Pension Commentary

Major global stock markets delivered mixed returns for the third quarter of 2014, as U.S. equities recorded modest gains, while some overseas equity markets retreated. Late in the quarter,
most stock markets worldwide fell amid renewed worries about the global economy, mounting international tensions and elevated equity valuations. In the U.S., stocks stalled early in the period, then pulled back sharply in late July on geopolitical and economic concerns. However, many investors viewed the pullback as a buying opportunity, allowing stocks to soon resume their upward trend. In their generally steady rise until the period’s final two weeks, U.S. stocks drew support from the Federal Reserve’s (the Fed) ongoing low‑interest‑rate policy, along with some positive economic reports. A number of economic indicators pointed to continued gradual improvement in the U.S. economy, including upbeat data on retail sales, manufacturing activity, construction spending, new home starts and revised GDP growth for the second quarter of 2014. On the employment front, hiring indicators turned up in September after lower‑than‑expected job creation numbers for August. Overseas, weakening economies in Europe led the European Central Bank (ECB) to adopt further stimulus measures late in the quarter. In China, disappointing economic data for August sparked fresh worries about slowing growth in the world’s second‑largest economy. Among major world equity indexes, after hitting an all‑time high during the quarter, the Dow Jones Industrial Average finished the period with a modest gain of 1.9%. The broader S&P 500 Index rose 1.1% after also attaining a record high during the quarter. Large‑cap U.S. equities generally outperformed their small‑cap counterparts during the quarter, with growth stocks outpacing value stocks within both the large‑ and small‑cap space. Overseas, the MSCI EAFE Index of developed‑market international stocks fell 5.9%, while the MSCI Emerging Markets Index lost 3.5%.

Contributors
Factors contributing to the Fund’s relative performance compared to the Index during the quarter:

– Fund was overweight U.S, Japan and India equities relative to other geographic regions, which had a positive impact on performance.

– Beneficiary of several outperforming stock selections (RVV, EFN, LNKD, BIDU, YHOO)
Detractors
Factors detracting from the Fund’s relative performance compared to the Index during the quarter:

– Fund’s exposure to stocks negatively affected by the drop in oil prices

– Held securities positioned to benefit from a rise in interest rates, which failed to materialize. Rates declined during the quarter, having a negative impact on fixed income positions with a negative duration bias.

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