March 2009 Update Ruth Ryerson, Executive Director 1

Topics to be Covered 2008 Market Environment 2008 Investment Returns & Asset Allocation Investment Returns as Compared to Benchmark Cities and Target Date Funds Actuarial Valuation Target Date 2

2008 Market Environment December 2008Trailing 3 Years Trailing 5 Years S&P % % - 8.4% - 2.2% Russell % % - 8.6% - 2.0% Russell % % - 8.3% - 0.9% MSCI EAFE 6.0% % - 6.9% 2.1% Barclay’s Agg. 3.7% 5.2% 5.5% 4.7% Barclay’s Global 6.2% 7.4% 7.8% 6.0% HFR Fund-of-Funds -1.9% % - 1.4% 1.3% NAREIT Global 7.4% % % 1.5% FORT WORTH ERF 2.7% % - 4.3% - 1.5% 3

2008 Investment Returns December 2008Trailing 3 Years Trailing 5 Years Since 1983 Total Fund 2.7% % - 4.3% - 1.5% 8.6% Board actions during 2008 moved $200 million from equities to fixed income added global fixed income to the portfolio hired a new Hedge Fund Consultant; liquidated some of the original hedge fund holdings Board actions in early 2009 in the process of moving 7.5% of the portfolio out of equities and into high grade corporate debt in the process of rebidding Investment Consultant services The asset allocation was modified in early 2008 to structure the portfolio to have the greatest chance (under normal market conditions) of obtaining our 8.5% target return with the least amount of risk. With the unprecedented market conditions of the past 15 months, the Board is moving toward an even more conservative strategy to protect assets while positioning to be ready for a market recovery, when it occurs. 4

3/1/09 Asset Allocation 5 The above numbers represent long-term strategic targets, however, actual cash in the portfolio is currently 8.2%,

Third Quarter 2008 and Q4 Benchmark City Comparisons Calendar 2008 One YearThree YearsFive YearsTen Years -29.3%Fort Worth % 2.21% 7.76% 6.26% -26.0%Austin % 1.71% 6.29% 6.13% -30.8%Dallas % 1.70% 7.22% 5.96% DART % 1.86% 6.08% n/a -26.1%El Paso % 2.43% 6.46% 5.53% -23.5%Galveston % 0.29% 5.01% 6.35% Plano % 2.09% 4.12% n/a Comparisons are City employee plans only, (Excludes public safety plans) Fort Worth is the only plan combining all 3 groups information from TEXPERS report, to be issued March

2008 Actual Returns – Target Date Funds 7 Target Date Funds are mutual funds designed to invest according to a participant’s anticipated retirement date. An employee very near retirement would invest in the 2010 Fund, whereas a younger employee expecting to work another 30 years before retiring would invest in the 2040 Fund. These Funds are well diversified in the assets they invest in, and professionally managed by some of the best investment managers in the country.

8 ActuarialContributionsAmortizationValuation Retirement SystemRateEmployeeEmployerPeriod (yrs)Date Austin Employees7.75%8.00%10.00%infinite12/31/2007 Austin Fire7.75%15.70%18.05%0.612/31/2007 Austin Police8.00%13.00%18.25%23.812/31/2007 Dallas Police & Fire8.50% 27.50%141/1/2008 El Paso Fire8.00%15.28%18.50%infinite1/1/2008 El Paso Police8.00%13.89%18.50%infinite1/1/2008 Fort Worth ERF8.50%8.39%15.96%13.81/1/2008 Galveston Police7.50%12.00% 15.61/1/2008 Houston Fire8.50%9.00%23.80%30 *7/1/2007 Houston Municipal8.50%4.27%16.10%30 *7/1/2007 Houston Police8.50%9.11%19.60%30 *7/1/2007 San Antonio F & P8.00%12.32%24.64%129/30/2008 * Report says funding period would be infinite based on actual contributions Plan sizes range from $318 million to $3 billion Data from January 2009 Texas Pension Review Board's "Guide to Public Retirement Systems of Texas"

Actuarial Valuation Anticipated completion date is April 22 nd Unfunded liabilities are expected to grow substantially due to poor market performance, even with 5-year smoothing Funded percentage using actuarial (smoothed) values will likely drop from near 90% to closer to the mid-70’s Current contribution levels will probably not be considered adequate to fund the plan over a 30-year period ad hoc / conditional COLA is anticipated to be 0%. 9

Key Take-Aways When Proposition 15 passed though the State Legislature, it guaranteed that all benefits accrued by a public employee will be paid “The Benefits Employees Have Earned are Safe ” The City Council and Retirement Board will keep in close contact in monitoring the health of the Fund Actions taken by Council over a year ago with increased contributions have contributed to the health of the Fund, but poor investment markets have certainly hurt in The Retirement Fund is invested with a long-term horizon, and the assumptions used by its actuaries are re-evaluated every 3-5 years 10