have little currentmarket interest, on the premise that gain will be realized when they return to favor. Sometimesmakes concentrated "bets" by selecting a small number of securities or by investing in only a fewspecific sectors. Invests in companies with Return-on-Assets values, Return-on-Equity values,Growth-in-Earnings values, and Growth-in-Dividend values below the broader market. Choosessecurities that, due to their contrary status, do not move with the broader market, as measured by alow Beta and significant non-market risk.

Core Equity - Managers whose portfolio holdings and characteristics are similar to that of thebroader market as represented by the Standard & Poor’s 500 Index, with the objective of addingvalue over and above the index, typically from sector or issue selection. The core portfolioexhibits similar risk characteristics to the broad market as measured by low residual risk with Betaand R-Squared values close to 1.00.

Large Cap Broad - Managers who concentrate their holdings in large capitalization domesticequity regardless of style (growth, value or core). The purpose of this group is to allow acomparison with the universe of large cap equity funds without focusing on a particularinvestment style. The Large Cap Broad Style consists of the Large Cap Growth, Large Cap Valueand Large Cap Core managers, as well as large capitalization managers of undetermined style.

Large Cap Growth - Managers who invest mainly in large companies that are expected to haveabove average prospects for long-term growth in earnings and profitability. Future growthprospects take precedence over valuation levels in the stock selection process. Invests incompanies with P/E ratios, Price-to-Book values, Return-on-Assets values, Growth-in-Earningsvalues above the broader market. The companies typically have zero dividends or dividend yieldsbelow the broader market. Invests in securities which exhibit greater volatility than the broadermarket as measured by the securities’ Beta and Standard Deviation.

Large Cap Value - Managers who invest in predominantly large capitalization companiesbelieved to be currently undervalued in the general market. The companies are expected to have anear-term earnings rebound and eventual realization of expected value. Valuation issues takeprecedence over near-term earnings prospects in the stock selection process. Invests in companieswith P/E ratios, and Price-to-Book values below the broader market. Usually exhibits lower riskthan the broader market as measured by the Beta and Standard Deviation.

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Middle Capitalization - Managers who invest primarily in mid-range companies with marketcapitalizations between core equity companies and small capitalization companies. The averagemarket capitalization is approximately $7 billion. Invests in securities with greater volatility thanthe broader market as measured by the risk statistics Beta and Standard Deviation. The MiddleCapitalization Style Group consists of the Middle Capitalization Growth Equity and the MiddleCapitalization Value Equity Style Groups.

Middle Capitalization (Growth) - Managers who invest primarily in mid-range companies thatare expected to have above average prospects for long-term growth in earnings and profitability.Future growth prospects take precedence over valuation levels in the stock selection process. Theaverage market capitalization is approximately $7 billion with market capitalizations between coreequity companies and small capitalization companies. Invests in companies with P/E ratios,Price-to-Book values, and Growth-in-Earnings values above the broader market as well as themiddle capitalization market segment. Invests in securities with greater volatility than the broadermarket and the middle capitalization segment as measured by the risk statistics Beta and StandardDeviation.

Middle Capitalization (Value) - Managers who invest primarily in mid-range companiesbelieved to be currently undervalued in the general market. Valuation issues take precedence overnear-term earnings prospects in the stock selection process. The average market capitalization isapproximately $7 billion with market capitalizations between core equity companies and smallcapitalization companies. Invests in companies with P/E ratios, Return-on-Equity values, andPrice-to-Book value below the broader market and the middle capitalization segment. Invests insecurities with risk/reward profiles in the lower risk range of the medium capitalization market.

Small Capitalization - Mututal funds that invest in companies with relatively small capitalization. The average market capitalization is approximately $1.4 billion. The companies typically havezero dividends or dividend yields below the broader market. The securities exhibit greatervolatility than the broader market as measured by the risk statistics Beta and Standard Deviation.The Small Capitalization Style Group consists of the Small Capitalization (Growth) Style Groupand the Small Capitalization (Value) Style Group.

Small Capitalization - Managers who invest in companies with relatively small capitalization.The average market capitalization is approximately $1.4 billion. The companies typically havezero dividends or dividend yields below the broader market. The securities exhibit greatervolatility than the broader market as measured by the risk statistics Beta and Standard Deviation.The Small Capitalization Style Group consists of the Small Capitalization (Growth) Style Groupand the Small Capitalization (Value) Style Group.

Small Capitalization (Growth) - Managers who invest in small capitalization companies that areexpected to have above average prospects for long-term growth in earnings and profitability.Future growth prospects take precedence over valuation levels in the stock selection process.Invests in companies with P/E ratios, Price-to-Book values, and Growth-in-Earnings values abovethe broader market as well as the small capitalization market segment. The companies typicallyhave zero dividends or dividend yields below the broader market. The securities exhibit greatervolatility than the broader market as well as the small capitalization market segment as measuredby the risk statistics beta and standard deviation.

127


Small Capitalization (Value) - Mutual funds that invest in small capitalization companies that arebelieved to be currently undervalued in the general market. Valuation issues take precedence overnear-term earnings prospects in the stock selection process. The companies are expected to have anear-term earnings rebound and eventual realization of expected value. Invests in companies withP/E ratios, Return-on-Equity values, and Price-to-Book values below the broader market as well asthe small capitalization market segment. The companies typically have dividend yields in the highrange for the small capitalization market. Invests in securities with risk/reward profiles in thelower risk range of the small capitalization market.

Small Capitalization (Value) - Managers who invest in small capitalization companies that arebelieved to be currently undervalued in the general market. Valuation issues take precedence overnear-term earnings prospects in the stock selection process. The companies are expected to have anear-term earnings rebound and eventual realization of expected value. Invests in companies withP/E ratios, Return-on-Equity values, and Price-to-Book values below the broader market as well asthe small capitalization market segment. The companies typically have dividend yields in the highrange for the small capitalization market. Invests in securities with risk/reward profiles in thelower risk range of the small capitalization market.

Small/Mid Cap (Value) - Managers who invest in small to medium cap companies that arebelieved to be currently undervalued in the general market. The companies are expected to have anear-term earnings rebound and eventual realization of expected value.

Yield - Managers whose primary objective is a high current dividend yield. Invests in companieswith Price-to-Book values and Growth-in-Earnings values below the broader market. Invests insecurities with dividend yields above the broader market. Invests in securities with significantlylower volatility than the broader market as measured by the risk statistics Beta and StandardDeviation.

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FIXED-INCOME MANAGEMENT STYLE GROUPS

Active Cash - Managers whose objective is to achieve a maximum return on short-term financialinstruments through active management. The average portfolio maturity is typically less than oneyear.

Active Duration - Managers who aggressively employ interest rate anticipation in settingportfolio duration. Portfolios are actively managed so that large changes in duration are made inanticipation of interest rate changes in hopes of profiting from downward rate movements andminimizing losses from upward rate movements.

Core Bond - Managers who construct portfolios to approximate the investment results of theLehman Brothers Government/Credit Bond Index or the Lehman Brothers Aggregate Bond Indexwith a modest amount of variability in duration around the index. The objective is to achieve valueadded from sector and/or issue selection.

Core Plus Bond - Active managers whose objective is to add value by tactically allocatingsignificant portions of their portfolios among non-benchmark sectors while maintaining majorityexposure similar to the broad market.

Defensive - Managers whose objective is to minimize interest rate risk by investing predominantlyin short to intermediate term securities. The average portfolio duration is similar to the duration ofthe Merrill Lynch 1-3 Year Bond Index.

Extended Maturity - Managers whose average portfolio duration is greater than that of theLehman Brothers Government/Credit Bond Index. These portfolios exhibit risk/returncharacteristics similar to the long-bond portion of the Lehman Brothers Government/Credit Index,called the Lehman Brothers Government/Credit Long Bond Index. Variations in bond portfoliocharacteristics are made to enhance performance results. This results in an aggressive risk/returnprofile that embraces interest rate risk in search of both high yields as well as capital gains.

High Yield - Managers whose investment objective is to obtain high current income by investingprimarily in non-investment grade fixed-income securities. Due to the increased level of defaultrisk, security selection focuses on credit-risk analysis.

Intermediate - Managers whose objective is to lower interest rate risk while retaining reasonableyield levels by investing primarily in intermediate term securities. The average portfolio durationis similar to that of the duration of the Lehman Brothers Intermediate Government/Credit BondIndex.

Mortgage - Managers who invest primarily in mortgage-backed securities including agency(FHLMC, GNMA, FNMA) and private issue pass-throughs, asset-backed securities, and mortgagederivatives (REMICS/CMOs, IOs, POs). Funds may also contain a small percentage of U.S.Treasuries.

129

INTERNATIONAL EQUITY MANAGEMENT STYLE GROUPS

Bottom Up/Stock Selection - Managers who primarily emphasize stock selection over country orcurrency selection in their portfolio construction. The country selection process is mainly aby-product of the stock selection decision, or can be passively set according to the index countryweights.

Emerging Markets Equity - Managers who primarily concentrate on investments in newlyemerging second and third world countries in the regions of the Far East, Africa, Europe, andCentral and South America. These portfolios are characterized by aggressive risk/return profilesthat generate high volatility in search of high returns.

Europe - Managers who invest predominantly in the well developed stock markets of Europe.These products will exhibit risk/return profiles similar to the MSCI Europe Index.

Global Equity - Managers who invest in both foreign and domestic equity securities in varyingproportions. These products will exhibit risk/return profiles similar to the MSCI World Index.

International Growth Style Group International Growth Equity Style managers investpredominantly in companies that are expected to have above average prospects for long-termgrowth in earnings and profitability. Future growth prospects take precedence over valuationlevels in stock selection. The International Growth Equity Style group consists of broaddeveloped market mandates with incidental exposure to the emerging markets.

International Value Style Group International Value Equity Style managers investpredominantly in companies believed to be currently undervalued in the general market. Thecompanies are expected to have a near-term earnings rebound and eventual realization of expectedvalue. The International Value Equity Style group consists of broad developed market mandateswith incidental exposure to the emerging markets.

Japan - Managers who invest predominantly in the equity of companies in Japan.

Non-U.S. Equity - A broad group of managers employing various strategies to invest assets in awell-diversified portfolio of Non-US, Developed Market equity securities. This group consists ofCore International Products, Top-Down Country Selectors, Bottom-Up Security Selectors, andproducts using various mixtures of these strategies. Regional Specialists, Index Products, andEmerging Market Products are excluded.

Pacific Basin - Managers who invest predominantly in Pacific Basin equities. Countries include:Japan, Hong Kong, Singapore, Malaysia, Australia, and New Zealand. These products will exhibitrisk/return profiles similar to the MSCI Pacific Index.

Pacific Rim - Managers who invest predominantly in Pacific Basin equities excluding Japan.Countries include: Hong Kong, Singapore, Malaysia, Australia, and New Zealand. These productswill exhibit risk/return profiles similar to the MSCI Pacific ex-Japan Index.

130

INTERNATIONAL EQUITY MANAGEMENT STYLE GROUPS

Small Capitalization - Managers who invest in international companies with relatively smallcapitalizations. The companies typically have zero dividends or dividend yields below the broadermarket. The securities exhibit greater volatility than the broader market as measured by the riskstatistics Beta and Standard Deviation.

Top Down/Country Allocator - Managers who attempt to add value over an index such as theMorgan Stanley Capital International (MSCI) EAFE Index by emphasizing macroeconomicanalysis in selecting allocations in countries with above average gain prospects. Stock selectionplays a secondary role in the investment decision process, or can be passively matched to theindex stock holdings within each country.

131

INTERNATIONAL FIXED-INCOME MANAGEMENT STYLE GROUPS

Global Fixed-Income - Managers who invest in both foreign and domestic fixed-incomesecurities. These funds seek to take advantage of international currency and interest ratemovements, differing bond yields, and/or international diversification.

Non-U.S. Fixed-Income - Managers who generally invest their assets only in non-U.S.fixed-income securities. These funds seek to take advantage of international currency and interestrate movements, bond yields, and/or international diversification.

132

OTHER STYLE GROUPS

Asset Allocator - Managers who try to capitalize on the cyclical behavior of both the economyand market price trends by moving in and out of the equity market, fixed-income, and cashmarkets in anticipation of these cycles. Quantitative as well as qualitative models and inputs areused in an attempt to be heavily weighted in the most undervalued sector of the capital marketsand capitalize on those sectors forecasted to do well in the short term while avoiding those sectorsforecasted to underperform in the short term.

133

COMMON STOCK ATTRIBUTION ANALYSIS

Common Stock Attribution Analysis provides a way to evaluate the factors that contribute to anequity portfolio’s total rate of return. The rate of return for the portfolio can be broken into threecomponents: Market Return plus additional components resulting from the manager’s IndustryConcentration and Stock Selection decisions.

Market Return is the rate of return that would have been achieved if the portfolio had beeninvested in the S&P 500 index.

Industry Concentration measures the additional return produced by the difference between theportfolio’s industry sector weightings and that of the S&P 500 index. Industry Concentration iscomputed daily by multiplying this portfolio’s weighting differential by the difference between theS&P 500 sector return and the total S&P 500 return. These daily Industry Concentration figuresare accumulated to obtain a total effect by industry sector each quarter.

Stock Selection measures the additional return produced by the manager’s security selectionwithin each industry sector. Stock Selection is computed daily by multiplying the portfolio’s dailyweighting in the industry sector by the difference between the portfolio sector return and the S&P500 sector return. These daily Stock Selection figures are accumulated to obtain a total effect byindustry sector each quarter.

An evaluation of the Common Stock Attribution Analysis begins by reviewing the total portfolioIndustry Concentration and Stock Selection components for the analysis period. Specifically, thosequarters that show either an Industry Concentration component or a Stock Selection componentappreciably less than zero can be considered in greater detail through the industry sector report.

Stock Selection by industry sector shows how the decisions for each sector contribute to the totalStock Selection effect. Each portfolio sector whose return exceeds the S&P industry sector returnwill show a positive Stock Selection effect. Each portfolio sector whose return falls short of theS&P industry sector return will show a negative Stock Selection effect.

Industry Concentration by industry sector shows how the weightings in each sector contributeto the total Industry Concentration effect. Each sector whose S&P 500 industry sector returnexceeds the total S&P 500 return and where the manager’s sector commitment was overweightedwill show a positive Industry Concentration effect. Each sector whose S&P 500 industry sectorreturn falls short of the total S&P 500 return and where the manager’s sector commitment wasunderweighted will show a positive Industry Concentration effect as well.

On the other hand, each sector whose S&P 500 industry sector return exceeds the total S&P 500return and where the manager’s sector commitment was underweighted will show a negativeIndustry Concentration effect. Similarly, each sector whose S&P 500 industry sector return fallsshort of the total S&P 500 return and where the manager’s sector commitment was overweightedwill show a negative Industry Concentration effect.

134

DEFINITION OF TERMS

Mellon ACE - Active Convexity Enhancement Product.

Mellon ACE Index - A portfolio invested 70% in the Mellon Bond AssociatesGovernment/Corporate Intermediate Bond Index and 30% in Mellon ACE.

Mellon Intermediate Term Index* - A passive Index Fund managed by Mellon Bond Associatesthat replicates the Shearson Lehman Government/Corporate Intermediate Bond Index.

*Note: The return shown for this Index in the following pages represents the Lehman BrothersGovernment/Corporate Intermediate Index from 12/79 to 6/83 and the passive Index Fundmanaged by Mellon Bond Associates, as defined, after 6/83.

135

Disclosures

‘

List of Managers We Do Business With for quarter ending 06/30/07

Confidential - For Callan Client Use Only The list below represents those investment management organizations that purchased educational and/or consulting services from a division of Callan Associates as of June 30, 2007. Educational services include those provided by the Callan Investments Institute and/or the "Callan College." Consulting services include manager consulting services provided by our Institutional Consulting Group, financial intermediary consulting services provided by our Independent Adviser Group and/or consulting to a manager's retirement plan provided by our Fund Sponsor Consulting Group. Callan created a line of business in 2006, the Trust Advisory Group (TAG), which engages managers to manage assets in a commingled trust that is only available on a private placement basis to qualified large benefit plan investors. When Callan does business with managers through TAG, the Trust compensates the managers (as contrasted with the arrangements above). However, securities laws applicable to private placements prevent us from publicly listing these managers. If you require more information, please contact our Trust Advisory Group. In no way do any of these manager relationships affect the outcome or process by which any of Callan's services are conducted. Because Callan's client list of investment managers changes periodically, the information below may not reflect very recent changes that are not yet updated in our database.You are welcome to request a list of Callan's investment manager clients at any time.

Page 1 of 4

Manager Name Educational Services Consulting Services Aberdeen Asset Management YABN AMRO Asset Management (USA) LLC YABS Investment Management YAcadian Asset Management, Inc. YAffiliated Managers Group, Inc. Y YAIG Global Investment Group YAllegiant Asset Management Group Y YAllianceBernstein Y YAllianz Investor Services, LLC (fka USAllianz Investor Services, LLC) YAllstate Investments LLC YAltanes Investments, LLC YAmerican Century Investment Management YAmSouth/Investment Management Group YAnalytic Investors YAriel Capital Management, Inc. YArk Asset Management Co., Inc. Y YAtalanta Sosnoff Capital, LLC YAtlanta Capital Management Co., L.L.C. Y YAtlantic Asset Management, LLC YAXA Rosenberg Investment Management Y YBaillie Gifford International LLC (fka Baillie Gifford Overseas Ltd.) YBaird Advisors YBank of America YBarclays Global Investors YBarrow, Hanley, Mewhinney & Strauss, Inc. YBatterymarch Financial Management, Inc. YBear Stearns Asset Management Y YBel Air Investment Advisors YBNY Asset Management Y YBoston Company Asset Management, LLC (The) Y YBrandes Investment Partners, L.P. Y YBrandywine Global Investment Management, LLC Y YBrown Brothers Harriman & Company YCadence Capital Management YCapital Guardian Trust Company Y YCastleArk Management, LLC YCauseway Capital Management YCharles Schwab & Co. YChartwell Investment Partners YChicago Equity Partners, LLC YClear Bridge Advisors Y YColumbia Management Advisors, LLC Y YColumbus Circle Investors Y YCramer Rosenthal McGlynn, LLC YCrawford Investment Counsel YCredit Suisse Asset Management YDavis Advisors YDavis Hamilton Jackson & Associates YDE Shaw Investment Management, L.L.C. YDelaware Investment Advisers Y YDelta Asset Management YDenali Advisors LLC YDePrince, Race & Zollo, Inc. YDeutsche Asset Management/Deutsche Bank Y YDSM Capital Partners Y



Page 2 of 4

Manager Name Educational Services Consulting Services DuPont Capital Management YDwight Asset Management YEagle Asset Management, Inc. YEARNEST Partners, LLC YEaton Vance Management Y YEdgar Lomax Company (The) YEnhanced Inv. Technologies, LLC (INTECH) YEquinox Capital Management, LLC YEvergreen Investments Y YFayez Sarofim & Company Y YFederated Investors YFidelity Investments YFiduciary Asset Management YFifth Third Asset Management, Inc. YFirst Quadrant L.P. YFisher Investments YForstmann Leff Associates YFort Washington Investment Advisors YFortis Investments YFranklin Portfolio Associates YFranklin Templeton YFred Alger Management Co., Inc. Y YFX Concepts YGAM USA Inc. Y YGE Asset Management Y YGlobeFlex Capital, L.P. YGoldenTree Asset Management, LP YGoldman Sachs Asset Management Y YGrande-Jean Capital Management YGrantham, Mayo, Van Otterloo & Co., LLC YGraybeard Capital, LLC YGreat Lakes Advisors, Inc. YHarris Investment Management, Inc. YHartford Investment Management Co./The Hartford Y YHartford (The) YHeartland Advisors, Inc. YHenderson Global Investors YHSBC Investments (USA) Inc. Y YIndependence Investments LLC Y YING Clarion YING Investment Management Y YINVESCO Y YInvestec Asset Management YIXIS Asset Management YJanus Capital Management, LLC YJensen Investment Management YJPMorgan Asset Management YJulius Baer Investment Management Y YKelly Capital Management, LLC YKensington Investment Group YKnightsbridge Asset Management, LLC Y YLazard Asset Management Y YLehman Brothers Inc. YLoomis, Sayles & Company, L.P. Y YLord Abbett & Company Y Y



Page 3 of 4

Manager Name Educational Services Consulting Services LSV Asset Management Y YMacKay-Shields LLC Y YMarquette Asset Management YMarvin & Palmer Associates, Inc. Y YMellon Asset Management, fka Mellon Institutional Asset Management YMellon Private Wealth Management YMetropolitan Life Insurance Company YMetropolitan West Capital Management, LLC YMFS Investment Management Y YMondrian Investment Partners Limited Y YMontag & Caldwell, Inc. Y YMontgomery Street Income Securities YMorgan Stanley Investment Management Y YNewton Capital Management YNew York Life Investment Management LLC (NYLIM) Y YNicholas-Applegate Capital Management Y YNomura Asset Management U.S.A., Inc. YNorthern Trust Global Investment Services Y YNorthern Trust Value Investors YNorthRoad Capital Management LLC YNuveen Investments Institutional Services Group Y YNWQ Investment Management Company YOFI Institutional Asset Management YOld Mutual Asset Management Y YOppenheimer Capital YPacific Investment Management Company YPanAgora Asset Management YParadigm Asset Management Co., LLC Y YPax World Funds YPayden & Rygel YPeregrine Capital Management, Inc. YPinnacle West Capital Corporation YPioneer Investment Management, Inc. Y YPrincipal Global Investors Y YProvident Investment Counsel YPrudential Investment Management Y YPutnam Investments Y YPyramis Global Advisors YRCM Y YRice Hall James & Associates, LLC YRiver Road Asset Management YRiverSource Investments, LLC Y YRobeco Investment Management Y YRorer Asset Management YRosewood Management Corp. YRothschild Asset Management, Inc. Y YRREEF Funds (The) YRussell Investment Grop YSchroder Investment Management North America Inc. Y YScottish Widows Investment Partnership YSEI Investments Y YSeligman (J. & W.) & Company, Inc. Y YShenandoah Asset Management YSit Investment Associates, Inc. YSmith Group Asset Management Y



Page 4 of 4

Manager Name Educational Services Consulting Services Southeastern Asset Management, Inc. YStandish Mellon Asset Management Company YState Street Global Advisors Y YState Street Corporation YSterne Agee Asset Management YStone Harbor Investment Partners, L.P. YStratton Management YSystematic Financial Management Y YT. Rowe Price Associates, Inc. Y YTaplin, Canida & Habacht YThe Torrey Funds YThomas Weisel YThrivent Financial for Lutherans YTIAA-CREF Y YTimesSquare Capital Management, LLC YTrusco Capital Management, Inc. YTCW Asset Management Company YUBS Y YUnion Bank of California YU.S. Trust YVan Eck Absolute Return Advisers Corp. YVanguard Group, Inc. (The) YVictory Capital Management Inc. Y YWaddell & Reed Asset Management Group YWEDGE Capital Management YWellington Management Company, LLP Y YWells Capital Management YWestern Asset Management Company YWilliam Blair & Co., Inc. YZiegler Capital Management LLC Y

Callan R

esearch/Education

‘

WHITE PAPERSThe Private Equity Partnership: J-Curve and Lifecycle

Gary Robertson; Michael Bise (July 2007)

Corporate Governance, Sustainable, Activist and Socially Responsible Investing – A Practical User’s GuideClifford G. Axelson, Jr., CFA (June 2007)

Does Size Matter? Assets Under Management a Questionable CriterionGregory C. Allen (reprinted from the Journal of Portfolio Management Spring 2007 issue)

NEWSLETTERS & DATA PACKAGEDC Newsletter “Observations & Opinions:” Self-Directed Brokerage in 401(k) Plans

Summer 2007

Hedge Fund Monitor: 1st Quarter 2007

Capital Market Review: 2nd Quarter 2007

Private Markets Trends: Spring 2007

Quarterly Performance Data: 2nd Quarter 2007

SURVEYS2006 Investment Management Fee Survey (34 pages)

2007 Defined Contribution Survey (28 pages)

2007 Qualified Default Investment Alternatives Survey (14 pages)

Below is a list of recent Callan Institute research and upcoming programs. The Institute’s research

and educational programs keep clients abreast of the latest trends in the investment industry and

help clients learn through carefully structured workshops and lectures. For more information,

please contact your Callan Consultant or Gina Falsetto at 415.974.5060 or [email protected].

Callan InvestmentsInstitute

Callan Investments Institute – Second Quarter 2007

• WhitePapers

• Newsletters

• Surveys

• ResearchPresentations

• EventSummaries

• UpcomingEducationalPrograms

Research and Upcoming Programs

RESEARCH PRESENTATIONS (WITH TALKING POINTS)This research series offers a page-by-page summary of the key talking points given by Callan

experts during their PowerPoint presentations at Institute programs. The module brings a “voice”

to the presentation and offers a description of each slide’s charts, tables, graphs, and the like.

Research presentations are an invaluable tool when reviewing, understanding, and explaining the

Institute presentations you’ve attended, and imparting that knowledge to colleagues.

Alternative Investments: Feasible for DC Plans? – Fifth Annual Defined ContributionConference (April 2007)

Provider Fees: Are they Reasonable? – Fifth Annual Defined Contribution Conference(April 2007)

EVENT SUMMARIESFifth Annual Defined Contribution Conference (April 2007)

Speakers/topics: Charlie Cook; Brigitte Madrian on communication and education; plansponsor panel with Baker Hughes and Nordstrom; provider fees; alternativeinvestments for DC plans; target maturity and QDIA; and investment vehicles.

June 2007 Regional Breakfast Workshop – “Plan Regulations & Costs: What’s New,and How Does it Affect Your Plan?”

UPCOMING EDUCATIONAL PROGRAMSOctober Regional Breakfast Workshops: Topic to be announced

Atlanta, October 16, 2007New York City, October 17, 2007

If you have any questions regarding these programs, please contact Ray Combs at415.974.5060 or [email protected].

101 CALIFORNIA ST., SUITE 3500, SAN FRANCISCO, CALIFORNIA 94111 415.974.5060 FAX 415.274.3049 www.callan.com © 2007 Callan Associates Inc.

The Callan Investments

Institute, the educational

division of Callan Associates

Inc., has been a leading

educational forum for the

pensions and investments

industry since 1980.

The Institute offers continuing

education on key issues

confronting fund sponsors

and investment managers.

Please contact the Callan

Investments Institute for more

information, or visit our

website at www.callan.com.

Callan Investments Institute

Callan Investments Institute – Second Quarter 2007

PRIMARY SESSIONSOctober 15–17, 2007

Whether you have been involved in the investment decision-making process for a while andare in search of a refresher course, or are a newcomer to the industry in search of hands-ontraining, the “Callan College” will help you to better understand your role. Our instructorsinclude senior Callan consultants and investment specialists averaging 21 years ofexperience in this industry, and 11 years with our firm. Their financial knowledge andinvestment expertise is applied to addressing the following components of the investmentmanagement process:

Tuition for these sessions is $2,350 per person.

CUSTOMIZED SESSIONSA unique feature of the “Callan College” is its ability to educate on a specialized levelthrough its customized sessions. These sessions are tailored to meet the training andeducational needs of the participants, whether they are plan sponsors or those who provideservices to institutional tax-exempt plans. Past customized “Callan College” sessions havecovered topics such as: custody, industry trends, sales and marketing, client service,international, fixed income and managing the RFP process. Instruction is tailored to basicor advanced audiences.

For more information on the “Callan College,” please contact Kathleen Cunnie at415.974.5060 or [email protected].

“Callan College” – Second Quarter 2007

“Callan College”Educational Sessions

• The Role of the Fiduciary• Capital Market Theory• Asset Allocation• Manager Structure• Investment Policy• Manager Search

• Custody• Securities Lending• Transition• Brokerage• Performance Measurement

The Center for Investment

Training (“Callan College”)

provides relevant and

practical educational

opportunities to all

professionals engaged in the

investment decision making

process.

This educational forum offers

basic-to-intermediate level

instruction on all components

of the investment

management process.

101 CALIFORNIA ST., SUITE 3500, SAN FRANCISCO, CALIFORNIA 94111 415.974.5060 FAX 415.274.3049 www.callan.com © 2007 Callan Associates Inc.

Documents

Callan Associates Inc. - SDCERSthe smaller cap Russell 2000 (+4.4%) and the Russell MidCap (+5.3%). The S&P 500 rose 6.3%. Based on the Russell style indices, growth-oriented stocks