Te

xa

s T

re

as

ur

y S

af

ek

ee

pin

g T

ru

st

Co

mp

an

y

Quarter Ending December 31, 2009

Endowment Portfolio Review

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 2

Table of Contents

Asset Allocation……………………………….…………………………………………………………………………………………………………………

Asset & Risk Allocation …………………………………………..………………………………………………………..……………………………….…

Marginal VaR Decomposition ……………………………………..………………………………………………………………….…………………………

Asset Allocation Summary as of December 31, 2009 based on Asset Allocation Policy Adopted December 2007……….…………………………

Current vs. Phased-In Asset Allocation Targets………………………………………………………………………………………………………………

Phased-In Asset Allocation Targets…………………………………………………………………………………………………………………….……

Asset Allocation Evolution (Target)…………………………………………………………………………………………………………………….……

Asset Allocation Evolution (Actual )…………………………………………………………………………………………………..………………………

Stable Return Summary …………………………..…………………………………………………………………………………………………………...

Global Fixed Income …………………………..…………………….……………………………………………………………………………………….…

Absolute Return Quantitative Analysis / Performance History / Strategy Allocations……………………………………………………………..…

Market Return Summary…………………………..……………………………………………………………………………………………………………

Global Equity …………….…………………………………………..………………………………………………………..……………………………….

Hedged Equity Quantitative Analysis / Performance History / Strategy Allocations.…………………………..………………………………………

Enhanced Return Summary……………………………………………………………………………………………………………………………………

Inflation Protection Summary………………………………………………………………………………………………………………………………….

3

4

5

6

7

8

9

10

11

12-13

14-16

17

18

19-21

22

23

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 3

Asset Allocation as of December 31, 2009

Total: $3,005,988,106

Non-US Developed Equity

2%

Non-US Equity All Markets

4%

Domestic Equity

19%Absolute Return

17%

Emerging Markets Equity

4%

Hedged Equity

10%

Private Equity

7%

RE – Enhanced

2%RE – Stable

2%

Commodities

3%

Global Fixed All Sectors

7%

Global Investment Grade

Fixed

9%

Global High Yield Fixed

11%

Emerging Markets

Fixed Income

3%

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 4

Asset & Risk Allocation "as of December 31, 2009

Risk Allocation   (Marginal Contribution to VaR)

1Enhanced return investments risk is estimated using a levered public markets proxy Source: Riskdata

Asset Allocation

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 5

Marginal VaR Decompositionas of December 31, 2009

Source: Riskdata

0% 5% 10% 15% 20% 25% 30% 35%

Global Investment Grade Fixed Income

Global Fixed Income - All Sectors

Fixed Income High Yield

Emerging Market Fixed Income

Absolute Return

Domestic Equity

Non-US Equity All Markets

Non-US Developed Equity

Emerging Market Equity

Hedged Equity

Private Equity

Real Estate - Enhanced

Real Estate - Stable

Commodities

MVaR 95

Asset Weight

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 6

Asset Allocation Summaryas of December 31, 2009 based on Asset Allocation Policy Adopted December 2007

STABLE RETURN (Low Beta) $1,364,226,677 3.7 45.4% 39.0 29 - 49 39.0

Global Fixed Income 853,314,653 28.4% 19.0 19.0Global Fixed Income – All Sectors 220,607,064 7 3%

Global Investment Grade Fixed Income 280,996,279 9 4% 11 0 11 0Global High Yield Fixed Income 351,711,310 11 7% 8 0 8 0

Absolute Return 510,912,024 17.0% 20.0 20.0

MARKET RETURN (Beta) $1,201,772,552 9.8 40.0% 38.0 28 - 48 42.0Global Equity 902,470,888 30.0% 28.0 32.0

US Equity 596,738,209 19 9% 14 0 18 0Non-US Developed/All Markets 175,113,923 5 8% 9 0 9 0

Emerging Markets 130,618,756 4 3% 5 0 5 0

Hedged Equity 299,301,664 10.0% 10.0 10.0

ENHANCED RETURN $286,203,774 14.8 9.5% 15.0 7 - 23 12.0X Private Equity 217,624,431 1 7.2% 10.0 8.0X Real Estate 68,579,343 1 2.3% 5.0 4.0

INFLATION PROTECTION (Real Assets) $153,785,103 8.6 5.1% 8.0 3 - 13 7.0X Stable Value Real Estate 56,963,178 1.9% 4.0 3.0

Commodities/ILB's 96,821,925 3.2% 4.0 4.0

TOTAL $3,005,988,106 7.1 100.0% 100.01Adjusted Reported Value is equal to the last actual reported capital account value plus subsequent capital calls less subsequent distributions through the indicated date,with no valuation changes.2Phase-in target as of January 1, 2010XInternally maintained valuations may slightly differ from externally maintained valuations due to timing differences in systems.

VaR WEIGHT (%)

LONG-TERM TARGET (%)

POLICY RANGE

(%)

PHASE-IN2

TARGETASSET CLASS STRATEGY STYLE MARKET VALUE

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 7

Current vs. Phased-In Target Allocationsas of December 31, 2009

-6 -3 0 3 6 9

Stable Return

Global Fixed

Global Invest Grd

Global High Yield

Abs Return

Market Return

Global Equity

US Equity

Non-US Equity

EM Equity

Hedged Equity

Enhanced Return

Private Equity

Real Estate

Inflation Protection

Stable Value RE

Commodities/ILB's

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 8

Strategy Benchmark Phase 4 Phase 5 Phase 61/1/2009 1/1/2010 1/1/2011

Stable Return 39.0 39.0 39.0Global Investment Grade Fixed Income Blend (65% US Agg, 35% Global Agg ex US) 11.0 11.0 11.0Global High Yield Fixed Income Barclays Global High Yield 8.0 8.0 8.0Absolute Return 90 day Tbill 20.0 20.0 20.0

Market Return 45.5 42.0 38.0US All Cap Equity S&P 1500 21.5 18.0 14.0Non-US Developed Equity MSCI World ex US 9.0 9.0 9.0Emerging Market Equity MSCI EM 5.0 5.0 5.0Hedged Equity HFRI FOF: Strategic 10.0 10.0 10.0

Enhanced Return 9.0 12.0 15.0Private Equity MSCI ACWI 6.0 8.0 10.0Enhanced Real Estate NCREIF NPI 3.0 4.0 5.0

Inflation Protection 6.5 7.0 8.0Stable Real Estate CPI 2.5 3.0 4.0Global Inflation Protected Securities Barclays Global Inflation 1.0 1.0 1.0Commodities DJ UBS Commodity 3.0 3.0 3.0

100.0 100.0 100.0

Figures underlined signify long-term target allocation achieved.

Phased-In Asset Allocation Targets

Texas Treasury Safekeeping Trust Company – Endowment Portfolio Review for Quarter Ending December 31, 2009 9

Asset Allocation Evolution (Target)

0

10

20

30

40

50

60

70

80

90

100

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Inflation Protection Strategies

Investment Grade Fixed Income

High Yield Fixed Income

Absolute Return Strategies

US Equity

Non-US Developed Equity

Emerging Market Equity

Hedged Equity

Private Equity

Enhanced Real Estate

Stable Real Estate Global Inflation Protected Securities Commodities

Stable Return

Market Return

Enhanced Return

x