VILLAGE OF GRAFTON NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2016 NOTE IV - OTHER INFORMATION (cont.) A. EMPLOYEES' RETIREMENT SYSTEM (cont.) Long-term expected return on plan assets. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Core Fund Asset Class Current Asset Allocation % Destination Target Asset Allocation % Long-Term Expected Nominal Rate of Return % Long-Term Expected Real Rate of Return % U.S. Equities 27% 23% 7.6% 4.7% International Equities 24.5 22 8.5 5.6 Fixed Income 27.5 37 4.4 1.6 Inflation Sensitive Assets 10 20 4.2 1.4 Real Estate 7 7 6.5 3.6 Private Equity/Debt 7 7 9.4 6.5 Multi-Asset 4 4 6.7 3.8 Total Core Fund 107 120 7.4 4.5 Variable Fund Asset Class U.S Equities 70 70 7.6 4.7 International Equities 30 30 8.5 5.6 Total Variable Fund 100 100 7.9 5.0 New England Pension Consultants Long Term US CPI (Inflation) Forecast: 2.75% Asset Allocations are managed within established ranges, target percentages may differ from actual monthly allocations 84