June 30, 2003

On behalf of Investment Operations, I am pleased to present reports on the PERF Summary of Investments, California Investments, and our investment performance for the period ended June 30, 2003 . This data was compiled by our Investment Operations staff, our 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.

CalPERS delivered positive performance during the fiscal year despite a dampened market. Our return on investments was 3.7 percent for the one-year period ended June 30, 2003 , generating more than $5 billion in net investment income. The Fund ended the year with assets of $144.8 billion.

Our performance ended a two-year run of negative returns and showed hope for continued recovery in the markets. Despite a rough two years, we kept faith in the strategic asset allocation decisions made by the CalPERS Board and remained confident in the long-term return of the equity markets and the economy.

The positive gain for the fiscal year strengthened our long-term performance. Annually compounded over the last 10 years, CalPERS investment portfolio returned 8.2 percent through June 30, 2003 . Our 15-year return of 9.6 percent exceeded our 8.3 percent assumed actuarial rate of return.

Our investment performance was aided by a well diversified investment portfolio, strong gains in individual asset classes, and good security selection and sector allocation by the System's investment staff.

At year end, U.S. and international stocks represented approximately 58 percent of CalPERS assets. U.S. and international bond investments represented 26 percent; real estate 9 percent, and private equity investments represent 7 percent of assets.

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 $17.2 billion committed and invested in California entrepreneurial businesses, real estate, housing, and stocks and bonds in corporations that make California their home.

And finally, restoring investor confidence and reforming the U.S. markets became one of our top priorities. We worked diligently to rout out corporate fraud and greed embarking on a number of financial market reform initiatives. Our goal was to protect our shareholder rights, our investments, and our members' financial future.

Mark J.P. Anson, Ph.D., CFA, CPA, Esq.

Chief Investment Officer