INTRODUCTORY SECTION
I am pleased to present the Los Angeles County Employees Retirement Association (LACERA) Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008. This report is intended to provide a detailed review of the association's financial, actuarial, and investment status.

Gregg Rademacher Chief Executive Officer

LACERA has the duty and authority to administer defined retirement plan benefits for the employees of Los Angeles County and participating agencies. It is our mission to produce, protect, and provide the promised benefits to our members and their beneficiaries. In the course of fulfilling that mission, we provide extensive customer services to over 158,000 members, including more than 52,000 benefit recipients.

By maintaining a prudent, diversified, and forward-thinking investment strategy, we remain strategically positioned to weather rough economic storms and remain financially sound. LACERA's vision for the future includes the long-term objectives of maximizing investment assets and achieving and maintaining a fully funded status for the pension fund. By balancing the importance of preserving capital with prudent investment risks, the diversification of our portfolio reflects our deep commitment to serving the best interests of LACERA's members and beneficiaries.

FINANCIAL INFORMATION
Internal Control
The financial attest audit performed by Brown Armstrong CPAs states that LACERA's financial statements are presented in conformity with generally accepted accounting principles and are free of material misstatement. Maintaining appropriate internal controls and the financial statement presentation are the responsibility of management, with oversight by LACERA's Internal Audit Services staff and LACERA's Audit Committee, which is comprised of members of the Boards of Retirement and Investments.

Analysis
An overview of LACERA's fiscal operations is presented in the Management's Discussion and Analysis (MD&A) preceding the financial statements. This transmittal letter, when taken into consideration with the MD&A, provides an enhanced picture of the activities of the organization.

INVESTMENT ACTIVITIES
The Board of Investments adopted an Investment Policy Statement that provides a framework for the management of LACERA's investments. This Statement established LACERA's investment policies and objectives and defines the principal duties of the Board, the investment staff, investment managers, master custodian, and consultants.

A pension fund's strategic asset allocation policy, implemented in a consistent and disciplined manner, is generally recognized to have the most impact on a fund's investment performance. The asset allocation process determines a fund's optimal long-term asset class mix (target allocation), which is expected to achieve a specific set of investment objectives. LACERA's strategic asset allocation targets are long-term by design because of the illiquidity of certain asset classes such as Private Equity, Real Estate, and the fund's long-term investment horizon.

This fiscal year marked the end of LACERA's five-year string of positive total fund returns. Given current market volatility and the challenging economic climate, the strong returns previously earned were not sustainable. The total fund returned a negative 1.4 percent. However, LACERA's five-year annualized return is still a positive 11.2 percent, net of fees.

ACTUARIAL FUNDING STATUS
Pursuant to provisions in the CERL, LACERA engages an independent actuarial firm to perform annual actuarial valuations. A system actuarial valuation is performed every three years (triennial valuation). The economic and non-economic assumptions are updated at the time each triennial valuation is performed. Triennial valuations serve as the basis for changes in member contribution rates necessary to properly fund the system. LACERA also hires an independent actuarial firm to audit the results of each triennial valuation. A triennial valuation was conducted as of June 30, 2007.

LACERA is funded by member and employer contributions, and investment earnings on those contributions. Normal member contributions are those required to fund a specific annuity at a specified age. Member contribution rates vary according to the member's plan and age at first membership. The CERL also requires members to pay half the contributions required to fund the cost-of-living benefit, which is affected by changes in both economic and non-economic assumptions.

Liabilities not funded through member contributions are the responsibility of the employer. Changes in any of the economic and non-economic assumptions impact employer contribution rates. The employer is responsible for contributing to cover the cost of benefits expected to be accrued in the future and half of the cost-of-living benefit. These are called normal cost contributions. The employer is also responsible for making additional contributions to eliminate any shortfalls in funding covering liabilities that have accrued in the past, which is known as the Unfunded Actuarial Accrued Liability (UAAL).

On June 4, 2002, LACERA and the County entered into a Retirement Benefits Enhancement Agreement (Agreement) that enhanced retirement benefits and implemented an interim, short-term funding policy that is in effect through the June 30, 2008 valuation. Under the Agreement, employer contribution rates are adjusted annually following completion of an actuarial valuation.

The June 30, 2007 valuation, determining the funding ratio to be 93.8 percent, recognized an Unfunded Actuarial Accrued Liability (UAAL) of $2.46 billion. The County contribution rate was therefore set equal to 2.24 percent of payroll for the amortization of the UAAL over an open 30-year period, plus the normal cost rate of 10.16 percent, for a total contribution rate of 12.40 percent of payroll.