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Draft Minutes of Open Session Finance and Audit Committee

June 5, 2009 Conference Call Chairman Bruce Scherr convened a duly-noticed open meeting by conference call of the Finance and Audit Committee (FAC) of the North American Electric Reliability Corporation on June 5, 2009 at 2 p.m. EDT. As required by the bylaws of the Corporation, dial-in access was provided to members of the Corporation and the public for the meeting. The meeting agenda is attached as Exhibit A. Trustees present on the call in addition to Chairman Scherr were Board of Trustees Chairman John Q. Anderson, Janice Case, Fred Gorbet and Jan Schori. Regional Manager Gerry Cauley was also on the call. Additional attendees are listed in Exhibit B. Antitrust Compliance Guidelines Chairman Scherr directed the participants’ attention to the NERC Antitrust Compliance Guidelines.

Minutes The committee approved the May 5, 2009 meeting minutes (Exhibit C.) Investment Policy Statement Prior to beginning the discussion on the policy statement, Rick Sergel, President and CEO, introduced Michael Walker, NERC’s new Chief Financial and Administrative Officer. Mr. Walker will be taking the place of Chief Financial Officer, Bruce Walenczyk. His duties will include the planning, developing, and implementing of the long term and annual budget and business plans, managing all of the administrative program areas, as well as working w/ Lynn Costantini, Vice President and Chief Information Officer, to work on the formation of an independent arm of NERC to manage reliability tools. Mr. Sergel then provided an overview of Mr. Walker’s background and experience. Bruce Walenczyk then reviewed the second version of the Investment Policy Statement (the “Policy”) (Exhibit D.) The Draft Investment Policy Statement was developed by utilizing information provided by Vanguard, who manages the 401(k) plan, (the “Plan”) and through a review of WECC’s Investment Policy Statement. The policy outlines investment objectives and establishes policies and procedures so that these objectives can be met in a prudent manner. The Policy provides for the creation of a committee comprised of representatives from the corporation’s staff (the “NERC Investment Committee” or “NIC”.) The Policy also sets forth the responsibilities of the NIC and describes various considerations

Finance and Audit Committee Conference Call Minutes 2 June 5, 2009

to be used in establishing the Policy’s investment objectives and the NIC Plan monitoring responsibilities, as well as providing participants with the right to transfer funds, receive information regarding alternative investments, and access to various information as set forth in the Policy. The Policy also sets forth guidelines for selecting investment options and investment managers, in addition to providing the Committee with the ability to retain the assistance of an independent professional advisor. After some discussion amongst committee members, Janice Case moved for approval, with a second from Jan Schori, of the Investment Policy Statement. The FAC decided the Investment Policy Statement should be referred to the Corporate Governance and Human Resources Committee (CGHR) for review of the governance related aspects of the policy, including selection of the NIC members. The FAC will approve any changes that are made to the Investment Policy Statement. Also, the NIC will make an annual report to the FAC concerning the performance of the 401(k) plan. Future Meetings The committee approved the following dates and times for future meetings:

a. July 17, 2009 Conference Call (2 p.m. EDT) b. August 4, 2009 Meeting (Winnipeg, Manitoba, Canada) c. October 29, 2009 Conference Call (2 p.m. EST)

There being no further business, the open call ended at 2:40 p.m, and the committee moved into closed session to discuss personnel matters related to the proposed 2010 budget. Submitted by,

Bruce E. Walenczyk Chief Financial Officer


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Amended Agenda Finance and Audit Committee Conference Call

June 5, 2009 | 2 p.m. EDT Dial-In: 866-833-6395 Code: 12556849

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

Exhibit A

http://www.nerc.com/docs/bot/finance/050509FAC_9_1030m.pdf

http://www.nerc.com/docs/bot/finance/050509FACBP&Bm.pdf

Conference Participant Report Company: North American ElectricConf. Date: 6/5/2009 Leader: Bruce ScherrConf. Time: 2:00 p.m. EST Conf. ID: 12556849

Start Time End Time Name Company Name13:51:16 15:51:59 SPK BRUCE SCHERR13:50:51 15:52:01 SPK BRUCE WALENZCYK13:53:00 15:52:03 SPK FRED GORBET13:55:37 14:38:05 SPK GERRY CALUAY13:59:56 15:52:01 SPK JAN SCHORI13:53:30 15:51:58 SPK JANICE CASE13:56:19 15:52:05 SPK JOHN ANDERSON13:57:36 14:37:32 ADRIEN BRIZZOLARA NPCC14:01:08 14:16:21 BARRY LAWSON NRECA13:50:10 14:36:47 COURTNEY CAMBURN NERC13:56:52 14:36:44 DANIEL PHILLIPS FEDERAL ENEGERY REGULATORY14:06:11 14:36:44 DAVID DWORZAK EEI13:58:27 14:56:21 DAVID STAFFORD MERCADIAN14:00:29 14:36:50 ED SCHWERDT NORTH EAST POWER14:00:57 14:36:21 JENNIFER MATTIELLO NPCC13:58:53 14:36:30 JILLIAN LESSNER WECC14:00:33 14:35:31 LORNE MIDFORD MANITOBA HYDRO14:00:42 14:29:52 MARIE KNOX MID WEST ISO13:58:52 14:36:42 MARY AGNES NIMIS FERC14:01:37 14:36:43 PATRICK BROWN CEA13:55:04 14:36:43 SUE CLAKE MRO14:00:29 14:36:41 TODD BREWER TEXAS REGION ENTITY

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Exhibit B


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Draft Minutes of Open Session Finance and Audit Committee

May 5, 2009 | 9:00- 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

Exhibit C

Finance and Audit Committee Meeting Draft Minutes 2 May 5, 2009

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, 2008. 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,



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Draft Minutes Finance and Audit Committee Meeting

May 5, 2009 | 3:30-5:30 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

Exhibit C

Finance and Audit Committee Meeting Draft Minutes May 5, 2009

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

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,


DRAFT

Investment Policy Statement

North American Electric Reliability Corporation

Savings and Investment Plan

June , 2009

Exhibit D

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.

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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.

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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 Fund – 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 Index Fund – 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 Index Funds – 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 Funds – 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 Fund – To provide a well-diversified, self-maintaining asset allocation investment option for plan participants. Target Maturity Funds – 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.

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Style-Neutral International Equity Market Index Fund – 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.

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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 long-term use of a fund in the plan.

Low expenses and managing costs provide additional return to participants. Fund 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;

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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

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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:

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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 semi-annually. 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;

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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.

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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.

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Appendix A: Investment Options

FUND CATEGORY

FUND

BROAD

MARKET BENCHMARK

PRIMARY

BENCHMARK

PEER GROUP

MONEY MARKET FUND

Vanguard Treasury Money

Market Fund

90-Day Treasury Bills

N/A Average U.S. Treasury Money

Market

MONEY MARKET FUND

Vanguard Federal Money

Market Fund


N/A Average Government

Money Market

MONEY MARKET FUND ***

Vanguard Prime Money Market Fund


N/A Average Money Market

STABLE VALUE Vanguard Retirement

Savings Trust

N/A N/A Heuler Universe of Commingled

Stable Value Funds

SHORT-TERM BOND FUND

Vanguard Short-Term

Treasury Fund

Lehman Aggregate Bond

Index

Lehman 1-5 Year U.S.

Treasury Bond Index

Average Short-Term

U.S. Treasury


Vanguard Short-Term

Federal Fund


Index


Government Bond Index

Average Short-Term U.S.

Government


Vanguard Short-Term Corporate

Fund


Index

Lehman 1-5 Year U.S. Credit

Index

Average Short-Term Investment-

Grade SHORT-TERM BOND FUND

Vanguard Short-Term Bond Index

Fund


Index

Lehman 1-5 Year

Government / Credit Bond

Index

Average Short-Term U.S.

Government

INTERMEDIATE-TERM BOND FUND

Vanguard Intermediate-

Term Treasury

Fund


Index


Treasury Bond Index

Average Intermediate-

Term U.S. Treasury


Vanguard Intermediate-

Term Corporate

Fund


Index

Lehman 5-10 Year U.S. Credit

Index


Term Investment-

Grade

11


Vanguard Intermediate-Term Bond Index Fund


Index

Lehman 5-10 Year

Government / Credit Bond

Index


Term U.S. Government

INTERMEDIATE-TERM BOND FUND ***

Vanguard Total Bond

Market Index Fund


Index

N/A


Term Investment Grade


Vanguard GNMA Fund


Index

Lehman GNMA Bond Index

Average GNMA Bond

LONG-TERM BOND FUND

Vanguard Long-Term Treasury

Fund


Index

Lehman Long-Term U.S.

Treasury Bond Index

Average General U.S. Treasury

LONG-TERM BOND FUND

Vanguard Long-Term Corporate

Fund


Index

Lehman Long Credit A or Better Index

Average Corporate A-

Rated

LONG-TERM BOND FUND

Vanguard Long-Term Bond Index

Fund


Index

Lehman Long Government / Credit Bond

Index

Average General U.S. Government

HIGH YIELD BOND FUND

Vanguard High-Yield Corporate

Fund


Index

Lehman High Yield Index

Average High-Yield Fund

BALANCED FUND ***

Vanguard Wellington

Fund

Wilshire 5000 Index; Lehman Aggregate Bond

Index

Composite (65% S&P 500 Index,

35% Lehman Credit A or

Better Index)

Average Balanced

BALANCED FUND Vanguard Wellesley

Income Fund


Index

Composite (26% S&P/BARRA Value Index, 4.5% S&P

Utilities Index, 4.5% S&P Telephone Index, 65%

Lehman Long Corporate A or Better Index)

Average Income

BALANCED FUND Vanguard STAR Fund


Composite (62.5% Wilshire

5000, 20%

Average Balanced

12

Index Lehman Aggregate Bond Index, 12.5% 90-

Day Treasury Bills)

BALANCED FUND Vanguard Asset

Allocation Fund


Index

Composite (65% S&P 500, 35% Lehman Long

Treasury Index)

Average Flexible Portfolio

BALANCED FUND Vanguard Balanced

Index Fund


Index

Composite (60% Wilshire 5000

Index, 40% Lehman

Aggregate Bond Index)

Average Balanced

BALANCED FUND Vanguard LifeStrategy

Income Fund


Index

Composite (20% Wilshire 5000 Equity Index, 60% Lehman

Aggregate Bond Index, 20% Lehman 1-3

Year U.S. Credit Index)

Average Income Composite (20% Average General

Equity, 60% Average Fixed Income, 20% Average

Money Market)

BALANCED FUND Vanguard LifeStrategy Conservative Growth Fund


Index

Composite (35% Wilshire 5000 Equity Index,

5% EAFE Index, 40% Lehman

Aggregate Bond Index, 20% Lehman 1-3

Year U.S. Credit Index)

Average Conservative

Growth Composite (35% Average General

Equity, 5% Average International, 40% Average Fixed Income, 20% Average

Money Market) BALANCED FUND Vanguard

LifeStrategy Moderate

Growth Fund


Index

Composite (50% Wilshire 5000 Equity Index, 10% EAFE Index, 40%


Index)

Average Moderate Growth

Composite (50% Average General

Equity, 10% Average International, 40% Average Fixed Income)

BALANCED FUND Vanguard LifeStrategy

Wilshire 5000 Index

Composite (65% Wilshire 5000

Average Growth Composite (65%

13

Growth Fund Equity Index, 15% EAFE Index, 20%


Index)

Average General Equity,

15% Average International, 20% Average Fixed Income)

LARGE-CAP CORE EQUITY FUND ***

Vanguard 500 Index

Fund

Wilshire 5000 Index

S&P 500 Index Average Large- Cap Core

LARGE-CAP CORE EQUITY FUND

Vanguard Growth and

Income Fund

Wilshire 5000 Index

S&P 500 Index Average Large-Cap Core

LARGE-CAP GROWTH EQUITY FUND

Vanguard U.S. Growth

Fund

Wilshire 5000 Index

Russell 1000 Growth Index

Average Large-Cap Growth


Vanguard Growth Index

Fund

Wilshire 5000 Index

MSCI US Prime Market Growth

Index


LARGE-CAP VALUE EQUITY FUND ***

Vanguard Windsor II

Fund

Wilshire 5000 Index

Russell 1000 Value Index

Average Large-Cap Value

LARGE-CAP VALUE EQUITY FUND

Vanguard U.S. Value

Fund

Wilshire 5000 Index


Average Multi-Cap Value


Vanguard Equity

Income Fund

Wilshire 5000 Index


Average Equity Income


Vanguard Value Index

Fund

Wilshire 5000 Index

MSCI US Prime Market Value

Index

Average Large-Cap Value


Vanguard Total Stock

Market Index Fund

Wilshire 5000 Index

Wilshire 5000 Index

Average Multi-Cap Core


Vanguard PRIMECAP

Fund

Wilshire 5000 Index

S&P 500 Index Average Multi-Cap Growth


Vanguard Growth

Equity Fund

Wilshire 5000 Index



MID-CAP VALUE EQUITY FUND ***

Vanguard Windsor

Fund

Wilshire 5000 Index



LARGE-CAP GROWTH *** EQUITY FUND

Vanguard Morgan

Growth Fund

Wilshire 5000 Index


Average Multi-Cap Growth

MID-CAP CORE Vanguard Wilshire 5000 Wilshire 4500 Average Mid-

14

EQUITY FUND ***

Extended Market Index

Fund

Index Index Cap Core

MID-CAP CORE EQUITY FUND

Vanguard Mid-Cap

Index Fund

Wilshire 5000 Index

MSCI US Mid Cap 450 Index

Average Mid-Cap Core

MID-CAP VALUE EQUITY FUND

Vanguard Selected

Value Fund

Wilshire 5000 Index

Russell MidCap Value Index

Average Mid-Cap Value


Vanguard Convertible Securities

Fund

Wilshire 5000 Index

CS First Boston Convertibles

Index

Average Convertible Securities


Vanguard Dividend

Growth Fund

Wilshire 5000 Index

Russell 1000 Index

Average Large-Cap Core

MID-CAP BLEND FUND

Vanguard Strategic

Equity Fund

Wilshire 5000 Index

MSCI US Small + Mid 2200

Index

Average Mid-Cap Core

MID-CAP GROWTH EQUITY FUND

Vanguard Mid-Cap

Growth Fund

Wilshire 5000 Index

Russell MidCap Growth Index

Average Mid-Cap Growth

MID-CAP GROWTH EQUITY FUND

Vanguard Capital

Opportunity Fund

Wilshire 5000 Index

Russell MidCap Growth Index

Average Mid-Cap Growth


Vanguard Capital Value

Fund

Wilshire 5000 Index



Vanguard REIT Index

Fund

Wilshire 5000 Index

Morgan Stanley REIT Index

Average Real Estate

Vanguard Energy Fund

Wilshire 5000 Index

S&P Energy Sector Index

Average Natural Resources

Vanguard Precious

Metals Fund

Wilshire 5000 Index

Citigroup World Gold Index

Average Gold Oriented

Vanguard Health Care

Fund

Wilshire 5000 Index

S&P Health Sector Index

Average Health/Biotech

SMALL-CAP CORE EQUITY FUND

Vanguard Small-Cap

Index Fund

Wilshire 5000 Index

MSCI US Small Cap 1750 Index

Average Small-Cap Core

SMALL-CAP GROWTH EQUITY FUND

Vanguard Small-Cap

Growth Index Fund

Wilshire 5000 Index

MSCI US Small Cap Growth

Index

Average Small-Cap Growth

SMALL-CAP Vanguard Wilshire 5000 Russell 2500 Average Small-

15

16

GROWTH EQUITY FUND ***

Explorer Fund

Index Growth Index Cap Growth

SMALL-CAP VALUE EQUITY FUND

Vanguard Small-Cap

Value Index Fund

Wilshire 5000 Index

MSCI US Small Cap Value Index

Average Small-Cap Value

INTERNATIONAL EQUITY FUND

Vanguard International Value Fund

MSCI All Country World Free ex. U.S.

Index

MSCI EAFE Index

Average International

INTERNATIONAL EQUITY FUND ***

Vanguard International Growth Fund


Index

MSCI EAFE Index



Vanguard European

Stock Index Fund


Index

MSCI Europe Index

Average European Region


Vanguard Pacific Stock Index Fund


Index

MSCI Pacific Index

Average Japanese &

Pacific Region Blend


Vanguard Developed Markets

Index Fund


Index

MSCI EAFE Index


INTERNATIONAL EQUITY FUND ***

Vanguard Total

International Stock Index

Fund


Index

Composite (90% MSCI EAFE Index, 10%

MSCI Select Emerging

Markets Free Index)


GLOBAL EQUITY FUND

Vanguard Global Equity

Fund

MSCI All Country World

Free Index

MSCI All Country World

Free Index

Average Global

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