QUARTERLY INVESTMENT REPORT. Houston Independent School District As of September 30, 2007

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1 QUARTERLY INVESTMENT REPORT Houston Independent School District As of September 30, 2007

2 HOUSTON INDEPENDENT SCHOOL DISTRICT HATTIE MAE WHITE EDUCATION/SUPPORT CENTER 4400 WEST 18 th STREET, HOUSTON, TEXAS BOARD OF EDUCATION Manuel Rodríguez, Jr., PRESIDENT Harvin C. Moore, FIRST VICE PRESIDENT Greg Meyers, SECOND VICE PRESIDENT Arthur M. Gaines, Jr., SECRETARY Diana Dávila Kevin H. Hoffman Dianne Johnson Natasha M. Kamrani Lawrence Marshall Abelardo Saavedra SUPERINTENDENT OF SCHOOLS Melinda Garrett CHIEF FINANCIAL OFFICER Kenneth Huewitt CONTROLLER Rick Fairman TREASURER

3 FOREWORD Under the Public Funds Investment Act (PFIA), governmental units are required to have Board approved investment policies, investment portfolios limited to only o those investments specifically authorized by law, and quarterly reports submitted to the governing body which disclose both the book and market values of investments held. The Houston Independent School District is in compliance with the e PFIA. All investments purchased meet the three basic tenets included in the District s investment policy in descending order of priority investment safety, liquidity, and yield. The dayto today management of the District s cash and investment position is the responsibility of the Chief Financial Officer, the Controller, and the Treasurer, who have all been designated by the Board as the District s investment officers.

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5 TABLE OF CONTENTS Page I. Compliance certification Compliance certification 1 Quarterly compliance review 2 2. Investment priorities 3 Current Investment vehicles 4 List of allowable investments 5 Portfolio Compliance District Limits 6 Portfolio Compliance Issuer Limits 7 Portfolio composition graph 8 Maturity schedule 9 Maturity schedule graph 10 Illustrative fund cash flow graph 11 Current investment environment 12 Yield benchmarks 13 Shortterm term benchmark graph 14 Longterm benchmark graph 15 Year To Date interest earned graph 16 Total earnings graph Portfolio Reports 18 Summary report 19 Balances by fund 20 Portfolio Inventory Report Appendices Individual pool information 2533 Agency investments 34 Registered broker/dealers 35 Investment Advisory Committee 36 Glossary 37

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7 COMPLIANCE CERTIFICATION We hereby certify that the Quarterly Investment Report represents esents the investment position of the District as of September 30, 2007 and that all investments were purchased in compliance with the Boardapproved approved Cash Management and Investment Policy. Melinda Garrett Chief Financial Officer Kenneth Huewitt Controller Rick Fairman Treasurer 1

8 Training Investments Standard of care Collateral pledges Ratings Internal Management Reports Quarterly Compliance Review Category Cash Management & Investment Policy Distribution to Brokers/Financial Entities Returned acknowledgements Investment Officers & Administrators Eligibility, gifts & contributions As of September 30, 2007 Houston ISD Compliance Summary Compliant Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Signed affidavits on file = 20 Comments Approved by Board of Education as revised on 06/30/2007 Distribution for fiscal year = 30 Approved by Board of Education 12/14/2006. Treasurer, Controller, and CFO completed 10 hours during the fiscal years ended and Annual contracts and reports maintained by Human Resources As authorized by Public Funds Investment Act and Cash Management & Investment Policy Objectives of investment consistently exceeded or met Minimum of 110% maintained As required by Public Funds Investment Act and Cash Management & Investment Policy Quarterly Investment Reports approved and retained by Board of Education 2

9 INVESTMENT PRIORITIES Houston Independent School District investments are guided by three priorities in declining order of priority: Safety Insuring the return of principle invested, credit risk is minimized by investing in highly rated investment as defined in the District s investment nt policy and the Public Funds Investment Act. Monitoring safety factors includes limiting exposure to concentration of credit risk, interest rate risk, and event risk. Liquidity Yield Insuring that funds are available when needed for expenditures. Attaining a reasonable rate of return in order to further District goals while not taking speculative risks. 3

10 SAFETY CURRENT INVESTMENT VEHICLES U.S. Agency Securities U.S. Agency securities are purchased directly by the District from investment brokerage firms registered to do business with the District. These securities are issued in the t District s name, cleared through the Federal Reserve Bank system, and held in safekeeping by JPMorgan Chase Bank, NA. Certificates of Deposit (CDs) Certificate of deposit are negotiable certificates in denominations ons of $10,000 or more. They are issued by commercial banks against funds deposited for specified periods and a earn specified rates of interest. Lone Star Investment Pool (LSIP) The LSIP is a public funds investment pool administered by the Texas T Association of School Boards with investment advisory services by Standish Mellon and American Beacon Advisors. TexPool TexPool is a public fund investment pool administered by the State Comptroller s Office and managed by Lehman Brothers and Federated Investors. TexSTAR TexSTAR is a public fund investment pool administered by First Southwest t Asset Management, Inc. and JPMorgan Fleming Asset Management (USA), Inc. 4

11 SAFETY ALLOWABLE INVESTMENTS In order to minimize credit risk the District has defined the types of allowable investments in the Cash Management and Investment Policy. The District has additionally placed limits on the percentage of Investment types and issuers in order to reduce concentration of credit risk. INVESTMENT TYPE DISTRICT LIMIT ISSUER LIMIT U.S. Government Securities 100% 100% Investment Pools * 100% 40% U.S. Agency Securities 80% 40% Certificates of Deposit 50% 10% Commercial Paper 30% 5% Municipal Securities 20% 5% Money Market Mutual Funds 15% 5% Mutual Funds 15% 5% Repurchase Agreements 8% 8% Money Market Accounts 7% 7% *Investments in any pool additionally will be limited to 25% of the Net Asset Value of the pool. 5

12 SAFETY PORTFOLIO COMPLIANCE DISTRICT LIMITS Holdings as of September 30, 2007 Compliance Limit Portfolio Holdings 100% 80% 60% 40% 20% 0% Investm ent Pools U.S. Agency Securities Certificates of Deposit Com pliance Lim it % % 80.00% Portfolio Holdings 66.95% 32.99% 0.06% 6

13 SAFETY PORTFOLIO COMPLIANCE ISSUER LIMITS Holdings as of September 30, 2007 Compliance Limit Portfolio Holdings 40% 30% 20% 10% 0% Lone Star TexPool TexStar FHLB FHLMC FNMA FFCB Certificates of Deposit Com pliance Lim it 40.00% 40.00% 40.00% 40.00% 40.00% 40.00% 40.00% 10.00% Portfolio Holdings 34.61% 24.37% 7.97% 16.60% 6.87% 4.83% 4.69% 0.06% 7

14 SAFETY PORTFOLIO COMPOSITION ALL FUNDS BY INVESTMENT TYPE As of September 30, 2007 *Excludes Certificates of Deposits w hich is 0.06% TEXSTAR 7.97% FFCB 3.73% FFCB DN 0.96% TEXPOOL 24.37% FHLB 16.60% LONE STAR 34.61% FNMA 4.83% FHLMC DN 1.95% FHLMC 4.92% 8

15 LIQUIDITY MATURITY SCHEDULE As of September 30, 2007, approximately 75.49% of the District s investments will mature within three months, 0.00% within three to six months, 3.65% within six months to one year, 18.39% within one to three years, and 2.47% will mature from three to five years. Shortterm cash requirements are maintained through money market accounts with the Lone Star Investment Pool, TexPool, and TexSTAR. The monthly and daily cash flow projections used by investment officers show the amount of funds that will be needed for any given time period. Investments are purchased to meet the cash flow needs of the District. Maturity Range Amount Percent of Total Less than 3 months $763,807, % Greater than 3 months less than 6 months 0.00% Greater than 6 months less than 1 year $36,952, % Greater than 1 year less than 3 years $186,020, % Greater than 3 years less than 5 years $25,015, % Total $1,011,795, % 9

16 LIQUIDITY PORTFOLIO MATURITY SCHEDULE ALL FUNDS As of September 30, 2007 $ 763,807, % < = 3 mo. > 3 mo. < = 6 mo. > 6 mo. < = 1 yr. > 1 yr. < = 3 yrs. > 3 yrs < = 5 yrs. $ 36,952,042 $ 186,020, % 0.00% 3.65% $ 25,015, % 10

17 LIQUIDITY GENERAL FUND PORTFOLIO BALANCE $1,000,000,000 $900,000,000 $800,000,000 BALANCE $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 JUL 05 SEP 05 NOV 05 JAN 06 MAR 06 MAY 06 JUL 06 SEP 06 NOV 06 JAN 07 MAR 07 MAY 07 JUL 07 SEP 07 DATE Historical and forward cash flow projections are maintained by individual funds in order to implement investment strategies meeting cash availability needs. 11

18 YIELD CURRENT INVESTMENT ENVIRONMENT Investment markets have been extremely volatile in the quarter just j ended. In July expectations projected the Federal Reserve on hold through the end of the calendar year with potential inflationary risks offsetting stresses resulting from problems in the subprime mortgage market. August saw a liquidity crisis in certain asset backed commercial paper programs followed by significant shortterm term interest rate swings and actions by the Federal Reserve to bolster the economy. Federal Reserve moves included a decrease in the Discount Rate by 50 basis points and eventually a decrease in the Fed Funds rate of 50 basis points (1/2 of one percent). Deterioration in financial markets continued throughout September, signaling a need for further Federal Reserve action which resulted in an additional decrease of 25 basis points in the Fed Funds target rate. This was somewhat offset by continuing inflationary pressures in the background. Financial markets continue to be in disarray concerning the valuation ation of mortgage based investment vehicles. Expectations for the near future appear to lean in the direction of a wait and see by the Federal Reserve on any additional Fed Fund actions. 12

19 YIELD YIELD BENCHMARKS The Houston Independent School District utilizes two different sets of Benchmarks in evaluating investment performance. The District evaluates a set of shortterm results by comparing various investment pools. The District additionally utilizes a longer set of benchmark rates incorporating Treasury notes and bills. As of September 30, 2007, the District has made a comparison of the yields earned by the District as compared to the threemonth Treasury bill rate, Lone Star Investment, Logic, TexPool and TexSTAR. Average yields for September 30, 2007 are as follows: AVERAGE YIELDS 4 th 1 st 2 nd 3 rd 4 th 1 st QTR QTR QTR QTR QTR QTR Houston ISD 4.95% 5.30% 5.15% 5.20% 5.22% 5.23% TexPool 4.90% 5.25% 5.30% 5.30% 5.29% 5.24% TexSTAR 4.89% 5.26% 5.29% 5.29% 5.28% 5.21% Lone Star Liquidity Fund 4.94% 5.29% 5.30% 5.31% 5.31% 5.28% Logic Pool 4.91% 5.27% 5.28% 5.28% 5.26% 5.33% 3MonthTBill Avg. 4.86% 5.03% 5.03% 5.12% 4.87% 4.42% The District s portfolio for the quarter ended September 30, 2007 was earning an average yield of 5.23%. Lone Star Investment Pool s Liquidity Fund had a yield of 5.28%, TexPool had a yield of 5.24%, and TexSTAR had a yield of 5.21%. 13

20 YIELD 5.500% BENCHMARK COMPARISON Short Term Yields YIELD COMPARISONS As of September 30, % 5.250% Houston ISD 5.125% 5.000% Texpool 4.875% TexSTAR YIELD 4.750% 4.625%. Lone Star 4.500% Logic Pool 4.375% 4.250% TBill Avg 4.125% 4.000% QTD QTR QTR QTR QTR QTR

21 YIELD BENCHMARK COMPARISON Long Term Yields 5.500% 5.250% 5.000% 4.750% 4.500% % The "Structured Portfolio" is comprised of 1/3 Fed Funds, 1/ 3 1 yr T, and 1/3 2 yr T. This st ruct ure is designed to approximat e the maximum weight ed average maturity distribution of the HISD portfolio % Q T D 4 Q T D 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR Houston ISD Fed Funds 3 mo T 1 yr T 2 yr T Structured Portfolio 15

22 YIELD Year To Date Interest Earned As of September 30, 2007 $6,000,000 $5,000,000 Interest Earned YTD $4,000,000 $3,000,000 $2,000,000 General Fund Capital Projects Debt Service Health Ins Workers Comp Other $1,000,000 $0 Fund 16

23 YIELD TOTAL INVESTMENT EARNINGS QTD AND YTD COMPARATIVE PERIODS Chart 1 Chart 2 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 YTD '0506 '0607 '0708 '0506 '0607 '0708 Chart 1 displays interest earnings for each quarter in the current and two preceding years. Chart 2 displays yeartodate interest earnings as of the current quarter end for the current year and two preceding years. 17

24 PORTFOLIO REPORTS Summary Report This report shows the change in book value and market value from This report shows the change in book value and market value from the prior quarter end through the current quarter end in summary form. The report also shows accrued interest receivable by fund groups for those funds which have investments paying interest on a nonmonthly basis. Balances by Fund This report shows investment sector totals by fund. Portfolio Inventory and Transaction Report This report details each individual investment security and pool account subtotaled by fund group. Security type or pool name are detailed. Purchase and maturity dates are shown for those investments which h have a stated final maturity. The change in book and market value for each investment is shown for the period reported. Purchases and redemptions in investment pool accounts are shown on a net basis. Purchases, sales, and maturities of securities are shown on an individual i transaction basis. The final maturity (Par) value of securities are detailed. 18

25 HOUSTON INDEPENDENT SCHOOL DISTRICT SUMMARY REPORT FOR QUARTER ENDED SEPTEMBER 30, 2007 TYPE OF BOOK MARKET BOOK MARKET CHANGE IN CHANGE IN ACCRUED AGENCY VALUE VALUE VALUE VALUE BOOK MARKET INTEREST 06/30/ /30/ /30/ /30/2007 VALUE VALUE RECEIVABLE General Fund $ 516,342, $ 516,342, $ 434,112, $ 433,801, $ (82,229,403.21) $ (82,540,912.38) $ 957, Business Development $ 1,542, $ 1,542, $ 1,995, $ 1,995, $ 452, $ 452, $ Capital Projects Fund $ 320,406, $ 320,406, $ 341,401, $ 341,448, $ 20,995, $ 21,042, $ 1,925, Debt Service Fund $ 129,281, $ 129,281, $ 46,842, $ 46,644, $ (82,438,715.85) $ (82,637,132.51) $ 142, Food Service Fund $ 16,655, $ 16,655, $ 15,065, $ 15,098, $ (1,590,177.95) $ (1,557,130.73) $ 49, Workers' Compensation Fund $ 50,687, $ 50,687, $ 49,099, $ 48,769, $ (1,587,958.59) $ (1,917,720.11) $ 664, Health Insurance Fund $ 60,175, $ 60,175, $ 57,512, $ 57,063, $ (2,663,156.15) $ (3,112,634.51) $ 337, Internal Service Fund $ 5,320, $ 5,320, $ 3,495, $ 3,495, $ (1,824,745.93) $ (1,824,745.93) $ Medicaid Fund $ 12,198, $ 12,198, $ 15,048, $ 15,048, $ 2,850, $ 2,850, $ Print Shop Fund $ 4, $ 4, $ 4, $ 4, $ $ $ Special Revenue Fund $ 341, $ 341, $ 28,469, $ 28,469, $ 28,128, $ 28,128, $ Trust & Agency Funds $ 12,134, $ 12,134, $ 12,202, $ 12,202, $ 67, $ 67, $ Activity Funds $ 6,476, $ 6,476, $ 6,544, $ 6,544, $ 67, $ 67, $ TOTAL INVESTMENTS $ 1,131,566, $ 1,131,566, $ 1,011,795, $ 1,010,585, $ (119,771,475.51) $ (120,981,328.35) $ 4,076,

26 PORTFOLIO TOTALS BALANCES BY FUND As of September 30, 2007 LONE STAR INVESTMENTS INVESTMENTS CERTIFICATES AGENCY INVESTMENT IN IN OF MONEY MARKET TOTAL INVESTMENTS POOL TEXPOOL TEXSTAR DEPOSIT FUNDS PORTFOLIO General Fund $ 64,554, $ 171,930, $ 116,350, $ 80,682, $ 595, $ $ 434,112, Business Development $ $ 1,995, $ $ $ $ $ 1,995, Capital Projects Fund $ 156,252, $ 95,206, $ 89,943, $ $ $ $ 341,401, Debt Service Fund $ 20,221, $ 19,084, $ 7,537, $ $ $ $ 46,842, Food Service Fund $ 14,911, $ 127, $ 25, $ $ $ $ 15,065, Health Insurance $ 36,878, $ 13,607, $ 7,027, $ $ $ $ 57,512, Workers' Compensation $ 41,006, $ 3,031, $ 5,061, $ $ $ $ 49,099, Internal Service Fund $ $ $ 3,495, $ $ $ $ 3,495, Medicaid $ $ 10,851, $ 4,196, $ $ $ $ 15,048, Print Shop $ $ $ 4, $ $ $ $ 4, Special Revenue Fund $ $ 28,425, $ 43, $ $ $ $ 28,469, Trust & Agency Funds $ $ 1,159, $ 11,042, $ $ $ $ 12,202, Activity Funds $ $ 4,731, $ 1,812, $ $ $ $ 6,544, TOTAL INVESTMENTS $ 333,825, $ 350,152, $ 246,540, $ 80,682, $ 595, $ $ 1,011,795,

27 HOUSTON INDEPENDENT SCHOOL DISTRICT PORTFOLIO INVENTORY AND TRANSACTION REPORT FOR QUARTER ENDED SEPTEMBER 30, 2007 TYPE OF DATE OF MATURITY BOOK MARKET MATURITIES PURCHASES BOOK MARKET FINAL MATURITY AGENCY PURCHASE DATE VALUE VALUE SALES VALUE VALUE VALUE 06/30/ /30/2007 REDEMPTIONS 09/30/ /30/ /30/2007 GFGENERAL FUND Lone Star Liq + Open Open $ 63,656, $ 63,656, $ $ 20,110, $ 83,767, $ 83,767, $ 83,767, Lone Star Corp Open Open $ 127,541, $ 127,541, $ 39,378, $ $ 88,163, $ 88,163, $ 88,163, TexPool Open Open $ 1,044, $ 1,044, $ $ 20,365, $ 21,409, $ 21,409, $ 21,409, TexPool Open Open $ 11,305, $ 11,305, $ $ 149, $ 11,454, $ 11,454, $ 11,454, TexPool Prime Open Open $ 107,898, $ 107,898, $ 24,412, $ 83,485, $ 83,485, $ 83,485, TexSTAR Open Open $ 78,722, $ 78,722, $ $ 1,960, $ 80,682, $ 80,682, $ 80,682, CD METRO 30Jun07 30Jun08 $ 500, $ 500, $ $ $ 500, $ 500, $ 500, CD UNITY 31Aug07 31Aug08 $ 95, $ 95, $ $ $ 95, $ 95, $ 95, FNMA DN 25Jan07 2Jul07 $ 14,994, $ 14,994, $ 15,000, $ $ $ $ FNMA DN 25Jan07 9Jul07 $ 19,972, $ 19,972, $ 20,000, $ $ $ $ FHLMC DN 25Jan07 16Jul07 $ 14,964, $ 14,964, $ 15,000, $ $ $ $ FFCB DN 18Jan07 18Jul07 $ 14,959, $ 14,959, $ 15,000, $ $ $ $ FHLB 12Jun03 12Dec07 $ 10,021, $ 10,021, $ $ $ 10,021, $ 10,009, $ 10,000, FHLB 26Jun03 26Dec07 $ 4,976, $ 4,976, $ $ $ 4,976, $ 4,993, $ 5,000, FHLB 26Jun03 26Dec07 $ 4,976, $ 4,976, $ $ $ 4,976, $ 4,993, $ 5,000, FFCB 16Jan07 4Jan08 $ 10,251, $ 10,251, $ 10,000, $ $ $ $ FHLB 18Jun03 18Dec08 $ 197, $ 197, $ $ $ 197, $ 199, $ 200, FHLB 30Aug07 21May09 $ $ $ $ 15,000, $ 15,226, $ 15,009, $ 15,000, FHLB 27Jun07 27Jul09 $ 15,011, $ 15,011, $ 15,000, $ $ $ $ FNMA 9Feb07 7Aug09 $ 10,236, $ 10,236, $ 10,000, $ $ $ $ FHLMC 5Jun07 14May10 $ 5,016, $ 5,016, $ $ $ 5,016, $ 5,005, $ 5,000, FHLMC 22Aug07 21May10 $ $ $ $ 10,000, $ 10,139, $ 10,014, $ 10,000, FNMA 19Jul07 19Jul10 $ $ $ $ 7,000, $ 7,000, $ 7,004, $ 7,000, FFCB 28Sep07 28Mar11 $ $ $ $ 7,000, $ 7,000, $ 7,013, $ 7,000, GFTOTAL $ 516,342, $ 516,342, $ 163,790, $ 81,585, $ 434,112, $ 433,801, $ 433,757, BDBUSINESS DEVELOPMENT Lone Star Corp Open Open $ 1,542, $ 1,542, $ $ 452, $ 1,995, $ 1,995, $ 1,995, BDTOTAL $ 1,542, $ 1,542, $ $ 452, $ 1,995, $ 1,995, $ 1,995,

28 TYPE OF DATE OF MATURITY BOOK MARKET MATURITIES PURCHASES BOOK MARKET FINAL MATURITY AGENCY PURCHASE DATE VALUE VALUE SALES VALUE VALUE VALUE 06/30/ /30/2007 REDEMPTIONS 09/30/ /30/ /30/2007 CPCAP PROJECTS Lone Star Liq + Open Open $ 312, $ 312, $ $ 30,029, $ 30,341, $ 30,341, $ 30,341, Lone Star Corp Open Open $ 49,378, $ 49,378, $ 9,745, $ $ 39,633, $ 39,633, $ 39,633, Lone Star Corp Open Open $ 249, $ 249, $ $ 3, $ 252, $ 252, $ 252, Lone Star Corp Open Open $ 229, $ 229, $ $ 3, $ 232, $ 232, $ 232, Lone Star Corp Open Open $ 20,730, $ 20,730, $ $ 606, $ 21,336, $ 21,336, $ 21,336, Lone Star Corp Open Open $ 17,430, $ 17,430, $ 14,020, $ 3,409, $ 3,409, $ 3,409, TexPool Open Open $ 2,676, $ 2,676, $ $ 514, $ 3,190, $ 3,190, $ 3,190, TexPool Open Open $ 3,622, $ 3,622, $ $ 47, $ 3,670, $ 3,670, $ 3,670, TexPool Open Open $ 3,221, $ 3,221, $ $ 27,926, $ 31,148, $ 31,148, $ 31,148, TexPool Open Open $ 159, $ 159, $ $ 2, $ 161, $ 161, $ 161, TexPool Open Open $ 40, $ 40, $ $ $ 41, $ 41, $ 41, TexPool Open Open $ 14,781, $ 14,781, $ $ 195, $ 14,976, $ 14,976, $ 14,976, TexPool Open Open $ 2,224, $ 2,224, $ 204, $ $ 2,019, $ 2,019, $ 2,019, TexPool Open Open $ 555, $ 555, $ $ 7, $ 563, $ 563, $ 563, TexPool Open Open $ 3,458, $ 3,458, $ $ 30,376, $ 33,834, $ 33,834, $ 33,834, TexPool Prime Open Open $ 219, $ 219, $ $ 2, $ 222, $ 222, $ 222, TexPool Prime Open Open $ 111, $ 111, $ $ 1, $ 113, $ 113, $ 113, FHLMC DN 25Jan07 2Jul07 $ 9,996, $ 9,996, $ 10,000, $ $ $ $ FHLMC DN 8Jun07 23Jul07 $ 19,932, $ 19,932, $ 20,000, $ $ $ $ FHLB 17May05 17Aug07 $ 10,030, $ 10,030, $ 10,000, $ $ $ $ FHLB 22Apr04 22Oct07 $ 10,034, $ 10,034, $ $ $ 10,034, $ 9,993, $ 10,000, FHLMC DN 28Jun07 5Nov07 $ 19,636, $ 19,636, $ $ $ 19,636, $ 19,904, $ 20,000, FHLB 23May05 23Nov07 $ 10,000, $ 10,000, $ $ $ 10,000, $ 9,990, $ 10,000, FHLB 14Jun05 14Dec07 $ 9,970, $ 9,970, $ $ $ 9,970, $ 9,990, $ 10,000, FHLB 19May05 19May08 $ 5,222, $ 5,222, $ $ $ 5,222, $ 5,226, $ 5,240, FHLB 23May05 23May08 $ 3,459, $ 3,459, $ $ $ 3,459, $ 3,462, $ 3,470, FNMA 27May05 30May08 $ 9,573, $ 9,573, $ $ $ 9,573, $ 9,590, $ 9,605, FHLB 2Jun05 2Jun08 $ 4,979, $ 4,979, $ $ $ 4,979, $ 4,989, $ 5,000, FHLB 6Jun05 6Jun08 $ 2,938, $ 2,938, $ $ $ 2,938, $ 2,944, $ 2,950, FHLB 8Jul03 8Jul08 $ 5,066, $ 5,066, $ $ $ 5,066, $ 5,000, $ 5,000, FHLB 18Jan07 18Jul08 $ 5,118, $ 5,118, $ $ $ 5,118, $ 5,001, $ 5,000, FHLB 23Jul03 23Jul08 $ 4,720, $ 4,720, $ 4,655, $ $ $ $ FHLB 5Jun03 5Dec08 $ 5,000, $ 5,000, $ $ $ 5,000, $ 5,004, $ 5,000, FHLB 18Jun03 18Dec08 $ 9,691, $ 9,691, $ $ $ 9,691, $ 9,763, $ 9,800, FHLB 22Jun05 22Dec08 $ 9,339, $ 9,339, $ $ $ 9,339, $ 9,304, $ 9,250, FNMA 29Jan07 29Jan09 $ 5,101, $ 5,101, $ $ $ 5,101, $ 5,012, $ 5,000, FFCB 23Apr07 23Apr09 $ 5,040, $ 5,040, $ $ $ 5,040, $ 5,003, $ 5,000, FHLB 18Jul07 21May09 $ $ $ $ 9,997, $ 10,084, $ 10,006, $ 10,000, FHLMC 28Jun07 19Jun09 $ 7,008, $ 7,008, $ $ $ 7,008, $ 7,015, $ 7,000, FHLMC 8Mar07 8Mar10 $ 10,157, $ 10,157, $ 10,000, $ $ $ $ FHLB 14Jun07 14Jun10 $ 9,994, $ 9,994, $ $ $ 9,994, $ 10,018, $ 10,000, FFCB 27Jun07 27Jun11 $ 8,991, $ 8,991, $ $ $ 8,991, $ 9,075, $ 9,000, CPTOTAL $320,406, $320,406, $78,625, $99,715, $341,401, $341,448, $341,464,

29 TYPE OF DATE OF MATURITY BOOK MARKET MATURITIES PURCHASES BOOK MARKET FINAL MATURITY AGENCY PURCHASE DATE VALUE VALUE SALES VALUE VALUE VALUE 06/30/ /30/2007 REDEMPTIONS 09/30/ /30/ /30/2007 DSDEBT SERVICE FUND Lone Star Liq + Open Open $ 1,723, $ 1,723, $ $ 7,902, $ 9,625, $ 9,625, $ 9,625, Lone Star Corp Open Open $ 55,186, $ 55,186, $ 45,728, $ $ 9,458, $ 9,458, $ 9,458, TexPool Open Open $ 67, $ 67, $ $ 68, $ 68, $ 68, TexPool Prime Open Open $ 44,728, $ 44,728, $ 37,260, $ $ 7,468, $ 7,468, $ 7,468, FHLMC 18Jan07 16Jan09 $ 10,221, $ 10,221, $ $ $ 10,221, $ 10,004, $ 10,000, FNMA 11Jan07 7Aug09 $ 10,236, $ 10,236, $ 10,000, $ $ $ $ FHLMC 30Mar07 5Mar10 $ 7,117, $ 7,117, $ 7,000, $ $ $ $ FHLB 7Sep07 7Sep10 $ $ $ $ 10,000, $ 10,000, $ 10,018, $ 10,000, DSTOTAL $129,281, $129,281, $99,988, $17,903, $46,842, $46,644, $46,621, FDFOOD SERVICE FUND Lone Star Corp Open Open $ 1,301, $ 1,301, $ 1,290, $ $ 10, $ 10, $ 10, Lone Star Corp Open Open $ 116, $ 116, $ $ 1, $ 117, $ 117, $ 117, TexPool Open Open $ 103, $ 103, $ 93, $ $ 10, $ 10, $ 10, TexPool Prime Open Open $ 222, $ 222, $ 207, $ $ 15, $ 15, $ 15, FFCB DN 17Jan07 14Nov07 $ 9,805, $9,805, $ $ $ 9,805, $9,941, $ 10,000, FHLMC 26Jan07 26Jan10 $ 5,106, $5,106, $ $ $ 5,106, $5,004, $ 5,000, FDTOTAL $ 16,655, $ 16,655, $ 1,591, $ 1, $ 15,065, $ 15,098, $ 15,153, IS2WORKERS COMPENSATION FUND Lone Star Corp Open Open $ 4,246, $ 4,246, $ 1,215, $ $ 3,031, $ 3,031, $ 3,031, TexPool Open Open $ 488, $ 488, $ $ 1,306, $ 1,795, $ 1,795, $ 1,795, TexPool Prime Open Open $ 7,218, $ 7,218, $ 3,952, $ $ 3,266, $ 3,266, $ 3,266, FHLMC 21Dec06 14Dec07 $ 7,011, $ 7,011, $ $ $ 7,011, $ 7,005, $ 7,000, FFCB 16Jan07 4Jan08 $ 6,909, $ 6,909, $ 6,740, $ $ $ $ FHLB 18Jun03 18Dec08 $ 4,796, $ 4,796, $ $ $ 4,796, $ 4,831, $ 4,850, FHLB 30Jun03 30Dec08 $ 7,930, $ 7,930, $ $ $ 7,930, $ 7,843, $ 7,875, FHLMC 31Aug07 17Apr09 $ $ $ $ 5,000, $ 5,100, $ 5,002, $ 5,000, FHLMC 4Sep07 17Apr09 $ $ $ $ 7,000, $ 7,143, $ 7,003, $ 7,000, FHLMC 5Mar07 4Sep09 $ 7,115, $ 7,115, $ 7,000, $ $ $ $ FHLB 22May03 22Nov10 $ 3,131, $ 3,131, $ $ $ 3,131, $ 3,144, $ 3,150, FHLB 22May03 22Nov10 $ 1,838, $ 1,838, $ $ $ 1,838, $ 1,846, $ 1,850, FHLB 30Aug07 1Dec10 $ $ $ $ 4,000, $ 4,054, $ 4,000, $ 4,000, IS2TOTAL $ 50,687, $ 50,687, $ 18,907, $ 17,306, $ 49,099, $ 48,769, $ 48,817, IS1 HEALTH INSURANCE FUND Lone Star Corp Open Open $ 22,447, $ 22,447, $ 8,840, $ $ 13,607, $ 13,607, $ 13,607, TexPool Open Open $ 94, $ 94, $ $ 1, $ 96, $ 96, $ 96, TexPool Prime Open Open $ 12,156, $ 12,156, $ 5,225, $ $ 6,930, $ 6,930, $ 6,930, FNMA 26Jan07 26Jan09 $ 10,220, $ 10,220, $ $ $ 10,220, $ 10,006, $ 10,000, FNMA 18Jan07 7Aug09 $ 5,118, $ 5,118, $ 5,000, $ $ $ $ FHLB 27Aug07 11Jan10 $ $ $ $ 5,000, $ 5,035, $ 5,015, $ 5,000, FHLB 12Mar07 12Mar10 $ 10,138, $ 10,138, $ $ $ 10,138, $ 10,000, $ 10,000, FFCB 31Aug07 4Jun10 $ $ $ $ 7,000, $ 7,083, $ 7,000, $ 7,000, FHLMC 10Jul07 21Jun10 $ $ $ 3,550, $ 3,550, $ $ $ FFCB 30Aug07 30Aug10 $ $ $ $ 4,400, $ 4,400, $ 4,406, $ 4,400, IS1TOTAL $60,175, $60,175, $22,616, $19,951, $57,512, $57,063, $57,034,

30 TYPE OF DATE OF MATURITY BOOK MARKET MATURITIES PURCHASES BOOK MARKET FINAL MATURITY AGENCY PURCHASE DATE VALUE VALUE SALES VALUE VALUE VALUE 06/30/ /30/2007 REDEMPTIONS 09/30/ /30/ /30/2007 IS3INTERNAL SERVICE FUND TexPool Open Open $ 5,320, $ 5,320, $ 1,824, $ $ 3,495, $ 3,495, $ 3,495, IS3TOTAL $ 5,320, $ 5,320, $ 1,824, $ $ 3,495, $ 3,495, $ 3,495, MD1MEDICAID FUND Lone Star Corp Open Open $ 8,055, $ 8,055, $ $ 2,795, $ 10,851, $ 10,851, $ 10,851, TexPool Open Open $ 4,142, $ 4,142, $ $ 54, $ 4,196, $ 4,196, $ 4,196, MD1TOTAL $ 12,198, $ 12,198, $ $ 2,850, $ 15,048, $ 15,048, $ 15,048, PS1PRINT SHOP FUND TexPool Open Open $ 4, $ 4, $ $ $ 4, $ 4, $ 4, PS1TOTAL $ 4, $ 4, $ $ $ 4, $ 4, $ 4, SR1SPECIAL REVENUE FUND Lone Star Liq + Open Open $ 22, $ 22, $ $ $ 23, $ 23, $ 23, Lone Star Corp Open Open $ 275, $ 275, $ $ 28,127, $ 28,402, $ 28,402, $ 28,402, TexPool Open Open $ 31, $ 31, $ $ $ 32, $ 32, $ 32, TexPool Prime Open Open $ 11, $ 11, $ $ $ 11, $ 11, $ 11, SR1TOTAL $ 341, $ 341, $ $ 28,128, $ 28,469, $ 28,469, $ 28,469, TOTRUST & AGENCY FUNDS Lone Star Liq + Open Open $ 333, $ 333, $ $ 14, $ 348, $ 348, $ 348, Lone Star Liq + Open Open $ 184, $ 184, $ $ 2, $ 186, $ 186, $ 186, Lone Star Liq + Open Open $ 8, $ 8, $ $ $ 8, $ 8, $ 8, Lone Star Liq + Open Open $ 23, $ 23, $ $ $ 23, $ 23, $ 23, Lone Star Liq + Open Open $ 99, $ 99, $ $ 1, $ 100, $ 100, $ 100, Lone Star Liq + Open Open $ 316, $ 316, $ $ 4, $ 320, $ 320, $ 320, Lone Star Liq + Open Open $ 67, $ 67, $ $ $ 68, $ 68, $ 68, Lone Star Corp Open Open $ 100, $ 100, $ $ 1, $ 102, $ 102, $ 102, TexPool Open Open $ 10,999, $ 10,999, $ $ 42, $ 11,042, $ 11,042, $ 11,042, TOTOTAL $ 12,134, $ 12,134, $ $ 67, $ 12,202, $ 12,202, $ 12,202, TAACTIVITY FUNDS Lone Star Liq + Open Open $ 3, $ 3, $ $ $ 3, $ 3, $ 3, Lone Star Corp Open Open $ 596, $ 596, $ $ 8, $ 604, $ 604, $ 604, Lone Star Corp Open Open $ 4,087, $ 4,087, $ $ 36, $ 4,123, $ 4,123, $ 4,123, TexPool Open Open $ 1,789, $ 1,789, $ $ 23, $ 1,812, $ 1,812, $ 1,812, TATOTAL $ 6,476, $ 6,476, $ $ 67, $ 6,544, $ 6,544, $ 6,544, TOTAL PORTFOLIO $ 1,131,566, $ 1,131,566, $ 387,345, $ 268,029, $ 1,011,795, $ 1,010,585, $ 1,010,609,

31 INVESTMENT POOL REPORTS TEXPOOL At September 30, 2007 the District had $145,026,920 invested in TEXPOOL comprising less than 1% of the Net Asset Value (NAV) of the pool. At September 30, 2007 the District had $101,513,487 invested in TEXPOOL Prime comprising 7.4% of the pools NAV. LONESTAR At September 30, 2007 the District had $124,818,211 invested in Lone Star Liquidity Plus comprising 4.5% of the pools NAV. At September 30, 2007 The District had $225,333,858 invested in Lone Star Corporate comprising 17.8% of the pools NAV. TEXSTAR At September 30, 2007 the District had $80,682,272 invested in TexSTAR comprising 1.6% of the pools NAV. 25

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40 U.S. AGENCY INVESTMENTS The federal government has established a number of different agencies and instrumentalities to channel funds to particular sectors of the economy. These institutions are known collectively as federally sponsored credit agencies. Not all government agency and instrumentality securities are widely traded, and some are inappropriate for cash management purposes by virtue of their price volatility or technical characteristics. Commonly used agency issues include: Federal National Mortgage Association (FNMA) Federal Home Loan Banks (FHLB) Federal Farm Credit Bank (FFCB) Federal Home Loan Mortgage Corporation (FHLMC) These federally sponsored credit agencies, as a group, issue about 20 percent of their debt with an original maturity of less than one year. They are in the market every day to borrow money on discount notes with maturities of less than 360 days up to final maturities of 30 years. Descriptions of these securities are shown in the glossary of this report. Based upon cash flow forecasts excess cash on any given day is invested. The yields on available investments are compared and if any agency security is to be purchased, the Treasurer s office obtains bids from at least three dealers/brokers who are registered with the District. The brokers/dealers advise the District of available investment opportunities and their maturity dates. The investment officers determine if any available investments meet the cash flow needs of the District, and the securities are purchased from the broker/dealer with the best yield for the maturity period needed. 34

41 REGISTERED BROKER/DEALERS Broker/dealers currently registered with the District include: Bank of America Cantor Fitzgerald Comerica Deutsche Bank Securities (Alex Brown & Sons, Inc.) First Public, LLC Frost National Bank Great Pacific Securities JPMorgan Chase Bank Lehman Brothers, Inc. FTN Financial Merrill Lynch Morgan Keegan Morgan Stanley Dean Witter MultiBank Securities, Inc SAMCO Capital Markets Stifel, Nicolaus, Asc. UBS Painewebber, Inc. Vining Sparks Wachovia Securities Citigroup Global Markets 35

42 INVESTMENT ADVISORY COMMITTEE Melinda Garrett Chief Financial Officer Kenneth Huewitt Controller Rick Fairman Treasurer Edwin Harrison Director, Department of Financial Services, Harris County Jerome Senegal Treasury Solutions, LLC Terrell Palmer First Southwest Company Larry Burns Director, Deutsche Bank Alex. Brown Arthur Neville Senior Vice President, JPMorgan Chase Bank, N.A. Hans E. Fredrikson Vice President, JPMorgan Securities 36

43 GLOSSARY Book Value The purchase price and accrued interest as recorded on the general ledger (Books) of the District. Date of Purchase Date of initial investment. Final Maturity Value Par amount or what the security will pay when it matures. FNMA Federal National Mortgage Association (Fannie Mae), a federally chartered and stockholderowned corporation, is the largest investor in home mortgages in the United States. FNMA provides funds to the mortgage market by purchasing mortgage loans from lenders. FNMA was originally incorporated in 1938 as a whollyowned government corporation but the Housing and Development Act of 1968 changed FNMA to a federally chartered corporation. FHLB Federal Home Loan Bank system, established in 1932, includes twelve Federal Home Loan Banks and their member institutions. The Federal Home Loan Banks are instrumentalities of the United States and under the supervision of the Federal Housing Finance Board. FFCB Federal Farm Credit Bank system provides credit and related services to farmers, ranchers, producers and harvesters of aquatic products, farm related businesses, agricultural cooperatives and rural utilities. FFCB system institutions are federally chartered under the Farm Credit Act of 1971 and are subject to regulation by a federal agency, the Farm Credit Administration. FHLMC Federal Home Loan Mortgage Corporation (Freddie Mac) is a publiclyheld, governmentsponsored enterprise created pursuant to the Federal Home Loan Mortgage Corporation Act of Freddie Mac s statutory mission is to provide stability in the secondary market for home mortgages, to respond appropriately to the private capital market and to provide ongoing assistance to the home mortgage secondary market. Market Value The amount of money you can get for the agency security, if you were to sell that security on a given date. Market value changes daily. Securities Called/Matured/Sold Agency securities matured on the maturity date or sold on a given date. Type of Agency Name of agency issuing the security. 37