TO RETIREMENT ASSOCIATION MEMBERS

I am pleased to provide you with the Annual Report of the Stanislaus County Employees Retirement Association (StanCERA) for the fiscal year ended June 30, 2003.

StanCERA remains very healthy despite several years of down financial markets. Investments for the year returned 5.6% and outperformed the policy benchmark by over 2%. Total asset of the fund were $963 million.

The Board of Retirement made changes to the interest crediting policy during the fiscal year by changing to a market rate driven interest member crediting policy. The benchmark interest rate paid to members\' accounts is now driven by the prior years earnings with a minimum rate of .25% and a maximum rate of 8%. Based on the prior year returns, interest of .125% semiannually is being credited to members\' accounts as of June 30, 2003. Despite the lower than expected returns for the past three years, StanCERA expects an 8% average annual return over the long term.

The fund provided $43 million is retirement benefits during the year consisting of $37 million in regular retirement benefits and $6 million in supplemental, non-vested benefits. The supplemental benefits provided a substantial offset for the cost of health insurance for our retired members and their beneficiaries during the year. Administrative expenses amounted to $1.1 million or .12% of assets.

StanCERA\'s independent auditor, Brown Armstrong, has audited the financial statements and provided an opinion that the financial statements present fairly, in all material respects, the financial position of StanCERA for the years ended June 30, 2003 and 2002, and the results of its operations for the years then ended in accordance with generally accepted accounting principals. A complete Comprehensive Annual Financial Report (CAFR) can be located on StanCERA\'s website.

Robert Harmon, Administrator

STATISTICS