Fourth Quarter 2009 Market Review
	The historic rebound continued during the fourth quarter as both equities and credit-sensitive fixed income securities moved substantially higher. An improvement in consumer sentiment in December, which was partly fueled by continued progress on the employment and earnings fronts, helped extend last quarter’s rally to the point where U.S. equities, as defined by the S&P 500 Index, have gained 67.8% since their March trough. While equities moved significantly higher, leadership differed considerably from the experience of recent quarters, as investors became more interested in higher-quality stocks. Equity Review Most equity styles posted solid gains in U.S. markets during the fourth quarter with growth stocks, especially those within the large-cap space, outperforming value stocks. Specifically, the Russell 3000 Growth Index returned 7.7% while the Russell 3000 Value Index returned 4.2% for the quarter. Consistent with investors’ renewed interest in less speculative investments and the view that a correction in the equity markets is possible, large-cap stocks outperformed small-cap stocks, with Russell 1000 and Russell 2000 Indexes returning 6.1% and 3.9%, respectively. The average diversified U.S. equity fund returned 5.5% for the quarter. Almost all sectors were up with real estate, technology, and natural resources leading the way. They had returns of 8.7%, 8.4% and 6.8%, respectively. The exception was financials, which declined 1.2% for the quarter. On the international equity front, emerging markets stocks once again led the way in the fourth quarter, rising another 8.6% as measured by the MSCI Emerging Markets Index return. The dollar exhibited little change, up 0.1% versus 19 currencies tracked by the J.P. Morgan Dollar Index during the period. The large cap EAFE index gained less in U.S. dollars (2.2%) than in local currencies (2.9%), suggesting somewhat more appreciation of the U.S. dollar when viewed on a market capitalization basis. Weakness of Japanese stocks continued in the fourth quarter due to stagnant domestic demand and exporters continuing to be hurt by the global recession. Fixed Income Review Fixed income performance varied notably across investment markets with corporate credit continuing to lead the way as spreads tightened further. Overall, high-yield bonds and corporate bonds substantially outperformed U.S. Treasuries and municipal bonds. Fixed income performance continued to be driven largely by quality (or the lack thereof). This is best illustrated by the –1.3% and 6.2% returns generated by the Barclays Capital Aggregate U.S. Treasury Index and the Barclays Capital U.S. Corporate High Yield Index, respectively. The broad market, as represented by the Barclays Capital U.S. Aggregate Bond Index, returned 0.2% for the quarter. Meanwhile, except for the very shortest maturities, interest rates rose considerably during the period, leading to the losses on intermediate and long U.S. Treasuries. Unhedged foreign bonds underperformed their domestic counterparts due in part to currency losses caused by the U.S. dollar modestly strengthening during the period. The Citigroup Non-U.S. World Government Bond Index fell 2.2% for the quarter. Fourth Quarter 2009 and Twelve Months Year to Date Table of Global Stock and Bond Returns       Period Return to 12/31/09*         Fourth Quarter   12 Months Year to Date   U.S. Stocks S&P 500 Index** 6.0% 26.5%   Average Diversified U.S. Equity Mutual Fund 5.5% 32.2%   Russell 2000 # 3.9% 27.2%   Sector Mutual Funds Technology 8.4% 61.5%   Health 6.0% 22.3%   Communications 3.9% 47.5%   Financials -1.2% 22.7%   Real Estate 8.7% 31.6%   Natural Resources 6.8% 47.8%   Foreign Stocks MSCI Europe, Australasia & Far East (EAFE) USD## 2.2% 31.8%   MSCI EAFE Local Currencies 2.9% 20.9% Average Diversified Foreign Equity Mutual Fund 2.7% 34.3%   Regional/Specialty Mutual Funds Europe 3.2% 43.1%   Japan -1.8% 7.7%   Diversified Pacific/Asia Except Japan 8.7% 71.5%   Diversified Emerging Markets 7.6% 73.7% Alternative Strategies Average Long-Short Fund 1.5% 10.8%   U.S. Bonds Barclays Intermediate Gov’t Bond Index *** -0.4% -0.3%   Barclays Intermediate Credit Index ð 1.6% 15.9%   Intermediate Municipal Bond Mutual Funds (National) -0.8% 11.2%   Short/Intermediate Municipal Bond Mutual Funds (CA) -0.8% 10.0%   High Yield Bond Mutual Funds 5.5% 46.2%   Foreign Bonds Citigroup Non-U.S. World Gov't Bond Index ### -2.2% 4.4%           * Mutual Fund return data are from Morningstar.   ** Capitalization-weighted index of 500 very large U.S. companies. The 500 are chosen to achieve a fair cross-section of U.S. industrial and service sectors. Recent median capitalization of approximately $44.1 billion.   *** Barclays index of U.S. Treasury bond total returns (i.e., interest plus or minus change in price). Bonds in index have intermediate maturity of about 4-7 years. No mortgage-backed securities included   ð Barclays index of U.S. investment grade corporate bond total returns (i.e., interest plus or minus change in price). Bonds in index have intermediate maturity of about 4-7 years.   # Index of small U.S. companies. Recent median capitalization of approximately $799million.   ## International stock index indicating return of large foreign companies of 21 major developed countries (Japan, UK, and Germany have the highest weightings). Returns are converted to U.S. dollars. No emerging market stocks are included.   ### Citigroup index of total return of foreign government bonds issued by major developed foreign countries (Japan, Germany, France, and UK have the highest weightings). Returns are converted to U.S. dollars.   Back to Market Reviews