1. The evaluation process begins with a comprehensive database of all pending class actions in which CalPERS is a class member. The Investor Responsibility Support Services, Inc. ("IRSS")¹ tracks all securities class actions filed for CalPERS.
2. After IRSS initially identifies each class action, IRSS examines CalPERS' trading activity to determine if the System has any "recognized damages".²
3. The IRSS database identifies the amount of CalPERS' recognized damages for all securities class actions.
4. Legal support staff reviews weekly CalPERS' recognized damages on the IRSS website and provides a report to a CalPERS staff counsel for all class actions where CalPERS recognized damages is $2 million or more. The report would provide the following:

1. Copies of all relevant newspaper articles.
2. Complaints, if available.
3. Losses and damages figures from IRSS.
4. Buys and sells during the class period.
5. Other information regarding the case available from IRSS including class period, venue, case number, defendants, and law firms.
6. Stock price history.
7. Whether there is any interest in the issuer by CalPERS Investment Staff, specifically the Corporate Governance Unit, Global Equities, and/or Fixed Income.
8. Whether any fixed income securities of the issuer are owned by CalPERS that may have been affected by the allegations in the securities action.
9. A note whether any complaint or counsel press release mentions a Section 11 claim or any claims based on fixed income securities.
10. Whether the company is in bankruptcy.
11. A recommendation whether further action should be taken based on the three questions from the investment memo discussed earlier and repeated here:

1. Are our potential damages large enough to warrant the expenditure of staff/counsel time that would be required for active involvement in the case?
2. Who are the other institutional investors in the class? Are they likely to become actively involved?
3. Most importantly: Would CalPERS' active involvement add value to the potential settlement (or, for cases with questionable merit, resolve the case in the most efficient manner)?

5. CalPERS staff counsel review support staff's analysis and with a focus on the last three questions as well as a qualitative analysis of the case and CalPERS' damages makes a recommendation to the General Counsel whether to take further action.
6. If agreed to by the General Counsel, further action would consist of CalPERS retaining outside counsel to make a recommendation to CalPERS whether it should pursue lead plaintiff, monitor the case, or take other action. CalPERS currently contracts with a pool of outside counsel that may serve as "litigation consultant" in a particular case. To ensure complete objectivity, outside counsel consulting on a particular case is ineligible to serve as litigation counsel for the same case.
7. In the event in-house counsel and investment staff, with the input of the litigation consultant, agree that CalPERS should seek lead plaintiff status or file a separate action, staff shall seek Investment Committee approval. ( A decision to monitor would not need to be approved by the Investment Committee.)
8. Contemporaneously with seeking Investment Committee approval, or if time allows, after the Investment Committee's approval, CalPERS staff will ask for a strategy memorandum and a proposed billing structure from the pool of securities counsel that has been assembled by CalPERS. After reviewing the strategy memorandums and the proposed bill structures, CalPERS General Counsel will select a law firm to represent CalPERS.

¹IRSS is a web-based service and company run independent of any securities litigation law firms.

²Recognized Damages = Recognized Losses - Realized Profits . Recognized Losses = Realized Losses + Unrealized Losses (capped at PSLRA limit ). Realized Losses : Losses on sales of shares acquired during the class period and sold after the class period, calculated on a first in, first out basis. Unrealized Losses : Losses are calculated for those shares acquired during the class period and still held. The current value of the shares is netted against their purchase cost on a first in, first out basis. However the PSLRA requires that an average share price be calculated based on closing prices during the 90 days following the end of the class period, and Unrealized Losses can be claimed only up to the losses calculated using that share"price." Realized Profits: The sum of profits realized on the sale during the class period of shares held at the start of the class period, calculated on a first in, first out basis.