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<div class=Section1>
<div style='border:none;border-top:double purple 2.25pt;padding:1.0pt 0in 0in 0in'>
<p class=Title-Elegant><b><span style='font-family:"Times New Roman","serif";
color:windowtext'>Local Government<o:p></o:p></span></b></p>
<p class=Title-Elegant><b><span style='font-family:"Times New Roman","serif";
color:windowtext'>NewS REPORT</span></b><b><span style='color:windowtext'><o:p></o:p></span></b></p>
</div>
<div style='border:none;border-bottom:double purple 2.25pt;padding:0in 0in 1.0pt 0in'>
<p class=IssueVolumeDate-Elegant>
September 16, 2008<span style='font-family:"Times New Roman","serif";
color:black'><o:p></o:p></span></p>
</div>
<p class=MsoNormal align=center style='text-align:center;text-autospace:none'><b><span
style='font-size:15.0pt'>Oregon Short-Term Fund Update Regarding Current Market
Conditions</span></b><span style='font-size:15.0pt;font-family:"Times New Roman","serif"'><o:p></o:p></span></p>
<p class=MsoNormal style='text-autospace:none'><span style='font-size:12.0pt'><o:p> </o:p></span></p>
<p class=MsoNormal style='text-autospace:none'>Dear Colleagues:<o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>The credit crunch, which began
to unfold in early 2007 and paused after the JP Morgan acquisition of Bear Stearns
on March 16, 2008, has recently taken on new life, resulting in a financial
crisis in the United States and all international markets. Currently, American
International Group Inc. (AIG), facing a cash shortage, is seeking a loan
package of as much as $75 billion from the private sector and/or the Federal
Reserve. AIG’s credit ratings were cut two and three notches by
Moody’s and S&P late yesterday to A2/A- from Aa3/AA-, theoretically
resulting in a higher cost of financing for the firm. <o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>This is occurring after the U.S.
government, on September 7<sup>th</sup>, placed Fannie Mae (FNM) and Freddie
Mac (FRE) into conservatorship, assuming the power of the Board and management,
thus increasing investor confidence of buyers of government-sponsored
enterprises (GSEs) debt and mortgage-backed securities. <o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>This past Monday, Bank of
America announced that they would acquire Merrill Lynch and, in a shocking
announcement to all global investors, Lehman Brothers Holdings Inc. (LEH) filed
for Chapter 11 bankruptcy protection after all attempts to instill confidence
(through increasing liquidity, deleveraging of balance sheet, plans to sell
subsidiaries) or find an acquirer failed.<o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal><b><u>OSTF Update<o:p></o:p></u></b></p>
<p class=MsoNormal>Staff regrets to inform participants that the Oregon
Short-Term Fund (OSTF) has exposure to LEH bonds, representing a little less
than 2% of the total fund. The purpose of this “Update” is to
disclose our LEH exposure, explain our next steps and, finally, to attempt to
ease any anxiety our customers may be feeling. <o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>Lehman Brothers Holdings Inc. Bond Exposure:<o:p></o:p></p>
<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=758
style='width:454.5pt;margin-left:.2in;border-collapse:collapse'>
<tr>
<td width=83 style='width:49.5pt;border:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal>Issue<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border:solid windowtext 1.0pt;border-left:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Coupon<o:p></o:p></p>
</td>
<td width=165 style='width:99.0pt;border:solid windowtext 1.0pt;border-left:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Maturity Date<o:p></o:p></p>
</td>
<td width=128 style='width:76.5pt;border:solid windowtext 1.0pt;border-left:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Capital Structure<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border:solid windowtext 1.0pt;border-left:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Par Amount<o:p></o:p></p>
</td>
<td width=83 style='width:49.5pt;border:solid windowtext 1.0pt;border-left:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>% OSTF<span
style='font-family:"Arial","sans-serif"'>*</span><o:p></o:p></p>
</td>
</tr>
<tr>
<td width=83 style='width:49.5pt;border:solid windowtext 1.0pt;border-top:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal>LEH<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>4.25%<o:p></o:p></p>
</td>
<td width=165 style='width:99.0pt;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>January 27, 2010<o:p></o:p></p>
</td>
<td width=128 style='width:76.5pt;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Senior Unsecured<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=right style='text-align:right'>$20,187,000<o:p></o:p></p>
</td>
<td width=83 style='width:49.5pt;border-top:none;border-left:none;border-bottom:
solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=right style='text-align:right'>0.21%<o:p></o:p></p>
</td>
</tr>
<tr>
<td width=83 style='width:49.5pt;border:solid windowtext 1.0pt;border-top:
none;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal>LEH<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Floating Rate<o:p></o:p></p>
</td>
<td width=165 style='width:99.0pt;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>May 25, 2010<o:p></o:p></p>
</td>
<td width=128 style='width:76.5pt;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=center style='text-align:center'>Senior Unsecured<o:p></o:p></p>
</td>
<td width=150 style='width:1.25in;border-top:none;border-left:none;
border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=right style='text-align:right'>$171,115,000<o:p></o:p></p>
</td>
<td width=83 style='width:49.5pt;border-top:none;border-left:none;border-bottom:
solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal align=right style='text-align:right'>1.75%<o:p></o:p></p>
</td>
</tr>
</table>
<p class=MsoNormal style='margin-left:4.5pt;text-indent:-4.5pt'><span
style='font-family:"Arial","sans-serif"'>*</span><i><span style='font-size:
9.0pt;font-family:"Arial","sans-serif"'>As of September 15, 2008</span></i><i><span
style='font-size:10.0pt'><o:p></o:p></span></i></p>
<p class=MsoNormal style='text-autospace:none'><span style='font-size:12.0pt'><o:p> </o:p></span></p>
<b><u><span style='font-size:11.0pt;font-family:"Calibri","sans-serif"'><br
clear=all style='page-break-before:always'>
</span></u></b>
<p class=MsoNormal style='text-autospace:none'><b><u>The plan going forward:<o:p></o:p></u></b></p>
<p class=MsoNormal style='margin-left:.5in;text-autospace:none'>Amortize the
two Lehman bonds at a recovery value to their respective maturity dates based
on current expected recovery information. This mechanism recognizes the fluidity
of the current situation and does not unduly penalize or benefit any account
holder.<o:p></o:p></p>
<p class=MsoNormal style='margin-left:.5in;text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'><b><u>What does this mean for
rates?<o:p></o:p></u></b></p>
<p class=MsoNormal style='text-autospace:none'>
This action results in a rate reduction adjustment to the OSTF.<b><u><o:p></o:p></u></b></p>
<ul style='margin-top:0in' type=disc>
<ul style='margin-top:0in' type=circle>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>Prior
to the LEH announcement, the OSTF has been able to maintain an
attractive, above-market rate for a long period of time<o:p></o:p></li>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>The
adjustment for the LEH exposure still results in a very attractive rate
versus alternatives with daily liquidity<o:p></o:p></li>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>Going
forward, rates will continue to adjust based on general market conditions
as has occurred in the past<o:p></o:p></li>
</ul>
</ul>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>For the past few months, staff
has structured the OSTF with a higher degree of liquidity as well as an
increased allocation to Treasuries and (more recently) GSEs. With the current
crisis state of the market, this trend will continue.<o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<ul style='margin-top:0in' type=disc>
<li class=MsoNormal style='mso-list:l2 level1 lfo3;text-autospace:none'>All
participants will maintain full daily liquidity with no principal losses
and accrued interest at the then prevailing OSTF rate; liquidity is
plentiful.<o:p></o:p></li>
<ul style='margin-top:0in' type=circle>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>The
OSTF is currently structured with 13.8% maturing within 7 days, 12.2% between
7-14 days, 9.4% between 15- 21 days, and 9.8% between 22-30 days; or
$3.99 billion within 30 days.<o:p></o:p></li>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>The
OSTF has a total of 53.4%, or $5.04 billion, maturing within 93 days <o:p></o:p></li>
<li class=MsoNormal style='mso-list:l2 level2 lfo3;text-autospace:none'>The
OSTF remains diversified with an increase in Treasury and GSE securities (currently,
53.7% in Treasury/GSE, 44.3% corporate securities, 2.0% in TCD’s)<o:p></o:p></li>
</ul>
</ul>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>Given the large amount of
outstanding LEH commercial paper and debt, staff expects continued fallout from
the Lehman filing in days and weeks to come, including announcements from the
money market fund universe. <o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoNormal style='text-autospace:none'>Investments, outside of
government securities, all carry some measure of risk—that’s
exactly what creates yields above Treasury benchmark rates. Our exposure
to LEH is quite limited, and is but a very small part of a broadly diversified
investment pool. Our goal remains to be good stewards of your funds, in an open
and transparent manner. Staff encourages you to contact us with any questions
or concerns.<o:p></o:p></p>
<p class=MsoNormal style='text-autospace:none'><o:p> </o:p></p>
<p class=MsoHeader><o:p> </o:p></p>
<p class=MsoHeader>Sincerely,<o:p></o:p></p>
<p class=MsoHeader><o:p> </o:p></p>
<p class=MsoHeader>OSTF Staff<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal><b><i><span style='font-size:12.0pt;font-family:"MS Sans Serif"'>Judy
A. Whaley-Fultz,CTP</span></i></b><span style='font-size:12.0pt;font-family:
"Times New Roman","serif"'><o:p></o:p></span></p>
<p class=MsoNormal><b><i><span style='font-size:12.0pt;font-family:"MS Sans Serif"'>Assistant
Director of Cash Management, Finance Division</span></i></b><span
style='font-size:12.0pt;font-family:"Times New Roman","serif"'><o:p></o:p></span></p>
<p class=MsoNormal><b><i><span style='font-size:12.0pt;font-family:"MS Sans Serif"'>Office
of the Oregon State Treasurer</span></i></b><span style='font-size:12.0pt;
font-family:"Times New Roman","serif"'><o:p></o:p></span></p>
<p class=MsoNormal><b><i><span style='font-size:12.0pt;font-family:"MS Sans Serif"'>Phone:
(503) 378-2885</span></i></b><span style='font-size:12.0pt;font-family:"Times New Roman","serif"'><o:p></o:p></span></p>
<p class=MsoNormal><b><i><span style='font-size:12.0pt;font-family:"MS Sans Serif"'>Fax: (503)
373-1179</span></i></b><o:p></o:p></p>
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