QUARTERLY INVESTMENT REVIEW THIRD QUARTER 2010

1.Performance overview 2.US Stocks 3.Non-US Stocks 4.Bonds 5.Real Estate Investment Trusts (REIT)

MARKETS OVERVIEW Third Quarter 2010 The US equity market rallied strongly in the third quarter, reversing the dismal performance of the second quarter. The broad US market gained over 11% in the quarter, with most asset classes delivering double- digit positive returns. Performance in other developed markets was generally good, especially in Scandinavia and Australia. However, there was much dispersion in performance at the individual country level. Ireland, which continues to face severe fiscal and financial problems, and Japan had small positive returns, while the Scandinavian countries all had quarterly returns in excess of 25%. The US dollar lost ground against most major currencies, especially the euro and the Australian dollar, which greatly helped the dollar- denominated returns of developed market equities. Emerging markets had even better performance than developed markets, and were the top-performing asset class for the period. As in the case of developed markets, there was much dispersion in the performance of different emerging markets, although most emerging markets managed to end the quarter with double-digit returns. The US dollar also lost ground against the main emerging market currencies in the third quarter, which contributed positively to the dollar-denominated returns of emerging equities. In the third quarter, value stocks underperformed growth stocks across all market capitalization segments in the US and in other developed markets. In emerging markets, on the other hand, value stocks had mixed performance relative to growth stocks. Small cap value stocks outperformed small cap growth stocks, while large cap value stocks underperformed large cap growth stocks. Along the market capitalization dimension, small caps narrowly trailed large caps in the US. In other developed markets and in emerging markets, small caps greatly outperformed large caps in the quarter. Notwithstanding the continued weakness in the commercial and residential real estate markets, real estate securities had excellent returns and relative performance in the third quarter. Fixed income securities had good returns in the third quarter. Declining long-term rates rewarded investors who were exposed to term risk. Intermediate government securities and inflation-protected securities did particularly well. Three Years as of September 30, 2010 Equity markets around the world suffered significant losses in the three years that ended in September. In US dollar terms, developed non-US markets were generally the worst performers, followed by the US equity market, and by emerging markets, which had only slightly negative returns. In the US, the value effect was negative across all size categories. In developed non-US markets, the value effect was mixed: positive among small cap stocks and negative among large cap stocks. With regard to the size effect, small cap stocks greatly outperformed large cap stocks in the US and in developed non-US markets. In emerging markets, the value effect was very strong across all market capitalization segments in the three-year period that ended in September, while the size effect was smaller but still positive over that time period. The US dollar had mixed performance against major currencies in the three-year period that ended in September. The US dollar sharply depreciated against the yen, the Swiss franc, and the Australian dollar; and it appreciated against the British pound and, to a lesser degree, against the Canadian dollar and the euro. As a result, currency fluctuations between the US dollar and developed-country currencies had a small positive impact of around 0.8% per year on the dollar-denominated returns of developed market equities over the three-year period that ended in September. The US dollar also had mixed performance against the main emerging markets’ currencies,. The net impact of currency on the dollar-denominated returns of emerging markets strategies was to decrease those returns by approximately 0.6% per year. Real estate securities in the US had sharply negative returns in the three-year period that ended in September, and real estate securities in other developed markets finished that three-year period as the worst-performing asset class. Over the three years ending in September, fixed income securities delivered annual returns that ranged from 8.6% to 2.8%, and were the best-performing asset classes.

A strong rally in September gave the US equity market double-digit returns for the third quarter, reversing the sharp drop experienced in the second quarter. Despite that good performance, the US market is up by less than 5% for the first three quarters of In addition, the recent economic data suggest that the US economy was moving sideways for much of the last two quarters or, at best, making modest progress. That uncertainty regarding the speed, depth, and sustainability of the economic recovery was reflected in higher-than-average levels of volatility. For instance, over 35% of trading days in the third quarter had big market movements (defined as days during which the broad US market moved by more than 1% in absolute value). Quarterly returns for the broad US market, as measured by the Russell 3000 Index, were 11.5%. Asset class returns ranged from 13.0% for large cap growth stocks to 9.7% for small cap value stocks. The strongest sectors in the quarter were telecommunication services and materials, while the weakest sectors were financials and health care. Value stocks had poor performance relative to their growth counterparts in the third quarter. Using the Russell Indexes as proxies, small cap value stocks (Russell 2000 Value) underperformed small cap growth stocks (Russell 2000 Growth) by 3.1% in the quarter, while large cap value stocks (Russell 1000 Value) underperformed large cap growth stocks (Russell 1000 Growth) by 2.9% in the quarter. Over the three- year period through September 30, the Russell 2000 Value Index underperformed the Russell 2000 Growth Index by 1.2% annualized, while the Russell 1000 Value Index underperformed the Russell 1000 Growth Index by 5.0% annualized. Russell data copyright © Russell Investment Group , all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. US STOCKS

For the Russell 3000 Index, the best relative performance came from deep growth stocks in the 75th- 100th BtM percentile range, while the worst relative performance came from deep value stocks in the 0-25th BtM percentile range. Russell data copyright © Russell Investment Group A look at the determinants of stocks performance—relative price and market capitalization—provides some insight into the sources of returns. Historically, value stocks, as measured by the ratio of book-to-market equity (BtM), have outperformed growth stocks, while small stocks have experienced higher returns than large stocks. Along the market capitalization dimension, small caps (Russell 2000) slightly trailed large caps (Russell 1000) by 0.3% in the quarter. Over the three- year period that ended in September, however, small cap stocks outperformed large cap stocks by 2.5% on an annualized basis. For the Russell 2000 Index, the best relative performance came from deep growth stocks in the 75th-100th BtM percentile range, while the worst relative performance came from value-oriented stocks in the 25-50th BtM percentile range. Russell data copyright © Russell Investment Group Russell data copyright © Russell Investment Group , all rights reserved. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Developed non-US equity markets had had excellent performance in the third quarter, which, with few exceptions, offset the dismal performance of the second quarter. There was a lot of variation in performance at the country and asset class levels. For instance, the difference in performance between the best-performing developed market, Norway, and the worst-performing one, Ireland, was over 27% (28.9% vs. 1.1%). Better-than-expected economic results in some large European countries, such as Germany, and the adoption by some countries such as Spain and the United Kingdom of important steps to address their fiscal and financial problems were some of the factors behind the good performance of equity markets in Europe in the third quarter. On the other hand, toward the end of the quarter, there was renewed concern among investors about the sustainability of Ireland’s fiscal deficit, where the costs of bailing out the banks keeps getting larger, and about Portugal’s commitment to the fiscal austerity measures it announced earlier in the year. Developed market equity returns for US investors were greatly aided by the weakness of the US dollar against all major currencies in the third quarter. The US dollar’s depreciation ranged from 14.8% against the Australian dollar to 3.5% against the Canadian dollar. The overall impact of currency fluctuations between the US dollar and developed currencies was to increase the dollar-denominated returns of developed market equities by almost 9.0% in the third quarter. Emerging markets as a whole had excellent performance in the third quarter, with every country in the MSCI Emerging Markets Index except Morocco delivering double-digit returns for the quarter. As a result, emerging markets were, as they have been for most of the past few quarters, the top-performing asset class. As in the case of developed markets, however, there was much dispersion in the performance of different emerging markets and asset classes. For instance, the difference in performance between the best-performing emerging market in the third quarter, Poland, and the worst-performing market, Morocco, was over 26% (35.0% vs. 8.3%). Looking at the different regions, emerging Latin America, where economic growth has been very strong in recent quarters, benefited from the outstanding performance of the Chilean and Colombian markets and was the top-performing region. At the other end of the spectrum, emerging Asia, which was negatively impacted by the subpar performance of the Chinese market, was the worst-performing region in the quarter. The overall impact of currency fluctuations between the dollar and emerging markets currencies was to increase the dollar-denominated returns of emerging markets equities by about 5.3% in the third quarter. NON-US STOCKS

Using the MSCI World ex USA Index and its sector and country segments as proxies, value stocks in developed markets underperformed growth stocks across both size categories in the third quarter. Small cap value stocks (MSCI World ex USA Small Cap Value) underperformed small cap growth stocks (MSCI World ex USA Small Cap Growth) by 2.1% in the quarter, while large cap value stocks (MSCI World ex USA Large Cap Value) underperformed large cap growth stocks (MSCI World ex USA Large Cap Growth) by 0.3% in the quarter. Over the three-year period through September 30, the value effect was negative in large cap stocks and positive in small cap stocks. Large cap value stocks underperformed large cap growth stocks by 2.9% on an annualized basis, while small cap value stocks outperformed small cap growth stocks by 1.5% annualized. Along the market capitalization dimension, small caps (MSCI World ex USA Small Cap) outperformed large caps (MSCI World ex USA Large Cap) by 1.9% in the quarter. Over the three-year period that ended in September, small cap stocks were ahead of large cap stocks by 2.8% annualized. MSCI indices are total returns net of foreign withholding taxes on dividends. MSCI data copyright MSCI 2010, all rights reserved. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

BONDS The Federal Open Market Committee maintained its target range for the federal funds rate between zero and 0.25% in the third quarter, and reaffirmed its goal to maintain that target at very low levels for an extended period. The Federal Reserve’s balance sheet, currently the main focus of monetary policy actions, shrank from about $2.37 trillion at the end of the second quarter to about $2.34 trillion at the end September. However, because the pace of the economic recovery slowed down in the third quarter, Federal Reserve officials are considering purchasing long-term Treasury securities again, which would increase the size of the Fed’s balance sheet, in an effort to push down long-term interest rates, stimulate the economy, and raise inflation to levels that are more in line with their preferred target of around 2%. Federal Reserve officials have not decided yet if they will make those purchases gradually, which would allow them to adjust the size of the purchases to changing economic conditions, or if they will make very large-scale purchases of Treasury bonds over a short period of time, which would likely have a bigger short-term impact on long-term Treasury securities. Investors’ appetite for riskier, higher-yielding fixed-income securities returned in the third quarter. As a result, spreads between more and less risky fixed income securities narrowed over the quarter. For instance, the so-called A2P2 spread, the spread between high- and low-quality thirty-day nonfinancial commercial paper; the TED spread, the difference between the rates on three-month interbank loans and three-month Treasury bills; and the difference between yields on investment-grade and speculative-grade corporate bonds, on the one hand, and yields on Treasury securities, on the other, all fell during the quarter. The spread between yields on investment-grade and yields on speculative-grade corporate bonds fell during the quarter as well. Yields on very short-term Treasury bills were little changed in the third quarter relative to the end of the second quarter, while yields on longer-term Treasury securities fell substantially in the third quarter. As a result, the yield curve flattened over the quarter. The difference in yield between ten-year Treasury bonds and one-month US Treasury bills was 239 basis points at the end of the third quarter, compared to 280 basis points at the end of the second quarter.

REAL ESTATE INVESTMENT TRUSTS (REIT) Real estate securities had excellent returns in the third quarter, and good performance relative to other asset classes. US real estate securities performed better than any other US asset class. Real estate securities in other developed markets also had better performance than all other equity asset classes in developed markets.