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MANAGEMENT COMMITTEE

MANAGEMENT COMMITTEE. REPORT ON INVESTMENTS 2Q07 September 12, 2007. ECONOMIC REVIEW. 2Q07 : GDP 4.0%. Consumer Spending dropped to 1.3% at end of 2Q07. PCE rose 1.9% well within the Fed’s comfort zone 1-2%. August unemploy. @ 4.6%.

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MANAGEMENT COMMITTEE

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  1. MANAGEMENT COMMITTEE REPORT ON INVESTMENTS 2Q07 September 12, 2007

  2. ECONOMIC REVIEW • 2Q07: GDP 4.0%. Consumer Spending dropped to 1.3% at end of 2Q07. PCE rose 1.9% well within the Fed’s comfort zone 1-2%. August unemploy. @ 4.6%. • Present: Financial markets volatile and credit markets tightened due to subprime mortgage deterioration. • Future: Slow economic growth due to subprime problems spreading to both the national & global economies. • Interest Rates: Fed lowered the discount rate to 5.75%. High likelihood the Fed will cut Fed funds target rate by September 18th or sooner. • Council Impact: Compared to 1Q07, interest rates have fallen, Expect our L-T portfolio to incur some unrealized gains in 3Q07.

  3. PRICE of HEATING OIL

  4. PRICE of NATURAL GAS

  5. 2Q07 TOTAL RETURN • Short-Term Port: +5 bps above index. • Long-Term Port: -59 bps below index. • OPEB: +6.04% total return for quarter. • Realized hedging losses offset $26,075 of fuel price decreases to balance budget risk. • $437,388 of unrealized hedging gains.

  6. ACTION / SUMMARY • Moved money market funds out of MSILF Prime institutional account to our collateralized bank account, earns 5.20% • Adjust duration up/down relative to interest rate movements. • OPEB July balance at +$64M versus +$58M at end of 1Q07. Cum. unreal $4.0M at 7-31-07. Slight increase in allocation to equities since stocks fell.

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