Dokiman ki tache

CIVILIAN PENSION BOARD AGENDA NOVEMBER 8, 2012 - 2:00 P.M. CITY HALL CONFERENCE ROOM 15 LOOCKERMAN PLAZA DOVER, DELAWARE Public comments are welcomed on any item and will be permitted at appropriate times. When possible, please notify the City Clerk (736-7008 or e-mail at CityClerk@dover.de.us) should you wish to be recognized. AGENDA ADDITIONS/DELETIONS 1. Adoption of Minutes - Civilian Pension Board Meeting of August 15, 2012 2. Quarterly Performance Review (Quarter Ending September 30, 2012) (Milliman, Inc.) 3. Approval of Amendments to Investment Policy 4. Changes/Additions to Investment Managers (Milliman, Inc.) 5. Adjournment TO ASSURE THAT THERE WILL BE A QUORUM, PLEASE RSVP BY CONTACTING THE CITY CLERK’S OFFICE BY EMAIL AT CITYCLERK@DOVER.DE.US OR BY CALLING 736-7008 AS SOON AS POSSIBLE. /js S:\AGENDAS-MINUTES-PACKETS\Misc-Agendas\PENSION BOARDS\2012\CIVILIAN PENSION BOARD\11-08-2012 CIVIILAN PENSION BOARD AGENDA.wpd THE AGENDA ITEMS AS LISTED MAY NOT BE CONSIDERED IN SEQUENCE. THIS AGENDA IS SUBJECT TO CHANGE TO INCLUDE THE ADDITION OR THE DELETION OF ITEMS, INCLUDING EXECUTIVE SESSIONS.

CIVILIAN PENSION BOARD The Civilian Pension Board meeting was held on August 15, 2012 at 4:06 p.m. with Councilman Bonar presiding. Members present were Mr. Lynn, Mr. Koenig, Mrs. Mitchell, Mrs. Hettinger, Mr. Blakeman, and Mr. Clendaniel. Councilman Perza was also present. AGENDA ADDITIONS/DELETIONS By unanimous consent, the agenda was approved as presented. ADOPTION OF MINUTES - CIVILIAN PENSION BOARD MEETING OF MAY 9, 2012 Mr. Blakeman moved for adoption of the Civilian Pension Board Minutes of May 9, 2012, seconded by Mrs. Mitchell and unanimously carried. ORGANIZATIONAL ISSUES - ELECTION OF CHAIR Mrs. Mitchell moved to nominate Mr. Bonar to serve as chair, seconded by Mr. Koenig. Mr. Blakeman moved to close nominations, seconded by Mrs. Mitchell and unanimously carried. The motion for Mr. Bonar to serve as chair was unanimously carried. QUARTERLY PERFORMANCE REVIEW (QUARTER ENDING JUNE 30, 2012) - MILLIMAN, INC. Mr. Jeff Marzinsky, Principal and Employee Benefits Consultant, Milliman, Inc., reviewed the Quarterly Performance of the General Employees Pension Plan as of June 30, 2012. He noted that the Plan ended the quarter at approximately $22M, resulting in a -2.27% net return. He indicated that some investments were trailing their benchmarks; therefore, Milliman would be reviewing them more closely over the next couple of months. He advised members that no changes were being recommended at this time. DISCUSSION - LIABILITY TO ASSET ALLOCATION STUDY (MILLIMAN, INC.) Mr. Jeff Marzinsky, Principal and Employee Benefits Consultant, Milliman, Inc., reviewed a Presentation - City of Dover DE - General Employees Pension Asset Liability Study dated July 31, 2012. He reminded members that the plan was closed to new participants in 2008; that there was a target actuarial return of approximately seven percent (7%) on the plan; and that the plan was following a 24-year amortization schedule to better fund and make contributions to the plan to reach a fully funded status. As indicated on Page 4 of the Presentation, Mr. Marzinsky stated that the target (expected) return for the General Employee Pension Plan, based on the allocations, was 6.7%. He indicated that since the actuarial valuation interest rate was 7%, the portfolio, as allocated, may not meet the target return for the actuarial valuation; therefore, the liability valuation may increase and the portfolio may not increase as quickly. He reviewed three (3) alternative options that were developed to allow members to consider which would add different asset categories and also different allocations within those asset categories and noted that the allocation scenarios presented had slightly better potential return and a slightly lower level of risk than the current portfolio. He also noted that if Options #1 or #2 were selected, the variability of expected outcomes would be slightly less than the current portfolio.

CIVILIAN PENSION BOARD MEETING OF AUGUST 15, 2012 PAGE 2 Referring to Page 7 of the presentation, Mr. Marzinsky stated that data was provided regarding the actuarial valuation and the future pension benefits being paid out to plan participants. This allowed development of a statistic called duration, which indicated that, on average, the core of the payments from the plan would be due in approximately 18 years. On Page 8, the duration of the liabilities and the duration of the assets were tied together, and the duration of the portfolio reflected an 18-year duration (on the actuarial liability side), a 3.92-year duration of fixed income investments, and an overall portfolio duration of 1.27 years. The results indicated that the liabilities (payments from the plan) would occur in approximately 18 years and the assets of the plan have a duration of only approximately one (1) year; therefore, Mr. Marzinsky noted that there was a large mismatch in the asset to liability mix within the plan. Responding to Mr. Blakeman regarding the unconstrained curve in the mean/variance efficient frontier graph (Page 5 of Presentation), Mr. Marzinsky explained that constraining the three (3) options meant that some maximums and minimums were set on the asset category. The unconstrained curve reflected the model being run with no constraints, as if the computer were allowed to allocate, resulting in two (2) asset categories: long-term bonds and mid-cap value, since they have a good risk to return number. In reality, he indicated that this would not be a good allocation since it would amount to “putting all your eggs in one basket,” and noted that an investment that is good today, may not be good tomorrow. Mr. Marzinsky noted that the graph also indicated that letting the computer run by itself would not yield a better return than putting some limitations on the asset categories. Mr. Marzinsky noted that Page 9 of the Presentation depicted how the portfolio could be changed slightly by utilizing Option #2, which would modify the expected return to become closer to the actuarial expected return. It also depicted how the fixed income portion of the portfolio could be changed for a better duration match between the liabilities and the assets of the portfolio. Mr. Marzinsky advised members that as the plan grows to a better funded status, it would go into a “de-risking” mode, where some of the equities would be taken from the allocation and more fixed income investments would be put into the fund. By adjusting the portfolio to increase the allocation to longer-term fixed income, some of the duration could be matched on the fixed income side and the duration of the overall portfolio could be increased from one (1) to approximately five (5) years, which would be a better match in the asset to liability duration. In addition, he stated that adding a couple of asset categories to the plan would give it more diversity and consequently lead to a slightly better expected return by cutting down the volatility of the portfolio (expected standard deviation). Mr. Marzinsky cautioned members that the information provided was based on capital market assumptions or expectations, explaining that in the investment world, particularly with fixed income and equity investments, there were no guaranteed returns. The information provided was based on long-term expectations of what the market could return over the next 10-15 years on an annualized basis. Mr. Marzinsky requested that the Board consider adjusting the asset allocation, based on one of the scenarios presented, and adding some additional asset categories. If it were determined that some of these changes should be made, he stated that a follow-up meeting would be scheduled to discuss

CIVILIAN PENSION BOARD MEETING OF AUGUST 15, 2012 PAGE 3 the possibility of adding asset categories, how they would be allocated within the investment policy and, if additional investment managers were added, Milliman, Inc., would recommend managers for the Board’s consideration. Mr. Lynn moved to adjust the portfolio by adopting Option #2, as outlined on Page 4, Portfolio Options, of the City of Dover, DE General Employees Pension Asset Liability Study dated July 31, 2012 (Attachment #1). The motion was seconded by Mr. Clendaniel and unanimously carried. Mr. Lynn suggested that, in the future, material be provided to members in electronic format, in an effort to “go green.” Mr. Bonar requested that paper copies be provided for those who prefer them or do not have electronic capability. DISCUSSION - COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AS IT RELATES TO PENSION FUNDS At the request of Mr. Blakeman, Mrs. Mitchell provided information included in the Comprehensive Annual Financial Report (CAFR) as it relates to Pension Funds. Mr. Blakeman stated that he had not understood some of the information, such as writing off previous debt; however, he had met with Mrs. Mitchell and now had a better understanding. Elaborating, Mrs. Mitchell explained that when there are large losses, they do not have to be recognized in one (1) year but can be amortized over five (5) years; therefore one-fifth of the losses were reported in the market value portfolio. However, she noted that the true market value was reflected in another section of the CAFR. She emphasized that these losses are not written off but are reported differently in different parts of the CAFR. DISCUSSION - ADJUSTMENT TO THE MINIMUM PAYMENT FOR PENSION On behalf of the elected members of the Pension Board, Mr. Blakeman reviewed information relating to the discussion regarding an adjustment to the minimum payment for pension including three (3) proposals, along with historical information. Considering the current financial condition of the City, Mr. Blakeman suggested that members consider approving Proposal #2, which would increase the minimum pension payment to $400 per month. Responding to Mrs. Mitchell regarding spouse coverage (periodic death benefits), Mr. Blakeman stated that the intent was that the minimum monthly payment would apply regardless of the type of benefit received (retiree or spouse). Mr. Koenig noted that the material provided did not reflect a distinction between those who retired at age 50 with 20 years of service, those with 25 years of service, or those at age 65 with 10 years of service. Responding, Mrs. Mitchell stated that these distinctions could be provided and that she could also look into the date provided for periodic death benefits to determine whether this was the date of the employee’s retirement or when the spouse benefit began.

CIVILIAN PENSION BOARD MEETING OF AUGUST 15, 2012 PAGE 4 In response to Mr. Koenig’s concerns, Mrs. Mitchell explained that the actuary would consider the life expectancy table and age to determine the actuarial costs involved. She also confirmed that the actuary would determine not only the true budgetary costs each year, but also how this change would affect the actuarial liability. Mr. Bonar suggested that staff forward the information, including the three (3) proposals, to the actuary for a report by the next quarterly Board meeting, which would provide staff enough time to include it in the City’s budget. Mrs. Mitchell felt that Proposals #2 and #3, when broken down by fund, would not have such a financial impact on the budget that action should be delayed. Mrs. Hettinger questioned why an actuarial review would be required, noting that a fee would be incurred for conducting such a review and considering that there would only be a minor impact on the budget. Mrs. Mitchell suggested that just one (1) of the options be chosen and sent to the actuary. Mrs. Hettinger stated that she preferred Proposal #1. Mr. Koenig explained his reluctance to support the recommendation, noting that due to the City’s current financial situation, he had requested active employees to contribute to their healthcare premiums. Mr. Lynn moved to recommend adoption of Option #1 (as outlined in the information provided by Mr. Blakeman in reference to the Discussion - Adjustments to the Minimum Payment for Pension) (Attachment #2), increasing the minimum payment for pension to $500 per month, at the next scheduled City Council meeting, and to order an actuarial study based on this amount for Council’s consideration, seconded by Mr. Blakeman. In response to Mr. Koenig, although Mrs. Hettinger felt that the Board’s recommendation should be forwarded to the Legislative, Finance, and Administration Committee for their review and recommendation to City Council, Mr. Bonar and Mr. Blakeman indicated that the Board’s recommendation would be forwarded directly to City Council. Responding to Mr. Koenig, Mr. Lynn stated that if the actuarial study were not completed by the time the Board’s recommendation was presented to City Council, which would occur during their Regular Meeting of August 27, 2012, City Council could table action until the actuarial study was completed. The motion to adopt Option #1 (as outlined in the information provided by Mr. Les Blakeman in reference to the Discussion - Adjustments to the Minimum Payment for Pension), increasing the minimum payment for pension to $500 per month, at the next scheduled City Council meeting, and to order an actuarial study based on $500 per month, was carried, with Mr. Koenig, Mrs. Mitchell, and Mr. Bonar voting no.

CIVILIAN PENSION BOARD MEETING OF AUGUST 15, 2012 PAGE 5 SCHEDULING OF FUTURE MEETING DATES Mr. Bonar advised members that the City Clerk’s Office would be setting future meeting dates. In response to Mr. Blakeman’s request, Mr. Koenig stated that staff would provide members with an update of current retirees from January 2012 through June 30, 2012. (Clerk’s Office Note: This information was subsequently provided to members by the Clerk’s Office.) Mr. Blakeman moved for adjournment, seconded by Mrs. Hettinger and unanimously carried. Meeting Adjourned at 4:45 P.M. David L. Bonar Chairman DLB/JS/jg/dd/tm S:\AGENDAS-MINUTES-PACKETS\Misc-Minutes\PENSION\2012\08-15-2012 Civilian Pension.wpd Attachments Attachment #1 - Page 4, Portfolio Options - City of Dover, DE General Employees Asset Liability Study dated July 31, 2012 Attachment #2 - Information Provided by Mr. Blakeman in Reference to the Discussion - Adjustments to the Minimum Payment for Pension

ATTACHMENT #1 Civilian Pension Board Meeting of 08/15/2012 Quarterly Investment Monitor - June 2012 Asset Allocation Study Portfolio Options Gen Option Option Option EE & OPEB 1 2 3 Police Pension Cash 5.000 5.000 5.000 2.000 1.000 ML U.S. Treasuries, Inflation-Linked 7.000 7.000 7.000 0.000 0.000 Barclays Capital Interm U.S.Govt/Credit 10.000 10.000 10.000 34.000 31.000 Barclays Capital Long Gov/Credit Index 20.000 17.268 12.287 0.000 0.000 Russell 1000 Value Index 12.117 10.000 11.344 14.000 10.000 Russell 1000 Growth Index 10.000 10.738 14.369 14.000 15.000 Russell Midcap Index 5.000 5.000 5.000 8.000 11.000 Russell 2000 Index 5.000 5.000 5.000 5.000 7.000 FTSE NAREIT REIT: Equity 5.000 4.994 5.000 0.000 0.000 MSCI EAFE (Net) Index 10.000 10.000 10.000 23.000 25.000 MSCI EM (Emerging Markets) Index 10.883 15.000 15.000 0.000 0.000 Fixed Income 42.00% 39.27% 34.29% 36.00% 32.00% Equity 58.00% 60.73% 65.71% 64.00% 68.00% Option 1 Option 2 Option 3 Gen EE & Police Pension OPEB Expected Return 6.75% 7.00% 7.25% 6.70% 7.00% Expected Standard Deviation 11.3045 12.1307 13.0225 12.1951 13.1609 Expected Sharpe Ratio 0.3760 0.3710 0.3648 0.3444 0.3422 Option 1 Option 3 OPEB Option 2 Gen EE & Police Pension Expected Return Expected Risk 8 14 Expected Sharpe Ratio 13.02 13.16 0.50 7.25 7.00 7.00 12.13 12.20 6.75 6.70 12 11.30 6 0.38 0.37 0.36 Expected Sharpe Ratio 10 0.34 0.34 Expected Return Expected Risk 8 4 0.25 6 4 2 2 0 0 0.00 4

ATTACHMENT #2 Civilian Pension Board Meeting of 08/15/2012 NOTICE The following information relates to Agenda Item #6, Discussion - Adjustment to the Minimum Payment for Pension, and was provided to the Clerk’s Office by Mr. Les Blakeman on August 7, 2012. - City Clerk’s Office

Milliman Meeting City of Dover Delaware General Employees’ Pension November 8, 2012 Presented by: Jeff Marzinsky, CIMA, CPC Milliman, Inc. 1

Milliman Meeting TABLE OF CONTENTS Section I Market Commentary & Investment Monitor Section II Asset Liability Study – Allocation Summary Section III Fund Detail Pages Section IV Investment Policy Statement Amendment 2

Quarterly Investment Monitor Market Indices - 3rd Quarter 2012 Index 3 1 3 5 Months Year Years Years BofAML US Treasury Bill 3 Mon 0.03 0.07 0.11 0.72 Barclays US Govt 1-3 Yr TR USD 0.26 0.65 1.49 2.94 Barclays US Govt/Credit Interm TR USD 1.40 4.40 5.18 5.71 Barclays US Government Long TR USD 0.34 6.41 11.93 10.94 Barclays US Long Credit TR USD 5.22 14.91 12.74 10.61 Barclays US Corporate High Yield TR USD 4.53 19.37 12.90 9.34 DJ Industrial Average TR USD 5.02 26.52 14.45 2.16 S&P 500 TR 6.35 30.20 13.20 1.05 NASDAQ 100 TR USD 7.36 32.37 18.71 6.84 NASDAQ Composite TR USD 6.50 30.53 14.81 3.89 Russell 1000 Value TR USD 6.51 30.92 11.84 -0.90 Russell 1000 TR USD 6.31 30.05 13.27 1.22 Russell 1000 Growth TR USD 6.11 29.19 14.73 3.24 Russell 2000 Value TR USD 5.67 32.63 11.72 1.35 Russell 2000 TR USD 5.25 31.91 12.99 2.21 Russell 2000 Growth TR USD 4.84 31.18 14.19 2.96 FTSE NAREIT All REITs TR 1.85 34.37 20.32 2.50 MSCI EAFE NR USD 6.92 13.75 2.12 -5.24 MSCI EAFE Small Cap NR USD 7.89 12.56 4.75 -2.98 MSCI EM NR USD 7.74 16.93 5.63 -1.28 3 City of Dover, Delaware General Employee Pension Plan 3

Quarterly Investment Monitor Broad Market Commentary - 3rd Quarter 2012 Broad Markets - Quarter Broad Markets - Five Years Jul-12 - Sep-12 Sep-07 - Sep-12 7 140 130 6 120 5 110 Total Return, % Growth of $100 100 4 90 3 80 2 70 60 1 50 0 40 Jul-12 - Sep-12 Sep-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Sep-12 Total Total Barclays US Govt/Credit Interm TR USD S&P 500 TR Barclays US Govt/Credit Interm TR USD S&P 500 TR NASDAQ Composite TR USD MSCI EAFE NR USD NASDAQ Composite TR USD MSCI EAFE NR USD Market Commentary · The U.S. stock market rose in response to additional stimulus by the Federal Reserve (“QE3”) and improvements in certain areas of the U.S. economy, particularly the housing market. · The international equity markets made substantial gains after the European Central Bank announced it will do “whatever it takes” to preserve the euro and approved a plan to buy unlimited amounts of bonds issued by struggling euro-zone nations. · The Federal Reserve Bank announced its intentions to purchase $40 billion in mortgage-backed securities each month in an effort to lower mortgage interest rates, help the housing market, and ultimately, reduce unemployment. · As the quarter ended, mutual fund investors increased their holdings in bonds and decreased their holdings in stocks. For the quarter, bond funds had net inflows of $85.4 billion, while stock funds had net outflows of $48.1 billion. Total money market mutual fund assets increased by $37.69 billion to $2.576 trillion. · The unemployment rate fell from 8.2% to 7.8%, as total employment increased by 437,000 jobs. · The price of oil increased from $85 per barrel to $92 during the quarter, an increase of 8.2%. · For the three months ending September 30, 2012, annualized seasonally adjusted CPI – U was 5.0%. Rising prices for gasoline drove the increase. 4 City of Dover, Delaware General Employee Pension Plan 4

Quarterly Investment Monitor US Fixed Income Market Commentary - 3rd Quarter 2012 US Fixed Income - Quarter US Fixed Income - Five Years Jul-12 - Sep-12 Sep-07 - Sep-12 6 180 5 160 140 Growth of $100 4 Total Return, % 120 3 100 2 80 1 60 0 Sep-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Sep-12 Jul-12 - Sep-12 Total Total BofAML US Treasury Bill 3 Mon Barclays US Govt 1-3 Yr TR USD BofAML US Treasury Bill 3 Mon Barclays US Govt 1-3 Yr TR USD Barclays US Govt/Credit Interm TR USD Barclays US Government Long TR USD Barclays US Govt/Credit Interm TR USD Barclays US Government Long TR USD Barclays US Long Credit TR USD Barclays US Corporate High Yield TR USD Barclays US Long Credit TR USD Barclays US Corporate High Yield TR USD US Bond Market · Most fixed income markets rose in the 3rd quarter, as investors shifted from higher quality bonds to lower quality bonds. · The short end of the yield curve remained unchanged as the Fed maintained its near-zero interest rate policy. · Interest rates were virtually unchanged across the yield curve. · Long-term corporate bonds were the best performing sector this quarter, up 5.53%, as corporate credit spreads hit near record lows in response to strong demand from investors. · Long-term government bonds were the worst performing sector this quarter, up 0.34%, as investors favored bonds with higher yields. · 91-Day T-Bill returned 0.03% in the third quarter, the same return as in the second quarter. 5 City of Dover, Delaware General Employee Pension Plan 5

Quarterly Investment Monitor US Equity Market Commentary - 3rd Quarter 2012 US Equity - Quarter US Equity - Five Years Jul-12 - Sep-12 Sep-07 - Sep-12 7 120 6 110 100 5 Total Return, % Growth of $100 90 4 80 3 70 2 60 1 50 0 40 Jul-12 - Sep-12 Sep-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Sep-12 Total Total Russell 1000 Value TR USD Russell 1000 TR USD Russell 1000 Value TR USD Russell 1000 TR USD Russell 1000 Growth TR USD Russell 2000 Value TR USD Russell 1000 Growth TR USD Russell 2000 Value TR USD Russell 2000 TR USD Russell 2000 Growth TR USD Russell 2000 TR USD Russell 2000 Growth TR USD US Stock Market · Most major domestic equity indices posted a gain for the quarter. The large-cap Russell 1000 Value Index had the best return, up 6.5%. · Large-cap stocks outperformed small-caps, up 6.3% vs. 5.3%. · In comparing styles, value stocks did better than growth stocks. · In a reversal from last quarter, REITs fell 0.38%, as investors favored riskier assets over the relatively stable cash flows offered by commercial real estate. The worst performing sectors were apartments and resorts/lodging. · Energy was the best performing sector, up 10.14%, on higher crude oil prices and concerns about supply. · Utilities were the worst performing sector, up 0.01%, as investors generally moved out of lower-risk assets. 6 City of Dover, Delaware General Employee Pension Plan 6

Quarterly Investment Monitor International Market Commentary - 3rd Quarter 2012 International - Quarter Jul-12 - Sep-12 8 7 International - Five Years 6 Sep-07 - Sep-12 Total Return, % 5 120 4 3 110 2 1 100 0 90 Growth of $100 MSCI EAFE NR USD MSCI EAFE Small Cap NR USD 80 MSCI EM NR USD Regional Performance - Quarter 70 Jul-12 - Sep-12 12 60 10 8 50 Total Return, % 6 40 4 Sep-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Sep-12 2 MSCI EAFE NR USD MSCI EAFE Small Cap NR USD 0 MSCI EM NR USD -2 MSCI Australia NR USD MSCI Europe Ex UK NR USD MSCI UK NR USD MSCI Pacific Ex Japan NR USD MSCI Japan NR USD MSCI EM Latin America NR USD International Markets · The dollar was down against the euro, pound, and yen. · For the quarter, the EAFE Index was up 6.92% and Emerging Markets were up 7.74%. Local currency returns for the EAFE Index and Emerging Markets were 4.67% and 5.91%, respectively. · Among the major international regions, Indian stocks had the highest return (+14.34%), spurred by a series of economic reforms, including plans to allow foreign investors to buy larger stakes in supermarkets and airlines. · Stocks in the Asia Pacific region (except for Japan) also rose substantially (+10.71%), especially Hong Kong whose booming property market benefited real estate stocks. · Small-cap stocks, up 7.9%, outperformed large-cap stocks, up 6.9%. 7 City of Dover, Delaware General Employee Pension Plan 7

Quarterly Investment Monitor Data as of 09/30/2012 Performance Summary 8 City of Dover, Delaware General Employee Pension Plan 8

Quarterly Investment Monitor Data as of 09/30/2012 Asset Allocation Balances As of Percent As of Balances As of Percent As of Notes 09/30/2012 09/30/2012 06/30/2012 06/30/2012 Wells Fargo Advantage Treas Plus MMkt I $1,236,910 4.95% $796,424 3.62% Vanguard Short-Term Bond Index Signal $4,991,073 19.98% $4,789,645 21.79% Vanguard Interm-Term Bond Index Signal $2,514,380 10.07% $2,462,709 11.20% Vanguard Equity-Income Adm $3,406,491 13.64% $3,012,964 13.71% Vanguard Morgan Growth Adm $1,787,199 7.16% $1,557,190 7.08% Vanguard PRIMECAP Inv $1,528,098 6.12% $1,324,934 6.03% Vanguard Mid-Cap Value Index Admiral $2,110,913 8.45% $1,797,180 8.18% DFA US Targeted Value I $1,247,252 4.99% $1,056,913 4.81% DFA International Value I $1,649,258 6.60% $1,291,544 5.88% American Funds New Perspective R6 $2,254,886 9.03% $1,954,379 8.89% Harding Loevner Global Equity Inst $2,250,581 9.01% $1,939,671 8.82% Plan Total $24,977,041 $21,983,553 9 City of Dover, Delaware General Employee Pension Plan 9

Quarterly Investment Monitor Data as of 09/30/2012 Investment Policy Review - Active Management Return Return Excess Excess Relative Relative Alpha Sharpe Alpha Sharpe Fund Rank Rank Return Return StdDev StdDev Rank Rank Rank Rank Name 3Y 5Y 3Y 5Y 3Y 5Y 3Y 3Y 5Y 5Y Vanguard Equity-Income Adm 2 8 3.76 3.99 0.81 0.84 3 4 7 8 Vanguard Morgan Growth Adm 32 52 -1.73 -2.32 1.19 1.14 44 37 54 51 Vanguard PRIMECAP Inv 71 34 -4.31 -1.30 1.09 1.06 65 68 34 35 DFA US Targeted Value I 34 57 -1.20 -0.52 1.08 1.08 70 60 57 56 DFA International Value I 87 79 -0.03 -0.03 1.07 1.10 85 85 48 53 American Funds New Perspective R6 27 19 1.50 2.93 0.96 0.92 32 27 20 19 Harding Loevner Global Equity Inst 27 19 1.56 3.01 0.95 0.94 29 27 19 18 Definitions Return Rank - Fund's category percentile return rank, a value less than 50 (1 is the best and 100 is the worst) implies the fund is beating more than 50% of its peer group. Excess Return - Fund's excess return over its becnchmark, a value greater than 0 implies the fund's return is higher than its benchmark. Relative StdDev - Fund's standard deviation relative to its benchmark, a value less than 1 implies the fund's standard deviation is lower than its benchmark. Alpha Rank - Fund's category percentile Alpha rank, a value less than 50 (1 is the best and 100 is the worst) implies the fund is beating more than 50% of its peer group. Sharpe Rank - Fund's category percentile Sharpe Ratio rank, a value less than 50 (1 is the best and 100 is the worst) implies the fund is beating more than 50% of its peer group. 10 City of Dover, Delaware General Employee Pension Plan 10

Quarterly Investment Monitor Data as of 09/30/2012 Investment Policy Review - Passive Management Excess Excess Tracking Tracking Fund Beta Beta Expense Return Return Error Error Name 3Y 5Y Ratio 3Y 5Y 3Y 5Y Vanguard Short-Term Bond Index Signal 1.13 1.01 1.76 0.81 1.50 0.89 0.11 Vanguard Interm-Term Bond Index Signal -0.01 0.09 1.02 0.34 1.02 0.43 0.11 Vanguard Mid-Cap Value Index Admiral -1.12 0.10 0.94 2.63 0.98 4.39 0.10 Definitions Excess Return - Fund's excess return over its becnchmark, a value greater than 0 implies the fund's return is higher than its benchmark. Beta - Fund's Beta or sensitivity to movements compared to its benchmark, a value of 1 implies its moving in sync with its benchmark. Tracking Error - Fund's Tracking Error versus its benchmark, a value of 0 implies the Fund's ups and downs are the same size as its benchmark. 11 City of Dover, Delaware General Employee Pension Plan 11

Quarterly Investment Monitor Data as of 09/30/2012 Investment Option Return Summary Asset Fund 3 1 3 5 10 Mstar Expense YTD Ticker Class Name Months Year Years Years Years Rating Ratio Taxable Money Market Wells Fargo Advantage Treas Plus MMkt I 0.00 0.01 0.01 0.01 0.53 1.65 PISXX NA 0.20 BofA ML 3-month T-bill total return Index 0.03 0.07 0.07 0.11 0.72 1.82 N/A NA NA Short-term Bond Vanguard Short-Term Bond Index Signal 0.85 1.90 2.34 3.09 4.30 3.79 VBSSX 4.00 0.11 Barclays US Govt/Credit 1-3 Yr TR USD 0.52 1.11 1.36 1.96 3.29 3.24 N/A NA NA Intermediate-term Bond Vanguard Interm-Term Bond Index Signal 2.46 6.52 8.20 8.90 8.48 6.47 VIBSX 5.00 0.11 Barclays US Govt/Credit 5-10 Yr TR USD 2.46 6.52 8.23 8.91 8.39 6.47 N/A NA NA Large Value Vanguard Equity-Income Adm 5.49 13.42 29.06 15.15 2.43 9.14 VEIRX 5.00 0.22 S&P 500 Value 6.30 15.78 30.81 11.39 (1.56) 7.79 N/A NA NA Large Growth Vanguard Morgan Growth Adm 5.67 16.36 27.35 13.19 1.23 8.74 VMRAX 4.00 0.30 Large Growth Vanguard PRIMECAP Inv 5.52 12.39 24.17 10.62 2.25 10.58 VPMCX 4.00 0.45 S&P 500 Growth 6.40 17.00 29.65 14.93 3.55 8.14 N/A NA NA Mid-Cap Value Vanguard Mid-Cap Value Index Admiral 5.30 12.04 27.60 12.94 2.00 NA VMVAX 3.00 0.10 MSCI US Mid Cap 450 Index USD 5.23 12.84 26.53 14.05 1.90 10.94 N/A NA NA Small Value DFA US Targeted Value I 7.38 13.91 33.58 12.54 2.05 11.57 DFFVX 3.00 0.38 S&P 600 Value 6.77 14.56 35.85 13.74 2.58 10.24 N/A NA NA Foreign Large Value DFA International Value I 7.33 8.08 11.45 (0.23) (6.46) 10.03 DFIVX 2.00 0.45 MSCI EAFE Large Value NR USD 7.65 9.58 13.34 (0.20) (6.43) 7.46 N/A NA NA World Stock American Funds New Perspective R6 6.48 16.29 23.67 8.73 0.86 10.79 RNPGX 4.00 0.46 World Stock Harding Loevner Global Equity Inst 5.76 16.17 22.77 8.78 0.93 10.06 HLMVX 4.00 0.95 MSCI AC World Index ND USD 6.84 12.88 20.98 7.23 (2.07) 8.61 N/A NA NA Total Plan CIVILIAN-GROSS RETURN 0.94 4.83 11.64 6.72 2.11 NA N/A NA NA Total Plan CIVILIAN-NET RETURN 0.86 4.53 11.20 6.28 1.67 NA N/A NA NA Employee Plan Policy Index 4.62 10.94 18.65 9.19 2.41 7.50 N/A NA NA 12 City of Dover, Delaware General Employee Pension Plan 12

General EE's Allocation Allocation Adjustment 2012 - Asset Liability Study Target Wgtd Wgtd Fixed Asset Category Minimum Target Maximum Duration Duration Duration Cash & Short Term Bond (cash @ 5%) 0% 5% 10% 0.25 0.01 0.03 US Treasuries/Inflation-linked 0% 2% 7% 6.00 0.12 0.30 Intermediate Term Bond 8% 13% 18% 6.00 0.78 1.98 Long Term Bond 14% 19% 24% 14.00 2.66 6.74 Large Cap Value – US Stock 5% 10% 15% 0.00 0.00 Large Cap Growth – US Stock 6% 11% 16% 0.00 0.00 Mid Cap – US Stock 0% 5% 10% 0.00 0.00 Small Cap – US Stock 0% 5% 10% 0.00 0.00 Real Estate/REIT 0% 5% 10% 0.00 0.00 Non-US Stock 5% 10% 15% 0.00 0.00 Emerging Markets 10% 15% 20% 0.00 0.00 100% 3.57 9.05 Dynamic Investment Policy Funded Status Asset Category 40% 70% 80% 85% 90% 95% 100% Cash & Short Term Bond 5% 5% 5% 5% 5% 5% 5% US Treasuries/Inflation-linked 2% 2% 2% 4% 6% 10% 13% Intermediate Term Bond 13% 15% 16% 18% 18% 21% 24% Long Term Bond 19% 21% 22% 24% 26% 29% 33% Large Cap Value – US Stock 10% 10% 9% 8% 8% 7% 4% Large Cap Growth – US Stock 11% 9% 9% 8% 7% 5% 4% Mid Cap – US Stock 5% 5% 5% 5% 5% 4% 3% Small Cap – US Stock 5% 5% 5% 4% 4% 3% 3% Real Estate/REIT 5% 5% 5% 4% 4% 3% 3% Non-US Stock 10% 9% 9% 8% 7% 5% 3% Emerging Markets 15% 14% 13% 12% 10% 8% 5% Equity 61% 57% 55% 49% 45% 35% 25% Fixed Income/Cash 39% 43% 45% 51% 55% 65% 75% Total 100% 100% 100% 100% 100% 100% 100% Approximate Weighted Plan Duration 3.57 3.97 4.17 4.69 5.09 5.93 6.85 Approximate Fixed Income Duration 9.05 9.14 9.18 9.12 9.18 9.06 9.08 FUND CHANGES REQUIRED TO MEET ALLOCATION POLICY Fund Manager Asset Cat Prior Bal Asset Class / Strategy Allocation Existing Funds WF Treas Money Mkt CA $307,004 T-Bills 3% Vanguard Short Term Bond FI $4,761,695 Short Bonds 2% Vanguard Intermediate Term Bond FI $2,369,773 Interm Bonds 13% Vanguard Morgan Growth&PrimeCap EQ $3,036,378 US Large Growth 11% Vanguard Equity Income EQ $3,037,025 US Large Value 10% DFA US Targeted Value EQ $1,115,662 US Small Value 0% Vanguard Mid Cap Value Index EQ $1,878,583 US MidCap Value 5% Am Funds New Persp & Harding Lvnr Global EQ $4,083,724 Non-US Equity 10% DFA International Value EQ $1,428,025 Foreign Developed Equity 0% New Funds Target Small Cap Value (used in OPEB) EQ US Small Value 5% PIMCO Long Duration & Vanguard Long Term Index FI Long Bond 19% Vanguard REIT Index EQ US REITs 5% Vanguard Emerging Mkts Stock Index or ETF EQ Emerging Markets Equity 15% Vanguard Inflation Protected Sec FI Inflation-Indexed Bonds 2% 100% 13

Data through September 30, 2012 PIMCO Long Duration Total Return Instl Ticker PLRIX Status Open Yield 3.5% SEC Yield 3.27% Total Assets $5,750 mil Mstar Category Long-Term Bond Morningstar Analyst Rating 04-10-12 Historical Profile Investment Style Fixed Income Return Above Avg 51 71 61 29 54 62 Income Rtn %Rank Cat Risk „ Rating Average Above Avg Manager Change 18.0 Partial Manager Change Morningstar Pillars 16.0 Process Positive Growth of $10,000 14.0 Performance Positive Investment Values of 12.0 Fund People Positive 10.0 Investment Values of Parent ¶ Neutral BC Agg Bnd Price Positive Performance Quartile (within Category) Morningstar Analyst Rating 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09-12 History Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform . . . . . 10.09 10.32 10.92 10.62 10.85 11.79 12.59 NAV over the long term on a risk-adjusted basis. . . . . . . 7.83 12.38 5.62 11.64 18.57 9.80 Total Return % . . . . . . 0.86 7.14 -0.31 5.10 10.73 5.81 +/-BC Agg Bnd Analyst Rating Spectrum . . . . . . 1.23 3.94 3.70 1.48 -3.92 1.50 +/-BC Govt/Cred Long Œ „ ´ˇ ¨ . . . . . . 5.15 4.82 5.21 5.97 4.77 2.92 Income Return % . . . . . . 2.68 7.56 0.41 5.67 13.80 6.88 Capital Return % Pillar Spectrum . . . . . . 19 5 71 35 20 62 Total Rtn % Rank Cat Positive § Negative ¶ Neutral . . . . . 0.17 0.51 0.49 0.55 0.62 0.51 0.34 Income $ . . . . . 0.00 0.02 0.13 0.34 0.37 0.51 0.00 Capital Gains $ . . . . . . 0.50 0.50 0.50 0.50 0.50 0.50 Expense Ratio % Performance 09-30-12 . . . . . . 4.99 4.85 5.02 5.02 4.71 4.33 Income Ratio % 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 330 314 398 364 240 219 Turnover Rate % . . . . . . 2008 3.02 -1.99 -4.13 16.10 12.38 3 446 1,677 3,708 4,603 5,757 5,723 Net Assets $mil . . . . . 2009 -5.92 4.54 9.65 -2.07 5.62 2010 2.36 7.60 7.11 -5.36 11.64 2011 0.23 3.68 11.23 2.58 18.57 Rating and Risk Portfolio Analysis 06-30-12 2012 -1.18 7.59 3.27 . . Time Load-Adj Morningstar Morningstar Morningstar Date of Amount Value % Net Period Return % Rtn vs Cat Risk vs Cat Risk-Adj Rating Total Fixed-Income:684 Maturity $000 $000 Assets Trailing Total +/- BC +/- BC %Rank Growth of 1 Yr 12.63 US Treasury Bond 4.375% 05-15-41 259,800 347,036 5.95 Return% Agg Bnd Govt/Cred Long Cat $10,000 3 Yr 12.49 +Avg +Avg 3 Mo 3.27 1.69 0.17 70 10,327 PIMCO Short-Term Floatin 11-01-12 30,731 307,926 5.28 5 Yr 12.68 +Avg Avg 6 Mo 11.11 7.43 0.46 17 11,111 10 Yr US Treasury Bond 6.25% 08-15-23 153,050 222,329 3.81 . . . . 1 Yr 12.63 7.47 1.55 59 11,263 Incept 11.21 US Treasury Bond 4.25% 11-15-40 155,550 203,503 3.49 3 Yr Avg 12.49 6.30 0.02 37 14,234 Resolution Fdg Fed Bk Pr 10-15-19 134,700 121,660 2.09 5 Yr Avg 12.68 6.15 1.78 12 18,165 Other Measures Standard Index Best Fit Index FNMA 6.625% 11-15-30 78,200 119,003 2.04 10 Yr Avg BC Agg Bnd BC Govt/Cred Long . . . . . U S Treas Bd Stripped Pr 11-15-39 225,300 102,953 1.77 15 Yr Avg Alpha -3.4 1.2 . . . . . Resolution Fdg Fed Bk Pr 04-15-30 156,402 96,154 1.65 Beta 2.58 0.90 Tax Analysis Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat R-Squared 75 93 US Treasury Bond 4.5% 05-15-38 67,700 91,585 1.57 3 Yr (estimated) 9.58 41 2.58 87 Resolution Fdg Fed Bk Pr 01-15-30 144,300 89,524 1.54 Standard Deviation 8.05 5 Yr (estimated) 10.07 12 2.32 67 Mean 12.49 AID 5.5% 04-26-24 64,825 85,340 1.46 10 Yr (estimated) . . . . Sharpe Ratio 1.50 FNMA 06-01-17 80,650 76,546 1.31 Potential Capital Gain Exposure: 17% of assets Tennessee Valley Auth 7. 05-01-30 45,000 69,778 1.20 Quebec Prov Medium Term 12-01-43 62,600 69,733 1.20 Morningstar’s Take by Eric Jacobson 04-10-12 U S Treas Sec Stripped I 05-15-37 141,100 68,954 1.18 If you can’t take the heat, you don’t belong in PIMCO But the other side of that coin looks better when US Treasury Bond 3.125% 11-15-41 63,500 68,272 1.17 Long Duration Total Return’s kitchen. yields are falling, as they did over the summer in 2011. US Treasury Bond 8% 11-15-21 40,855 64,142 1.10 The fund’s most recent bout of warmth came in this A firmwide PIMCO decision had been in place to US Treasury Bond 5.25% 02-15-29 42,560 60,043 1.03 year’s first quarter. Amid diminished fears of European shorten the durations of the firm’s funds, but this one US Treasury Bond 4.625% 02-15-40 40,700 56,306 0.97 crisis contagion and mildly positive economic still had plenty of rate-sensitivity ammo to ride the FNMA 5.625% 07-15-37 38,970 55,884 0.96 indicators, U.S. Treasuries sold off, with the 10-year rally. Its 18.6% gain for 2011 placed it in the Sector Breakdown % of assets Current Investment Style note’s yield rising some 48 basis points from the end of category’s best quartile. Duration US Treasury 24 Ltd Mod Ext January to April 3. That’s been enough movement to The fund does look to add value in other ways, Non US Government 3 Quality knock this fund down by more than 3% over the same including with bets outside of its Treasury and Government Related 16 stretch, among the hardest hits taken by any fund in corporate bond focus. Of late it has held 9% in Corporate 34 the long-term bond category. non-U.S. bonds and 8% in municipals, for example, High Med Low 1 figure provided Agency MBS Pass-Through 2 The root of that outcome is the fund’s interest-rate and combined with an overall trend of falling yields, by fund Agency MBS ARM 0 sensitive profile. The fund has--and uses--the flexibility that has worked well over the long haul. The fund has Avg Eff Duration1 13.9 Yrs Agency MBS CMO 1 to manage its duration with a wide berth, but it’s beaten its benchmark handily over the trailing five Avg Eff Maturity 22.1 Yrs Non-Agency Residential MBS 3 benchmarked off of the Barclays Long-Term years through Dec. 31, turning in an 11.7% average Avg Credit Quality . Commercial MBS 1 Avg Wtd Coupon 5.85% Asset-Backed 1 Government/Credit index, which excludes mortgages. annual gain versus 9.7% for the index. But while it Avg Wtd Price 116.61% of par They tend to carry modest durations and are virtually may make sense for investors looking to balance out Municipal 7 Coupon Range % of Bonds Rel Cat absent in the fund, as well. So while it hasn’t always an otherwise short portfolio, or needing a portfolio of Cash & Equivalents 9 0% PIK 13.2 2.9 been so, the portfolio’s duration of late has been this type for other reasons, the fund’s basic 0% to 6% 50.4 1.0 Other 0 running among the longest in the category (13.9 years construction otherwise makes it appropriate for only 6% to 8% 31.7 1.0 8% to 10% 4.1 0.4 Composition - Net as of February 2012). the most risk-tolerant investors. Cash -6.4 Bonds 105.7 More than 10% 0.7 0.3 Address: PIMCO Funds Minimum Purchase: $1000000 Add: $0 IRA: $0 Stocks 0.0 Other 0.7 1.00=Category Average Stamford, CT 06902 Min Auto Inv Plan: $0 Add: . 888-877-4626 Sales Fees: No-load Credit Analysis % bonds 06-30-12 Special Securities Web Address: www.pimco-funds.com Management Fee: 0.25%, 0.25%A AAA . BB . Restricted/Illiquid Secs 10 Inception: 08-31-06 Actual Fees: Mgt:0.50% Dist: . AA . B . Exotic Mortgage-Backed 0 Advisor: Pacific Investment Management Co LLC Expense Projections: 3Yr:$160 5Yr:$280 10Yr:$628 A . Below B . Emerging-Markets Secs 4 Subadvisor: None Income Distribution: Monthly BBB NR/NA Options/Futures/Warrants No . . NTF Plans: N/A © 2012 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, correct, 14 complete or Mutual Funds FI timely. Past performance is no guarantee of future results. Access updated reports at mfb.morningstar.com. To order reprints, call 312-696-6100.

Data through September 30, 2012 Vanguard Long-Term Bond Index Inv Ticker VBLTX Status Open Yield 3.9% SEC Yield 3.44% Total Assets $5,911 mil Mstar Category Long-Term Bond Governance and Management Historical Profile Investment Style Fixed Income Return Average Stewardship Grade: A 33 36 31 35 45 63 54 46 56 Income Rtn %Rank Cat Risk Average Rating Portfolio Manager(s) Neutral Manager Change Ken Volpert had been a manager of this fund since 1994, and in Partial Manager Change 22.6 2008, Greg Davis was named comanager. Volpert is no longer 19.0 Growth of $10,000 listed as a manager but still leads Vanguard’s taxable-bond group. Davis’ team runs Vanguard’s fixed-income index funds, 16.0 Investment Values of including Short-Term Bond Index VBISX and Total Bond Market 13.0 Fund Index VBMFX. 10.0 Investment Values of BC Agg Bnd Performance Quartile (within Category) Strategy 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09-12 History The fund strives to match the performance of the Barclays Capital 10.83 11.67 11.50 11.82 11.84 11.53 11.65 11.98 11.56 12.04 13.91 14.60 NAV US Long Government/Credit Index, which includes 8.17 14.35 5.50 8.40 5.32 2.67 6.59 8.64 1.76 10.27 22.05 8.33 Total Return % investment-grade U.S. Treasury, government-agency, and -0.27 4.09 1.40 4.06 2.89 -1.66 -0.38 3.40 -4.17 3.73 14.21 4.34 +/-BC Agg Bnd corporate bonds. Mortgage-backed securities are not included in 0.89 -0.46 -0.37 -0.16 -0.01 -0.04 -0.01 0.20 -0.16 0.11 -0.44 0.03 +/-BC Govt/Cred Long the index. While management assembles a portfolio that resembles key traits of the index, such as duration (a measure of 6.60 6.25 5.50 5.50 5.20 5.22 5.45 5.44 5.21 5.27 4.99 3.12 Income Return % interest-rate sensitivity) and cash flow, the fund does not hold 1.57 8.10 0.00 2.90 0.12 -2.55 1.14 3.20 -3.45 5.00 17.06 5.21 Capital Return % every security in the index. 30 1 62 22 6 92 32 12 93 72 4 74 Total Rtn % Rank Cat 0.68 0.66 0.63 0.62 0.60 0.60 0.61 0.62 0.61 0.59 0.59 0.43 Income $ 0.00 0.00 0.17 0.00 0.00 0.00 0.00 0.00 0.00 0.10 0.12 0.02 Capital Gains $ 0.21 0.21 0.20 0.18 0.18 0.18 0.18 0.19 0.22 0.22 0.22 . Expense Ratio % Performance 09-30-12 6.30 5.92 5.34 5.34 5.03 5.30 5.34 5.49 5.33 4.87 4.62 . Income Ratio % 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 107 141 76 62 52 55 62 67 69 54 45 Turnover Rate % . 2008 1.23 -1.52 -3.60 13.03 8.64 542 794 951 1,310 1,893 1,898 2,277 2,518 2,049 2,250 2,727 2,908 Net Assets $mil 2009 -6.16 2.85 8.59 -2.91 1.76 2010 1.54 8.84 5.54 -5.46 10.27 2011 -0.36 3.35 16.01 2.17 22.05 Rating and Risk Portfolio Analysis 06-30-12 2012 -2.29 7.55 3.09 . . Time Load-Adj Morningstar Morningstar Morningstar Date of Amount Value % Net Period Return % Rtn vs Cat Risk vs Cat Risk-Adj Rating Total Fixed-Income:1198 Maturity $000 $000 Assets Trailing Total +/- BC +/- BC %Rank Growth of 1 Yr 10.69 US Treasury Bond 4.375% 11-15-39 152,745 196,946 4.31 Return% Agg Bnd Govt/Cred Long Cat $10,000 3 Yr 12.28 Avg High 3 Mo 3.09 1.51 -0.01 75 10,309 US Treasury Bond 4.5% 08-15-39 127,336 167,189 3.66 5 Yr 10.89 +Avg Avg 6 Mo 10.87 7.19 0.22 25 11,087 10 Yr 8.01 Avg Avg US Treasury Bond 4.25% 11-15-40 131,115 166,331 3.64 1 Yr 10.69 5.53 -0.39 70 11,069 Incept 8.38 US Treasury Bond 4.25% 05-15-39 111,528 140,821 3.08 3 Yr Avg 12.28 6.09 -0.19 43 14,155 US Treasury Bond 4.75% 02-15-41 98,985 135,733 2.97 5 Yr Avg 10.89 4.36 -0.01 35 16,767 Other Measures Standard Index Best Fit Index US Treasury Bond 4.375% 05-15-41 87,320 113,175 2.47 10 Yr Avg 8.01 2.69 -0.10 47 21,609 BC Agg Bnd BC Govt/Cred Long Alpha -4.7 -0.6 US Treasury Bond 6.25% 08-15-23 76,215 108,845 2.38 15 Yr Avg 8.38 2.23 0.00 12 33,438 US Treasury Bond 4.375% 05-15-40 81,283 104,931 2.29 Beta 2.78 1.04 Tax Analysis Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat R-Squared 69 99 US Treasury Bond 4.625% 02-15-40 75,576 101,284 2.21 3 Yr (estimated) 10.37 33 1.70 25 US Treasury Bond 7.125% 02-15-23 63,665 96,214 2.10 Standard Deviation 9.06 5 Yr (estimated) 8.92 27 1.77 30 Mean 12.28 US Treasury Bond 4.5% 05-15-38 64,435 84,199 1.84 10 Yr (estimated) 6.03 41 1.84 24 Sharpe Ratio 1.32 US Treasury Bond 6.875% 08-15-25 52,425 80,513 1.76 Potential Capital Gain Exposure: 19% of assets US Treasury Bond 5.25% 11-15-28 55,110 75,337 1.65 US Treasury Bond 3.875% 08-15-40 61,365 73,130 1.60 Morningstar’s Take by David Falkof 10-12-11 US Treasury Bond 6.125% 08-15-29 45,140 67,858 1.48 Vanguard Long-Term Bond Index’s recent strong considerable pain in both absolute and relative terms. US Treasury Bond 4.375% 02-15-38 49,523 63,459 1.39 performance underscores its significant risks. The fund’s higher-quality bias also could cause it to US Treasury Bond 6.75% 08-15-26 26,905 41,383 0.90 After delivering an impressive 10.3% gain in 2010, lag other long-term bond funds in a rising-rate US Treasury Bond 7.5% 11-15-24 22,090 35,202 0.77 this index fund returned a remarkable 17.4% year to environment because higher-quality bonds produce CMT Market Liquidity Rat 23,086 23,086 0.50 date through Oct. 7, 2011. During both years, fears less income to offset capital losses. General Elec Cap Corp Mt 03-15-32 18,975 21,531 0.47 about the eurozone’s sovereign debt crisis and slowing The fund’s extreme sensitivity to bond yield Sector Breakdown % of assets Current Investment Style global growth pushed Treasury yields lower, movements means it’s only suitable for long-term Duration US Treasury 41 Ltd Mod Ext turbo-charging this fund’s performance. That flight to investors and institutions looking to match long-dated Non US Government 4 Quality quality has helped this fund in two ways. For one, it liabilities. Within that framework, though, it does its Government Related 3 holds 41% of its assets in Treasuries, more than any job well. Manager Greg Davis has a strong record of Corporate 45 other long-term bond fund (most invest predominantly tracking this fund’s benchmark and has produced High Med Low 1 figure provided Agency MBS Pass-Through 0 in corporate bonds). In addition, the fund’s 13.9-year similarly capable results at his other bond index fund by fund Agency MBS ARM 0 duration (a measure of interest-rate sensitivity) is one charges. Moreover, the fund’s 0.22% expense ratio Avg Eff Duration1 14.6 Yrs Agency MBS CMO 0 of the category’s highest, allowing it to profit more makes it the category’s cheapest option for no-load Avg Eff Maturity 24.2 Yrs Non-Agency Residential MBS 0 from falling yields. investors. Thus, the fund works well for those who can Avg Credit Quality A Commercial MBS 0 Avg Wtd Coupon 5.69% Asset-Backed 0 Those same characteristics that have helped lately, withstand the acute volatility of a long-term bond Avg Wtd Price 128.71% of par however, also pose significant risks to the fund. fund. Municipal 6 Coupon Range % of Bonds Rel Cat Treasury yields have dropped to all-time lows; in Cash & Equivalents 0 0% PIK 0.1 0.0 August, the yield on the 10-year note fell below 2% for 0% to 6% 56.1 1.1 Other 0 the first time since the 1950s. When yields eventually 6% to 8% 39.7 1.2 8% to 10% 3.7 0.4 Composition - Net rise, the fund’s lengthy duration could cause Cash 0.5 Bonds 99.4 More than 10% 0.5 0.2 Address: PO Box 2600 Minimum Purchase: $3000 Add: $100 IRA: $3000 Stocks 0.0 Other 0.1 1.00=Category Average Valley Forge, PA 19482 Min Auto Inv Plan: $0 Add: $50 800-662-7447 Sales Fees: No-load Credit Analysis % bonds 06-30-12 Special Securities Web Address: www.vanguard.com Management Fee: 0.19% AAA 46 BB 0 Restricted/Illiquid Secs 1 Inception: 03-01-94 Actual Fees: Mgt:0.19% Dist: . AA 7 B 0 Exotic Mortgage-Backed 0 Advisor: Vanguard Group, Inc. Expense Projections: 3Yr:$71 5Yr:$124 10Yr:$280 A 23 Below B 0 Emerging-Markets Secs 4 Subadvisor: None Income Distribution: Monthly BBB 24 NR/NA 0 Options/Futures/Warrants No NTF Plans: Vanguard NTF 15 correct, complete or © 2012 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, Mutual Funds FI timely. Past performance is no guarantee of future results. Access updated reports at mfb.morningstar.com. To order reprints, call 312-696-6100.

Data through September 30, 2012 Vanguard REIT Index Inv Ticker VGSIX Status Open Yield 3.2% Total Assets $28,072 mil Mstar Category Real Estate Morningstar Analyst Rating 06-29-12 Historical Profile Investment Style Equity Return Average 98% 97% 98% 98% 98% 100% 99% 100% 99% Stock % Risk „ Rating Average Neutral Manager Change 32.0 Partial Manager Change Morningstar Pillars 27.0 20.0 Growth of $10,000 Process Positive 15.0 Investment Values of Performance ¶ Neutral Fund 10.0 Investment Values of People Positive MSCI World Parent Positive 6.0 Price Positive Performance Quartile (within Category) Morningstar Analyst Rating 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09-12 History Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform 12.13 11.84 15.18 18.79 19.80 25.58 20.45 12.13 14.84 18.38 19.25 21.58 NAV over the long term on a risk-adjusted basis. 12.35 3.75 35.65 30.76 11.89 35.07 -16.46 -37.05 29.58 28.30 8.47 14.72 Total Return % 29.17 23.64 2.54 16.04 2.40 15.00 -25.50 3.66 -0.41 16.54 14.01 1.71 +/-MSCI World Analyst Rating Spectrum 0.00 0.17 -0.53 -2.40 -1.93 -0.90 1.09 2.15 1.12 0.23 -0.90 0.25 +/-DJ Real Est Œ „ ´ˇ ¨ 7.19 6.40 6.74 6.40 5.11 4.82 2.69 2.84 5.41 4.12 3.60 2.57 Income Return % 5.16 -2.65 28.91 24.36 6.78 30.25 -19.15 -39.89 24.17 24.18 4.87 12.15 Capital Return % Pillar Spectrum 20 54 58 68 56 46 51 31 50 32 43 38 Total Rtn % Rank Cat Positive § Negative ¶ Neutral 0.81 0.76 0.78 0.95 0.94 0.94 0.68 0.57 0.64 0.60 0.65 0.49 Income $ 0.00 0.00 0.00 0.00 0.22 0.12 0.33 0.41 0.00 0.00 0.00 0.00 Capital Gains $ 0.33 0.28 0.27 0.24 0.21 0.21 0.21 0.20 0.21 0.26 0.26 0.24 Expense Ratio % Performance 09-30-12 5.73 4.35 4.90 4.10 3.44 2.91 2.27 2.52 3.36 3.94 2.22 2.30 Income Ratio % 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 21 10 12 7 13 17 11 13 10 16 12 10 Turnover Rate % 2008 2.13 -5.39 5.35 -38.16 -37.05 1,230 1,784 3,051 4,663 4,407 6,066 4,137 2,732 3,763 2,585 2,444 2,625 Net Assets $mil 2009 -32.08 30.03 34.54 9.05 29.58 2010 10.02 -4.01 13.10 7.42 28.30 2011 6.50 3.51 -14.59 15.20 8.47 Rating and Risk Portfolio Analysis 06-30-12 2012 10.71 3.70 -0.07 . . Time Load-Adj Morningstar Morningstar Morningstar Share change since 03-12 Total Stocks:111 Sector PE Tot Ret% % Assets Period Return % Rtn vs Cat Risk vs Cat Risk-Adj Rating Simon Property Group Inc Real Est 30.0 20.06 10.99 Trailing Total +/- MSCI +/- DJ %Rank Growth of 1 Yr 32.16 Return% World Real Est Cat $10,000 Public Storage Real Est 44.4 5.96 4.98 3 Yr 20.30 Avg Avg Equity Residential Real Est 2.65 4.44 3 Mo -0.07 -6.78 0.31 56 9,993 5 Yr 2.55 +Avg +Avg . Ventas Inc Real Est 47.0 16.29 4.32 6 Mo 3.62 2.32 0.26 42 10,362 10 Yr 11.31 Avg Avg HCP Inc Real Est 30.7 10.98 4.29 1 Yr 32.16 10.57 0.10 36 13,216 Incept 10.75 Boston Properties Inc Real Est 46.3 12.71 3.81 3 Yr Avg 20.30 12.82 -0.22 30 17,410 Other Measures Standard Index Best Fit Index Prologis Inc Real Est 138.9 25.46 3.62 5 Yr Avg 2.55 4.70 0.95 26 11,342 Vornado Realty Trust Real Est 50.5 8.14 3.32 10 Yr Avg 11.31 3.27 0.03 42 29,197 MSCI World DJ Real Est AvalonBay Communities In Real Est 59.5 6.36 3.19 15 Yr Avg 8.70 4.84 -0.24 48 34,950 Alpha 12.4 0.1 Health Care REIT, Inc. Real Est 86.2 9.96 2.91 Beta 0.92 0.99 R-Squared 68 100 Host Hotels & Resorts In Real Est . 10.09 2.65 Tax Analysis Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat Digital Realty Trust, In Real Est 49.8 8.05 2.14 3 Yr (estimated) 18.83 43 1.22 89 Standard Deviation 19.06 Macerich Company Real Est 34.5 16.36 1.85 5 Yr (estimated) 1.14 26 1.37 55 Mean 20.30 Kimco Realty Corp Real Est 58.5 27.16 1.84 10 Yr (estimated) 9.57 41 1.56 53 Sharpe Ratio 1.06 General Growth Propertie Real Est . 34.88 1.81 Potential Capital Gain Exposure: 17% of assets SL Green Realty Corporat Real Est 55.9 21.28 1.64 UDR Inc Real Est . 1.49 1.61 Morningstar’s Take by Rob Wherry 06-29-12 Federal Realty Investmen Real Est 58.5 18.36 1.57 Realty Income Corporatio Real Est 44.4 20.75 1.32 Low fees and a decent record give this fund plenty of of assets are invested in its top 10 holdings. Almost 50 Essex Property Trust Real Est 72.5 7.85 1.27 appeal. funds in the category are more concentrated, though, Vanguard REIT ranks among the cheapest options and this offering’s 115 holdings doubles the tally of Current Investment Style Industry % of Rel Value Blnd Growth Market Cap % Weightings Stocks Cat for diversified real estate exposure. This index fund’s the average actively managed real estate fund. It also Large Mid Small Giant Retail 0.0 13.9 1.2 0.24% annual expense ratio is the third lowest in avoids some of the sector’s more tangential areas, Large Residential 48.0 14.1 1.1 Morningstar’s real estate category, placing behind including timber REITs, real estate operating Mid Industrial 36.5 0.7 0.7 offerings from Fidelity and DFA. (Expenses fall 14 basis companies, and service firms. Instead, it tilts more Small Healthcare 12.9 15.2 1.1 points for Vanguard’s Admiral share class.) Investors toward the real estate industry’s higher quality Micro Office 2.7 11.6 1.0 have found that cost structure attractive. With $24 companies like mall operator Simon Property Group Avg $mil: Diversified 4.6 0.9 billion in assets, the fund is the largest in the category. SPG. 8,155 Hotel/Motel 1.8 1.2 The next biggest is just one fifth its size. The fund has an admirable performance record. A Mgmt & Dev 0.0 0.0 Value Measures Rel Category Other 38.0 0.9 The fund tracks an index that encompasses a wide high R-squared underscores its close correlation with Price/Earnings 42.62 1.07 spectrum of real estate firms. The MSCI U.S. REIT the index, and its long-term performance has been Price/Book 2.17 1.01 Composition - Net benchmark consists of 100-plus securities that focus on relatively in line with that bogy, minus fees. When Price/Sales 6.07 1.10 Cash 0.6 apartments, malls, office buildings, and long-term care lesser-quality REITs surge, investors should expect Price/Cash Flow 16.73 1.03 Stocks 99.4 centers, among other types of properties. The fund this fund to lag. Top-rated actively managed funds Dividend Yield % 3.45 1.01 Bonds 0.0 does a solid job tracking its bogy. Its valuation profile, have easily beaten it over long periods of time, too. Other 0.0 Growth Measures % Rel Category average market cap, and yield closely mirror the MSCI This offering has surpassed the category average over Foreign 0.0 Long-Term Erngs 5.82 0.90 (% of Stock) Index’s. That said, the fund does deviate from category the past decade, though, and it remains a compelling Book Value 1.68 0.95 peers in some regards. Granted, like most real estate option for investors seeking reliable, low-cost real Sales -5.06 NMF offerings, this fund is top-heavy. Slightly less than 50% estate exposure. Cash Flow -35.34 NMF Historical Erngs 14.23 1.02 Address: Po Box 2600 Minimum Purchase: $3000 Add: $100 IRA: $0 Valley Forge, PA 19482 Min Auto Inv Plan: $0 Add: $100 Profitability % Rel Category 800-662-7447 Sales Fees: No-load Web Address: www.vanguard.com Management Fee: 0.21% Return on Equity 7.69 0.99 Inception: 05-13-96 Actual Fees: Mgt:0.21% Dist: . Return on Assets 2.68 1.03 Advisor: Vanguard Group, Inc. Expense Projections: 3Yr:$77 5Yr:$135 10Yr:$306 Net Margin 19.00 1.03 Subadvisor: None Income Distribution: Quarterly NTF Plans: Vanguard NTF 16 correct, complete or © 2012 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, Mutual Funds EQ timely. Past performance is no guarantee of future results. Access updated reports at mfb.morningstar.com. To order reprints, call 312-696-6100.

Data through September 30, 2012 Vanguard Emerging Mkts Stock Idx Ticker VEIEX Status Open Yield 3.2% Total Assets $71,720 mil Mstar Category Diversified Emerging Mkts Morningstar Analyst Rating 11-15-11 Historical Profile Investment Style Equity Return Average 94% 93% 93% 94% 94% 97% 97% 95% 99% Stock % Risk „ Rating Average Neutral Manager Change 40.8 Partial Manager Change Morningstar Pillars 33.8 24.0 Growth of $10,000 Process Positive 17.0 Investment Values of Performance ¶ Neutral Fund Investment Values of People ¶ Neutral 10.0 MSCI EAFE Parent Positive Price Positive Performance Quartile (within Category) Morningstar Analyst Rating 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09-12 History Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform 8.37 7.63 11.85 14.68 19.07 24.27 33.12 14.90 25.90 30.34 24.11 26.47 NAV over the long term on a risk-adjusted basis. -2.88 -7.43 57.65 26.12 32.05 29.39 38.90 -52.81 75.98 18.86 -18.78 11.08 Total Return % 18.56 8.51 19.06 5.87 18.51 3.05 27.73 -9.43 44.20 11.11 -6.64 1.00 +/-MSCI EAFE Analyst Rating Spectrum -0.26 -1.26 1.83 0.57 -1.95 -2.75 -0.52 0.52 -2.53 -0.02 -0.36 -0.90 +/-MSCI Emg Mkt Œ „ ´ˇ ¨ 2.38 1.46 2.25 2.19 2.15 2.08 2.42 2.11 2.11 1.68 1.74 1.30 Income Return % -5.26 -8.89 55.40 23.93 29.90 27.31 36.48 -54.92 73.87 17.18 -20.52 9.78 Capital Return % Pillar Spectrum 41 62 30 29 52 72 37 38 36 44 41 54 Total Rtn % Rank Cat Positive § Negative ¶ Neutral 0.21 0.12 0.17 0.26 0.32 0.40 0.59 0.70 0.31 0.43 0.53 0.31 Income $ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Capital Gains $ 0.57 0.57 0.53 0.48 0.45 0.42 0.37 0.32 0.40 0.35 0.33 . Expense Ratio % Performance 09-30-12 1.67 1.67 2.26 2.44 2.48 2.20 2.24 2.81 2.16 1.97 2.25 . Income Ratio % 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 23 65 16 11 15 26 9 20 12 12 10 Turnover Rate % . 2008 -10.48 -1.35 -25.98 -27.82 -52.81 801 896 1,873 3,140 6,018 8,109 13,313 5,143 7,765 3,218 2,279 2,355 Net Assets $mil 2009 0.07 34.14 21.15 8.22 75.98 2010 2.47 -9.12 18.74 7.49 18.86 2011 1.78 -0.97 -23.97 5.99 -18.78 Rating and Risk Portfolio Analysis 06-30-12 2012 13.94 -8.41 6.45 . . Time Load-Adj Morningstar Morningstar Morningstar Share change since 03-12 Total Stocks:872 Sector Country % Assets Period Return % Rtn vs Cat Risk vs Cat Risk-Adj Rating Samsung Electronics Co L Technology Korea 2.35 Trailing Total +/- MSCI +/- MSCI %Rank Growth of 1 Yr 17.74 China Mobile Ltd. Comm Svs China 1.95 Return% EAFE Emg Mkt Cat $10,000 3 Yr 5.09 Avg Avg America Movil, S.A.B. de Comm Svs Mexico 1.51 3 Mo 6.45 -0.47 -1.29 64 10,645 5 Yr -1.73 Avg Avg China Construction Bank Finan Svs China 1.47 6 Mo -2.50 -1.80 -0.66 55 9,750 10 Yr 16.58 Avg Avg Gazprom OAO ADR Energy Russia 1.30 1 Yr 17.74 3.99 0.81 37 11,774 Incept 7.60 Taiwan Semiconductor Man Technology Taiwan 1.27 3 Yr Avg 5.09 2.97 -0.54 52 11,606 Samsung Electronics Co L Technology Korea 1.13 5 Yr Avg -1.73 3.51 -0.45 40 9,164 Other Measures Standard Index Best Fit Index Industrial And Commercia Finan Svs China 1.07 10 Yr Avg 16.58 8.38 -0.42 33 46,370 MSCI EAFE MSCI Emg Mkt CNOOC, Ltd. Energy China 1.06 15 Yr Avg 7.51 4.14 36 29,630 Alpha 3.3 -0.5 Hyundai Motor Co Ltd Cnsmr Cyc Korea 0.93 . Beta 1.03 1.01 Tencent Holdings Ltd. Technology China 0.89 Tax Analysis Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat R-Squared 81 98 Mtn Group Limited Comm Svs South Africa 0.87 3 Yr (estimated) 4.60 45 0.46 57 Standard Deviation 22.35 Bank Of China Ltd.(Dup) Finan Svs China 0.85 5 Yr (estimated) -2.28 32 0.57 17 Mean 5.09 Vale SA ADR Basic Mat Brazil 0.84 10 Yr (estimated) 16.35 18 0.20 5 Sharpe Ratio 0.33 PetroChina Co Ltd H Shar Energy China 0.81 Potential Capital Gain Exposure: 2% of assets Hon Hai Precision Ind. C Technology Taiwan 0.79 LUKOIL Oil Company JSC A Energy Russia 0.78 Morningstar’s Take by Gregg Wolper 11-15-11 Petroleo Brasileiro SA P Energy Brazil 0.72 Taiwan Semiconductor Man Technology Taiwan 0.70 In one sense, shareholders of Vanguard Emerging Matching the index as closely as possible is this Itau Unibanco Holding SA Finan Svs Brazil 0.69 Markets Stock Index have reason to be disappointed fund’s mission, so shareholders can’t complain if it this year, but in another way, they can be satisfied that achieves that aim. Moreover, it has come close to Current Investment Style Sector % of Rel MSCI 3 Year they’re getting what they wanted. mirroring its benchmark over the long term as well, Market Cap % Weightings Stocks EAFE High Low Value Blnd Growth This fund has plunged 23.6% for the year to date although that is tougher to measure because to adjust Giant 48.0 h Cyclical 46.02 . Large Mid Small through Sept. 23, 2011. The trouble has been spread for limited liquidity in some places, Vanguard used a Large 39.8 r BasicMat 12.59 . 16 13 widely across markets. Of the biggest emerging customized MSCI benchmark until 2006 rather than Mid 12.0 t CnsmrCyc 8.35 . 9 7 markets, China (top-ranked in this fund, with 17.3% of the standard MSCI Emerging Markets Index it now Small 0.2 y FinanSvs 23.16 . 24 22 assets at the end of August) has been held back by uses. Micro 0.0 u Real Est 1.92 . 2 2 fears of slowing growth and rising inflation, while This fund, therefore, has merit. Moreover, its Avg $mil: j Sensitive 41.71 . Brazil (second at 15.2%) has investors concerned about Admiral shares and exchange-traded fund shares are 18,201 i CommSrvs 8.18 . 9 7 that country’s new government as well as a potential very cheap, with expense ratios of 0.22% each. Its Value Measures Rel Category o Energy 11.41 . 14 11 decline in exports if China does slow down. Other slightly more costly Investor shares, at 0.35%, are also Price/Earnings 10.56 0.98 p Industrl 7.57 . 8 7 prominent emerging markets such as India and Russia far less expensive than actively managed alternatives Price/Book 1.41 0.89 a Technlgy 14.55 . 15 12 also have fared poorly this year. Smaller ones, notably as well as prominent rival ETFs. (The Admiral shares Price/Sales 0.86 0.89 Defensive12.28 k . Thailand and Indonesia, have held up better, but play have a $10,000 minimum, while the Investor shares’ Price/Cash Flow 4.47 0.81 s CnsmrDef 7.93 . 8 5 Dividend Yield % 2.98 0.96 far lesser roles in this portfolio. minimum is $3,000.) If emerging markets return to d Hlthcare 0.97 . 3 1 While this year’s decline isn’t pleasant for favor, this fund should reliably deliver their gains. But Growth Measures % Rel Category f Utilities 3.38 . 4 3 shareholders, the fund is meeting its goal. Its 23.6% it will provide no cushion when things go sour. Long-Term Erngs 12.15 0.92 loss is exactly the same as the decline in its Book Value 11.81 1.19 benchmark, the MSCI Emerging Markets Index. Sales -4.42 NMF Regional Exposure % Stock Cash Flow 3.86 0.56 UK/W. Europe 0 N. America 0 Address: PO Box 2600 Minimum Purchase: $3000 Add: $100 IRA: $0 Historical Erngs 10.09 0.21 Japan 0 Latn America 21 Valley Forge, PA 19482 Min Auto Inv Plan: $0 Add: . Asia X Japan 60 Other 19 800-662-7447 Sales Fees: No-load Web Address: www.vanguard.com Management Fee: 0.23% Composition - Net Inception: 05-04-94 Actual Fees: Mgt:0.23% Dist: . Cash 0.0 Bonds 0.0 Country Exposure % Stock Advisor: Vanguard Group, Inc. Expense Projections: 3Yr:$106 5Yr:$185 10Yr:$418 Stocks 98.6 Other 1.4 China 18 Taiwan 11 Subadvisor: None Income Distribution: Annually South Korea 15 South Africa 8 NTF Plans: Vanguard NTF Foreign (% of Stock) 99.7 Brazil 13 17 correct, complete or © 2012 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, Mutual Funds EQ timely. Past performance is no guarantee of future results. Access updated reports at mfb.morningstar.com. To order reprints, call 312-696-6100.

Data through September 30, 2012 Vanguard Inflation-Protected Secs Inv Ticker VIPSX Status Open Yield 2.3% SEC Yield -1.11% Total Assets $44,277 mil Mstar Category Inflation-Protected Bond Morningstar Analyst Rating 11-15-11 Historical Profile Investment Style Fixed Income Return Above Avg 4 19 42 17 49 34 21 7 64 Income Rtn %Rank Cat Risk Œ Rating Average Above Avg Manager Change Partial Manager Change Morningstar Pillars 20.5 17.5 Growth of $10,000 Process Positive 15.0 Performance Positive Investment Values of 12.5 Fund People Positive 10.0 Investment Values of Parent Positive BC Agg Bnd Price Positive Performance Quartile (within Category) Morningstar Analyst Rating 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09-12 History Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform 10.62 11.84 12.21 12.57 12.16 11.78 12.45 11.52 12.55 13.00 14.11 14.85 NAV over the long term on a risk-adjusted basis. 7.61 16.61 8.00 8.27 2.59 0.43 11.59 -2.85 10.80 6.17 13.24 6.17 Total Return % -0.83 6.35 3.90 3.93 0.16 -3.90 4.62 -8.09 4.87 -0.37 5.40 2.18 +/-BC Agg Bnd Analyst Rating Spectrum -0.29 0.04 -0.40 -0.19 -0.25 0.02 -0.05 -0.50 -0.61 -0.14 -0.32 -0.08 +/-BC US Tr US TIPS Œ „ ´ˇ ¨ 4.37 4.39 3.85 4.70 5.53 3.54 5.60 5.01 1.86 2.55 4.43 0.91 Income Return % 3.24 12.22 4.15 3.57 -2.94 -3.11 5.99 -7.86 8.94 3.62 8.81 5.26 Capital Return % Pillar Spectrum 58 14 30 22 22 21 10 57 35 37 10 25 Total Rtn % Rank Cat Positive § Negative ¶ Neutral 0.45 0.46 0.45 0.57 0.68 0.43 0.65 0.61 0.21 0.32 0.57 0.13 Income $ 0.07 0.06 0.12 0.07 0.05 0.00 0.00 0.00 0.00 0.00 0.02 0.00 Capital Gains $ 0.25 0.25 0.22 0.18 0.17 0.20 0.20 0.20 0.25 0.22 0.20 . Expense Ratio % Performance 09-30-12 6.38 3.92 4.55 3.46 4.83 4.83 3.87 5.02 2.00 2.48 4.21 . Income Ratio % 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 122 75 108 63 73 47 21 28 14 29 28 Turnover Rate % . 2008 5.31 -0.14 -3.88 -3.89 -2.85 772 2,988 4,746 7,182 6,332 5,440 6,662 8,593 12,946 12,979 15,220 16,269 Net Assets $mil 2009 5.25 0.25 3.05 1.91 10.80 2010 0.36 3.90 2.57 -0.74 6.17 2011 1.85 3.40 4.84 2.56 13.24 Rating and Risk Portfolio Analysis 06-30-12 2012 0.68 3.24 2.14 . . Time Load-Adj Morningstar Morningstar Morningstar Date of Amount Value % Net Period Return % Rtn vs Cat Risk vs Cat Risk-Adj Rating Total Fixed-Income:33 Maturity $000 $000 Assets Trailing Total +/- BC +/- BC %Rank Growth of 1 Yr 8.89 US Treasury Note 04-15-16 2,144,000 2,327,050 5.47 Return% Agg BndUS Tr US TIPS Cat $10,000 3 Yr 9.16 +Avg +Avg 3 Mo 2.14 0.56 0.02 33 10,214 US Treasury Note 0.125% 01-15-22 2,044,900 2,201,889 5.18 5 Yr 7.61 +Avg Avg 6 Mo 5.45 1.77 0.11 20 10,545 10 Yr 6.39 +Avg Avg US Treasury Note 1.125% 01-15-21 1,770,000 2,144,141 5.04 1 Yr 8.89 3.73 -0.21 24 10,889 Incept 7.61 US Treasury Note 07-15-21 1,833,000 2,086,129 4.91 3 Yr Avg 9.16 2.97 -0.13 18 13,007 US Treasury Note 2% 01-15-14 1,564,100 2,022,516 4.76 5 Yr Avg 7.61 1.08 -0.32 30 14,430 Other Measures Standard Index Best Fit Index US Treasury Bond 3.875% 04-15-29 864,200 1,956,047 4.60 10 Yr Avg 6.39 1.07 -0.25 39 18,578 BC Agg Bnd BC US Tr US TIPS Alpha 1.2 -0.1 US Treasury Bond 2.375% 01-15-25 1,213,770 1,952,657 4.59 15 Yr Avg . . . . . US Treasury Note 1.25% 07-15-20 1,236,100 1,515,624 3.56 Beta 1.28 1.00 Tax Analysis Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat R-Squared 51 99 US Treasury Bond 3.625% 04-15-28 683,890 1,501,875 3.53 3 Yr (estimated) 8.00 13 1.06 53 US Treasury Bond 2% 01-15-26 966,698 1,430,929 3.36 Standard Deviation 4.84 5 Yr (estimated) 6.49 14 1.04 28 Mean 9.16 US Treasury Note 0.5% 04-15-15 1,228,600 1,354,754 3.19 10 Yr (estimated) 4.92 11 1.38 37 Sharpe Ratio 1.82 US Treasury Bond 02-15-41 887,500 1,332,841 3.13 Potential Capital Gain Exposure: 16% of assets US Treasury Bond 2.375% 01-15-27 857,389 1,313,565 3.09 US Treasury Note 1.375% 01-15-20 1,022,000 1,265,297 2.98 Morningstar’s Take by David Falkof 11-15-11 US Treasury Note 1.875% 07-15-19 923,750 1,191,711 2.80 A manager change at Vanguard Inflation-Protected He and Wright-Casparius don’t plan to change that US Treasury Note 1.25% 04-15-14 1,027,000 1,152,832 2.71 Securities’ should be smoother than TIPS’ bumpy ride. strait-laced style. The fund’s low expense ratio also US Treasury Bond 2.5% 01-15-29 770,200 1,146,520 2.70 In mid-August 2011, Vanguard hired Gemma means they don’t need to get fancy for the fund to US Treasury Note 1.375% 07-15-18 936,500 1,141,467 2.68 Wright-Casparius to replace this fund’s longtime compete. US Treasury Note 1.625% 01-15-15 847,215 1,085,162 2.55 comanager Ken Volpert, who remains at the firm as The combination of low fees and a no-frills US Treasury Bond 1.75% 01-15-28 787,125 1,083,985 2.55 head of Vanguard’s taxable fixed-income group. approach has delivered consistently good results over Sector Breakdown % of assets Current Investment Style Wright-Casparius joins John Hollyer, who has the long run. Since the fund’s 2000 inception it has Duration US Treasury 0 Ltd Mod Ext comanaged the fund with Volpert since its June 2000 outpaced its typical peer during 87% of rolling Non US Treasury 0 Quality inception. In her previous role, Wright-Casparius ran a three-year periods. Still, there are risks to consider. US Treasury Inflation-Protected100 global inflation-linked bond portfolio for Singapore’s TIPS have had a great run recently, fueling this fund’s Non US Inflation-Protected 0 sovereign wealth fund, although she has no public 10.2% gain for the year to date through Aug. 29. That High Med Low 1 figure provided Government Related 0 track record. strong performance has come as investors seeking by fund Corporate 0 These changes aren’t terribly concerning. Volpert safety pushed TIPS’ real yields to historic lows, even Avg Eff Duration1 8.6 Yrs Agency MBS 0 remains at the firm overseeing the team that manages negative for maturities under 10 years. Although TIPS Avg Eff Maturity 9.6 Yrs Non-Agency Residential MBS 0 this fund, and Hollyer has expertly run the fund for offer protection against rising inflation, they can suffer Avg Credit Quality AAA Commercial MBS 0 Avg Wtd Coupon 1.68% Asset-Backed 0 years with the same straightforward approach. Unlike losses when real yields rise, as they did in late Avg Wtd Price 135.67% of par some inflation-protected bond peers who augment 2010. The fund is a solid option for long-term TIPS Covered Bond 0 Coupon Range % of Bonds Rel Cat their Treasury Inflation-Protected Securities holdings exposure, but investors should brace for some Municipal 0 0% PIK 0.0 0.0 with tactical moves in and out of other bond sectors, volatility. 0% to 6% 100.0 1.0 Hollyer sticks with TIPS, making small shifts along their 6% to 8% 0.0 0.0 maturity spectrum depending on where he finds value. 8% to 10% 0.0 0.0 Composition - Net More than 10% 0.0 0.0 Cash 0.1 Bonds 99.9 Address: PO Box 2600 Minimum Purchase: $3000 Add: $100 IRA: $3000 Stocks 0.0 Other 0.0 1.00=Category Average Valley Forge, PA 19482 Min Auto Inv Plan: $0 Add: . 800-662-7447 Sales Fees: No-load Credit Analysis % bonds 06-30-12 Special Securities Web Address: www.vanguard.com Management Fee: 0.17% AAA 100 BB 0 Restricted/Illiquid Secs 0 Inception: 06-29-00 Actual Fees: Mgt:0.17% Dist: . AA 0 B 0 Exotic Mortgage-Backed . Advisor: Vanguard Group, Inc. Expense Projections: 3Yr:$64 5Yr:$113 10Yr:$255 A 0 Below B 0 Emerging-Markets Secs 0 Subadvisor: None Income Distribution: Quarterly BBB 0 NR/NA 0 Options/Futures/Warrants No NTF Plans: Vanguard NTF 18 correct, complete or © 2012 Morningstar, Inc. All rights reserved. The information herein is not represented or warranted to be accurate, Mutual Funds FI timely. Past performance is no guarantee of future results. Access updated reports at mfb.morningstar.com. To order reprints, call 312-696-6100.

AMENDMENT I TO THE INVESTMENT POLICY STATEMENT FOR CITY OF DOVER EMPLOYEES’ PENSION BOARD The following amendment to the investment policy has been reviewed and approved by the Board: I. Allocation of Plan Assets – The plan will utilize a dynamic policy linked to funded status of the plan. As funded status improves to the next threshold, the allocation of the plan will be adjusted to the specified allocation. Within each threshold, there will be a range of +/- 5% to the target to allow for modest market fluctuations before rebalancing of the portfolio. The portfolio will be reviewed at least quarterly and adjusted as necessary to maintain alignment with the target allocations. Dynamic Investment Policy Funded Status Asset Category 40% 70% 80% 85% 90% 95% 100% Cash & Short Term Bond 5% 5% 5% 5% 5% 5% 5% US Treasuries/Inflation‐linked 2% 2% 2% 4% 6% 10% 13% Intermediate Term Bond 13% 15% 16% 18% 18% 21% 24% Long Term Bond 19% 21% 22% 24% 26% 29% 33% Large Cap Value – US Stock 10% 10% 9% 8% 8% 7% 4% Large Cap Growth – US Stock 11% 9% 9% 8% 7% 5% 4% Mid Cap – US Stock 5% 5% 5% 5% 5% 4% 3% Small Cap – US Stock 5% 5% 5% 4% 4% 3% 3% Real Estate/REIT 5% 5% 5% 4% 4% 3% 3% Non‐US Stock 10% 9% 9% 8% 7% 5% 3% Emerging Markets 15% 14% 13% 12% 10% 8% 5% Equity 61% 57% 55% 49% 45% 35% 25% Fixed Income/Cash 39% 43% 45% 51% 55% 65% 75% II. Performance Monitoring Benchmarks – The plan will utilize asset category specific benchmarks to monitor investment manager performance. In addition, overall portfolio performance will be benchmarked to a normal portfolio composed of category indexes allocated based on the Dynamic Investment Policy funded status position. Asset Category Index Cash & Money Market CitiGroup 3 Month TBill Short‐term Bond BofA Merrill Lynch 1‐3 Yr Corp Index Intermediate‐term Bond BarCap Interm US Govt/Credit Index Long‐term Bond BarCap Long GovtCredit Index Large Cap Value S&P/Citi 500 Value Large Cap Blend S&P 500 Index Large Cap Growth S&P/Citi 500 Growth Mid Cap Value S&P/Citi Mid‐Cap 400 Value Mid Cap S&P 400 Mid Cap Mid Cap Growth S&P/Citi Mid‐Cap 400 Growth Small Cap Value S&P/Citi Small Cap 600 Value Small Cap S&P 600 Small Cap Small Cap Growth S&P/Citi Small Cap 600 Growth Non‐US Equity MSCI EAFE Non‐US Small Cap MSCI EAFE Small Cap Emerging Mkts MSCI EM (Emerging Markets) REITS/Real Estate FTSE NAREIT Equity REIT 19

AMENDMENT I TO THE INVESTMENT POLICY STATEMENT FOR CITY OF DOVER EMPLOYEES’ PENSION BOARD III. Approval by the Board – To indicate approval of this amendment to the Investment Policy Statement, the appropriate designated Board member shall sign below. This Amendment to the Statement of Investment Policy approved by action of the Board. Date: Approved by: Chairman Title: 20

The analysis in this report was prepared utilizing data from third parties and other sources including but not limited to internal computer software and databases, including among others mpiStylus Pro©,, software designed by Markov Processes International. Reasonable care has been taken to assure the accuracy of the data contained herein, and comments are objectively stated and are based on facts gathered in good faith. These reports do not constitute investment advice with respect to the sale or disposition of individual securities. Milliman disclaims responsibility, financial or otherwise, for the accuracy or completeness of this report. This Milliman work product was prepared solely for the internal business use of our clients. Milliman's work may not be provided to third parties without Milliman's prior written consent. Milliman does not intend to benefit any third party recipient of its work product, even if Milliman consents to the release of its work product to such third party. Past performance is no guarantee of future results. Unless explicitly stated in your Service Agreement, there should be no reliance on Milliman services to provide analysis or reporting on a daily basis, the changes to manager rankings, ratings or opinions thereon. Unless explicitly stated in your Service Agreement, Milliman services are not intended to monitor investment manager compliance with individual security selection criteria, limits on security selection, and/or prohibitions to the holding of certain securities or security types. Milliman provides a copy of its SEC Form ADV Part II to clients without charge upon request. 21Cities Worldwide Offices in Principal