1. New England Pension Consultants

2. 1 Table of Contents > Market Environment > Asset Allocation / Investment Policy Targets > Performance Summary > Performance Detail 1. Teachers 2. PERS 3. Firefighters 4. Police 5. Law Enforcement 6. Judges & Justices 7. Department of Wildlife

3. New England Pension Consultants 2 DOMESTIC MARKETSINTERNATIONAL MARKETS Market Environment – Second Quarter 2001 Domestic equity markets rebounded in the second quarter as investors anticipated an upswing in the economy as a result of lower interest rates and tax cuts. The S&P 500 returned 5.9%, while the Nasdaq Composite rallied to return 17.4%. Technology, Capital Goods and Basic Materials sectors led the market for the quarter. Growth stocks outperformed value stocks for the first time in a year. Small cap stocks gained 14.4% for the quarter. The Russell 2000 Growth Index gained 18.0% compared to a gain of 11.6% for the Russell 2000 Value Index. The Lehman Aggregate Index returned only 0.6% in the second quarter. However, Corporate bonds reacted favorably to a rebound in the equity markets late in the quarter. High yield bonds were down 2.3% in the quarter due to high volume issuance and earnings warnings for the telecomm sector. International equity markets had another tough quarter due to falling corporate profits and persistently high oil prices. The MSCI EAFE Index closed down 1.0% for the quarter. Communication services led the international downturn, dropping 13.3% over the quarter, followed by the Technology and Telecom sectors. Utilities (+8.6%), Basic Materials (+6.4%), and Consumer Staples (+5.7%) were the top performing sectors. Japans economy declined further as Japanese Prime Minister Koizumis proposed reforms were met with guarded optimism. European market growth slowed visibly and economic indicators declined, although most remain above historic averages. The MSCI Emerging Markets Index returned 4.0% for the quarter. Rising commodities prices and falling interest rates around the world boosted country returns. Global bonds returned –1.6% for the quarter primarily due to the continued strength of the US Dollar.

4. New England Pension Consultants 3 Growth versus Value Equity Fixed Income

5. New England Pension Consultants 4 Growth versus Value

6. New England Pension Consultants 5 Market Environment – Second Quarter 2001

7. New England Pension Consultants 6 Market Environment – Second Quarter 2001

8. New England Pension Consultants 7 Market Environment – Second Quarter 2001

9. New England Pension Consultants 8 Investment Policy Asset Allocation Targets

10. New England Pension Consultants 9 Relative Size - All Funds (Dollars in 000,000)

11. New England Pension Consultants 10 Equity Commitment (as of 6/30/01)

12. New England Pension Consultants 11 Risk / Return Analysis Total Public Funds – Total Return vs. Risk - 5 Years Ending 6/30/01 S&P 500 LB Aggregate Teachers PERS Firefighters Police Law Judges Wildlife

13. New England Pension Consultants 12 Composite Performance Periods Ending June 30, 2001

14. New England Pension Consultants 13 Composite Performance Years Ending June 30, 2001

15. New England Pension Consultants 14 For each Total Fund actual return we report to you, if we have available information, we also construct two hypothetical returns: A Policy Index return and an Allocation Index return. These two hypothetical returns are useful in diagnosing to what factors the total return can be attributed. The Policy Index is merely the return the Fund would have had if the policy target allocation had been strictly adhered to and each asset class investment would have been in an index fund for that class, rather than with an active manager. The Allocation Index is the return the Fund would have had using the actual allocation of the Fund and index returns, as above with the Policy Index. NOTE: These tools are most useful over longer time periods and are not particularly useful over the short run. Looking at the Policy Index for longer term returns gives us a base-line. What part of the Funds return can be attributed to being in the right asset classes? For example, the Teachers Fund ( following page) Policy Index return of 10.6% for the last five years accounted for the majority of the actual return of 12.3% for that time period. This is not surprising and is as it should be. Policy decisions (what asset classes to be in and to what extent) are the most important decisions a Funds Board makes. Turning to the Allocation Index. What information does this add? Remember, that the only difference between it and the Policy Index is that we let the allocation drift away from the target to the same extent as actually occurred. Then, the difference in return (in this example 12.1%-10.6%) can be attributed to this allowed drift. In this time period, letting asset classes drift beyond their targets added considerable value. Lastly, we compare actual return to the hypothetical Allocation Index return to see what contribution was made by active management.. Here we see that very little value was added during this time period (12.3%- 12.1%). This is not an indictment of the Funds managers but a reflection of the type of market that we have just been through, where indexing was a very successful strategy, as was letting ones winners run (asset class drift). Customized Indices: Policy and Allocation

16. New England Pension Consultants 15 Teachers Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

17. New England Pension Consultants 16 Teachers Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

18. New England Pension Consultants 17 PERS Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

19. New England Pension Consultants 18 PERS Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

20. New England Pension Consultants 19 Firefighters Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

21. New England Pension Consultants 20 Firefighters Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

22. New England Pension Consultants 21 Police Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

23. New England Pension Consultants 22 Police Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

24. New England Pension Consultants 23 Law Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

25. New England Pension Consultants 24 Law Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

26. New England Pension Consultants 25 Judges Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

27. New England Pension Consultants 26 Judges Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

28. New England Pension Consultants 27 Wildlife Total Return Periods Ending June 30, 2001 Years Ending June 30, 2001

29. New England Pension Consultants 28 Wildlife Total Return vs. Risk Total Public Funds 5 Years Ending June 30, 2001

30. New England Pension Consultants 29 Each domestic equity managers portfolio is loaded into NEPCs system (stock by stock) and the portfolio is compared to all other portfolios in the universe. The portfolio receives a score based on the overall size and style of its holdings. Why?… --Size and style are two of the most important decisions a manager makes. --Acts as a check on manager consistency over time. --Offers an opportunity to compare relative performance with peers. --Assists in diversifying the overall fund equity exposure. Calculations… --Size is measured by how far above or below the universe median a managers portfolio falls. --Style gives consideration to: book to price, earnings growth, earnings to price and yield. Each these factors is captured from the latest reported data. Results… --The size and style scores allow each manager (or fund Composite, when summarizing) to be placed into one of nine peer groups (three by size times three by style). Comment… --No methodology captures all of the complex decisions a manager makes but this exercise offers one more analytical tool. Size and Style

31. New England Pension Consultants 30 Style Analysis Equity Style Analysis as of June 30, 2001

32. New England Pension Consultants 31 Teachers Performance Periods Ending June 30, 2001

33. New England Pension Consultants 32 PERS Performance Periods Ending June 30, 2001

34. New England Pension Consultants 33 Firefighters Performance Periods Ending June 30, 2001

35. New England Pension Consultants 34 Police Performance Periods Ending June 30, 2001

36. New England Pension Consultants 35 Law Performance Periods Ending June 30, 2001

37. New England Pension Consultants 36 Judges Performance Periods Ending June 30, 2001

38. New England Pension Consultants 37 Dept of Wildlife Performance Periods Ending June 30, 2001

39. New England Pension Consultants 38 Teachers Retirement System Assets in ($000)

40. New England Pension Consultants 39 Teachers Performance Periods Ending June 30, 2001

41. New England Pension Consultants 40 Teachers Performance Periods Ending June 30, 2001

42. New England Pension Consultants 41 Teachers Performance Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001

43. New England Pension Consultants 42 PERS Assets in ($000)

44. New England Pension Consultants 43 PERS Performance Periods Ending June 30, 2001

45. New England Pension Consultants 44 PERS Performance Periods Ending June 30, 2001

46. New England Pension Consultants 45 PERS Performance Periods Ending June 30, 2001

47. New England Pension Consultants 46 PERS Performance Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001

48. New England Pension Consultants 47 Firefighters Assets in ($000)

49. New England Pension Consultants 48 Firefighters Performance Periods Ending June 30, 2001

50. New England Pension Consultants 49 Firefighters Performance Periods Ending June 30, 2001

51. New England Pension Consultants 50 Firefighters Performance Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001

52. New England Pension Consultants 51 Police Assets in ($000)

53. New England Pension Consultants 52 Police Performance Periods Ending June 30, 2001

54. New England Pension Consultants 53 Police Performance Periods Ending June 30, 2001

55. New England Pension Consultants 54 Police Performance Periods Ending June 30, 2001

56. New England Pension Consultants 55 Police Performance Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001

57. New England Pension Consultants 56 Law Enforcement Assets in ($000)

58. New England Pension Consultants 57 Law Performance Periods Ending June 30, 2001

59. New England Pension Consultants 58 Law Performance Periods Ending June 30, 2001

60. New England Pension Consultants 59 Law Performance Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001

61. New England Pension Consultants 60 Judges & Justices Assets in ($000)

62. New England Pension Consultants 61 Judges & Justices Performance Periods Ending June 30, 2001

63. New England Pension Consultants 62 Periods Ending June 30, 2001 Judges & Justices Performance

64. New England Pension Consultants 63 Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001 Judges & Justices Performance

65. New England Pension Consultants 64 Department of Wildlife Assets in ($000)

66. New England Pension Consultants 65 Wildlife Performance Periods Ending June 30, 2001

67. New England Pension Consultants 66 Equity Managers Ranked Against Their Peer Groups Periods Ending June 30, 2001 Wildlife Performance