Board of Regents, State of Iowa

1. Board of Regents, State of Iowa First Quarter 2001 Performance Review Mark E. Brubaker, CFA Vice President Marc E. Friedberg Senior Associate Paul M. Jakubowicz Analyst

2. Capital Market Review First Quarter 2001 Performance Review

3. US Stock Market Small stock performance delivered mixed signals during the first quarter. The Russell 2000 Index fell 6.5%, far ahead of the 11.9% loss in the S&P 500 Index. However, the Wilshire 4500 Index, which includes all stocks except S&P 500 issues, fell 15.9% for the quarter, a more significant decline than that of the S&P 500 Index. The surprising difference in quarterly returns between the Russell 2000 and Wilshire 4500 small stock indexes is explained by the poor performance from the largest 500 stocks in the Wilshire 4500 Index. These “mid cap” stocks are not included in the Russell 2000 Index and are comprised of many formerly highly valued technology issues. The S&P 500 Index lost 11.9% in the first quarter, caused largely by continuing down turn in technology stocks. A quarterly drop of such magnitude has occurred six other times during the post-war period – roughly once per decade – as illustrated in the following table. Growth stocks continue to bear the brunt of the market downturn due to their emphasis on technology stocks. The Wilshire Large Growth Index fell 23.3% during the first quarter, while the Wilshire Large Value Index declined a more modest 5.7%. Continuing a similar trend in 2000, value stocks reclaimed an equal performance footing with growth stocks during the quarter and now show superior returns over the five-year period ending March 31, 2001. Value stocks were helped most by comparatively strong returns from the utility and transportation sectors, returning -1.0% and 0.7%, respectively.

4. European and Asian Stock Markets Bond Market Fixed income performed well during the first quarter. The Lehman Aggregate Index returned 3.0% for the quarter, led by a rebound in corporate bonds. The Lehman Credit Index returned 4.3% for the quarter. Treasuries – which led the market in 2000 – cooled off, as the Lehman Long Treasury Index returned 1.4%, close to its expected return. High yield bonds earned the highest returns as yield spreads came off near historic highs. The Salomon High Yield Bond Index rose 6.0%. High yield bonds continue to offer strong long term performance, returning 2.0% per year over the Lehman Aggregate Index over the last 10 years. Treasury Inflation Protection Bonds (“TIPS”) performed surprisingly well with a 4.8% return for the quarter. The non-U.S. stock markets also moved sharply downward during the first quarter. The Morgan Stanley ACWI x US Index, comprised of all developed and emerging stock markets except the U.S., fell 13.2%. The price declines were spread across both Europe and the Pacific region, with the MSCI Europe Index falling 15.5% and the MSCI Pacific Index losing 9.1%. The emerging markets, which were hit particularly hard in 2000, fared slightly better than the developed markets, with the MSCI Emerging Markets Free Index declining 5.4% during the quarter. The non-U.S. markets were again hurt by a strengthening U.S. dollar during the first quarter. The dollar rose 5% to 10% against other major currencies.

5. Market Review (Periods Ended 3/31/01) Major Asset Class Returns Risk versus Return ( 3/31/81 - 3/31/91) Risk versus Return ( 3/31/91 - 3/31/01)

6. 1.60 10.0 1.40 1.20 0.0 1.00 0.80 -10.0 0.60 0.40 Jun 1991 Sep 1992 Dec 1993 Mar 1995 Jun 1996 Sep 1997 Dec 1998 Mar 2000 20.0 1.40 1.30 10.0 1.20 1.10 0.0 1.00 0.90 0.80 -10.0 0.70 0.60 -20.0 0.50 Jun 1991 Sep 1992 Dec 1993 Mar 1995 Jun 1996 Sep 1997 Dec 1998 Mar 2000 Domestic Equity Markets (Periods Ended 3/31/01) US Equity Returns Small Cap vs. Large Cap Quarterly Returns <--Small Favored--Large Favored--> Value vs. Growth Stocks Quarterly Returns Wilshire 5000 Quarterly Sector Returns <--Value Favored--Growth Favored-->

7. Fixed Income (Periods Ended 3/31/01) Fixed Income Treasury Yield Curve Yield Spread To Treasuries

8. International Equity Markets (Periods Ended 3/31/01) International Index Returns MSCI EAFE Index Quarterly Returns in USD Country Country Weightings

9. Total Fund Results (Periods Ended 3/31/01) Iowa State University Endowment Investment Performance Asset Allocation vs. Policy Quarter Results ($’000) • The Iowa State Endowment assets totaled $90.7 million at the close of the first quarter • During the quarter, investment losses totaled $5.4 million • Total contributions were $92,000 • Total fees and distributions were $1.5 million • The Endowment fund returned -5.6% for the first quarter, outperforming the benchmark by 1.9%

10. Total Fund Results (Periods Ended 3/31/01) The University of Iowa Endowment Investment Performance Asset Allocation vs. Policy Quarter Results ($’000) • The University of Iowa Endowment assets totaled $85 million at the close of the first quarter • During the quarter, investment losses totaled $5 million • Net contributions totaled $1.7 million • Net distributions and fees totaled $2.7 million • The Endowment fund returned -5.5% for the first quarter, outperforming the benchmark by 2%

11. Total Fund Results (Periods Ended 3/31/01) University of Iowa Quasi-Endowment Investment Performance Asset Allocation Quarter Results ($’000) • The Quasi Endowment portfolio returned 0.6% during the first quarter • The Quasi total fund has total assets of $109.2 million • Net contributions of $11.6 million • Net Distribution and fees totaled $4.3 million • The Quasi fund had investment gains of $683,000

12. Quasi Endowment Review (Periods ended 3/31/2001) Quasi I -- Invesco Balanced Composite Quasi II -- Invesco Fixed Income Composite

13. Domestic Equity Composite Review (Periods Ended 3/31/01) Manager Structure Style Map

14. Domestic Equity Review-- Seneca Capital Management Iowa State University -- Value Added (Vs. Wilshire Mid Cap Growth) University of Iowa -- Value Added (Vs. Wilshire Mid Cap Growth) Attribution • Sector weighting primarily contributed to this outperformance. • Stock selection within the Energy sector contributed highly to the outperformance • Stock selection with in the Technology sector detracted from the performance.

15. International Equity Review (Periods ended 3/31/2001) University of Iowa -- Manager Structure Iowa State University -- Manager Structure Value Added Value Added

16. International Equity Review-- Sanford Bernstein Iowa State University -- Value Added (Vs. MSCI EAFE (N)) University of Iowa -- Value Added (Vs. MSCI EAFE (N)) Attribution • Sanford Bernstein outperformed the benchmark the first quarter. • Stock selections contributed mostly to this performance. • Stock selections with in the United Kingdom had the largest positive effect, while selections in Italy had the most negative effect.

17. Balanced Composite Review (Periods Ended 3/31/01) Iowa State University -- Manager Structure University of Iowa--Manager Structure

18. Balanced Composite Review -- Invesco Equity University of Iowa -- Value Added (S&P 500) Iowa State University -- Value Added (S&P 500) Attribution • The equity component of the balanced composite outperformed the benchmark during the first quarter • Sector selection and stock selection primarily contributed to this outperformance • Stock selections within the Technology sectors contributed the most to the outperformance • Stock selection within the Capital Goods sector detracted from the performance

19. Balanced Composite Review -- Invesco Fixed Income University of Iowa -- Value Added (Vs. Lehman Gov/Corp) Iowa State University -- Value Added (Vs. Lehman Gov/Corp) Attribution • The Invesco Fixed Income portion of the balanced composite closely tracked the benchmark in the first quarter • Sector / Issue selection was the main contributor while interest rate anticipation and trading detracted.