Introduction

June 30, 2002

On behalf of the Investment Office, I am pleased to present reports on the PERF Summary of Investments, portfolio of California Investments, and our investment performance for the year ended June 30, 2002. This data was compiled by our Investment Accounting staff, CalPERS pension consultant, Wilshire Associates, and our master custodian, State Street Bank & Trust. It is presented in accordance with statutes found in the Retirement Law. We voluntarily follow AIMR performance and ethics standards.

Our investment portfolio found shelter in an 10.3 percent real estate return this past fiscal year, reducing the Fund's average losses to 6.1 percent in a bear market. The pension fund has assets valued at $143.4 billion as of June 30, 2002.

Our long-term performance faired better than other retirement systems. We earned a 5.3 percent annualized return for the 5-year period ended June 30, 2002, compared to the 5.1 percent return earned by other retirement systems. Our Fund earned a 9.3 percent annualized return for the 10-year period.

We know historically there will be periods of time when the markets aren't generous, we just don't always know when that will occur. As a result, in good times and in less favorable times, we take the prudent approach of not putting all of our eggs in one basket. Diversification of our investment portfolio is key to our success. Benefits remain secure as our assets exceed our liabilities.

At the end of the year, U.S. and international public equities represent approximately 57 percent of CalPERS assets. U.S. and international bond investments represent 29 percent, while real estate and private equity investments represented 9 percent and 5 percent of assets, respectively.

Of course, we continued to invest in the State of California, providing a strong economic boost for California's growth. At the end of the year, we had nearly $23.4 billion invested in California entrepreneurial businesses, real estate, housing, and stocks and bonds in corporations that make California their home.

The year did bring with it challenges. Everyone--from the large institutional investor to individual investors-were impacted from not one, but many corporate crises during the year that created a crisis of confidence in American business. We believe it is important that corporate America embrace meaningful reform. CalPERS has taken a leadership role to act in concert with other shareholders to bring reform and investor confidence back to the financial markets.


Sincerely,


Mark J.P. Anson, Ph.D., CFA, CPA, Esq.
Chief Investment Officer