THE REGENTS OF THE UNIVERSITY OF CALIFORNIAJune 2005

The University of California is governed by The Regents, a 26-member board, as established under ArticleIX, Section 9 of the California Constitution. The Treasurer of The Regents is responsible for managing theinvestments and cash for the University of California System. The Treasurer’s Office carries out these activitiesunder the policies established by the Investment Committee of The Regents of the University of California.

OFFICERS OF THE REGENTS The Honorable Arnold Schwarzenegger, PresidentGerald L. Parsky, ChairmanRichard C. Blum, Vice ChairmanJames E. Holst, General Counsel and Vice President for Legal AffairsLeigh Trivette, SecretaryDavid H. Russ, Treasurer and Vice President for Investments

EX OFFICIO REGENTS The Honorable Arnold Schwarzenegger, Governor of CaliforniaCruz M. Bustamante, Lieutenant GovernorFabian Núñez, Speaker of the AssemblyJack O’Connell, State Superintendent of Public InstructionMark F. Ornellas, President of the Alumni Associations of the University of CaliforniaGary D. Novack, Vice President of the Alumni Associations of the University of CaliforniaRobert C. Dynes, President of the University of California

APPOINTED REGENTS Jodi Anderson, Student Regent George M. MarcusRichard C. Blum John J. MooresJudith L. Hopkinson Gerald L. ParskyOdessa P. Johnson Norman J. PattizJoanne C. Kozberg Peter PreussSherry L. Lansing Fred RuizDavid S. Lee Tom SaylesMonica C. Lozano Paul Wachter

FACULTY REPRESENTATIVES George Blumenthal Clifford Brunk

REGENTS-DESIGNATE Eric Juline Richard E. Rominger

COMMITTEE ON INVESTMENTS Jodi Anderson, Student Regent Norman J. Pattiz, Vice ChairRichard C. Blum Peter PreussDavid S. Lee, Chair Paul WachterMark F. Ornellas

Ex Officio Members:The Honorable Arnold Schwarzenegger John J. MooresRobert C. Dynes Gerald L. Parsky

Advisory Member:George Blumenthal

ALTERNATIVE INVESTMENTS

Private EquityNeetesh Kumar, MBA, MS Investment OfficerBrett Johnson, MBA Investment OfficerLeslie Watson, BA Analyst

Absolute ReturnLynda Choi, MBA Investment Officer

EXTERNALLY-MANAGED INVESTMENTS

Steven Algert, CFA, MPPM Investment OfficerBurton Yuen, MBA Investment Officer

FIXED INCOME INVESTMENTS

Linda Fried, BA Senior Portfolio Manager, Credit SectorDavid Schroeder, BA Senior Portfolio Manager, Governments SectorSatish Swamy, CFA, MBA Senior Portfolio Manager, Collateralized SectorAlice Yee, MBA Senior Portfolio Manager, Short-Term SecuritiesAaron Staines, BA Junior Portfolio ManagerKim Evans, MBA Head of Credit AnalysisOmar Sanders, CFA, MBA Senior Credit Analyst

INVESTMENT RISK MANAGEMENT

Aileen Liu, MS Assistant DirectorAlicia Boice, CFA, BS AnalystMichael John, BS Analyst

OPERATIONS

Robert Yastishak, Director Brian Hagland Marjan Shomali Allen WooPaula Ferreira, Supervisor Jan Kehoe, Assistant Director Michael StrachFloyd Gazaway, Jr. Khaleelah Muhammad Pu Wang-Fackler

INFORMATION SYSTEMS

Michael Comstock

COMMUNICATIONS

Susan Rossi, Director Alison Johnson

BUSINESS MANAGEMENT

Nelson Chiu, Manager William Byrd

ADMINISTRATIVE STAFF

Gayle Tapscott, Manager Kristina Chow Claudia Green Barbaretta MorrisGay Adams Milkah Cunningham Joyce Lewis Ruth WelchElizabeth Agbayani

OFFICE OF THE TREASURERJune 2005

David H. Russ, MA – Treasurer and Vice President for Investments

Melvin L. Stanton, MBA – The Assistant TreasurerRandolph E. Wedding, MBA – Managing Director – Fixed Income Investments

Marie N. Berggren, MS – Managing Director – Alternative Investments

Jesse L. Phillips, CFA, MBA, MA – Managing Director – Investment Risk ManagementRobert B. Blagden, MBA – Managing Director – Externally-Managed Investments

Effective July 8, 2005 Mr. Russ left the University of California for a position as Chief Investment Officer at Dartmouth Collegeand The Board of Regents named Marie N. Berggren as Interim Treasurer and Interim Vice President for Investments.

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MISSION STATEMENT

The Office of the Treasurer of The Regents manages the University of California’s retirement,endowment and cash assets under the policies, guidelines, and performance benchmarks established byThe Regents. The Office’s mission is to implement those policies and guidelines by selecting, executing,and monitoring investment strategies designed to add value over the benchmarks within a risk controlledframework. The Office adheres to high ethical as well as professional standards in serving the financialmanagement needs of its constituency.

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Campuses and National Laboratories

THE UNIVERSITY OF CALIFORNIA

The University of California, founded in 1868, is a system of 10 campuses with a mission of teaching,research and public service. With over 208,000 graduate and undergraduate students, UC is the world’spremier public university. UC has three law schools, five medical schools and the nation’s largest continuingeducation program. The University also manages three national laboratories that are engaged in energyand environmental research. Its Natural Reserve System manages approximately 130,000 acres of naturalhabitats for research, teaching and outreach activities.

UC Davis

UC BerkeleyUC San Francisco

Lawrence Berkeley National LaboratoryLawrence Livermore National Laboratory

Los Alamos National Laboratory (NM)UC Merced

UC Santa Cruz

UC Santa Barbara

UCLAUC Riverside

UC Irvine

UC San Diego

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TREASURER’S ANNUAL REPORT FISCAL 2004-2005Table of Contents & Summary

4 Message from the Treasurer

6 Investment Management OverviewOverview of the Office of the Treasurer including senior management profiles, organizational chart, investmentobjectives and philosophy.

12 Investing In DepthInsight into the Office of the Treasurer’s investment risk management strategies specific to the University ofCalifornia Retirement Plan.

14 General Endowment Pool (GEP)As of June 30, 2005 the General Endowment Pool’s market value exceeded $5.2 billion. During the fiscal year2004-2005 the GEP’s total return was 10.31%. Total Return Payout during this period was approximately$175 million. One of the many beneficiaries of endowments managed by the Treasurer’s Office is the RobertMondavi Institute for Wine and Food Science at UC Davis, a global innovator in university-based teachingand research for wine and food programs. The Andrew W. Mellon Foundation supports postdoctoralfellowships and doctoral training at the finest research institutions in the country. The Robert MondaviInstitute for Wine and Food Science and the Andrew W. Mellon Foundation are profiled on pages 19 and 21.

20 Charitable Asset Management Pools (CAM)The Charitable Asset Management Pools are used by The Regents of the University of California and theCampus Foundations for the investment of split-interest gifts, including charitable remainder trusts, pooledincome funds and charitable gift annuities. The investment of these pools is directed by the Treasurer of TheRegents; the administration of these pools is handled by the Charitable Asset Management group of StateStreet Global Advisors, Boston and San Francisco. The pools were created in November 2003. As of June 30,2005 CAM assets totalled $126 million.

22 Short Term Investment Pool (STIP)As of June 30, 2005 the Short Term Investment Pool’s market value exceeded $7.7 billion. During the fiscalyear 2004-2005 the STIP’s income return was 3.57%. The STIP is a cash investment pool available to allUniversity fund groups, including retirement and endowment funds.

24 University of California Retirement System - University of California Retirement Plan (UCRP)As of June 30, 2005 the University of California Retirement Plan’s market value exceeded $41 billion. Duringthe fiscal year 2004-2005 the UCRP’s total return was 10.30%. The Plan paid out benefits of $1.3 billion toUC retirees for the year. The UCRP is a defined benefit plan and utilizes a balanced portfolio of equities andfixed income securities.

28 University of California Retirement System - Defined Contribution FundsIn addition to the defined benefit program (UCRP), the University offers defined contribution plans toprovide employees with supplemental retirement benefits—the mandatory Defined Contribution Plan (DCPlan), the Tax-Deferred 403(b) Plan, the Tax-Deferred 457(b) Plan (new as of October 1, 2004), and theDefined Contribution Plan After-Tax Account. Among investment choices for use in these plans are thefollowing six funds managed by the Treasurer’s Office: Equity Fund, Bond Fund, Balanced Growth Fund, TIPS(Treasury Inflation-Protected Securities) Fund, ICC (Insurance Company Contract) Fund and Savings Fund.

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The Treasurer’s Annual ReportUniversity of California Treasurer of The Regents

MESSAGE FROM THE TREASURER

All Regents assets grew by $4.3 billion over the previousfiscal year to $63.3 billion, reflecting a total return of 9.09%.This return outperformed the total entity benchmark by 0.57%.We are pleased to report that the University of California Retire-ment Plan (UCRP), the General Endowment Pool (GEP), andthe Short Term Investment Pool (STIP) all produced positivereturns for the fiscal year: UCRP 10.30%, GEP 10.31%, andSTIP 3.57%.

The UCRP grew by $2.7 billion over the fiscal year, net ofall payments to beneficiaries and expenses. In fact, the UCRPpaid out benefits of $1.3 billion to UC retirees for the year. Asof June 30, 2005, the UCRP's estimated funded ratio was 110%on an actuarial basis. It is important to note that the UCRP's fund-ing status is determined by a combination of two elements, bothof which may fluctuate: 1) the value of the investment portfolio,and 2) the expected value of the liabilities (payment obligation).While the funded status of the UCRP has allowed for the tempo-rary suspension of contributions, studies have shown an increasedlikelihood of required contributions within the next few years.

The University's 403(b) and DC Plan funds' total returnsfor the year were as follows: Equity Fund 10.26%, Bond Fund6.78%, Savings Fund 3.79%, ICC Fund 5.09%, BalancedGrowth Fund 9.23% and TIPS Fund 9.13%. UC successfullylaunched the 457(b) Deferred Compensation Plan this past Falland completed a transition to a new master recordkeeper inJuly 2005. Our Office worked jointly with Human Resourcesand Benefits to facilitate these enhancements, along with creat-ing a set of Core Funds (see description at far right) providinginvestment options that are easy to understand and that offer anappropriate range of asset class choices for use within the ex-panded Plans.

The Treasurer's Office continues to diversify its holdingsto provide for the long-term needs of the University, its pro-grams and employees. For many years the Regents had similar

FISCAL YEAR 2005 IN REVIEW

The Board of Regents appointed Marie N. Berggren as Interim Treasurer andInterim Vice President for Investments, effective July 8, 2005. Marie temporarilyreplaces David H. Russ who left UC to assume the position of chief investmentofficer at Dartmouth College. Marie served as UC's Managing Director ofAlternative Investments for the last three years. Prior to joining UC in April 2002,Marie held several executive positions with Bank One Corporation, includingexecutive vice president of venture capital investments, senior vice president ofportfolio risk management and venture investments, senior vice president forcorporate mergers and acquisitions, and vice president for corporate strategy. Shealso spent 14 years in numerous management positions with First Chicago InvestmentAdvisors (which subsequently became Brinson Partners).

Global equity and fixed income marketsrecorded positive results in the fiscal year, asthe world economy continued to perform well,and inflation overall remained contained.Enthusiasm was tempered, however, by asteady rise in crude oil prices to a current highnear $68/barrel. U.S. real GDP grew 3.4%,slightly trailing last year, while headlineConsumer Price inflation moderated to a 2.5%rate from 3.3% in June 2004. Foreign stockmarkets led the way, as the MSCI All CountryWorld ex U.S. (Net) Index gained 16.5% vs.8.1% for the Russell 3000. Private equitymarkets outperformed domestic publicequities for the second straight year, as mergeractivity continued at a strong pace.

The Fed raised short term interest rates ata steady pace, and Fed Funds closed the yearat 3.25%. Ten-year U.S. Treasury yields,however, fell to 3.9% from 4.5% at 6/30/04,prompting a positive return of 11.49% for theCitigroup LPF (Large Pension Fund) BondIndex and 6.8% for The Lehman AggregateBond Index. The positive performance oflonger-dated bond maturities in the face ofrising short-term rates has been a puzzle tomany observers, who attribute this to strongdemand for long duration securities frompension funds, foreign buyers, and the FederalReserve’s credibility in fighting inflation.

The strength of the U.S. economy leavesthe Fed firmly on a path to raise short-terminterest rates to at least 4% by calendar year-end. However, financial markets are currentlygrappling with two major issues—the potentialeffects of the continued rise in oil prices onthe global economy—exacerbated by recentsupply shocks—and the debate over thecurrent state of the housing market andconsumer debt in the U.S. Reflecting theseconcerns, along with ongoing global politicaltensions, stock prices and bond yields haveretreated from their recent highs.

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During the coming year the portion ofPublic Equity assets that is managed activelywill be increased by the External ManagementTeam both by adding additional assets toexisting managed portfolios and by fundingnew strategies, when such changes offer a moreattractive reward/risk tradeoff in the context ofthe future composite portfolio than the existingcomposite portfolio.

The Alternative Investments Group will addto the Absolute Return assets as the allocationincreased from 5% to 10% as part of the overallasset allocation changes within the GEP.

As mentioned in the Message at left, theOffice worked jointly with Human Resourcesand Benefits to create a set of 18 Core Fundsfor use within the UC Retirement SavingsProgram Plans in July 2005. The Pre-MixedInvestment Options include the six UCPathway Funds (a series of lifecycle funds) andthe UC Balanced Growth Fund. The PrimaryAsset Class funds include seven broad-basedasset class UC funds. The Specialized AssetClass funds offer small cap, emerging markets,REITs and socially-responsible investments.

The Office will continue to collaborate withthe University’s Office of Human Resources andBenefits to enhance the UC Retirement SavingsProgram by selecting an investment educationprovider. An RFP will be posted this Fall anda provider selected in early 2006.

The University of California and CalPERSsponsored legislation introduced by SenatorJoseph Simitian (SB 439) concerning the publicdisclosure of investment information. EffectiveJanuary 1, 2006, the bill will enable theUniversity and other public investment systemsin California to maintain access to top-tier,high-performing alternative investments. TheTreasurer played an active role in developingthis legislation and in generating support forits passage.

LOOKING FORWARDstrategic asset allocations for the pen-sion (UCRP) and endowment (GEP).Recognizing the differences betweenthe two (primarily that endowmentshave a longer investing horizon andcan afford to invest in less liquid, po-tentially higher returning assets), theTreasurer and consultant recom-mended a new asset allocation for theGEP which was approved by The Regents in September 2005.Although the overall mix of equity, bonds, and alternatives is notappreciably different from the current mix, there will be less em-phasis on traditional equity and bonds, and more weight in alter-natives. There will continue to be a focus on less liquid assets,and we will increase commitments to private equity and real estate.The planned result is to achieve a portfolio with higher expectedreturn and lower market volatility than the current strategy.

One of the principal accomplishments of the past year wasthe articulation of a governance framework for the pension andendowment, resulting in The Regents' adoption of an Invest-ment Policy Statement (IPS) for the UCRP and also one for theGEP. These two documents - available on the Treasurer'swebsite - do more than consolidate all The Regents' invest-ment policies in one coherent framework. The IPS identifiesthe various types of investment risk faced in the managementof pension and endowment assets, and assigns accountabilityfor the management of those risks. It delineates the roles andresponsibilities of The Regents' Committee on Investments andthe Treasurer. The essence of investment governance is to bal-ance flexibility in implementing Policy with the requirement tomanage and control risk. Use of risk budgeting is an integralpart of the Policy, and the Treasurer allocates the risk budgetacross asset classes in order to optimize the risk-return trade-off. In addition, guidelines were included for the appropriateuses of derivative securities in the funds. This year's report in-cludes an in-depth look at our approach to Risk Management.

I am extremely pleased to serve The Regents, faculty, staffand students of the University of California.

Sincerely,

Marie N. BerggrenInterim Treasurer of The Regents andInterim Vice President for InvestmentsUniversity of California, October 2005

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The Treasurer’s Annual ReportUniversity of California Treasurer of The Regents

INVESTMENT MANAGEMENT OVERVIEWThe investment funds managed by the Treasurer of The

Regents consist of the University’s retirement, defined contri-bution and endowment funds, as well as the system’s cashassets. At June 30, 2005, the Treasurer’s Office managed over$63 billion in total assets as outlined below.

TOTAL FUNDS UNDER MANAGEMENT1

June 30, 2005($ in billions)

University of California Retirement Plan (UCRP) $41.9

Defined Contribution Plan Funds 8.8

Endowment Funds 5.9

Short Term Investment Pool (STIP)2 6.7

Total Funds $63.3

The Treasurer’s Office investment management staffincludes 21 investment professionals with an average of17 years of investment experience.

INVESTMENT OBJECTIVES & PHILOSOPHY

The investment objective for all funds under manage-ment is to maximize long-term total real returns whileassuming appropriate levels of risk. Because the purposeof each fund is unique, The Regents has established thefollowing specific objectives for each fund, along with theoverall goal of exceeding the policy benchmark returnand the rate of inflation:

Retirement Funds: for the University of CaliforniaRetirement Plan, produce a real return to meet obliga-tions to beneficiaries and to meet or exceed the actuarialrate of return; for the University-Managed Defined Con-tribution Funds, meet stated investment objectives foreach fund.

Endowed Funds: to ensure that future funding forendowment-supported activities be maintained in perpe-tuity both by generating a growing payout stream and bygrowth of principal.

ASSET ALLOCATION

Asset allocation is the primary determinant of long-term investment returns. UC funds are diversified amongglobal equities and fixed-income securities, within a Re-gental target allocation (see pages 14, 25 and 28.) His-torically, portfolio asset allocation has favored equity in-vestments over fixed-income securities due to the expec-tation that equities will provide higher total returns overthe long term. This emphasis on equity investing has re-sulted in substantial growth in both the endowment andretirement funds managed on behalf of The Regents.

The Portfolio Management Committee meets weeklyto review asset allocation and other portfolio issues. Assetallocation rebalancing is required when an asset classmoves out of the allowable range. The Treasurer decideson the timing and extent of the rebalancing, within TheRegents’ policy, based on market conditions.

PUBLIC EQUITY INVESTING

Historically, The Regents’ Public Equity investmentstrategy utilized both active and passive management. In theprocess of implementing the November 2002 Regents-ap-proved changes to the U.S. equity strategy, the internallymanaged U.S. common stock was transferred into a Russell3000 Tobacco Free Index fund. The Treasurer’s Office hasan internal team of experienced investment professionalsselecting multiple U.S. equity strategies; selecting the exter-nal managers to implement these strategies; and monitoringthose external managers on an ongoing basis. As of June30, 2005 approximately 30 percent of domestic equity assetshad been transferred from the passive Russell 3000 indexfund to active managers. Approximately 50 percent of non-U.S. equity had been transferred from the passive MSCIWorld ex U.S. index fund to developed markets’ activemanagers as of June 30, 2005. The combined assets in eachof the domestic and the non-U.S. asset classes are moni-tored under guidelines established within the investmentpolicy statement for each asset class. Each asset class is con-trolled according to a risk budget framework set by The Re-gents. The passive/active allocation is controlled subject toboth the risk budget and by the opportunities to add valueto the benchmark for each asset class.

FIXED INCOME INVESTING

Within the primary goal of maximizing total returnover a long-term horizon, the members of the Treasurer’sOffice Fixed Income Team take an active approach tomanaging the portfolios, focusing on safety of principal,credit quality, liquidity and efficient use of risk. Theystart with a “top-down” approach to evaluate the globalmacroeconomic environment, including analysis of busi-

1 Market values include accrued income.

2 The Short Term Investment Pool excludes the cash invested for, and re-ported as part of, the UCRP, Defined Contribution and Endowment Funds.

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ness cycles, monetary and fiscal policies, and politicalbackdrops, in order to assign appropriate sector weightsand duration exposure among the three core sectors ofGovernment, Credit and Collateralized bonds. This iscoupled with a “bottom-up” approach to individual se-curity selection. Each portfolio manager utilizes a varietyof proprietary and industry-developed analytical toolsbest suited for the particular sector, emphasizing rigorousanalysis of such factors as yield curve exposures, portfo-lio duration and convexity, credit fundamentals, relativevalue and position weights.

The portfolio managers closely monitor current andprospective investments on a daily basis. New opportuni-ties are identified, and existing positions are adjusted asappropriate. The team, along with representatives fromthe Risk Management Group, meet monthly to reviewperformance, portfolio exposures and current economicassumptions. Potential new products and strategies arealso presented at these sessions before seeking theTreasurer’s approval. This combination of rigorous fun-damental and quantitative analysis within an active riskmanagement framework has produced a history of suc-cessful returns for The Regents’ fixed income funds.

The Regents includes inflation-indexed bonds (TIPS)in its overall asset allocation to achieve the objective ofmaximizing long-term total real returns. The low correla-tion of TIPS returns with other asset classes also increasesportfolio diversification. The Treasurer’s Office inflation-indexed bond investment strategy utilizes passive man-agement techniques. The objective of this strategy is toreplicate the performance of the U.S. TIPS market.

The Treasurer’s Office also manages the Short TermInvestment Pool (STIP) for the benefit of numerous Uni-versity groups. The STIP portfolio manager participatesin the Fixed Income process with the Team as outlinedabove, but places a greater emphasis on generating cur-rent income in the execution of two major mandates.

The first is to insure that the daily liquidity needs ofthe University are met by investing an appropriate portionof total assets in short-term money market instruments atattractive yields relative to the desired quality. The second isto maximize the interest income paid to participants by in-vesting the remaining funds not required for immediate ex-penditure in a variety of government and corporate bondswith maturities up to five and one-half years. The maturityrestrictions and emphasis on quality assets help mini-mize the price volatility of the overall portfolio. The STIPhas achieved an impressive long-term record of above-market interest income returns.

PRIVATE EQUITY INVESTING

The Regents includes private equity investments suchas venture capital and leveraged buyout partnerships inits overall asset allocation to increase portfolio diversifi-cation and reduce risk due to the low correlation of pri-vate equity with other asset classes. Adding to its attrac-tion, long-term return expectations for private equity aregenerally at least 300 basis points greater than those ofthe public equity markets.

Manager selection is key to this asset class, and theTreasurer’s Office Alternative Investments Team has astrong competitive advantage and many years of success-ful experience. The University is seen as a sophisticated,long-term investor in the private equity arena, achievingabove average returns over the past 25 years. The Univer-sity has long standing relationships with many top-tierprivate equity groups and continues to build new rela-tionships with premier firms. The objective is to build awell-diversified portfolio of top tier U.S. partnerships.The Team works with a private equity consultant to re-view private equity investment opportunities. The Teamactively monitors investments through regular meetingswith the general partners.

ABSOLUTE RETURN INVESTING

The Absolute Return (AR) investments offer risk-returnattributes that are not readily available through traditionalequity and fixed income investments because they are de-signed to protect capital and provide positive returns irre-spective of overall equity and fixed income market perfor-mance. The AR strategies are designed to achieve this byselling instruments short, in addition to positions ownedlong, to hedge out much of the market risk. AR invest-ments typically have low correlation with other asset classesand increase the overall portfolio diversification and reducerisk. AR includes long/short equity, merger arbitrage, event-driven and other strategies. An AR portfolio might be netlong, net short or neutral relative to the underlying investmentmarket. AR strategies are currently used in the GEP only.

Strategy and manager selection are the important driv-ers of the Absolute Return allocation. The Treasurer’s Officeis focusing on a subset of available strategies to achieve di-versification benefits and preservation of capital. The Officehas also been able to invest with established and accom-plished managers, including some that are no longer opento new investors. As of this writing, the allocation to ARstrategies is approximately 10%. The Alternative Invest-ments Team works with a consultant that specializes inAR strategies.

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The Treasurer’s Annual ReportUniversity of California Treasurer of The Regents

Another critical element of the AR program is ongo-ing monitoring of the investments. Investments typicallyoffer quarterly liquidity, which permits rebalancing to-ward strategies with a favorable outlook or redeemingfrom managers that are no longer suitable investments.The Treasurer’s Office has regular contact with the invest-ment managers to review adherence to the expected in-vestment style, personnel turnover, performance andother issues to ensure the appropriate investments andallocations for the program.

REAL ESTATE INVESTING

In May 2003, The Regents approved a 5% allocationto real estate for UCRP and GEP, funded from existingequity and bond allocations. Adding real estate invest-ments to these portfolios is expected to provide long-term risk-adjusted total returns between those of U.S.equities and bonds; diversification benefits given realestate’s low correlation with other asset classes; protec-tion against unanticipated inflation; and a high propor-tion of the total return derived from current income.

The real estate investment program began during fis-cal year 2004-2005. The program will utilize a combinedpublic and private market strategy. The dual strategyseeks to reduce risk within the real estate allocation, of-fers opportunities for increased liquidity and broaderdiversification (across investments, time and geography)and will enable the Treasurer to actively tilt overall realestate exposure toward public or private investments de-pending on relative valuations.

The public strategy will employ the use of externalmanagers who specialize in publicly-traded real estatesecurities, such as real estate investment trusts (REITs).The private strategy will be accomplished through invest-ing in limited liability investment vehicles, such as lim-ited partnerships sponsored by experienced real estateinvestment firms with demonstrated expertise and supe-rior performance. The Real Estate Investment Team,along with a real estate consultant, will review and rec-ommend managers of publicly-traded investments andsponsors of private investments and screen investmentopportunities. Upon completion of due diligence andsubsequent investment selection, the Team will negotiateinvestment agreements and monitor performance.

RISK MANAGEMENT

Investors perceive risk as the possibility of a losswhich is accepted in order to achieve some investmentgoal. Thus investors accept risk to earn returns. Inmodern investment theory and practice, risk refers to this

uncertainty of outcomes and is measured by the volatilityof asset returns. Because risk is an essential aspect of in-vesting, risk management is not about eliminating or nec-essarily reducing risk, but balancing risk and expectedreturn. As Benjamin Graham said, “The essence of in-vestment management is the management of risks, notthe management of returns.”

The primary objective of the Risk Management Teamis to ensure that the Treasurer’s Office investment andoperational activities do not expose the University to po-tential or unexpected losses beyond The Regents’ risk tol-erance levels. This process involves three steps: 1) toidentify risks and the range of possible losses; 2) toimplement policies, guidelines and controls on the in-vestment process to maintain the probability of losswithin acceptable limits; and 3) to integrate risk monitor-ing, measurement, and analysis into all aspects of the in-vestment process.

At the portfolio level, both quantitative and qualita-tive aspects of risk are monitored or measured to ensurethat risk levels are proportionate to return expectationsand that risk is taken intentionally and diversified opti-mally. At the plan level, risk management focuses on theadequacy of assets to pay promised benefits or to supportspending policies. Other key components of the riskmanagement process include scenario analysis, stresstesting key assumptions, and optimization of risk andexpected return. A key element of modern - and tradi-tional - risk management is diversification across assetclasses, strategies, and securities.

Risk exposures are continually monitored, comparedto targets, and altered when appropriate. Pension planrisk factors include asset volatility, inflation and interestrates. Equity risk factors include economic activity, mar-ket risk preferences, style factors (e.g., relative value,capitalization size) and industry membership. Fixed In-come risk factors include interest rate volatility, termstructure, credit quality, mortgage prepayments, currencyand liquidity. Private Equity and Real Estate risk factorsinclude local economic activity, industry fundamentalsand business risk. Absolute Return risk factors include theequity and fixed income factors defined above, and the de-gree to which they are offsetting, hedged or diversified.

Risk measurement is the first step in a processknown as risk budgeting. Risk budgeting involves twoadditional steps: 1) determining the overall amount ofrisk required to meet a given investment objective and 2)budgeting or allocating it in an optimal manner. Opti-mal use of risk means constructing a fund so that, at the

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margin, the contribution to expected return of each sec-tor, portfolio, or asset class is proportional to its esti-mated contribution to risk. This process is being imple-mented in the Treasurer’s Office over the next fiscal yearand being integrated into the asset allocation and rebal-ancing process.

OPERATIONS

Supporting the management of the portfolios is anexperienced Operations staff consisting of a Director, As-sistant Director, and Supervisor with an average of 17years experience in banking and/or investment opera-tions and seven analysts with an average of 12 years ex-perience in investment accounting and operations. Thisunit is responsible for investment accounting and report-ing, as well as the central management of all cash servicesfor the University.

A WORD ABOUT BENCHMARKS

The primary objective of a performance report is toanswer the question: what happened to our investmentsduring the last quarter or year? But investors, fiduciaries,and other interested parties should immediately ask twomore questions: what happened to our investments relativeto our investment goals and objectives, and how much risk wastaken to achieve those returns? Finding meaningful answersto these questions requires the selection of, and compari-son of performance to, a diversified basket of similar secu-rities of similar risk known as a benchmark.

While an investor may state that his or her long-termgoal is to preserve purchasing power and increase assets by5% in real terms, an investment program is best articulatedin terms of an asset allocation. An asset allocation is theformal policy describing investments in terms of broad as-set classes. A policy could be as simple as stating the per-centage of assets to be invested in equities, fixed income,and cash equivalents, or it could be more detailed, e.g.,further segmentation of equity into U.S. stocks, non-U.S. stocks,and private equity.

Once a policy allocation is set, the natural (and best)benchmark is the market index that most closely repre-sents the asset class, such as the Russell 3000 Index for U.S.stocks or the Citigroup Large Pension Fund Index for U.S.bonds. Market indexes are also good benchmarks in thatthey represent the investor’s “opportunity cost,” i.e. an in-

stitutional investor can earn the index return via a low costpassively managed portfolio.

A policy benchmark for a fund can be a blend of in-dexes, each weighted by the percentage it represents in theasset allocation, e.g., 65% Russell 3000 + 35% CitigroupLPF. Additionally, although targets may be set for the percent-ages of assets in each category, it is customary to allow for arange around each target, to avoid frequent and costly rebal-ancing, and to allow for tactical deviations from policy whenmarket conditions warrant (see range example on page 14).

When compared to its policy benchmark, a fund’s in-vestment performance reveals at least two things. First,whether the fund added value by allocating assets differ-ently than the policy percentages. And second, whetherthe investments chosen within each asset class added valueover their class benchmarks. This information is referredto as performance attribution, and it can be derived for eachcomponent of the total fund to understand further whereand how value was added.

It is also natural to ask, how did the fund performrelative to those funds of peer institutions? The answer isnot so straightforward, mainly because other institutionsmay utilize asset allocations that differ from their peers’and thus are expected to perform differently. This is espe-cially true in the case of endowments and foundations. Be-fore comparing performance, compare the asset allocationpolicies and designated benchmarks.

In addition to tracking and monitoring all invest-ment security transactions and holdings, the InvestmentOperations staff verifies and analyzes the returns pre-pared by the Custodian Bank (State Street Corporation),prepares performance and holdings reports, and pro-vides investment accounting entries for input into theUCOP Endowment and Investment Accounting generalledger.

The management of the portfolios is also supportedby state-of-the-art information systems and a well-estab-lished custodial relationship with State Street Corpora-tion, a leading industry provider, ensuring sound safe-keeping and recording of assets. In addition, State StreetCorporation has been the official book of record for theinvestment portfolios since June 2002. Among otherfunctions, State Street provides independent calculationsof the monthly performance data that is reported for thevarious portfolios.

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The Treasurer’s Annual ReportUniversity of California Treasurer of The Regents

SENIOR MANAGEMENT

DAVID H. RUSS, MATreasurer and Vice President for Investments

Mr. Russ is responsible for overseeing the University of California investment portfolio. Mr. Russ brings over19 years of investment management experience to the Treasurer’s Office. Prior to joining the Treasurer’s Office in2001, Mr. Russ served as Managing Director-Public Markets for the University of Texas Investment ManagementCompany. Mr. Russ also served as the Director of Investment Management and Portfolio Manager for Pacific TelesisGroup (now SBC Communications) and as Senior Portfolio Manager for the Stanford Management Company. Mr.Russ received his Master of Administration in Finance and Accounting from the University of California, Davis, andhis BA degree in Genetics from the University of California, Berkeley.

MELVIN L. STANTON, MBAThe Assistant Treasurer

Mr. Stanton, along with the Treasurer, is responsible for the overall management of the Treasurer’s Office. Priorto joining the Treasurer’s Office in 1989, Mr. Stanton had more than 13 years experience as a financial executive inportfolio management and securities trading, including Director of Sales for Midland Montagu Securities, Inc., SanFrancisco; First Vice President and Manager with Crocker National Bank, San Francisco; and Vice President andRegional Sales Manager with Bankers Trust Company, Los Angeles. Mr. Stanton received his MBA and BS degreesfrom California State University, Northridge.

RANDOLPH E. WEDDING, MBAManaging Director – Fixed Income Investments

Mr. Wedding is responsible for the strategic focus and management of the long- and short-term fixed-incomeportfolios. Prior to joining the Treasurer’s Office in 1998, Mr. Wedding was Manager of Currency Options andDerivatives Trading for Bank of America, NT&SA, New York; Managing Director, Commodities and DerivativeSales for Bear Stearns & Co., New York; and Principal, Manager of Fixed-Income Derivative Sales for MorganStanley & Co., New York. Mr. Wedding began his career with Wells Fargo Bank, responsible for the Bank’s FixedIncome Portfolio. Mr. Wedding earned his MBA in Finance from the University of California, Berkeley and BA inMathematics from the University of California, San Diego.

MARIE N. BERGGREN, MSManaging Director – Alternative Investments

Ms. Berggren is responsible for the private equity, real estate, and absolute return portfolios. Prior tojoining the Treasurer’s Office in 2002, Ms. Berggren was Executive Vice President/Department Head of VentureCapital Investments for Bank One Corporation. While employed at Bank One and its predecessororganization, First Chicago Corporation, she was the Senior Vice President and Department Head of theCorporation’s Mergers and Acquisitions activity. Prior to that she was the Managing Director of PublicEquities and Director of Research for First Chicago Investment Advisors (the predecessor to BrinsonPartners). Ms. Berggren earned her MS in Management from Stanford University Graduate School of Businessand a BA in Economics from the College of New Rochelle.

Effective July 8, 2005 Mr. Russ left the University of California for a position as Chief Investment Officer atDartmouth College and The Board of Regents named Marie N. Berggren (see biography below) as Interim Treasurerand Interim Vice President for Investments.

PAGE 11

JESSE L. PHILLIPS, CFA, MBA, MAManaging Director – Investment Risk Management

Mr. Phillips is responsible for integrating risk monitoring, measurement, and management into all aspects ofthe investment process. Prior to joining the Treasurer’s Office in 2002, Mr. Phillips worked at Northrop Grumanfor 11 years, first as Corporate M&A Analyst and then as Manager, Risk Analysis and Research in the Treasurydepartment. Mr. Phillips also worked as Corporate Planning Analyst with Florida Power & Light Company and asSenior Financial Analyst with Storer Communications, Inc., both in Miami Florida. Mr. Phillips earned his BAdegree in Mathematics/Economics and MA in Applied Mathematics from the University of California, Los Angelesand his MBA in Finance from the University of Miami. Mr. Phillips is a CPA (Florida) and holds the CFA designation.

ROBERT B. BLAGDEN, MBAManaging Director – Externally Managed Investments

Mr. Blagden is responsible for overseeing all externally managed funds and activities with overall responsibilityfor executing an investment strategy that generates optimal total return relative to risk taken. Prior to joining theTreasurer’s Office in 2003, Mr. Blagden had more than 35 years experience as a financial executive, including mostrecently serving as Director of Investments overseeing endowment assets of the Ludwig Institute for CancerResearch. Previous to this position, Mr. Blagden served as Managing Director, Public Equity for the StanfordManagement Company, when the company was established in 1991. He served as Associate Treasurer in theTreasurer’s Office of Stanford University from 1982-1991. Prior corporate planning and finance positions held atKaiser Cement Corporation between 1968 and 1982 included management of pension and profit sharing assets.Mr. Blagden received his MBA, Finance degree from Stanford University Graduate School of Business and his BA inStatistical Psychology from Dartmouth College.

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PAGE 12

The Treasurer’s Annual Report

InInInInInvestingvestingvestingvestingvesting InInInInIn DepthDepthDepthDepthDepthWHAT IS “RISK MANAGEMENT?”

All investment portfolios—endowments, indi-vidual retirement accounts, savings earmarked for adown payment on a home—have a more or lessspecific investment objective. A Defined Benefit (DB)pension plan, such as the UCRP, has a well-definedobjective: to pay the retiree benefits which are prom-ised to employees by an employer.

In some ways, managing risk for a pension plan issimilar to managing risk for any investment portfolio:establishing measurement and monitoring processes toensure that its investment policies and strategies arebeing implemented effectively in order to increase theprobability of success and to limit losses to an accept-able level.

For the individual portfolios that make up thepension fund, the focus is on whether they haveoutperformed their benchmarks, and how much riskthey have taken in order to do so. Monitoringportfolios on a daily and monthly basis, and ensuringthat guidelines are being followed and risk budgets arenot exceeded, is one side of risk management, and thisprocess is appropriate for any portfolio. Yet pensionrisk management has an additional component. Thisis due to the contractual nature of the pension promise,and the requirement to make payments according to adefined schedule.

THE FUNDED RATIO

The ratio of the plan’s assets relative to its liabilities iscalled the Funded Ratio (FR). It is a critical measure ofthe financial strength of a plan, and changes in its level areclosely watched. A Funded Ratio of 110% means thatthere are 10% more assets than liabilities at that pointin time. Similarly, a Funded Ratio of 90% means that

there are 10% fewer assets than liabilities. The differ-ence of assets and liabilities is called its Surplus, orDeficit if negative. While an under-funded, or Deficit,plan can continue to pay benefits for some time, a goal ofpension plan management is to maintain or exceed fullfunding — a FR of 100%. Thus both the Funded Ratioand its volatility are key measures of risk.

Although the UCRP Funded Ratio rose with theequity market “bubble” of 1995-1999, it declined overthe next three years, and at June 2005 is in the range of110%-115%.

PENSION FUND MATH

Pension “math” is quite simple: Assets grow (ordecline) with investment returns. They are increasedby contributions and decreased by paying benefits.Liabilities (almost) always increase, because each year,existing employees earn more “retirement benefits.”Liabilities are decreased by paying benefits, and mayincrease or decrease with changes in plan design,changes in actuarial assumptions, or changes indemographics. But mostly, liabilities grow.

Insight into the Office of the Treasurer’s approach to managing risk in the pension portfolio.

NOTE: Funded Ratio (Smoothed) uses the smoothed or Actuarial value of assets in the numerator. The Funded Ratio (Market) uses the actual market value ofassets in the numerator.

UCRP Funded Ratios

80%

100%

120%

140%

160%

180%19

82

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Funded Ratio (Smoothed) Funded Ratio (Market)

PAGE 13

A careful examination of the equations on thechalkboard above shows that an employer has littlecontrol over many of the variables which are fixed (atleast in the short run) by the plan provisions. Thefiduciaries can increase the amount of risk, through theasset allocation, in hopes of earning higher returnsover the long run, but capital markets areunpredictable. The one variable the employer andplan members control is the amount of contributionswhich flow into the fund.

A PENSION MANAGER’S TOOLS

Leaving aside plan design (which is outside thescope of the Treasurer’s Office), the two levers formanaging a pension plan are (a) to establish andimplement a Funding Policy, which determines whowill make what contributions to the plan’s assets, and(b) to establish and implement an Investment Policy,the key elements of which are to determine the appro-priate level of capital market risk, and to determine theasset allocation most likely to maximize returns withinthat risk budget.

FUNDING POLICY

Since 1990, there have been no contributions tothe assets by the University or its employees underThe Regents’ current Funding Policy. However, eachyear the Plan’s financial health is re-assessed: the Plan’sActuary estimates the size of the accrued liability and

Beginning Assets+ Contributions+/- Investment Earnings- Benefit Payments

Ending Assets

Assets/Liabilities = Funded RatioAssets - Liabilities = Surplus (Deficit)

Beginning Liabilities+ Normal Cost+ Interest Cost- Benefit Payments+/- Changes in Actuarial Assumptions+/- Changes in Actuarial Experience+/- Changes in Plan Design

Ending Liabilities

Pension Fund Math

calculates the level of contribution, called the “normalcost”, which is the amount sufficient to maintain theplan’s funded ratio, assuming a constant expected rateof return on plan assets. This required contribution isroughly 16% of University payroll for individualscovered by UCRP. Each year, if this level of contribu-tion is not made (or if the assets’ rate of return is belowtheir long term expected rate), the plan’s Surplus isdiminished. However, the forecast growth in assetsresulting from Investment Policy alone is not expected tomatch the forecast growth in liabilities. In the most recentactuarial valuation [July 2005], the Plan’s Actuary states “Itis expected that the Plan’s surplus will run out in the nextfew years.”

INVESTMENT POLICY

Developing an asset allocation strategy requiresbalancing risk and return. The simplest and lowestrisk investment strategy is probably the most expensiveone. This strategy is to buy a series of zero couponTreasury nominal and inflation protected bonds whosematurity date and amount match the dates and amountsof estimated future payments. This strategy is calledthe “liability hedging strategy” because it protects thevalue of the assets from changes in interest rates (andthus changes in the value of the liabilities). However,because the rate of return on such a bond portfolio islower than other riskier assets, the contributions requiredto maintain full funding of the plan’s liabilities would behigher than under a strategy incorporating assets withmore risk. To lower the cost – i.e., annual contributions– one must accept risk. Investing in assets with more risk(chiefly equities) not only results in greater asset volatilitybut also greater surplus volatility. Thus the trade-off ofrisk and expected return is the essence of pension fundmanagement and of pension risk management.

“In modern investment practice,

risk is the raw material used to

generate expected returns.

But increasing risk too much

in the hope of avoiding contributions

may not be prudent.”Jesse Phillips, Managing Director

PAGE 14

General Endowment Pool (GEP)

Established in 1933, and unitized in 1958, the GeneralEndowment Pool (GEP) is The Regents’ primary investmentvehicle for endowed gift funds. GEP is comprised of over4,350 individual endowments that support the University’smission. GEP is a balanced portfolio of equities and fixed-income securities in which all endowment funds partici-pate, unless payout needs require otherwise.

The June 30, 2005 market value of GEP was $5.2 billion, or$19.09 per share, versus $4.8 billion, or $17.76 per share, at theend of fiscal 2004. Total GEP net investment income for the yearwas $127.6 million, or $0.47 per share, versus $121.8 million,or $0.44 per share, for fiscal 2004. In addition, $73.4 millionwas withdrawn to fund the Total Return Payout.

SPENDING POLICY

The Regents adopted a total return investment philosophyaimed at achieving real asset growth in order to generate grow-ing annual payouts to support donors’ designated programs. InOctober 1998, The Regents adopted a long-term spending raterange of 4.35% to 4.75% of a 60-month (5-year) moving averageof GEP’s market value. The Regents reviews the payout rate eachyear in the context of GEP’s investment returns, inflation andthe University’s programmatic needs, in conjunction with pru-dent preservation of principal and prudent increases in the pay-out amount. In May 2004, The Regents adopted a rate of 4.60%for expenditure in the 2004-2005 fiscal year.

INVESTMENT OBJECTIVE

The overall investment objective for all GEP assets is tomaximize real, long-term total returns (income plus capitalappreciation adjusted for inflation), while assumingappropriate levels of risk.

The primary goal for GEP is to ensure that future fundingfor endowment-supported activities be maintained both bygenerating a growing payout stream and by growth of princi-pal.

INVESTMENT STRATEGY

In order to continue to achieve these investmentobjectives, The Regents adopted the following assetallocation policy in March 20052:

Long-term CurrentAsset Class Policy Policy Min. Max.Public Equity 52% 63% 40% 73%Public Fixed Income 28% 30% 5% 40%All Alternatives* 20% 7% 2% 40%Liquidity 0% 0% 0% 10%*including, but not limited to: Real Estate, Private Equity, and AbsoluteReturn Strategies

The asset allocation benchmarks and portfolio guide-lines are designed to manage risk and ensure portfolio di-versification. The benchmarks for the individual assetclasses are: Russell 3000 Tobacco Free (TF) Index for U.S.Equity; MSCI World Index ex-U.S. (Net) Index for Non-

1 For fiscal 2005 and fiscal 2004, the cash portion of the various portfolios excludes the unrealized market appreciation or depreciation of STIPinvestments, accounts receivable and accounts payable, and the investments in the security lending collateral pool. Therefore, the balances differ fromthe University’s Annual Financial Report.2 See “Message from the Treasurer” (pages 4-5) for information on revised allocation approved by The Regents in September 2005.

GENERAL ENDOWMENT POOL (GEP)Summary of Investments1 ($ in thousands)

June 30, 2005 June 30, 2004

GENERAL ENDOWMENT POOL Market Value % of Pool Market Value % of Pool

EQUITIESU.S. Equity $ 2,115,168 40.6% $ 2,609,207 54.6%Non-U.S. Equity-Developed $ 995,696 19.1% $ 463,754 9.7%Non-U.S. Equity-Emerging Market $ 224,406 4.3% $ 67,224 1.4%

TOTAL EQUITIES $ 3,335,270 64.0% $ 3,243,198 65.7%FIXED-INCOME SECURITIES

Bonds $ 1,033,084 19.8% $ 1,273,472 26.6%TIPS $ 256,982 4.9% $ 0 0.0%TOTAL FIXED-INCOME SECURITIES $ 1,290,066 24.8% $ 1,273,472 26.6%

ABSOLUTE RETURN $ 450,368 8.6% $ 250,253 5.2%PRIVATE EQUITY $ 118,291 2.3% $ 103,013 2.2%REAL ESTATE $ 6,920 0.1% $ 0 0.0%LIQUIDITY PORTFOLIO $ 9,288 0.2% $ 15,350 0.3%

TOTAL GENERAL ENDOWMENT POOL $ 5,210,203 100.0% $ 4,782,273 100.0%OTHER ENDOWMENT FUNDS $ 518,342 $ 375,587TOTAL GEP AND OTHER ENDOWMENT FUNDS $ 5,728,545 $ 5,157,860

PAGE 15

RETURNS

Throughout the years, GEP has exceeded its fund ob-jectives. As illustrated in the table on page 17, GEP hasconsistently performed well vs. its policy benchmarks. Allasset classes contributed positively to the GEP’s total returnof 10.31% for the fiscal year. For the past 10 years, GEP’scompound annual total return was a strong 10.59% vs.10.05% for its benchmark. During that time, payout distri-butions grew at an average annual rate of 8.4%—well aboveannualized inflation of 2.5%.

The cumulative Total Returns Chart on page 16 illus-trates the returns for GEP for the past 10 years relative to thepolicy benchmark and inflation.

ASSET MIX

The following represents GEP’s asset mix as of each ofthe past five fiscal year ends.

GEP Asset Mix

U.S. Equity-Developed Markets; MSCI Emerging MarketsFree (Net) Index for Non-U.S. Equity-Emerging Markets;Citigroup Large Pension Fund (LPF) Index for Fixed In-come; 91-Day Treasury Bill + 4.5% for Absolute Return; andNCREIF Property Index for Private Real Estate and theWilshire REIT Index for Public Real Estate. The total fundbenchmark is a policy-weighted average of the individualasset class benchmarks.

Historically, The Regents’ Public Equity investmentstrategy utilized both active and passive management. In theprocess of implementing the November 2002 Regents-ap-proved changes to the U.S. equity strategy, the internallymanaged U.S. common stock was transferred into a Russell3000 Tobacco Free Index fund. As of June 30, 2005 ap-proximately 30 percent of domestic equity assets had beentransferred from the passive Russell 3000 index fund to ac-tive managers. Approximately 50 percent of non-U.S. equityhad been transferred from the passive MSCI World ex U.S.index fund to developed markets’ active managers as ofJune 30, 2005. The combined assets in each of the domesticand the non-U.S. asset classes are monitored under guide-lines established within the investment policy statement foreach asset class. Each asset class is controlled according to arisk budget framework set by The Regents. The passive/ac-tive allocation is controlled subject to both the risk budgetand by the opportunities to add value to the benchmark foreach asset class.

For Private Equity, the Treasurer’s Office seeks opportu-nities through recognized top-tier venture capital partner-ships and select buyout funds.

For Fixed-Income investments, the Treasurer’s Officeanalyzes relative value among the core benchmark sectors ofGovernments, Corporates, and Mortgage-backed securitiesand overweights those sectors and securities offering attrac-tive real returns, while maintaining a risk level commensu-rate with the benchmark index.

For Absolute Return, investments include long/shortequity, arbitrage, event-driven and other strategies.

For Real Estate, the Treasurer’s Office seeks investmentswhich provide long-term risk-adjusted total returns be-tween those of U.S. equities and bonds; diversification ben-efits given real estate’s low correlation with other assetclasses; protection against unanticipated inflation; and ahigh proportion of the total return derived from currentincome. The Real Estate program began implementation infiscal year 2004-2005.

EQUITY INVESTMENTS

The equity portion of GEP consists primarily of U.S.and Non-U.S. common stocks, with a modest exposure toprivate equity. Total equities represented 66.3% of GEP atyear-end, with a market value of $3.4 billion.

U.S. Equity represented 40.6% of the fund at year-end, with a market value of $2.1 billion. GEP’s U.S. Eq-uity assets returned 8.21% for the fiscal year outperform-ing the benchmark by 0.41%. GEP’s U.S. Equity return of9.07% for the 10-year period underperformed thebenchmark return of 10.44%.

Non-U.S. Equity-Developed Markets represented19.1% of GEP at year-end, with a market value of $995million. GEP’s Non-U.S. Equities-Developed Marketsgained 14.62% in the fiscal year, outperforming thebenchmark return gain of 14.55%. Non-U.S. Equity-Emerging Markets represented 4.3% of GEP at year-end,with a market value of $224 million. Non-U.S. Equity-

0%

20%

40%

60%

80%

100%

June 2001 June 2002 June 2003 June 2004 June 2005

Real Estate

Cash

Absolute Return

Fixed Income

Private Equity

Non-U.S. Equity

U.S. Equity

PAGE 16

General Endowment Pool (GEP)

Emerging Markets gained 36.93% outperforming thebenchmark returns of 34.38%. For the 10-year period,the class outperformed the benchmark by 2.76%.

ALTERNATIVE INVESTMENTS

Private Equity represented 2.3% of GEP at year-endwith a market value of $118 million. GEP returns forthis asset class in the fiscal year were 55.54%. Over thelong term, GEP’s private equity returns have been an im-portant contributor to total fund return.

Absolute Return represented 8.6% of GEP at year-end and returned 5.26% in the fiscal year, below thebenchmark return of 6.56%.

REAL ESTATE INVESTMENTS

The Real Estate program was implemented this fiscalyear, 2004-2005. Real Estate investments represented lessthan 1% of GEP at year-end with a market value of $6.92million. GEP returns for this asset class are not availablefor the fiscal year.

FIXED-INCOME INVESTMENTS

At year-end, Fixed Income constituted 24.8% of theportfolio, with a market value of $1.3 billion.

GEP’s fixed-income investments returned 11.28% dur-ing the year, just underperforming the benchmark return of11.49%. GEP’s fixed income return of 9.41% for the 10-year period exceeded the benchmark returns of 7.98%.

The weighted average maturity of the bond portfolioat year-end was approximately 12 years, the average du-ration 7.1 years, and the average credit quality was AA,with more than 85% of fixed-income securities rated Aor higher. The following pie charts illustrate the sectormix and quality breakdown of the GEP bond portfolio.

GEP Fixed Income Quality MixJune 30, 2005

(BBB and higher = investment grade) Average Quality = AA

GEP Cumulative Total Returns: Fiscal 1996-2005Fiscal Periods Ending June 30

GEP Fixed Income Sector MixJune 30, 2005

Passthrough 24.5%Other Mtgs. 5.1%Non-U.S. Dollar 1.0%Cash 3.4%

U.S. Treasury 18.7%

U.S. Agency 20.4%

Industrial 13.7%Financial 7.6%Utility 5.2%Sovereign 0.4%

AAA 73.3%AA 1.9%

A 9.9%

BBB 10.8%

BB 4.1%

0%

50%

100%

150%

200%

250%

95 96 97 98 99 00 01 02 03 04 05

GEP

Policy Benchmark

Inflation

243.90%222.34%

31.42%

PAGE 17

GEP ANNUALIZED TOTAL RETURNS1 VERSUS BENCHMARKS AND INFLATIONJune 30, 2005

10-Year1-Year 5-Year 10-Year Cumulative Benchmark Description2

TOTAL FUNDGEP 10.31% 2.34% 10.59% 243.90%

Policy Benchmark 9.45 2.71 10.05 222.34

Inflation 2.52 2.44 2.46 31.42

U.S. EQUITY

GEP 8.21% (2.74)% 9.07% 140.66%

Policy Benchmark 7.80 (1.47) 10.44 170.16

NON-U.S. EQUITY-DEVELOPED

GEP 14.62% N/A N/A N/A

Policy Benchmark 14.55 N/A N/A N/A

NON-U.S. EQUITY-EMERGING MARKET

GEP 36.93% 6.20% 6.97% 96.12%

Policy Benchmark 34.38 7.54 4.21 51.05

FIXED INCOME

GEP 11.28% 9.21% 9.41% 156.59%

Policy Benchmark 11.49 9.13 7.98 115.48

PRIVATE EQUITY

GEP 55.54% (1.92)% 29.13% 1189.04%

Policy Benchmark 10.09 (1.77) 11.46 239.50

ABSOLUTE RETURN

GEP 5.26% N/A N/A N/A

Policy Benchmark 6.56 N/A N/A N/A

1 GEP’s total returns are based on unit values calculated by UCOP Endowment and Investment Accounting and are net of (after) investment management andadministrative expenses of 0.09% of average annual market value, which are automatically deducted from income. The asset class returns reflect investment returns.The performance of The Regents’ total return investment portfolio is calculated by State Street Bank, according to the standard recommended by the BankAdministration Institute (BAI), which uses a time-weighted methodology that essentially neutralizes the effect of contributions and withdrawals so as to measureonly the return on assets. These calculations comply with the CFA Institute’s standards, which require time-weighted rates of return using realized and unrealizedgains plus income. Performance calculations are reconciled by the Treasurer’s Office.

2 Historical benchmark information is available online at http://www.ucop.edu/treasurer/invinfo/Benchmarks.html.

Note: The TIPS program and the Real Estate program began implementation in fiscal year 2004-2005. Performance less than one year not shown. The TIPSPolicy Benchmark is the LB TIPS Index. The Real Estate Policy Benchmark is the NCREIF Proper ty Index for private real estate and the Wilshire REIT Indexfor public real estate.

Total Fund Policy Benchmark: A blend of the indexes described indetail below, each weighted by the percentage it represents in the assetallocation. Adjustments have been made to reflect that the actual in-vestment in Private Equity and Real Estate are below policy weights.Annual index returns assume monthly rebalancing.

Inflation: Consumer Price Index.

U.S. Equity Policy Benchmark: Russell 3000 TF Index; Historical:S&P 500 Index.

Non-U.S. Policy Benchmark: MSCI World ex US (Net) Index;Historical: MSCI EMF (Net) Index.

Non-U.S. Policy Benchmark: MSCI Emerging Markets Free (Net)Index; Historical: MSCI EMF (Net) Index.

Fixed Income Policy Benchmark: Citigroup Large Pension FundIndex. Historical: LB LT G/C Index.

Private Equity Policy Benchmark: Russell 3000 TF Index +3%(lagged by 3 months); Historical: S&P 500 Index +5%

Absolute Return Policy Benchmark: 91-Day TBills + 4.5%.

PAGE 18

The Regents’ Endowment Funds

ASSET DESIGNATION BY CAMPUS AND PURPOSE

A donor has two avenues for making a gift to orestablishing an endowment at the University: directly toThe Regents for a specific campus and/or purpose ordirectly to a campus through its Foundation. Thecampus foundation trustees have discretion in theirchoice of investment managers and may use theTreasurer’s Office or external investment managers.

The Regents’ endowment pools include assets thatwere gifted directly to The Regents, as well as foundationassets where the Treasurer was retained as the investmentmanager. The chart below illustrates the breakdown ofGEP’s assets among the campuses. Not surprisingly, ahigher proportion of the assets is dedicated to the oldercampuses, which have a more established alumni anddonor base.

Fundraising efforts provide critically needed moniesto support the goals of the University. As illustrated bythe chart at the right, more than half of GEP’s assetssupport financial aid (23%), research (17%) anddepartmental use (16%).

More detailed information on fundraising resultsmay be found in the University’s Annual Report on PrivateSupport published by the Office of University andExternal Relations.

GEP Assets Designated by CampusJune 30, 2005

1 UCOP = UCOP-administered programs and multi-campus gifts.

GEP Assets Designated by PurposeJune 30, 2005

Multi Purpose 7%

Agency 11%

General Purpose 13%

Departmental Use 16%

Chairs & Professorships 12%

Research 17%

Lectures/Libraries 3%

Financial Aid 23%

0%

5%

10%

15%

20%

25%

30%

35%

Berkeley UCLA UCOP andRelated Groups

SanFrancisco

Davis San Diego SantaBarbara

Santa Cruz Irvine Riverside Merced

PAGE 19

We wish to acknowledge the help of the UC Davis Public Communications Department and Campus Foundation. For more information on The RobertMondavi Institute for Wine and Food Science visit their website at http://www.news.ucdavis.edu/mondavi/. Photograph courtesy of Neil Michael/Axiom.

ROBERT MONDAVI INSTITUTE FOR WINE AND FOOD SCIENCE

Robert and Margrit MondaviLegendary Napa Valley

wine makers

“UC Davis has been a truepartner in building theinternational reputation of theCalifornia wine industry...Weare greatly honored to supportUC Davis with new facilitiesthat ensure its position as theworld’s leading educationalcenter for viticulture, enologyand food science.”

Robert Mondavi

Amid California’s cloudy economic climate, there is a bright spot—thewine industry. In 2004 the wine industry made an annual impact on California’seconomy of over $45 billion, according to an April 2005 Wine Institute pressrelease. California’s wine industry is also responsible for more than 200,000jobs and continues to preserve agriculture land and the family farm. “California’swine industry is a major contributor to the economic vitality of California.”

The University of California at Davis is a consistent contributor to California’s wine industrythrough new research technologies and in producing some of the brightest minds in wine making.UC Davis is host to the world-renowned department of Viticulture (vine cultivation) and Enology(wine study). These specialized fields of study are found at few institutions, and even more unique,are combined within a single department. UC Davis also houses the department of Food Science andTechnology, the apparent associé (associate) to the department of Viticulture and Enology. Currentlyresiding in buildings nearly 50 years old, the departments of Viticulture and Enology and Food Scienceand Technology will soon intermingle in the new Robert Mondavi Institute for Wine and Food Science.

This new Institute seeks to form partnerships with the world’s best teaching facilities to openopportunities for UC students and faculty to influence the wine and food industries worldwide.More importantly, the modern facilities and centralized location of departments will provide newopportunities for synergy in research. The institute has an opportunity to establish itself as a globalinnovator in university-based teaching and research for wine and food programs.

The vision for the Institute will soon come to fruition due in large part to Robert and MargritMondavi, the distinguished Napa Valley family wine makers credited with the development ofCalifornia’s wine industry, and now recognized as UC Davis’s most generous benefactors, havinggiven a gift in the amount of $35 million ($10 million earmarked for the Center for Performing Arts).This gift will help place the University at the forefront of educational centers in wine and foodscience and the arts. It is also one way the Mondavis hope to fulfill their dream of enhancing thequality of life through wine, food and the arts. The Institute promises to benefit not only the UCcommunity, but also the state of California, US and international wine and food industries.

In addition to the Mondavis’ donation, the University plans to raise an additional $12 millionand anticipates receiving another $35.5 million in state support. Thus far, other generous donorsincluding the Anheuser-Busch Foundation and Diane Disney Miller have contributed more than $3million. At 2004-2005 fiscal year-end, the Treasurer’s Office, on behalf of The UC Davis foundation,managed assets valued at more than $27 million for the Robert Mondavi Institute for Wine andFood Science. These resources will help fund a 75,000 square-foot academic building with classrooms,laboratories, offices and public education spaces, home to the departments of Viticulture andEnology and Food Science and Technology. Plans also include a 36,000 square-foot teaching andresearch winery; a 13,000 square-foot food production plant, including processing labs for dairyfoods, fruits and vegetables; a brewery and packaging and processing technologies; and a 75 guest-room hotel and conference center to accommodate the thousands of anticipated visitors eachyear—all strategically located at the “front door” to the UC Davis campus.

The Institute for Wine and Food Science, partnered with the Center for Performing Arts, is thequintessential cultural benchmark. This new cultural center at UC Davis does more than ensure thefinest research and teaching in new technologies for wine and food, it also positions the Universityas a global leader in evolving the partnership between wine, food and the arts.

PAGE 20

Charitable Asset Management Pools

The Charitable Asset Management (CAM) Pools areused by The Regents of the University of California andthe Campus Foundations for the investment of split-interest gifts, including charitable remainder trusts,pooled income funds and charitable gift annuities. Theinvestment of these funds is directed by the Treasurer ofThe Regents; the administration of these funds ishandled by the Charitable Asset Management group ofState Street Global Advisors, Boston and San Francisco.The pools were created in November 2003.

At fiscal year end CAM assets totaled $126 million,with CAM Russell 3000 Tobacco Free (TF) Index Pool’smarket value at $59 million, The CAM EAFEInternational TF Index Pool’s market value at $17million, and the CAM Fixed Income Pool’s market valueat $50 million.

Total CAM Assets by PoolJune 30, 2005

INVESTMENT OBJECTIVES

The CAM Russell 3000 TF Index Pool seeks toprovide investment results that correspond to the totalreturn (i.e. the combination of price changes andincome) performance of a broad base of stocks publiclytraded in the United States. The CAM EAFEInternational TF Index Pool seeks to provide investmentresults that correspond to the total return performance ofNon-U.S. developed country stocks. The CAM FixedIncome Pool seeks to outperform the Lehman AggregateIndex and consistently have higher current income. TheFunds’ policy benchmarks are the Russell 3000 TFIndex, MSCI EAFE + Canada TF Index and the LehmanAggregate Index, respectively.

RETURNS

1-year performance ending June 30, 2005 follows:

Fund/Policy Benchmark Return

CAM Russell 3000 TF Index Pool 7.77%Russell 3000 TF Index 7.80%

CAM EAFE International TF Index Pool 14.77%MSCI EAFE + Canada TF Index 14.41%

CAM Fixed Income Pool 7.16%Lehman Aggregate Index 6.80%

HIGH INCOME POOL (HIP)

The High Income Pool (HIP) was established in May1987 to accommodate endowments and deferred giftgiving programs with high contractual payoutobligations. Although The Regents' adopted a totalreturn spending policy for The General Endowment Pool(GEP) in 1998, the income only spending policy wasmaintained for HIP. As the campus foundations haveadopted a total return spending policy, they have movedmost of their assets out of HIP into GEP. The GEP is TheRegents' primary investment vehicle for endowed giftfunds. As of June 30, 2005 only $69 Million are investedin HIP. The HIP investment information is included aspart of “Other Endowments”.

SEPARATELY MANAGED ENDOWMENT FUNDS

At June 30, 2005, The Regents had $233 millioninvested in separately managed endowment funds(including approximately $195 million where TheRegents is the beneficiary, but not the trustee). Theseparately managed funds were established to achievespecified payout requirements for donor and agencymonies, as well as to comply with the terms of giftagreements in which donors required funds to beinvested separately (e.g., no commingling of funds) and/or placed restrictions on the investment options (e.g.,only U.S. Treasury bonds).

CAM Russell 3000 TF Index Pool 47%

CAM EAFE International TFIndex Pool 13%

CAM Fixed Income Pool 40%

PAGE 21

We wish to acknowledge the help of The Andrew W. Mellon Foundation, the Communications Office at the Scripps Institution of Oceanography at UC SanDiego and the University of California’s Office of the President Department of Endowment and Investment Accounting. For more information on The MellonFoundation visit their website at http://www.mellon.org. For more information on The Scripps Institution of Oceanography visit their website at http://sio.ucsd.edu. Photograph courtesy of Scripps Institution of Oceanography.

THE ANDREW W. MELLON FOUNDATION

The University of California (UC) has earned a reputation as a high-achieving public institution by offering top academic programs. Thecornerstone of this reputation lies with the expert faculty and staff that leadthe teaching and research programs. One of the ways in which the Universityis able to maintain such standards in public education is its funding support—commonly in the form of endowments. This support helps fund professorships and fellowships that attractleading educators and the Andrew W. Mellon Foundation is one organization that provides such funding.

The man for whom the Andrew W. Mellon Foundation is named was born in Western Pennsylvania in1855. At an early age, Andrew worked alongside his father and brother managing the family bank, whichsoon became the prime financial agent in the transformation of western Pennsylvania into one of the richestindustrial regions in the United States. By 1914 Mellon was one of the richest men in the United States.

Mellon also served as Secretary of the Treasury, appointed by Warren Harding. He was hailed as thegreatest Treasury Secretary since Alexander Hamilton. Mellon served as an American Ambassador toBritain as well. An accomplished art collector— Mellon amassed what is said to be the greatest collectionof his generation (over 21 masterpieces). Even more impressive, Mellon bestowed over $10 million duringhis lifetime, mostly to educational and charitable institutions. His most famous gift was one of money andpictures to establish the National Gallery of Art in Washington DC. Unfortunately, Andrew Mellon did notlive to see the opening of the National Gallery. He died in 1937.

In 1969, the Avalon foundation (founded by his daughter Ailsa in 1940) and the Old DominionFoundation (founded by his son Paul in 1941) merged to form the Andrew W. Mellon Foundation. TheFoundation directly and indirectly supports a wide range of initiatives aimed at strengthening selective(by invitation only) research universities in the United States, with particular emphasis on thehumanities and “humanistic” social sciences. The Foundation’s interests in this area include (but arenot limited to) doctoral education, post-doctoral fellowships, faculty research support, and discipline-related projects. Grants also support research on the economics, sociology, and history of highereducation, and improving access to resources for the study of science and society.

Institutions and programs supported by Mellon dollars are often leaders in fields of Foundationactivity, but may also be promising newcomers, or in a position to demonstrate new ways of overcomingobstacles to achieving program and grantee goals. The Foundation directs most of its grantmaking to afew program areas—Higher Education and Scholarship, Conservation and the Environment, Museumsand Art Conservation, and Performing Arts—in order to focus on a limited number of important objectives.

All nine UC campuses operating at June 30, 2005, have received awards under these programs.Individual campuses, at their discretion, may choose to invest the awards with campus investmentprograms, or within UC’s General Endowment Pool (GEP). To date, the largest contribution awarded toUC by the Mellon Foundation was an appropriation of $1.2 million to the Oceanography ResearchEndowment for use by the Scripps Institution of Oceanography located on the San Diego campus. In July1991, an initial cash payment in the amount of $200,000 was transferred to The Regents for managementby the Treasurer’s Office. As of June 30, 2005, the Mellon Foundation Endowment for the Scripps Institutionof Oceanography has grown to more than $2.6 million.

The benefits of UC study are far-reaching and impact every corner of society. UC Supporters likethe Andrew Mellon Foundation help sustain the University’s excellence in teaching and research. It isthrough grant and endowment support that first-rate faculty is available to lead the academic programswhich merit the University’s distinction as a globally respected institution of advanced study.

Nierenberg Hall and AnnexScripps Institution of

Oceanography

Three major divisions ofScripps are headquartered inNierenberg Hall:

The Physical OceanographyResearch Division,The Climate ResearchDivision, andThe California Space Institute

PAGE 22

Short Term Investment Pool (STIP)

The Short Term Investment Pool (STIP) is a cash in-vestment pool established in fiscal 1976 by The Regentsand is available to all University fund groups, includingretirement and endowment funds as well as campusfoundations. The STIP allows fund participants to maxi-mize returns on their short-term cash balances by takingadvantage of the economies of scale of investing in alarger pool and investing in a broader range of maturi-ties. The STIP consists primarily of current funds slatedfor payroll, operating and construction expenses for allthe campuses and teaching hospitals of the University. Inaddition, pension, endowment, and defined contribu-tion funds awaiting permanent investment are investedin the STIP to earn maximum daily interest until trans-ferred.

INVESTMENT OBJECTIVEThe STIP’s investment objective is to maximize re-

turns consistent with safety of principal, liquidity andcash-flow requirements. The STIP’s investments include abroad spectrum of high-quality money-market and fixed-income instruments with a maximum maturity of five-and a half years. The Treasurer’s Office structures invest-ment maturities to ensure an adequate flow of funds tomeet the University’s cash requirements.

INVESTMENT STRATEGYThe Treasurer’s Office manages the STIP as a highly

liquid portfolio, using maturity distribution strategies tomaximize returns in different yield-curve environments.The Treasurer’s Office also employs select swapping strat-egies by taking advantage of disparities in the market toimprove quality and yield, while maintaining liquidity.

RETURNSThe STIP has achieved very attractive returns over the

years. For fiscal 2005, the STIP’s income return of 3.57%exceeded the 2-Year U.S. Treasury Note income return of2.99%. During the past 10 years, the average income re-turn on the STIP was 5.31%, compared to 4.42% for 2-Year U.S. Treasury Note income return.

During the year, the STIP periodically provided li-quidity to facilitate asset class rebalancing, in-flows andout-flows associated with University financing and othermaterial liquidity events. During this period, selectivehigh quality credit spread products were added to en-hance the portfolio’s yield. The average maturity of theportfolio was shortened due to the shortening of theyield curve and with the expectation of higher interestrates going forward.

ASSET MIXThe STIP totaled $7.7 billion at June 30, 2005, com-

pared to $7.4 billion at the end of fiscal 2004. The STIP’sasset mix at each of the past five fiscal year-ends and maturitydistribution and quality mix as of June 30, 2005 follow.

STIP Asset Mix

STIP Maturity DistributionJune 30, 2005 Average Maturity = 1.5 years

STIP Quality MixJune 30, 2005 Average Quality = AA (BBB and higher = investment grade)

0%

20%

40%

60%

80%

100%

June 2001 June 2002 June 2003 June 2004 June 2005

CDs

RepurchaseAgreements

FederalAgencies

CorporateNotes

Governments

CommercialPaper

0-3 Months 39.1%3-12 Months 13.2%

1-2 Years 11.3%

2-3 Years 15.6%

3-4 Years 15.1%

4-5 Years 5.7%

P-1 39.5%

AAA 32.9%

AA 12.3%

A 11.4%BBB 3.9%

PAGE 23

STIP ANNUALIZED INCOME RETURN1

June 30, 2005

10-Year1-Year 5-Year 10- Year Cumulative

STIP1 3.57% 4.40% 5.31% 67.72%2-Yr U.S. Treasury Note Inc. 2.99 3.06 4.42 53.64Inflation2 2.52 2.44 2.46 31.42

1 STIP’s returns are net of (after) investment management costs andadministrative expenses (1.5% of average annual income for the fiscalyear) which are automatically deducted from income.

2 Inflation as measured by the Consumer Price Index.

CHOOSING TO UTILIZE UC-MANAGED POOLS

UNIVERSITY PROGRAMS UTILIZING STIP

In fiscal 1985, The Regents authorized the Universityof California Mortgage Origination Program, whichprovides first deed of trust mortgage loans to eligiblemembers of the University’s faculty and staff. These loanstotaled $98.5 million at June 30, 2005 and were fundedby the legally available cash balances in the unrestrictedportion of STIP. In March 1999, The Regents authorizedthe use of the legally available cash balances in theunrestricted portion of STIP to provide liquidity support forthe University’s Commercial Paper Program. The STIP alsoprovides working capital advances to the medical centers.

As of June 30, 2005, the Treasurer’s Office manages$1,032 million for the campus foundations andsupport groups. A donor has two avenues for making agift to or establishing an endowment at the Universityof California: either directly to The Regents for aspecific campus and/or purpose, or directly to acampus through its Foundation. The campusfoundation trustees have discretion in their choice ofinvestment managers and may use the Treasurer’s Officeor external investment managers.

The Treasurer’s Office has a long history of working with the UC Berkeley’s Foundation, helping it managethe campus’ private assets to promote and advance the university’s mission.

“As chair of the Investment Committee of the UC Berkeley Foundation for the past five years, I am pleased tosay that as we manage our campus’ General Endowment Pool, we have benefited greatly from our collegial andproductive relationship with the Office of the Treasurer. On behalf of the members of the UC BerkeleyFoundation's Investment Committee, I would like to underscore that the Treasurer has been a strong partner inhelping us to achieve our goals -- by providing such services as pooled investment vehicles and educationalinvestment forums. Above all else, we value the open and candid line of communication we enjoy with theTreasurer’s Office.”

Robert B. Beim BA ‘65, MBAManaging Director, Woodside Asset ManagementChair, Investment CommitteeUC Berkeley Foundation

PAGE 24

University of California Retirement System

UNIVERSITY OF CALIFORNIA RETIREMENT SYSTEMSummary of Investments1

($ in thousands)

June 30, 2005 June 30, 2004

UC RETIREMENT PLAN (UCRP) Market Value % of UCRP Market Value % of UCRP

EQUITIESU.S. Equity $ 23,807,926 56.7% $ 22,539,391 57.4%

Non-U.S. Equity $ 3,634,041 8.6% $ 3,253,511 8.3%TOTAL EQUITIES $ 27,441,967 65.3% $ 25,792,902 65.7%FIXED INCOME SECURITIES

Bonds $ 11,315,750 27.0% $ 10,382,678 26.4%TIPS $ 2,507,205 6.0% $ 2,527,050 6.4%

TOTAL FIXED INCOME $ 13,822,955 33.0% $ 12,909,728 32.8%PRIVATE EQUITY $ 613,689 1.5% $ 561,583 1.4%REAL ESTATE $ $63,124 0.1% $ 0 0.0%LIQUIDITY PORTFOLIO $ 28,666 0.1% $ 25,159 0.1%

TOTAL UCRP $ 41,970,401 100.0% $ 39,289,372 100.0%

June 30, 2005 June 30, 2004

DEFINED CONTRIBUTION (DC) FUNDS Market Value % of DC Market Value % of DC

TOTAL RETURN FUNDSEQUITY FUND $ 3,863,180 43.8% $ 3,362,496 42.6%BOND FUND $ 1,062,967 12.0% $ 941,111 11.9%

TIPS FUND $ 101,973 1.2% $ 49,241 0.7%

INTEREST INCOME FUNDSSAVINGS FUND $ 3,091,580 35.0% $ 2,943,607 37.3%ICC FUND $ 706,183 8.0% $ 587,530 7.5%

TOTAL DC FUNDS2 $ 8,825,883 100.0% $ 7,883,985 100.0%

The largest pool of assets managed by the Treasurer’sOffice is the University of California Retirement Plan(UCRP), created in 1961. UCRP is a defined benefitplan, whereby retirement benefits are a function of theemployee’s age, average salary and length of service. Withthe plan in surplus, The Regents suspended bothemployee and employer contributions to UCRP in 1990,but redirected the mandatory employee contributions tothe newly established Defined Contribution Plan.

1 For fiscal 2004 and fiscal 2005, the cash portion of the various portfolios excludes the unrealized market appreciation or depreciation of STIP investments,accounts receivable and accounts payable and the investments in the security lending collateral pool. Therefore, the balances differ from the University’sAnnual Financial Report. UCRP’s STIP investments include assets associated with the UC PERS Voluntary Early Retirement Incentive Program totaling $76.2 million infiscal 2004 and $78.2 million in fiscal 2005.2 Total DC Funds excludes the Balanced Growth Fund (started 4/1/04), which totaled $904 million at June 30, 2005, and is invested in and reported as part of theEquity, Bond, and TIPS Funds.

UCRP is a balanced portfolio of equities and fixed-income securities, which at June 30, 2005 totaled $42.0billion, versus $39.3 billion at the end of fiscal 2004.

INVESTMENT OBJECTIVE

The overall investment objective for all UCRP assetsis to maximize real, long-term total returns (income pluscapital appreciation adjusted for inflation), whileassuming appropriate levels of risk.

PAGE 25

For Private Equity, the Treasurer’s Office seeksopportunities through recognized top-tier venture capitalpartnerships and select buyout funds.

For Fixed Income investments, the Treasurer’s Officeanalyzes relative value among the core benchmark sectorsof Governments, Corporates, and Mortgage-backedsecurities and overweights those sectors and securitiesoffering attractive real returns, while maintaining a risklevel commensurate with the benchmark index.

For Real Estate, the Treasurer’s Office seeks invest-ments which provide long-term risk-adjusted total re-turns between those of U.S. equities and bonds; diversi-fication benefits given real estate’s low correlation withother asset classes; protection against unanticipated infla-tion; and a high proportion of the total return derivedfrom current income. The Real Estate program beganimplementation in fiscal year 2004-2005.

RETURNS

UCRP has exceeded its investment objectives over thelong-term. It has also performed well versus its policybenchmarks. All asset classes contributed positively toUCRP’s return of 10.30% in the fiscal year. UCRP’sannualized total return for the past 10 years throughJune 30, 2005 was 10.40%, outperforming its benchmarkat 10.08%. The cumulative Total Returns Chart on page26 illustrates the returns for UCRP for the past 10 yearsrelative to the policy benchmark and inflation.

ASSET MIX

The following illustrates UCRP’s asset mix at each ofthe past five fiscal year ends.

UCRP Asset Mix

UCRP’s specific objective is to ensure its ability tomeet its obligation to beneficiaries by earning returnsover the long term that meet or exceed the actuarial rateof return of 7.5%.

INVESTMENT STRATEGY

In order to continue to achieve these investmentobjectives, The Regents adopted the following assetallocation policy in July 2005:

Long-term CurrentAsset Class Policy Policy Min. Max.U.S. Equity 50% 56%Non-U.S. Equity 7% 7%Private Equity 5% 2% 1% 7%Fixed Income 28% 30%TIPS 5% 5%Real Estate 5% 0% 0% 7%

The benchmarks for the individual asset classes are:Russell 3000 Tobacco Free (TF) Index for U.S. Equity;MSCI All Country World (Net) Index ex-U.S. for Non-U.S. Equity; Citigroup Large Pension Fund (LPF) Indexfor Fixed Income; Lehman TIPS for TIPS; and NCREIFProperty Index for Private Real Estate and the WilshireREIT Index for Public Real Estate. The total fund bench-mark is a policy-weighted average of the individual assetclass benchmarks.

Historically, The Regents’ Public Equity investmentstrategy utilized both active and passive management. Inthe process of implementing the November 2002 Re-gents-approved changes to the U.S. equity strategy, theinternally managed U.S. common stock was transferredinto a Russell 3000 Tobacco Free Index fund. As of June30, 2005 approximately 30 percent of domestic equityassets had been transferred from the passive Russell 3000index fund to active managers. Approximately 50 per-cent of non-U.S. equity had been transferred from thepassive MSCI World ex U.S. index fund to developedmarkets’ active managers as of June 30, 2005. The com-bined assets in each of the domestic and the non-U.S.asset classes are monitored under guidelines establishedwithin the investment policy statement for each assetclass. Each asset class is controlled according to a riskbudget framework set by The Regents. The passive/activeallocation is controlled subject to both the risk budgetand by the opportunities to add value to the benchmarkfor each asset class.

0%

20%

40%

60%

80%

100%

June 2001 June 2002 June 2003 June 2004 June 2005

Cash

TIPS

Fixed Income

Private Equity

Non-U.S. Equity

U.S. Equity

53% 73%}} 25% 45%

PAGE 26

University of California Retirement Plan

EQUITY INVESTMENTS

Total Equities represented 66.8% of UCRP at year-end, with a market value of $28.1 billion.

U.S. Equity represented 56.7% of the fund at year-end, with a market value of $23.8 billion. A majority ofUCRP’s U.S. Equity assets were indexed for the fiscal yearand returned 8.11%, outperforming the benchmarkreturn of 7.80%. UCRP’s U.S. Equity return of 9.19% forthe 10-year period underperformed the benchmarkreturn of 10.44%.

Non-U.S. Equity represented 8.6% of UCRP at year-end, with a market value of $3.6 billion. UCRP’s Non-U.S. Equities grew 16.62% in the fiscal year, outperform-ing the benchmark return of 16.47%. The longer-termreturns for this asset class represent the emerging marketsfunds only, so comparisons are not yet meaningful.

ALTERNATIVE INVESTMENTS

Private Equity represented 1.5% of UCRP at year-endwith a market value of $614 million. UCRP returns for thisasset class in the fiscal year were 46.02%. Over the long term,UCRP’s private equity returns have been an important contribu-tor to total fund return.

FIXED-INCOME INVESTMENTS

At year-end, Fixed-Income investments constituted33.0% of the portfolio, with a market value of $13.8billion.

Within total fixed income, UCRP’s bond investmentsreturned 11.35% during the year, slightly below thebenchmark return of 11.49%. Over the long-term,UCRP’s bond returns of 9.22% and 9.65% for the 5- and10-year periods have exceeded the benchmark. UCRP’sTIPS, which represented 6% of total assets on June 30,2005, outperformed the benchmark by 0.05% for the fis-cal year.

The weighted average maturity of the portfolio at theend of the year was approximately 11.7 years, theweighted average duration 7.1 years, and the averagecredit quality was AA, with more than 82% of the fixed-income securities rated A or higher. The following piecharts illustrate the sector mix and quality breakdown ofthe UCRP bond portfolio.

UCRP Fixed-Income Sector MixJune 30, 2005

UCRP Fixed-Income Quality MixJune 30, 2005

(BBB and higher = investment grade)

Passthrough 23.0%Other Mtgs. 5.5%Non-U.S. Dollar 0.7%Cash 2.8%

U.S. Treasury 19.7%

U.S. Agency 18.8%

Industrial 15.1%

Financial 7.4%Utility 6.5%Sovereign 0.5%

AAA 71.3%AA 1.2%

A 10.2%

BBB 13.5%

BB 3.8%

PAGE 27

UCRP ANNUALIZED TOTAL RETURNS1 VERSUS BENCHMARKS AND INFLATIONJune 30, 2005

10-Year1-Year 5-Year 10-Year Cumulative Benchmark Description2

TOTAL FUNDUCRP 10.30% 2.73% 10.40% 239.17%Policy Benchmark 9.82 2.77 10.08 223.09Inflation 2.52 2.44 2.46 31.42

U.S. EQUITYUCRP 8.11% (2.36)% 9.19% 141.43%Policy Benchmark 7.80 (1.47) 10.44 170.16

NON-U.S. EQUITYUCRP 16.62% (1.95)% 2.58% 28.46%Policy Benchmark 16.47 0.61 0.80 8.31

PRIVATE EQUITY3

UCRP 46.02% (3.84)% 28.24% 1103.45%

FIXED-INCOME SECURITIESUCRP (Bonds) 11.35% 9.22% 9.65% 150.12%Policy Benchmark 11.49 9.13 7.98 115.48

TIPSUCRP 9.38% N/A N/A N/APolicy Benchmark 9.33 N/A N/A N/A

UCRP Cumulative Total Returns: Fiscal 1996-2005Fiscal Periods Ending June 30

1 UCRP’s total returns are net of (after) investment management and administrative expenses of 0.04% of average annual market value. The asset class returnsreflect investment returns. The performance of The Regents’ total return investment portfolio is calculated by State Street Bank, according to the standardrecommended by the Bank Administration Institute (BAI), which uses a time-weighted methodology that essentially neutralizes the effect of contributions andwithdrawals so as to measure only the return on assets. These calculations comply with the CFA Institute’s standards, which require time-weighted rates of returnusing realized and unrealized gains plus income. Performance is reconciled by the Treasurer’s Office.2 Historical benchmark information is available online at http://www.ucop.edu/treasurer/invinfo/Benchmarks.html.3 From July 2004 through December 2004 the Private Equity Benchmark was the Russell 3000 TF Index +3% (lagged by three months. Beginning January 2005the Benchmark is the actual performance.4 Includes balances invested for the Balanced Growth Fund, which at 6/30/05 totaled $904 million and consisted of 65% in the Equity Fund, 30% in the BondFund, and 5% in the TIPS Fund.

Total Fund Policy Benchmark: A blend of the indexes described in detailbelow, each weighted by the percentage it represents in the asset alloca-tion. Adjustments have been made to reflect that the actual investment inPrivate Equity is below policy weight. Annual index returns assumemonthly rebalancing.

Inflation: Consumer Price Index.

U.S. Equity Policy Benchmark: Russell 3000 TF Index; Historical: S&P500 Index.

Non-U.S. Equity Policy Benchmark: MSCI AC World ex U.S. (Net)Index; Historical: MSCI EMF (Net) Index.

Fixed Income Policy Benchmark: Citigroup Large Pension Fund Index;Historical: LB LTG/C Index.

TIPS Policy Benchmark: Lehman TIPS Index.

0%

50%

100%

150%

200%

250%

95 96 97 98 99 00 01 02 03 04 05

UCRP

Policy Benchmark

Inflation

239.17%223.09%

31.42%

PAGE 28

Defined Contribution Funds

In addition to the defined benefit program (UCRP), theUniversity offers defined contribution plans to provide em-ployees with supplemental retirement benefits—the manda-tory Defined Contribution Plan (DC Plan), the Tax-Deferred403(b) Plan, the Tax-Deferred 457(b) Plan (new as of Octo-ber 1, 2004), and the Defined Contribution Plan After-TaxAccount. These programs differ from UCRP in that the ben-efits received by participants are based on the em-ployee’scontributions to the plans and the returns earned on thosecontributions over time and that each participant chooses amix of asset classes (funds) consistent with his or her owninvestment objectives and risk tolerance. As of June 30,2005, total assets in the defined contribution plans were$8.8 billion vs. $7.8 billion on June 30, 2004.

When investing their defined contribution funds, em-ployees may choose among six University Defined Contribu-tion (DC) Funds managed internally by the Treasurer’s Of-fice or selected external funds.

Total UC-Managed Defined Contribution Plan Assets by Fund4

June 30, 2005

INTERNALLY MANAGED UC FUNDS

The six University-managed funds include four to-tal return funds—the Equity Fund, Bond Fund, TIPSFund and Balanced Growth Fund—and two interestincome funds—the Savings Fund and Insurance Com-pany Contract (ICC) Fund. University-managed fundsoffer employees the opportunity to achieve attractive,long-term investment performance by investing in oneor more funds of their choice. These funds represent

diversified portfolios of high-quality, growth-orientedglobal stocks and bonds, as well as more conservative in-terest income funds with attractive above market yields.As shown on page 29, these funds rank above average inperformance comparisons for most time periods. In addi-tion, the University-managed funds are extremely lowcost relative to external fund options: Annual expensesare only 0.15%1 of average annual market value, com-pared to the industry average of 1.4%.2

TOTAL RETURN FUNDS

EQUITY FUND

The largest of the University-managed DC funds isthe Equity Fund, established in August 1967. The EquityFund is a total return fund with the primary objective ofmaximizing long-term capital appreciation with a moder-ate level of risk. The Regents adopted the following assetallocation policy for the Equity Fund in March 2000:

Asset Class Policy Minimum MaximumU.S. Equity 80% 75% 85%Non-U.S. Equity 15% 10% 20%Private Equity 5% 3% 7%

At June 30, 2005, the total market value of theEquity Fund was $3.9 billion. The portfolio consisted of82.7% U.S. Equity, 15.4% Non-U.S. Equity, 1.8% PrivateEquity and 0.1% cash.

At June 30, 2005 the U.S. equity is invested in aRussell 3000 Tobacco Free (TF) Index fund managed byState Street Global Advisors. Non-U.S. equity is investedin a MSCI EAFE + Canada Tobacco Free Index fund (alsomanaged by State Street Global Advisors) and in EmergingMarkets funds. The private equity is invested in venturecapital partnerships and buyout funds.

For the fiscal year, the Equity Fund’s return of10.26% outperformed its policy benchmark return of9.17% and its peers, as measured by the MorningstarDomestic Equity Funds Median. The Equity Fund’slonger-term returns are shown on page 29.

1 Total expenses are comprised of approximately 0.03% for investment management, 0.02% for investor education and 0.10% for accounting, audit, legaland recordkeeping services.2 Source: Morningstar, Inc. Although gathered from reliable sources, data completeness and accuracy cannot be guaranteed.

Equity Fund 43.8%

Bond Fund 12.1%

Savings Fund 34.9%

ICC Fund 8.0%TIPS Fund 1.2%

PAGE 29

UNIVERSITY-MANAGED DEFINED CONTRIBUTION FUNDS RETURNS1

June 30, 2005

1-Year 5-Year 10-Year Benchmark Description

Equity Fund 10.26% (2.33)% 9.47%

Policy Benchmark 9.17 (1.17) 10.61

Morningstar Domestic Equity Funds Median2 7.25 0.14 8.94

Bond Fund 6.78% 8.04% 9.05%

Policy Benchmark 6.80 7.41 7.12

Morningstar Taxable Bond Funds Median2 6.10 6.15 5.65

TIPS Fund (started 4/1/04) 9.13% NA NA

Policy Benchmark 9.33% NA NA

Balanced Growth Fund (started 4/1/04) 9.23% NA NA

Policy Benchmark 8.59% NA NA

Savings Fund 3.79% 4.82% 5.50%

Policy Benchmark 2.99 3.06 4.42

ICC Fund 5.09% 6.16% 6.79%

Policy Benchmark 3.72 4.02 4.97

Inflation 2.52% 2.44% 2.46%

1 All returns and yields for the University-managed funds are net of (after) investment expenses of 0.15% and are based on unit values for the Equity, Bond andMulti-Asset Funds and on interest factors for the Savings, ICC and Money Market Funds. The Treasurer’s Office calculates returns and yields by dividing the newunit value or interest factor by the previous unit value or interest factor supplied by UC Human Resources and Benefits. The Treasurer’s Office compares theseresults to the gross investment returns calculated by State Street Bank. State Street Bank’s calculations comply with the Association for Investment Managementand Research (AIMR) standards, which require time-weighted rates of return using realized and unrealized gains plus income.2 Source: Morningstar, Inc. Although gathered from reliable sources, data completeness and accuracy cannot be guaranteed.

Equity Fund Policy Benchmark: 85% less the actual Private Equityweight from the prior month end times the Russell 3000 TF Index,15% MSCI ACWI ex US (Net) Index and the actual Private Equityweight of the previous month end times the Russell 3000 TF Index+3% (lagged by 3 months); Historical: S&P 500 Index.

Bond Fund Policy Benchmark: Lehman Aggregate Index; Histori-cal: LB LTG/C Index.

TIPS Fund Policy Benchmark: Lehman TIPS Index.

Balanced Growth Fund Policy Benchmark: 65% policy benchmarkfor Equity Fund, 30% policy benchmark for Bond Fund and 5%policy benchmark for TIPS Fund.

Savings Fund Policy Benchmark: 2-Year U.S. Treasury NoteIncome Return.

ICC Fund Policy Benchmark: 5-Year U.S. Treasury Note IncomeReturn.

Inflation: Consumer Price Index.

BOND FUND

The Bond Fund is a total return fund established byThe Regents in January 1978. The primary objective ofthe Bond Fund is to maximize real long-term total returnthrough a combination of interest income and price ap-preciation, subject to maturity and quality constraints.The Treasurer’s Office invests the Bond Fund in a diver-sified portfolio of primarily high-quality, debt securities.

At June 30, 2005, the total market value of the BondFund was $1.1 billion. U.S. Treasury securitiesconstituted 9.2%of the fund, U.S. Agency 23.8%, high-grade industrials 11.8%, financial bonds 7.6%, utility

bonds 5.1%, mortgage-backed securities 40.3% of thefund, Sovereigns 0.6% and cash 1.6%. The weightedaverage maturity of the portfolio at year-end wasapproximately 7.9 years, the weighted average duration4.4 years, and 87% of the portfolio was rated A or better.

In fiscal 2005, the Bond Fund returned 6.78%,slightly underperforming its benchmark, yetoutperforming the Morningstar Taxable Bond FundsMedian. As shown above, the Bond Fund’s long-termreturns of 8.04% and 9.05% for the 5- and 10-yearperiods have exceeded those of its Morningstar peers andits benchmark by healthy margins.

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Defined Contribution Funds

BALANCED GROWTH FUND

The Balanced Growth Fund seeks to provide long-term growth and income through a balanced portfolio ofequity and fixed income securities held within UC-managed funds. The market value of the BalancedGrowth Fund at June 30, 2005 was $904 million.

Contributions are invested according to a fixed ratio:65% Equity Fund, 30% Bond Fund and 5% TIPS Fund(see below). The fund’s asset allocation mix is more ag-gressive and deemed more suitable to long-term retire-ment goals than used in its predecessor, the Multi-AssetFund which was closed March 31, 2004. The BalancedGrowth Fund’s returns are a function of the performanceof its component funds and are likely to closely mirrorthe performance of the University of California Retire-ment Plan (UCRP).

The Fund is rebalanced periodically. This will pre-vent the three component funds from growing outsidetheir allocation percentages. The Treasurer’s Office man-ages the component funds according to the investmentobjectives and strategies of those funds.

TIPS FUND

The TIPS (Treasury Inflation-Protected Securities)Fund, started April 1, 2004, seeks to provide long-term to-tal return and inflation protection consistent with an invest-ment in U.S. Government inflation-indexed securities.

The Fund invests in inflation-protected securitiesissued by the U.S. Government. Inflation-indexed secu-rities are designed to protect future purchasing power.The principal value is adjusted for changes in inflation,and interest is paid on the inflation-adjusted principal.

The market value of the TIPS Fund at June 30, 2005was $101 million.

INTEREST INCOME FUNDS

SAVINGS FUND

The Savings Fund, the second largest DC fund, is aninterest income fund created in July 1967. Theinvestment objective of the Savings Fund is to maximizeinterest income returns, while protecting principal, inorder to provide a safe, low-risk investment withattractive and stable returns. As such, the Savings Fund

invests 100% in government, government-guaranteed andgovernment agency securities of up to five years inmaturity. The Treasurer’s Office maximizes returns byaltering the Fund’s maturity structure in different yieldcurve environments.

The Savings Fund totaled $3.1 billion at June 30, 2005,and was invested 100% in AAA-rated U.S. Treasury andfederal agency securities. The weighted average maturity ofthe Savings Fund was 1.5 years at June 30, 2005.

The Savings Fund has historically provided anincome return greater than that of 2-year U.S. TreasuryNote income. In fiscal 2005, the Savings Fund generatedan income return of 3.79%, exceeding the 2.99% incomereturn on 2-year U.S. Treasury Notes. During the past 10years the Savings Fund generated an average incomereturn of 5.50% versus 4.42% on 2-year U.S. TreasuryNote income.

INSURANCE COMPANY CONTRACT FUND

The Regents approved the Insurance CompanyContract (ICC) Fund as an investment option inSeptember 1985. The investment objective of the ICCFund is to maximize interest income return whileprotecting principal. The Treasurer’s Office investscontributions to the ICC Fund in insurance companycontracts offered by select, highly rated, financiallysound insurance companies. Under such contracts, theinsurance companies guarantee a fixed annual rate ofinterest for a specified time period and the repayment ofprincipal at the end of that time period. The contractsare backed by the assets of the insurance companies, andICC Fund participants receive the blended rate of allcontracts in the fund. The Treasurer’s Office usesstaggered maturities to systematically manage thereinvestment of maturing contracts and to provide returnstability.

At June 30, 2005, the ICC Fund totaled $706million, with a weighted average maturity of 3.7 years.Since inception, the ICC Fund has generated incomereturns that have exceeded those of 5-year U.S. TreasuryNote income by a comfortable margin. In fiscal 2005, theICC Fund generated a 5.09% income return versus 3.72%on 5-year U.S. Treasury Note income and during the past10 years generated a 6.79% income return compared to4.97% on 5-year U.S. Treasury Note income.

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RETIREE PROFILE

Hugh Pates’ 231/2 year career at the University of California San Diego waslaunched by his being in the right place at the right time. His wife had been hired asthe Assistant Resident Dean at Revelle College at UCSD. They lived on campus andHugh was finishing his doctorate. He recalls, “One day the Provost, Paul Saltman Ph.D,asked if I would be interested in doing some counseling for students during theevening hours. That part time experience became a full time job after I completed mystudies. For me, it was a match made in heaven.”

Like most young people in their first job, Hugh wasn’t initially aware of all thebenefits available to him as a UC employee, but he learned of them over time. Whenthe government introduced IRA plans and then the University introduced a 403(b)plan, he was ready to plan for his retirement and began making monthly contributions toboth an IRA and a 403(b) account. Open to learning, he credits many sources which helpedhim along the way. He attended retirement seminars and benefits fairs sponsored by UCSDand read about the financial markets and investment opportunities. Early on in his career aco-worker encouraged him to invest in San Diego real estate. He also gained insight from afinancial advisor, and he credits his wife of 37 years with providing conservative andcautious advice about the utilization of their assets.

Hugh had two dreams for his career: 1) to find each day rewarding and enjoyable atwork; and 2) to be able to retire early in order to devote more time to his family and totravel. As for the first dream, Hugh enjoyed his daily contact, interactions and experienceswith UCSD students. “I also had the privilege of working with and for some of the mostcaring, gracious and devoted people in my life's experience,” he reminisces. As for hissecond dream, his regular contributions to his IRA and 403(b), along with his real estateinvestments and the UC's VERIP III (Voluntary Early Retirement Incentive Program)provided income Hugh felt was sufficient to sustain him and his family for the rest of hislife. Hugh retired at 58, opting to receive a monthly distribution citing, “I had more faith inthe University than any other investment I could make with a lump sum payout.”

Retirement is busy and rewarding with Hugh's activities benefiting both his family andthe community. He has served as President of the UCSD Retirement Association, BoardMember and Chair of the Council of the University of California Retirees Association, BoardMember and President of the San Diego Psychological Association, Board Member of theCalifornia Psychological Association, Member of the Citizens Review Board, President ofUniversity City Community Association, and he devotes one day a week in consultationwith Geriatric Patients in Skilled Nursing Facilities. In addition, he attends many of hisgrandchildren's varied activities and takes them to events in and around San Diego. He is acofounder of the UC Retirees Travel group and together, the group has taken journeysthrough the Panama Canal, down the Danube River, into the Scandinavian Countries andRussia and most recently, toured Australia, New Zealand and Fiji.

Hugh is currently planning for a family reunion next summer and notes that there arestill several countries he has not yet been able to visit. What is his secret to tackling such anactive agenda? “I believe being involved in a regular exercise program which has allowedme to be very healthy, having great friends and family with whom to enjoy my time, andhaving a positive attitude about life and its challenges, has allowed me to live a very happyand productive life in retirement,” he replies.

His advice to current UC employees is straightforward, “Invest as much as possible in your403(b) plan, enjoy the opportunities to interact with the students, and take as much advantageas possible of the wonderful educational and cultural activities offered by each campus.”

We wish to acknowledge the help of the UCOP Human Resources staff in preparing this information.

Hugh Pates, Ph.D.

San Diego, CA

Retired

Clinical Psychologist

231/2 years withthe University ofCaliforniaSan Diego

PAGE 32

This Treasurer’s Annual Report 2004-2005 is unaudited, however these investments are includedin the following audited financial statements of the University of California: The University of CaliforniaAnnual Financial Report 2004-2005 (available on the internet at www.ucop.edu/ucophome/busfin/reports.html), The University of California Defined Contribution Plan and Tax-Deferred 403(b) Plan2004-2005, and The University of California Retirement Plan 2004-2005 (both available on the internetat http://atyourservice.ucop.edu/forms_pubs/categorical/annual_reports.html).

You may contact us in writing at the University of California, Office of the Treasurer,P.O. Box 24000, Oakland, CA 94623-1000

www.ucop.edu/treasurer Email treas.regents@ucop.edu

INTERNET LINKS OF INTEREST

UC-Managed Funds

UCRP Benefit Information: http://atyourservice.ucop.edu/

UC Retirement Savings Program including 403(b), 457(b) and DC Plan Information:https://netbenefits.fidelity.com/

GEP Investment Policy: http://www.ucop.edu/treasurer/invpol/GEP%20policy.pdf

UCRP Investment Policy: http://www.ucop.edu/treasurer/invpol/UCRP%20policy.pdf

Regents’ Committee on Investments/Investment Advisory Committee

Schedule and Agendas: www.universityofcalifornia.edu/regents/meeting.html

UC News

UC Newsroom: http://www.universityofcalifornia.edu/news/welcome.html

UC Human Resources and Benefits News: http://atyourservice.ucop.edu/

UC Office of the Treasurer News: http://www.ucop.edu/treasurer/updates/welcome.html

PAGE 32

THE REGENTS OF THE UNIVERSITY OF CALIFORNIAJune 2005

The University of California is governed by The Regents, a 26-member board, as established under ArticleIX, Section 9 of the California Constitution. The Treasurer of The Regents is responsible for managing theinvestments and cash for the University of California System. The Treasurer’s Office carries out these activitiesunder the policies established by the Investment Committee of The Regents of the University of California.

OFFICERS OF THE REGENTS The Honorable Arnold Schwarzenegger, PresidentGerald L. Parsky, ChairmanRichard C. Blum, Vice ChairmanJames E. Holst, General Counsel and Vice President for Legal AffairsLeigh Trivette, SecretaryDavid H. Russ, Treasurer and Vice President for Investments

EX OFFICIO REGENTS The Honorable Arnold Schwarzenegger, Governor of CaliforniaCruz M. Bustamante, Lieutenant GovernorFabian Núñez, Speaker of the AssemblyJack O’Connell, State Superintendent of Public InstructionMark F. Ornellas, President of the Alumni Associations of the University of CaliforniaGary D. Novack, Vice President of the Alumni Associations of the University of CaliforniaRobert C. Dynes, President of the University of California

APPOINTED REGENTS Jodi Anderson, Student Regent George M. MarcusRichard C. Blum John J. MooresJudith L. Hopkinson Gerald L. ParskyOdessa P. Johnson Norman J. PattizJoanne C. Kozberg Peter PreussSherry L. Lansing Fred RuizDavid S. Lee Tom SaylesMonica C. Lozano Paul Wachter

FACULTY REPRESENTATIVES George Blumenthal Clifford Brunk

REGENTS-DESIGNATE Eric Juline Richard E. Rominger

COMMITTEE ON INVESTMENTS Jodi Anderson, Student Regent Norman J. Pattiz, Vice ChairRichard C. Blum Peter PreussDavid S. Lee, Chair Paul WachterMark F. Ornellas

Ex Officio Members:The Honorable Arnold Schwarzenegger John J. MooresRobert C. Dynes Gerald L. Parsky

Advisory Member:George Blumenthal

ALTERNATIVE INVESTMENTS

Private EquityNeetesh Kumar, MBA, MS Investment OfficerBrett Johnson, MBA Investment OfficerLeslie Watson, BA Analyst

Absolute ReturnLynda Choi, MBA Investment Officer

EXTERNALLY-MANAGED INVESTMENTS

Steven Algert, CFA, MPPM Investment OfficerBurton Yuen, MBA Investment Officer

FIXED INCOME INVESTMENTS

Linda Fried, BA Senior Portfolio Manager, Credit SectorDavid Schroeder, BA Senior Portfolio Manager, Governments SectorSatish Swamy, CFA, MBA Senior Portfolio Manager, Collateralized SectorAlice Yee, MBA Senior Portfolio Manager, Short-Term SecuritiesAaron Staines, BA Junior Portfolio ManagerKim Evans, MBA Head of Credit AnalysisOmar Sanders, CFA, MBA Senior Credit Analyst

INVESTMENT RISK MANAGEMENT

Aileen Liu, MS Assistant DirectorAlicia Boice, CFA, BS AnalystMichael John, BS Analyst

OPERATIONS

Robert Yastishak, Director Brian Hagland Marjan Shomali Allen WooPaula Ferreira, Supervisor Jan Kehoe, Assistant Director Michael StrachFloyd Gazaway, Jr. Khaleelah Muhammad Pu Wang-Fackler

INFORMATION SYSTEMS

Michael Comstock

COMMUNICATIONS

Susan Rossi, Director Alison Johnson

BUSINESS MANAGEMENT

Nelson Chiu, Manager William Byrd

ADMINISTRATIVE STAFF

Gayle Tapscott, Manager Kristina Chow Claudia Green Barbaretta MorrisGay Adams Milkah Cunningham Joyce Lewis Ruth WelchElizabeth Agbayani

OFFICE OF THE TREASURERJune 2005

David H. Russ, MA – Treasurer and Vice President for Investments

Melvin L. Stanton, MBA – The Assistant TreasurerRandolph E. Wedding, MBA – Managing Director – Fixed Income Investments

Marie N. Berggren, MS – Managing Director – Alternative Investments

Jesse L. Phillips, CFA, MBA, MA – Managing Director – Investment Risk ManagementRobert B. Blagden, MBA – Managing Director – Externally-Managed Investments

Effective July 8, 2005 Mr. Russ left the University of California for a position as Chief Investment Officer at Dartmouth Collegeand The Board of Regents named Marie N. Berggren as Interim Treasurer and Interim Vice President for Investments.