1. Public Fund Investing 2010 Puget Sound Finance Officers Association Doug Extine Deputy State Treasurer February 10, 2010

2. Agenda Where are we and how did we get here? Where are we and how did we get here? When will we leave and where will we go? When will we leave and where will we go? How will we get there? How will we get there? How long will it take to get there? How long will it take to get there? How can I prepare for the trip? How can I prepare for the trip?

3. Agenda The current interest rate cycle The current interest rate cycle Can past cycles tell us what to expect going forward? Can past cycles tell us what to expect going forward? How can I effectively manage my portfolio over the next year or two? How can I effectively manage my portfolio over the next year or two? What can I learn from this that will make me better in the future? What can I learn from this that will make me better in the future? The value of discipline The value of discipline

4. OST NEWS 2010 Legislative Agenda 2010 Legislative Agenda LGIP LGIP OST CD Program OST CD Program Update on the PDPC and the TAG Program Update on the PDPC and the TAG Program SEC proposed changes to 2a-7 guidelines SEC proposed changes to 2a-7 guidelines Weighted Average Maturity (WAM) Weighted Average Maturity (WAM) Weighted Average Life (WAL) Weighted Average Life (WAL) Liquidity Mandates Liquidity Mandates LGIP Extended Asset Option LGIP Extended Asset Option

5. Portfolio Management 2010 Objectives - Safety, liquidity and yield Objectives - Safety, liquidity and yield There is no map for this trip There is no map for this trip Drive defensively Drive defensively Risk in the current environment is quite asymmetrical Risk in the current environment is quite asymmetrical MANAGE YOUR DURATION MANAGE YOUR DURATION Keep your eyes on the right benchmark Keep your eyes on the right benchmark

6. Where Are We And How Did We Get Here?

10. Portfolio Management 2010 Objectives - Safety, liquidity and yield Objectives - Safety, liquidity and yield There is no map for this trip There is no map for this trip Drive defensively Drive defensively Risk in the current environment is quite asymmetrical Risk in the current environment is quite asymmetrical MANAGE YOUR DURATION MANAGE YOUR DURATION Keep your eyes on the right benchmark Keep your eyes on the right benchmark

11. What Does History Tell Us? Yield Curves and the Last Cycle What Does History Tell Us? Yield Curves and the Last Cycle

12. What Does History Tell Us? Yield Curves and the Last Cycle What Does History Tell Us? Yield Curves and the Last Cycle

14. Portfolio Management 2010 Objectives - Safety, liquidity and yield Objectives - Safety, liquidity and yield There is no map for this trip There is no map for this trip Drive defensively Drive defensively Risk in the current environment is quite asymmetrical Risk in the current environment is quite asymmetrical MANAGE YOUR DURATION MANAGE YOUR DURATION Keep your eyes on the right benchmark Keep your eyes on the right benchmark

15. Market Expectations: Interest Rates to Increase

16. Interest Rates Can Increase Rapidly Even With No Fed Activity 2-year Treasury Yields 2-year Treasury leads Fed moves in tightening cycles by ~ 6 months

17. Portfolio Management 2010 Objectives - Safety, liquidity and yield Objectives - Safety, liquidity and yield There is no map for this trip There is no map for this trip Drive defensively Drive defensively Risk in the current environment is quite asymmetrical Risk in the current environment is quite asymmetrical MANAGE YOUR DURATION MANAGE YOUR DURATION Keep your eyes on the right benchmark Keep your eyes on the right benchmark

18. MANAGE YOUR DURATION Beware of the Pretty Mushrooms MANAGE YOUR DURATION Beware of the Pretty Mushrooms Callables Bermudan2yr3yr4yr5yr 0.251.151.892.513.02 0.51.131.872.482.98 11.091.812.432.94 2 1.722.312.80 Callables Euro2yr3yr4yr5yr 0.251.071.752.292.73 0.51.101.792.362.82 11.081.782.362.83 2 1.712.282.77 Yield 2 Year3 Year Treasury Note0.811.31 Agency Bullet0.9841.63

19. Investing Out the Curve – Timing Does Matter

21. Investing out the Curve The Value of Discipline … and Keeping Your Eyes on the Right Benchmark Investing out the Curve The Value of Discipline … and Keeping Your Eyes on the Right Benchmark

22. Investing out the Curve The Value of Discipline Investing out the Curve The Value of Discipline

23. Portfolio Management 2010 Objectives - Safety, liquidity and yield Objectives - Safety, liquidity and yield There is no map for this trip There is no map for this trip Drive defensively Drive defensively Risk in the current environment is quite asymmetrical Risk in the current environment is quite asymmetrical MANAGE YOUR DURATION MANAGE YOUR DURATION Keep your eyes on the right benchmark Keep your eyes on the right benchmark