M EMORANDUM To: Board of Trustees, Fresno Country Employees - PDF document

W U R T S A S S O C I A T E S M EMORANDUM To: Board of Trustees, Fresno Country Employees’ Retirement Association From: Jeffrey MacLean, Wurts & Associates Date: May 1, 2008 Re: Counterparty Risk In light of the recent problems confronting Bear Stearns, the FCERA Board of Trustees directed Wurts & Associates to inquire about the counterparty exposures within the fixed income portfolios. A memorandum was sent to Western Asset Management Company (“WAMCO”), Blackrock, Loomis Sayles, Bradford & Marzec, and GMO to provide the following: • Detailed list of all counterparty exposures in the portfolio • Information about the initial due diligence process and on-going review procedures of all counterparties • An opinion about the current status of counterparty risk given the current market conditions. While Wurts & Associates cannot provide an opinion on the relative security of any of the counterparty positions within the portfolio nor can we say for sure that an adverse event will never occur, we believe the managers employed by FCERA understand the risks associated with these investments and are qualified to prudently manage these securities. We have compiled each manager’s response for easy reference. Please feel free to call me anytime at 310.297.1777 should you have any questions. Otherwise, I look forward to discussing this issue at the May 7 th meeting. Institutional Investment Consultants Seattle and Los Angeles

Fresno County Employees’ Retirement Association Counterparty Risk Exposure May 7, 2008 999 Third Avenue, Suite 3650 2321 Rosecrans Avenue, Suite 2250 Seattle, Washington 98104 El Segundo, California 90245 206.622.3700 310.297.1777

Counterparty Risk Exposure Table of Contents Western Asset Management Company (WAMCO).…………………………….Tab I BlackRock………………………………………...…………………………….Tab II Loomis, Sayles & Company…………………………………………………….Tab III Bradford & Marzec……….…………………………………………………….Tab IV GMO…………………………………………..……………………………….Tab V Wurts & Associates

I. WAMCO

Western Asset Management Company Summary of SWAP & TBA Positions Swap TBA Mkt Val % of Pf Mkt Val % of Pf Bank of America -3,281 0.00% Barclays -284,637 -0.14% 2,438 0.00% Credit Suisse -367,171 -0.18% 26,360 0.01% Deutsche Bank 299,067 0.14% -107,785 -0.05% Goldman Sachs JPMorgan -4,950 0.00% Lehman 3,000 0.00% Merrill Lynch 82,033 0.04%

SWAP Positions Asset ID Holdings Security Description Notional Market Price Market Value Duration Broker 0WP056112 -1,500.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr Zero Leg -1,500,000.00 100.0000 -1,500,000.00 0.00000 Barclays Capital Inc (PAS) 0WP056195 -1,000.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr Zero Leg -1,000,000.00 100.0000 -1,000,000.00 0.00000 Barclays Capital Inc (PAS) 0WP056872 -400.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr Zero Leg -400,000.00 100.0000 -400,000.00 0.00000 Barclays Capital Inc (PAS) 0WR056110 1,500.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr 1,500,000.00 90.1599 1,352,773.80 0.00000 Barclays Capital Inc (PAS) 0WR056193 1,000.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr 1,000,000.00 90.1599 901,849.20 0.00000 Barclays Capital Inc (PAS) 0WR056870 400.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr 400,000.00 90.1599 360,739.68 0.00000 Barclays Capital Inc (PAS) 0WP077837 -2,998.31 CDS-ABX @ 18 bps 37.4 Yr Zero Leg VTG# 06-1 -2,998,310.51 100.0000 -2,998,310.51 0.00000 Credit Suisse First Boston Inc (PAS) 0WP077936 -499.72 CDS-ABX @ 18 bps 37.4 Yr Zero Leg VTG# 06-1 -499,718.42 100.0000 -499,718.42 0.00000 Credit Suisse First Boston Inc (PAS) 0WR077835 2,998.31 CDS-ABX @ 18 bps 37.4 Yr VTG# 06-1 2,998,310.51 89.5000 2,683,592.85 0.00000 Credit Suisse First Boston Inc (PAS) 0WR077934 499.72 CDS-ABX @ 18 bps 37.4 Yr VTG# 06-1 499,718.42 89.5000 447,265.48 0.00000 Credit Suisse First Boston Inc (PAS) 0WP054273 -4,500.00 IR Swap 3MO LIBOR -4,500,000.00 100.0527 -4,515,117.30 -0.00328 Deutsche Bank Securities Inc (PAS) 0WP077811 -699.61 CDS-ABX @ 18 bps 37.4 Yr Zero Leg VTG# 06-1 -699,605.79 100.0000 -699,605.79 0.00000 Deutsche Bank Securities Inc (PAS) 0WP077852 -500.00 CDS-ABX @ 11 bps 38.2 Yr Zero Leg VTG# 06-2 -500,000.00 100.0000 -500,000.00 0.00000 Deutsche Bank Securities Inc (PAS) 0WP077951 -299.83 CDS-ABX @ 18 bps 37.4 Yr Zero Leg VTG# 06-1 -299,831.05 100.0000 -299,831.05 0.00000 Deutsche Bank Securities Inc (PAS) 0WP079015 -9,400.00 IR Swap 3.8% Fixed -9,400,000.00 98.6468 -9,272,798.26 -0.32164 Deutsche Bank Securities Inc (PAS) 0WR054271 4,500.00 IR Swap 5.27% Fixed 4,500,000.00 108.8570 4,979,589.45 0.09911 Deutsche Bank Securities Inc (PAS) 0WR077819 699.61 CDS-ABX @ 18 bps 37.4 Yr VTG# 06-1 699,605.79 89.5000 626,171.67 0.00000 Deutsche Bank Securities Inc (PAS) 0WR077850 500.00 CDS-ABX @ 11 bps 38.2 Yr VTG# 06-2 500,000.00 75.2300 376,160.69 0.00000 Deutsche Bank Securities Inc (PAS) 0WR077959 299.83 CDS-ABX @ 18 bps 37.4 Yr VTG# 06-1 299,831.05 89.5000 268,359.28 0.00000 Deutsche Bank Securities Inc (PAS) 0WR079013 9,400.00 IR Swap 3MO LIBOR 9,400,000.00 99.3206 9,336,138.28 0.01126 Deutsche Bank Securities Inc (PAS) 0WP055957 -1,600.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 5 Yr Zero Leg -1,600,000.00 100.0000 -1,600,000.00 0.00000 Goldman Sachs Group Inc (PAS) 0WP056534 -800.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 5 Yr Zero Leg -800,000.00 100.0000 -800,000.00 0.00000 Goldman Sachs Group Inc (PAS) 0WP060239 -900.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.9 Yr Zero Leg -900,000.00 100.0000 -900,000.00 0.00000 Goldman Sachs Group Inc (PAS) 0WP067614 -7,410.00 CDS-CDX.NA.IG.8 @ 35 bps 4.7 Yr Zero Leg -7,410,000.00 100.0000 -7,410,000.00 0.00000 Goldman Sachs Group Inc (PAS) 0WP067630 -4,450.00 CDS-CDX.NA.IG.8 @ 60 bps 9.7 Yr -4,450,000.00 93.8076 -4,175,327.31 0.00000 Goldman Sachs Group Inc (PAS) 0WR055955 1,600.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 5 Yr 1,600,000.00 90.1599 1,442,958.72 0.00000 Goldman Sachs Group Inc (PAS) 0WR056532 800.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 5 Yr 800,000.00 90.1599 721,479.36 0.00000 Goldman Sachs Group Inc (PAS) 0WR060237 900.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.9 Yr 900,000.00 90.1599 811,664.28 0.00000 Goldman Sachs Group Inc (PAS) 0WR067612 7,410.00 CDS-CDX.NA.IG.8 @ 35 bps 4.7 Yr 7,410,000.00 95.1495 7,051,440.23 0.00000 Goldman Sachs Group Inc (PAS) 0WR067638 4,450.00 CDS-CDX.NA.IG.8 @ 60 bps 9.7 Yr Zero Leg 4,450,000.00 100.0000 4,450,000.00 0.00000 Goldman Sachs Group Inc (PAS) COLLATERAL 300,000.00 Goldman Sachs Group Inc (PAS) 0WP056856 -900.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr Zero Leg -900,000.00 100.0000 -900,000.00 0.00000 JP Morgan Securities Inc (PAS) 0WP071152 -8,320.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.6 Yr Zero Leg -8,320,000.00 100.0000 -8,320,000.00 0.00000 JP Morgan Securities Inc (PAS) 0WR056854 900.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.8 Yr 900,000.00 90.1599 811,664.28 0.00000 JP Morgan Securities Inc (PAS) 0WR071150 8,320.00 CDS-CDX.NA.IG.HVOL.8 @ 75 bps 4.6 Yr 8,320,000.00 90.1599 7,503,385.34 0.00000 JP Morgan Securities Inc (PAS) COLLATERAL 900,000.00 JP Morgan Securities Inc (PAS)

TBA Positions CUSIP COUPON SECURITY_NAME ORIG TRANSACTION_TYPE BROKER_NAME TRADE_DATE SETTLE_DATE PRICE PRINCIPAL 02R060647 6 FHLMC - GOLD 30YR APR FWD 700000 BUY BA SECURITIES INC 2/20/2008 4/14/2008 100.75000000 705250 02R060647 6 FHLMC - GOLD 30YR APR FWD -700000 SELL BA SECURITIES INC 2/21/2008 4/14/2008 101.21875000 -708531.25 CUSIP COUPON SECURITY_NAME ORIG REMAINPAR BROKER_NAME TRADE_DATE SETTLE_DATE PRICE NET $ 01F052649 5.5 FNMA 30YR 200000 200000 BARCLAYS US FUNDING CORP 3/4/2008 4/14/2008 99.71875 2437.5 01F050643 5 FNMA 30YR 1400000 1400000 FIRST BOSTON 2/21/2008 4/14/2008 97.0859375 26360.075 01F060444 6 FNMA 15YR 480000 480000 LEHMAN BROTHERS 3/7/2008 4/17/2008 102.28125 2999.76 01F050643 5 FNMA 30YR 2500000 2500000 MERRILL LYNCH 2/25/2008 4/14/2008 95.6875 82032.5