FINANCIAL SECTION

Management’s Discussion and Analysis (continued)

FINANCIAL ANALYSIS

System total assets as of September 30, 2008, were $47.1 billion and were mostly comprised of cash, investments, and
contributions due from employers. Total assets decreased $12.6 billion or (21.1)% between fiscal years 2007 and 2008
due to net investment losses. Total assets increased $9.3 billion or 18.5% between fiscal years 2006 and 2007 primarily
due to increased investment earnings and contributions exceeding deductions.

Total liabilities as of September 30, 2008, were $7.2 billion and were mostly comprised of warrants outstanding,
accounts payable, and obligations under securities lending. Total liabilities decreased $3.4 billion or (31.9)% between
fiscal years 2007 and 2008 due to decreased obligations under securities lending. Total liabilities increased $3.8 billion
or 56.2% between fiscal year 2006 and fiscal year 2007 primarily due to an increase in obligations under securities
lending.

System assets exceeded its liabilities at the close of fiscal year 2008 by $39.9 billion. Total net assets held in trust for
pension and OPEB benefits decreased $9.2 billion or (18.8)% from the previous year, primarily due to net investment
losses. This compares to fiscal year 2007, when net assets increased by $5.5 billion or 12.6% from the prior year.

Net Assets
(in thousands)

Increase/ Increase/
2008 (Decrease) 2007 (Decrease) 2006
Assets
Cash $ 580,659 428.1 % $ 109,955 34.7 % $ 81,655
Receivables 436,109 (14.3) 508,718 (10.6) 569,167
Investments 46,116,456 (22.0) 59,142,263 18.8 49,775,568
Total Assets 47,133,224 (21.1) 59,760,936 18.5 50,426,390

Liabilities
Warrants outstanding 6,425 (23.4) 8,388 45.0 5,785
Accounts payable and
other accrued liabilities 238,068 (20.5) 299,464 259.3 83,339
Obligations under
securities lending 6,990,909 (32.2) 10,313,816 53.7 6,711,645
Total Liabilities 7,235,402 (31.9) 10,621,668 56.2 6,800,769
Total Net Assets $ 39,897,822 (18.8) % $ 49,139,268 12.6 % $ 43,625,621
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MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM • 19