Amended Agenda Finance and Audit Committee Conference Call

Transcription

1 Amended Agenda Finance and Audit Committee Conference Call June 5, p.m. EDT Dial-In: Code: Open Session Introductions and Chairman s Remarks Antitrust Compliance Guidelines *1. Minutes Approve a. May 5, 2009 (Regular FAC Meeting) b. May 5, 2009 (2010 NERC Business Plan & Budget Discussion) *2. Investment Policy Statement Review and Approve 3. Future Meetings a. July 17, 2009 Conference Call (2 p.m. EST) b. August 4, 2009 Meeting (Winnipeg, Manitoba, Canada) c. October 29, 2009 Conference Call (2 p.m. EST) *Background Material Included Closed Session (FAC Members Only) *1. Discussion with Mercadian, P.C. *2. Draft Audited Financial Statements Review and Approve *3. Personnel Consequences of 2010 Business Plan and Budget Village Blvd. Princeton, NJ

2 Antitrust Compliance Guidelines I. General It is NERC s policy and practice to obey the antitrust laws and to avoid all conduct that unreasonably restrains competition. This policy requires the avoidance of any conduct that violates, or that might appear to violate, the antitrust laws. Among other things, the antitrust laws forbid any agreement between or among competitors regarding prices, availability of service, product design, terms of sale, division of markets, allocation of customers or any other activity that unreasonably restrains competition. It is the responsibility of every NERC participant and employee who may in any way affect NERC s compliance with the antitrust laws to carry out this commitment. Antitrust laws are complex and subject to court interpretation that can vary over time and from one court to another. The purpose of these guidelines is to alert NERC participants and employees to potential antitrust problems and to set forth policies to be followed with respect to activities that may involve antitrust considerations. In some instances, the NERC policy contained in these guidelines is stricter than the applicable antitrust laws. Any NERC participant or employee who is uncertain about the legal ramifications of a particular course of conduct or who has doubts or concerns about whether NERC s antitrust compliance policy is implicated in any situation should consult NERC s General Counsel immediately. II. Prohibited Activities Participants in NERC activities (including those of its committees and subgroups) should refrain from the following when acting in their capacity as participants in NERC activities (e.g., at NERC meetings, conference calls and in informal discussions): Discussions involving pricing information, especially margin (profit) and internal cost information and participants expectations as to their future prices or internal costs. Discussions of a participant s marketing strategies. Discussions regarding how customers and geographical areas are to be divided among competitors Village Blvd. Princeton, NJ

3 Discussions concerning the exclusion of competitors from markets. Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers. Any other matters that do not clearly fall within these guidelines should be reviewed with NERC s General Counsel before being discussed. III. Activities That Are Permitted From time to time decisions or actions of NERC (including those of its committees and subgroups) may have a negative impact on particular entities and thus in that sense adversely impact competition. Decisions and actions by NERC (including its committees and subgroups) should only be undertaken for the purpose of promoting and maintaining the reliability and adequacy of the bulk power system. If you do not have a legitimate purpose consistent with this objective for discussing a matter, please refrain from discussing the matter during NERC meetings and in other NERC-related communications. You should also ensure that NERC procedures, including those set forth in NERC s Certificate of Incorporation, Bylaws, and Rules of Procedure are followed in conducting NERC business. In addition, all discussions in NERC meetings and other NERC-related communications should be within the scope of the mandate for or assignment to the particular NERC committee or subgroup, as well as within the scope of the published agenda for the meeting. No decisions should be made nor any actions taken in NERC activities for the purpose of giving an industry participant or group of participants a competitive advantage over other participants. In particular, decisions with respect to setting, revising, or assessing compliance with NERC reliability standards should not be influenced by anti-competitive motivations. Subject to the foregoing restrictions, participants in NERC activities may discuss: Reliability matters relating to the bulk power system, including operation and planning matters such as establishing or revising reliability standards, special operating procedures, operating transfer capabilities, and plans for new facilities. Matters relating to the impact of reliability standards for the bulk power system on electricity markets, and the impact of electricity market operations on the reliability of the bulk power system. Proposed filings or other communications with state or federal regulatory authorities or other governmental entities. Matters relating to the internal governance, management and operation of NERC, such as nominations for vacant committee positions, budgeting and assessments, and employment matters; and procedural matters such as planning and scheduling meetings. Antitrust Compliance Guidelines 2

4 Agenda Item 1.a Draft Minutes of Open Session Finance and Audit Committee May 5, :00-10:30 a.m. The Westin Arlington Gateway 801 North Glebe Road Arlington, Virginia Open Session Chairman Bruce Scherr convened a duly noticed open meeting of the Finance and Audit Committee of the North American Electric Reliability Corporation on May 5, 2009 at 9 a.m., EDT. The agenda and list of attendees are attached as Exhibit A and B respectfully. Antitrust Compliance Guidelines Chairman Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Minutes The committee approved the minutes of the April 21, 2009 conference call (Exhibit C.) Second Quarter Mandate Items Bruce Walenczyk, Chief Financial Officer, reviewed the Second Quarter Mandate Items (Exhibit D.) Mr. Walenczyk pointed out in the March 31, 2009 Consolidated Statement of Activities that interest income is $170k under budget, due to low interest rates, and personnel expenses are $2.7 million under budget, as a result of a lag in new hires and resignations. Meeting costs and travel expenses are $450k below budget because of a concerted effort to reduce such costs. Mr. Walenczyk reviewed for approval the March 31, 2009 NERC Statement of Activities and Actual to Budget Variance Analysis (Exhibit E), noting that the ERO has adopted a GAAP presentation, including depreciation expense, for reporting 2009 actual results and presenting the 2010 budget. Through March 31, 2009 personnel expenses are $234k below budget due to a lag in new hires. Total meeting expenses are $37k under budget, and total operating expenses are $436k under budget. On motion by Jan Schori, the committee approved the NERC Statement of Activities. Mr. Walenczyk also noted that, at this time, there is an under spending on the CRATS Database, Internal Audit, the NASPI project, and the ERO Performance Assessment. However, as the year progresses, the amount spent for these items will likely equal the budgeted amounts Village Blvd. Princeton, NJ

5 Mr. Walenczyk also reviewed the March 31, 2009 Regional Entity Statement of Activities and Actual to Budget Variance Analysis (Exhibit F.) Discussion with David L. Stafford from Mercadian, P.C. David Stafford reviewed the 2008 Draft Audited Financial Statements with the committee (Exhibit G.) He explained that Mercadian is providing a clean opinion covering NERC s financial statements from audits conducted as of December 31, He went on to review the document, pointing out that there was a large increase in cash flow as NERC was collecting funds in advance, and that NERC s total revenue is up $4.4 million. Future Meetings The committee agreed on the following dates and times for future meetings: a. June 5, 2009 Conference Call (2 p.m. EDT) b. July 17, 2009 Conference Call (2 p.m. EDT) c. August 4, 2009 Meeting (Winnipeg, Manitoba, Canada) d. October 29, 2009 Conference Call (2 p.m. EDT) There being no further business; the committee adjourned to closed session at 9:45 a.m. Closed Session The committee met in closed session to review the Financial Statement Audit with Mercadian and then with management. Submitted by, Bruce E. Walenczyk Chief Financial Officer Finance and Audit Committee Meeting Draft Minutes 2 May 5, 2009

6 Agenda Item 1.b Draft Minutes Finance and Audit Committee Meeting May 5, :30-5:30 p.m. EDT The Westin Arlington Gateway 801 North Glebe Road Arlington, Virginia Overview of 2010 Preliminary NERC Business Plan and Budget Chairman Bruce Scherr convened a duly noticed open meeting of the Finance and Audit Committee of the North American Electric Reliability Corporation on May 5, 2009 at 3:30 p.m., EDT. The agenda and list of attendees are attached as Exhibit A and B respectfully. Antitrust Compliance Guidelines Chairman Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Expanding the Scope of the ERO Chairman Scherr informed the committee that the intention of the meeting is to have an open discussion regarding NERC s 2010 Preliminary Business Plan and Budget (Exhibit C.) NERC s Chief Financial Officer, Bruce Walenczyk, informed the committee the proposed increase in FTE s represents 58 percent of the increase in the projected 2010 preliminary budget, and the 2010 NERC Business Plan and Budget document will be largely driven by decisions made regarding the FTE s. The Overview of the 2010 Preliminary NERC Business Plan and Budget was broken into 5 sections; Expanding the Scope of the ERO, Improving Current Performance and Timeliness, Administration, Current ERO Activities, and Assessment/ Allocation of Expenses and Penalties. Expanding the Scope of the ERO results in additional FTE s in compliance monitoring and organization registration and situational awareness and infrastructure security. Compliance monitoring and organization registration proposed an increase of 17 FTE s, comprised of 10 compliance auditors, 5 senior auditors, and 2 compliance administrators. These FTE s would annually audit CIP Standards at 63 nuclear plant sites. Additionally under compliance monitoring and organization registration, 2.5 FTE s would be hired to manage and process technical feasibility exceptions (TFE s) for Critical Infrastructure Protection (CIP) Standards in accordance with Rules of Procedure. An additional 2.5 FTE s are projected for conducting the audits of WECC, SPP, and FRCC registered entity functions. Total cost for the 22 compliance FTE s is $4.3 million. Seven FTE s are proposed under situational awareness and infrastructure security. One CIP manager, 4 FTE s to support new CIP standards requirements, which would include a national Village Blvd. Princeton, NJ

7 security engineer, a control systems engineer, a security analyst, and a security architect, as well as, 2 situation awareness specialists to man the new situational awareness center. Total cost for the 7 FTE s is $1.4 million. Improving Current Performance and Timeliness Compliance monitoring and organization registration, reliability standards, reliability assessments and performance analysis, and training, education, and operator certification, are seeking additional FTE s to improve performance and timeliness. Compliance monitoring and organization registration are proposing for 9 additional FTE s. Six of these FTE s will be used to modify processing of violations to minimize backlogs and handle enforcement of CIP standards at nuclear plant sites. The remaining 3 are a director of regional operations, compliance program auditor, and a database administrator in analysis, reporting, and tracking. Reliability Standards is seeking to increase their staff by 3 FTE s to include two standards development coordinators to handle requests for interpretation, and one standards process manager to manage the work load and provide backup support. The FTE increases are a result of increasing requests for interpretation of standards. Reliability Assessments and Performance Analysis has requested an increase of 3.5 FTE s. 2.5 FTE s will primarily support the Generation Availability Data System (GADS) and 1 FTE to support Performance Analysis. This department is looking to transfer GADS to the Princeton office, and the GADS assistant manager position has already been filled by an internal transfer. Training, education, and system operator certification is seeking 3.5 FTE s to support training requirements in compliance, standards, and generally within NERC. Mr. Walenczyk informed the committee in 2010 this program area will be developing 11 new training and educational activities to improve auditor s skills along with a CIP auditing course. Within the standards department there will be several new enhanced training activities for drafting teams, drafting team leaders, stakeholders, and staff coordinators, as well as a new training module for developing violation risk factors and violation severity levels. The total additional FTE s for the 4 departments equals 19, with a total cost of $2.9 million. Administration Administration is divided into 5 departments: legal, general and administrative (G&A), information technology (IT), human resources (HR), and finance. Within legal and regulatory, 2 attorneys and 1 administrative assistant will be needed to support NERC s increasing activities. G&A is seeking a communications specialist. IT is seeking 2 FTE s to fill the positions of a SharePoint administrator and a help desk specialist. An internal transfer to GADS results in IT s FTE count increasing by 1. HR is looking to hire an HR manager and an administrative assistant. An internal transfer to Finance results in a total FTE increase of 1 in HR. Finance is proposing 2.5 FTE s to include a junior accountant, a budget analyst, 2 transfers into the department, and a part-time payroll clerk. The total FTE increase in Finance is 3.5. Administration s proposed FTE s total, with 3 positions that are internal transfers and retirees, is 7.5 with a cost of $.6 million. Finance and Audit Committee Meeting Draft Minutes May 5, 2009

8 Assessments/Allocation of Expenses Mr. Walenczyk reported to the committee that the current policy states that ERO costs are allocated to Load Serving Entities on the basis of Net Energy for Load. Exceptions to note are: ERO Performance Assessment in 2009 IDC costs NERC audits of RE registered functions Certain compliance costs. He also stated that precedent exists for alternative methodologies to allocate ERO costs, and that penalties received will be used to reduce assessments. Comments from those in attendance indicated that more justification of the FTE increase was necessary. Mr. Scherr asked the participants to submit any written comments in regards to the budget as soon as possible. He also reminded participants that the Business Plan and Budget was in its early stages and that comments would be taken into consideration as future drafts were developed. There being no further business; the meeting was terminated at 5:20 p.m. Submitted by, Bruce E. Walenczyk Chief Financial Officer Finance and Audit Committee Meeting Draft Minutes May 5, 2009

9 Agenda Item 2 DRAFT Investment Policy Statement North American Electric Reliability Corporation Savings and Investment Plan June, 2009

10 Plan Purpose and Objective North American Electric Reliability Corporation ( NERC or the Firm ) sponsors one defined contribution plan named the North American Electric Reliability Corporation Savings and Investment Plan (the Plan ) to provide a convenient way for eligible employees to save on a regular and long-term basis for retirement through a combination of participant and company contributions. The Plan is qualified under section 401(k) of the Internal Revenue Code and is operated in compliance with the Employee Retirement Income Security Act ( ERISA ) of 1974, as amended. Given the Plan s objective to comply with the Section 404(c) of ERISA, the Plan will provide sufficient investment choices to reflect the broad range of risk tolerances common among participants in retirement savings plans. Participants will be given the flexibility to alter their investment choices and the direction of their future contributions while benefiting from daily valuation. The Plan will also provide participants with access to current investment information along with education materials and/or programs designed to compare investment options by risk and return characteristics. This Investment Policy Statement ( Policy ) defines the Plan s investment objectives and establishes policies and procedures so that these objectives can be met in a prudent manner. This Policy is intended to: Provide a mechanism to establish and review the Plan s investment objectives; Identify those individuals/functions within the Firm with responsibility for selecting and reviewing the Plan s investments; Designate the investment options available to participants with a clear understanding of the role each investment option performs; Establish procedures for selection, review and oversight of investment managers and investment options; Identify the criteria that may be considered when selecting the funds and evaluating the funds continued appropriateness; and Provide a single document to ensure that the fiduciary investment and monitoring responsibilities of the Plan are met. The NERC Investment Committee ( Committee ) appointed by the Firm believes investment policies described in this Policy should be consistent with the interests and investment knowledge of the participants, and the Committee s philosophy. This Policy will attempt to continuously reflect the Committee s best judgment regarding investments, the needs and characteristics of participants, and the Plan s objectives. 1

11 The NERC Investment Committee The Committee will be comprised of representatives from the Firm s Finance, Legal, Human Resources and other operating departments, representing a broad constituency of Plan participants. The Committee is charged with: Establishing, maintaining, and reviewing the Policy; Ensuring compliance with ERISA and any other relevant state and federal laws, regulations and rulings that impact the investment process; Identifying and selecting a blend of well-managed investment options for the Plan that offer an adequately diversified lineup; Monitoring the investment strategies, performance, and risk characteristics of investment options on a semi-annual basis; Taking appropriate action if objectives are not being met or if the investment strategy employed by any of the funds is no longer appropriate for the investment option; Ensuring that fees paid to service providers and other expenses of the Plan are reasonable; and Identifying and selecting service providers to assist in meeting and maintaining Plan objectives. 2

12 Investment Policies and Objectives Investment Objectives Considering the varied attitudes, goals, expectations, investment time horizons, and risk tolerance levels of the Plan s participants, the Plan will offer a broad array of investments across the capitalization and style spectrum that allow participants to build portfolios consistent with their needs and objectives. Key considerations in structuring the investment options are: Diversification, which is crucial to the long-term success of wealth accumulation for plan participants; Low expenses and reasonable costs; The role each option potentially plays in a participant s investment goals and preferences; and The role each option plays in meeting the broad investment objectives of the plan. Investment Categories and Options To provide a well-diversified array of investment options, the Plan will offer choices among the three primary asset classes (cash, bonds, and stocks). Within stocks, there should be additional opportunities to diversify by style (growth and value), size (large capitalization and small capitalization) and region (U.S. and international). The following broadly defined investment categories are to be represented in the Plan s lineup. Short-Term Reserve To provide participants with an investment option that seeks maximum current income that is consistent with preservation of capital and liquidity. U.S. Bond Market To provide participants with an investment option that tracks the performance of the entire investment-grade U.S. bond market. Style-Neutral U.S. Equity Market s To provide participants with investment options that track the performance of the large-, mid-, and small-cap U.S. equity markets. Actively Managed Style-Specific U.S. Equity s To provide participants with investment options that employ active management techniques pursuing growth/value styles within the large-, mid-, and small-cap segments of the U.S. equity market. Balanced To provide a well-diversified, self-maintaining asset allocation investment option for plan participants. Target Maturity s To provide a well-diversified investment option that becomes more conservative over time for plan participants seeking a single-fund solution for their retirement investing. 3

13 Style-Neutral International Equity Market To provide participants with an investment option that employs passive management techniques pursuing growth/value styles within the equity markets outside of the U.S. 4

14 Selecting and Monitoring Diversified Investment Options The selection of investment options for the Plan will be performed in a manner consistent with generally accepted standards of fiduciary responsibility. All determinations undertaken on behalf of the Plan will be for the sole benefit of the participants and beneficiaries in the Plan. The Committee will consider a number of qualitative and quantitative factors when selecting and monitoring any investment option, recognizing that: Investment styles tend to move in cycles A fund s performance should be evaluated in the context of its investment style and peers, its role in the plan s line-up, and in the context of the markets. Looking at a fund s returns only to a single end point can provide a distorted view of performance. For this reason, rolling, yearly, and average annual returns over one, three, five, and longer time periods, if available, should be evaluated. Factors such as changes in a manager s investment philosophy, manager tenure, and the firm s financial condition may introduce unacceptable uncertainty when considering the longterm use of a fund in the plan. Low expenses and managing costs provide additional return to participants. characteristics, such as median market capitalization, price-to-earnings ratio, price-to-book ratio, holdings/sector weightings, portfolio concentration, country allocation and expenses for equity portfolios, and average maturity, average quality, quality/sector weightings, average duration and expenses for bond and money market portfolios, will be evaluated over time. The Committee may also act on longer-term or interim qualitative factors. Qualitative factors may include fundamental changes in a fund manager s investment philosophy, organizational structure (e.g., manager tenure), and financial condition (including any significant changes in total assets under management). No single qualitative or quantitative factor will determine whether an investment option should be added, retained, or eliminated; however, certain factors may carry more weight in the Committee s final analysis. Participants shall be permitted to transfer funds in existing investments, as well as to designate contributions and change designations on a basis which is no less frequent than quarterly. Investment options which permit transfer of funds more frequently than quarterly, such as monthly or daily, shall be favored over options which permit less frequent movement of funds, all other considerations being equal. Participants shall be provided with the following information about investment alternatives in order to enable them to make informed investment decisions: a. A statement that the Plan is intended to qualify under Section 404(c) of ERISA and that fiduciaries may be accordingly relieved of liability for any losses which are the direct and necessary result of investment instructions given by a participant or beneficiary; b. A description of all investment alternatives available under the Plan, including for each investment alternative a general description of its investment objectives, its risk and return characteristics and the type and diversification of its assets; 5

15 c. The names of any designated investment managers (as defined in ERISA); d. An explanation of: (1) the circumstances under which participants may give investment instructions; (2) any restrictions on transfers to or from an investment alternative (e.g., withdrawal penalties, investment turnaround limitations or market value adjustments); and (3) any restrictions on the exercise of voting, tender and similar rights; e. A description of transaction fees and expenses which affect a participant s or beneficiary s account balance in connection with any purchase or sale of an interest in an investment alternative (e.g. commissions, sales loads, deferred sales charges, redemption or exchange fees); f. Identification of the fiduciary responsible for providing the information to all participants, including that person s name, address and telephone number, and a description of the additional information that will be provided upon request (see page 7); g. Immediately following the participant s initial investment in an investment alternative that is subject to the Securities Act of 1933 (e.g., a mutual fund), a copy of the fund prospectus; and h. Subsequent to the participant s investment in any investment alternative, any materials provided to the Plan about exercise of any voting, tender or similar rights that are passed through to participants under the terms of the Plan, as well as a discussion of the relevant Plan provisions relating to the exercise of those rights. Participants shall be permitted internet access, telephone access and access through other electronic means to provide investment instructions in the form of investment elections and instructions to move or to transfer existing investments. Internet website addresses, telephone numbers and information for obtaining any other available electronic access shall be made available at all work locations where employees normally obtain or make requests for information. All transfers based on oral instructions from Participants shall be followed by written confirmation which shall be generated by an identified Plan fiduciary. Fiduciaries shall comply with all investment instructions to the extent: a. they involve transfer of funds or investment of funds in the selected investment alternatives; b. they conform to the requirements outlined in this policy; and c. they do not violate any Plan provision or any requirement of ERISA. Fiduciaries shall not be required to comply with any investment instruction to the extent it would: a. result in a prohibited transaction under ERISA or the Internal Revenue Code; or 6

16 b. generate income that would be taxable to the Plan. Any restrictions imposed on a Participant s investment instructions, including the manner or frequency thereof, shall be applied on a uniform and consistent manner for all Participants in the Plan. With respect to investment instructions by Participants, in those circumstances where market volatility may be a factor in determining investment decisions, the Plan Administrator shall ensure that investment instruction changes shall be permitted as frequently as is reasonable, taking into account the anticipated volatility of the investments involved. The ability to make investment decisions and changes and the frequency thereof shall be as applicable to the least volatile investment option as to the most volatile. In addition to the information described above, participants shall be entitled to receive the following information upon request: a. a description of annual operating expenses of each designated investment option which reduce the rate of return on the investment, including all transaction charges, fees, and other costs associated with a Participant s direction of investment which are charged to the Participant s account, if any, whether arising through a transfer of funds or direction of new contributions; b. copies of any prospectuses, financial statements and reports, as well as any other materials relating to investment options, but only to the extent the information is available to the Plan; c. a list of assets comprising the portfolio of each investment option, the value of each asset (or the proportion of the investment option which the asset comprises); d. information concerning the value of shares or units in an investment option and information on current and past investment performance, determined net of expenses on a reasonably consistent basis. GUIDELINES IN DETERMINING BASIS FOR SELECTING INVESTMENT OPTIONS AND INVESTMENT MANAGERS The Committee, in adopting and choosing particular investment options for Plan Participants shall follow all requirements outlined in ERISA Section 404. In connection with the selection of Plan investments to be offered as choices to Participants and, if applicable, the selection of investment managers to handle such investments, the Committee shall act in a manner calculated to ensure that proper investigation and evaluation of the investment and/or investment manager is concluded. This shall require a thorough review of all prior history of the investment and, in the case of an investment manager, experience and credentials. INVESTMENT MANAGER: 7

17 With respect to the appointment of an investment manager to handle a Plan investment option, the Committee shall review the following: The Investment Manager s experience is the particular area of investment and consideration, including the Investment Manager s experience with similar type ERISA plans; 1. The Investment Manager s credentials, including whether the manager is registered with the Securities & Exchange Commission under the Investment Advisor s Act of 1940; 2. The Investment Manager s reputation with respect to investments. In this regard, the Committee shall consider input from others who have hired the Manager and review reports from professional investment consultants who monitor investment performance; 3. The Investment Manager s past performance with similar type investments; 4. The Investment Manager s fees as compared to those charged by other Investment Managers for similar services for the purpose of determining the reasonableness of the fees; 5. The types of reports the Investment Manager will provide, including the extent, nature of the reports, as well as the frequency with which they will be issued. Considering foregoing issues with respect to the appointment of an Investment Manager, the Committee may obtain professional assistance in the selection process. Upon selection of the Investment Manager, the Committee shall monitor the Investment Manager s performance by reviewing such performance at reasonable intervals which shall be no less often than semiannually. The Committee s review shall be conducted in a manner reasonably expected to insure that the Investment Manager s performance is in compliance with the statutory requirements of ERISA, the terms of the Plan, the investment program established by the Committee and the investment objectives intended with respect to the assets managed by the Investment Manager. The Committee may obtain professional assistance in the monitoring process, which may also include development of a monitoring program and the comparison of the performance of the Investment Manager against various indexes or other managers whose performance is known. INVESTMENT OPTIONS: With respect to the selection of a particular investment option, the Committee shall act prudently in investigating the investment option to determine whether it should be one made available as an investment option to Participants under the Plan. In this regard, the Committee shall conduct market surveys, compare investment performance with similar investment vehicles in the area, consider costs and fees which may be charged in connection with the investment, and review generally the merits and structure of the investment. The Committee shall also monitor performance of any investment so chosen. The following factors shall be considered in any decision concerning an investment option: 1. Whether the investment option is one which is particularly suited for a plan subject to ERISA and how the investment option s general objectives and potential for risk and return correspond to the overall investment program established by the Committee; 2. Whether the investment option is subject to regulation of the Securities & Exchange Commission under any federal law; 8

18 3. The investment option s general risk and return characteristics, including the goals and general objectives expressed for the investment option. In this regard, the Committee shall consider input from professional advisors, including reviewing reports from professional investment consultants who monitor investment performance; 4. The investment option s past performance when measured against similar investment options; 5. The fees charged with respect to the investment option, as compare to those charged by other similar investment options, for the purpose of determining the reasonableness of the fees; 6. The types of reports available with respect to the investment option, including the extent, nature of the reports, as well as the frequency with which they are issued. The Committee shall obtain the assistance of a professional advisor, both in the selection of the mutual fund or pooled fund investment option and in the monitoring process. In each instance, the selection of an advisor to the Committee with respect to selection of a Investment Manager or investments themselves, shall require the appointment of an independent advisor. For this purpose independent shall mean an advisor who is not affiliated with the Investment Manager or the investment, as that term is defined and referred to above in this Policy. 9

19 Review and Amendment of the Policy The Committee shall review this Policy at least annually to ensure that it continues to reflect the Plan s objectives and meet the needs of the Plan s participants. Changes to this Policy are expected to be infrequent, as they will reflect long-term considerations, rather than short-term changes in the financial markets. The criteria used to evaluate this Policy shall include consideration of: (1) demographics of the workforce; (2) growth of the Plan; and (3) performance of existing options. The Committee will communicate any modifications in writing on a timely basis to the Plan s fiduciaries and any other interested parties. 10

20 Appendix A: Investment Options CATEGORY MONEY MARKET MONEY MARKET MONEY MARKET *** STABLE VALUE SHORT-TERM BOND SHORT-TERM BOND SHORT-TERM BOND SHORT-TERM BOND Short-Term Investment- Grade Short-Term U.S. Government INTERMEDIATE- TERM BOND INTERMEDIATE- TERM BOND Treasury Money Market Federal Money Market Prime Money Market Retirement Savings Trust Short-Term Treasury Short-Term Federal Short-Term Corporate Short-Term Bond Intermediate- Term Treasury Intermediate- Term Corporate BROAD MARKET BENCHMARK 90-Day Treasury Bills 90-Day Treasury Bills 90-Day Treasury Bills PRIMARY BENCHMARK N/A N/A N/A PEER GROUP U.S. Treasury Money Market Government Money Market Money Market N/A N/A Heuler Universe of Commingled Stable Value s 1-5 Year U.S. Treasury Bond 1-5 Year U.S. Government Bond 1-5 Year U.S. Credit 1-5 Year Government / Credit Bond 5-10 Year U.S. Treasury Bond 5-10 Year U.S. Credit Short-Term U.S. Treasury Short-Term U.S. Government Intermediate- Term U.S. Treasury Intermediate- Term Investment- Grade 11

21 INTERMEDIATE- TERM BOND INTERMEDIATE- TERM BOND *** Intermediate- Term Bond Total Bond Market 5-10 Year Government / Credit Bond N/A Intermediate- Term U.S. Government Intermediate- Term Investment Grade INTERMEDIATE- TERM BOND LONG-TERM BOND LONG-TERM BOND LONG-TERM BOND HIGH YIELD BOND BALANCED *** BALANCED BALANCED GNMA Long-Term Treasury Long-Term Corporate Long-Term Bond High-Yield Corporate Wellington Wellesley Income STAR ; ; ; GNMA Bond Long- Term U.S. Treasury Bond Long Credit A or Better Long Government / Credit Bond High Yield Composite (65% S&P 500, 35% Credit A or Better ) Composite (26% S&P/BARRA Value, 4.5% S&P Utilities, 4.5% S&P Telephone, 65% Long Corporate A or Better ) Composite (62.5% Wilshire 5000, 20% GNMA Bond General U.S. Treasury Corporate A- Rated General U.S. Government High- Yield Balanced Income Balanced 12

22 BALANCED BALANCED BALANCED BALANCED BALANCED BALANCED Asset Allocation Balanced LifeStrategy Income LifeStrategy Conservative Growth LifeStrategy Moderate Growth LifeStrategy ; ; ; ;, 12.5% 90- Day Treasury Bills) Composite (65% S&P 500, 35% Long Treasury ) Composite (60%, 40% ) Composite (20% Equity, 60%, 20% 1-3 Year U.S. Credit ) Composite (35% Equity, 5% EAFE, 40%, 20% 1-3 Year U.S. Credit ) Composite (50% Equity, 10% EAFE, 40% ) Composite (65% Flexible Portfolio Balanced Income Composite (20% General Equity, 60% Fixed Income, 20% Money Market) Conservative Growth Composite (35% General Equity, 5% International, 40% Fixed Income, 20% Money Market) Moderate Growth Composite (50% General Equity, 10% International, 40% Fixed Income) Growth Composite (65% 13

23 LARGE-CAP CORE EQUITY *** LARGE-CAP CORE EQUITY LARGE-CAP GROWTH LARGE-CAP GROWTH LARGE-CAP VALUE EQUITY *** LARGE-CAP VALUE EQUITY LARGE-CAP VALUE EQUITY LARGE-CAP VALUE EQUITY LARGE-CAP CORE EQUITY LARGE-CAP GROWTH LARGE-CAP GROWTH MID-CAP VALUE *** LARGE-CAP GROWTH *** Growth 500 Growth and Income U.S. Growth Growth Windsor II U.S. Value Equity Income Value Total Stock Market PRIMECAP Growth Equity Windsor Morgan Growth Equity, 15% EAFE, 20% ) S&P 500 S&P 500 Russell 1000 Growth MSCI US Prime Market Growth Russell 1000 Value Russell 3000 Value Russell 1000 Value MSCI US Prime Market Value S&P 500 Russell 1000 Growth Russell 1000 Value Russell 3000 Growth General Equity, 15% International, 20% Fixed Income) Large- Cap Core Large- Cap Core Large- Cap Growth Large- Cap Growth Large- Cap Value Multi- Cap Value Equity Income Large- Cap Value Multi- Cap Core Multi- Cap Growth Large- Cap Growth Multi- Cap Value Multi- Cap Growth MID-CAP CORE Wilshire 4500 Mid- 14

24 *** MID-CAP CORE MID-CAP VALUE MID-CAP VALUE LARGE-CAP CORE EQUITY MID-CAP BLEND MID-CAP GROWTH MID-CAP GROWTH MID-CAP VALUE SMALL-CAP CORE EQUITY SMALL-CAP GROWTH Extended Market Mid-Cap Selected Value Convertible Securities Dividend Growth Strategic Equity Mid-Cap Growth Capital Opportunity Capital Value REIT Energy Precious Metals Health Care Small-Cap Small-Cap Growth Cap Core MSCI US Mid Cap 450 Russell MidCap Value CS First Boston Convertibles Russell 1000 MSCI US Small + Mid 2200 Russell MidCap Growth Russell MidCap Growth Russell 3000 Value Morgan Stanley REIT S&P Energy Sector Citigroup World Gold S&P Health Sector MSCI US Small Cap 1750 MSCI US Small Cap Growth Mid- Cap Core Mid- Cap Value Convertible Securities Large- Cap Core Mid- Cap Core Mid- Cap Growth Mid- Cap Growth Multi- Cap Value Real Estate Natural Resources Gold Oriented Health/Biotech Small- Cap Core Small- Cap Growth SMALL-CAP Russell 2500 Small- 15

25 GROWTH *** SMALL-CAP VALUE EQUITY INTERNATIONAL INTERNATIONAL *** INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL *** GLOBAL EQUITY Explorer Small-Cap Value International Value International Growth European Stock Pacific Stock Developed Markets Total International Stock Global Equity Growth Cap Growth MSCI All Country World Free ex. U.S. MSCI All Country World Free ex. U.S. MSCI All Country World Free ex. U.S. MSCI All Country World Free ex. U.S. MSCI All Country World Free ex. U.S. MSCI All Country World Free ex. U.S. MSCI All Country World Free MSCI US Small Cap Value MSCI EAFE MSCI EAFE MSCI Europe MSCI Pacific MSCI EAFE Composite (90% MSCI EAFE, 10% MSCI Select Emerging Markets Free ) MSCI All Country World Free Small- Cap Value International International European Region Japanese & Pacific Region Blend International International Global 16