Fresno County Employees’ Retirement Association Asset Allocation Study March 1, 2006 Jeffrey MacLean Chief Executive Officer LOS ANGELES 2321 Rosecrans Avenue Suite 2250 El Segundo, California telephone facsimile SEATTLE 999 Third Avenue Suite 3650 Seattle, Washington telephone facsimile

WURTS & ASSOCIATES PAGE 2 Overview of Presentation I.Inputs & Assumptions II.Analysis & Results

WURTS & ASSOCIATES PAGE 3 SECTION I Inputs & Assumptions

WURTS & ASSOCIATES PAGE 4 Consensus Expectations - Returns Notes: Compound Returns. Investment Consultant 1, 2, & 3 were provided by Ennis Knupp, whom performed the survey. Asset Class Consultant 1Consultant 2Consultant 3Consultant 4Consultant 5Consultant 6Consultant 7 Goldman SachsSSGA Large Cap U.S. Equity 7.70%8.50%8.70%8.50%8.00%8.85%8.40%8.00%7.50% Small/Mid Cap U.S. Equity 9.85%9.00% 7.70% International Large 7.70%8.50%8.70%8.80%8.00%9.25%9.50%8.00%9.10% International Small 10.00% Emerging Markets 9.80% 10.50%8.00%9.90% U.S. Core Fixed Income 5.00%4.80%6.10%5.25%5.40%4.75%4.50%5.00%4.50% High Yield Fixed Income 6.80% TIPS 4.40% Foreign bonds 5.10% 4.70% Real Estate 7.30% 7.00%7.50% 7.60%7.20%6.00% REIT's 7.10% 7.50%7.20%6.80% 5.80% Hedge Funds/Abs Return 8.50% 6.50%7.00% Timber 9.40% Commodities % 7.30% Private Equity / Venture Capital 10.60%11.70% 12.80% 11.00% Cash 3.10%4.20%3.25% 3.50% Inflation 3.00%3.10% 2.90%2.60%2.90% 2.50%

WURTS & ASSOCIATES PAGE 5 Expected Rate of Inflation Cash Bonds U.S. Stocks International Stocks Wurts & Associates utilizes a combination of fundamental analysis and a building block approach to construct projected returns for key asset classes. International Stocks: The historical relationship between returns for international and U.S. stocks is examined to determine if a premium should exist for international stocks. An overlay of fundamental analysis is applied for minor adjustments. U.S. Stocks: We estimate an Equity Risk Premium based upon the historic range of premia. This is fine- tuned with fundamental returns decomposition. Bonds: We believe that a bond’s yield is an unbiased measure of market expectations regarding future returns. Given historically low rates and the high level of fiscal and monetary stimulus, we believe rates will rise over time, and the current yield should be adjusted as a predictor of future returns. Cash: We examine the historic premium of cash instruments to inflation and compare to the current yield and inflation rate. A qualitative judgment is made about the size and sustainability of the premium given today’s environment. Inflation: We utilize the break-even inflation rate between the ten-year TIPS and conventional Treasuries as a starting point. Adjustments are made based upon our view of the macroeconomic environment. Building Block Approach: Description

WURTS & ASSOCIATES PAGE 6 Market Implied 10 Year Inflation Estimate: Market expects inflation of 2.4% over next ten years. We believe that this measure is too low: Fiscal and monetary stimulus Need to “reflate away” large public and private debt levels. We leave the inflation forecast unchanged of 2.70%. As of January 3, Return Assumptions: Inflation

WURTS & ASSOCIATES PAGE 7 Source: Ibbotson. Data ending 12/31/2005. Current Yield on T-bill matures Feb 3, 2006: WSJ. Return Assumptions: Cash

WURTS & ASSOCIATES PAGE 8 Starting bond yield is an excellent predictor of subsequent ten-year performance: Source: Ibbotson. Data ending 12/31/ Year Govt Bond Return: 50% Intermediate Gov’t & 50 LT Gov’t. Starting 10 Year Govt Bond Yield: 50% Int Govt Yield & 50% LT Govt Yield. Source: Ibbotson. Data ending 12/31/ Year Govt Bond Return: 50% Intermediate Gov’t & 50 LT Gov’t. Starting 10 Year Govt Bond Yield: 50% Int Govt Yield & 50% LT Govt Yield. Return Assumptions: Bonds

WURTS & ASSOCIATES PAGE 9 Relationship also holds for Lehman Aggregate Index over shorter time period: Source: Ibbotson. Data ending 12/31/2005. Return Assumptions: Bonds

WURTS & ASSOCIATES PAGE 10 Yield to Maturity: We believe the yields will rise moderately in response to inflation. Higher reinvestment rate will, over latter portion of next ten years, compensate for shorter-term price losses. We estimate a 5.25% return for (Lehman Aggregate Index) core bonds. Return Assumptions - Bonds Source: Ibbotson. Data as of 12/30/2005.

WURTS & ASSOCIATES PAGE 11 The equity risk premium is the most important number in investing. Stocks are inherently more risky than bonds. In order to be a valid investment choice, stocks must offer a higher rate of return than bonds to attract investor capital. This demanded incremental difference in return is the equity risk premium and is typically defined as the long run (ten years in this case ) return difference between US equities and US government bonds. Since 1926, this number has averaged approximately 6.0%. We begin our 2006 estimate with a historic look at the premium over time. The following chart displays the starting yield of a ten-year government bond and the subsequent ten years of stock performance as measured by the S & P 500: Return Assumptions - Equity

WURTS & ASSOCIATES PAGE 12 We estimate a 7.9% nominal return for stocks. This implies an equity risk premium of about 3.5% over a starting 10-Year Treasury bond yield¹. About 200 basis points less than 6.0% average of last 76 years. Lower end of historical risk premium distribution. Return Assumptions - Equity Breakdown of the Return Composition: Dividends: Our total dividend estimate is 2.7% - 1.8% current yield, 0.3% “repurchase yield”, and 0.6% for a rising payout ratio. Real Earnings Growth: over the 1990’s averaged 5.5% and 2.5% from We feel the moderately higher 3.0% is appropriate and in line with a reasonable rate of real GDP growth. P/E Contraction: Ratios increased from 10 to 30 over the last 76 years. Most of the increase occurred in the last 20 years. Last year, we assumed no change in valuation levels over the next ten years. P/E’s have subsequently risen causing us to project some contraction in equity prices. Therefore, we assume a contraction of -0.5% which we feel will be cushioned by lower tax rates and inflation levels Year Yield as of 12/30/05 was 4.4%.

WURTS & ASSOCIATES PAGE 13 Stocks usually (but not always) reward investors for their greater volatility: Return Assumptions - Equity Source: Ibbotson. Data ending 12/31/2005. Starting 10 Year Govt Bond Yield: 50% Int Govt Yield & 50% LT Govt Yield.

WURTS & ASSOCIATES PAGE 14 The distribution of the ten-year equity risk premium around a starting government bond yield can vary widely. Valuations, dividend yields, investor behavior and a number of other factors can cause the number over any ten-year period to dramatically deviate from the 6% average. Our preference over the next ten years is towards the lower end of the distribution due to high valuations and low dividend yields. However, we need a more precise estimate to model. Therefore, we will look at key fundamental components of long run stock returns. Return Assumptions - Equity Equity Risk Premium: Is the arithmetic difference of the S&P year return and the 10 year starting yield.

WURTS & ASSOCIATES PAGE 15 To better understand where the risk premium will fall over the next ten years, it is important to decompose the average return of the stock market over the last 78 years: ’s1960’s1970’s 1980’s1990’s Est. Dividends 4.3%5.3%3.3 %4.0 %4.6 %2.7 % Real Earnings Growth 2.0%1.7 %2.9 %2.3 %0.2 %5.2 %3.0% P/E Expansion/Contraction 0.9%9.4 %-1.0 %-7.7 %7.6 %7.3 %-0.5% Inflation3.0%2.2 %2.5 %7.4 %5.1 %2.9 %2.7% Total10.4%19.4%7.8 %5.9 %17.6 %18.2 %7.9% Source: Ibbotson, Standard & Poor’s, Haver, Robert Shiller, and Morgan Stanley Research. Historical data is rounded. Return Assumptions – Equity

WURTS & ASSOCIATES PAGE 16 Small stocks have historically displayed a risk premium of their own to large cap stocks given their historical higher volatility. Return Assumptions – Small Stocks Source: Ibbotson. Data ending 12/31/2005. U.S. Small Stock Premium: The historical small stock premium is derived as the geometric difference between U.S. Small Stocks total returns and S&P 500 total returns. US Small Stock index: The Small Company Stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 (for ninth and tenth deciles) Fund. The Fund invests in a broadly diversified cross section of small companies.

WURTS & ASSOCIATES PAGE 17 Small stocks have historically displayed a risk premium of their own to large cap stocks given their historical higher volatility. Return Assumptions – Small Stocks Source: Ibbotson. Data ending 12/31/2005. Table was derived using quarterly observations. U.S. Small Stock Premium: The historical small stock premium is derived as the geometric difference between U.S. Small Stocks total returns and S&P 500 total returns. 5 Year Compound Average Small Stock Premium Small Stock Subsequent 10 Year Compound Average Performance QuartilesRangeLowMedianMax 1st-19.6 to nd-4.5 to rd1.5 to th8.9 to Year Compound Average for Small Stock Premium ending 12/31/05 = 15.8%

WURTS & ASSOCIATES PAGE 18 Previously, we examined long term (20 years) results of international and domestic stocks that showed no distinct premium. However, when measured in 10-year periods, international stocks and U.S. stocks show shifting leadership characteristics. Return Assumptions – International Large Source: Ibbotson. Data ending 12/31/2005.

WURTS & ASSOCIATES PAGE 19 Return Assumptions – International Large We begin our assessment of relative performance differential over the next ten years by looking at the difference in dividend yields. Beginning in the late 90’s, international stocks began to show a distinct premium in annual dividend yields. Source: GMO

WURTS & ASSOCIATES PAGE 20 What impact does a starting dividend premium have on the next ten years of performance? We compared the 10-year performance ( between the MSCI EAFE and S&P 500) and the starting dividend yield differential (EAFE dividend yield minus S&P 500 dividend yield). The table below summarizes: Return Assumptions – International Large Dividend Advantage (EAFE over S&P) % Time EAFE Outperformed the S&P 500 Average Return Differential Over.75%100%4.6%.74% to.25%88%2.9%.24% to (-.25%)48% (-.26%) to (-.75%)54% (-.76%) to (-1.25%)48% (-1.26%) to (1.75%)37% Under (-1.76%)52% Notes: The first observation compared the 10 year, January 1970 to December 1979, annualized return differential (MSCI EAFE minus S&P 500) with the 12/31/1969 dividend yield differential (EAFE dividend yield minus S&P 500 dividend yield). The second observation compared the 10 year performance, February 1970 to January 1980, with the 1/31/70 dividend yield differential. Data as of 12/31/2005. For the next ten years, we believe it will be in the 0.7% ballpark translating to a nominal return expectation of 8.6%.

WURTS & ASSOCIATES PAGE 21 Given the lack of historical data for emerging markets, we measured rolling 5-year periods. Emerging markets and U.S. stocks show shifting leadership characteristics. Return Assumptions – Emerging Markets Source: Ibbotson and MSCI. Data ending 12/31/2005.

WURTS & ASSOCIATES PAGE 22 Majority of real estate returns come from income return. –NCREIF income return stood at 8.0% ending June 2005 Price appreciation of properties roughly lags the inflation rate. –U.S. Inflation averaged 4.2% from 1978 – 2005 (ending June) We estimate a 6.1% ten-year return for private, core real estate portfolios. –Pricing risk caused by continued low interest rates and increased institutional demand for that asset class will lead to values appreciating slower than our inflation estimate – 2.7% –Leading to a realized income return from real estate in the 4.5% range Source: SSR Realty Advisors, NCREIF Return Assumptions – Real Estate

WURTS & ASSOCIATES PAGE 23 Asset ClassProxyPeriodStandard Deviation Wurts’ 2006 Assumptions Large Cap U.S. EquityS&P %16.0% Small / Mid Cap U.S. Equity Ibbotson U.S. Small Stock % 22.0% Russell % International LargeMSCI EAFE %19.0% International SmallMSCI EAFE Small Cap %28.0% Emerging MarketsMSCI Emerging %35.0% U.S. Core Fixed Income Ibbotson U.S. LT Corporates % 6.0% LB Aggregate % High Yield Fixed IncomeLB High Yield %10.0% TIPSML Inflation-linked Securities %5.0% Real EstateNCREIF Property %12.0% REIT’sNAREIT %15.0% Liquid Alternatives / Hedge FundsHFRI Fund of Funds Composite %8.0% Private Equity / Venture CapitalCambridge Private Equity %35.0% CashU.S. 30 day T-Bill %1.50% InflationU.S. Inflation (CPI) %2.0% Source: Ibbotson, Hedge Fund Research, and Cambridge. Return observations are annual. Historical Risk

WURTS & ASSOCIATES PAGE 24 Historical Correlations Large US Equity1.00 Small/Mid US Equity International Large International Small Emerging Markets US Core Fixed Income High Yield Fixed Income TIPS Real Estate REITs Hedge Funds Private Equity/Venture Cash Inflation (CPI) Note: The history used to calculate correlation is the common date range between the pair of asset classes. (The previous page shows date ranges for all asset classes.). Correlation is calculated using quarterly returns. Large US Small/Mid US International Emerging Mkts US Core FI High Yield FI TIPS Real Estate REITs Hedge Funds Private Equity Cash (CPI) Int’l Small

WURTS & ASSOCIATES PAGE 25 Consensus Expectations - Returns Notes: Compound Returns. Investment Consultant 1, 2, & 3 were provided by Ennis Knupp, whom performed the survey. Asset Class Historical Returns (Period) 10 Year Estimates Avg. Consensus Returns 2006 Wurts’ Returns 2006 Wurts’ Standard Deviation Large Cap U.S. Equity10.4% ( ) 8.24%7.90% 16.0% Small/Mid Cap U.S. Equity12.6% ( ) 8.85%8.50% 22.0% International Large11.2% ( ) 8.62%8.60% 19.0% International Small7.0% ( ) n/a9.10% 28.0% Emerging Markets14.3% ( ) 9.55%9.60% 35.0% U.S. Core Fixed Income5.3% ( ) 5.03%5.30% 6.0% High Yield Fixed Income9.6% ( ) n/a6.50% 10.0% TIPS7.9% ( ) n/a4.70%5.0% Real Estate9.5% ( ) 7.13%6.10% 12.0% REIT’s10.7% ( ) 6.92%6.60% 15.0% Liquid Alternatives/Hedge Funds9.9% ( ) 7.33%7.50% 8.0% Private Equity/Venture Capital13.7% ( ) 11.47%10.90% 35.0% Timber15.4% ( ) n/a8.30% 14.0% Commodities7.8% ( ) n/a6.50% 12.5% Cash3.7% ( )3.51%3.50%1.5% Inflation3.0% ( )2.83%2.70%2.0%

WURTS & ASSOCIATES PAGE 26 Wurts’ Expected Correlation Assumptions Large US Equity1.00 Small/Mid US Equity International Large International Small Emerging Markets US Core Fixed Income High Yield Fixed Income TIPS Real Estate REITs Liquid Alts / Hedge Funds Private Equity/Venture Cash Inflation (CPI) Note: The history used to calculate correlation is the common date range between the pair of asset classes. (The previous page shows date ranges for all asset classes.). Correlation is calculated using quarterly returns. Large US Small/Mid US International Emerging Mkts US Core FI High Yield FI TIPS Real Estate REITs Liquid Alts Private Equity Cash (CPI) Int’l Small

WURTS & ASSOCIATES PAGE 27 Wurts’ Expected Alpha Assumptions Data as of 12/31/ Alpha is the excess return of a portfolio calculated as Portfolio Return – Benchmark Return. For this analysis, Small/Mid Cap Equity and International Equity alpha figures adjusted to 1.50% and 1.00%, respectively, to match assumptions of other Avista Corp. benefit plans. 2.International small cap is over 5 years. International small universe data is from eVestment Alliance. 3.Fund of funds level. Excess net return is not applicable since the index return and median return are the same. Asset Class Ten Year ICC Universe Median Return (A) Ten Year Benchmark Return (B) Average Mgmt. Fee (C) Alpha¹ = Excess Net Return (=A-B-C) Ten Year Forecasts of Active Mgmt. Alpha Large Core US Equity9.19%9.28%0.60%-0.69%0.50% Small/Mid Core US Equity15.22%9.26%0.85%5.11%2.00% International Equity11.05%6.18%0.75%4.12%1.25% Emerging Markets8.10%6.98%1.25%-0.13%2.50% International Small Cap²14.50%5.10%1.25%8.15%2.00% US Core Fixed Income6.50%6.16%0.35%-0.01%0.25% Real Estate12.11%12.09%1.00%-0.98%0.00% Hedge Funds³n/a %n/a0.00% Private Equity³n/a %n/a0.00%

WURTS & ASSOCIATES PAGE 28 Wurts’ Expected Alpha Assumptions *Independent Consultants Cooperative Universe Median net of expected fees versus comparable index - a result above 0.00% indicates the median manager in the asset class added value. Data for small cap equity goes back to 1990.

WURTS & ASSOCIATES PAGE 29 SECTION II Analysis & Results

WURTS & ASSOCIATES PAGE 30 Allocation Market Value: $2.479 Billion Investment Policy Manager Allocation As of 12/31/05

WURTS & ASSOCIATES PAGE 31 Projected Return: 10 Year Forecast Asset ClassPolicy Large Cap U.S. Equity28% Small/Mid Cap U.S. Equity10% International Large Cap Equity12% Emerging Markets Equity6% U.S. Core Fixed Income 30% Global Fixed Income3% Private Equity6% Real Estate5% Expected Return8.15% Standard Deviation11.53% Sharpe Ratio0.40 Active Alpha¹0.69% Return with Active Alpha8.84% I. Active Alpha (0.69%) = (22% x 0.50%) (Large Cap U.S. Active) + (10% x 2.0%) (Small Cap U.S. Active) + (12% x 1.25%) (Int’l. Large Cap) + (6% x 2.5%) (Emerging Mkts.) + (30% x 0.25%) (U.S. Core Fixed Income). 0% Active Alpha for Global Fixed Income, Private Equity, and Real Estate.

WURTS & ASSOCIATES PAGE 32 Best/Worst Case Scenarios Percentile1 Year3 Year5 Year10 Year 5th28.7%19.58%16.90%14.27% 25th16.15%12.70%11.66%10.62% 50th8.15% 75th0.71%3.79%4.76%5.74% 95th-9.11%-2.18%0.06%2.37% 28.70%28.70% 19.58%19.58% 16.90%16.90% 14.27%14.27% 16.15%16.15% 12.70%12.70% 11.66%11.66% 10.62%10.62% 8.15%8.15% 8.15%8.15% 8.15%8.15% 8.15%8.15% 0.71%0.71% 3.79%3.79% 4.76%4.76% 5.74%5.74% -9.11%-9.11% -2.18%-2.18% 0.06%0.06% 2.37%2.37%