TrustTalk. When to Move (into a Different Premixed Portfolio)

Transcription

1 TrustTalk Spring 2007 Current news concerning your Savings Plan When to Move (into a Different Premixed Portfolio) Making the Most of Your Savings Plan Five Fundamentals for Beginners In Volatile Times, Patience is a Virtue for Investors

2 Inside This Issue Feature Stories Nat Duffield: Farewell But Not Goodbye 1 When to Move (into a Different Premixed Portfolio) 2 The Halliburton Trust Investments Department Lifestyles Making the Most of Your Savings Plan 4 Investment Know How Five Fundamentals for Beginners 6 Focus on Funds Aggressive Premixed Portfolio 7 Risk Assessment In Volatile Times, Patience is a Virtue for Investors 8 Newsstand Market Update 9 Retiree Corner 10 Fund Performance Update 11 Seated, left to right: Brinda Maxwell, Nat Duffield. Back row, left to right: Wendy Wang, Sharon Parkes, Maria Bacaling. Trust Talk is published quarterly by the Halliburton Trust Investments Department. It is designed to provide Savings Plan members with conventional wisdom on saving and investing. The information included in Trust Talk is not intended as investment advice. You may want to consult a financial advisor before making any investment decisions. Suggestions or comments about Trust Talk can be sent to Nat Duffield or Sharon Parkes, Trust Investments Department, Bellaire Blvd., Houston, Texas

3 Feature Farewell, But Not Goodbye Nat Duffield Passes the Torch of Halliburton Retirement Plans; Continues Role on Investment Committee This spring marks the end of an era that started in 1983, as Nat Duffield retires from the helm of Halliburton s Trust Investments department and continues his role on the Investment Committee. Over the last quarter-century, he has led the department that manages the assets of the Savings Plan, working to help employees ensure their financial security. A consummate professional and leading thinker in the field of investment management, Duffield has played a central role in helping thousands of Halliburton employees around the world achieve their dreams of a comfortable retirement. Now it s his turn to take some time off. It s a good time to retire, said Duffield. I m proud that we ve provided a valuable service to employees over the years, and we ve built a highly experienced team to ensure that will continue. Savings Plan in Good Hands Although Duffield will enjoy his time away from the office, nothing is changing in the way the Savings Plan is managed, he said. In fact, his expertise will never be more than a phone call away, as he will continue to offer his guidance as an ongoing member of the Plan s Investment Committee. And he has every confidence in his successor as director of trust investments, Sharon Parkes. Parkes is another long-time Halliburton employee who has served with Duffield for 18 years. Sharon is very well equipped to succeed in this position, said Duffield. She has earned the respect of the investment community and developed a deep body of knowledge that will serve our participants well. He added that, just as consistency is important in investing, it s the steady contributions of Parkes and other long-term staff members that have helped make the Savings Plan successful over so many years. Parting Advice Stick to the Basics Over Duffield s 24 years of service, he s seen more than his share of bulls and bears. And though much has changed in the Plan s structure, his advice to investors is as relevant today as it was back then. If I could impress one thing upon Savings Plan participants, it would be that investing for retirement is a long-term commitment, he said. Even the professional investors I know don t try to time the market. Be consistent with your contributions and don t let emotions influence your investing decisions. As an example, he added that too many participants still choose to sell their holdings after a loss. Lots of people transfer out of equities if they see a decline, but that strategy robs them of the opportunity to get that money back when equities rise again, he said. It s that dedication to teaching the fundamentals of investing that has kept Duffield going strong. He expressed pride in his department s ongoing goal to educate employees, which is evidenced in the growing level of sophistication among Savings Plan participants. Having made a lasting impression at Halliburton, Duffield now plans to spend more quality time with his children and grandchild, travel the world with his wife of three decades, and finally finish the model ship he s been building for years. In his career, in investing, and in life, one might say that long-term commitment has been Nat Duffield s mantra all along. We wish him well and look forward to the next chapter for the Halliburton Trust Investments department. 1

4 Feature When to Move (into a different Premixed Portfolio) Many investors choose to place some or all of their assets in Premixed Portfolios. These funds offer investors a highly diversified mix of investments. Halliburton s Savings Plan offers four Premixed Portfolios to choose from and each one provides a one-stop shop for all your assets. All you have to do is determine which fund is right for you and the fund s assets are kept in line with its allocation plan. You can see how the Premixed Portfolios compare on the Risk/Return scale below. It s simple. Place your assets in one portfolio and they are invested in various asset classes to achieve the desired level of risk and potential returns. You don t have to worry about diversifying and rebalancing. It s all done for you. Lower return Lower risk Higher return Higher risk Stable Value Premixed Portfolio Conservative Premixed Portfolio Moderate Premixed Portfolio Aggressive Premixed Portfolio This Premixed Portfolio is your most conservative option in terms of market risk and short-term volatility. This Premixed Portfolio offers long-term growth with a relatively low level of risk. This Premixed Portfolio offers a higher potential for long-term growth with moderate risk. This Premixed Portfolio offers the highest long-term potential return as well as higher risk. Objective: To preserve the value of assets and minimize short-term risk by investing in investment contracts. Objective: To achieve longterm growth with a relatively low level of risk by investing in asset-backed investment contracts, bonds, and U.S. and non- U.S. stocks. Objective: To earn a competitive return, while minimizing risk by investing in bonds, and U.S. and non-u.s. stocks. Objective: To achieve longterm growth by investing primarily in U.S. and non- U.S. stocks. 2

5 What s not so simple is recognizing when to move your funds from one portfolio to another. There are many reasons you might move into a different Premixed Portfolio. You had a birthday. Age is one of the main reasons to switch your asset allocation. As you get older, it s a good idea to rethink your retirement savings and investment strategy. It s typical for investors to take less risk and focus more on preserving their account balance as they approach retirement. For example, someone in their 40s or 50s might choose to move funds from the Aggressive Premixed Portfolio to the Moderate or Conservative Premixed Portfolio to minimize risk as they get closer to needing their retirement savings. At the same time, a young person who has made little progress toward their retirement goal might move some funds from the Conservative Premixed Portfolio to the Moderate or Aggressive Premixed Portfolio to increase their potential returns. Your personal situation has changed. Whenever your personal life changes, it s a good idea to reassess your investments. Maybe you ve recently gotten married or you ve had a baby. Whatever the reason, you may decide that your current Premixed Portfolio just isn t getting you where you want to be. So, moving funds from the Stable Value Premixed Portfolio into a portfolio that offers more potential growth, such as the Moderate or Aggressive Premixed Portfolio may be an option for some investors in this instance. You re almost ready to retire. If you are getting close to retirement, it may be a good time to reconsider your asset allocation. Someone at this stage in their career should be very close to meeting their retirement goals and might consider moving funds into the Conservative or Stable Value Premixed Portfolio to minimize their short-term risk and protect their principal investment. You make other investments outside of the plan. If you buy a house, open an IRA or make any other investment outside of the Savings Plan, take time to consider how that new investment might affect your investment choice. For example, someone who has invested in a home or other stable investment outside the Savings Plan might choose to move a portion of their funds to a Premixed Portfolio focused more on growth, such as the Moderate or Aggressive Premixed Portfolio. Of course, any decision to move funds from one Premixed Portfolio to another should come after careful consideration of your current situation and your long-term goals. If you aren t sure if it s time to move, you may want to consult a financial advisor. 3

6 Lifestyles Making the Most of Your Savings Plan When it comes to saving for retirement, you re already better off than a large percentage of the population. Why? Because Halliburton offers a 401(k) plan (the Savings Plan) with matching Company funds that most financial experts regard as the absolute best bet to reach your retirement goals. It s a golden opportunity, but investing success doesn t come automatically. Consider your situation compared to the cases of Chris and Carol, two employees on two different paths to retirement. So, even though Chris contributions were just 2% higher than Carol s, after 30 years of investing his retirement fund could be twice the size of Carol s. Chart A shows how Chris savings may have grown compared to Carol s in this scenario. Chart A* $900,000 $800,000 Account Balance Chris Carol $827,601 Chris and Carol are both about 35 and each earn $30,000 per year. When they joined the Company they were automatically enrolled in the Savings Plan to contribute 4% of their salaries and they invest their money in the same funds. Take Free Money First Chris stuck with his 4% contributions, but Carol decided to reduce her contribution to 2% of her salary. When viewed one paycheck at a time, Carol s contributions don t look much smaller than Chris. But the effect over many years can make an enormous difference. We ll assume for this example that Chris and Carol are both eligible for the Savings Plan s Company match feature, and the Company matches their contribution dollar-for-dollar up to the first 4% of salary they put away throughout the year. By not contributing at least 4% of her pay, Carol is turning down free money! Chris balance will grow much faster than Carol s, but not just because his original contributions are higher. As Chris investments earn returns, those returns are reinvested and continue to earn even more returns. This is called compound earnings. As the account balance grows larger, the more dramatic the effects of compounding become. Market Value $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ $413,

7 Save More, Earn More Given the incredible force of compounding described earlier, it makes sense to take advantage of the Savings Plan by contributing as much of your pay as possible (not to exceed the IRS limits of $15,500 in 2007). Increasing your contributions to 10% or 15% can produce huge results over the long term. Going back to Chris and Carol, both decided to boost their savings levels. Chris chose a 10% contribution, while Carol chose 20%. At these rates, they received the full amount in matching Company funds. But due to compounding, after 30 years Carol s final retirement fund was 56% more than Chris, as shown in Chart B. Chart B* Market Value $2,500,000 $2,000,000 $1,500,000 $1,000,000 Chris Carol Account Balance $1,241,402 $1,931,070 Better Late Than Never To achieve the biggest savings boost, it s best to start saving at a young age and allow compounding to work its magic over many years. With that said, some employees who are closer to retirement age may still need help reaching their savings goals. Well, it s not too late. The Savings Plan allows employees over 50 years of age to make catch-up contributions beyond the normal IRS limits. For 2007, eligible participants can put away an extra $5,000, for a total of $20,500. Let s fast-forward to put Chris and Carol at 50 years of age. Chris makes his catch-up contributions an extra $5,000 every year until he reaches 65. Carol sticks with her original plan. After 15 years, Chris has contributed $75,000 more to his Savings Plan. Once again, however, the effects of compound earnings make that total even higher. Chart C illustrates this example. By taking all the matching funds you can get, contributing as much as possible and allowing the power of compound earnings to take over, your commitment to savings will be rewarded. Chart C* $2,500,000 Account Balance $500,000 $2,000,000 Chris Carol $1,931, $ $1,500,000 $1,392,240 Market Value $1,000,000 $500,000 *The charted calculations in this article assume a 2.5% annual rate of inflation, and that the employees earned a 2.5% annual pay raise. The calculations also assume employees receive matching contributions of 4% and an additional annual 4% contribution from the Company, and achieved an average 7.5% return on investments $

8 Investment Know How Five Fundamentals for Beginning Investors Short of winning the lottery, making wise investment decisions is how most of us will meet long-term financial goals and afford a comfortable retirement. Unfortunately, many would-be investors don t know where or how to begin. Investing can be complex, but setting up a basic portfolio and watching it grow may be easier than you think. Here s a rundown of five essential steps to get you started and help you stay on the path to investing success. Start Now Perhaps the best investment decision anyone can make is to begin as soon as possible. Building enough wealth to meet major goals like retirement requires many years of regular contributions. And, the earlier you start saving, the less effort it takes. That s due to the power of compounding. So, as your investments earn returns and you reinvest the profits, your returns earn more returns, and so on. Over time, your money builds on itself and you re rewarded with a much larger total than just the contributions you put away. So waiting around to invest even delaying for a few years could cost you dearly. Set Goals While it s important to start your investing plan sooner rather than later, you also need to know exactly what you re trying to accomplish. Are you saving for retirement? Working to put the kids through college? Or building up funds for a down payment on a house? If you re like most people, you ll probably have several goals to work toward at the same time. How much money you think you ll need, and when you ll need it, are two factors that should be considered. Invest to Match Once you have financial goals, it s time to choose the right investment vehicles. For example, your Savings Plan is designed specifically to help you invest for retirement and build your fund faster through tax advantages and matching funds from the Company. Other investment platforms, such as state-sponsored 529 plans, are just for the purpose of saving for college. With each investment, consider your risk tolerance. How much are you willing to let your investment value fluctuate for the potential of earning more over the long term? Generally, the longer you re able to keep your money invested, the better your chances of achieving positive returns, and the more risk you re able to tolerate. Diversify Diversify Diversify Regardless of your risk tolerance, it s rarely wise to put all of your investment dollars on a single type of investment (with the exception of one of the Plan s Premixed Portfolios). While the stock market has continued to rise on average, at certain times stocks can take dramatic turns for the worse. By diversifying among different types of stocks, as well as less volatile bonds and stable value investments, your portfolio will be better suited to ride out inevitable market declines. This applies to the funds you choose in the Savings Plan, as well. Rebalance Periodically In your quest to diversify, you may start out with the perfect mix of investments. Over time, your asset allocation may become off-kilter as certain investments perform better than others. For example, you may start off with 70% stocks and 30% bonds, but as stocks generate higher returns, a year later 90% of your money is in stocks. To bring the mix back into balance you could sell off some of the stocks and reinvest the money in bonds, or simply make new investments in bonds. This is called rebalancing. While the Savings Plan s Premixed Portfolios are rebalanced for you to maintain a pre-determined asset allocation, you may need to rebalance your investments in single-focus funds or other investments outside the Savings Plan to keep your portfolio healthy. With information on every aspect of investing available online, you need to be sure any advice you follow comes from a reputable source. For beginning investors, consulting with a financial planner can be well worth the money. 6

9 Focus on Funds Aggressive Premixed Portfolio In this issue of Trust Talk, we focus on the Aggressive Premixed Portfolio. This Premixed Portfolio is located in the middle of the risk/return spectrum. The chart below highlights the objectives of the Aggressive Premixed Portfolio. Conservative Premixed Aggressive Premixed Premixed Portfolios Single Focus Funds Lower Risk/ Lower Return Stable Value Premixed Bond Index Moderate Premixed Balanced Large Cap Growth Equity Small Cap Equity S&P 500 Index Mid Cap Equity Higher Risk/ Higher Return Large Cap Value Equity Non-U.S. Equity Halliburton Stock* *As of January 1, 2007, the Halliburton Stock Fund was frozen to any contributions or transfers into the fund. Now, let s look at the details of this portfolio as of March 31, Aggressive Premixed Portfolio Investment Objective The objective of the Aggressive Premixed Portfolio (APP) is to achieve long-term growth by investing primarily in stocks and related securities. Fund Composition The APP is a highly diversified portfolio that invests in U.S. and non-u.s. stocks. Because competition in the business world has shifted to a global arena, the best companies for investment may not be located in just the United States. Also, non-u.s. stocks have different risk and return characteristics than U.S. securities and are excellent for diversification purposes. When U.S. markets may be doing poorly, non-u.s. markets may be doing well, and vice versa. 2% Long-Term Potential Risk & Return 31% 10% 17% 22% 18% Large Cap Growth Stocks Large Cap Value Stocks Mid Cap Stocks Small Cap Stocks Non-U.S. Stocks Pooled Stock Fund Market Risk Inflation Risk Potential Return Low Med-Low Med Med-High High 7

10 Risk Assessment In Volatile Times, Patience is a Virtue for Investors In late February, the stock market took the biggest singleday plunge since September And with all the talk of the Asian economic crisis, housing bubbles, deadly hurricanes, terrorism and war, you might think now is the worst time to put more money into the stock market. Maybe you re even thinking of selling everything before the bottom falls out. If those are your instincts, there are a few things to consider before you abandon your investment plan. Don t Panic Remember the most basic piece of advice about investing buy low, sell high. Selling off large chunks of investments after a market downturn may be the worst thing you can do. Experienced investors know that, eventually, things usually turn back around and their holdings will regain and probably surpass their value of a few months ago. In fact, many investors see temporary declines as an opportunity to buy more shares on sale, with the expectation of making a hefty profit when the market returns to positive territory. Whether you re contributing to the Savings Plan or making outside investments, making systematic purchases every month or quarter helps iron out the ups and downs that inevitably occur in the financial markets. Keep Time on Your Side True, there s no guarantee that any single investment will recover from a crash. But if history has taught us anything, it s that the stock market in general has risen steadily over many years. The S&P 500 posted a 12.7% average annual return from 1925 to 2005 (note: this date range includes , the worst stock market decline in U.S. history)! Given plenty of time, odds are good that a well-structured investment portfolio will increase in value over the long term. Take Lessons to Heart Well-structured is the key phrase. The market may rise overall, but it s still important to choose your investments carefully to make sure your portfolio isn t left behind. While you re riding out the most recent market storm, take it as an opportunity to learn more about your portfolio and decide if changes are necessary to prepare for the next downturn. For example, if recent market swings made you extremely nervous, it may be a sign that your portfolio needs more diversity or a different asset allocation. If you have a large percentage of your portfolio riding on one stock or a singlefocus fund, consider spreading your investments over several different industries or fund classes that react differently to market changes. And remember, if you re going to need the money any time in the next few years, the stock market may not be the right place to invest it. In this case, less volatile investments, such as bonds and stable value instruments, should play a larger role in your portfolio. Take the time to know what you own and why you own it. And as the investment markets rise and fall, you can rest easier knowing you re prepared. 8

11 Newstand Market Update A Volatile First Quarter The first quarter of 2007 was full of ups and downs. The low came on February 27th when the U.S. equity markets dropped 3.5%, the worst day since 9/11. The cause of the fall was an unprovoked 9% drop in the Chinese stock market, which scared investors around the world and drove investors out of stocks and into the safety of bonds. On the same day, there was a 17 basis point drop in the two-year Treasury yields. The decline continued for a few weeks but stocks rallied strongly at the end of March to recover much of their losses. Throughout the quarter the equity and fixed income market showed signs of increased volatility and expanding concerns about risks. Investors seemed to have growing concerns about potential DID YOU KNOW? Understanding The Market Basis Point A basis point is a unit of measure used to describe the percentage change in a rate or the change in value of a financial instrument. One basis point is equal to 0.01% (1/100th of a percent) or in decimal form. For example, if the Fed raises interest rates by 25 basis points, it means that rates have risen by 0.25 percentage points. If rates were at 2.50%, and the Fed raised them by 0.25%, or 25 basis points, the new interest rate would be 2.75%. In the bond market, if a bond yield moves from 7.45% to 7.65%, it has risen 20 basis points. weakness in the U.S. economy and in the housing market, after the highly publicized failure of some sub-prime lenders caused a credit crunch among high-risk borrowers as lenders began tightening their lending standards. The Fed continued to hold interest rates steady throughout the first quarter. On March 28th, Federal Reserve (Fed) Chairman Bernanke clarified changes made during the Fed s March 21st meeting, noting that he saw three downside risks to growth: further contraction in residential investment, a housing weakness affecting other areas of the market, and slowing business investment. He also commented that the primary concern was the upside risk of inflation due to high demand on natural resources. The yield curve, which plots the relation between the interest rate of debt and the time to maturity of the debt, steepened during the quarter as the spread between 30-year Treasuries and two-year Treasuries widened to 26 basis points from zero. The S&P 500 Index returned 0.6% for the first quarter of Materials and Utilities stocks were the best performers while Technology and Financials posted negative returns. Small cap stocks represented by the Russell 2000 Index returned 1.9% for the quarter outperforming large cap stocks. This outperformance of small cap over large cap was aided by indications from the Fed that it was less likely to raise interest rates in the future, which helps smaller companies that rely on loans to finance their growth. Among equity investment styles, growth outperformed value in the small cap space but they were relatively neck and neck in the large cap space of the domestic equity market. International equity markets continued to generate strong results for U.S. investors in the first quarter, although emerging markets struggled and trailed developed foreign markets. The MSCI EAFE Index of developed markets returned 4.1% for the quarter, while the MSCI Emerging Markets Index returned 2.4% for the quarter after a strong rebound in March. The dollar declined slightly during the quarter, benefiting U.S. investors. Overall, economic growth outside of the U.S. came in higher than inside the U.S., driving the relatively stronger results for non-u.s. equities. As the yield curve steepened during the quarter the fixed income market produced modest gains. For the first quarter of 2007 the Lehman Brothers Aggregate returned 1.5%, with February being the only positive month during the quarter. High yield bonds and Treasury Inflation Protected Securities (TIPS) were the best performing fixed income sectors for the quarter, returning 2.6% and 2.5% respectively. Long-term bonds trailed shorter term bonds and lower quality outperformed higher quality during the quarter as interest rates rose slightly. There was significant interest rate volatility during the quarter, which is likely to continue as uncertainty persists on the direction the Fed will move interest rates during the year. 9

12 Newstand Retiree Corner Setting a Withdrawal Strategy You ve been saving and investing throughout your career, but now you re getting ready to retire. You re ready to switch your focus from savings to spending. Like anything else, a good strategy is key to making your nest egg last throughout your retirement. Many financial planners recommend that retirees withdraw no more than 3% to 4% of their principal each year and keep their assets invested in a mix of stocks and bonds. Of course, everyone s individual situation is different. Here are some things to consider as you set your withdrawal strategy. When will you start your withdrawals? There may be federal, state and local tax implications depending on when you decide to start your withdrawals. Amounts you withdraw from the Savings Plan or a personal IRA before you reach age may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distribution amounts by April 1st of the year after you reach age How do you want to have your account paid? With an IRA, you decide how you want to receive your payments as long as you meet the required minimum distribution. With the Savings Plan, when you retire, there are a variety of ways you can receive your account balance: - Periodic installment payments. You can decide to leave your money in the Savings Plan and elect to be paid monthly, quarterly or annually in a dollar amount you specify until your account balance is depleted. - Annuity. You may elect to receive a fixed monthly payment over a specified period of time. There are several payment periods from which to choose. - Lump sum. Like the term implies, you can receive your Savings Plan account in a lump sum payment, but you need to be aware of the tax implications with this type of distribution. - Direct rollover. You can roll the balance in your Savings Plan account balance into another eligible retirement plan or IRA. If you have a personal IRA, you can roll your Savings Plan account into your IRA. How much will you need every year for living expenses? Think carefully about what you ll need for housing, healthcare, entertainment, and insurance. Financial advisors agree you ll need approximately 75-80% of your current income in retirement. Also, you may discover a new passion or hobby, so be sure to leave money in your budget to explore any new interests you discover during retirement. Do you wish to leave any money to your heirs? If your goal is to leave money to your children or grandchildren, your retirement savings may need to work harder than it would otherwise. Some investors choose to leave a portion of their retirement in more aggressive investments to help offset the spend-down. Creating a withdrawal strategy is very involved and can have significant implications for your future. It is always good practice to consult a financial planner. 10

13 Fund Performance Update Halliburton Company Employee Benefit Master Trust for the period ended March 31, 2007 Index Composite Balanced Fund Aggressive Moderate Conservative U.S. stocks 65.0% 70.0% 43.0% 26.0% Russell 3000 Index Non-U.S. stocks 22.5% 14.0% 9.0% MSCI EAFE Index Emerging market stocks 7.5% 5.0% 3.0% MSCI Emerging Market Free Index U.S. broad market bonds 35.0% 33.0% 20.0% Lehman Aggregate Bond Index U.S. high yield bonds 5.0% 4.0% Merrill Lynch High Yield Bond Index imoneynet Money Market Fund Average 38.0% Performance 10 Years* 5 Years* 3 Years* 1 Year 1st Quarter PREMIXED PORTFOLIOS Stable Value Premixed Portfolio (SVPP) 6.0% 5.1% 5.1% 5.3% 1.3% imoneynet Money Market Fund Average 3.4% 2.1% 3.0% 4.7% 1.2% Conservative Premixed Portfolio (CPP) 7.3% 7.3% 7.8% 8.2% 1.4% CPP Index Composite 6.5% 6.3% 7.4% 8.8% 1.6% Moderate Premixed Portfolio (MPP) 8.5% 9.2% 10.8% 10.4% 1.6% MPP Index Composite 8.2% 8.9% 10.2% 11.5% 1.9% Aggressive Premixed Portfolio (APP) 8.9% 10.0% 14.1% 11.6% 1.5% APP Index Composite 8.8% 10.4% 14.1% 14.0% 2.0% SINGLE FOCUS FUNDS Bond Index Fund 6.3% 5.3% 3.2% 6.5% 1.5% Lehman Aggregate Bond Index 6.5% 5.4% 3.3% 6.6% 1.5% Balanced Fund 9.8% 8.5% 10.6% 13.0% 1.2% Balanced Fund Index Composite 8.2% 6.8% 8.2% 9.7% 1.4% Large Cap Value Equity Fund 10.5% 10.1% 13.6% 14.9% 1.9% Russell 1000 Value Index 10.9% 10.2% 14.4% 16.8% 1.2% S&P 500 Index Fund 8.1% 6.2% 10.0% 11.8% 0.6% S&P 500 Index 8.2% 6.3% 10.1% 11.8% 0.6% Large Cap Growth Equity Fund 5.3% 3.0% 7.5% 3.9% -0.2% Russell 1000 Growth Index 5.5% 3.5% 7.0% 7.1% 1.2% Non-U.S. Equity Fund 9.2% 15.8% 21.7% 18.4% 3.3% MSCI ACWI ex. U.S.** 8.6% 16.4% 20.9% 19.8% 3.8% Mid Cap Equity Index Fund 14.2% 10.6% 13.2% 8.3% 5.7% S&P MidCap 400 Index 14.3% 10.7% 13.4% 8.4% 5.8% Small Cap Equity Fund 8.5% 7.0% 9.1% 2.8% 0.6% Russell 2000 Index 10.2% 10.9% 12.0% 5.9% 1.9% Halliburton Stock Fund 7.7% 31.1% 28.2% -11.9% 2.4% *Annualized. **Returns prior to January 1, 2005, include MSCI EAFE Index, the previous Fund benchmark. 11

14 Performance Notes The Bond Index, Balanced, Large Cap Value Equity, S&P 500 Index, Large Cap Growth Equity, Non-U.S. Equity and Small Cap Equity Funds were not in existence until April 1, The Mid Cap Equity Index Fund was not in existence until January 1, The Conservative Premixed Portfolio was introduced January 1, In order to provide comparative historical returns, the managers return of their Halliburton Trust account is shown. If the Halliburton Trust had not employed a manager for the periods presented, the firm s composite account return was added. All rates of return are net of expenses. Your rate of return may vary depending on your account activity (e.g., contributions, withdrawals, transfers, loans, etc.) and your plan s administration expenses. To help you better understand how your funds are performing, the funds are compared with composite returns or with appropriate indexes. The composites are created by blending together index returns in proportion to the investment policy of each fund (see chart). Because there are no indices comparable to the Stable Value Premixed Portfolio s investments, we compare its return with money market funds tracked by imoneynet. Performance data represents past performance; no assurance can be made regarding future results. Index Definitions* imoneynet Money Market Fund Average is an index of over 700 money market funds. Lehman Aggregate Bond Index is an index of U.S. bonds, including government, corporate, mortgage-backed, and asset-backed securities. Merrill Lynch High Yield Bond Index is an index of U.S. corporate bonds that are rated less than investment grade but are not in default. MSCI (Morgan Stanley Capital International) All Country World Index (ACWI) ex. U.S. is an index of non-u.s. stock securities listed on the stock exchanges of developed and emerging markets. MSCI EAFE Index is an index of non-u.s. equity securities listed on the stock exchanges of Europe, Australasia and the Far East. MSCI Emerging Market Free Index is an index of non-u.s. stocks traded in emerging markets. Russell 1000 Growth Index focuses on the 1,000 largest companies in the Russell 3000 Index that have lower dividend yields and above-average growth rates. Russell 1000 Value Index focuses on the 1,000 largest companies in the Russell 3000 Index that have higher dividend yields and below-average growth rates. Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. It is used as a general measure of U.S. stock market performance. Standard & Poor s 500 Index is a popular standard for measuring large-cap U.S. stock market performance. The index includes a representative sample of 500 leading companies in prominent industries. Standard & Poor s MidCap 400 Index is a popular standard for measuring mid-cap U.S. stock market performance. The index includes a representative sample of 400 leading companies in prominent industries with a market capitalization of approximately $1 $4 billion. *You cannot invest in any of these indices. Fund holdings will differ from index holdings. 12

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16 10200 Bellaire Blvd. Houston, TX We encourage you to call the Trust Investments Department with any suggestions or comments regarding Trust Talk. You can expect the next issue in August H /07 PRSRT STD US POSTAGE PAID DALLAS, TX PERMIT 2650