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Callan Associates Inc.Investment Measurement Service

Quarterly Review

San Diego City Employees’ Retirement SystemDecember 31, 2008

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 2009 by Callan Associates Inc.

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

Capital Markets ReviewCapital Markets Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Total FundTotal FundThree Year Asset Allocation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Asset Allocation Across Investment Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Actual vs. Target Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Performance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Cumulative Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Quarterly Total Fund Attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Cumulative Total Fund Attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Asset Class Rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Domestic EquityDomestic EquityMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Domestic Equity Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Delta Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55INTECH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57TCW Concentrated Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Dodge & Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61GlobeFlex Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63TCW MidCap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Putnam Small Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Wall Street Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Fisher Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71DFA Small Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

International EquityInternational EquityMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77International Equity Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79Brandes Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80McKinley Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82GlobeFlex Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84GMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Domestic Fixed-IncomeDomestic Fixed-IncomeMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Composite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Domestic Fixed Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92Met West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93PIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Pyramis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Salus Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101SSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105Nicholas-Applegate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

International Fixed-IncomeInternational Fixed-IncomeMarket Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112Rogge International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Real EstateReal EstateComposite Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Private Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117RREEF REITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

AppendixAppendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

DisclosuresDisclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Callan Research/EducationCallan Research/Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Executive Sum

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PERFORMANCE SUMMARY

PERIODS ENDED DECEMBER 31, 2008

2008: A Crescendo of Historic Events

At the end of the first quarter, we reflected on what then seemed like unprecedented events — the most aggressive reduction in the fed funds rate in a quarter century, direct Federal Reserve backing of JPMorgan's rescue of Bear Stearns, the largest expansion of the Federal Reserve’s powers since the Great Depression, $100/barrel oil, $1,000/ounce gold, and an all time low in the U.S. dollar versus the euro. Little did we know that these milestones were only the beginning.

The second quarter was dominated by a continued meteoric rise in commodity prices as investors attempted to capitalize on the seemingly insatiable growth in demand from developing countries. Energy, agriculture, and base metals all rallied sharply, igniting fears of slowing economic growth and rising inflation. Although commodity prices rose, consumer confidence eroded dramatically as housing prices remained locked in a downward spiral and access to credit waned. The financial system continued to be battered by balance sheet write downs as asset backed debt instruments that had padded earnings for years revealed considerable weakness.

The third quarter was certainly one for the history books. Government intervention in the capital markets was massive. In mid-July major subprime lender IndyMac Bank failed, followed by Washington Mutual and Wachovia being forcibly acquired by stronger players. Investment bank Lehman Brothers declared bankruptcy, Merrill Lynch sold itself to Bank of America, and Goldman Sachs and Morgan Stanley submitted to increased government oversight by converting to bank holding companies in exchange for access to the "Fed window." Mortgage giants Fannie Mae and Freddie Mac and insurance company AIG were all rescued by the government. At the close of the quarter, Congress was developing a $700 billion financial rescue plan ultimately approved as the Troubled Asset Recovery Plan (TARP).

While the fourth quarter arguably did not endure the tidal wave of news experienced in the third quarter, a number of significant events did occur, notably continued capital infusions into banks including the purchase of preferred stocks, a nearly $24 billion bridge loan to the ailing U.S. automakers, and another historical reduction in the fed funds rate. The Federal Reserve reduced short-term rates three times during the quarter from 2% to a "range" between 0-0.25%. Not since 1958 has the target rate been below 1%. And if continued government intervention was not enough, news of a massive and still unfolding hedge fund scandal broke in the closing weeks of the year. Former NASDAQ chief Bernard Madoff admitted his massive hedge fund was nothing more than a Ponzi scheme — a complete fraud that may be as large as $50 billion.

4Q2008: Equity Volatility

The sheer level of volatility experienced in the equity markets was unmatched by any other period in the living memory of most market participants. The CBOE Volatility Index (VIX) reached an all time intraday high of 89.5 on October 24. Putting it in perspective, previously

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peaks of just over 40 were associated with market dislocations such as the Russian debt / Long Term Capital Management crisis and the September 11 terrorist attacks. Other measures of volatility, such as the number of significant percentage changes in the market indices, also support the assertion that in recent months we have endured volatility not seen since the Great Depression. In 2008 there were 42 days on which the S&P 500 rose or fell more than 3% from the previous close. In reviewing data going back to 1950, that represents 2.5 times the previous annual high (17 days in 2002) and 21 times the average from 1950-2007. Data on the Dow Jones Industrial Average goes back to 1929 and serves to further reinforce the historic level of volatility recently endured. Since the end of the Great Depression (1934-2007) the Dow had an average of 2.7 days per year of greater than +/-3% price changes. 2008 experienced 38 such days.

2008: Investment Results

From an investment perspective, 2008 was the worst year in decades in every equity asset class detailed in the attached preliminary returns table. Fixed income fared far better, yet did little to offset the equity declines. REITs, as measured by the NAREIT Equity Index, also experienced their worst results on record in 2008. Commodities, as measured by the energy heavy S&P GSCI, fell more than during any year in the past decade yet failed to eclipse the 36% slide endured in 1998. The more broadly based DJ AIG Commodity Index fell 33%, its worst performance on record since its inception in 1992.

U.S. equity indices lost one-third to one-half of their value in 2008 with midcaps enduring the worst pain falling more than 40%. Small caps edged large caps at year end despite suffering badly in October and November. The Russell 1000 Index fell 38% while the Russell 2000 Index declined 34%.

The choice of style did little to mitigate the negative returns as value and growth performed roughly inline within the large cap space (R1G: -38.4% vs. R1V -36.8%). As one moved down the cap spectrum there was something of a divergence as value outperformed growth in midcap by about 6% (RMV: -38.4% vs. RMG: -44.3%). The spread was even wider in the small cap space with nearly 10% separating the two styles (R2V: -28.9% vs. R2G: -38.5%).

Within the GICS breakdown of the S&P 500, Financials were unsurprisingly the worst performing sector with a drop of more than 55% while Consumer Staples was the most defensive sector in 2008 with a decline of 15%.

Overseas markets suffered even more acutely when measured in U.S. dollars as the currency rallied off multiyear lows exacerbating the pain for U.S. domiciled investors. Large cap developed markets, as measured by the MSCI EAFE Index, fared best with a 43.4% drop. As was the case domestically, style had little impact overseas (EAFE Growth: -42.7%, EAFE Value: -44.1%). Developed non-US small cap could not match the outperformance of domestic small caps, falling 47%, slightly more than EAFE. Emerging markets shed more than half their value losing 53% as measured by MSCI Emerging Markets Index, by far the worst year since the benchmark's inception. Among developed countries Japan held up the best with a decline of 29% while Ireland suffered the worst in dollar terms falling an astonishing 72%. In emerging countries, Morocco performed the best sliding just 10% in dollar terms while Pakistan and Russia battled for the bottom spot with both countries falling 74%. MSCI removed Pakistan

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from the Emerging Markets Index at the end of 2008 due to deteriorating investability conditions.

Fixed income investments were something of a harbor in the tempest; however, single digit results for investment grade assets did little to mitigate the equity declines. The Barclays Capital Aggregate Bond Index (formerly Lehman Brothers) rallied sharply in November and December on strong demand for U.S. Treasuries and closed out the year with a 5.2% return. Developed non-U.S. government bonds also managed positive returns with the currency exposed version of the Citibank Non-US WGBI slightly outpacing the hedged version due to a retrace of the dollar's early rally (Citi Non-US unhedged: +10.1%, hedged: +8.0%). While investment grade securities generally performed well, single A and triple B credit and asset backed issues suffered declines. Things were even worse in high yield as credit spreads widened dramatically in 2008 and drove the Barclays Capital High Yield down by 26% despite a sharp rally in December. Widening credit spreads also impacted the market for emerging country debt and the JPM EMBI+ fell nearly 10%, a poor showing, yet better than 1994 (Mexican peso devaluation) and 1998 (Russian debt default).

4Q2008: Investment Results

The fourth quarter results were dismal across equity indices both domestically and globally. Declines were in the 20 to 30% range for most benchmarks and would have been markedly worse if it was not for a meaningful rally in late-November through year-end during which equity indices rallied 20 to 30% in some cases.

In the U.S., large cap issues performed best (Russell 1000: -22.5%, S&P 500: -21.9%) while midcap, small cap, and microcap fell further with declines of 27.4%, 26.1% and 28.1% respectively, as measured by the Russell Index series. Less than 1% separated growth and value in large and mid caps while value managed a 250 basis point outperformance in small cap (R2V: -24.9% vs. R2G: -27.4%). Sector-wise within the S&P 500, Financials fell 37% and was the worst performer of the GICS sectors. Telecommunications held up best falling just over 1% despite a major decline among wireless carriers.

Equities abroad performed remarkably similarly to domestic issues. The MSCI EAFE fell 20% and had essentially no spread between growth and value. Small caps fared worse (MSCI EAFE SC: -22.1%) and emerging markets declined the most (MSCI Emerging Markets: -27.6%). Among developed countries, Japan weathered the turmoil best (-10%) while Austria suffered the most (-43%). Country results were even more disparate in developing countries with China managing to decline just 10% while Russia's market fell by more than 51% in the quarter.

Investment grade fixed income held up fairly well, rising 4.6% as measured by the Barclays Capital Aggregate Bond Index. Overseas government debt also held up well and slightly outperformed the BC Aggregate. The Citibank Non-US WGBI rose 5.5% on a hedged basis and was up 8.8% with currency exposure as the dollar weakened in the closing weeks of the year. As one moved down the quality spectrum to asset backed securities and credits below single A, performance deteriorated significantly. The BC High Yield Cash Pay Index fell nearly 18% compared to nearly 5% for the JPMorgan EMBI+.

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Outside traditional equity and fixed income markets, performance in the fourth quarter was even worse. Declining energy, agricultural and metals prices drove commodity indices to heavy losses (DJ AIG Commodity Index: -27.4%, S&P GS Commodity Index: -34.3%). REITs, which had held up well for the first three quarters of 2008, were severely punished as weak balance sheets and short term financing needs generated great consternation among investors (NAREIT Equity Index: -38.8%).

Investors around the globe seem happy to put 2008 behind them and have 2009 start out on a positive note. However, few would argue that the challenges that embroiled financial markets in 2008 are wholly in the past and skepticism remains high as we embark on a new year. Particularly in times of uncertainty, diligent review of and adherence to a well developed investment policy remains the most prudent course for investors.

4Q08 Returns

S&P 500 -21.9% Dow Jones -18.4% NASDAQ -24.4% Russell 1000 Growth -22.8% Russell 1000 Value -22.2% Russell 2000 -26.1% MSCI EAFE -20.0% MSCI Emerging Markets -27.6% Lehman Aggregate 4.6%

Asset Allocation As of quarter end, the assets of the Fund were valued at $3,680 million. This represents a decrease of $616 million from the September 30 value. Approximately $58 million of investments were withdrawn from the fund during the quarter. In addition, the Fund experienced an investment loss of about $558 million. 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. Total Fund Performance SDCERS’ fourth quarter return of -13.0% (private real estate valuations are lagged one quarter) was ahead of the Total Fund benchmark’s -13.5% return. For the one year ended December, the System was down -26.4%, lagging the Total Fund benchmark return of -23.6% and ranking in the 62nd percentile of the public fund universe. Longer-term results for the System are very strong relative to the benchmark and the public fund universe. For the trailing ten years ended December, the Fund returned 5.0% on an annualized basis, which ranks in the 4th percentile of the public fund universe and exceeds the total fund benchmark by approximately 1% on an annualized basis.

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Domestic Equity SDCERS’ domestic equity portfolio returned -23.7%, underperforming its custom benchmark return of -23.5% and ranking 85th percentile in the public fund universe. The large capitalization managers exceeded their benchmark, due to the outperformance from INTECH and TCW. In mid cap space, poor performance from Globeflex led to underperformance of the mid cap composite. TCW had a good quarter exceeding the benchmark by nearly 1%. The small cap composite underperformed the Russell 2000 despite the above benchmark return from Putnam. For the trailing five years ended December 2008, the domestic equity composite lagged its benchmark by 42 basis points per annum and ranked in the 53rd percentile of the public fund universe. For the trailing ten year period, the portfolio has compounded at 2.0% on an annualized basis, ranking 7th percentile and outperforming its benchmark by 122 basis points. International Equity International equity markets fared no better than their domestic counterparts as the U.S. credit crisis spread to foreign markets. The MSCI All Country World ex-U.S. was down -22.3% for the quarter with emerging markets down -27.6%. The System’s international equity composite lost 19.7%, 2.9% above the target benchmark and ranking 31st percentile versus the public fund universe. For the quarter, every manager outperformed its benchmark with the exception of Globeflex (6.1% behind the benchmark ranking 96th percentile). Brandes showed the strongest performance, outperforming its benchmark by 5.3%. For the trailing year, the international portfolio returned -44.3% (outperforming the target benchmark) and ranking 63rd percentile. For the trailing five years, the portfolio returned 3.1% annually (37th percentile), 11 basis points ahead of its benchmark. For the trailing ten year period, the portfolio has compounded at 5.9%, outperforming its benchmark by 3.0% per annum and ranking in the top decile versus other public funds. Domestic Fixed Income A flight to quality within the fixed-income market led to strong performance for treasuries and widening spreads for high yield bonds and commercial mortgage-backed securities (CMBS). In an attempt to stimulate the economy, the Federal Reserve reduced the Federal Funds rate to near 0% resulting in a lowering and steepening of the yield curve to historically low levels. The overall domestic fixed income portfolio posted a negative 0.1% return, underperforming the blended benchmark of 1.8% for the period and ranking in the 73rd percentile of the public fund universe. The core plus managers had very different performance - PIMCO returned 5.6%, 1.1% ahead of the benchmark ranking 1st percentile. Met West suffered a loss of 3.4%, 7.9% behind the BC Aggregate. The convertible bond portfolio managed by Nicholas Applegate returned -14.5%, 4.2% ahead of its benchmark. All three market neutral managers exceed the T-Bills + 3% index for the quarter with Pyramis, Salus and SSI returning 3.6%, 1.3% and 1.7% respectively. For the year, the fixed-income composite returned -4.8%, trailing the benchmark by 5.3% and ranking 77th percentile. Over five years, the domestic fixed income composite has returned 4.1% per annum, outperforming the benchmark return of 3.6% and ranking in the 46th percentile in the public plan universe. International Fixed Income The international fixed income portfolio is managed by Rogge International. During the quarter, the dollar depreciated 17.1% against the Yen and appreciated 1.0% against the Euro. The Citi Non-US Government Bond Index gained 8.8% during the quarter. Rogge’s portfolio returned 6.1%, underperforming the index and ranking 93rd percentile against peers. Results for the last year lagged the benchmark by 5.0% and ranked 90th percentile. The portfolio lags the benchmark over five and ten years and ranks below the 75th percentile.

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Real Estate Given data timing issues, the returns on the private real estate assets of SDCERS are lagged one quarter. The REEF portfolio was converted from a domestic to global mandate in the third quarter. In the first full quarter of performance, the public equity portfolio returned -31.1%, ahead of EPRA/NAREIT Global Index. The portfolio was adversely impacted by the increased cost of debt capital and the fact that many properties are being priced to reflect distress. Despite a negative return of 4.6% for the quarter ended in December, the long-term returns on the real estate portfolio have been strong. The overall real estate portfolio remains one of the best performing asset class for SDCERS for the trailing five years, returning 14.5% annualized over this period. Comments on Watch List Managers Delta Asset Management – placed on watchlist for five year ranking relative to peers on 9/5/08. Delta employs a top-down process focusing on the macro environment and industry and company fundamentals. Delta returned -22.4% for the quarter underperforming the S&P 500 by 0.5%. For the quarter, performance suffered as a result of security selection in Financials. For five years ended December, the portfolio is essentially even with the benchmark but ranks 78th percentile against peers. Recommend no change to watch list status. TCW Large Cap Growth – placed on watchlist for performance on 11/20/06 and organizational change on 2/8/08. TCW’s concentrated portfolio of 25-30 stocks and lower turnover approach tends to produce a volatile return pattern. Performance for the quarter was 3.7% ahead of the index ranking 5th percentile against Callan’s Large Cap Growth Style Group. For the full year, the portfolio finished 1.9% ahead of the Russell 1000 Growth index and ranked in the 26th percentile against peers. Security selection in financials and industrials as well as an overweight to health care lead to the relative outperformance. Over three and five year periods the portfolio lags the benchmark; however, it is significantly ahead since inception. Most of the underperformance in the 3 and 5 year numbers comes from calendar year 2006. Recommend this portfolio remain on watch. Dodge & Cox Large Cap Value – placed on watchlist for performance on 12/05/08. Performance for the quarter was 13 basis points behind the index ranking 62nd percentile against Callan’s Large Cap Value Style Group. An overweight to telecommunications and holdings in AT&T and Sprint Nextel (-70%) detracted from performance. Energy holdings also detracted from performance. For the full year, the portfolio finished 4.7% behind the Russell 1000 Value index and ranked in the 85th percentile against peers. Over three and five year periods the portfolio lags the benchmark and is slightly ahead since inception. Recommend this portfolio remain on watch. TCW Mid Cap Value – placed on watchlist for performance on 11/20/06 and organizational change on 3/27/08. Over the December quarter the portfolio was down 26.2%, 96 basis points ahead of the benchmark and ranked in the 72nd percentile of Callan’s Mid Cap Value Style Group. Outperformance was attributable to security selection within financials. For the calendar year, the portfolio finished 2.0% ahead of the Russell Midcap Value index return of -38.4%, which ranked 44th percentile against peers. Over three and five year periods the portfolio lagged the benchmark by 0.1% and 3.0% respectively. Since inception the fund is behind the benchmark by 1.3% annually, ranking 76th percentile. Recommend this portfolio remain on watch. Putnam Small Cap Growth – added to watchlist on 6/6/08 for three and five year performance relative to peers. Callan supports staff’s recommendation to terminate this portfolio. A search has been initiated and it is anticipated that a new candidate will be identified in March.

6

Met West Core Plus - placed on watchlist for performance on 12/05/08. For the most recent quarter the portfolio was down 3.4%, trailing the Barclays Aggregate by 7.9% and ranking 73rd percentile in Callan’s Core Bond Plus Style Group. Underperformance was attributable to a material underweight in treasury and agency securities and overweights to CMBS, ABS and non-agency mortgage-backed securities. For the full year, the portfolio lost 7.2% compared to the 5.2% return for the index. This is the first calendar year of underperformance since 2002. Over three and five year periods the portfolio lagged the benchmark by 3.5% and 1.8% respectively. Since inception the fund is behind the benchmark by 1.7% annually, ranking 84th percentile. Recommend this portfolio remain on watch. SSI Market Neutral Equity – placed on watchlist for performance 11/20/06. The portfolio outperformed the target index of 90 day Treasury Bills plus 3% by 70 basis points with a return of 1.7% ranking 41st percentile against Market Neutral peers. For the one year period ended in December, the portfolio trailed the index return of 5.1% by 9.0% and ranked 91st percentile relative to peers. For the three year, five year and since inception periods the portfolio has significantly underperformed the benchmark and ranked in the bottom decile of its peers. Callan recommends that this portfolio be replaced and that staff initiate a search. Rogge International Fixed Income – placed on watchlist for performance 12/05/08. The portfolio returned 6.1% for the December quarter, trailing the City Non-US Govt Bond index of 8.8% and ranking in the 93rd percentile of Callan’s Non-US Fixed Income Style Group. Detracting from returns was an underweight to the UK, an overweight to Euroland and holding long currency positions in the Norwegian Krone and the Brazilian Real. Over the past year the portfolio returned 5.1%, 5.0% behind the index and ranked in the bottom decile relative to peers. For the three, five, and ten year periods the portfolio has underperformed its benchmark and ranked in the bottom quartile of its peers. The fund’s since inception return is slightly above the benchmark but below median relative to peer managers. Recommend this portfolio remain on watch and additional due diligence be conducted. Summary and Conclusions Despite generating greater than benchmark returns over the past quarter, the SDCERS portfolio underperformed both its benchmark and its peers over a one year period. Over a ten year period the Fund has returned 5.0% annually and ranked in the top decile of public fund sponsors. Recent results have lagged as a result of active management primarily in domestic equity and fixed income. The downdraft in the markets has dragged the annualized return on the overall portfolio for the trailing five and ten year periods below the long-term actuarial expected return target of 8.0%, however exceeding the target benchmark and the median public fund. As always, we greatly appreciate our relationship with SDCERS. Please do not hesitate to contact me if you have any questions. I look forward to seeing you at the February meeting to discuss these results in greater detail. Best regards,

Janet Becker-Wold, CFA

7

Capital M

arkets Review

‘

Free Falling | U.S. ECONOMYThe recession officially began in December 2007, but a year later

the economy is in a free fall and the bottom may still be months

away. Real GDP fell 3.8% in the fourth quarter, brought down by

the second consecutive quarterly decline in consumption, a sharp

contraction in capital spending and a sudden reversal in exports.

see page 16

Equities Show ‘VIX’ed Returns | U.S. EQUITYIn a volatile fourth quarter, investors sought out larger market cap

stocks in search of higher quality and lower risk. The Russell 3000

fell 22.78%. Growth generally trailed value and defensive sectors

outperformed more economically sensitive sectors. see page 1

Liquidity Still Scarce | U.S. FIXED INCOMEOverwhelmed by the perilous state of the economy and the

uncertainty surrounding the housing market, investors once again

sought safety in Treasurys. The U.S. broad investment grade bond

market, as measured by Barclays Capital Aggregate, gained

4.58% in the fourth quarter. see page 4

Real Estate Seeks De-Leverance | REAL ESTATEThe NCREIF Property Index fell 8.29% over the fourth quarter in

a marketplace characterized by stagnation, while the NCREIF

Open-End Diversified Core Equity Index dropped 10.96%. The

FTSE NAREIT Equity Index plunged 38.80% with most of the

damage attributable to violent swings in October and November.

see page 12

Free Fall with a Bounce | NON-U.S. EQUITYDecember’s positive bounce back in global returns brought a

glimmer of hope, but by quarter’s end the global markets, as

measured by MSCI EAFE, fell by 19.95%. The MSCI EMF Index

(-27.56%) performed the worst amongst the international indices

for the quarter with every country in the Index in the red. see page 7

Interest Rate Cut, Anyone? | NON-U.S. FIXED INCOMEAround the world, central banks aggressively cut rates to combat

the credit crunch. The Citi Non-U.S. World Government Bond

Index surged 8.80% in the fourth quarter. In emerging markets

over 20 countries cut interest rates. The JPMorgan EMBI Global

Bond Index declined 6.01%. see page 10

A Screeching Halt | PRIVATE EQUITYFundraising slowed significantly in the fourth quarter of 2008.

Preliminary figures indicate only $46 billion in commitments were

made and 99 new funds were formed. The investment pace by

funds into companies also dropped sharply. Exit activity was

similarly meager. see page 14

Market Firestorm Burns Hedge Funds | HEDGE FUNDSWith few exceptions, the only trading strategies to profit last

quarter were managed futures and short-biased. The median

manager in the Callan Hedge Fund-of-Funds Database

dropped 9.86%, net of fees. The worst performing subindices of

the asset-weighted CS/Tremont Hedge Fund Index (-10.21%)

were primarily levered and/or illiquid strategies. see page 15

Nowhere to Hide | DIVERSIFIED ACCOUNTSThe range of returns for corporate plans (-12.88%), public plans

(-13.08%) and endowments/foundations (-13.62%) was relatively

narrow for the quarter. The median Taft-Hartley plan outperformed

its institutional counterparts for the quarter (-10.78%) as well as

the year (-21.97%). see page 18

FOURTH QUARTER 2008

Capital Market Review

CALLANINVESTMENTSINSTITUTE

4.58%

8.80%

-0.63%

-10.21%

0.22%

-22.78%

-19.95%

Cash (90-Day T-Bills)

U.S. Equity (Russell 3000)

Non-U.S. Equity (MSCI EAFE)

U.S. Fixed (BC Aggregate)

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

Real Estate (Callan Real Estate)

Hedge Funds (CS/Tremont HFI)

Broad Market Returns

Source: Callan Associates Inc., Barclays Capital Inc., Citigroup,Credit Suisse Tremont LLC., Merrill Lynch, MSCI Inc., Russell Investment Group,Standard & Poor’s

Callan Associates • Knowledge for Investors

About Callan Associates

Founded in 1973, Callan Associates Inc. is one of the largest independently owned investment consulting

firms in the country. Headquartered in San Francisco, Calif., the firm provides research, education, decision

support and advice to a broad array of institutional investors through five distinct lines of business: Fund

Sponsor Consulting, Independent Adviser Group, Institutional Consulting Group, Callan Investments

Institute and the Trust Advisory Group. Callan employs more than 170 people and maintains four regional

offices located in Denver, Chicago, Atlanta and Florham Park, N.J.

About the Callan Investments Institute

The Callan Investments Institute, established in 1980, is a source of continuing education for those in the

institutional investment community. The Institute conducts conferences and workshops and provides

published research, surveys and newsletters. The Institute strives to present the most timely and relevant

research and education available so our clients and our associates stay abreast of important trends in the

investments industry.

The Capital Market Review is a quarterly macro-economic indicator newsletter that provides thoughtful

insights on the economy and recent performance in the equity, fixed income, alternatives, international, real

estate and other capital markets.

Editor-in-Chief – Mary Schaefer; Performance Data – Alpay Soyoguz, CFA, AdamMills; Publication Layout – Tanja Eisenhardt

Fourth Quarter 2008 • Capital Market Review | 1

EQUITIES SHOW ‘VIX’ED RETURNS

The Federal Reserve and U.S. government worked

overtime in an attempt to subdue the market decline,

providing liquidity in the form of capital injections to

firms like Citigroup and AIG. To stimulate growth, the

Federal Reserve reduced its short-term rate to

0%–0.25%. Finally, the $700 billion TARP plan was

utilized to provide capital to banks and auto manu-

facturers. Oil and other commodity prices continued

to decline, reducing gas prices and putting more

money into consumer pocketbooks. However, GDP

still declined 3.8% in the fourth quarter, extending a

recession that was officially declared to have started

in December 2007. Higher unemployment also

played a factor, with an even bleaker forecast for

2009. The one saving grace of the quarter’s econom-

ic weakness was the stabilization of inflation.

Every sector within the broad benchmark Russell3000 (-22.78%) fell in the fourth quarter. The RussellTop 50 (-18.72%) posted its fifth negative quarter ina row, but suffered a less severe loss than its smaller

counterparts, the Russell 2000 (-26.12%) and the

Russell MidCap (-27.27%). The S&P 500 lost

21.94%, experiencing extreme volatility over the

period.

Following a positive third quarter, Financials

(-33.61%) came in last in the fourth quarter. With

firms like AIG garnering government support, lending

markets tightening and investors willing to earn neg-

ligible yields, the Financials sector faced quite a

headwind. REITs were also a huge detractor—their

debt levels proved to be a deterrent to investors

looking for clean balance sheets.

The Materials (-31.42%), Industrials (-24.03%) and

Energy (-23.72%) sectors also declined sharply.

Firms in the Energy Equipment & Services (-48.88%)

industry, such as Hercules Offshore Inc. (-68.67%)

and ENGlobal Corp. (-75.51%), suffered from high oil

reserves and the price of crude oil falling 70% below

its peak level of nearly $150 set in July 2008.

Financials

Materials

Consumer Discretionary

Information Technology

Industrials

Energy

Health Care

Consumer Staples

Utilities

Telecommunications

Economic Sector Exposure (Russell 3000) Economic Sector Returns (Russell 3000)

-5.29%

-10.59%

-13.03%

-13.88%

-23.72%

-24.03%

-25.84%

-25.85%

-31.42%

-33.61%

Telecommunications 3.45%

Utilities 4.44%

ConsumerStaples 11.36%

Health Care14.53%

Energy 12.14%

Industrials 11.65%

InformationTechnology15.39%

ConsumerDiscretionary9.11%

Materials 3.37%

Financials 14.55%

Source: Russell Investment Group

U.S. EQUITY | Lauren M. Etcheverry, CFA

CBOE VIX Volatility Index (Daily)

02 0390 91 92 93 94 95 96 97 98 99 00 01 04 05 06 07 080%

20%

40%

60%

80%

100%

Highest level ever

Source: CBOE

The best performing sectors over the quarter were

defensive: Telecommunication Services (-5.29%),

Utilities (-10.59%), Consumer Staples (-13.03%) and

Health Care (-13.88%). Telecom received a boost

from its largest holding AT&T (+3.73%), which posted

positive results despite the surge in heavily subsi-

dized iPhone sales eroding its profit margins. The

Water Utilities (+0.32%) industry aided Utilities while

Consumer Staples was supported by volume-driven

Food & Staples Retailing (-11.77%) companies like

Village Super Market (+21.74%) and PriceSmart

(+25.02%). The notion that individuals need health

care products even in an economic downturn bene-

fitted Health Care, particularly Pharmaceuticals

(-5.89%).

The Information Technology sector lost 25.84%. The

Semiconductors & Semiconductor Equipment

(-26.84%) industry appeared to have been hit the

hardest due to the slowdown in overall technology

spending, which accounted for one-third of the

Technology sector’s credit downgrade in 2008. To no

one’s surprise, the Consumer Discretionary

(-25.85%) sector also suffered this quarter. The near

collapse of the auto industry weighed heavily on

industry giants General Motors (-66.14%) and Ford

(-55.96%) in the fourth quarter. Both automakers’

share prices have plunged more than 95% over the

last eight to nine years.

U.S. Equity Index Characteristics as of December 31, 2008S&P 1500 S&P 500 S&P 400 S&P 600 Rus 3000 Rus 1000 RusMidcap Rus 2000

Cap Range Min ($MM) 15 477 87 15 2 16 16 2Cap Range Max ($B) 406.07 406.07 4.68 2.32 421.80 421.80 14.92 3.28Number of Issues 1,499 500 400 599 2,935 993 802 1,942% of S&P 1500 100% 89% 7% 4% 100% 92% 24% 8%Wtd Avg Mkt Cap ($B) 70.09 78.73 2.32 0.9 66.23 71.74 5.22 0.87Price/Book Ratio 1.7 1.7 1.4 1.3 1.6 1.7 1.4 1.3P/E Ratio (forecasted) 11.5 11.4 11.9 13.9 11.6 11.4 11.4 15.4Dividend Yield 2.9% 3.1% 2.3% 1.8% 2.9% 2.9% 2.5% 2.0%5-Yr Earnings (forecasted) 10.7% 10.4% 13.0% 13.6% 11.0% 10.8% 12.5% 13.6%Source: Russell Investment Group, Standard & Poor’s

2 | Capital Market Review • Fourth Quarter 2008

02 0389 90 91 92 93 94 95 96 97 98 99 00 01-30%

-20%

-10%

0%

10%

20%

30%

04 05 06 07 08

Russell 1000 Value

Russell 1000Russell 1000 Growth

Rolling One-Year Relative Returnsversus Russell 1000

Source: Russell Investment Group

U.S. EQUITY | continued

Large Cap Large Cap Small Cap Small CapGrowth Style Value Style Growth Style Value Style

10th Percentile -20.20 -18.53 -22.54 -22.8825th Percentile -21.22 -20.52 -24.95 -24.31

Median -22.66 -21.39 -26.97 -25.7375th Percentile -24.47 -23.08 -29.63 -28.9990th Percentile -26.78 -24.04 -32.10 -31.38

R1000 Growth R1000 Value R2000 Growth R2000 ValueBenchmark -22.79 -22.18 -27.45 -24.89

Callan Style Group Returns

Source: Callan Associates Inc., Russell Investment Group

-35%

-30%

-25%

-20%

-15%


U.S. EQUITY | continued

Based upon the Russell style indices, in general

value-oriented stocks topped growth-oriented

stocks, but not by much. To compare value and

growth, Russell divides the capitalization indices to

create subsectors of growth- and value-oriented

stocks. Among smaller stocks, the Russell 2000

Small Cap Value Index (-24.89%) surpassed its

growth counterpart (-27.45%). In the large stock

arena, the Russell 1000 Value Index (-22.18%)

slightly eclipsed the Russell 1000 Growth Index(-22.79%).

Style Median and Index Returns* for Periods ended December 31, 2008Large Cap Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsLarge Cap–Broad Style -21.88 -36.87 -8.38 -1.36 0.49 7.33Large Cap–Growth Style -22.66 -39.75 -8.95 -2.72 -2.12 6.33Large Cap–Value Style -21.39 -36.20 -7.71 -0.25 2.14 7.79Aggressive Growth Style -26.43 -45.28 -8.80 -0.69 0.43 6.24Contrarian Style -23.04 -37.90 -9.47 -1.25 2.94 8.94Core Style -21.76 -36.44 -8.11 -1.29 -0.01 7.25Yield-Oriented Style -20.98 -35.70 -7.21 0.22 2.58 8.26Russell 3000 -22.78 -37.31 -8.63 -1.95 -0.80 6.36Russell 1000 -22.48 -37.60 -8.66 -2.04 -1.09 6.47Russell 1000 Growth -22.79 -38.44 -9.11 -3.42 -4.27 4.82Russell 1000 Value -22.18 -36.85 -8.32 -0.79 1.36 7.48S&P Composite 1500 -22.36 -36.72 -8.35 -1.89 -0.76 6.59S&P 500 -21.94 -37.00 -8.34 -2.19 -1.38 6.46NYSE -22.94 -39.11 -7.11 0.11 1.14 7.31Dow Jones Industrials -18.39 -31.93 -4.09 -1.12 1.66 8.11Mid Cap Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsMid Cap–Broad Style -25.68 -40.78 -9.48 0.10 4.27 8.74Mid Cap–Growth Style -26.44 -44.14 -9.59 -0.96 3.43 8.49Mid Cap–Value Style -23.95 -37.25 -8.95 1.19 6.46 9.70Russell Midcap -27.27 -41.46 -10.68 -0.71 3.19 7.70S&PMidCap 400 -25.55 -36.23 -8.74 -0.08 4.46 9.05Small Cap Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsSmall Cap–Broad Style -26.44 -37.75 -9.58 -1.05 4.82 7.89Small Cap–Growth Style -26.97 -43.15 -10.38 -2.99 1.92 6.39Small Cap–Value Style -25.73 -32.90 -9.41 -0.39 6.88 9.67Small Cap–Core Style -25.94 -35.53 -9.53 -0.47 5.24 8.30Russell 2000 -26.12 -33.79 -8.28 -0.93 3.02 5.89S&P SmallCap 600 -25.17 -31.07 -7.50 0.88 5.18 7.80NASDAQ -24.37 -39.96 -9.82 -3.95 -2.71 5.43Russell 3000 Sectors Quarter Year 3 Years 5 Years 10 Years 15 YearsConsumer Staples -13.03 -16.54 3.13 4.64 2.73 9.42Consumer Discretionary -25.85 -38.71 -14.26 -7.23 -3.11 2.66Industrials -24.03 -39.76 -8.00 -0.46 1.78 7.11Energy -23.72 -37.21 0.20 12.23 10.41 11.82Materials -31.42 -46.75 -6.71 -0.07 3.31 4.61Information Technology -25.84 -42.86 -10.52 -5.76 -5.44 5.99Utilities -10.59 -28.48 0.78 7.81 3.54 6.79Financials -33.61 -49.84 -20.98 -9.79 -1.68 6.94Telecommunications -5.29 -33.30 0.15 2.93 -6.74 -Health Care -13.88 -23.44 -4.09 -0.09 0.45 -

*Returns less than one year are not annualized.Source: Callan Associates Inc., Dow Jones & Company Inc., Russell Investment Group, Standard & Poor’s, The NASDAQ Stock Market Inc.


LIQUIDITY STILL SCARCE

Overwhelmed by the perilous state of the economy

and the uncertainty surrounding the housing market,

investors once again sought safety in Treasurys. The

economic contraction deepened during the quarter

as the housing sector remained broken and the debt

markets frozen. Among spread sectors, structured

products were hit the hardest, marked by a lack of

liquidity. In the fourth quarter the 10-year Treasury fell

161 basis points to end the quarter yielding 2.21%.

In a flight to quality, Treasurys rose 8.75% in the

fourth quarter, as measured by the Barclays CapitalTreasury Index. The U.S. broad investment grade

bond market, as measured by Barclays CapitalAggregate, gained 4.58%.

The Federal Reserve took drastic action to curb the

momentous financial crises. There was a marked

shift in the inflation data, which stirred deflationary

fears. In response, the Federal Open Market

Committee (FOMC) cut the fed funds rate 50 bps

points to 1.5% in an emergency meeting in October.

The FOMC cut short-term rates twice more in

October and December by 50 and 100 basis points,

respectively, to end the quarter at 0% to 0.25%. In

combination with monetary easing, policy makers

relied on every piece in their arsenal to combat the

dwindling economy. Rising unemployment, falling

home prices and weak consumer spending have

pushed the government to use creative measures to

ameliorate the economy.

The Treasury-Inflation Protected Securities (TIPS)

market, as measured by the Barclays Capital U.S.TIPS, dropped 3.48% in the fourth quarter. The dra-

matic negative return was precipitated by a fall in

commodity prices and a bleak economic outlook.

The break-even rate (the difference between nominal

and real yields) on the 10-year TIPS declined by 146

basis points to 12 basis points as nominal yields

plunged.

Despite the U.S. government’s intercession to thaw

credit markets, spread sectors were hammered in

October and November but gained some back in

December. Agency Mortgage-Backed Securities

(MBS) benefited the most from policy. In the fourth

quarter, MBS rose 4.34% in absolute terms but had

a negative 1.95% of excess return versus like-dura-

tion Treasurys. Asset-Backed Securities (ABS) and

Commercial-Mortgage Backed Securities (CMBS)

were hardest hit within the securitized market. ABS

and CMBS underperformed like-duration Treasurys

by 11.73% and 20.43%, respectively.

U.S. FIXED INCOME | Jon Salstrom, CFA

U.S. Treasury Yield Curves

0%

1%

2%

3%

4%

5%

302520151050

December 31, 2008September 30, 2008December 31, 2007

Maturity (Years)Source: Bloomberg

Historical 10-Year Yields

0%

1%

2%

3%

4%

5%

6%

7% U.S. 10-Year Treasury Yield10-Year TIPS YieldBreakeven Inflation Rate

07 0806050403020100

Source: Bloomberg

The deteriorating economic conditions coupled with

weak earnings and a lack of investor confidence

pushed credit spreads wider in October. However,

the government orchestrated a plan to support the

market and credit rallied in December. The invest-

ment grade credit market gained 4.03% in the fourth

quarter, but produced a negative excess return of

5.43% versus like-duration Treasurys. Non-invest-

ment grade credit securities were crushed. The

uncertainty surrounding the length and depth of the

recession, as well as continued deleveraging, pushed

the high yield market lower. The Barclays CapitalHigh Corporate Yield Index lost 17.88% in the

fourth quarter.


U.S. FIXED INCOME | continued

Effective Yield Over Treasurys

-2%

0%

2%

4%

6%

8%

10%

12%U.S. Credit

Bellwether 10-Year SwapBC High Yield (right axis)

MBSABSCMBS ERISA

07 0806050403020100

Source: Barclays Capital Inc.

-3%

0%

3%

6%

9%

12%

15%

18%

Fixed Income Index ReturnsAbsolute Return Excess Return versus Like-Duration Treasurys

8.75% 0.00%

4.58% -2.96%

6.10% 0.05%

-13.52% -20.43%

-6.82% -11.73%

4.34% -1.95%

4.03% -5.43%

-17.88% -24.90%

BC Treasury

BC Aggregate

BC Agencies

BC MBS

BC CMBS

BC ABS

BC Credit

BC Corporate High Yield



Interm Core Bond Core Plus Ext Maturity High YldStyle Style Style Style Style

10th Percentile 4.82 5.03 3.18 15.40 -11.8925th Percentile 4.68 3.95 1.88 14.10 -13.61

Median 3.93 2.12 -0.71 13.44 -14.9875th Percentile 2.14 0.60 -3.59 11.27 -17.1690th Percentile 0.58 -1.30 -5.47 8.35 -19.76

BC Interm BC BC BC BCAgg Agg Agg G/C Long High Yld

Benchmark 3.58 4.58 4.58 13.06 -17.88

Source: Barclays Capital Inc., Callan Associates Inc.

-20%

-15%

-10%

-5%0%

5%

10%

15%

20%

U.S. Fixed Income Index Characteristics as of December 31, 2008BC Indices Yield to Worst Modified Adj Duration AvgMaturity % of BC G/C % of BC AggBC Aggregate 3.99 3.71 5.50 100.00% 100.00%BCGovt/Credit 3.69 5.37 7.87 100.00% 56.28%Intermediate 3.36 3.82 4.51 80.01% 45.03%Long-Term 5.03 11.60 21.33 19.99% 11.25%

BCGovt 1.74 4.97 6.57 61.70% 34.72%BC Credit 6.83 6.03 9.97 38.30% 21.55%BCMortgage 3.63 1.31 2.15 - 39.58%BC Asset-Backed 10.45 2.88 3.89 - 0.59%BC Commercial Mortgage 11.57 4.11 5.34 - 3.55%BC Corp High Yield 19.43 4.09 6.67 - -Source: Barclays Capital Inc.


Style Median and Index Returns* for Periods ended December 31, 2008Broad Fixed Income Quarter Year 3 Years 5 Years 10 Years 15 YearsCore Bond Style 2.12 0.52 3.90 3.87 5.42 6.05Core Bond Plus Style -0.71 -5.21 1.81 2.79 5.13 5.81BC Aggregate 4.58 5.24 5.51 4.65 5.63 6.18BC Govt/Credit 6.42 5.70 5.56 4.64 5.64 6.19BC Govt 8.05 12.39 8.11 6.06 6.16 6.50BC Credit 4.03 -3.08 2.03 2.65 4.85 5.81Citi Broad Investment Grade 5.65 7.05 6.19 5.11 5.86 6.34Long-Term Quarter Year 3 Years 5 Years 10 Years 15 YearsExtended Maturity Style 13.44 6.28 5.24 6.05 6.82 7.83BC Gov/Credit Long 13.06 8.44 5.89 6.31 6.62 7.45BC Gov Long 17.92 22.69 11.15 9.58 8.07 8.47BC Credit Long 8.16 -3.92 0.99 3.17 5.24 6.42Intermediate-Term Quarter Year 3 Years 5 Years 10 Years 15 YearsIntermediate Style 3.93 4.32 5.42 4.26 5.47 5.86BC Intermediate Aggregate 3.58 4.86 5.48 4.43 5.54 5.96BC Gov/Credit Intermediate 4.84 5.08 5.51 4.21 5.43 5.82BC Gov Intermediate 6.16 10.43 7.55 5.30 5.74 5.98BC Credit Intermediate 2.72 -2.76 2.38 2.52 4.85 5.61Short-Term Quarter Year 3 Years 5 Years 10 Years 15 YearsDefensive Style 1.63 3.78 4.40 3.48 4.64 5.19Active Cash Style 0.54 1.82 3.91 3.19 3.82 4.41Money Market Funds (net of fees) 0.28 2.03 3.73 2.91 3.09 3.71ML Treasury 1–3 Year 2.69 6.61 5.96 4.06 4.71 5.1490-Day Treasury Bills 0.22 2.06 3.96 3.25 3.45 4.02High Yield Quarter Year 3 Years 5 Years 10 Years 15 YearsHigh Yield Style -14.98 -21.50 -3.50 0.53 3.61 5.64BC Corporate High Yield -17.88 -26.16 -5.59 -0.80 2.17 4.26ML High Yield Master -17.47 -26.21 -5.58 -0.84 2.27 4.47Mortgage/Asset-Backed Quarter Year 3 Years 5 Years 10 Years 15 YearsMortgages Style 1.70 2.44 4.51 4.28 5.72 6.36BCMBS 4.34 8.34 6.81 5.54 6.04 6.44BC ABS -6.82 -12.72 -2.25 -0.36 3.23 4.36BC CMBS -13.52 -20.52 -4.22 -1.41 3.26 -Municipal Quarter Year 3 Years 5 Years 10 Years 15 YearsBCMuni 0.74 -2.47 1.86 2.71 4.26 4.91BCMuni 1–10 Year 3.02 4.23 4.25 3.46 4.44 4.82BCMuni 3 Year 2.69 5.53 4.52 3.23 4.02 4.31

*Returns less than one year are not annualized.Source: Barclays Capital Inc., Callan Associates Inc., Citigroup, Merrill Lynch

U.S. FIXED INCOME | continued


FREE FALL WITH A BOUNCE

NON-U.S. EQUITY | Lin Fitzenhagen, CFA

Building on the momentum of September’s stagger-

ing decline, the markets deteriorated further in

October and November as international markets suf-

fered from a continued shortage of credit and liquid-

ity. December’s positive results attempted to ebb the

negative tide, but global markets finished the quarter

significantly down, as measured by MSCI EAFE(-19.95%). The depth of the worldwide crisis prompt-

ed some countries to cut interest rates dramatically

while several others needed further stimulus actions

to bolster their economies. Emerging markets (MSCIEMF Index: -27.56%) were pummeled as tumblingoil and other commodity prices hit markets like Brazil

(-37.13%), India (-29.91%) and Russia (-51.30%).

Significant movements in the currency markets also

occurred—relative to the U.S. dollar the Japanese

yen strengthened 17%, the euro fell by 1% and the

pound sterling plummeted 20%, to its lowest level

since 2001. EAFE Growth (-20.10%) slightly laggedEAFE Value (-19.81%), and once again EAFE SmallCap (-22.15%) trailed EAFE.

EuropeThe MSCI Europe Index (-22.79%) tumbled for thesecond straight quarter. Financials continued their

downward spiral while the Materials and Energy sec-

tors weakened due to falling oil and other commodi-

ty prices. By contrast, the more defensive sectors,

such as Telecommunications, Health Care and

Utilities, fared better than their peers on a relative

basis. In an unprecedented string of government

interventions, multiple central banks lowered interest

rates every month within the quarter. In total, the

Bank of England cut rates by 300 bps to 2% and the

European Central Bank reduced rates by 175 bps to

2.5%. Additionally, European governments pledged

to increase spending and create a stimulus plan to

help jumpstart the region’s economy in an attempt to

thwart the global slowdown.

AsiaThe MSCI Pacific Basin Index fell 13.87% for the

quarter. Economic growth contracted sharply

throughout Asia suggesting that Japan, Hong Kong

and Singapore had all fallen into a recession.

Although Japan (-9.01%) was buoyed by the appre-

ciating yen, that proved to be a double-edged sword

which hindered the success of its exporters. The

Financials sector finally succumbed to global finan-

cial woes, as both Mitsubishi UFJ and Sumitomo

both needed to raise capital in the quarter. The Bank

of Japan chose to loosen its lending program to help

companies shore up their balance sheets and also

dropped interest rates twice to 0.1%. Not surprising-

ly, the decline in commodity prices hit Australia

Regional Performance (U.S. Dollar)

MSCI Emer Markets

MSCI Pacific Ex-Japan

MSCI Europe Index

MSCI ACWI ex-U.S.

MSCI EAFE Index

MSCI Japan-9.01%

-19.95%

-22.29%

-22.79%

-25.03%

-27.56%

Source: MSCI Inc.

02 0389 90 91 92 93 94 95 96 97 98 99 00 01-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

04 05 06 07 08

MSCI Europe

MSCI EAFEMSCI Pacific

Rolling One-Year Relative Returnsversus MSCI EAFE U.S. Dollar

Source: MSCI Inc.


(-26.85%), leading the Reserve Bank of Australia to

sharply cut interest rates from 7.00% to 4.25%.

Hong Kong (-18.76%) and Singapore (-26.26%) both

took steps to stimulate their economies and reinforce

their financial systems.

Emerging MarketsThe MSCI EMF Index was the worst performing

international index for the quarter due to the collapse

in commodity prices, geopolitical uncertainty and fur-

ther economic slowdowns. Commodity-sensitive

countries like Russia (-51.30%), Brazil

(-37.13%) and Argentina (-43.83%) nose-dived as a

result of their exposures to Energy and Materials

companies like Gazprom, Petrobras and CVRD. Both

Russia and Brazil introduced plans to improve liquid-

ity, while China (-10.75%) and India (-29.91%)

revealed stimulus packages aimed at curbing the

bleak sentiment. India suffered a terrorist attack in

November, further exacerbating uneasiness in the

region. Much like their developed peers, central

banks in China, India and Turkey (-37.43%) lowered

interest rates in hopes of bolstering their economies.

Facing liquidity problems, several countries, includ-

ing Brazil, Mexico (-30.02%) and South Korea

(-26.48%), established currency swaps with the U.S.

Federal Reserve, while the International Monetary

Fund stepped in to provide emergency financial

assistance to others. One bright spot was that

emerging markets gained back 7.83% in December,

turning the tide on what was otherwise an historic

quarter.

NON-U.S. EQUITY | continued

Utilities

Telecommunications


Financials

Health Care

Consumer Staples


Industrials

Materials

Energy

EAFE Emerging Markets

-15.21%

-26.62%-32.11%

-38.60%

-27.52%

-30.17%

-16.82%

-9.69%

-26.06%

-27.61%-3.32%

-17.51%-8.63%

-18.84%

-18.08%

-21.21%

-13.54%

-8.05%

-32.36%

-19.16%

Key Sector Performance (Fourth Quarter 2008)

Utilities

Telecommunications


Financials

Health Care

Consumer Staples


Industrials

Materials

Energy

EAFE Emerging Markets

0.69%

-2.05%-1.96%

-3.18%

-1.95%

-0.14%

1.55%

1.30%

1.13%

0.65%0.76%

2.07%1.79%

0.51%

-0.52%

-1.25%

1.72%

3.42%

-4.23%

-0.34%

Key Sector Weights (One-Year Change/2008)

Source: MSCI Inc.

Return Attribution for EAFE Countries(U.S. Dollar)

Country Total Local Currency WtgAustralia -26.85% -17.23% -11.61% 5.96%Austria -43.23% -42.63% -1.04% 0.32%Belgium -37.02% -36.36% -1.04% 0.75%Denmark -28.13% -27.55% -0.80% 0.84%Finland -20.14% -19.30% -1.04% 1.39%France -20.52% -19.69% -1.04% 10.90%Germany -20.88% -20.05% -1.04% 8.74%Greece -40.98% -40.36% -1.04% 0.48%Hong Kong -18.76% -18.91% 0.18% 2.01%Ireland -40.24% -39.61% -1.04% 0.30%Italy -23.06% -22.26% -1.04% 3.67%Japan -9.01% -22.30% 17.12% 25.25%Netherlands -22.95% -22.15% -1.04% 2.43%New Zealand -23.97% -13.11% -12.50% 0.09%Norway -40.69% -29.75% -15.56% 0.61%Portugal -21.28% -20.45% -1.04% 0.33%Singapore -26.26% -25.69% -0.77% 1.08%Spain -16.95% -16.07% -1.04% 4.54%Sweden -25.08% -15.03% -11.83% 2.01%Switzerland -13.32% -17.72% 5.35% 8.41%UK -26.36% -8.71% -19.34% 19.88%Source: MSCI Inc.


-50%

0%

50%

100%

150%

200%

Major Curencies Cumulative Returnsversus U.S. Dollar

02 0384 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 04 05 06 07 08

*euro returns from 1Q99

German markJapanese yen

UK sterlingeuro*

Source: MSCI Inc.


Global Eq Non-U.S. Eq Emg Mkts Small CapStyle Style Style Style



MSCI MSCI MSCI MSCIWorld EAFE Emg Mkts Small Cap

Benchmark -21.77 -19.95 -27.56 -22.15

Source: Callan Associates Inc., MSCI Inc.

-32%

-28%

-24%

-20%

-16%

-12%

Style Median and Index Returns* for Periods ended December 31, 2008International Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsGlobal Style -21.76 -42.81 -7.14 0.21 1.34 5.52Non-U.S. Style -20.47 -43.17 -6.71 2.61 3.28 5.69Core Style -19.89 -42.95 -7.13 2.34 3.28 5.27MSCI EAFE–Unhedged -19.95 -43.38 -7.35 1.66 0.80 3.52MSCI EAFE–Local -18.54 -40.27 -10.38 0.90 -0.38 2.58MSCI EAFE Growth –Unhedged -20.10 -42.70 -6.54 1.43 -1.30 1.86MSCI EAFE Value–Unhedged -19.81 -44.09 -8.25 1.79 2.72 5.07MSCI World–Unhedged -21.77 -40.71 -8.10 -0.51 -0.64 4.53MSCI World–Local -20.64 -38.69 -9.48 -0.90 -1.11 4.10MSCI ACWorld ex-U.S.–Unhedged -22.29 -45.24 -6.57 3.00 2.27 4.11MSCI ACWorld–Unhedged -22.25 -41.85 -7.45 0.44 0.23 4.86Pacific Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsPacific Basin Style -15.65 -40.26 -7.78 3.15 4.58 1.28Japan Style -9.96 -31.46 -12.43 1.06 2.74 2.92Pacific Rim Style -20.86 -50.86 -2.04 6.68 8.75 2.65MSCI Pacific–Unhedged -13.87 -36.42 -9.10 1.85 1.85 -0.19MSCI Pacific–Local -21.06 -42.46 -14.29 -0.22 -0.08 -1.27MSCI Japan–Unhedged -9.01 -29.21 -10.36 0.93 0.45 -0.95MSCI Japan–Local -22.30 -42.56 -17.91 -2.39 -1.72 -2.31Europe Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsEurope Style -21.86 -45.23 -6.01 2.12 2.64 7.94MSCI Europe–Unhedged -22.79 -46.42 -6.56 1.53 0.37 6.26MSCI Europe–Local -17.00 -38.91 -8.29 1.58 -0.28 5.29Emerging Markets Quarter Year 3 Years 5 Years 10 Years 15 YearsEmerging Markets Style -27.90 -53.27 -4.64 8.19 11.11 5.28MSCI EMF–Unhedged -27.56 -53.18 -4.62 8.02 9.31 2.73MSCI EMF–Local -21.95 -45.75 -2.26 8.11 11.16 8.80International Small Cap Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsSmall Cap Style -23.19 -48.06 -10.01 4.30 7.85 5.86MSCI EAFE Small Cap–Unhedged -22.15 -47.01 -13.76 1.14 4.31 -

*Returns less than one year are not annualized.Source: Callan Associates Inc., MSCI Inc.

NON-U.S. EQUITY | continued


INTEREST RATE CUT, ANYONE?

The global economy endured a bitter quarter that

ended with a hopeful market bounce in December.

Around the world central banks aggressively cut

rates to combat the credit crunch and governments

wasted no time in constructing fiscal stimulus pack-

ages to ease their eroding economies. The interna-

tional bond market, as measured by the Citi Non-U.S. World Government Bond Index, surged 8.80%in the fourth quarter. Against a backdrop of depreci-

ating currencies in the dollar bloc countries, the U.S.

dollar looked strong but gained only 0.78% for the

quarter.

In emerging markets, over 20 countries cut interest

rates during a momentous quarter in which in Iceland

imploded and Ecuador defaulted. Despite these

events, emerging markets debt fared well relative to

equities and other risky assets. With the help of lower

U.S. Treasury yields, local currency emerging debt

rallied in December.

EuropeIn an effort to ease liquidity pressures, central banks

lowered rates dramatically. The European Central

Bank cut rates by 175 bps to 2.5% while the Bank of

England slashed rates by 300 bps to 2.0%. As a

result, yields took a dive with the 10-year UK govern-

ment bond down 143 bps to 3.02% and the 10-year

German bund falling 106 bps to 2.95%.

Dollar Bloc CountriesWorried about the worsening credit crisis and rising

unemployment rates, the Bank of Canada aggres-

sively reduced its benchmark rate 150 bps to 1.50%.

Similarly, the Reserve Banks of Australia (275 bps)

and New Zealand (250 bps) also made severe cuts to

4.25% and 5.00%, respectively. Due to the sharp

decline in oil prices and fears of deflation, commodi-

ty-rich countries, like Australia, New Zealand and

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Source: Citigroup

10-Year Global Government Bond Yields

2%

3%

4%

5%

6%

7%

8%

GermanyU.S. Treasury

UKCanadaJapan (right axis)

07 0806050403020100

Change in 10-Year Yields from 3Q08 to 4Q08 (bps)

Japan

Canada

UK

Germany

U.S. Treasury-161

-106

-143

-107

-30

Return Attribution for Non-U.S. Gov’t Indices(U.S. Dollar)

Country Total Local Currency WtgAustralia -3.50% 9.17% -11.61% 0.35%Austria 4.86% 5.96% -1.04% 1.75%Belgium 5.46% 6.57% -1.04% 2.96%Canada -6.79% 8.23% -13.88% 1.90%Denmark 6.17% 7.03% -0.80% 0.82%Finland 4.23% 5.33% -1.04% 0.55%France 6.93% 8.06% -1.04% 9.37%Germany 6.66% 7.78% -1.04% 11.10%Greece -1.57% -0.53% -1.04% 2.18%Ireland 2.45% 3.52% -1.04% 0.51%Italy 2.63% 3.71% -1.04% 10.31%Japan 20.24% 2.67% 17.12% 40.77%Malaysia 6.58% 7.12% -0.50% 0.47%Netherlands 5.85% 6.96% -1.04% 2.40%Norway -11.08% 5.31% -15.56% 0.24%Poland -15.43% 3.86% -18.57% 0.81%Portugal 5.07% 6.17% -1.04% 1.08%Singapore 5.35% 6.17% -0.77% 0.37%Spain 5.62% 6.73% -1.04% 3.86%Sweden -3.49% 9.45% -11.83% 0.57%Switzerland 9.05% 3.52% 5.35% 0.69%UK -10.78% 10.61% -19.34% 6.96%Source: Citigroup

NON-U.S. FIXED INCOME | Maria Bautista


Canada, all experienced double-digit losses in their

currencies over export concerns.

AsiaThe Japanese economy continued to worsen during

the quarter due to plunging exports, liquidating

inventories and plummeting industrial production.

The Bank of Japan responded by lowering rates for

the first time in seven years to 0.1%. The yield on the

10-year government bond fell 30 bps from 1.47% to

1.17%. In a flight to quality, the yen spiked 17%—a

13-year high.

Emerging MarketsAs oil prices tumbled and signs of a global recession

became eminent, many emerging market countries

struggled during the quarter. Commodity driven

economies, namely Russia (-52%) and Brazil (-37%),

sank. The JPMorgan EMBI Global Bond Indexdeclined 6.01% for the quarter and lost 10.91% for

the year. Local currency emerging market debt, as

measured by the JPMorgan GBI EM Global Index,fell 8.13% for the quarter and finished down 7.92%

for the year. Emerging currencies were weak against

the rallying U.S. dollar but were very strong against

the euro and pound sterling.


Global Fixed Non-U.S. FixedStyle Style

10th Percentile 8.41 9.5925th Percentile 7.76 8.46

Median 6.32 8.2875th Percentile 3.72 7.6090th Percentile 1.88 6.60

Citi World Citi Non-U.S.Govt Unhedged Govt Unhedged

Benchmark 8.81 8.80

Source: Callan Associates Inc., Citigroup

0%

2%

4%

6%

8%

10%

Emerging Spreads by Region

0 bp

200 bp

400 bp

600 bp

800 bp

1000 bp

1200 bp

2007 2008200620052004

Emerging AmericasEmerging EMEA (Europe, Middle East, Africa)Emerging Asia


Style Median and Index Returns* for Periods ended December 31, 2008Global Fixed Quarter Year 3 Years 5 Years 10 Years 15 YearsGlobal Style 6.32 7.19 7.84 5.49 5.87 6.67Citi World Govt–Unhedged 8.81 10.89 9.30 6.05 5.90 6.54Citi World Govt–Local 5.88 8.89 4.38 4.34 4.39 5.48Non-U.S. Fixed Quarter Year 3 Years 5 Years 10 Years 15 YearsNon-U.S. Style 8.28 8.73 8.50 5.55 5.24 6.90Citi Non-U.S. World Govt–Unhedged 8.80 10.11 9.49 5.97 5.59 6.47Citi Non-U.S. World Govt–Local 5.07 7.60 3.31 3.81 3.84 5.18Europe Quarter Year 3 Years 5 Years 10 Years 15 YearsCiti Euro Govt Bond–Unhedged 4.99 3.96 9.31 6.80 - -Citi Euro Govt Bond–Local 6.10 9.35 3.49 4.70 - -Emerging Markets Fixed Quarter Year 3 Years 5 Years 10 Years 15 YearsJPM Emerg Mkts Bond Plus -4.78 -9.70 2.03 5.84 10.94 9.53JPM Emerg Local Mkts Plus -6.83 -3.84 7.77 8.20 8.52 8.12JPMGBI EM Global Composite -8.13 -7.92 7.32 9.67 - -

*Returns less than one year are not annualized.Source: Callan Associates Inc., Citigroup, JPMorgan Chase & Co.

NON-U.S. FIXED INCOME | continued


REAL ESTATE SEEKS DE-LEVERANCE

Amidst the current capital dislocation, “balance

sheet, balance sheet, balance sheet,” has become

the new axiom for real estate investing, replacing the

outmoded “location, location, location.” In today’s

environment, the financial standing of a property

owner weighs just as heavily as the characteristics of

the assets owned. Furthermore, real estate owners

faced softening demand and increasing vacancies,

which prompted managers to control occupancy

with increased concessions. Finally, flurries of cash

conservation techniques are being utilized to prepare

for looming debt maturities.

The private real estate market saw clear signs of

weakness during the fourth quarter, with value write-

downs across the board. The NCREIF PropertyIndex fell 8.29% over the fourth quarter in a market-

place characterized by stagnation—the Index lost

9.54% in appreciation and gained 1.26% in income.

Despite large declines in retail sales, the Retail sector

(-6.30%) outperformed all property types, while Hotel

(-10.95%) trailed amid sharp drops in business and

vacation travel.

The core, open-ended commingled fund universe,

represented by the NCREIF Open-End DiversifiedCore Equity Index, dropped 10.96% over the fourth

quarter. The return was attributable to a negative

12.10% appreciation return and a positive 1.18%

income return.

The FTSE NAREIT Equity Index plunged a stagger-ing 38.80% over the fourth quarter, with most of the

damage attributable to violent swings in October and

November. Specialty sectors, such as Self Storage

(-21.48%) and Health Care (-25.75%), performed

remarkably well in relative terms as real estate

investors turned more defensive. The Retail

(-46.26%) and Industrial (-56.50%) sectors were hit

hard due to the financial distress of large players

such as General Growth Properties and ProLogis.

General Growth Properties struggled to extend pay-

ment deadlines on mounting debt across its retail

properties and ProLogis sought to delever nearly $9

billion of debt in its industrial portfolio.

Rolling One-Year Returns

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

REIT DatabaseGlobal REIT Database*

Real Estate Database

02 0395 96 97 98 99 00 01 04 05 06 07 08*Global REIT returns from 2Q04

Source: Callan Associates Inc.

Real Estate REIT Global REITDatabase Database Database

10th Percentile 0.81 -31.83 -28.5325th Percentile 0.57 -35.73 -29.57

Median -0.63 -37.30 -31.3275th Percentile -6.44 -40.05 -34.4890th Percentile -12.65 -42.03 -36.91

NCREIF NAREIT EPRA/NAREITProperty Equity Global

Benchmark -8.29 -38.80 -32.38


Source: Callan Associates Inc., NAREIT, NCREIF, The FTSE Group

-44%

-36%

-28%

-20%

-12%

-4%

4%

REAL ESTATE | Jay Nayak


Furthermore, in the listed universe cash preservation

strategies have become increasingly prevalent

among the highly levered and included dividend

deferrals, dividend cuts, cashless consent dividends

and taxable stock dividends.

The FTSE EPRA/NAREIT Global Real Estate Indexsank 32.38% over the fourth quarter, ending in the

red for the fifth consecutive quarter. The Index fell

47.72% in 2008. While the North American region

fared the worst for the quarter (-39.81%), Europe

(-34.97%) and Asia (-20.21%) also turned in dismal

results. Regionally, the force of the global recession

hit the UK particularly hard, yielding more pro-

nounced discounts to net asset value than continen-

tal Europe. Moving East, Asia’s relative outperfor-

mance was due to aggressive actions taken by vari-

ous governments in response to the worldwide eco-

nomic slowdown. Specifically, news of the Chinese

government’s strong rate cuts and the estimated

$586 billion stimulus package helped provide stabili-

ty for listed firms during the month of December.

NAREIT Equity Sector Performance

Retail

Industrial/Office

Lodging/Resorts

Residential

Diversified

Specialty

Health Care

Self Storage-21.48%

-25.75%

-33.18%

-34.47%

-35.85%

-44.95%

-45.38%

-46.26%

Source: NAREIT

NCREIF Property IndexReturns by Property Type

East

West

South

Midwest

Hotel

Office

Apartment

Industrial

Retail

-8.39%

-10.95%

-9.26%

-6.30%

-7.96%

Returns by Region

-9.70%

-6.79%

-8.19%

-6.70%

Source: NCREIF

REAL ESTATE | continued

Style Median and Index Returns* for Periods ended December 31, 2008Private Real Estate Quarter Year 3 Years 5 Years 10 Years 15 YearsReal Estate Database (net of fees) -0.63 -6.21 4.17 9.39 8.98 9.29NCREIF Property -8.29 -6.46 8.11 11.67 10.48 10.59Public Real Estate Quarter Year 3 Years 5 Years 10 Years 15 YearsREIT Database -37.30 -36.17 -9.13 2.54 9.02 9.99NAREIT Equity -38.80 -37.72 -10.83 0.91 7.42 8.21Global Real Estate Quarter Year 3 Years 5 Years 10 Years 15 YearsREIT Global Database -31.32 -46.65 -11.19 1.77 5.57 -EPRA/NAREIT Global -32.38 -47.72 -11.53 1.96 6.63 5.35

*Returns less than one year are not annualized.Source: Callan Associates Inc., NAREIT, NCREIF, The FTSE Group

Overall Capitalization RatesSector 4Q08 3Q08 4Q07Industrial 6.29% 5.86% 6.00%Apartment 5.40% 4.56% 5.15%Office 5.75% 5.26% 5.31%Retail 6.43% 5.94% 5.97%

Rates based on unleveraged, all-cash transactions.Source: NCREIF


A SCREECHING HALT

Fundraising slowed significantly in the fourth quarter

of 2008. Preliminary figures indicate only $46 billion

in commitments were made and 99 new funds were

formed. This was the slowest quarter of 2008 and a

major departure from the historical norm—the final

quarter is typically the largest due to a rush to finish

year-end business. The year’s total of $265.5 billion

was down from 2007 by $37 billion in commitments

(12%) with 52 fewer funds being formed. This is the

first yearly decline in fundraising since 2003. Callan

anticipates that fundraising will continue to fall signif-

icantly in 2009. The key reason for the slow down is

caution and liquidity concerns on the part of institu-

tions after the precipitous public market declines and

record volatility that started in September 2008.

The investment pace by funds into companies also

dropped sharply last quarter. According to Buyouts

newsletter, buyout-sponsored U.S. acquisitions with

announced values totaled only $6.4 billion during the

quarter with 131 closed transactions. A quarterly vol-

ume this low has not been seen since 2002. The year

produced $136.1 billion in deals with disclosed val-

ues and a total of 859 investments. Dollar volume

dropped 71% from $475 billion in 2007, which had

1,042 total transactions.

Exit activity was similarly meager during the quarter.

Buyouts reported that only one buyout-backed com-

pany went public, Grand Canyon Education, raising

$126 million. According to Reuters, 26 buyout-

backed M&A exits occurred totaling $1.9 billion of

announced transaction value. There were no venture

capital-backed IPOs in the fourth quarter. Venture-

backed merger activity totaled 37 transactions, of

which 15 had announced values totaling $2.1 billion.

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

PRIVATE EQUITY | Gary Robertson

Index Returns* for Periods ended December 31, 2008Private Equity Proxy Quarter Year 3 Years 5 Years 10 Years 15 YearsWP/VE Post-Venture Cap -28.57 -53.77 -18.59 -7.64 -6.40 2.06

*Returns less than one year are not annualized.Source: NVCA

Funds Closed 1/1/08 to 12/31/08Strategy # of Funds Amt ($MM) %Venture Capital 150 24,729 9%Acquisitions/Buyouts 129 143,292 54%Subordinated Debt 17 40,202 15%Distressed Debt 14 37,570 14%Other 19 6,732 3%Fund-of-funds 34 12,943 5%Totals 363 265,467 100%

Source: The Private Equity Analyst


MARKET FIRESTORM BURNS HEDGE FUNDS

HEDGE FUNDS | Jim McKee

Style Median and Index Returns* for Periods ended December 31, 2008Diversified Hedge Fund Strategies Quarter Year 3 Years 5 Years 10 Years 15 YearsHedge Fund-of-Funds Database -9.86 -20.78 -0.79 2.24 6.96 7.71CS/Tremont Hedge Fund Index -10.21 -19.07 1.23 4.12 7.00 8.73CS/Tremont Investable Blue Chip Index -15.06 -26.35 -4.63 -1.10 - -Market Neutral Equity Quarter Year 3 Years 5 Years 10 Years 15 YearsMarket Neutral Equity Style 0.74 -0.14 3.97 3.87 4.22 5.8690-Day T-Bills 0.22 2.06 3.96 3.25 3.45 4.02Commodities Quarter Year 3 Years 5 Years 10 Years 15 YearsGS Commodity -47.00 -46.49 -15.53 -2.36 7.35 5.49MLMManaged Futures 12.58 13.60 5.47 4.73 4.54 6.81Dow Jones–AIG Commodity -30.12 -36.61 -11.85 -2.82 4.19 2.11

*Returns less than one year are not annualized.Source: Callan Associates Inc., Credit Suisse Tremont LLC., Dow Jones & Company, Inc., Merrill Lynch, Mount Lucas Management Corp.,Standard and Poor’s/GSCI

Self-reinforcing winds of liquidation-driven selling

continued to sweep over the capital markets last

quarter after being violently stirred by Lehman’s

bankruptcy in September. Ironically, rapidly falling

asset prices offset the impact of any actual sales to

reduce leverage, further fueling the sell-off. In effect,

forced sellers needed to sell faster to actually reduce

their degree of leverage. Whether active or passive

participants in this process, most hedge funds suf-

fered significant losses, particularly in October. With

few exceptions, the only trading strategies to profit

last quarter were managed futures and short-biased.

Representing well-diversified hedge fund portfolios,

the median manager in the Callan Hedge Fund-of-Funds Database dropped 9.86% in the fourth quar-

ter, net of fees. For the year ended December 31, the

median fund fell 20.78%.

Not surprisingly given the fourth quarter’s market

conditions, the worst performing subindices of the

asset-weighted CS/Tremont Hedge Fund Index(-10.21%) were primarily levered and/or illiquid

strategies such as Fixed-Income Arbitrage

(-19.50%), Convertible Arbitrage (-15.07%) and

Distressed (-12.66%). Reflecting the massive fraud of

Bernie Madoff, Market Neutral Equity fell 41.30%.

Unlike the third quarter, the last quarter was a rela-

tively less painful experience for Long-Short Equity

managers (-7.47%) since their reduced gross and net

exposures helped to dodge the equity market dam-

age when the S&P 500 fell 21.94%.

Given the fourth quarter’s greater challenges in lev-

ered or illiquid strategies, the Absolute Return FoFs

fell more than Long-Short Equity FoFs (-10.64% ver-

sus -8.78%, respectively). Core Diversified FoFs lost

9.67%.

Please see our upcoming issue of Hedge Fund Monitor for morein-depth coverage.

Absolute Return Core Diversified Long-Short EqFoF Style FoF Style FoF Style

10th Percentile -5.74 -5.04 -2.4425th Percentile -9.21 -7.23 -4.50

Median -10.64 -9.67 -8.7875th Percentile -13.42 -11.60 -10.8390th Percentile -18.42 -15.82 -15.70

T-Bills 0.22 0.22 0.22


Source: Callan Associates Inc., Merrill Lynch

-22%

-18%

-14%

-10%

-6%

-2%

2% A (1) A (1) A (1)


FREE FALLING

The U.S. economy contracted sharply in the fourth

quarter of 2008 and this recession is likely to become

the worst in the post World War II era. Real GDP

slipped by just 0.5% in the third quarter of 2008, but

then fell 3.8% in the fourth quarter, brought down by

the second consecutive quarterly decline in con-

sumption, a sharp contraction in capital spending

and a sudden reversal in exports. The decline would

have been even sharper if companies could have cut

production fast enough to match falling demand.

Inventories, which count as a positive toward GDP,

were built during the quarter as goods piled up; these

inventories will have to be worked down in 2009, put-

ting further downward pressure on production and

economic growth. The rest of the world—in denial for

the first half of 2008 and insisting that the credit

problems and growing economic slump were

American problems—is falling into a severe reces-

sion as well. The downturn has become so synchro-

nized that in 2009 we may see the first decline in

global real GDP in the postwar era.

The recession officially began in December 2007, but

a year later the economy is in a free fall and the bot-

tom may still be months away. The official status of a

recession is conferred by the Business Cycle Dating

Committee of the National Bureau of Economic

Research. The average length of all contractions

measured back to 1854 is 17 months. The Great

Depression is measured at 43 months; the most

severe post-war recessions were 16 months (starting

in 1973 and 1981). The current recession will likely

break the post-war mark, both in duration and depth.

The estimated peak-to-trough decline in real GDP

through the end of 2008 (just under -3.5%) is already

greater than the declines in the 1973–1975 and

1981–1982 recessions and just short of the mark set

in 1957–1958, and we are clearly not done yet.

Consensus forecasts call for GDP growth to resume,

perhaps in the second half of 2009.

Consumer confidence is in deep recession territory.

The Reuters/University of Michigan consumer senti-

ment index dropped below 60 in the fourth quarter of

2008, the first reading at that level since 1980.

Consumers first braved a slump in the housing mar-

ket that began three years ago, then faced rising

interest rates and contracting credit in 2007, joined

by soaring energy and other commodity prices

through the first half of 2008. Then the bottom fell out

and weakened consumers were confronted by a

shuddering stock market and a job market that had

quickly turned sour. The economy shed over 500,000

jobs in both November and December, resulting in

more than two million over the course of the year. The

unemployment rate hit 7.2% in December, up sharply

from 5% at the start of the year. Consumer spending

turned negative in the third quarter of 2008, declining

by 3.8%, and fell by another 3.5% in the fourth quar-

ter. Consumption had not contracted for even a sin-

gle quarter since 1991.

U.S. ECONOMY | Jay Kloepfer

Inflation Year-Over-Year

-10%

-5%

0%

5%

10%

15%

20%

PPI (All Commodities)CPI (All Urban Commodities)

02 0384 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 04 05 06 07 08

Source: Bureau of Labor Statistics


Lower oil prices and inflation offered some cushion to

consumers. Bubbles in oil and other commodity

prices burst during 2008, pricked by the sharp

prongs of the collapse in global stock markets and

the sudden downhill momentum of a synchronized

recession. Oil prices began the year around $90 per

barrel, rose to almost $150 in July and then crashed

through the fourth quarter back to $40. The headline

measure of inflation (CPI) surged past 5% in summer

of 2008, greatly vexing the Fed as it cut interest rates

to fend off the recession. Inflation concerns evapo-

rated with the collapse of Lehman Brothers in

September and the descent of the capital markets in

October and November; actual measured inflation

collapsed along with expectations. Consumer prices

fell during the last five months of the year, enough to

pull the year-over-year change in the CPI back to

zero by December.

The Federal Reserve is doing all it can to stabilize the

financial system and kick-start the economy. The

federal funds rate is down to 0%–0.25%, and the Fed

has provided unprecedented liquidity to the market.

Mortgage rates began to subside as the year wound

down, falling by 150 basis points over the last few

months, although the spread over Treasury bonds

remains high. Home prices are still sinking, with the

national average falling 10.5% for homes with con-

forming mortgages through November and down

more like 20% for the universe covered by the

S&P/Case-Shiller report, which includes subprime

and jumbo loans. Early reports indicate that sales

activity actually picked up in December, suggesting

buyers are returning to the market, lured by dis-

counted prices and improving access to credit.

The Congress passed the TARP early in the fourth

quarter and we are injecting hundreds of billions of

dollars into the financial system, but we have yet to

see much impact on the economy. Major fiscal stim-

ulus is also on the way in 2009. The challenge is that

the impact of both monetary and fiscal policy take

time to show up. The economy will feel like it is mired

in recession well past the point when GDP has begun

to grow.

U.S. ECONOMY | continued

Recent Quarterly IndicatorsEconomic Indicators (seasonally adjusted) 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08CPI–All Urban Consumers (year-over-year) 2.8% 2.7% 2.8% 4.1% 4.0% 5.0% 4.9% 0.1%PPI–All Commodities (year-over-year) 4.4% 4.6% 4.9% 7.9% 11.0% 15.5% 13.7% -4.1%Employment Cost–Total Compensation Growth 2.3% 3.5% 3.1% 3.5% 3.0% 2.3% 2.6% 2.4%Non-farm Business–Productivity Growth 0.7% 2.2% 6.3% 1.9% 2.6% 3.6% 1.3% 0.4%GDP Growth 0.1% 4.8% 4.8% -0.2% 0.9% 2.8% -0.5% -3.8%Manufacturing Capacity Utilization (level%) 79.8 80.3 79.8 79.2 78.7 77.5 75.5 72.3Consumer Sentiment Index (1966=1.000) 0.922 0.869 0.857 0.775 0.729 0.596 0.648 0.577Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, Reuters/University of Michigan

Quarterly Real GDP Growth (20 Years)

02 039089 91 92 93 94 95 96 97 98 99 00 01 04 05 06 07 08-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Source: Bureau of Economic Analysis


NOWHERE TO HIDE

DIVERSIFIED ACCOUNTS | Molly Jenkins

Extreme volatility and a dismal performance in the

fourth quarter of 2008 brought one of the worst years

in the history of the stock market to an end. As the

credit crisis of September carried over to October,

the U.S. government worked feverishly to provide

support. With the passage of the $700 billion rescue

plan (TARP), an infusion of capital flowed into banks

and auto manufacturers. Additionally, the Federal

Reserve cut its short-term rates to between 0% and

0.25%, the lowest it has been in 50 years. These

troubling times caused investors to turn to the safety

of government-backed U.S. Treasury bonds, igniting

a fixed income rally in late November through year

end. However, it did little to offset the substantial

equity declines (Russell 3000: -22.78% versus

Barclays Capital Aggregate: 4.58%). The results

overseas were very similar (MSCI EAFE: -19.95%

versus Citigroup Non-U.S. World Government Bond:

8.80%).

Using the median manager returns from the current

quarter and ending asset allocations from the prior

quarter, Callan estimates the recent total returns of

the institutional investor community.

The “Callan Style Group Returns” chart—illustrating

the median returns for public, corporate and Taft-

Hartley pension plans, as well as endow-

ments/foundations—shows double-digit losses for

each plan. The table on the next page compares the

returns of four types of institutional fund sponsors to

several benchmarks over longer time periods.

Choices in asset allocation, as seen in the charts

below, explain much of the difference in perform-

ance. Despite the major asset classes’ dispersion in

returns and extreme volatility in the markets, the

range of returns for corporate plans (-12.88%), pub-

lic plans (-13.08%) and endowments/foundations

(-13.62%) was relatively narrow for the quarter. This

is also true for the year as they fell about 25%. The

median Taft-Hartley plan was the exception, signifi-

cantly outperforming its institutional counterparts for

the quarter (-10.78%) as well as the year

(-21.97%).

Corporate-12.88**

41.5%

14.6%

34.7%

0.8%2.0%

3.0% 2.6%

Endowment/Foundation

-13.62**

16.5%

0.4%1.4%

18.9%

3.1%

39.3%

19.2%

Average Asset Allocation*

*as of 9/30/2008**latest median quarter return

U.S. EquityNon-U.S. Equity

U.S. FixedNon-U.S. Fixed

Real EstateAlternative InvestmentsCash

Taft-Hartley

-10.78**

38.9%

10.2%

37.1%

1.3%

8.9%2.4% 0.8%

Public-13.08**

15.8%

1.2%5.2%

4.2% 0.9%

40.1%

31.9%


In defensive markets, the most successful plans are

those with conservative allocations. All plan types

had very similar U.S. equity allocations, ranging from

38.9% to 41.5%. However, Taft-Hartley plans bene-

fited from maintaining the highest exposure to fixed

income (38.4%) and lowest exposure abroad

(11.5%). Meanwhile, endowments/foundations suf-

fered for the second quarter in a row due to their

aggressive allocation of alternative investments

(18.9%) and the lowest fixed income allocation

(19.6%).

Callan’s balanced manager groups generally main-

tain well-diversified portfolios and attempt to add

value by underweighting or overweighting asset

classes, as well as through stock selection. During

the quarter, both domestic balanced managers

(-14.01%) and global balanced managers (-14.01%)

had a hard time keeping up with the static 60% equi-

ty and 40% fixed income benchmarks, which had

returns of -11.84% and -10.96%, respectively. This

underperformance is probably due to the fixed

income portion of these accounts as it was very dif-

ficult to keep up with the Barclays Capital Aggregate

Index this quarter.


DIVERSIFIED ACCOUNTS | continued


Public Plan Corporate Plan End/Found Taft-HartleyDatabase Database Database Database




-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

Style Median and Index Returns* for Periods ended December 31, 2008Plan Sponsor Quarter Year 3 Years 5 Years 10 Years 15 YearsPublic Database -13.08 -25.27 -2.33 2.27 3.45 6.72Corporate Database -12.88 -25.44 -2.99 1.93 3.51 7.12Endowment/Foundations Database -13.62 -25.38 -2.31 1.95 3.41 7.26Taft-Hartley Database -10.78 -21.97 -1.92 2.08 3.33 6.55Diversified Manager Quarter Year 3 Years 5 Years 10 Years 15 YearsAsset Allocator Style -19.64 -35.51 -6.94 1.09 2.62 6.49Domestic Balanced Database -14.01 -25.09 -2.80 1.32 3.31 7.08Global Balanced Database -14.01 -30.40 -2.95 2.06 4.34 7.3860% Russell 3000 + 40% BC Aggregate -11.84 -21.79 -2.71 0.99 2.23 6.7360%MSCI World + 40% BCGlobal Agg -10.96 -24.36 -1.76 2.06 2.17 5.64

*Returns less than one year are not annualized.Source: Callan Associates Inc., Barclays Capital Inc., MSCI Inc., Russell Investment Group

Total Fund

‘

30

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 December 31, 2008, with the distribution as of September 30, 2008. Thechange in asset distribution is broken down into the dollar change due to Net NewInvestment and the dollar change due to Investment Return.

Asset Distribution Across Investment Managers

December 31, 2008 September 30, 2008Market Value Percent Net New Inv. Inv. Return Market Value Percent

Domestic Equities $1,328,752,752 36.11% $80,495,836 $(394,610,058) $1,642,866,974 38.24%Delta Asset Mgmt. 134,321,660 3.65% 6,300,000 (37,848,416) 165,870,076 3.86%INTECH 135,892,791 3.69% 4,200,000 (36,778,489) 168,471,280 3.92%TCW Asset Mgmt. 273,733,732 7.44% 16,100,000 (60,968,526) 318,602,258 7.42%Dodge & Cox 270,834,819 7.36% 16,400,000 (72,988,483) 327,423,302 7.62%GlobeFlex Capital 129,865,934 3.53% 17,200,000 (45,187,960) 157,853,894 3.67%TCW - Mid Cap Value 129,106,221 3.51% 7,100,000 (44,571,398) 166,577,619 3.88%Putnam - Small Cap Growth 60,499,051 1.64% 0 (22,128,955) 82,628,006 1.92%Wall Steet Associates 64,122,871 1.74% 6,900,000 (25,108,754) 82,331,625 1.92%Putnam - Small Cap Value -2 (0.00%) (150,114) (33,098) 183,210 0.00%Fisher - Small Cap Value 64,160,190 1.74% 6,445,951 (22,775,093) 80,489,331 1.87%DFA - Small Cap Value 66,215,485 1.80% (0) (26,220,887) 92,436,372 2.15%

International Equity $589,621,400 16.02% $82,695,491 $(137,387,058) $644,312,968 15.00%Brandes Investment 248,485,994 6.75% 9,100,000 (50,426,798) 289,812,792 6.75%McKinley Capital 237,241,256 6.45% 51,600,000 (53,809,397) 239,450,654 5.57%Putnam Int’l 10,525 0.00% (1) (113) 10,638 0.00%Globeflex International 54,991,730 1.49% 10,800,000 (22,332,420) 66,524,150 1.55%Grantham, Mayo, Van Otterloo 48,871,757 1.33% 11,200,000 (10,816,425) 48,488,182 1.13%Nicholas-Applegate 20,139 0.00% (4,509) (1,905) 26,552 0.00%

Domestic Fixed-Income $1,132,403,864 30.77% $(192,892,855) $(3,571,494) $1,328,868,212 30.93%Met West 329,371,633 8.95% (45,001,509) (12,138,260) 386,511,402 9.00%PIMCO 369,630,673 10.05% (49,000,000) 19,755,884 398,874,788 9.29%Fidelity 110,765,859 3.01% (29,645,029) 4,309,036 136,101,852 3.17%Salus Capital 110,842,665 3.01% (39,866,050) 1,417,179 149,291,536 3.48%SSI 98,958,631 2.69% (29,380,267) 2,171,794 126,167,103 2.94%Nicholas-Applegate 112,834,402 3.07% 0 (19,087,128) 131,921,531 3.07%

International Fixed $167,028,107 4.54% $(29,000,000) $9,068,045 $186,960,062 4.35%Rogge International 167,028,107 4.54% (29,000,000) 9,068,045 186,960,062 4.35%

Real Estate $443,425,893 12.05% $71 $(33,379,095) $476,804,918 11.10%California Smart Growth IV* 5,937,501 0.16% 0 0 5,937,501 0.14%Capmark* 7,162,068 0.19% 0 0 7,162,068 0.17%Cornerstone* 13,827,859 0.38% 0 0 13,827,859 0.32%Cornerstone Apartment Venture III* 6,094,775 0.17% 0 0 6,094,775 0.14%INVESCO* 66,615,212 1.81% 0 0 66,615,212 1.55%INVESCO Enhanced* 30,035,961 0.82% 0 0 30,035,961 0.70%INVESCO Enhanced II* 1,727,119 0.05% 0 0 1,727,119 0.04%RREEF Funds* 218,441,613 5.94% 0 0 218,441,613 5.09%Colony Investors VIII* 11,901,967 0.32% 0 0 11,901,967 0.28%Fidelity Real Estate Growth III* 4,712,363 0.13% 0 0 4,712,363 0.11%RREEF REITs 73,877,670 2.01% 71 (33,379,095) 107,256,695 2.50%

Securities Lending - - $(1,639,858) $1,639,858 - -

Cash Account $18,479,615 0.50% $2,371,735 $132,913 $15,974,967 0.37%

Total Fund $3,679,711,631 100.0% $(57,969,580) $(558,106,889) $4,295,788,099 100.0%

* Current quarter’s valuation is not available; 09/30/2008 valuation, provided by SDCERS’Real Estate Consultant, is used.

31San Diego City Employees’ Retirement System

Actual vs Target Asset AllocationThe top left chart shows the Fund’s asset allocation as of December 31, 2008. 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 Equity36%

International Equity16%

Domestic Fixed31%

International Fixed5%

Real Estate12%

Cash and Equivalents1%

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 1,328,753 36.1% 38.0% (1.9%) (69,538)International Equity 589,621 16.0% 17.0% (1.0%) (35,930)Domestic Fixed 1,132,404 30.8% 30.0% 0.8% 28,490International Fixed 167,028 4.5% 4.0% 0.5% 19,840Real Estate 443,426 12.1% 11.0% 1.1% 38,658Cash and Equivalents 18,480 0.5% 0.0% 0.5% 18,480Total 3,679,712 100.0% 100.0%

Asset Class Weights vs CAI Public Fund Sponsor Database

Wei

ghts

(10%)

0%

10%

20%

30%

40%

50%

60%

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

(72)(67)

(53)(56)

(50)(100)

(23)(34)(49)(37)

(56)(64)

10th Percentile 50.77 49.77 3.29 15.03 22.10 14.92 16.6525th Percentile 46.29 39.97 1.60 11.97 17.85 5.50 12.29

Median 41.00 31.24 0.47 9.50 15.16 4.95 8.3475th Percentile 33.57 25.78 0.12 6.16 12.59 1.40 4.3790th Percentile 24.43 21.13 0.02 3.64 9.21 0.55 1.00

Fund 36.11 30.77 0.50 12.05 16.02 4.54 -

Target 38.00 30.00 0.00 11.00 17.00 4.00 -

% Group Invested 96.97% 100.00% 53.85% 56.92% 96.92% 23.08% 36.92%

* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


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%

20% 20%

30% 30%

40% 40%

50% 50%

60% 60%

70% 70%

80% 80%

90% 90%

100% 100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Global Equity BroadHedge Fund-of-FundsGlobal BalancedShort Term-CashOther AlternativesIntl Fixed-IncReal EstateIntl EquityDomestic FixedDomestic Broad Eq

* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


TOTAL FUNDPERIOD ENDED DECEMBER 31, 2008

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% BC 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% NAREIT Global, 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 (12.96)% return for the quarter placing it in the 48 percentile of the CAI PublicFund Sponsor Database group for the quarter and in the 62 percentile for the last year.

Total Fund’s portfolio outperformed the Performance Benchmark by 0.49% for the quarter andunderperformed the Performance Benchmark for the year by 2.76%.

Performance vs CAI Public Fund Sponsor Database

(35%)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

Last Last Last 3 Last 5 Last 10 Last 19-3/4Quarter Year Years Years Years Years

A(48)B(48)(64)

A(62)B(62)

(31)

A(69)B(69)

(39)

A(42)B(42)(43)

A(4)B(4)(24)

B(6)A(16)(81)

10th Percentile (8.85) (19.84) (0.47) 3.81 4.67 8.5825th Percentile (11.55) (22.66) (1.41) 3.00 3.90 8.37

Median (13.08) (25.27) (2.33) 2.27 3.45 7.9375th Percentile (14.11) (27.14) (3.41) 1.14 2.92 7.7390th Percentile (15.74) (29.71) (4.77) 0.61 2.31 7.30

Total Fund A (12.96) (26.38) (3.07) 2.47 5.03 8.45Total ex Options B (12.96) (26.38) (3.07) 2.47 5.03 8.75

Performance Benchmark (13.45) (23.62) (2.09) 2.43 4.01 7.61

Relative Return vs Performance Benchmark

Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

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4%

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Total Fund

CAI Public Fund Sponsor DatabaseAnnualized Nineteen And Three-Quarter Year Risk vs Return

7 8 9 10 11 126.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

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.

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

2008 2007 2006 2005 2004

(62)(31)

(48)(60)

(46)(48)(18)(62)

(4)(31)

10th Percentile (19.84) 10.87 15.76 9.34 13.1325th Percentile (22.66) 9.57 15.05 8.61 12.31

Median (25.27) 8.20 14.04 7.54 11.4775th Percentile (27.14) 6.86 12.29 5.86 10.1790th Percentile (29.71) 6.15 10.37 4.23 8.26

Total Fund (26.38) 8.28 14.25 8.86 13.97

Total Fund Benchmark (23.62) 7.63 14.19 7.08 12.18

(20%)

(10%)

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40%

2003 2002 2001 2000 1999

(4)

(30)

(37)(24)(24)(23)

(19)(50)

(18)(55)

10th Percentile 26.12 (3.07) 0.20 5.80 18.5425th Percentile 23.99 (5.96) (1.79) 3.73 16.93

Median 21.14 (8.26) (3.46) 1.31 14.0375th Percentile 19.68 (9.52) (5.38) (0.75) 11.1090th Percentile 14.55 (11.46) (6.67) (2.17) 7.73

Total Fund 28.58 (7.20) (1.75) 4.57 17.90

Total Fund Benchmark 23.08 (5.66) (1.74) 1.29 13.67


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 December 31, 2008

(4)

(3)

(2)

(1)

0

1

2

Alpha TreynorRatio

(37)

(37)

10th Percentile 1.26 0.5125th Percentile 0.56 (0.31)

Median (0.12) (0.97)75th Percentile (1.13) (2.00)90th Percentile (1.79) (2.69)

Total Fund 0.17 (0.72)

(1.5)

(1.0)

(0.5)

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1.0

Information Sharpe Excess ReturnRatio Ratio Ratio

(38)(39) (42)

10th Percentile 0.66 0.06 0.5825th Percentile 0.40 (0.02) 0.25

Median (0.08) (0.10) (0.09)75th Percentile (0.69) (0.20) (0.54)90th Percentile (1.14) (0.27) (0.95)

Total Fund 0.09 (0.07) 0.01


Ten Years Ended December 31, 2008

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Alpha TreynorRatio

(5)(7)

10th Percentile 0.66 1.2325th Percentile (0.04) 0.40


Total Fund 1.00 1.41

(1.0)(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.8


(4)

(8)

(3)

10th Percentile 0.30 0.12 0.2525th Percentile (0.02) 0.05 (0.03)


Total Fund 0.60 0.14 0.49


Nineteen And Three-Quarter Years Ended December 31, 2008

(1)

0

1

2

3

4

5

Alpha TreynorRatio

(16)

(19)


Median 0.11 3.2575th Percentile (0.05) 3.0690th Percentile (0.40) 2.76

Total Fund 0.67 3.84

(0.3)(0.2)(0.1)

0.00.10.20.30.40.50.6


(16)(19) (11)

10th Percentile 0.42 0.46 0.4225th Percentile 0.20 0.38 0.24

Median 0.05 0.35 0.1075th Percentile (0.02) 0.33 0.0590th Percentile (0.16) 0.30 (0.13)

Total Fund 0.33 0.42 0.38 36

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.

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

2008 2007 2006 2005 2004

(62)(31)

(48)(60)

(46)(48)(18)(62)

(4)(31)

10th Percentile (19.84) 10.87 15.76 9.34 13.1325th Percentile (22.66) 9.57 15.05 8.61 12.31

Median (25.27) 8.20 14.04 7.54 11.4775th Percentile (27.14) 6.86 12.29 5.86 10.1790th Percentile (29.71) 6.15 10.37 4.23 8.26

Total Fundex Options (26.38) 8.28 14.25 8.86 13.97

Total Fund Benchmark (23.62) 7.63 14.19 7.08 12.18

(20%)

(10%)

0%

10%

20%

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40%

2003 2002 2001 2000 1999

(4)

(30)

(37)(24)(24)(23)

(19)(50)

(18)(55)

10th Percentile 26.12 (3.07) 0.20 5.80 18.5425th Percentile 23.99 (5.96) (1.79) 3.73 16.93

Median 21.14 (8.26) (3.46) 1.31 14.0375th Percentile 19.68 (9.52) (5.38) (0.75) 11.1090th Percentile 14.55 (11.46) (6.67) (2.17) 7.73

Total Fundex Options 28.58 (7.20) (1.75) 4.57 17.90

Total Fund Benchmark 23.08 (5.66) (1.74) 1.29 13.67


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



(4)

(3)

(2)

(1)

0

1

2

Alpha TreynorRatio

(37)

(37)



Total Fundex Options 0.17 (0.72)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0


(38)(39) (42)



Total Fundex Options 0.09 (0.07) 0.01



(2.0)(1.5)(1.0)(0.5)

0.00.51.01.52.0

Alpha TreynorRatio

(5)(7)

10th Percentile 0.66 1.2325th Percentile (0.04) 0.40


Total Fundex Options 1.00 1.41

(1.0)(0.8)(0.6)(0.4)(0.2)

0.00.20.40.60.8


(4)

(8)

(3)

10th Percentile 0.30 0.12 0.2525th Percentile (0.02) 0.05 (0.03)


Total Fundex Options 0.60 0.14 0.49


Nineteen And Three-Quarter Years Ended December 31, 2008

(1)

0

1

2

3

4

5

Alpha TreynorRatio

(13)

(16)



Total Fundex Options 0.86 3.99

(0.3)(0.2)(0.1)

0.00.10.20.30.40.50.60.7


(8) (14)(4)


Median 0.05 0.35 0.1075th Percentile (0.02) 0.33 0.0590th Percentile (0.16) 0.30 (0.13)

Total Fundex Options 0.47 0.43 0.54 38

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 December 31, 2008.Negative returns are shown in red, positive returns in black. Returns for one year or greaterare annualized. The first set of returns for each asset class represents the composite returnsfor all the fund’s accounts for that asset class.

Returns and Rankings for Periods Ended December 31, 2008

Market Last Last LastValue Ending Last Last 3 5 10

$(Dollars) Weight Quarter Year Years Years Years

Domestic Equity

Large Cap $814,783,003 61.32% (21.16%) (38.53%) (10.09%) (2.34%) (0.89%)34 63 76 70 70 Standard & Poor’s 500 - - (21.94%) (37.00%) (8.36%) (2.19%) (1.38%)53 51 50 68 75CAI Large Cap Style - - (21.88%) (36.87%) (8.38%) (1.36%) 0.49%50 50 50 50 50

Large Cap CoreDelta* 134,321,660 10.11% (22.43%) (38.19%) (8.14%) (2.32%) (0.51%)66 72 51 78 71INTECH* 135,892,791 10.23% (21.60%) (36.50%) (7.87%) - -44 51 45 Standard & Poor’s 500 - - (21.94%) (37.00%) (8.36%) (2.19%) (1.38%)59 62 57 77 90CAI Large Cap Core Style - - (21.76%) (36.44%) (8.11%) (1.29%) (0.01%)50 50 50 50 50

Large Cap GrowthTCW* 273,733,732 20.60% (19.06%) (36.59%) (11.32%) (3.58%) -5 26 79 73 Russell 1000 Growth - - (22.79%) (38.44%) (9.11%) (3.42%) (4.27%)52 39 52 67 87CAI Lrg Cap Growth Style - - (22.66%) (39.75%) (8.95%) (2.72%) (2.12%)50 50 50 50 50

Large Cap ValueDodge & Cox* 270,834,819 20.38% (22.31%) (41.54%) (11.11%) (1.50%) -62 85 82 70 Russell 1000 Value - - (22.18%) (36.85%) (8.32%) (0.79%) 1.36%60 59 58 57 67CAI Large Cap Value Style - - (21.39%) (36.20%) (7.71%) (0.25%) 2.14%50 50 50 50 50

Mid Cap $258,972,155 19.49% (27.20%) (40.75%) (10.20%) (0.65%) 5.02%73 50 63 62 37 S&P MidCap 400 - - (25.55%) (36.23%) (8.76%) (0.08%) 4.46%48 19 38 51 43CAI Mid Cap Style - - (25.68%) (40.78%) (9.48%) 0.10% 4.27%50 50 50 50 50

Mid Cap Core GrowthGlobeFlex 129,865,934 9.77% (28.31%) (44.89%) (10.45%) 1.05% 6.14%84 78 70 36 23 S&P MidCap 400 - - (25.55%) (36.23%) (8.76%) (0.08%) 4.46%48 19 38 51 43CAI Mid Cap Style - - (25.68%) (40.78%) (9.48%) 0.10% 4.27%50 50 50 50 50

Mid Cap ValueTCW* 129,106,221 9.72% (26.23%) (36.40%) (10.10%) (2.65%) -72 44 65 89 Russell Midcap Value - - (27.19%) (38.44%) (9.98%) 0.33% 4.44%80 62 64 60 75CAI Mid Cap Value Style - - (23.95%) (37.25%) (8.95%) 1.19% 6.46%50 50 50 50 50

Small Cap $254,997,595 19.19% (27.87%) (40.70%) (12.30%) (1.98%) 6.32%69 67 73 59 29 Russell 2000 Index - - (26.12%) (33.79%) (8.29%) (0.93%) 3.02%45 30 32 48 71CAI Small Cap Style - - (26.43%) (37.73%) (9.65%) (1.04%) 4.86%50 50 50 50 50

Small Cap GrowthPutnam* 60,499,051 4.55% (26.78%) (42.04%) (11.86%) (3.40%) 2.61%43 36 61 56 41Wall Street Micro Cap 64,122,871 4.83% (29.23%) (46.67%) (13.43%) (2.23%) 5.37%68 77 81 42 18 Russell 2000 Growth - - (27.45%) (38.54%) (9.32%) (2.35%) (0.76%)57 15 41 45 87CAI Sm Cap Growth Style - - (26.96%) (43.24%) (10.38%) (3.27%) 1.94%50 50 50 50 50

Small Cap ValuePutnam^ -2 - - - - - -Fisher^^ 64,160,190 4.83% (27.36%) - - - -60DFA 66,215,485 4.98% (28.37%) (34.74%) (10.02%) 0.40% 8.70%68 66 67 36 22 Russell 2000 Value - - (24.89%) (28.92%) (7.49%) 0.27% 6.11%33 17 28 38 63CAI Small Cap Value Style - - (25.73%) (32.90%) (9.41%) (0.39%) 6.88%50 50 50 50 50

Domestic Equity**Total Domestic Equity 1,328,752,752 100.00% (23.72%) (39.38%) (10.50%) (1.87%) 1.97%85 84 87 53 7 Domestic Equity Benchmark - - (23.50%) (36.12%) (8.33%) (1.45%) 0.75%77 18 34 29 27 Russell 3000 Index - - (22.78%) (37.31%) (8.63%) (1.95%) (0.80%)38 52 45 56 77Public Fund - Dom Equity - - (23.03%) (37.16%) (8.85%) (1.82%) (0.02%)50 50 50 50 50

* indicates watchlist manager** Total Domestic Equity returns includes the historical performance of the Options Program^ Manager was terminated during 3rd quarter, 2008.^^ Manager was added during 3rd quarter, 2008. San Diego City Employees’ Retirement System 39





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

Brandes 248,485,994 - (17.04%) (37.50%) (4.00%) 4.96% 8.51%19 13 19 12 2McKinley Capital 237,241,256 - (19.51%) (47.96%) - - -34 86Putnam^ 10,525 - - - - - - MSCI AC Wld Free exUS Idx - - (22.29%) (45.24%) (6.57%) 3.00% 2.27%75 67 47 40 68 Custom Intl Benchmark*** - - (22.29%) (45.24%) (6.57%) 3.00% 2.34%75 67 47 40 68CAI Non-U.S. Equity Style - - (20.47%) (43.17%) (6.71%) 2.61% 3.28%50 50 50 50 50

Small CapGlobeFlex International 54,991,730 - (29.91%) (56.38%) - - -96 95GMO (Gross)* 48,871,757 - (21.73%) (43.83%) (5.92%) 5.38% -32 21 12 26Nicholas-Applegate^^ 20,139 - - - - - - Int’l Small Cap Benchmark+ - - (23.83%) (47.68%) (10.09%) 2.70% 4.74%58 48 54 67 86CAI Int’l Small Cap Style - - (23.19%) (48.06%) (10.01%) 4.30% 7.85%50 50 50 50 50

International EquityTotal Intl Equity 589,621,400 - (19.68%) (44.34%) (6.88%) 3.07% 5.90%31 63 63 37 10 Int’l Equity Benchmark - - (22.60%) (45.73%) (7.26%) 2.96% 2.87%93 85 74 41 59Public Fund - Intl Equity - - (20.60%) (43.56%) (6.42%) 2.81% 3.51%50 50 50 50 50

* indicates watchlist manager*** Custom Benchmark consists of 85% EAFE/15% Emerging through 12/31/03 and100% All Country World ex-US Free thereafter.+ Int’l Small Cap 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.^^ Manager was terminated during the 3rd quarter, 2007.






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

Met West* 329,371,633 - (3.35%) (7.19%) 1.97% 2.83% -73 70 49 50PIMCO 369,630,673 - 5.66% 5.43% 6.54% 5.82% 6.59%1 1 1 1 3 Barclays Capital Aggregate - - 4.58% 5.24% 5.51% 4.65% 5.63%2 2 5 9 25CAI FI Core Plus Style - - (0.71%) (5.21%) 1.81% 2.79% 5.13%50 50 50 50 50

Market NeutralPyramis 110,765,859 - 3.55% (7.92%) 7.57% 7.90% -10 85 17 18Salus 110,842,665 - 1.32% 22 0.14% 45 4.38% 44 3.80% 50 3.82% 79SSI* 98,958,631 - 1.67% (3.96%) 0.19% 1.02% -18 70 81 88 T-Bills + 3% - - 0.97% 5.06% 6.96% 6.25% 6.45%35 28 19 26 6 Merrill 1-5 Yr Govt/Corp - - 3.04% 4.65% 5.38% 3.85% 5.02%12 30 28 50 31CAI Market Neutral Sty - - 0.74% (0.14%) 3.97% 3.87% 4.22%50 50 50 50 50

ConvertiblesNicholas Applegate 112,834,402 - (14.47%) (27.84%) (1.74%) 2.82% 4.85%56 40 20 9 26 Convertible Benchmark++ - - (18.63%) (35.73%) (8.84%) (3.93%) 1.67%79 81 85 88 90CAI Convertible Bond DB - - (14.12%) (30.50%) (4.84%) (0.24%) 4.17%50 50 50 50 50

Total Domestic FixedDomestic Fixed 1,132,403,864 - (0.08%) (4.80%) 3.68% 4.14% 5.10%73 77 57 46 64 Domestic Fixed Benchmark - - 1.80% 0.45% 4.05% 3.58% 5.09%53 49 49 58 64Public Fund - Dom Fixed - - 1.95% 0.22% 3.90% 4.01% 5.40%50 50 50 50 50

International Fixed IncomeRogge* 167,028,107 - 6.12% 5.10% 7.04% 5.03% 4.90%93 90 83 81 86 SSB Non-U.S. Govt Bond - - 8.80% 10.11% 9.49% 5.97% 5.59%15 24 15 32 34CAI Non-U.S. F-I Style - - 8.28% 8.73% 8.50% 5.55% 5.24%50 50 50 50 50

Real EstateTotal Real Estate** 443,425,893 - (4.56%) 76 (8.27%) 78 9.58% 62 14.53% 43 12.76% 25 Real Estate Benchmark*** - - 1.07% 19 0.87% 51 11.45% 53 14.04% 46 11.95% 31

RREEF REITs Composite 73,877,670 - (31.12%) (39.61%) (10.30%) 1.92% 9.57%RREEF REITs**** 73,877,670 - (31.12%) - - - - EPRA/NAREIT Global Idx - - (32.38%) (47.72%) (11.53%) 1.96% 6.63%

Total FundTotal Fund 3,679,711,631 - (12.96%) (26.38%) (3.07%) 2.47% 5.03%48 62 69 42 4TF Ex Private Real Estate 3,310,163,408 - (14.18%) (28.19%) (4.09%) 1.72% 4.52%76 86 82 66 12 Total Fund Benchmark - - (13.45%) (23.62%) (2.09%) 2.43% 4.01%64 31 39 43 24Public Fund Sponsor DB - - (13.08%) (25.27%) (2.33%) 2.27% 3.45%50 50 50 50 50

* indicates watchlist manager** Total Real Estate valuation data uses Private Real Estate data, provided by SDCERS’ Real EstateConsultant, through September 30, 2008, and Public Real Estate data through December 31, 2008.Return and ranking data is calculated as of period ended September 30, 2008.*** Real Estate Benchmark return and ranking data calculated as of period ended September 30, 2008.**** Fund changed to the RREEF Global REIT in September, 2008. Prior composite history reflects the RREEF Domestic REIT.++ Convertible Benchmark consists of First Boston Convertible Index through December 31, 2004 andthe Merrill Lynch All U.S. Convertibles Index 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%

200%

300%

400%

500%

600%

700%

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Total FundTotal Fund TargetActuarial Expected Return

Nineteen And Three-Quarter Year Annualized Risk vs Return

7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0%6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

Total Fund

Total Fund Target

Standard Deviation

Ret

urns

Triangles represent membership of the CAI Public Fund Sponsor Database* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


TOTAL FUNDRISK ANALYSIS SUMMARY

Risk AnalysisThe graphs below analyze the risk or variation of a manager’s return pattern. The first scatter chart illustrates the

relationship, called Excess Return Ratio, between excess return and tracking error relative to the benchmark. The secondscatter chart displays the relationship, sometimes called Information Ratio, between alpha (market-risk or "beta" adjustedreturn) and residual risk (non-market or "unsystematic" risk). The third chart shows tracking error patterns versus thebenchmark over time. The last two charts show the ranking of the manager’s risk statistics versus the peer group.

Risk Analysis vs CAI Public Fund Sponsor DatabaseFive Years Ended December 31, 2008

0 2 4 6 8 10 12(5 )

(4 )

(3 )

(2 )

(1 )

0

1

2

3

4

5

Total Fund

Tracking Error

Exc

ess

Ret

urn

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5(4 )

(3 )

(2 )

(1 )

0

1

2

3

4

5

6

Total Fund

Residual Risk

Alp

ha

Rolling 20 Quarter Tracking Error vs Performance Benchmark

Tra

ckin

g E

rror

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

2004 2005 2006 2007 2008

Total FundPublic Fund Sponsor DB

Risk Statistics Rankings vs Performance BenchmarkRankings Against CAI Public Fund Sponsor Database


0%

2%

4%

6%

8%

10%

12%

14%

Standard Downside Residual TrackingDeviation Risk Risk Error

(30)

(37) (30) (41)

10th Percentile 11.58 2.68 2.43 3.4325th Percentile 10.70 2.02 2.01 2.64

Median 10.06 1.43 1.59 1.9175th Percentile 9.35 1.08 1.34 1.5790th Percentile 8.02 0.84 1.21 1.31

Total Fund 10.57 1.68 1.92 2.15

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Beta R-Squared Rel. Std.Deviation

(31)

(64)

(30)


Median 1.04 0.97 1.0575th Percentile 0.96 0.96 0.9890th Percentile 0.82 0.93 0.84

Total Fund 1.10 0.97 1.10


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

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

Domestic Equity 1.6%

Domestic Fixed (1.2%)

Real Estate 0.1%

International Equity (0.9%)

International Fixed 0.0%

Cash and Equivalents 0.4%

Domestic Equity

Domestic Fixed

Real Estate

International Equity

International Fixed

Cash and Equivalents

Total

Actual vs Target Returns

(30%) (20%) (10%) 0% 10% 20%

(23.7%)(23.5%)

(0.1%)1.8%

(7.0%)(14.3%)

(19.7%)(22.6%)

6.1%8.8%

0.5%0.5%

(13.0%)(13.5%)

Actual Target

Attribution by Asset Class

(1.0%) (0.5%) 0.0% 0.5% 1.0%

(0.07%)(0.10%)

(0.45%)(0.12%)

0.74%(0.00%)

0.42%0.09%

(0.09%)0.01%

0.06%

0.55%(0.06%)

Manager Effect Asset Allocation

Attribution for Quarter ended December 31, 2008

Effective Target Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 40% 38% (23.72%) (23.50%) (0.07%) (0.10%)Domestic Fixed 29% 30% (0.08%) 1.80% (0.45%) (0.12%)Real Estate 11% 11% (7.00%) (14.31%) 0.74% (0.00%)International Equity 16% 17% (19.68%) (22.60%) 0.42% 0.09%International Fixed 4% 4% 6.12% 8.80% (0.09%) 0.01%Cash and Equivalents 0% 0% 0.53% 0.53% 0.00% 0.06%

Total = + +(12.96%) (13.45%) 0.55% (0.06%)* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


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 December 31,2008.

One Year Cumulative Attribution Effects

(4%) (3%) (2%) (1%) 0% 1%

Domestic Equity(1.46%)

(0.11%)

Domestic Fixed(1.23%)

(0.12%)

Real Estate(0.01%)

(0.06%)

International Equity0.24%

0.03%

International Fixed(0.15%)

0.01%


Total(2.63%)

(0.13%)


Cumulative Attribution Effects

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

2008

Manager EffectAsset AllocationTotal

One Year Cumulative Attribution Effects

Effective Avg Trgt Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 39% 38% (39.38%) (36.12%) (1.46%) (0.11%)Domestic Fixed 29% 30% (4.80%) 0.45% (1.23%) (0.12%)Real Estate 10% 11% (12.56%) (12.71%) (0.01%) (0.06%)International Equity 17% 17% (44.34%) (45.73%) 0.24% 0.03%International Fixed 4% 4% 5.10% 10.10% (0.15%) 0.01%Cash and Equivalents 0% 0% 3.59% 3.59% 0.00% 0.09%

Total = + +(26.38%) (23.62%) (2.63%) (0.13%)* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


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 December 31,2008.

Five Year Annualized Cumulative Attribution Effects

(0.3%) (0.2%) (0.1%) 0.0% 0.1% 0.2% 0.3%

Domestic Equity(0.15%)

(0.04%)

Domestic Fixed0.17%

(0.03%)

Real Estate0.08%

(0.07%)

International Equity(0.01%)

0.11%

International Fixed(0.03%)

0.01%


Total0.04%

0.00%


Cumulative Attribution Effects

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

7%

2004 2005 2006 2007 2008

Manager EffectAsset AllocationTotal

Five Year Annualized Cumulative Attribution Effects

Effective Avg Trgt Actual Target Manager AssetAsset Class Weight Weight Return Return Effect AllocationDomestic Equity 39% 38% (1.87%) (1.45%) (0.15%) (0.04%)Domestic Fixed 31% 31% 4.14% 3.58% 0.17% (0.03%)Real Estate 9% 10% 10.82% 9.74% 0.08% (0.07%)International Equity 17% 16% 3.07% 2.96% (0.01%) 0.11%International Fixed 4% 5% 5.03% 5.97% (0.03%) 0.01%Cash and Equivalents 0% 0% 3.70% 3.70% 0.00% 0.02%

Total = + +2.47% 2.43% 0.04% 0.00%* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5 Govt/Corp, 8.3% NCREIF TotalIndex, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt Bd Idx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8%EPRA/NAREIT Global Idx.


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 December 31, 2008

Ret

urns

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

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

(84)(18)

(63)(85)

(77)(49)

(90)(24)

10th Percentile (35.25) (39.21) 5.41 11.5125th Percentile (36.48) (41.39) 4.04 10.02

Median (37.16) (43.56) 0.22 8.7375th Percentile (38.41) (45.22) (4.14) 7.8790th Percentile (40.37) (46.39) (10.19) 5.22

Asset ClassComposite (39.38) (44.34) (4.80) 5.10

Composite Benchmark (36.12) (45.73) 0.45 10.11

WeightedRanking

78

Total Asset Class PerformanceFive Years Ended December 31, 2008

Ret

urns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

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

(53)(29)

(37)(41)

(46)(58)

(81)(32)

10th Percentile (0.47) 4.54 5.03 6.5725th Percentile (1.23) 3.38 4.70 6.04

Median (1.82) 2.81 4.01 5.5575th Percentile (2.62) 2.14 2.96 5.2490th Percentile (3.00) 0.91 1.53 3.82

Asset ClassComposite (1.87) 3.07 4.14 5.03

Composite Benchmark (1.45) 2.96 3.58 5.97

WeightedRanking

49

* Current Quarter Target = 22.8% S&P 500 Index, 18.0% BC Aggregate Index, 13.6% MSCI ACWI ex-US Index, 9.0% ML 1-5Govt/Corp, 8.3% NCREIF Total Index, 7.6% Russell 2000 Index, 7.6% S&P Mid Cap 400 Index, 4.0% Citi Non-US Gvt BdIdx, 3.4% EMI World ex US Index, 3.0% ML All Conv and 2.8% EPRA/NAREIT Global Idx.


Dom

estic Equity

‘

DOMESTIC EQUITYActive Management Overview

Active vs. the IndexThe fourth quarter was another tumultuous quarter for equities. The presidential election is over and Barack Obama hasmade the economy his number one priority. On December 16th, the Federal Open Market Committee decided toestablish a target range of 0% to 0.25% for the federal funds rate. The -31.93% 2008 return for the Dow Jones is the 3rdworst on record. It is now abundantly clear that this is one of the worst recessions in our history. Active managers wereclose to their respective benchmarks, with nearly all styles and groups underperforming their benchmarks for the fourthquarter. The notable exception was the median Large Cap Value fund which beat the S&P 500 Value Index by 243basis points. The median manager for each of the style groups shown lost over 30% for the year ending 2008. The onlystyle groups that beat their indices were Large Cap Core and Large Cap Value which beat the S&P 500 and the S&P500 Value index by 56 and 302 basis points, respectively.

Large Cap vs. Small CapThere was no shortage of institutions that needed to be rescued by the Federal Government. Citigroup, one of thelargest and most prestigious banks in the world, entered into a loss sharing program with the U.S. Goverment and willabsorb the first $29 billion of its $301 billion worth of troubled assets, with the government injecting another $20billion. After that, the government will take on any additional losses. The auto industry has had a much harder timesecuring government loans, but before 2008 came to an end the White House agreed to lend General Motors andChrysler $17.4 billion. Small Cap funds across all styles performed worse than Large Cap funds for the fourth quarter.This is evident by the S&P 500 return which was 323 basis points higher than the S&P 600 return. This trend isreversed for the year ended December 31, 2008, with the S&P 600 outperforming the S&P 500 by 593 basis points.

Growth vs. ValueValue funds outperformed growth funds for the fourth quarter and for the latest twelve months. There were somedistinct trends by sector. Investors fearful of a further downturn in the economy have fled the consumer staples andhealth care sectors less than other sectors. This is a typical recession pattern with investors confident that consumerswill continue to buy food and medicine regardless of market conditions. The median Large Cap Value fund posted areturn 127 basis points above its Growth counterpart. The median Small Cap Value fund also outperformed the medianSmall Cap Growth fund. For the year ended December 31, 2008 the same trend holds true, with Small Cap Valueposting a return 1,025 basis points above Small Cap Growth. Large Cap Value outperformed Large Cap Growth, butthe spread was not as dramatic as Small Cap.

Separate Account Style Group Median Returnsfor Quarter Ended December 31, 2008

(35%)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0%

(26.96%)

Small CapGrowth

(25.73%)

Small CapValue

(26.43%)

Small CapBroad

(26.44%)

Mid CapGrowth

(23.95%)

Mid CapValue

(25.68%)

Mid CapBroad

(22.66%)

Large CapGrowth

(21.39%)

Large CapValue

(21.76%)

LargeCap Core

Ret

urns

S&P 500: (21.94%)S&P 500 Growth: (20.24%)S&P 500 Value: (23.82%)S&P Mid Cap: (25.55%)S&P 600: (25.17%)S&P 600 Growth: (25.90%)S&P 600 Value: (24.52%)

Separate Account Style Group Median Returnsfor One Year Ended December 31, 2008

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

(43.24%)

Small CapGrowth

(32.90%)

Small CapValue

(37.73%)

Small CapBroad

(44.14%)

Mid CapGrowth

(37.25%)

Mid CapValue

(40.78%)

Mid CapBroad

(39.75%)

Large CapGrowth

(36.20%)

Large CapValue

(36.44%)

LargeCap Core

Ret

urns

S&P 500: (37.00%)S&P 500 Growth: (34.92%)S&P 500 Value: (39.22%)S&P Mid Cap: (36.23%)S&P 600: (31.07%)S&P 600 Growth: (32.94%)S&P 600 Value: (29.51%)


DOMESTIC EQUITY COMPOSITEPERIOD ENDED DECEMBER 31, 2008

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 (23.72)% return for the quarter placing it in the 85 percentileof the Public Fund - Domestic Equity group for the quarter and in the 84 percentile for the last year.

Domestic Equity Composite’s portfolio underperformed the Blended Benchmark by 0.22% for the quarter andunderperformed the Blended Benchmark for the year by 3.26%.

Performance vs Public Fund - Domestic Equity

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


A(85)B(85)(77)

A(84)B(84)

(18)

A(87)B(87)

(34)

A(53)B(53)(29)

A(7)B(7)(27)

B(11)A(30)(61)

10th Percentile (21.59) (35.25) (6.95) (0.47) 1.53 9.3225th Percentile (22.44) (36.48) (8.06) (1.23) 0.87 8.72

Median (23.03) (37.16) (8.85) (1.82) (0.02) 8.3375th Percentile (23.48) (38.41) (9.55) (2.62) (0.76) 7.3390th Percentile (23.94) (40.37) (10.82) (3.00) (1.14) 6.85

DomesticEquity Composite A (23.72) (39.38) (10.50) (1.87) 1.97 8.60

DomesticEquity: Ex-Options B (23.72) (39.38) (10.50) (1.87) 1.97 9.23

Blended Benchmark (23.50) (36.12) (8.33) (1.45) 0.75 7.88

Relative Return vs Blended Benchmark

Rel

ativ

e R

etur

ns

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic Equity Composite

Public Fund - Domestic EquityAnnualized Ten Year Risk vs Return

14 15 16 17 18 19 20 21(2%)

(1%)

0%

1%

2%

3%

4%

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

(60%)

(40%)

(20%)

0%

20%

40%

60%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

B(52)A(84)

18

A(30)B(52)64

B(23)A(96)32 A(9)

B(66)58A(6)B(70)25

A(1)B(54)17

B(60)A(61)24

A(17)B(81)

22A(5)B(83)34

A(24)B(45)52

10th Percentile (35.25) 8.91 16.48 9.31 14.74 36.10 (18.75) (5.66) 1.05 27.7525th Percentile (36.48) 6.61 15.62 7.98 13.47 32.95 (20.34) (7.12) (1.60) 22.67

Median (37.16) 5.35 14.61 6.56 12.61 31.24 (21.17) (9.67) (4.62) 20.7475th Percentile (38.41) 4.23 13.83 5.88 11.65 29.70 (22.26) (11.10) (6.87) 17.3290th Percentile (40.37) 3.05 13.15 5.06 10.73 28.32 (23.53) (12.66) (8.86) 13.87

DomesticEquity Composite A(39.38) 6.19 11.38 9.39 16.00 43.68 (21.56) (6.19) 2.97 22.68

Russell 3000 Index B(37.31) 5.14 15.72 6.12 11.95 31.06 (21.54) (11.46) (7.46) 20.90

Blended Benchmark (36.12) 4.58 15.32 6.36 13.49 33.69 (20.24) (6.78) (2.87) 20.05

Rolling 12 Quarter and Quarterly Relative Return vs Blended Benchmark

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic Equity Composite Russell 3000 Index Public Fund - Dom Equity

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


(6)(5)(4)(3)(2)(1)

0123

Alpha TreynorRatio

A(3)

B(76) A(7)

B(76)

10th Percentile 0.84 (1.90)25th Percentile 0.06 (2.61)


DomesticEquity Composite A 1.57 (1.38)

Russell 3000 Index B (1.65) (4.40)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0


A(2)

B(83)

A(7)B(76)

A(5)

B(86)

10th Percentile 0.28 (0.10) 0.3325th Percentile 0.02 (0.14) 0.03


DomesticEquity Composite A 0.68 (0.08) 0.46

Russell 3000 Index B (0.76) (0.24) (0.70)


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

over various time periods ended December 31, 2008. Negative returns are shown in red,positive returns in black. Returns for one year or greater are annualized. The first set ofreturns for each asset class represents the composite returns for all the fund’s accounts forthat asset class.

Returns for Periods Ended December 31, 2008

Last Last LastLast Last 3 5 10

Quarter Year Years Years YearsLarge Cap Equity (21.16%) (38.53%) (10.09%) (2.34%) (0.89%)

Standard & Poor’s 500 (21.94%) (37.00%) (8.36%) (2.19%) (1.38%)CAI Large Capitalization Style (21.88%) (36.87%) (8.38%) (1.36%) 0.49%

Mid Cap Equity (27.20%) (40.75%) (10.20%) (0.65%) 5.02%S&P Mid Cap 400 Index (25.55%) (36.23%) (8.76%) (0.08%) 4.46%CAI Mid Capitalization Style (25.68%) (40.78%) (9.48%) 0.10% 4.27%

Small Cap Equity (27.87%) (40.70%) (12.30%) (1.98%) 6.32%Russell 2000 Index (26.12%) (33.79%) (8.29%) (0.93%) 3.02%CAI Small Capitalization Style (26.43%) (37.73%) (9.65%) (1.04%) 4.86%


DOMESTIC EQUITY COMPOSITEEQUITY CHARACTERISTICS ANALYSIS SUMMARY

Portfolio CharacteristicsThis graph compares the manager’s portfolio characteristics with the range of characteristics for the portfolios

which make up the manager’s style group. This analysis illustrates whether the manager’s current holdings are consistentwith other managers employing the same style.

Portfolio Characteristics Percentile RankingsRankings Against CAI All Cap: Broad

as of December 31, 2008

Perc

entil

e R

anki

ng

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Weighted Median Price/Fore- Price/Book Forecasted Dividend MSCIMarket Cap casted Earnings Earnings Growth Yield Combined Z-Score

(68)

(20)(27)(30)

(56)

(44) (44)

(66)

(56)

(27)

(44)(50)

10th Percentile 40.24 14.29 2.74 18.62 3.58 1.2825th Percentile 22.46 12.83 2.20 16.10 2.92 0.98

Median 11.79 10.90 1.58 12.26 2.39 (0.01)75th Percentile 7.33 9.93 1.28 10.14 0.94 (0.34)90th Percentile 4.41 9.28 0.98 9.26 0.48 (0.59)

DomesticEquity Composite 9.12 11.97 1.50 13.45 1.94 0.33

Russell 3000 Index 25.31 11.63 1.63 11.04 2.86 (0.01)

Sector WeightsThe graph below contrasts the manager’s sector weights with those of the benchmark and median sector weights

across the members of the peer group. The magnitude of sector weight differences from the index and the manager’s sectordiversification are also shown. Diversification by number and concentration of holdings are also compared to thebenchmark and peer group. Issue Diversification represents by count, and Diversification Ratio by percent, the number oflargest holdings that comprise half of the portfolio’s market value.

Sector AllocationDecember 31, 2008

0% 5% 10% 15% 20% 25%

Health Care20.3%

13.9%18.8%

Information Technology18.6%

15.4%16.8%

Financials14.3%

50%

Mgr

MV

50%

Mgr

MV

14.5%16.9%

Consumer Discretionary12.6%

8.7%9.6%

Industrials12.2%

11.5%13.5%

Energy8.5%

13.0%11.1%

Consumer Staples6.2%

11.6%6.0%

Materials4.1%

3.4%3.9%

Utilities2.1%

4.6%1.8%

Telecommunications1.2%

3.5%1.6%

Miscellaneous0.0%

Domestic Equity Composite Russell 3000 Index

CAI All Cap: Broad

Sector DiversificationManager 2.77 sectorsIndex 3.46 sectors

Relative Sector VarianceManager 30%Style Median 24%

DiversificationDecember 31, 2008

0

500

1000

1500

2000

2500

3000

Number of IssueSecurities Diversification

(1)

(1)

10th Percentile 172 2525th Percentile 92 20

Median 52 1675th Percentile 36 1190th Percentile 27 9

DomesticEquity Composite 2250 86

Russell 3000 Index 2923 68

Diversification RatioManager 4%Index 2%Style Median 28%


SAN DIEGO CITY EMPLOYEES’ RETIREMENT SYSTEMTOP 10 PORTFOLIO HOLDINGS CHARACTERISTICS

DOMESTIC EQUITYAS OF DECEMBER 31, 2008

10 Largest Holdings

Stock Sector

EndingMarketValue

Percentof

PortfolioQtrly

ReturnMarketCapital

Price/ForecastedEarnings

RatioDividend

Yield

ForecastedGrowth inEarnings

Procter & Gamble Co Consumer Staples $21,340,264 1.7% (10.69)% 182.18 14.58 2.59% 10.00%Gilead Sciences Health Care $19,325,806 1.5% 12.20% 47.04 21.40 0.00% 17.00%Schlumberger Energy $18,026,020 1.4% (45.52)% 17.91 - 3.81% 0.00%Hewlett-Packard Co Information Technology $17,615,929 1.4% (21.34)% 89.50 9.26 0.88% 12.00%Genzyme General Division Health Care $17,123,461 1.3% (17.95)% 17.83 14.03 0.00% 18.50%Genentech Health Care $15,399,041 1.2% (6.51)% 87.52 - 0.00% -Comcast Corp A (New) Consumer Discretionary $15,180,166 1.2% (13.71)% 34.75 16.08 1.48% 10.00%Qualcomm Information Technology $15,012,484 1.2% (16.22)% 58.80 16.59 1.79% 14.00%Google Inc Cl A Information Technology $14,848,727 1.2% (23.19)% 73.56 14.19 0.00% 17.70%C H Robinson Worldwide Inc Industrials $13,903,879 1.1% 8.51% 9.35 24.46 1.74% 15.00%

10 Best Performers

Stock Sector

EndingMarketValue

Percentof

PortfolioQtrly

ReturnMarketCapital


RatioDividend

Yield


Bell Inds Inc Information Technology $87 0.0% 257.14% 0.00 - 0.00% 3.96%Congoleum Corp New Cl A Consumer Discretionary $23 0.0% 150.00% 0.00 (0.01) 0.00% -Image Entmt Inc Consumer Discretionary $526 0.0% 120.00% 0.04 (1.78) 0.00% -Lannet Inc Health Care $1,804 0.0% 118.56% 0.12 (50.00) 0.00% -Maxygen Inc Health Care $22,000 0.0% 110.92% 0.33 (8.75) 0.00% -Airtran Holdings Industrials $41,825 0.0% 82.71% 0.52 6.00 0.00% 17.00%Westaff Inc Industrials $4,182 0.0% 77.78% 0.01 (0.29) 0.00% -Ultralife Corp Industrials $1,424,142 0.1% 73.04% 0.23 12.77 0.00% 17.50%World Fuel Svcs Corp Energy $899 0.0% 60.82% 1.08 12.09 0.41% 29.09%Wachovia Corp New Financials $2,594,077 0.2% 59.80% 11.96 - 3.61% -

10 Worst Performers

Stock Sector

EndingMarketValue

Percentof

PortfolioQtrly

ReturnMarketCapital


RatioDividend

Yield


Landamerica Finl Group Inc Financials $1,123 0.0% (99.63)% 0.00 (0.03) 0.00% -Verasun Energy Corp Energy $223 0.0% (98.24)% 0.01 0.19 0.00% -Lipid Sciences Inc Ariz Health Care $24,075 0.0% (97.86)% 0.06 - 0.00% -Franklin Bk Corp Del Financials $14 0.0% (97.76)% 0.00 - 0.00% -Catalina Ltg Inc Consumer Discretionary $37 0.0% (97.14)% 0.00 - 0.00% -Penn Treaty Amern Corp Financials $475 0.0% (95.25)% 0.00 - 0.00% -Ciprico Inc Information Technology $2 0.0% (95.11)% 0.00 (0.00) 0.00% -Chesapeake Corp Materials $372 0.0% (95.07)% 0.00 (0.00) 0.00% -Bearingpoint Inc Information Technology $902 0.0% (94.60)% 0.01 (0.16) 0.00% 10.00%Borders Group Consumer Discretionary $2,454 0.0% (93.90)% 0.02 (10.00) 110.00% (51.93)%


DELTA ASSET MGMTPERIOD ENDED DECEMBER 31, 2008

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 (22.43)% return for the quarter placing it in the 66 percentile of the CAILarge Cap Core Style group for the quarter and in the 72 percentile for the last year.

Delta Asset Mgmt’s portfolio underperformed the S&P 500 Index by 0.48% for the quarter andunderperformed the S&P 500 Index for the year by 1.19%.

Performance vs CAI Large Cap Core Style

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

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

(66)(59)

(72)(62)

(51)(57)

(78)(77)(71)(90)

(59)(83)

10th Percentile (19.92) (32.74) (4.68) 0.58 2.55 8.6525th Percentile (20.86) (34.30) (6.32) (0.13) 0.85 8.21

Median (21.76) (36.44) (8.11) (1.29) (0.01) 7.2075th Percentile (23.24) (38.61) (9.34) (2.06) (0.65) 6.6490th Percentile (24.72) (40.05) (10.29) (2.87) (1.38) 5.78

Delta Asset Mgmt (22.43) (38.19) (8.14) (2.32) (0.51) 6.99

S&P 500 Index (21.94) (37.00) (8.36) (2.19) (1.38) 6.24

Relative Return vs S&P 500 Index

Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Delta Asset Mgmt

CAI Large Cap Core StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

Delta Asset Mgmt

S&P 500 Index

Standard Deviation

Ret

urns


DELTA ASSET MGMTRETURN ANALYSIS SUMMARY




(50%)(40%)(30%)(20%)(10%)

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

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

7262

21616351

8182 6040

539

4235

153 4358

5645



Delta Asset Mgmt (38.19) 9.07 14.98 4.99 9.27 31.48 (22.69) (5.07) (8.15) 20.62

S&P 500 Index (37.00) 5.49 15.79 4.91 10.88 28.68 (22.10) (11.89) (9.11) 21.04

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

Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Delta Asset Mgmt CAI Large Cap Core Style

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


(6)

(4)

(2)

0

2

4

6

Alpha TreynorRatio

(61)

(68)


Median 1.21 (3.65)75th Percentile 0.72 (4.14)90th Percentile 0.07 (4.86)

Delta Asset Mgmt 0.94 (3.95)

(0.5)

0.0

0.5

1.0


(50)

(68)

(52)


Median 0.35 (0.21) 0.3375th Percentile 0.19 (0.24) 0.2390th Percentile 0.03 (0.28) 0.00

Delta Asset Mgmt 0.34 (0.23) 0.32


INTECHPERIOD ENDED DECEMBER 31, 2008

Investment PhilosophyINTECH employs a stochastic mathematical investment strategy designed to achieve long-term returns in excess

of the target benchmark, while reducing the risk of significant underperformance. INTECH was hired during 4th quarter,2005. Earlier performance is based on their composite returns.

Quarterly Summary and HighlightsINTECH’s portfolio posted a (21.60)% return for the quarter placing it in the 44 percentile of the CAI LargeCap Core Style group for the quarter and in the 51 percentile for the last year.

INTECH’s portfolio outperformed the S&P 500 Index by 0.35% for the quarter and outperformed the S&P 500Index for the year by 0.50%.


(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

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

(44)(59)

(51)(62)

(45)(57) (45)(57)

(29)(77)

(21)(90)

10th Percentile (19.92) (32.74) (4.68) (4.68) 0.58 2.5525th Percentile (20.86) (34.30) (6.32) (6.32) (0.13) 0.85

Median (21.76) (36.44) (8.11) (8.11) (1.29) (0.01)75th Percentile (23.24) (38.61) (9.34) (9.34) (2.06) (0.65)90th Percentile (24.72) (40.05) (10.29) (10.29) (2.87) (1.38)

INTECH (21.60) (36.50) (7.87) (7.87) (0.26) 1.17

S&P 500 Index (21.94) (37.00) (8.36) (8.36) (2.19) (1.38)

Relative Return vs S&P 500 Index

Rel

ativ

e R

etur

ns

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

INTECH

CAI Large Cap Core StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

INTECH

S&P 500 Index

Standard Deviation

Ret

urns


INTECHRETURN ANALYSIS SUMMARY




(50%)(40%)(30%)(20%)(10%)

0%10%20%30%40%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

5162

39617051

23825

40

3839

435

1453

3158

3645



INTECH (36.50) 7.37 14.70 9.18 15.60 28.82 (18.46) (6.73) (4.38) 21.53

S&P 500 Index (37.00) 5.49 15.79 4.91 10.88 28.68 (22.10) (11.89) (9.11) 21.04

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

Rel

ativ

e R

etur

ns

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

INTECH CAI Large Cap Core Style

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


(6)

(4)

(2)

0

2

4

6

Alpha TreynorRatio

(19)

(19)



INTECH 2.43 (2.34)

(0.5)

0.0

0.5

1.0

1.5


(2)

(19)

(2)


Median 0.35 (0.21) 0.3375th Percentile 0.19 (0.24) 0.2390th Percentile 0.03 (0.28) 0.00

INTECH 1.17 (0.14) 1.23


TCW CONCENTRATED COREPERIOD ENDED DECEMBER 31, 2008

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 (19.06)% return for the quarter placing it in the 5 percentile of theCAI Large Cap Growth Style group for the quarter and in the 26 percentile for the last year.

TCW Concentrated Core’s portfolio outperformed the Russell 1000 Growth Index by 3.73% for the quarterand outperformed the Russell 1000 Growth Index for the year by 1.84%.

Performance vs CAI Large Cap Growth Style

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

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

(5)(52)

(26)(39)

(79)(52)(73)(67)

(4)(56)

(15)(87)

10th Percentile (20.20) (33.80) (6.83) (0.12) 4.98 1.0225th Percentile (21.22) (36.53) (7.90) (0.93) 3.99 (0.78)

Median (22.66) (39.75) (8.95) (2.72) 2.61 (2.12)75th Percentile (24.47) (42.97) (11.22) (3.81) 1.73 (3.15)90th Percentile (26.78) (47.12) (12.47) (4.90) 0.65 (4.58)

TCWConcentrated Core (19.06) (36.59) (11.32) (3.58) 5.84 0.04

Russell 1000Growth Index (22.79) (38.44) (9.11) (3.42) 2.52 (4.27)

Relative Return vs Russell 1000 Growth Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

TCW Concentrated Core

CAI Large Cap Growth StyleAnnualized Ten Year Risk vs Return

10 15 20 25 30 35(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

TCW Concentrated Core

Russell 1000 Growth Index

Standard Deviation

Ret

urns


TCW CONCENTRATED CORERETURN ANALYSIS SUMMARY



Performance vs CAI Large Cap Growth Style

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

0%20%40%60%80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

2639

557098

25 6967 1065

126

5153 445027

90

1743



TCWConcentrated Core (36.59) 15.05 (4.39) 4.96 13.84 50.83 (27.61) (19.41) (4.23) 42.90

Russell 1000Growth Index (38.44) 11.81 9.07 5.26 6.30 29.75 (27.88) (20.42) (22.42) 33.16

Rolling 12 Quarter and Quarterly Relative Return vs Russell 1000 Growth Index

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

TCW Concentrated Core CAI Lrg Cap Growth Style

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


(10)(8)(6)(4)(2)

02468

10

Alpha TreynorRatio

(10)

(12)


Median 1.90 (5.91)75th Percentile 0.77 (6.63)90th Percentile (0.02) (7.69)

TCWConcentrated Core 6.60 (2.89)

(0.6)(0.4)(0.2)

0.00.20.40.60.81.01.2


(4)

(13)

(13)


Median 0.36 (0.27) 0.3275th Percentile 0.11 (0.31) 0.1590th Percentile (0.00) (0.36) (0.04)

TCWConcentrated Core 0.92 (0.13) 0.56


DODGE & COXPERIOD ENDED DECEMBER 31, 2008

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 (22.31)% return for the quarter placing it in the 62 percentile of the CAILarge Cap Value Style group for the quarter and in the 85 percentile for the last year.

Dodge & Cox’s portfolio underperformed the Russell 1000 Value Index by 0.13% for the quarter andunderperformed the Russell 1000 Value Index for the year by 4.69%.

Performance vs CAI Large Cap Value Style

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


(62)(60)

(85)

(59)

(82)(58)

(70)(57)(57)(58)

(1)(67)


Median (21.39) (36.20) (7.71) (0.25) 2.49 2.1475th Percentile (23.08) (39.10) (9.84) (1.70) 1.33 0.9390th Percentile (24.04) (43.96) (14.52) (5.12) (1.32) 0.39

Dodge & Cox (22.31) (41.54) (11.11) (1.50) 2.21 5.57

Russell 1000Value Index (22.18) (36.85) (8.32) (0.79) 2.08 1.36

Relative Return vs Russell 1000 Value Index

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Dodge & Cox

CAI Large Cap Value StyleAnnualized Ten Year Risk vs Return

10 12 14 16 18 20 22(4%)

(2%)

0%

2%

4%

6%

8%

Dodge & Cox

Russell 1000 Value Index

Standard Deviation

Ret

urns


DODGE & COXRETURN ANALYSIS SUMMARY



Performance vs CAI Large Cap Value Style

(60%)

(40%)

(20%)

0%

20%

40%

60%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

8559

5261

53182866

824

450

526

261

1850

444

10th Percentile (32.70) 6.97 23.59 13.33 19.14 34.46 (12.77) 3.97 19.60 18.4925th Percentile (34.94) 4.19 21.18 10.78 16.30 31.88 (15.47) 0.16 14.29 13.11

Median (36.20) 1.12 19.23 8.24 14.68 30.06 (18.49) (4.02) 6.82 6.1175th Percentile (39.10) (1.81) 16.95 5.76 12.05 28.18 (21.96) (6.73) 2.96 1.8590th Percentile (43.96) (6.22) 14.63 4.10 11.03 26.33 (24.35) (10.65) (3.95) (1.62)

Dodge & Cox (41.54) 0.93 19.03 10.05 19.95 35.42 (10.58) 9.26 17.09 19.75

Russell 1000Value Index (36.85) (0.17) 22.25 7.05 16.49 30.03 (15.52) (5.59) 7.01 7.35

Rolling 12 Quarter and Quarterly Relative Return vs Russell 1000 Value Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Dodge & Cox CAI Large Cap Value Style

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


(6)

(4)

(2)

0

2

4

6

Alpha TreynorRatio

(1)

(1)


Median 0.82 (1.31)75th Percentile (0.28) (2.51)90th Percentile (1.08) (3.38)

Dodge & Cox 4.36 2.08

(0.5)

0.0

0.5

1.0


(2)

(1)

(2)


Median 0.19 (0.08) 0.1875th Percentile (0.07) (0.15) (0.09)90th Percentile (0.29) (0.20) (0.24)

Dodge & Cox 0.84 0.12 0.81


GLOBEFLEX CAPPERIOD ENDED DECEMBER 31, 2008

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 (28.31)% return for the quarter placing it in the 84 percentile of the CAIMid Capitalization Style group for the quarter and in the 78 percentile for the last year.

GlobeFlex Cap’s portfolio underperformed the S&P Mid Cap 400 Index by 2.75% for the quarter andunderperformed the S&P Mid Cap 400 Index for the year by 8.66%.

Performance vs CAI Mid Capitalization Style

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


B(74)A(84)

(48)

B(56)A(78)

(19)

A(70)B(73)

(38)

A(36)B(62)(51)

A(23)B(72)(43)

A(62)B(64)

(40)


Median (25.68) (40.78) (9.48) 0.10 4.27 7.9475th Percentile (27.33) (44.62) (11.06) (1.88) 2.62 6.1990th Percentile (29.26) (47.15) (13.76) (3.63) 1.25 4.78

GlobeFlex Cap A (28.31) (44.89) (10.45) 1.05 6.14 7.09Russell Mid-Cap Index B (27.27) (41.46) (10.68) (0.71) 3.18 6.79

S&P Mid Cap 400 Index (25.55) (36.23) (8.76) (0.08) 4.46 8.50

Relative Return vs S&P Mid Cap 400 Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GlobeFlex Cap

CAI Mid Capitalization StyleAnnualized Ten Year Risk vs Return

10 15 20 25 30 35 40 45 50(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

GlobeFlex Cap

S&P Mid Cap 400 Index

Russell Mid-Cap Index

Standard Deviation

Ret

urns


GLOBEFLEX CAPRETURN ANALYSIS SUMMARY



Performance vs CAI Mid Capitalization Style

(80%)(60%)(40%)(20%)

0%20%40%60%80%

100%120%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

7819

3160 5568 238 20564646

46403241

2135 4659


Median (40.78) 10.13 13.40 11.38 17.37 35.26 (17.83) (3.36) 12.41 19.3875th Percentile (44.62) 3.57 8.35 8.73 13.04 31.13 (26.84) (19.66) (0.21) 3.9490th Percentile (47.15) (0.70) 5.63 6.54 10.06 29.11 (32.71) (32.73) (16.02) (2.72)

GlobeFlex Cap (44.89) 16.24 12.09 21.04 21.23 35.65 (17.13) 2.41 21.21 23.38

S&P Mid Cap 400 Index (36.23) 7.98 10.31 12.56 16.48 35.62 (14.51) (0.60) 17.50 14.73

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

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GlobeFlex Cap CAI Mid Cap Style

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


(4)(3)(2)(1)

0123456

Alpha TreynorRatio

(27)(28)


Median 0.23 0.8975th Percentile (1.29) (0.74)90th Percentile (2.29) (1.99)

GlobeFlex Cap 2.02 2.58

(0.4)

(0.3)

(0.2)

(0.1)

0.0

0.1

0.2

0.3

0.4

0.5


(26)

(26)(21)


Median 0.02 0.04 (0.02)75th Percentile (0.13) (0.03) (0.19)90th Percentile (0.26) (0.09) (0.29)

GlobeFlex Cap 0.24 0.12 0.19


TCW MID CAP VALUEPERIOD ENDED DECEMBER 31, 2008

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 (26.23)% return for the quarter placing it in the 72 percentile of theCAI Mid Cap Value Style group for the quarter and in the 44 percentile for the last year.

TCW Mid Cap Value’s portfolio outperformed the Russell MidCap Index by 1.04% for the quarter andoutperformed the Russell MidCap Index for the year by 5.06%.

Performance vs CAI Mid Cap Value Style

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

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

A(72)B(80)(81)

A(44)B(62)

(85)

B(64)A(65)(72)

B(60)A(89)(81)

B(64)A(76)(70)

A(10)B(75)(88)


Median (23.95) (37.25) (8.95) 1.19 6.48 6.4675th Percentile (26.41) (40.42) (10.92) (0.59) 4.56 4.3990th Percentile (28.82) (44.89) (14.01) (2.98) 3.36 2.60

TCW Mid Cap Value A (26.23) (36.40) (10.10) (2.65) 4.49 8.70Russell Midcap

Value Index B (27.19) (38.44) (9.98) 0.33 5.81 4.44

Russell MidCap Index (27.27) (41.46) (10.68) (0.71) 5.15 3.18

Relative Return vs Russell MidCap Index

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

TCW Mid Cap Value

CAI Mid Cap Value StyleAnnualized Ten Year Risk vs Return

12 14 16 18 20 22 24 260%

2%

4%

6%

8%

10%

12%

14%

TCW Mid Cap Value

Russell Midcap Value Index

Russell MidCap Index

Standard Deviation

Ret

urns


TCW MID CAP VALUERETURN ANALYSIS SUMMARY



Performance vs CAI Mid Cap Value Style

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

0%20%40%60%80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

A(44)B(62)85

A(66)B(76)

22B(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)

90A(10)

B(58)14


Median (37.25) 1.99 16.80 9.87 19.55 34.33 (11.20) 9.47 18.83 1.0375th Percentile (40.42) (1.02) 15.19 7.56 16.18 30.45 (13.49) (0.47) 15.31 (2.84)90th Percentile (44.89) (8.26) 13.88 5.62 12.85 24.90 (25.28) (4.53) 8.66 (7.30)

TCW Mid Cap Value A(36.40) 0.21 14.02 7.03 12.41 48.86 (26.09) 35.43 39.78 26.52Russell Midcap

Value Index B(38.44) (1.42) 20.22 12.65 23.71 38.07 (9.64) 2.33 19.18 (0.11)

Russell MidCap Index (41.46) 5.60 15.26 12.65 20.22 40.06 (16.19) (5.62) 8.25 18.23

Rolling 12 Quarter and Quarterly Relative Return vs Russell MidCap Index

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 2008

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

Risk Adjusted Return Measures vs Russell MidCap IndexRankings Against CAI Mid Cap Value Style


(2)(1)

012345678

Alpha TreynorRatio

A(9)

B(74)

A(27)

B(74)


Median 3.40 3.4975th Percentile 1.12 1.1390th Percentile (0.18) (1.03)

TCW Mid Cap Value A 6.07 5.08Russell Midcap

Value Index B 1.16 1.23

(0.2)(0.1)

0.00.10.20.30.40.50.60.7


A(12)

B(76)A(25)

B(75)

A(9)

B(75)


Median 0.35 0.15 0.3175th Percentile 0.16 0.05 0.1590th Percentile (0.01) (0.04) (0.04)

TCW Mid Cap Value A 0.54 0.22 0.48Russell Midcap

Value Index B 0.15 0.06 0.15


PUTNAM SMALL CAP GROWTHPERIOD ENDED DECEMBER 31, 2008

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 (26.78)% return for the quarter placing it in the 43 percentile ofthe CAI Small Cap Growth Style group for the quarter and in the 36 percentile for the last year.

Putnam Small Cap Growth’s portfolio outperformed the Russell 2000 Growth Index by 0.66% for the quarterand underperformed the Russell 2000 Growth Index for the year by 3.50%.

Performance vs CAI Small Cap Growth Style

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


(43)(57)

(36)(15)

(61)(41)

(56)(45)(41)

(87)

(30)

(99)



Putnam SmallCap Growth (26.78) (42.04) (11.86) (3.40) 2.61 10.21

Russell 2000Growth Index (27.45) (38.54) (9.32) (2.35) (0.76) 4.69


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Putnam Small Cap Growth

CAI Small Cap Growth StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 40 45(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%


Putnam Small Cap Growth

Standard Deviation

Ret

urns


PUTNAM SMALL CAP GROWTHRETURN ANALYSIS SUMMARY




-

(50%)

0%

50%

100%

150%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

3615

6475 7530 3880 42333229

77614244 5488

22

60

10th Percentile (35.79) 29.71 20.46 15.27 19.10 54.88 (19.39) 2.27 13.02 126.6925th Percentile (40.00) 20.44 14.38 10.69 15.37 49.88 (23.55) (1.75) 3.08 79.00


Putnam SmallCap Growth (42.04) 9.31 8.09 8.76 12.94 47.89 (33.49) (8.23) (9.67) 88.74



Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Putnam Small Cap Growth CAI Sm Cap Growth Style

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


(6)

(4)

(2)

0

2

4

6

8

10

Alpha TreynorRatio

(35)

(40)



Putnam SmallCap Growth 4.91 (0.72)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(20)

(40)

(37)


Median 0.36 (0.05) 0.2775th Percentile 0.20 (0.10) 0.1390th Percentile 0.01 (0.15) (0.01)

Putnam SmallCap Growth 0.59 (0.03) 0.41


WALL STREET ASSOCIATESPERIOD ENDED DECEMBER 31, 2008

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 (29.23)% return for the quarter placing it in the 68 percentile of theCAI Small Cap Growth Style group for the quarter and in the 77 percentile for the last year.

Wall Street Associates’s portfolio underperformed the Russell 2000 Growth Index by 1.78% for the quarterand underperformed the Russell 2000 Growth Index for the year by 8.13%.


(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


(68)(57)

(77)

(15)

(81)(41)

(42)(45)

(18)

(87)

(25)

(94)



Wall StreetAssociates (29.23) (46.67) (13.43) (2.23) 5.37 7.36

Russell 2000Growth Index (27.45) (38.54) (9.32) (2.35) (0.76) 1.36


Rel

ativ

e R

etur

ns

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

70%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Wall Street Associates

CAI Small Cap Growth StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 40 45(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

Wall Street Associates


Standard Deviation

Ret

urns


WALL STREET ASSOCIATESRETURN ANALYSIS SUMMARY




-

(50%)

0%

50%

100%

150%

200%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

7715

7175 4730 180 5733

929

98615644 36

88

6

60

10th Percentile (35.79) 29.71 20.46 15.27 19.10 54.88 (19.39) 2.27 13.02 126.6925th Percentile (40.00) 20.44 14.38 10.69 15.37 49.88 (23.55) (1.75) 3.08 79.00


Wall StreetAssociates (46.67) 7.86 12.79 22.96 11.95 56.41 (43.41) (12.36) (3.75) 152.96



Rel

ativ

e R

etur

ns

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Wall Street Associates CAI Sm Cap Growth Style

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


(10)

(5)

0

5

10

15

Alpha TreynorRatio

(3)

(24)



Wall StreetAssociates 10.98 1.32

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(9)

(25)

(41)


Median 0.36 (0.05) 0.2775th Percentile 0.20 (0.10) 0.1390th Percentile 0.01 (0.15) (0.01)

Wall StreetAssociates 0.69 0.04 0.36


FISHER INVESTMENTSPERIOD ENDED DECEMBER 31, 2008

Investment PhilosophyFisher Investments (FI) believes that supply and demand of securities are the sole determinants of securities

pricing and that capital markets are highly effective discounters of all widely recognized information. Therefore, to addvalue through active management, FI seeks to identify public information not widely recognized or interpret widelyrecognized information differently from other market participants. Fisher was hired during 3rd quarter, 2008. Earlierperformance is based on their composite returns.

Quarterly Summary and HighlightsFisher Investments’s portfolio posted a (27.36)% return for the quarter placing it in the 60 percentile of theCAI Small Cap Value Style group for the quarter and in the 52 percentile for the last year.

Fisher Investments’s portfolio underperformed the Russell 2000 Value Index by 2.47% for the quarter andunderperformed the Russell 2000 Value Index for the year by 4.04%.

Performance vs CAI Small Cap Value Style

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

Last Quarter Last Year Last 3 Years Last 5 Years Last 10 Years

(60)(33)

(52)(17)

(8)(28)

(5)(38)

(15)(63)

10th Percentile (22.88) (28.21) (5.04) 3.67 9.7825th Percentile (24.31) (29.61) (7.07) 0.92 8.24

Median (25.73) (32.90) (9.41) (0.39) 6.8875th Percentile (28.99) (36.92) (11.04) (2.13) 5.6190th Percentile (31.38) (39.45) (14.59) (4.16) 4.58

Fisher Investments (27.36) (32.96) (4.31) 4.55 9.25

Russell 2000Value Index (24.89) (28.92) (7.49) 0.27 6.11


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Fisher Investments

CAI Small Cap Value StyleAnnualized Ten Year Risk vs Return

14 16 18 20 22 24 263%

4%

5%

6%

7%

8%

9%

10%

11%

Fisher Investments


Standard Deviation

Ret

urns


FISHER INVESTMENTSRETURN ANALYSIS SUMMARY




(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

5217

559

46121783

1856

4528

5074

50633736

6572

10th Percentile (28.21) 3.76 24.47 14.39 28.47 58.59 0.21 29.59 33.13 19.4325th Percentile (29.61) (2.46) 21.48 11.04 25.39 49.19 (2.63) 22.40 24.85 10.88

Median (32.90) (8.60) 18.75 9.23 22.78 42.49 (6.98) 18.16 21.59 2.7175th Percentile (36.92) (12.68) 14.65 5.40 19.12 38.84 (11.96) 9.11 13.87 (2.18)90th Percentile (39.45) (16.41) 12.88 3.01 16.09 33.76 (19.09) 4.52 5.02 (5.35)

Fisher Investments (32.96) 9.50 19.34 11.86 27.49 43.51 (6.98) 18.16 22.61 0.22

Russell 2000Value Index (28.92) (9.78) 23.48 4.71 22.25 46.03 (11.43) 14.02 22.83 (1.49)


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Fisher Investments CAI Small Cap Value Style

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


(4)

(2)

0

2

4

6

8

Alpha TreynorRatio

(18)

(9)



Fisher Investments 3.36 6.63

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(17)

(9)(18)


Median 0.15 0.17 0.1175th Percentile (0.05) 0.10 (0.08)90th Percentile (0.27) 0.06 (0.29)

Fisher Investments 0.51 0.31 0.43


DFA SMALL CAP VALUEPERIOD ENDED DECEMBER 31, 2008

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 (28.37)% return for the quarter placing it in the 68 percentile of theCAI Small Cap Value Style group for the quarter and in the 66 percentile for the last year.

DFA Small Cap Value’s portfolio underperformed the Russell 2000 Value Index by 3.47% for the quarter andunderperformed the Russell 2000 Value Index for the year by 5.82%.


(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

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

(68)(33)

(66)

(17)

(67)(28)

(36)(38)

(22)(63)

(21)(74)


Median (25.73) (32.90) (9.41) (0.39) 6.88 9.7375th Percentile (28.99) (36.92) (11.04) (2.13) 5.61 7.9090th Percentile (31.38) (39.45) (14.59) (4.16) 4.58 7.04

DFA SmallCap Value (28.37) (34.74) (10.02) 0.40 8.70 10.33

Russell 2000Value Index (24.89) (28.92) (7.49) 0.27 6.11 7.96


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

DFA Small Cap Value

CAI Small Cap Value StyleAnnualized Ten Year Risk vs Return

14 16 18 20 22 24 263%

4%

5%

6%

7%

8%

9%

10%

11%


DFA Small Cap Value

Standard Deviation

Ret

urns


DFA SMALL CAP VALUERETURN ANALYSIS SUMMARY




(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

66175959

12124383

1656

828

5774

2963 79

3612

72

10th Percentile (28.21) 3.76 24.47 14.39 28.47 58.59 0.21 29.59 33.13 19.4325th Percentile (29.61) (2.46) 21.48 11.04 25.39 49.19 (2.63) 22.40 24.85 10.88

Median (32.90) (8.60) 18.75 9.23 22.78 42.49 (6.98) 18.16 21.59 2.7175th Percentile (36.92) (12.68) 14.65 5.40 19.12 38.84 (11.96) 9.11 13.87 (2.18)90th Percentile (39.45) (16.41) 12.88 3.01 16.09 33.76 (19.09) 4.52 5.02 (5.35)

DFA SmallCap Value (34.74) (9.70) 23.65 9.79 27.53 59.06 (7.98) 22.02 10.79 14.09

Russell 2000Value Index (28.92) (9.78) 23.48 4.71 22.25 46.03 (11.43) 14.02 22.83 (1.49)


Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

DFA Small Cap Value CAI Small Cap Value Style

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


(4)

(2)

0

2

4

6

8

Alpha TreynorRatio

(23)

(30)



DFA SmallCap Value 2.58 4.67

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(20)

(29)

(20)



DFA SmallCap Value 0.43 0.23 0.40


International Equity

‘

INTERNATIONAL EQUITYActive Management Overview

Active vs. the IndexThe international markets fared no better in the fourth quarter than they did in the third, continuing with double-digitlosses. When the G7 (finance ministers and central bank governors from seven leading nations) met in October, it wasagreed that "all necessary steps" would be taken in order to stabilize and kick start the financial markets. A five pointplan was proposed including: a pledge to save key banks from collapse; free up credit; support the part-nationalizationof banks; reassure savers that their money is safe through stronger deposit protection; and force banks to disclose theirtrue losses. However, it seems that these plans have yet to relieve investors’ fears, as shown by the continued decline inthe market. The median Core International fund lost 19.92% of its value in the quarter ended December 31, 2008,compared to the MSCI EAFE which lost 19.95%. For the year, however, the Core International fund ended ahead ofthe index by 54 basis points, losing 42.84% vs. 43.38%, respectively.

EuropeThe year 2008 marked record losses for many European countries. Britain’s FTSE 100, down 31.32%, had its worstyear on record. Similarly, the Dax (Germany) fell 40.37% while the Cac 40 (France) fell 42.68%. The financial crisis inEurope was exacerbated by the fact that these countries lack a common budget and uniform regulation for banks andbrokerages which would make large bailout programs more difficult to implement. The G7 promised to work inconjunction with one another to turn this crisis around but the effects of such actions remain to be seen. The medianEurope fund fell 21.86% for the quarter, while the MSCI Europe Index lost 22.79%. For the year ended December 31,2008, the median Europe fund was down 45.23%, beating its benchmark by 1.19%.

PacificThe Pacific region fared the best for the quarter ended December 31, 2008. The median Pacific Basin fund fell 15.65%and Japan Only fund posted a loss of 9.96% compared to their benchmark, the MSCI Pacific Index, which dropped13.87%. For the year, the Pacific Basin fund fell a 40.26% while the Japan Only fund dipped 31.46%. The demand inoverseas market has slowed down tremendously, causing this export-concentrated region to suffer. As a sign of thetimes, Toyota Motor, announced late December that it expected its first operating loss in 70 years. The only other losscame in 1938, a year after the company was founded. This is in sharp contrast to 2007, when they had an operatingprofit of $28 billion.

Emerging MarketsLooking back, many believed that emerging economies would be a bastion of security in what was considered a mostlyWestern crisis. However, it is now apparent that every part of the world is affected and emerging markets are noexception. In fact, emerging markets were the worst performing group not only for the last quarter but for the year. Themedian Emerging Market fund tumbled 28.01% in the fourth quarter and 53.25% for the year, compared to itsbenchmark, the MSCI Emerging Markets Index, which fell 27.56% and 53.18%, respectively.


(35%)(30%)(25%)(20%)(15%)(10%)(5%)

0%

(21.86%)

Europe

(19.92%)

Core Int’l

(21.12%)

Core Plus

(15.65%)

PacificBasin

(9.96%)

JapanOnly

(28.01%)

EmergingMarkets

(21.85%)

GlobalEquity

Ret

urns

MSCI AC World Index (22.25%)MSCI ACW ex US Free: (22.29%)MSCI EAFE: (19.95%)MSCI Europe: (22.79%)MSCI Pacific: (13.87%)MSCI Emerging Markets: (27.56%)


(70%)(60%)(50%)(40%)(30%)(20%)(10%)

0%

(45.23%)

Europe

(42.84%)

Core Int’l

(43.73%)

Core Plus

(40.26%)

PacificBasin

(31.46%)

JapanOnly

(53.25%)

EmergingMarkets

(41.62%)

GlobalEquity

Ret

urns

MSCI AC World Index (41.85%)MSCI ACW ex US Free: (45.24%)MSCI EAFE: (43.38%)MSCI Europe: (46.42%)MSCI Pacific: (36.42%)MSCI Emerging Markets: (53.18%)


INT’L EQUITY COMPOSITEPERIOD ENDED DECEMBER 31, 2008

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 (19.68)% return for the quarter placing it in the 31 percentile of thePublic Fund - International Equity group for the quarter and in the 63 percentile for the last year.

Int’l Equity Composite’s portfolio outperformed the Blended Benchmark by 2.91% for the quarter andoutperformed the Blended Benchmark for the year by 1.39%.

Performance vs Public Fund - International Equity

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


(31)(93)

(63)(85)

(63)(74)

(37)(41)(10)

(59)

(10)(83)



Int’l EquityComposite (19.68) (44.34) (6.88) 3.07 5.90 7.90

Blended Benchmark (22.59) (45.73) (7.26) 2.96 2.87 3.77


Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Int’l Equity Composite

Public Fund - International EquityAnnualized Ten Year Risk vs Return

16 17 18 19 20 21 22 23 240%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Int’l Equity Composite

Blended Benchmark

Standard Deviation

Ret

urns


INT’L EQUITY COMPOSITERETURN ANALYSIS SUMMARY



Performance vs Public Fund - International Equity

(60%)

(40%)

(20%)

0%

20%

40%

60%

2008 2007 2006 2005 2004 2003 2002

(63)(85)

(74)(45)(4)(21)

(45)(16) (6)(10)

(7)(6)

(31)(34)

10th Percentile (39.21) 17.89 28.49 19.45 22.79 41.38 (8.76)25th Percentile (41.39) 16.50 27.26 16.81 20.59 39.66 (12.02)

Median (43.56) 14.59 26.44 15.89 19.59 37.09 (14.20)75th Percentile (45.22) 12.13 25.12 13.76 18.04 33.07 (16.04)90th Percentile (46.39) 9.11 22.61 12.19 16.65 31.23 (17.64)

Int’l EquityComposite (44.34) 12.22 29.29 16.02 24.15 43.53 (12.90)

Blended Benchmark (45.73) 15.14 27.62 18.11 22.82 43.62 (13.00)


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 2008

Int’l Equity Composite Public Fund - Intl Equity

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


(4)

(3)

(2)

(1)

0

1

2

3

4

Alpha TreynorRatio

(9)(10)


Median 0.62 0.0575th Percentile (0.81) (1.46)90th Percentile (1.75) (2.41)

Int’l EquityComposite 3.12 2.36

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

0.00.20.40.60.81.0


(10)

(10)

(8)


Median 0.17 0.00 0.1375th Percentile (0.21) (0.07) (0.22)90th Percentile (0.52) (0.12) (0.48)

Int’l EquityComposite 0.66 0.11 0.67


INT’L EQUITY COMPOSITEEQUITY CHARACTERISTICS ANALYSIS SUMMARY



Portfolio Characteristics Percentile RankingsRankings Against CAI Non-U.S. Equity Style


Perc

entil

e R

anki

ng

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Weighted Median Price/Fore- Price/Book Forecasted Dividend MSCIMarket Cap casted Earnings Earnings Growth Yield Combined Z-Score

(74)

(59)

(20)

(66)

(77)

(61)

(38)

(48)

(58)

(34)

(49)

(63)


Median 23.77 9.71 1.34 6.03 4.33 0.1375th Percentile 17.82 9.15 1.17 4.11 3.71 (0.14)90th Percentile 12.99 8.53 1.00 2.86 3.24 (0.29)

Int’l EquityComposite 18.17 10.77 1.15 6.81 4.20 0.16

MSCI ACWIex-US Index 21.37 9.47 1.26 6.19 4.77 (0.01)

Sector WeightsThe graph below contrasts the manager’s sector weights with those of the benchmark and median sector weights

across the members of the peer group. The magnitude of sector weight differences from the index and the manager’s sectordiversification are also shown. Diversification by number and concentration of holdings are also compared to thebenchmark and peer group. Issue Diversification represents by count, and Diversification Ratio by percent, the number oflargest holdings that comprise half of the portfolio’s market value.


0% 5% 10% 15% 20% 25% 30%

Financials15.9%

23.1%19.9%

Health Care14.2%

7.5%11.0%

Telecommunications14.0%

7.9%7.9%

Consumer Staples12.5%

50%

Mgr

MV

50%

Mgr

MV

9.0%11.6%

Information Technology9.5%

5.9%6.9%

Industrials8.4%

10.7%11.5%

Pooled Vehicles8.4%

Consumer Discretionary8.1%

8.6%8.9%

Materials7.1%

9.8%8.3%

Utilities5.1%

6.6%4.7%

Energy4.4%

10.9%9.3%

Miscellaneous0.6%

0.1%

Int’l Equity Composite MSCI ACWI ex-US Index

CAI Non-U.S. Equity Style

Sector DiversificationManager 3.46 sectorsIndex 3.54 sectors

Relative Sector VarianceManager 50%Style Median 16%

DiversificationDecember 31, 2008

0

100

200

300

400

500

600

700

Number of IssueSecurities Diversification

(5)

(11)

10th Percentile 366 4425th Percentile 150 31

Median 83 2275th Percentile 58 1790th Percentile 47 14

Int’l EquityComposite 596 44

MSCI ACWIex-US Index 1832 134

Diversification RatioManager 7%Index 7%Style Median 26%


BRANDES INVESTMENTPERIOD ENDED DECEMBER 31, 2008

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 EAFE Index and 15% MSCI Emerging Markets Index through 12/31/03, and MSCI AC Wld ex US Freethereafter.

Quarterly Summary and HighlightsBrandes Investment’s portfolio posted a (17.04)% return for the quarter placing it in the 19 percentile of theCAI Non-U.S. Equity Style group for the quarter and in the 13 percentile for the last year.

Brandes Investment’s portfolio outperformed the Custom Benchmark by 5.25% for the quarter andoutperformed the Custom Benchmark for the year by 7.74%.

Performance vs CAI Non-U.S. Equity Style

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


A(19)B(75)(75)

A(13)

B(67)(67)

A(19)B(47)(47)

A(12)B(40)(40)

A(2)

B(68)(68)

A(2)

B(90)(93)



Brandes Investment A (17.04) (37.50) (4.00) 4.96 8.51 10.88MSCI AC Wld

ex US Free B (22.29) (45.24) (6.57) 3.00 2.27 3.90

Custom Benchmark (22.29) (45.24) (6.57) 3.00 2.34 3.55

Relative Return vs Custom Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Brandes Investment

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

10 15 20 25 30 35(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

MSCI AC Wld ex US Free

Brandes Investment

Custom Benchmark

Standard Deviation

Ret

urns


BRANDES INVESTMENTRETURN ANALYSIS SUMMARY




(80%)(60%)(40%)(20%)

0%20%40%60%80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

1367

80312042

8737332

222

5245 11368

66

17

62

10th Percentile (37.04) 22.08 31.58 22.96 25.22 44.12 (6.39) (11.21) (0.75) 60.2925th Percentile (40.02) 17.77 29.21 18.62 22.06 40.89 (11.52) (16.03) (7.76) 46.30


Brandes Investment (37.50) 8.91 29.98 11.99 28.53 52.42 (15.09) (11.36) 0.94 53.45

Custom Benchmark (45.24) 17.12 27.16 17.11 21.36 41.15 (14.42) (18.59) (16.75) 32.76

Rolling 12 Quarter and Quarterly Relative Return vs Custom Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Brandes Investment CAI Non-U.S. Equity Style

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


(4)

(2)

0

2

4

6

8

Alpha TreynorRatio

(4)(3)



Brandes Investment 6.14 5.27

(0.5)

0.0

0.5

1.0


(4)

(2)

(3)



Brandes Investment 0.80 0.24 0.76


MCKINLEY CAPITALPERIOD ENDED DECEMBER 31, 2008

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 (19.51)% return for the quarter placing it in the 34 percentile of the CAINon-U.S. Equity Style group for the quarter and in the 86 percentile for the last year.

McKinley Capital’s portfolio outperformed the MSCI ACWI ex-US Index by 2.78% for the quarter andunderperformed the MSCI ACWI ex-US Index for the year by 2.72%.


(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

Last Last Year From 3-07 Last 3 Last 5 Last 10Quarter Inception Years Years Years

A(34)B(76)(75)

B(68)A(86)

(67)

B(40)A(75)

(52)

B(45)A(55)(47)

A(30)B(56)(40) A(36)

B(95)(68)



McKinley Capital A (19.51) (47.96) (26.45) (7.06) 3.70 4.22MSCI ACW ex

US Free Gr B (22.42) (45.41) (22.88) (6.34) 2.40 0.11

MSCI ACWIex-US Index (22.29) (45.24) (24.07) (6.57) 3.00 2.27

Relative Return vs MSCI ACWI ex-US Index

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

McKinley Capital

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

10 15 20 25 30 35(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

McKinley Capital

MSCI ACWI ex-US Index

MSCI ACW ex US Free Gr

Standard Deviation

Ret

urns


MCKINLEY CAPITALRETURN ANALYSIS SUMMARY




(80%)(60%)(40%)(20%)

0%20%40%60%80%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

B(68)A(86)67

B(11)A(17)31

A(33)B(75)42 A(28)

B(38)37A(4)B(71)32

A(12)B(57)21

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

B(72)46 A(84)

B(96)55

A(16)B(49)66

10th Percentile (37.04) 22.08 31.58 22.96 25.22 44.12 (6.39) (11.21) (0.75) 60.2925th Percentile (40.02) 17.77 29.21 18.62 22.06 40.89 (11.52) (16.03) (7.76) 46.30


McKinley Capital A(47.96) 19.99 28.59 18.35 26.18 43.77 (7.47) (22.05) (21.10) 54.21MSCI ACW ex

US Free Gr B(45.41) 21.40 23.96 17.08 17.07 34.91 (14.73) (23.43) (24.85) 35.72

MSCI ACWIex-US Index (45.24) 17.12 27.16 17.11 21.36 41.41 (14.67) (19.50) (15.08) 30.91

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

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008

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

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


(6)

(4)

(2)

0

2

4

6

Alpha TreynorRatio

A(28)

B(95)

A(37)

B(95)



McKinley Capital A 2.57 0.69MSCI ACW ex

US Free Gr B (1.81) (3.12)

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


A(36)

B(94)

A(37)

B(96)

A(42)

B(95)



McKinley Capital A 0.34 0.03 0.24MSCI ACW ex

US Free Gr B (0.40) (0.15) (0.47)


GLOBEFLEX INTERNATIONALPERIOD ENDED DECEMBER 31, 2008

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 (29.91)% return for the quarter placing it in the 96 percentile ofthe CAI International Small Cap Style group for the quarter and in the 95 percentile for the last year.

GlobeFlex International’s portfolio underperformed the EMI World ex US Index by 6.08% for the quarter andunderperformed the EMI World ex US Index for the year by 8.71%.

Performance vs CAI International Small Cap Style

(70%)

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

Last Last Year From 3-07 Last 3 Last 5 Last 10Quarter Inception Years Years Years

(96)

(58)

(95)

(48)

(97)

(56)

(95)

(54)

(76)(67)(58)

(90)



GlobeFlexInternational (29.91) (56.38) (39.90) (16.30) 1.42 7.03

EMI World ex US Index (23.83) (47.68) (30.70) (10.09) 2.70 4.28

Relative Return vs EMI World ex US Index

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GlobeFlex International

CAI International Small Cap StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 400%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GlobeFlex International

EMI World ex US Index

Standard Deviation

Ret

urns


GLOBEFLEX INTERNATIONALRETURN ANALYSIS SUMMARY




-

(50%)

0%

50%

100%

150%

200%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

9548

84591048 1064 1464

3867

1750 1539 19597877

10th Percentile (40.76) 20.98 34.33 34.07 37.81 67.75 3.97 (5.70) 9.65 145.3525th Percentile (45.38) 15.17 33.37 30.50 34.81 62.58 (0.65) (11.91) (0.39) 73.36

Median (48.06) 8.91 29.21 25.19 29.87 57.04 (7.28) (16.57) (6.07) 49.5575th Percentile (51.31) 1.78 25.23 21.23 26.84 52.37 (14.03) (24.12) (17.07) 30.4290th Percentile (52.81) (3.65) 21.04 14.62 19.91 49.37 (16.43) (28.50) (24.52) 10.53

GlobeFlexInternational (56.38) 0.06 34.33 34.15 36.41 60.20 2.17 (7.71) 1.11 20.42

EMI World ex US Index (47.68) 7.33 29.43 22.10 28.74 53.73 (7.28) (15.70) (10.32) 23.50

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

Rel

ativ

e R

etur

ns

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GlobeFlex International CAI Int’l Small Cap Style

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


0123456789

10

Alpha TreynorRatio

(67) (53)



GlobeFlexInternational 3.12 3.46

0.00.10.20.30.40.50.60.70.80.91.0


(49)

(53)

(51)



GlobeFlexInternational 0.45 0.16 0.35


GMO (GROSS)PERIOD ENDED DECEMBER 31, 2008

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 (21.73)% return for the quarter placing it in the 32 percentile of the CAIInternational Small Cap Style group for the quarter and in the 21 percentile for the last year.

GMO (Gross)’s portfolio outperformed the EMI World ex US Index by 2.10% for the quarter andoutperformed the EMI World ex US Index for the year by 3.85%.


(70%)

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%


A(32)B(48)(58)

A(21)B(32)(48)

A(12)B(41)(54)

A(26)B(66)(67)

A(34)B(59)(69) A(14)

B(81)(90)


Median (23.19) (48.06) (10.01) 4.30 11.28 7.8575th Percentile (25.40) (51.31) (12.09) 2.04 9.16 6.6590th Percentile (27.94) (52.81) (14.37) (0.62) 8.07 4.28

GMO (Gross) A (21.73) (43.83) (5.92) 5.38 12.26 10.93EMI World

ex US Value B (22.97) (46.25) (9.57) 3.04 10.81 6.08

EMI World ex US Index (23.83) (47.68) (10.09) 2.70 10.13 4.28

Relative Return vs EMI World ex US Index

Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GMO (Gross)

CAI International Small Cap StyleAnnualized Ten Year Risk vs Return

15 20 25 30 35 400%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GMO (Gross)

EMI World ex US Value

EMI World ex US Index

Standard Deviation

Ret

urns


GMO (GROSS)RETURN ANALYSIS SUMMARY




-(50%)

0%50%

100%150%200%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

A(21)B(32)48

A(52)B(62)59

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

10th Percentile (40.76) 20.98 34.33 34.07 37.81 67.75 3.97 (5.70) 9.65 145.3525th Percentile (45.38) 15.17 33.37 30.50 34.81 62.58 (0.65) (11.91) (0.39) 73.36

Median (48.06) 8.91 29.21 25.19 29.87 57.04 (7.28) (16.57) (6.07) 49.5575th Percentile (51.31) 1.78 25.23 21.23 26.84 52.37 (14.03) (24.12) (17.07) 30.4290th Percentile (52.81) (3.65) 21.04 14.62 19.91 49.37 (16.43) (28.50) (24.52) 10.53

GMO (Gross) A(43.83) 8.70 36.68 20.02 30.09 51.58 3.48 4.51 (6.89) 42.37EMI World

ex US Value B(46.25) 6.63 29.01 19.70 31.26 57.27 (1.40) (9.33) (0.81) 11.41

EMI World ex US Index (47.68) 7.33 29.43 22.10 28.74 53.73 (7.28) (15.70) (10.32) 23.50

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%

20%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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

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


0123456789

10

Alpha TreynorRatio

A(18)

B(83)

A(9)

B(74)



GMO (Gross) A 6.54 8.31EMI World

ex US Value B 1.76 2.83

0.0

0.5

1.0

1.5


A(1)

B(58) A(2)

B(67)

A(1)

B(50)



GMO (Gross) A 1.31 0.39 1.17EMI World

ex US Value B 0.37 0.13 0.35


Dom

estic Fixed-Income

‘

DOMESTIC FIXED-INCOMEActive Management Overview

Active vs. the IndexThe Federal Reserve cut the Fed Funds interest rate to the lowest levels on record in December when it lowered the rateto between 0% and 0.25%. This was the 10th interest rate cut in the last 15 months. Even though the cost of borrowinghas dropped significantly, there is still very little available credit. The lack of credit continues to be a problem forfuture growth and concerns of deflation surfaced due to the lowered interest rates and declining prices in goods,specifically commodity prices. The uncertainty and volatility of the equity market sent investors to the safety ofgovernment debt or to other quality debt instruments. The Barclays Capital Aggregate Bond Index (formerly LehmanBrothers) returned 4.58% for the quarter due to the high demand for U.S. Treasuries. This return beat the median CoreBond return by 246 basis points, which had a gain of 2.12%. This year challenged a lot of long-held views about bondsbeing a conservative and less volatile investment class, however, the Barclays Capital Aggregate Bond Index stillreturned 5.24% for the year.

Short vs. Long DurationThe fourth quarter of 2008 saw high volatility and steep losses across virtually all asset classes. Driven mostly by fearand uncertainty, many investors went to cash which drove down the yield of most cash-like securities. The one-monthand three-month Treasury bills went negative, and the one-year, five-year and ten-year Treasurys all touched the lowestlevels on record during the fourth quarter. Longer duration Treasurys also saw precipitous drops in yield. The 30-yearTreasury fell 49 basis points to 2.55% and went to a record low of 2.50% during the fourth quarter. Due to interest ratecuts and sensitivity to interest rate changes, extended duration bonds performed better then their shorter counterparts.For the twelve months ended December 31, 2008, Extended Maturity outperformed Intermediate funds returning 6.28%and 4.32%, respectively.

Mortgages and High YieldThe U.S. government announced it plans to spend $600 billion to buy agency and other mortgage debt from distressedlenders like Freddie Mac and Fannie Mae. New legislation is also being debated that would give homeowners moreleverage to renegotiate their mortgages. For the quarter, the BC Mortgage Index returned 4.34% which outperformedthe median Mortgage Backed fund which had a gain of 1.70%. High-yield debt was the worst performer for the yearamong the fixed-income groups with a median loss of 21.50%, while the BC High Yield index posted a 26.16% loss,even after a strong performance in December. Quality was the key in the 4th quarter as bonds rated below investmentgrade performed very poorly in comparison to their higher quality counterparts.


(30%)

(20%)

(10%)

0%

10%

20%

0.54%

ActiveCash

1.63%

Defensive

3.93%

Intermed

2.12%

CoreBond

(0.71%)

CorePlus

13.44%

ExtendedMaturity

5.61%

ActiveDuration

1.70%

MortgageBacked

(14.98%)

HighYield

Ret

urns

BC Universal: 2.72%BC Aggregate: 4.58%BC Govt/Credit: 6.42%BC Mortgage: 4.34%BC High Yield: (17.88%)


(30%)

(20%)

(10%)

0%

10%

20%

1.82%

ActiveCash

3.78%

Defensive

4.32%

Intermed

0.52%

CoreBond

(5.21%)

CorePlus

6.28%

ExtendedMaturity

7.34%

ActiveDuration

2.44%

MortgageBacked

(21.50%)

HighYield

Ret

urns

BC Universal: 2.38%BC Aggregate: 5.24%BC Govt/Credit: 5.70%BC Mortgage: 8.34%BC High Yield: (26.16%)


DOMESTIC FIXED COMPOSITEPERIOD ENDED DECEMBER 31, 2008

Investment PhilosophyThe Domestic Fixed-Income Benchmark is currently comprised of 60% Barclays Capital 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 (0.08)% return for the quarter placing it in the 73 percentile ofthe Public Fund - Domestic Fixed group for the quarter and in the 77 percentile for the last year.

Domestic Fixed Composite’s portfolio underperformed the Blended Benchmark by 1.88% for the quarter andunderperformed the Blended Benchmark for the year by 5.25%.

Performance vs Public Fund - Domestic Fixed

(15%)

(10%)

(5%)

0%

5%

10%

15%


B(17)

A(73)(53)

B(12)

A(77)

(49)

B(17)A(57)(49)

B(27)A(46)(58)

B(23)A(64)(64)

B(19)A(71)(50)


Median 1.95 0.22 3.90 4.01 5.40 7.2975th Percentile (0.33) (4.14) 2.21 2.96 4.81 6.7190th Percentile (3.83) (10.19) (0.44) 1.53 4.10 6.34

DomesticFixed Composite A (0.08) (4.80) 3.68 4.14 5.10 6.83

BarclaysCapital Aggregate B 4.58 5.24 5.51 4.65 5.63 7.46

Blended Benchmark 1.80 0.45 4.05 3.58 5.09 7.29


Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic Fixed Composite

Public Fund - Domestic FixedAnnualized Ten Year Risk vs Return

1 2 3 4 5 6 7 81%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Barclays Capital Aggregate

Blended Benchmark

Domestic Fixed Composite

Standard Deviation

Ret

urns


DOMESTIC FIXEDRETURN ANALYSIS SUMMARY



Performance vs Public Fund - Domestic Fixed

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

77

49

441 1138 5

938593

3445 9473 9082 9489

56

10th Percentile 5.41 8.36 6.62 4.26 6.89 10.14 10.79 9.11 12.63 2.4525th Percentile 4.04 7.20 5.34 3.18 5.50 6.87 10.12 8.69 12.09 0.65

Median 0.22 6.61 4.67 2.82 4.83 4.91 9.48 8.32 11.51 (0.46)75th Percentile (4.14) 5.71 4.42 2.48 4.32 4.48 7.87 7.53 10.60 (1.80)90th Percentile (10.19) 4.39 4.12 2.28 4.03 3.70 5.57 6.56 9.09 (2.61)

Domestic Fixed (4.80) 9.89 6.53 5.51 4.13 6.47 4.36 6.57 8.59 4.43

Blended Benchmark 0.45 6.84 4.97 2.06 3.73 5.19 7.98 7.14 9.26 3.63


Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic Fixed Public Fund - Dom Fixed

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


(2.0)(1.5)(1.0)(0.5)

0.00.51.01.52.02.53.0

Alpha TreynorRatio

(20)

(11)



Domestic Fixed 0.41 2.17

(0.5)

0.0

0.5

1.0


(23)

(53)

(64)



Domestic Fixed 0.19 0.54 0.00


DOMESTIC FIXED COMPOSITEBOND CHARACTERISTICS ANALYSIS SUMMARY



Fixed-Income Portfolio CharacteristicsRankings Against CAI Core Bond Fixed-Inc Style


(2)

0

2

4

6

8

10

12

Effective Effective Coupon OADuration Maturity Yield Rate Convexity

(100)

(64)

(18)

(61) (44)(87)

(100)(65)

(53)(79)

10th Percentile 4.23 8.99 7.61 5.81 0.4525th Percentile 3.97 7.07 6.07 5.60 0.36

Median 3.76 5.75 4.94 5.37 0.0975th Percentile 3.63 5.22 4.51 5.14 (0.17)90th Percentile 3.38 4.42 3.76 4.79 (0.63)

DomesticFixed Composite 1.94 7.48 5.17 4.57 0.05

BC Aggregate Index 3.71 5.50 3.99 5.25 (0.26)

Sector Allocation and Quality RatingsThe first graph compares the manager’s sector allocation with the average allocation across all the members of the

manager’s style. The second graph compares the manager’s weighted average quality rating with the range of qualityratings for the style.


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

US MBS30.0%

27.9%39.7%

Cash29.6%

50%

Mgr

MV

50%

Mgr

MV

2.9%

US Credit21.0%

25.8%21.4%

US CMOs7.9%

6.9%

US Cnvt3.5%

US CMBs2.9%

9.6%3.6%

US ABS2.2%

3.6%0.6%

US Trsy1.9%

13.2%25.0%

US Prfd0.9%

3.6%

US Agcy0.2%

6.5%9.6%

Domestic Fixed Composite CAI Core Bond Fixed-Inc Style

BC Aggregate Index

Sector DiversificationManager 1.15 sectorsStyle 1.40 sectorsIndex 1.41 sectors

Quality Ratingsvs CAI Core Bond Fixed-Inc Style

AA-

AA

AA+

AAA

Trsy

Weighted AverageQuality Rating

(83)

(18)

10th Percentile AAA25th Percentile AA+

Median AA+75th Percentile AA90th Percentile AA

DomesticFixed Composite AA

BC Aggregate Index AA+


MET WESTPERIOD ENDED DECEMBER 31, 2008

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 (3.35)% return for the quarter placing it in the 73 percentile of the CAI CoreBond Plus Style group for the quarter and in the 70 percentile for the last year.

Met West’s portfolio underperformed the BC Aggregate Index by 7.93% for the quarter and underperformedthe BC Aggregate Index for the year by 12.43%.

Performance vs CAI Core Bond Plus Style

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

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

(73)

(2)

(70)

(2)

(49)

(5)

(50)

(9) (37)(28)(84)

(23) (77)(25)

10th Percentile 3.18 3.53 5.05 4.63 5.25 5.52 5.8825th Percentile 1.88 (0.24) 3.73 3.77 4.68 5.15 5.63

Median (0.71) (5.21) 1.81 2.79 4.22 4.44 5.1375th Percentile (3.59) (8.82) 0.85 2.21 3.49 3.96 4.7290th Percentile (5.47) (12.77) (1.36) 1.09 2.69 3.17 4.22

Met West (3.35) (7.19) 1.97 2.83 4.44 3.50 4.62

BC Aggregate Index 4.58 5.24 5.51 4.65 4.63 5.17 5.63

Relative Return vs BC Aggregate Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Met West

CAI Core Bond Plus StyleAnnualized Ten Year Risk vs Return

3.0 3.5 4.0 4.5 5.0 5.53.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Met West

BC Aggregate Index

Standard Deviation

Ret

urns


MET WESTRETURN ANALYSIS SUMMARY




(20%)(15%)(10%)(5%)

0%5%

10%15%20%

2008 2007 2006 2005 2004 2003 2002 2001 2000

(70)

(2)(15)(23) (3)(92) (48)(82)

(52)(95)

(6)

(100)(99)

(16) (45)(34)(60)(39)

10th Percentile 3.53 7.84 6.23 3.48 6.96 10.09 11.12 9.83 13.1425th Percentile (0.24) 6.91 5.80 3.22 5.62 8.56 9.97 8.92 12.01

Median (5.21) 5.91 5.26 2.98 5.25 7.01 8.53 8.21 11.3675th Percentile (8.82) 5.34 4.69 2.50 5.06 5.81 7.90 7.74 10.2990th Percentile (12.77) 3.92 4.37 2.30 4.84 5.36 5.73 7.33 9.07

Met West (7.19) 7.41 6.36 3.03 5.23 11.49 0.91 8.25 11.15

BC Aggregate Index 5.24 6.97 4.33 2.43 4.34 4.10 10.26 8.43 11.63

Rolling 12 Quarter and Quarterly Relative Return vs BC Aggregate Index

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Met West CAI FI Core Plus Style

Risk Adjusted Return Measures vs BC Aggregate IndexRankings Against CAI Core Bond Plus Style


(2)

(1)

0

1

2

3

4

Alpha TreynorRatio

(35)

(22)



Met West 0.27 2.69

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(43)

(78)

(61)


Median 0.02 0.47 (0.20)75th Percentile (0.08) 0.32 (0.31)90th Percentile (0.23) 0.15 (0.40)

Met West 0.08 0.29 (0.24)


PIMCOPERIOD ENDED DECEMBER 31, 2008

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 5.66% return for the quarter placing it in the 1 percentile of the CAI Core BondPlus Style group for the quarter and in the 1 percentile for the last year.

PIMCO’s portfolio outperformed the BC Aggregate Index by 1.08% for the quarter and outperformed the BCAggregate Index for the year by 0.19%.


(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%


(1)(2)

(1)(2)(1)

(5) (1)(9)

(3)(25)

(5)(51)

10th Percentile 3.18 3.53 5.05 4.63 5.88 8.4925th Percentile 1.88 (0.24) 3.73 3.77 5.63 7.97

Median (0.71) (5.21) 1.81 2.79 5.13 7.4875th Percentile (3.59) (8.82) 0.85 2.21 4.72 7.2390th Percentile (5.47) (12.77) (1.36) 1.09 4.22 7.00

PIMCO 5.66 5.43 6.54 5.82 6.59 9.00

BC Aggregate Index 4.58 5.24 5.51 4.65 5.63 7.46

Relative Return vs BC Aggregate Index

Rel

ativ

e R

etur

ns

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

PIMCO

CAI Core Bond Plus StyleAnnualized Ten Year Risk vs Return

3.0 3.5 4.0 4.5 5.0 5.53.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

PIMCO

BC Aggregate Index

Standard Deviation

Ret

urns


PIMCORETURN ANALYSIS SUMMARY




(20%)(15%)(10%)(5%)

0%5%

10%15%20%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

124

236792 1182

1295 68100

1316 18344839

6294

10th Percentile 3.53 7.84 6.23 3.48 6.96 10.09 11.12 9.83 13.14 1.1525th Percentile (0.24) 6.91 5.80 3.22 5.62 8.56 9.97 8.92 12.01 0.32

Median (5.21) 5.91 5.26 2.98 5.25 7.01 8.53 8.21 11.36 (0.05)75th Percentile (8.82) 5.34 4.69 2.50 5.06 5.81 7.90 7.74 10.29 (0.52)90th Percentile (12.77) 3.92 4.37 2.30 4.84 5.36 5.73 7.33 9.07 (0.73)

PIMCO 5.43 9.42 4.83 3.38 6.15 6.31 10.72 9.20 11.39 (0.39)

BC Aggregate Index 5.24 6.97 4.33 2.43 4.34 4.10 10.26 8.43 11.63 (0.82)

Rolling 12 Quarter and Quarterly Relative Return vs BC Aggregate Index

Rel

ativ

e R

etur

ns

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

PIMCO CAI FI Core Plus Style

Risk Adjusted Return Measures vs BC Aggregate IndexRankings Against CAI Core Bond Plus Style


(2)

(1)

0

1

2

3

4

Alpha TreynorRatio

(7)

(13)



PIMCO 0.76 2.90

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0


(1)

(1) (3)


Median 0.02 0.47 (0.20)75th Percentile (0.08) 0.32 (0.31)90th Percentile (0.23) 0.15 (0.40)

PIMCO 0.57 0.76 0.68


PYRAMISPERIOD ENDED DECEMBER 31, 2008

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 3.55% return for the quarter placing it in the 1 percentile of the CAI DefensiveFixed-Inc Style group for the quarter and in the 94 percentile for the last year.

Pyramis’s portfolio outperformed the ML 1-5 Govt/Corp by 0.51% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 12.57%.

Performance vs CAI Defensive Fixed-Inc Style

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%


A(1)

B(68)

(4)

B(24)

A(94)

(36)

A(1)B(1)

(24)

A(1)

B(1)

(32)

B(1)A(1)

(16)

B(1)A(1)

(1)


Median 1.63 3.78 4.40 3.48 3.48 4.6475th Percentile (0.08) (0.39) 3.27 2.78 2.68 4.2490th Percentile (1.35) (3.46) 2.19 2.07 2.13 3.91

Pyramis A 3.55 (7.92) 7.57 7.90 4.56 5.66Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 5.90 6.45

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 3.76 5.02

Relative Return vs ML 1-5 Govt/Corp

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Pyramis

CAI Defensive Fixed-Inc StyleAnnualized Ten Year Risk vs Return

0 2 4 6 8 101%

2%

3%

4%

5%

6%

7%

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%

30%

35%

2008 2007 2006 2005 2004

B(24)

A(94)

(36)

A(1)

B(4)(5) B(1)A(1)

(95)

A(1)

B(1)

(98)B(1)

A(100)(44)


Median 3.78 6.38 4.61 2.18 1.6775th Percentile (0.39) 5.42 4.46 1.97 1.3590th Percentile (3.46) 3.75 4.32 1.84 1.10

Pyramis A (7.92) 26.13 7.17 19.58 (1.74)Treasury Bills90 Day + 3% B 5.06 8.00 7.85 6.07 4.33

ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2003 2002 2001 2000 1999

B(10)

A(100)

(17)B(92)

A(99)

(5)

A(1)

B(93)(21)

A(1)

B(6)(14) B(1)

A(100)(91)


Median 2.59 6.18 8.53 8.41 3.5175th Percentile 2.31 5.62 8.10 8.03 3.1990th Percentile 1.92 5.06 7.65 7.39 2.43


ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


PYRAMISPERIOD ENDED DECEMBER 31, 2008

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 3.55% return for the quarter placing it in the 10 percentile of the CAI MarketNeutral Style group for the quarter and in the 85 percentile for the last year.

Pyramis’s portfolio outperformed the ML 1-5 Govt/Corp by 0.51% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 12.57%.

Performance vs CAI Market Neutral Style

(15%)

(10%)

(5%)

0%

5%

10%

15%


A(10)

B(35)(12)

B(28)

A(85)

(30)

A(17)B(19)

(28)

A(18)B(26)

(50)B(20)A(24)(43)

B(6)A(23)(31)


Median 0.74 (0.14) 3.97 3.87 3.57 4.2275th Percentile (1.65) (6.88) 1.32 2.37 1.42 3.9190th Percentile (4.44) (8.67) (0.49) 0.74 0.51 1.35

Pyramis A 3.55 (7.92) 7.57 7.90 4.56 5.66Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 5.90 6.45

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 3.76 5.02


Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Pyramis

CAI Market Neutral StyleAnnualized Ten Year Risk vs Return

0 2 4 6 8 10 12 14 160%

1%

2%

3%

4%

5%

6%

7%

Pyramis


ML 1-5 Govt/Corp

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%

30%

35%

2008 2007 2006 2005 2004

B(28)

A(85)

(30)

A(4)

B(18)(21) B(34)A(49)

(73)

A(9)

B(33)

(67)B(33)

A(95)(76)


Median (0.14) 4.74 7.08 3.80 2.6575th Percentile (6.88) (1.09) 3.85 0.87 1.8190th Percentile (8.67) (6.24) 1.34 (2.20) 0.64


ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2003 2002 2001 2000 1999

B(23)

A(96)

(25) B(60)A(72)

(45)A(27)

B(44)(33)

A(14)

B(37)(37) B(24)

A(55)(30)


Median 1.51 7.01 6.72 5.05 (0.90)75th Percentile (1.50) (0.84) 2.75 (0.04) (7.08)90th Percentile (7.86) (3.92) (3.00) (4.50) (11.27)


ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


SALUS CAPITALPERIOD ENDED DECEMBER 31, 2008

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.

Quarterly Summary and HighlightsSalus Capital’s portfolio posted a 1.32% return for the quarter placing it in the 65 percentile of the CAIDefensive Fixed-Inc Style group for the quarter and in the 67 percentile for the last year.

Salus Capital’s portfolio underperformed the ML 1-5 Govt/Corp by 1.73% for the quarter and underperformedthe ML 1-5 Govt/Corp for the year by 4.51%.


(5%)

0%

5%

10%


A(65)B(68)

(4)

B(24)

A(67)

(36)

B(1)

A(51)

(24)B(1)

A(45)(32)

B(1)

A(91)

(1)

B(1)

A(94)

(1)



Salus Capital A 1.32 0.14 4.38 3.80 3.82 3.75Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 6.45 6.54

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 5.02 5.20


Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Salus Capital


0 1 2 3 4 5 61%

2%

3%

4%

5%

6%

7%

Salus Capital


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2008 2007 2006 2005 2004

B(24)

A(67)

(36)

B(4)

A(98)

(5)

A(1)

B(1)

(95)

B(1)A(1)

(98)

B(1)

A(99)(44)



Salus A 0.14 1.86 11.49 5.31 0.60Treasury Bills90 Day + 3% B 5.06 8.00 7.85 6.07 4.33

ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

(2%)

0%

2%

4%

6%

8%

10%

12%

2003 2002 2001 2000 1999

B(10)

A(88)

(17)

A(5)

B(92)

(5) A(76)B(93)

(21) B(6)

A(100)

(14)B(1)

A(100)

(91)



Salus A 1.95 7.68 8.05 2.35 (0.55)Treasury Bills90 Day + 3% B 4.15 4.78 7.42 9.18 7.85

ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


SALUS CAPITALPERIOD ENDED DECEMBER 31, 2008

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.

Quarterly Summary and HighlightsSalus Capital’s portfolio posted a 1.32% return for the quarter placing it in the 22 percentile of the CAI MarketNeutral Style group for the quarter and in the 45 percentile for the last year.

Salus Capital’s portfolio underperformed the ML 1-5 Govt/Corp by 1.73% for the quarter and underperformedthe ML 1-5 Govt/Corp for the year by 4.51%.


(15%)

(10%)

(5%)

0%

5%

10%

15%


A(22)B(35)

(12)

B(28)

A(45)

(30)

B(19)

A(44)(28)

B(26)

A(50)(50)

B(9)

A(72)(22)

B(6)

A(79)(31)



Salus Capital A 1.32 0.14 4.38 3.80 3.75 3.82Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 6.54 6.45

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 5.20 5.02


Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Salus Capital


0 2 4 6 8 10 12 14 160%

1%

2%

3%

4%

5%

6%

7%

Salus Capital


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2008 2007 2006 2005 2004

B(28)

A(45)

(30)B(18)

A(63)

(21)

A(15)B(34)

(73)B(33)A(41)

(67)B(33)A(91)(76)



Salus A 0.14 1.86 11.49 5.31 0.60Treasury Bills90 Day + 3% B 5.06 8.00 7.85 6.07 4.33

ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2003 2002 2001 2000 1999

B(23)A(43)(25)

A(46)B(60)

(45) A(41)B(44)

(33) B(37)

A(64)

(37) B(24)

A(48)(30)



Salus A 1.95 7.68 8.05 2.35 (0.55)Treasury Bills90 Day + 3% B 4.15 4.78 7.42 9.18 7.85

ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


SSIPERIOD ENDED DECEMBER 31, 2008

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 1.67% return for the quarter placing it in the 41 percentile of the CAI DefensiveFixed-Inc Style group for the quarter and in the 91 percentile for the last year.

SSI’s portfolio underperformed the ML 1-5 Govt/Corp by 1.38% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 8.61%.


(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%


A(41)B(68)

(4)

B(24)

A(91)

(36)

B(1)

A(93)

(24)B(1)

A(94)

(32)

B(1)

A(94)

(1)

B(1)

A(89)(1)



SSI A 1.67 (3.96) 0.19 1.02 1.89 4.04Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 5.74 6.45

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 4.34 5.02


Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

SSI


0 1 2 3 4 5 61%

2%

3%

4%

5%

6%

7%

SSI


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

2008 2007 2006 2005 2004

B(24)

A(91)

(36)

B(4)

A(84)

(5)B(1)

A(100)

(95)

A(1)B(1)

(98)

B(1)

A(100)

(44)



SSI A (3.96) 4.54 0.17 6.19 (1.50)Treasury Bills90 Day + 3% B 5.06 8.00 7.85 6.07 4.33

ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2003 2002 2001 2000 1999

B(10)

A(100)

(17)

A(8)

B(92)

(5) B(93)

A(100)

(21)

A(1)

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

(91)



SSI A 1.23 7.04 5.33 14.59 8.04Treasury Bills90 Day + 3% B 4.15 4.78 7.42 9.18 7.85

ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


SSIPERIOD ENDED DECEMBER 31, 2008

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 1.67% return for the quarter placing it in the 18 percentile of the CAI Market NeutralStyle group for the quarter and in the 70 percentile for the last year.

SSI’s portfolio underperformed the ML 1-5 Govt/Corp by 1.38% for the quarter and underperformed the ML1-5 Govt/Corp for the year by 8.61%.


(15%)

(10%)

(5%)

0%

5%

10%

15%


A(18)B(35)

(12)B(28)

A(70)

(30)

B(19)

A(81)

(28)B(26)

A(88)

(50)B(18)

A(85)

(47)

B(6)

A(70)(31)



SSI A 1.67 (3.96) 0.19 1.02 1.89 4.04Treasury Bills90 Day + 3% B 0.97 5.06 6.96 6.25 5.74 6.45

ML 1-5 Govt/Corp 3.04 4.65 5.38 3.85 4.34 5.02


Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

SSI


0 2 4 6 8 10 12 14 160%

1%

2%

3%

4%

5%

6%

7%

SSI


ML 1-5 Govt/Corp

Standard Deviation

Ret

urns



RECENT PERIODS



(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2008 2007 2006 2005 2004

B(28)

A(70)

(30)B(18)A(54)

(21) B(34)

A(94)

(73)A(32)B(33)

(67)B(33)

A(95)(76)



SSI A (3.96) 4.54 0.17 6.19 (1.50)Treasury Bills90 Day + 3% B 5.06 8.00 7.85 6.07 4.33

ML 1-5 Govt/Corp 4.65 7.27 4.26 1.43 1.76

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

2003 2002 2001 2000 1999

B(23)A(52)

(25)A(48)B(60)

(45) B(44)A(63)

(33)

A(24)

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

(30)



SSI A 1.23 7.04 5.33 14.59 8.04Treasury Bills90 Day + 3% B 4.15 4.78 7.42 9.18 7.85

ML 1-5 Govt/Corp 3.30 7.91 8.98 8.87 2.19


NICHOLAS-APPLEGATEPERIOD ENDED DECEMBER 31, 2008

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 Lynch AllU.S. Convertibles Index thereafter.

Quarterly Summary and HighlightsNicholas-Applegate’s portfolio posted a (14.47)% return for the quarter placing it in the 56 percentile of theCAI Convertible Bonds Database group for the quarter and in the 40 percentile for the last year.

Nicholas-Applegate’s portfolio outperformed the Convertible Benchmark by 4.16% for the quarter andoutperformed the Convertible Benchmark for the year by 7.89%.

Performance vs CAI Convertible Bonds Database

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%


(56)(79)

(40)

(81)

(20)

(85)

(9)

(88)

(26)(90)

(17)(93)



Nicholas-Applegate (14.47) (27.84) (1.74) 2.82 4.85 8.43

Convertible Benchmark (18.63) (35.73) (8.84) (3.93) 1.67 4.03

Relative Return vs Convertible Benchmark

Rel

ativ

e R

etur

ns

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Nicholas-Applegate

CAI Convertible Bonds DatabaseAnnualized Ten Year Risk vs Return

4 6 8 10 12 14 16 18 200%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Nicholas-Applegate

Convertible Benchmark

Standard Deviation

Ret

urns


NICHOLAS-APPLEGATERETURN ANALYSIS SUMMARY



Performance vs CAI Convertible Bonds Database

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

0%20%40%60%80%

100%120%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

4081

1383 1618 888

12572121

8565 9063 7386

2529

10th Percentile (17.98) 17.60 14.06 7.60 12.35 33.56 5.50 14.91 15.36 90.8025th Percentile (25.82) 11.03 12.03 5.26 9.17 27.38 (2.67) 5.83 9.19 51.09

Median (30.50) 8.83 11.01 3.97 7.32 20.21 (6.47) (2.54) 1.10 24.4575th Percentile (34.72) 7.10 10.07 1.54 5.28 14.66 (9.67) (8.73) (2.80) 13.3890th Percentile (39.49) 2.94 8.01 (0.01) 3.73 9.40 (17.17) (15.03) (15.87) 5.66

Nicholas-Applegate (27.84) 15.74 13.58 8.44 11.71 28.09 (13.03) (14.86) (1.71) 49.84

Convertible Benchmark (35.73) 4.47 12.83 1.01 6.92 27.99 (8.13) (6.46) (7.83) 42.27

Rolling 12 Quarter and Quarterly Relative Return vs Convertible Benchmark

Rel

ativ

e R

etur

ns

(10%)

(5%)

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Nicholas-Applegate CAI Convertible Bond DB

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


(4)(3)(2)(1)

0123456

Alpha TreynorRatio

(24)

(40)


Median 1.72 1.0675th Percentile 0.71 (0.29)90th Percentile (0.57) (2.51)

Nicholas-Applegate 3.17 1.42

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2


(21)

(37)

(20)


Median 0.35 0.06 0.3575th Percentile 0.16 (0.02) 0.1890th Percentile (0.11) (0.13) (0.04)

Nicholas-Applegate 0.60 0.08 0.60


International

‘

Fixed-Income

‘

INTERNATIONAL FIXED-INCOMEActive Management Overview

Active vs. the IndexFollowing the global economic panic that characterized the close of the third quarter 2008, the fourth quarter staged ameaningful rally in many developed regions of the global economy. Despite the emergence of "decoupling" theorieswhich projected the growing ability of bond prices in developing countries to hold up even if a recession in the U.S.punished domestic investments, the effects of domestic events on globalized financial markets proved to have a seriousimpact on the global economy in the third and fourth quarters of 2008. The Fed took dramatic steps to fight theeconomic downturn this quarter, pushing its target interest rate to a historic low of 0.25% and central banks around theworld quickly followed suit. Massive government stimulus appears to have slowed the tide of economic downturn asthe median developed Non-U.S and Global Fixed-Income funds managed positive returns in the fourth quarter.However, both the median Non-U.S. Fixed-Income and Global Fixed-Income funds underperformed their benchmarksfor the fourth quarter. The median Non-U.S. Fixed-Income fund underperformed its Citi Non-U.S. Govt benchmark by52 basis points and the median Global Fixed-Income fund underperformed the Citi World Govt Index by 249 basispoints. This trend was also true for the year ended December 31, 2008, but by even larger margins of 138 and 370 basispoints, respectively.

Emerging MarketsAs was true for the third quarter of 2008, Emerging Debt was the lowest performing group for the fourth quarter of2008 and the year ending December 31, 2008. While many of the world’s economies have resorted to stimulusmeasures to cushion economic activity, emerging markets are far less able to engage in countercyclical fiscal policy. Asa result, slowing demand for foreign-made goods has had significant implications for export-dependent countries thisquarter. In the second half of 2008, commodity prices fell drastically as demand plummeted with the onset of aweakening U.S. dollar and a dramatic negative wealth effect. In particular, the crisis in the Russian financial marketswas compounded by the dramatic drop in the demand for and price of oil, which has lost more than two thirds of itspeak value for 2008. This quarter, the median Emerging Debt fund underperformed the JP Morgan Emerging MarketIndex’s return of -6.83% by 252 basis points. This disparity was even greater for the year ended December 31, 2008, asthe index fell 3.84% while the median Emerging Debt fund lost 14.88%.


(15%)

(10%)

(5%)

0%

5%

10%

15%

8.28%

Non-USFixed-Income

6.32%

GlobalFixed-Income

(9.35%)

Emerging Debt

2.12%

DomesticCore Bond

Ret

urns

Citi World Govt: 8.81%Citi Non-US Govt: 8.80%Citi Non-US Hedged: 5.51%JP Morgan Emerging Mkt: (6.83%)


(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

8.73%

Non-USFixed-Income

7.19%

GlobalFixed-Income

(14.88%)

Emerging Debt

0.52%

DomesticCore Bond

Ret

urns

Citi World Govt: 10.89%Citi Non-US Govt: 10.11%Citi Non-US Hedged: 8.01%JP Morgan Emerging Mkt: (3.84%)


ROGGE INTERNATIONALPERIOD ENDED DECEMBER 31, 2008

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 6.12% return for the quarter placing it in the 93 percentile of the CAINon-U.S. Fixed-Inc Style group for the quarter and in the 90 percentile for the last year.

Rogge International’s portfolio underperformed the Citi Non-US Gvt Bd Idx by 2.68% for the quarter andunderperformed the Citi Non-US Gvt Bd Idx for the year by 5.00%.

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

2%

4%

6%

8%

10%

12%

14%


(93)

(15)

(90)

(24)

(83)

(15)

(81)

(32)

(86)(34)

(64)(73)


Median 8.28 8.73 8.50 5.55 5.24 6.2975th Percentile 7.60 7.87 8.11 5.24 5.05 5.8890th Percentile 6.60 5.22 6.26 3.82 4.80 5.49

Rogge International 6.12 5.10 7.04 5.03 4.90 6.08

Citi Non-US Gvt Bd Idx 8.80 10.11 9.49 5.97 5.59 5.91

Relative Return vs Citi Non-US Gvt Bd Idx

Rel

ativ

e R

etur

ns

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Rogge International

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

9.2 9.4 9.6 9.8 10.0 10.2 10.4 10.6 10.84.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

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%

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

9024 6233

7542

3462

1368

23883065

9268 57817214

10th Percentile 11.51 11.96 9.60 (7.72) 14.86 23.21 25.99 (0.84) 0.15 (4.28)25th Percentile 10.02 11.56 7.18 (8.22) 13.08 20.65 23.63 (1.85) (1.27) (5.88)

Median 8.73 11.00 6.69 (8.83) 12.47 20.03 22.22 (2.94) (2.06) (7.05)75th Percentile 7.87 9.85 6.04 (9.36) 11.78 19.30 21.24 (3.66) (2.25) (8.33)90th Percentile 5.22 6.31 4.40 (10.09) 10.54 18.46 19.41 (4.82) (3.25) (11.02)

Rogge International 5.10 10.03 6.04 (8.53) 13.94 20.71 23.05 (5.41) (2.11) (8.23)

Citi Non-US Gvt Bd Idx 10.11 11.46 6.95 (9.21) 12.14 18.52 21.99 (3.54) (2.63) (5.07)

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%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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


(2)

(1)

0

1

2

3

4

5

Alpha TreynorRatio

(85)

(85)


Median (0.31) 1.8175th Percentile (0.53) 1.5890th Percentile (0.70) 1.38

Rogge International (0.62) 1.47

(0.8)

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8


(70)

(84)

(72)


Median (0.22) 0.18 (0.24)75th Percentile (0.40) 0.16 (0.42)90th Percentile (0.53) 0.14 (0.55)

Rogge International (0.30) 0.14 (0.33)


Real E

state

‘

TOTAL REAL ESTATEPERIOD ENDED SEPTEMBER 30, 2008

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 (4.56)% return for the quarter placing it in the 76 percentile of the TotalReal Estate DB group for the quarter and in the 78 percentile for the last year.

Total Real Estate’s portfolio underperformed the Real Estate Benchmark by 5.63% for the quarter andunderperformed the Real Estate Benchmark for the year by 9.14%.

Performance vs Total Real Estate DB

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

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

(76)

(19)

(72)

(33)

(78)

(51)

(62)(53)

(43)(46) (25)(31)(47)(58)


Median (0.82) (0.08) 1.21 11.90 13.48 10.22 9.2375th Percentile (4.30) (7.64) (7.44) 5.32 10.21 8.07 7.6390th Percentile (13.56) (18.08) (19.61) (0.78) 3.25 3.41 6.85

Total Real Estate (4.56) (5.98) (8.27) 9.58 14.53 12.76 9.94

Real Estate Benchmark 1.07 1.87 0.87 11.45 14.04 11.95 8.42

Relative Return vs Real Estate Benchmark

Rel

ativ

e R

etur

ns

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

981999 2000 2001 2002 2003 2004 2005 2006 2007 08

Total Real Estate

Total Real Estate DBAnnualized Ten Year Risk vs Return

0 5 10 15 20 25 30 35 40(5%)

0%

5%

10%

15%

20%

25%

Total Real Estate

Real Estate Benchmark

Standard Deviation

Ret

urns


PRIVATE REAL ESTATEPERIOD ENDED SEPTEMBER 30, 2008

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 (2.99)% return for the quarter placing it in the 69 percentile of the TotalReal Estate DB group for the quarter and in the 60 percentile for the last year.

Private Real Estate’s portfolio underperformed the NCREIF Total Index by 2.82% for the quarter andunderperformed the NCREIF Total Index for the year by 7.41%.

Performance vs Total Real Estate DB

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

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

(69)(43)

(67)

(32)

(60)

(34)

(44)(39)(41)(43)

(26)(34)(47)(57)


Median (0.82) (0.08) 1.21 11.90 13.48 10.22 9.3975th Percentile (4.30) (7.64) (7.44) 5.32 10.21 8.07 7.9190th Percentile (13.56) (18.08) (19.61) (0.78) 3.25 3.41 7.73

Private Real Estate (2.99) (4.01) (2.14) 12.51 15.04 12.31 9.63

NCREIF Total Index (0.17) 2.00 5.27 13.25 14.24 11.83 8.87

Relative Return vs NCREIF Total Index

Rel

ativ

e R

etur

ns

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

981999 2000 2001 2002 2003 2004 2005 2006 2007 08

Private Real Estate

Total Real Estate DBAnnualized Ten Year Risk vs Return

0 5 10 15 20 25 30 35 40(5%)

0%

5%

10%

15%

20%

25%

Private Real Estate

NCREIF Total Index

Standard Deviation

Ret

urns


RREEF REITPERIOD ENDED DECEMBER 31, 2008

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. Fund changed to the RREEF Global REIT in September, 2008. Prior history reflectscommingled returns.

Quarterly Summary and HighlightsRREEF REIT’s portfolio posted a (25.56)% return for the quarter placing it in the 7 percentile of the CAI RealEstate - REIT Global DB group for the quarter and in the 87 percentile for the last year.

RREEF REIT’s portfolio outperformed the EPRA/NAREIT Global Idx by 6.82% for the quarter andunderperformed the EPRA/NAREIT Global Idx for the year by 5.39%.

Performance vs CAI Real Estate - REIT Global DB

(65%)

(60%)

(55%)

(50%)

(45%)

(40%)

(35%)

(30%)

(25%)

(20%)

(15%)

Last Quarter Last Year Last 2 Years

(7)

(59)

(87)

(58)

(77)(59)

10th Percentile (28.53) (42.49) (22.86)25th Percentile (29.57) (45.44) (27.46)


RREEF REIT (25.56) (53.12) (31.92)

EPRA/NAREITGlobal Idx (32.38) (47.72) (30.26)

Relative Return vs EPRA/NAREIT Global Idx

Rel

ativ

e R

etur

ns

(15%)

(10%)

(5%)

0%

5%

10%

2007 2008

RREEF REIT

Cumulative Returns vsEPRA/NAREIT Global Idx

Cum

ulat

ive

Rel

ativ

e R

etur

ns

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

2007 2008

RREEF REITCAI Real Est-REIT Gbl DB


Appendix

‘

Callan Associates Inc. Public Fund Database

December 2008 * 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 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 East Pacific Investment Company Georgia Municipal EBS Gwinnett County Pension Plan Harris County Hospital Idaho Judges Retirement System Illinois State Universities Ret. System

Illinois Teachers Ret. System Kansas City Employees’ Retirement Kansas City Firefighters’ Pension Kern County Employees’ Retirement Las Vegas Valley Water District Lowry Trust Marin County Employees’ Ret. Association Municipality of Anchorage Nevada Judicial Nevada Legislators Nevada Public Employees' Ret. System New York State Teachers’ Retirement Fund North Dakota State Investment Board NYC Employees Retirement System Orange County Public Employees’ Ret. System of Idaho Puerto Rico Teachers Sacramento Regional Transit San Bernardino County Employees’ Ret. San Diego City Retirement System South Carolina Retirement System South Dakota Investment Council St. Paul Teachers' Ret. Fund Association State Of Wisconsin Investment Board Texas Employees’ Retirement System 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 29 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.

121

FIXED-INCOME MARKET INDICATORS

Barclays Capital 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.

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.

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

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

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

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.

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.

122

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.

123

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.

124

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.

125

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.

Core Managers whose portfolio holdings and characteristics are similar to that of the broaderdeveloped market as represented by the MSCI EAFE Index, with the objective of adding valueover and above the index, typically from country, sector, or issue selection. The Core portfolio isbroadly diversified and exhibits similar risk characteristics to the developed market as measuredby low residual risk with Beta and R-Squared values close to 1.00 and combined growth and valuez-score values close to 0. Exposure to emerging markets and smaller capitalization stocks islimited.

Core Growth International Equity Style Generally benchmarked to the MSCI EAFE Index(and/or the MSCI EAFE Growth Index), Core Growth International managers focus on developedcountries and invest mainly in large capitalization companies that are expected to have aboveaverage prospects for long-term growth in earnings. Future growth prospects take precedence overvaluation levels in the stock selection process. Invests in companies with P/E, P/B ratios, ROE,and Growth-in-Earnings values generally above the broad developed market averages. Thecompanies typically have zero dividends or dividend yields below the broader market. Invests insecurities which exhibit greater volatility than the developed market as measured by the securities’Beta and Standard Deviation. Portfolios are broadly diversified and have high growth z-score andlow value z-score and exposure to emerging markets and smaller capitalization stocks is limited.

Core Plus Growth International Equity Style Generally benchmarked to the MSCI ACWIex-US Index (and/or the MSCI ACWI ex-US Growth Index), Core Plus Growth Internationalmanagers focus on adding value through increased tactical or strategic exposure to stocks in theemerging markets and smaller market capitalizations. Such managers invest primarily incompanies that are expected to have above average prospects for long-term growth in earnings.Future growth prospects take precedence over valuation levels in the stock selection process andthe manager may undertake concentrated bets. Invests in companies with P/E, P/B ratios, ROEvalues, and Growth-in-Earnings values above the broad market. The companies typically havezero dividends or dividend yields below the broader market. Invests in securities which exhibitgreater volatility than the broad market as measured by the securities’ Beta and StandardDeviation. Portfolios have high growth z-score and low value z-score and higher potentialexposure to emerging markets and small

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Core Plus International Equity Style Managers whose portfolio holdings and characteristics aresimilar to that of the broader international market as represented by the MSCI ACWI ex-USIndex, with the objective of adding value over and above the index, typically from increasedtactical or strategic exposure to stocks in emerging markets and smaller capitalization. The CorePlus portfolio exhibits similar risk characteristics to the broad market as measured by low residualrisk with Beta and R-Squared values close to 1.00, and combined growth and value z-score valuesclose to 0. Portfolios may undertake concentrated bets.

Core Plus Value International Equity Style Generally benchmarked to the MSCI ACWI ex-USIndex (and/or the MSCI ACWI ex-US Value Index), Core Plus Value International managersfocus on adding value through increased tactical or strategic exposure to stocks in the emergingmarkets and smaller market capitalizations. Such managers invest primarily in companies believedto be currently undervalued in the general market and may undertake concentrated bets. Valuationissues take precedence over near term earnings prospect in the stock selection process. Invests incompanies with P/E, P/B ratios, and ROE values below the broader market. Portfolios have lowgrowth z-score and high value z-score, and higher potential exposure to emerging markets andsmall capitalization stocks.

Core Value International Equity Style Generally benchmarked to the MSCI EAFE Index(and/or the MSCI EAFE Value Index), Core Value International managers focus on developedcountries with liquid markets. Such managers invest primarily in large capitalization companiesbelieved to be currently undervalued in the general market. Valuation issues take precedence overnear term earnings prospect in the stock selection process. Invests in companies with P/E, P/Bratios, and ROE values below the broader market. Portfolios are broadly diversified, have lowgrowth z-score and high value z-score, and exposure to emerging markets and smallercapitalization stocks is limited.

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.

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.

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Non-U.S. Equity A broad array of active managers who employ various strategies to invest assetsin a well-diversified portfolio of non-U.S. equity securities. This group consists of all Core, CorePlus, Growth, and Value international products, as well as products using various mixtures ofthese strategies. Region-specific, index, emerging market, or small cap products are excluded.

Small Capitalization Generally benchmarked to an international small cap index (like MSCIEAFE Small or MSCI ACWI ex-US Small or S&P/Citigroup EMI), International Small Capmanagers focus on selecting smaller capitalization stocks. They may pursue any combination ofGrowth, Value, or Core, or "Plus" strategies. Portfolios are diversified across countries, and mayhave significant exposure to emerging markets.

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.

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.

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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 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.

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.

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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.

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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 theBarclays Capital Government/Credit Bond Index or the Barclays Capital 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.

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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.

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.

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.

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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.

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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.

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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.

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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.

146a

Disclosures

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List of Managers That Do Business with Callan Associates Inc. Quarterly List as of December 31, 2008

Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 12/31/2008, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer.

Page 1 of 4

Manager Name Educational Services Consulting Services Aberdeen Asset Management YAcadian Asset Management, Inc. YAffiliated Managers Group, Inc. Y YAG Asset Management Inc. YAIG Global Investment Group YAllegiant Asset Management Group Y YAllianceBernstein Y YAllianz Investor Services, LLC YAllstate Investments LLC YAmerican Century Investment Management YAmSouth/Investment Management Group YAriel Investments, LLC YArk Asset Management Co., Inc. YAsset Strategy Consultants YAtalanta Sosnoff Capital, LLC YAtlanta Capital Management Co., L.L.C. Y YAXA Rosenberg Investment Management YBaillie Gifford International LLC YBaird Advisors Y YBank of America YBarclays Global Investors YBaring Asset Management YBarrow, Hanley, Mewhinney & Strauss, Inc. YBatterymarch Financial Management, Inc. YBear Stearns Asset Management YBlackRock YBoston Company Asset Management, LLC (The) Y YBNY Mellon Asset Management 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 YChartwell Investment Partners YChicago Equity Partners, LLC YCIBC Global Asset Management (USA) Ltd. YCiti Alternative Investments YClear Bridge Advisors Y YColumbia Management Advisors, LLC Y YColumbus Circle Investors Y YCramer Rosenthal McGlynn, LLC YCredit Suisse Asset Management YDB Advisors Y YDE Shaw Investment Management, L.L.C. YDelaware Investments Y YDePrince, Race & Zollo, Inc. YDeutsche Asset Management/Deutsche Bank Y YDSM Capital Partners YDuPont Capital Management YDwight Asset Management YEagle Asset Management, Inc. YEARNEST Partners, LLC Y



Page 2 of 4

Manager Name Educational Services Consulting Services Eaton Vance Management Y YEIM Asset Management YEnhanced Inv. Technologies, LLC (INTECH) YEntrust Capital Inc. YEvergreen Investments Y YFayez Sarofim & Company Y YFederated Investors YFiduciary Asset Management YFifth Third Asset Management, Inc. YFortis Investments YFranklin Portfolio Associates YFranklin Templeton YFred Alger Management Co., Inc. Y YFroley, Revy Investment Company, Inc. 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 YGreat Lakes Advisors, Inc. YHarris Investment Management, Inc. YHartford Investment Management Co./The Hartford Y YHeartland Advisors, Inc. YHenderson Global Investors YHillcrest Asset Management, LLC YHSBC Investments (USA) Inc. Y YIndependence Investments LLC Y YING Clarion YING Investment Management Y YINVESCO Y YInstitutional Capital LLC YInvestec Asset Management YJanus Capital Management, LLC YJensen Investment Management YJP Morgan Asset Management YJulius Baer Investment Management Y YKelly Capital Management, LLC YKensington Investment Group YKnightsbridge Asset Management, LLC YLazard Asset Management Y YLehman Brothers Inc. Y YLoomis, Sayles & Company, L.P. Y YLord Abbett & Company Y YLSV Asset Management Y YMacKay-Shields LLC Y YMarquette Asset Management YMarvin & Palmer Associates, I nc. YMetropolitan Life Insurance Company YMetropolitan West Capital Management, LLC YMFC Global Investment Management (U.S.) LLC YMFS Investment Management Y YMondrian Investment Partners Limited Y YMontag & Caldwell, Inc. Y Y



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Manager Name Educational Services Consulting Services Morgan Stanley Investment Management Y YNatixis Global Asset 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 YNuveen Investments Institutional Services Group Y YOFI Institutional Asset Management YOld Mutual Asset Management Y YOppenheimer Capital YPacific Investment Management Company YParadigm Asset Management Co., LLC YPeregrine Capital Management, Inc. YPhiladelphia International Advisors, LP Y YPhoenix Investment Partners Ltd. 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 YRiverSource Investments, LLC Y YRobeco Investment Management Y YRothschild Asset Management, Inc. Y YRREEF YRussell Investment Group YSchroder Investment Management North America Inc. Y YScottish Widows Investment Partnership YSEI Investments Y YSeligman (J. & W.) & Company, Inc. Y YSit Investment Associates, Inc. YSmith Group Asset Management Y YSoutheastern Asset Management, Inc. YStandish Mellon Asset Management Company YState Street Global Advisors Y YSterne Agee Asset Management YStockbridge Real Estate Funds YStone Harbor Investment Partners, L.P. YStratton Management YSystematic Financial Management Y YT. Rowe Price Associates, Inc. Y YTaplin, Canida & Habacht YTD Asset Management (USA) YThrivent Financial for Lutherans YThompson, Siegel & Walmsley LLC YTIAA-CREF YTimesSquare Capital Management, LLC YTCW Asset Management Company YUBP Asset Management LLC YUBS Y Y



Page 4 of 4

Manager Name Educational Services Consulting Services Union Bank of California YVanguard Group, Inc. (The) YVictory Capital Management Inc. Y YWaddell & Reed Asset Management Group YWEDGE Capital Management YWellington Management Company, LLP YWells Capital Management YWestern Asset Management Company YWilliam Blair & Co., Inc. YZephyr Management Y

Callan R

esearch/Education

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CALLANINVESTMENTS

INSTITUTE

White PapersCurrency – Applications & Considerations for Institutional Investors

Janet Becker-Wold, CFA. December 2008

Rebalancing in a Time of Extreme VolatilityKevin Dolsen, CFA; Karen Harris, ASA, CFA; Jay Kloepfer. November 2008

Callan Target Date Glidepath IndexIvan Cliff, CFA; Lori Lucas, CFA. November 2008

Callan DC Index – Performance Summary and AnalysisIvan Cliff, CFA; Lori Lucas, CFA. November 2008

Newsletters and Data PackageDC Observer and Callan DC Index™ – 3rd Quarter 2008

Hedge Fund Monitor – 3rd Quarter 2008

Capital Market Review – 4th Quarter 2008

Quarterly Performance Data Package – 4th Quarter 2008

Private Markets Trends – Fall 2008

Below is a list of recent Callan Institute research and upcoming programs. The Institute’sresearch and educational programs keep clients updated on the latest trends in theinvestment industry and help clients learn through carefully structured workshops andlectures. For more information, please contact your Callan Consultant or Gina Falsetto at415.974.5060 or [email protected].

RESEARCH AND UPCOMING PROGRAMS

FOURTH QUARTER 2008

RESEARCH AND UPCOMING PROGRAMS

(continued)

CALLANINVESTMENTS

INSTITUTEFOURTH QUARTER 2008


Surveys2008 DC Fee Survey – October 2008

2008 Impact of the PPA: Defined Contribution Plan Sponsor Survey – February 2008

2007 Investment Management Compensation Survey – February 2008

Event Summaries and PresentationsSummary: 2008 Regional Breakfast Workshop – October 2008

“Does Your Portfolio Have an Inflation Blind Spot?”

Presentation: 2008 Regional Breakfast Workshop – October 2008“Does Your Portfolio Have an Inflation Blind Spot?”

Upcoming Educational ProgramsThe Twenty-Ninth National Conference

January 26–28, 2009, San Francisco

June 2009 Regional Breakfast WorkshopsChicago, IL and San Francisco, CADates and Subject TBA

October 2009 Regional Breakfast WorkshopsAtlanta, GA and New York, NYDates and Subject TBA

If you have any questions regarding these programs,please contact Ray Combs at 415.974.5060 or [email protected].

The Callan Investments Institute, the educational division of Callan Associates Inc., has been a leadingeducational forum for the pensions and investments industry since 1980. The Institute offers continuingeducation on key issues confronting plan sponsors and investment managers.

101 California Street, Suite 3500, San Francisco, California 94111, 415.974.5060, www.callan.com


THE CENTER FORINVESTMENT TRAINING

(“CALLAN COLLEGE”)

“Callan College” – Advanced Investment TopicsMarch 3–5 in San FranciscoJuly 21–23 in San Francisco

“Callan College” – An Introduction to InvestmentsApril 28–29 in San FranciscoOctober 20–21 in San Francisco

“Callan College” on Alternative InvestingJune 16–17 in San Francisco

Tuition for the “Callan College” Introduction to Investments is $2,350 per person; tuitionsfor all other sessions is $2,500 per person. Tuition includes instruction, all materials,breakfast and lunch on each day and dinner on the first evening with the instructors.

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. Instruction is tailored to basic or advancedaudiences.

For more information on the “Callan College,” please contact Kathleen Cunnie at415.974.5060 or [email protected].

EDUCATIONAL SESSIONS

FOURTH QUARTER 2008

The Center for Investment Training (“Callan College”) provides relevant and practical educational opportunitiesto 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 Street, Suite 3500, San Francisco, California 94111, 415.974.5060, www.callan.com

ANNOUNCING 2009 SESSION DATES

callan associates inc. - sdcers - home · the third quarter was certainly one for the history...

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