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AMERICAN BAR ASSOCIATION MEMBERS / NORTHERN TRUST COLLECTIVE TR - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Edgar Glimpses Via Acquire Media NewsEdge) SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Report, including, without limitation, those
relating to the objectives and strategies of the investment options, constitute
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The American Bar Association Members/Northern
Trust Collective Trust (the "Collective Trust") desires to take advantage of the
"safe harbor" provisions of such Act and is including this special note to
enable it to do so. Forward-looking statements included in this Report, or
subsequently included in other publicly available documents filed with the
Securities and Exchange Commission, and other publicly available statements
issued or released by the Collective Trust, involve known and unknown risks,
uncertainties and other factors which could cause the actual results,
performance or achievements of the investment options to differ materially from
the future results, performance or achievements expressed or implied by such
forward-looking statements. For a description of these factors, see the
descriptions of each of the investment options found in Item 1, "Business" of
the Collective Trust's Annual Report on Form 10-K.
Quarter and Nine Month Period Ended September 30, 2012
Stable Asset Return Fund
The Stable Asset Return Fund seeks to provide current income consistent with the
preservation of principal and liquidity. The Stable Asset Return Fund invests in
investment contracts, which we refer to as Traditional Investment Contracts,
so-called "Synthetic GICs" with associated underlying assets, and high-quality,
fixed-income instruments. Such investments may be made directly by the Fund or
indirectly through its investment in other collective investment funds
maintained by one or more banks, including Northern Trust Investments, Inc.,
which we refer to as Northern Trust Investments. Effective with the
reorganization of the Stable Asset Return Fund on December 8, 2010, the
benchmark for the Fund is the 3 Year Constant Maturity Treasury Yield.
For the quarter ended September 30, 2012, the Stable Asset Return Fund
experienced a total return, net of expenses, of 0.36%. By comparison, the 3 Year
Constant Maturity Treasury Yield produced an investment record of 0.09% for the
same period. The 3 Year Constant Maturity Treasury Yield does not include an
allowance for the fees that an investor would pay for investing in the
instruments that comprise that benchmark or for fund expenses. For the nine
month period ended September 30, 2012, the Fund experienced a total return, net
of expenses, of 1.03%. By comparison, the 3 Year Constant Maturity Treasury
Yield produced an investment record of 0.29% for the same period.
The Stable Asset Return Fund outperformed the 3 Year Constant Maturity Treasury
Yield for the quarter ended September 30, 2012. Outperformance was primarily
driven by an overweight to corporate bonds, commercial mortgage backed
securities, asset backed securities and residential mortgage backed securities.
The positioning in U.S. TIPS was also positive as inflation expectations
increased following the Federal Reserve's announcement of "Quantitative Easing"
3 measures to encourage economic growth and reduce unemployment. Market to book
value increased modestly from 103.4 to 103.9 during the quarter reflecting the
strong performance of the underlying bond portfolios.
The Stable Asset Return Fund outperformed the 3 Year Constant Maturity Treasury
Yield for the nine month period ended September 30, 2012. Outperformance was
primarily driven by an overweight to corporate bonds, commercial mortgage backed
securities, asset backed securities and residential mortgage backed securities.
Bond Core Plus Fund
The Bond Core Plus Fund seeks to achieve, over an extended period of time, total
returns comparable or superior to broad measures of the domestic bond market.
The Bond Core Plus Fund invests its assets in a diversified portfolio of
fixed-income securities.
For the quarter ended September 30, 2012, the Bond Core Plus Fund, which is
advised with the assistance of Pacific Investment Management Company LLC,
experienced a total return, net of expenses, of 2.33%. By comparison, the
Barclays Capital U.S. Aggregate Bond Index produced an investment record of
1.58% for the same period. For the nine month period ended September 30, 2012,
the Fund experienced a total return, net of expenses, of 6.54%, compared to an
investment record of 3.99% for the benchmark for the same period. The Barclays
Capital U.S. Aggregate Bond Index does not include an allowance for the fees
that an investor would pay for investing in the securities that comprise the
Index or for fund expenses.
The Bond Core Plus Fund outperformed the Barclays Capital U.S. Aggregate Bond
Index for the quarter ended September 30, 2012. Exposure to both U.S. TIPS and
an overweight to the financial sector were positive for the quarter.
The Bond Core Plus Fund outperformed the Barclays Capital U.S. Aggregate Bond
Index for the nine month period ended September 30, 2012. Exposure to falling
interest rates in Australia, U.S. TIPS, and municipal bonds all added to
relative performance.
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Large Cap Equity Fund
The Large Cap Equity Fund seeks to outperform, over extended periods of time,
broad measures of the U.S. stock market. The Fund invests primarily in common
stocks and other equity-type securities of larger-capitalization U.S. companies
with market capitalizations, at the time of purchase, of greater than $1
billion.
For the quarter ended September 30, 2012, the Large Cap Equity Fund experienced
a total return, net of expenses, of 6.10%. By comparison, the Russell 1000 ®
Index produced an investment record of 6.31% for the same period. For the nine
month period ended September 30, 2012, the Fund experienced a total return, net
of expenses, of 15.78%, compared to an investment record of 16.28% for the
benchmark for the same period. The Russell 1000 Index does not include an
allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The Large Cap Equity Fund uses a "multi-manager" approach whereby the Fund's
assets are allocated to two or more Investment Advisors, in percentages
determined at the discretion of Northern Trust Investments. Each Investment
Advisor acts independently from the others and uses its own distinct investment
style in recommending securities. Each Investment Advisor must operate within
the constraints of the Fund's investment objective, strategies and restrictions
and subject to the general supervision of Northern Trust Investments. The
performance of each Investment Advisor may be measured in the context of its own
investment style.
For the quarter ended September 30, 2012, the portion of the Large Cap Equity
Fund advised with the assistance of Columbus Circle Investors (approximately 22%
as of September 30, 2012) positively contributed to the performance of the Fund,
as well as outperformed the Russell 1000 Growth Index, against which the
performance of this portion of the Fund is compared. Outperformance was
primarily driven by strong stock selection in the technology and materials
sectors, as investors increasingly focused on fundamental variables and rewarded
larger-capitalization companies exhibiting higher growth rates.
For the quarter ended September 30, 2012, the portion of the Large Cap Equity
Fund advised with the assistance of C.S. McKee, L.P. (approximately 29% as of
September 30, 2012) positively contributed to the performance of the Fund, as
well as outperformed the Russell 1000 Value Index, against which the performance
of this portion of the Fund is compared. Outperformance was driven by strong
stock selection in the industrials and consumer discretionary sectors.
For the quarter ended September 30, 2012, the portion of the Large Cap Equity
Fund advised with the assistance of Delaware Investment Advisers (approximately
26% as of September 30, 2012) negatively contributed to the performance of the
Fund, as well as underperformed the Russell 1000 Value Index, against which the
performance of this portion of the Fund is compared. Investments in consumer
staples were the largest detractors from relative performance as two of five
holdings in the sector experienced negative returns. The portfolio's generally
more defensive positioning was also a detractor from performance.
For the quarter ended September 30, 2012, the portion of the Large Cap Equity
Fund advised with the assistance of Jennison Associates LLC (approximately 19%
as of September 30, 2012) negatively contributed to the performance of the Fund,
as well as underperformed the Russell 1000 Growth Index, against which the
performance of this portion of the Fund is compared. Stock selection in the
consumer discretionary and healthcare sectors were the primary contributors to
the underperformance.
For the nine month period ended September 30, 2012, the portion of the Large Cap
Equity Fund advised with the assistance of Columbus Circle Investors
(approximately 22% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell 1000 Growth Index,
against which the performance of this portion of the Fund is compared.
Outperformance was primarily driven by strong stock selection in the technology
and materials sectors, as investors increasingly focused on fundamental
variables and rewarded larger-capitalization companies exhibiting higher growth
rates.
For the nine month period ended September 30, 2012, the portion of the Large Cap
Equity Fund advised with the assistance of C.S. McKee, L.P. (approximately 29%
as of September 30, 2012) positively contributed to the performance of the Fund,
as well as outperformed the Russell 1000 Value Index, against which the
performance of this portion of the Fund is compared. Stock selection in the
financials and utilities sectors were the primary drivers of outperformance. In
particular, insurance giant Allstate was up over 47% for the period.
For the nine month period ended September 30, 2012, the portion of the Large Cap
Equity Fund advised with the assistance of Delaware Investment Advisers
(approximately 26% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 1000 Value Index,
against which the performance of this portion of the Fund is compared. As was
the case in the third quarter, the largest drag on relative performance came in
consumer staples where stock selection and the portfolio's overweight allocation
detracted from returns.
For the nine month period ended September 30, 2012, the portion of the Large Cap
Equity Fund advised with the assistance of Jennison Associates LLC
(approximately 19% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell 1000 Growth Index,
against which the performance of this portion of the Fund is compared. Strong
stock selection in information technology and consumer staples drove
outperformance.
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Small-Mid Cap Equity Fund
The Small-Mid Cap Equity Fund seeks to outperform, over extended periods of
time, broad measures of the U.S. stock market. The Fund invests primarily in
common stocks and other equity-type securities of small- to
medium-capitalization U.S. companies with market capitalizations, at the time of
purchase, of between $100 million and $20 billion.
For the quarter ended September 30, 2012, the Small-Mid Cap Equity Fund
experienced a total return, net of expenses, of 4.76%. By comparison, the
Russell 2500™ Index produced an investment record of 5.57% for the same period.
For the nine month period ended September 30, 2012, the Fund experienced a total
return, net of expenses, of 11.51%, compared to an investment record of 14.33%
for the benchmark for the same period. The Russell 2500 Index does not include
an allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The Small-Mid Cap Equity Fund uses a "multi-manager" approach whereby the Fund's
assets are allocated to two or more Investment Advisors, in percentages
determined at the discretion of Northern Trust Investments. Each Investment
Advisor acts independently from the others and uses its own distinct investment
style in recommending securities. Each Investment Advisor must operate within
the constraints of the Fund's investment objective, strategies and restrictions
and subject to the general supervision of Northern Trust Investments. The
performance of each Investment Advisor may be measured in the context of its own
investment style.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Denver Investment Advisors LLC (d/b/a
Denver Investments) (approximately 15% as of September 30, 2012) negatively
contributed to the performance of the Fund, as well as underperformed the
Russell 2000 Value Index, against which the performance of this portion of the
Fund is compared. The sectors where relative performance was weakest included
basic materials, consumer staples and more interest-rate sensitive securities.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Lombardia Capital Partners, LLC
(approximately 15% as of September 30, 2012) positively contributed to the
performance of the Fund, but underperformed the Russell Midcap Growth Index,
against which the performance of this portion of the Fund is compared.
Underperformance was driven by negative stock selection in five of ten sectors,
with financials, materials and consumer staples performing poorly.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Frontier Capital Management Co. LLC
(approximately 10% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Underperformance during the third quarter was driven by weak stock selection in
the consumer discretionary, technology and materials sectors.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of LSV Asset Management (approximately
15% as of September 30, 2012) positively contributed to the performance of the
Fund, as well as outperformed the Russell Midcap Value Index, against which the
performance of this portion of the Fund is compared. Sector selection was mixed
while stock selection added value during the period. From a sector standpoint,
an underweight to the underperforming utilities and REITs sectors had a positive
impact on results.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Allianz Global Investors Capital LLC
(approximately 9% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 2000 Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection in the industrials, energy and healthcare sectors were the
primary detractors from relative performance.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Riverbridge Partners (approximately
10% as of September 30, 2012) positively contributed to the performance of the
Fund, as well as outperformed the Russell 2000 Growth Index, against which the
performance of this portion of the Fund is compared. Strong stock selection in
the financials and consumer staples sectors contributed to quarterly
performance.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Systematic Financial Management, L.P.
(approximately 14% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell Midcap Value Index,
against which the performance of this portion of the Fund is compared. Strong
stock selection within the financials sector added the most value, with the
utilities and consumer discretionary sectors contributing as well.
For the quarter ended September 30, 2012, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of TCW Investment Management Company
(approximately 10% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection in the information technology sector accounted for almost all of
the outperformance.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Denver Investment Advisors LLC
(d/b/a Denver Investments) (approximately 15% as of September 30, 2012)
negatively contributed to the performance of the Fund, as well as underperformed
the Russell 2000 Value Index, against which the performance of this portion of
the Fund is compared. Weak stock selection in the materials and financial
sectors were the primary drivers of underperformance.
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For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Lombardia Capital Partners, LLC
(approximately 15% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Underperformance was driven by negative stock selection in six of ten sectors,
with financials, consumer staples and healthcare performing the worst.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Frontier Capital Management Co.
LLC (approximately 10% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
The outperformance resulted from both positive stock and sector selection. Stock
selection was particularly strong within the energy, financials and healthcare
sectors.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of LSV Asset Management
(approximately 15% as of September 30, 2012) positively contributed to the
performance of the Fund, but underperformed the Russell Midcap Value Index,
against which the performance of this portion of the Fund is compared.
Underperformance was driven by an overweight to energy and underweight to the
outperforming telecom and REIT sectors.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Allianz Global Investors Capital
LLC (approximately 9% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 2000 Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection in the consumer discretionary, financials, industrials and
information technology sectors were the primary detractors from relative
performance.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Riverbridge Partners
(approximately 10% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell 2000 Growth Index,
against which the performance of this portion of the Fund is compared. The
largest contributors to year-to-date performance were stock selection in the
information technology and consumer staples sectors and the portfolio's
underweight to the underperforming energy sector.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Systematic Financial Management,
L.P. (approximately 14% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the Russell Midcap Value Index,
against which the performance of this portion of the Fund is compared. Stock
Selection within the financials sector contributed the most to outperformance,
while the utilities and consumer discretionary sectors contributed as well.
For the nine month period ended September 30, 2012, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of TCW Investment Management Company
(approximately 10% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Underperformance during the period was primarily the result of negative stock
selection in the industrials, financials and materials sectors.
International All Cap Equity Fund
The International All Cap Equity Fund seeks to provide long-term growth of
capital through a diversified portfolio of primarily non-U.S. equity securities.
The Fund seeks to diversify investments broadly among developed and emerging
countries and generally to have at least three different countries represented
in the portfolio. The Fund seeks to achieve, over an extended period of time,
total returns comparable to or superior to broad measures of the international
(non-U.S.) stock markets, through investing in a diversified portfolio of
primarily (non-U.S.) stock markets.
For the quarter ended September 30, 2012, the International All Cap Equity Fund
experienced a total return, net of expenses, of 8.24%. By comparison, the Morgan
Stanley Capital International ("MSCI") All-Country World ("ACWI") ex-US Index
produced an investment record of 7.40% for the same period. For the nine month
period ended September 30, 2012, the Fund experienced a total return, net of
expenses, of 11.92%, compared to an investment record of 10.4% for the benchmark
for the same period. The MSCI ACWI ex-US Index does not include an allowance for
the fees that an investor would pay for investing in the securities that
comprise that Index or for fund expenses.
The International All Cap Equity Fund uses a "multi-manager" approach whereby
the Fund's assets are allocated to two or more Investment Advisors, in
percentages determined at the discretion of Northern Trust Investments. Each
Investment Advisor acts independently from the others and uses its own distinct
investment style in recommending securities. Each Investment Advisor must
operate within the constraints of the Fund's investment objective, strategies
and restrictions and subject to the general supervision of Northern Trust
Investments. The performance of each Investment Advisor may be measured in the
context of its own investment style.
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For the quarter ended September 30, 2012, the portion of the International All
Cap Equity Fund advised with the assistance of Altrinsic Global Advisors, LLC
(approximately 22% as of September 30, 2012) negatively contributed to the
performance of the Fund, as well as underperformed the MSCI Europe, Australasia,
Far East ("EAFE") Value ND Index, against which the performance of this portion
of the Fund is compared. Holdings in the financial, healthcare and
telecommunications sectors were the primary detractors from performance.
For the quarter ended September 30, 2012, the portion of the International All
Cap Equity Fund advised with the assistance of American Century Investment
Management, Inc. (approximately 14% as of September 30, 2012) negatively
contributed to the performance of the Fund, but outperformed the MSCI EAFE
Growth ND Index, against which the performance of this portion of the Fund is
compared. Stock selection in the consumer discretionary sector, led by holdings
in the specialty retail and household durables industries, was the primary
driver of outperformance.
For the quarter ended September 30, 2012, the portion of the International All
Cap Equity Fund advised with the assistance of First State Investments
International Limited (approximately 23% as of September 30, 2012) positively
contributed to the performance of the Fund, as well as outperformed the MSCI
Emerging Markets ND Index, against which the performance of this portion of the
Fund is compared. Outperformance was driven by stock selection in the
telecommunications service sector, particularly the position in Axiata Group
(Malaysia: Telecom Services), which outperformed due to its increasing ability
to generate cash and issue dividends to shareholders. Stock selection in the
consumer staples sector also added to performance.
For the quarter ended September 30, 2012, the portion of the International All
Cap Equity Fund advised with the assistance of LSV Asset Management
(approximately 22% as of September 30, 2012) positively contributed to the
performance of the Fund, as well as outperformed the MSCI EAFE Value ND Index,
against which the performance of this portion of the Fund is compared. Within
sectors, an overweight to healthcare and underweight to technology and utilities
bolstered returns. Stock selection was also positive in the materials,
industrials and consumer discretionary sectors.
For the quarter ended September 30, 2012, the portion of the International All
Cap Equity Fund advised with the assistance of William Blair & Company, L.L.C.
(approximately 15% as of September 30, 2012) negatively contributed to the
performance of the Fund, but outperformed the MSCI EAFE Growth ND Index, against
which the performance of this portion of the Fund is compared. Strong stock
selection, particularly in European chemical and pharmaceutical companies drove
performance for the quarter. Stock selection was also strong in the information
technology sector.
For the nine month period ended September 30, 2012, the portion of the
International All Cap Equity Fund advised with the assistance of Altrinsic
Global Advisors, LLC (approximately 22% as of September 30, 2012) negatively
contributed to the performance of the Fund, as well as underperformed the MSCI
EAFE Value ND Index, against which the performance of this portion of the Fund
is compared. Stock selection in the financials, consumer discretionary and
industrial sectors were the primary detractors from performance.
For the period from on or about April 25, 2012 (the date on which American
Century Investment Management, Inc. commenced providing investment assistance
with respect to the International All Cap Equity Fund) to September 30, 2012,
the portion of the International All Cap Equity Fund advised with the assistance
of American Century Investment Management, Inc. (approximately 14% as of
September 30, 2012) negatively contributed to the performance of the Fund, but
outperformed the MSCI EAFE Growth ND Index, against which the performance of
this portion of the Fund is compared. Strong stock selection and an underweight
to the materials sector, led by an underweight in the metals and mining
industry, bolstered relative results. Investments in the information technology
sector, especially among producers of computers and peripherals, further
enhanced relative gains.
For the nine month period ended September 30, 2012, the portion of the
International All Cap Equity Fund advised with the assistance of First State
Investments International Limited (approximately 23% as of September 30, 2012)
positively contributed to the performance of the Fund, as well as outperformed
the MSCI Emerging Markets ND Index, against which the performance of this
portion of the Fund is compared. Outperformance was driven by stock selection in
Brazil, particularly the position in Anheuser Busch-InBev (Brazil: Consumer
Staples) which rose on optimism about its growth prospects. Stock selection in
the telecommunication services and consumer staples also added to performance.
For the nine month period ended September 30, 2012, the portion of the
International All Cap Equity Fund advised with the assistance of LSV Asset
Management (approximately 22% as of September 30, 2012) negatively contributed
to the performance of the Fund, but outperformed the MSCI EAFE Value ND Index,
against which the performance of this portion of the Fund is compared. Within
sectors, an overweight to healthcare and underweight to technology and utilities
boosted returns while stock selection was positive in the materials, industrials
and consumer discretionary sectors.
For the period from on or about June 11, 2012 (the date on which William Blair &
Company, L.L.C. commenced providing investment assistance with respect to the
International All Cap Equity Fund) to September 30, 2012, the portion of the
International All Cap Equity Fund advised with the assistance of William Blair &
Company, L.L.C. (approximately 14% as of September 30, 2012) negatively
contributed to the performance of the Fund, but outperformed the MSCI EAFE
Growth ND Index, against which the performance of this portion of the Fund is
compared. Outperformance was primarily driven by strong stock selection in
materials, healthcare and information technology.
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Global All Cap Equity Fund
The Global All Cap Equity Fund seeks to achieve, over an extended period of
time, total returns comparable to or superior to an appropriate combination of
broad measures of global stock markets by investing primarily in equity
securities of companies located throughout the world, including those domiciled
in the U.S.
For the quarter ended September 30, 2012, the Global All Cap Equity Fund
experienced a total return, net of expenses, of 7.31%. By comparison, the MSCI
ACWI Index produced an investment record of 6.84% for the same period. For the
period from commencement of operations on January 17, 2012 to September 30,
2012, the Global All Cap Equity Fund experienced a total return, net of
expenses, of 10.6%. By comparison, the MSCI ACWI Index produced an investment
record of 6.84% for the same period. The MSCI ACWI Index does not include an
allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
For the quarter ended September 30, 2012, the segment of the Global All Cap
Equity Fund which is invested through the Large Cap Equity Fund (approximately
36% as of September 30, 2012) underperformed the Russell 1000 Index. Please
refer to the discussion of the investment performance of the Large Cap Equity
Fund for such period, above, for a description of the performance of the Large
Cap Equity Fund segment of the Global All Cap Equity Fund for such period.
For the quarter ended September 30, 2012, the segment of the Global All Cap
Equity Fund which is invested through the Small-Mid Cap Equity Fund
(approximately 5% as of September 30, 2012) underperformed the Russell 2500
Index. Please refer to the discussion of the investment performance of the
Small-Mid Cap Equity Fund for such period, above, for a description of the
performance of the Small-Mid Cap Equity Fund segment of the Global All Cap
Equity Fund for such period.
For the quarter ended September 30, 2012, the segment of the Global All Cap
Equity Fund which is invested through the International All Cap Equity Fund
(approximately 59% as of September 30, 2012) outperformed the MSCI ACWI ex-US
Index. Please refer to the discussion of the investment performance of the
International All Cap Equity Fund for such period, above, for a description of
the performance of the International All Cap Equity Fund segment of the Global
All Cap Equity Fund for such period.
For the period beginning January 17, 2012 and ended September 30, 2012, the
segment of the Global All Cap Equity Fund which is invested through the Large
Cap Equity Fund (approximately 36% as of September 30, 2012) underperformed the
Russell 1000 Index. Please refer to the discussion of the investment performance
of the Large Cap Equity Fund for such period, above, for a description of the
performance of the Large Cap Equity Fund segment of the Global All Cap Equity
Fund for such period.
For the period beginning January 17, 2012 and ended September 30, 2012, the
segment of the Global All Cap Equity Fund which is invested through the
Small-Mid Cap Equity Fund (approximately 5% as of September 30, 2012)
underperformed the Russell 2500 Index. Please refer to the discussion of the
investment performance of the Small-Mid Cap Equity Fund for such period, above,
for a description of the performance of the Small-Mid Cap Equity Fund segment of
the Global All Cap Equity Fund for such period.
For the period beginning January 17, 2012 and ended September 30, 2012, the
segment of the Global All Cap Equity Fund which is invested through the
International All Cap Equity Fund (approximately 59% as of September 30, 2012)
outperformed the MSCI ACWI ex-US Index. Please refer to the discussion of the
investment performance of the International All Cap Equity Fund for such period,
above, for a description of the performance of the International All Cap Equity
Fund segment of the Global All Cap Equity Fund for such period.
Bond Index Fund
The Bond Index Fund seeks to replicate, after taking into account Fund expenses,
the total rate of return of the Barclays Capital U.S. Aggregate Bond Index by
investing generally in securities included in such Index. The Barclays Capital
U.S. Aggregate Bond Index is representative of the domestic investment-grade
bond market as included in such Index.
For the quarter ended September 30, 2012, the Bond Index Fund experienced a
total return, net of expenses, of 1.34%. By comparison, the Barclays Capital
U.S. Aggregate Bond Index produced an investment record of 1.58% for the same
period. For the nine month period ended September 30, 2012, the Fund experienced
a total return, net of expenses, of 3.34%, compared to an investment record of
3.99% for the benchmark for the same period. The Barclays Capital U.S. Aggregate
Bond Index does not include an allowance for the fees that an investor would pay
for investing in the securities that comprise that Index or for fund expenses.
The performance of the Bond Index Fund for the quarter and nine month period
ended September 30, 2012 was consistent with the Barclays Capital U.S. Aggregate
Bond Index after taking expenses into account.
Large Cap Index Equity Fund
The Large Cap Index Equity Fund seeks to replicate, after taking into account
Fund expenses, the total rate of return of the S&P 500®by investing generally in
securities included in such Index. The S&P 500 represents approximately 75% of
the U.S. equity market based on market capitalization.
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For the quarter ended September 30, 2012, the Large Cap Index Equity Fund
experienced a total return, net of expenses, of 6.16%. By comparison, the S&P
500 produced an investment record of 6.35% for the same period. For the nine
month period ended September 30, 2012, the Fund experienced a total return, net
of expenses, of 15.82%, compared to an investment record of 16.44% for the
benchmark for the same period. The S&P 500 does not include an allowance for the
fees that an investor would pay for investing in the securities that comprise
that Index or for fund expenses.
The performance of the Large Cap Index Equity Fund for the quarter and nine
month period ended September 30, 2012 was consistent with the S&P 500 after
taking expenses into account.
All Cap Index Equity Fund
The All Cap Index Equity Fund seeks to replicate, after taking into account Fund
expenses, the total rate of return of the Russell 3000® Index by investing
generally in securities included in such Index. The Russell 3000 Index
represents approximately 98% of the U.S. equity market based on market
capitalization.
For the quarter ended September 30, 2012, the All Cap Index Equity Fund
experienced a total return, net of expenses, of 6.03%. By comparison, the
Russell 3000 Index produced an investment record of 6.23% for the same period.
For the nine month period ended September 30, 2012, the Fund experienced a total
return, net of expenses, of 15.42%, compared to an investment record of 16.13%
for the benchmark for the same period. The Russell 3000 Index does not include
an allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The performance of the All Cap Index Equity Fund for the quarter and nine month
period ended September 30, 2012 was consistent with the Russell 3000 Index after
taking expenses into account.
Mid Cap Index Equity Fund
The Mid Cap Index Equity Fund seeks to replicate, after taking into account Fund
expenses, the total rate of return of the S&P MidCap 400® by investing generally
in securities included in such Index. The S&P MidCap 400 includes 400 companies
and represents approximately 7% of the U.S. equity market based on market
capitalization.
For the quarter ended September 30, 2012, the Mid Cap Index Equity Fund
experienced a total return, net of expenses, of 5.26%. By comparison, the S&P
MidCap 400 produced an investment record of 5.44% for the same period. For the
nine month period ended September 30, 2012, the Fund experienced a total return,
net of expenses, of 13.17%, compared to an investment record of 13.77% for the
benchmark for the same period. The S&P MidCap 400 does not include an allowance
for the fees that an investor would pay for investing in the securities that
comprise that Index or for fund expenses.
The performance of the Mid-Cap Index Equity Fund for the quarter and nine month
period ended September 30, 2012 was consistent with the S&P MidCap 400 after
taking expenses into account.
Small Cap Index Equity Fund
The Small Cap Index Equity Fund seeks to replicate, after taking into account
Fund expenses, the total rate of return of the Russell 2000®Index by investing
generally in securities included in such Index. The Russell 2000 Index is
comprised of the approximately 2,000 companies in the Russell 3000 Index with
the smallest market capitalization and represents approximately 10% of the
Russell 3000 Index total market capitalization.
For the quarter ended September 30, 2012, the Small Cap Index Equity Fund
experienced a total return, net of expenses, of 5.02%. By comparison, the
Russell 2000 Index produced an investment record of 5.25% for the same period.
For the nine month period ended September 30, 2012, the Fund experienced a total
return, net of expenses, of 13.56%, compared to an investment record of 14.23%
for the benchmark for the same period. The Russell 2000 Index does not include
an allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The performance of the Small Cap Index Equity Fund for the quarter and nine
month period ended September 30, 2012 was consistent with the Russell 2000 Index
after taking expenses into account.
International Index Equity Fund
The investment objective of the International Index Equity Fund is to replicate,
after taking into account Fund expenses, the total rate of return of the MSCI
ACWI ex-US Index by investing generally in securities included in such Index.
The MSCI ACWI ex-US Index consists of approximately 1,870 securities in 44
markets, with securities of emerging markets representing approximately 24% of
the Index.
For the quarter ended September 30, 2012, the International Index Equity Fund
experienced a total return, net of expenses, of 6.66%. By comparison, the MSCI
ACWI ex-US Index produced an investment record of 7.40% for the same period. For
the nine month period ended September 30, 2012, the Fund experienced a total
return, net of expenses, of 9.80%, compared to an investment record of 10.40%
for the benchmark for the same period. The MSCI ACWI ex-US Index does not
include an allowance for the fees that an investor would pay for investing in
the securities that comprise that Index or for fund expenses.
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The performance of the International Index Equity Fund for the quarter and nine
month period ended September 30, 2012 was consistent with the MSCI ACWI ex-US
Index after taking expenses and fair value adjustments into account.
Real Asset Return Fund
The investment objective of the Real Asset Return Fund is to provide capital
appreciation in excess of inflation as measured by the All Items Less Food and
Energy Consumer Price Index for All Urban Consumers for the U.S. City Average,
1982-84 = 100 through investment in a diversified portfolio of primarily
Treasury Inflation Protected Securities, commodity futures and real estate
investment trusts.
The Fund seeks to achieve its objective by investing indirectly in various
indices or other collective investment funds maintained by State Street Bank and
Trust Company, which we refer to as State Street Bank. During the quarter ended
September 30, 2012, these funds were comprised of the SSgA/Tuckerman REIT Index
Non-Lending Series Fund, the SSgA U.S. Inflation Protected Bond Index
Non-Lending Series Fund and the SSgA Dow Jones UBS-Commodity IndexSM Non-Lending
Series Fund.
The composite benchmark for the Real Asset Return Fund is the composite
performance of the benchmarks for the three underlying asset classes to which
the Real Asset Return Fund allocates assets. During the quarter ended
September 30, 2012, the composite benchmark for the Real Asset Return Fund
included the Dow Jones U.S. Select REIT Index, the Dow Jones-UBS Commodity Index
and the Barclays Capital U.S. Treasury Inflation Protected Securities Index and
was weighted based on the Fund's target allocations to the asset classes to
which these underlying benchmarks relate.
For the quarter ended September 30, 2012, the Fund experienced a total return,
net of expenses, of 3.18%. By comparison, the composite benchmark produced an
investment record of 3.35% for the same period. For the nine month period ended
September 30, 2012, the Fund experienced a total return, net of expenses, of
7.61%, compared to an investment record of 8.39% for the composite benchmark for
the same period. None of the indices comprising the composite benchmark includes
an allowance for the fees that an investor would pay for investing in the
securities that comprise such indices or for fund expenses.
The performance of the Real Asset Return Fund for the quarter and nine month
period ended September 30, 2012 was consistent with its composite benchmark
after taking expenses into account.
Alternative Alpha Fund
The Alternative Alpha Fund seeks to efficiently deliver exposure to a broad set
of liquid asset classes by investing in a diversified portfolio of securities
and instruments. These include Treasury Inflation Protected Securities, which we
refer to as U.S. TIPS, other fixed-income securities, and a wide array of major
liquid asset classes, including global developed and emerging market equities,
global nominal and inflation linked-government bonds, emerging market bonds,
mortgage-backed securities, corporate and sovereign debt, the credit spreads of
mortgage-backed securities, developed and emerging market currencies,
commodities and derivatives with the objective of providing long-term total
returns in excess of the yield on cash-equivalent investments.
For the quarter ended September 30, 2012, the Alternative Alpha Fund experienced
a total return, net of expenses, of 4.26%. By comparison, a combination of
Standard & Poor's 500 Index and Barclays Capital U.S. Aggregate Bond Index, each
weighted 50%, produced an investment record of 3.54% for the same period. For
the period from commencement of operations on January 17, 2012 to September 30,
2012, the Alternative Alpha Fund experienced a total return, net of expenses, of
5.30%. By comparison, the combination benchmark produced an investment record of
8.46% for the same period. The Standard & Poor's 500 Index and the Barclays
Capital U.S. Aggregate Bond Index do not include an allowance for the fees that
an investor would pay for investing in the securities that comprise the indices
or for fund expenses.
The Alternative Alpha Fund's assets are invested indirectly through allocation
to the commingled investment vehicles managed by different Investment Advisors
in percentages determined at the discretion of Northern Trust Investments.
Income and gains attributable to the assets allocated to the commingled
investment vehicle of each Investment Advisor to the Fund remain allocated to
that vehicle unless and until reallocated by Northern Trust Investments, and any
differences in relative investment performance of the investment vehicles can
change the percentage of total assets of the Fund comprising each portion of the
Fund.
For the quarter ended September 30, 2012, the portion of the Alternative Alpha
Fund invested in the AQR Risk Parity Fund (approximately 40% as of September 30,
2012) positively contributed to the performance of the Fund, as well as
outperformed the 60% Standard & Poor's 500 Index/40% Barclays Capital U.S.
Aggregate Bond Index blended index against which the performance of this portion
of the Fund is compared. Outperformance was driven by allocations to riskier
assets such as corporate bonds, equities, and commodities. Fixed-income assets
(including inflation-linked bonds) also delivered positive returns on central
bank actions.
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For the quarter ended September 30, 2012, the portion of the Alternative Alpha
Fund invested in the Wellington Trust Real Total Return Portfolio (approximately
60% as of September 30, 2012) negatively contributed to the performance of the
Fund, but outperformed the Consumer Price Index Core +3%, against which the
performance of this portion of the Fund is compared. Top contributors for the
quarter were U.S. TIPS, emerging markets inflation-linked bonds and a long gold
position in commodities. Investments in Wellington's High Yield Total Return and
Global Derivatives portfolios were positive contributors to outperformance.
For the period from commencement of operations on January 17, 2012 to
September 30, 2012, the portion of the Alternative Alpha Fund invested in the
AQR Risk Parity Fund (approximately 40% as of September 30, 2012) positively
contributed to the performance of the Fund, as well as outperformed the 60%
Standard & Poor's 500 Index/40% Barclays Capital U.S. Aggregate Bond Index
blended index against which the performance of this portion of the Fund is
compared. Outperformance was driven by allocations to bonds and inflation linked
bonds during the second quarter and riskier assets such as commodities and
equities during the third quarter, leading to the outperformance since
inception.
For the period from commencement of operations on January 17, 2012 to
September 30, 2012, the portion of the Alternative Alpha Fund invested in the
Wellington Trust Real Total Return Portfolio (approximately 60% as of
September 30, 2012) negatively contributed to the performance of the Fund, as
well as underperformed the Consumer Price Index Core +3%, against which the
performance of this portion of the Fund is compared. The decision to diversify
away from U.S. TIPS detracted from returns as did exposure to currency.
Retirement Date Funds
The Retirement Date Funds provide a series of diversified investment funds, each
of which is designed to correspond to a particular time horizon to retirement.
Each Retirement Date Fund has an investment strategy representing specific risk
and reward characteristics that take into account the remaining time horizon to
most conservative investment mix. The longer the time horizon to the year in
which a Retirement Date Fund will reach its most conservative investment mix,
the greater is the Retirement Date Fund's current risk and potential reward
profile. The Lifetime Income Retirement Date Fund seeks to avoid significant
loss of principal for investors who are considerably beyond their retirement
date and is comprised primarily of bonds and shorter-term high-quality debt
instruments to provide stability and income (although such Fund also has
significant target equity exposure). The 2010 Retirement Date Fund currently
seeks to provide a mix of long-term capital appreciation and stability of
principal for participants whose retirement date occurred in or around 2010. The
2020 Retirement Date Fund currently seeks to provide a mix of long-term capital
appreciation and stability of principal for participants planning to retire in
or around 2020. The 2030 Retirement Date Fund currently seeks to provide
long-term capital appreciation for participants planning to retire in or around
2030 and is comprised mainly of stocks for higher growth potential. The 2040
Retirement Date Fund currently seeks to provide long-term capital appreciation
for participants planning to retire in or around 2040 and is comprised mainly of
stocks for significant growth potential. The 2050 Retirement Date Fund currently
seeks to provide long-term capital appreciation for participants planning to
retire in or around 2050 and is comprised mainly of stocks for significant
growth potential.
The Retirement Date Funds seek to achieve their objectives by investing in
various indices or other collective investment funds maintained by State Street
Bank. During the quarter ended September 30, 2012, these funds included, in the
case of some or all of the Retirement Date Funds and in varying allocations, the
SSgA U.S. Long Government Bond Index Non-Lending Series Fund, the SSgA U.S. Bond
Index Non-Lending Series Fund, the SSgA U.S. High Yield Bond Index Non-Lending
Series Fund, the SSgA U.S. Short-Term Government/Credit Bond Index Non-Lending
Series Fund, the SSgA U.S. Inflation Protected Bond Index Non-Lending Series
Fund, the SSgA S&P 500® Index Non-Lending Series Fund, the SSgA Global Equity ex
U.S. Index Non-Lending Series Fund, the SSgA S&P MidCap®Index Non-Lending Series
Fund, the SSgA Russell Small/Mid Cap® Index Non-Lending Series Fund, the SSgA
Dow Jones-UBS Roll Select Commodity Index(SM) Non-Lending Series Fund, the SSgA
Russell Small Cap® Index Non-Lending Series Fund and the SSgA/Tuckerman Global
Real Estate Securities Index Non-Lending Series Fund.
The composite benchmark for each of the Retirement Date Funds is the composite
performance of respective benchmarks for the underlying asset classes to which
each of the Retirement Date Funds allocates assets from time to time. During the
quarter ended September 30, 2012, the respective benchmarks comprising the
composite benchmarks included some or all of the Barclays Capital U.S. Long
Government Bond Index, the Barclays Capital U.S. Aggregate Bond Index, the
Barclays Capital U.S. High Yield Very Liquid Index, the Barclays Capital 1-3
Year Government/Credit Index, the Barclays Capital U.S. Treasury Inflation
Protected Securities Index, the S&P 500, the MSCI ACWI ex-USA IMI Index, the S&P
MidCap 400, the Russell 2000 Index, the FTSE EPRA/NAREIT Global Developed Liquid
Index, the Russell Small-Cap Completeness Index and the Dow Jones-UBS Roll
Select Commodity Index and were weighted based on each Fund's respective target
allocations to the asset classes to which such benchmarks relate.
For the quarter ended September 30, 2012, the Retirement Date Funds experienced
a total return, net of expenses, of 3.17% for the Lifetime Income Retirement
Date Fund, 3.51% for the 2010 Retirement Date Fund, 4.60% for the 2020
Retirement Date Fund, 5.17% for the 2030 Retirement Date Fund, 5.72% for the
2040 Retirement Date Fund and 5.76% for the 2050 Retirement Date Fund. By
comparison, the composite benchmark for each Retirement Date Fund produced an
investment record of 3.46%, 3.78%, 4.91%, 5.48%, 6.08% and 6.08%, respectively,
for the same period. None of the indices comprising the composite benchmarks
include an allowance for the fees that an investor would pay for investing in
the securities that comprise such indices or for fund expenses.
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The performance of each Retirement Date Fund for the quarter ended September 30,
2012 was consistent with its respective composite benchmark after taking into
account expenses and differences in rebalancing frequency inasmuch as each
Retirement Date Fund is rebalanced to target asset allocations quarterly and its
composite benchmark's component weights remain static.
For the nine month period ended September 30, 2012, the Retirement Date Funds
experienced a total return, net of expenses, of 8.00% for the Lifetime Income
Retirement Date Fund, 9.34% for the 2010 Retirement Date Fund, 11.66% for the
2020 Retirement Date Fund, 12.61% for the 2030 Retirement Date Fund and 13.11%
for the 2040 Retirement Date Fund. For the period from commencement of
operations on January 17, 2012 to September 30, 2012, the 2050 Retirement Date
Fund experienced a total return, net of expense, of 10.15%. By comparison, the
composite benchmark for each Retirement Date Fund produced an investment record
of 8.76%, 10.05%, 12.37%, 13.28%, 13.82% and 10.73%, respectively, for the same
period. None of the indices comprising the composite benchmarks include an
allowance for the fees that an investor would pay for investing in the
securities that comprise such indices or for fund expenses.
The performance of each Retirement Date Fund for the nine month period, or such
other period, ended September 30, 2012 was consistent with its respective
composite benchmark after taking into account expenses and differences in
rebalancing frequency inasmuch as the target asset allocations of each
Retirement Date Fund is rebalanced quarterly and its composite benchmark's
component weights remain static.
Target Risk Funds
The Target Risk Funds provide a series of diversified investment funds each of
which is designed to correspond to a particular investment risk level. Each
Target Risk Fund has a different investment strategy representing different risk
and reward characteristics. The Conservative Risk Fund seeks to avoid
significant loss of principal and is comprised primarily of bonds and
shorter-term high-quality debt instruments to provide stability and income
(although such Fund also has a target equity exposure of 26%). The Moderate Risk
Fund seeks to provide long-term capital appreciation and current income. The
Aggressive Risk Fund seeks to provide long-term capital appreciation for
participants and is comprised mainly of stocks for maximum growth potential.
The Target Risk Funds seek to achieve their objectives by investing in various
indices or other collective investment funds maintained by State Street Bank.
During the quarter ended September 30, 2012, these funds included, in the case
of some or all of the Target Risk Funds and in varying allocations, the SSgA
Russell All Cap ® Index Non-Lending Series Fund Class A, the SSgA International
Index Non-Lending Series Fund Class A, the SSgA Global Equity ex U.S. Index
Non-Lending Series Fund Class A, the SSgA/Tuckerman REIT Index Non-Lending
Series Fund Class A, the SSgA U.S. Bond Index Non-Lending Series Fund Class A,
the SSgA U.S. Inflation Protected Bond Index Non-Lending Series Fund Class A,
the NTGI Collective Short Term Investment Fund and the SSgA Dow Jones
UBS-Commodity Index Non-Lending Series Fund Class A.
The composite benchmark for each of the Target Risk Funds is the composite
performance of respective benchmarks for the underlying asset classes to which
each of the Target Risk Funds allocates assets. During the quarter ended
September 30, 2012, the respective benchmarks comprising the composite
benchmarks included some or all of the Barclays Capital U.S. Aggregate Bond
Index, the Barclays Capital U.S. Treasury Inflation Protected Securities Index,
the Russell 3000®Index, the MSCI ACWI Ex-US Index, the Dow Jones U.S. Select
REIT Index, the Barclays Capital U.S. Treasury Inflation Protected Securities,
the Merrill Lynch 3-Month T-Bill and the Dow Jones UBS Commodity Index and were
weighted based on each Fund's respective target allocations to the asset classes
to which such underlying benchmarks relate.
For the quarter ended September 30, 2012, the Target Risk Funds experienced a
total return, net of expenses, of 2.35% for the Conservative Risk Fund, 3.81%
for the Moderate Risk Fund and 5.22% for the Aggressive Risk Fund. By
comparison, the composite benchmark for each Target Risk Fund produced an
investment record of 2.54%, 4.20% and 5.60%, respectively, for the same period.
For the nine month period ended September 30, 2012, the Target Risk Funds
experienced a total return, net of expenses, of 6.14% for the Conservative Risk
Fund, 9.04% for the Moderate Risk Fund and 11.33% for the Aggressive Risk Fund,
compared to an investment record of 6.73%, 9.66% and 12.03%, respectively, of
the respective composite benchmark for the same period. None of the indices
comprising the composite benchmarks includes an allowance for the fees that an
investor would pay for investing in the securities that comprise such indices or
for fund expenses.
The performance of each Target Risk Fund for the quarter and the nine month
period ended September 30, 2012 was consistent with its respective composite
benchmark after taking expenses into account.
Balanced Fund
Certain assets contributed to the Program are held in the Balanced Fund.
However, the Collective Trust no longer offers Units in the Balanced Fund and
Northern Trust intends to terminate the Balanced Fund.
The Balanced Fund seeks to achieve, over an extended period of time, total
returns comparable to or superior to an appropriate combination of broad
measures of the domestic stock and bond markets. The Fund invests in publicly
traded common stocks, other equity-type securities, medium- to long-term debt
securities with varying maturities and money market instruments.
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For the quarter ended September 30, 2012, the Balanced Fund experienced a total
return, net of expenses, of 4.54%. By comparison, a combination of the Russell
1000 Index and the Barclays Capital U.S. Aggregate Bond Index, weighted 60%/40%,
respectively, produced an investment record of 4.41% for the same period. For
the nine month period ended September 30, 2012, the Balanced Fund experienced a
total return, net of expenses, of 11.90%, as compared to an investment record of
11.37% for the benchmark for the period. The Russell 1000 Index and the Barclays
Capital U.S. Aggregate Bond Index do not include an allowance for the fees that
an investor would pay for investing in the securities that comprise the Indices
or for fund expenses.
For the quarter ended September 30, 2012, the equity segment of the Balanced
Fund, which is invested through the Large Cap Equity Fund, underperformed the
Russell 1000 Index. For the nine month period ended September 30, 2012, the
equity segment of the Balanced Fund, which is invested through the Large Cap
Equity Fund, underperformed the Russell 1000 Index. Refer to a discussion of the
investment performance of the Large Cap Equity Fund, above, for a description of
the performance of the equity segment of the Balanced Fund for such periods.
For the quarter ended September 30, 2012, the debt segment of the Balanced Fund,
which is invested through the Bond Core Plus Fund, outperformed the Barclays
Capital U.S. Aggregate Bond Index. For the nine month period ended September 30,
2012, the debt segment of the Balanced Fund, which is invested through the Bond
Core Plus Fund, outperformed the Barclays Capital U.S. Aggregate Bond Index.
Refer to a discussion of the investment performance of the Bond Core Plus Fund,
above, for a description of the performance of the debt segment of the Balanced
Fund for such periods.
Quarter and Nine Month Period Ended September 30, 2011
Stable Asset Return Fund
The Stable Asset Return Fund seeks to provide current income consistent with the
preservation of principal and liquidity. The Stable Asset Return Fund invests in
investment contracts, which we refer to as Traditional Investment Contracts,
so-called "Synthetic GICs" with associated underlying assets, and high-quality,
fixed-income instruments. Such investments may be made directly by the Fund or
indirectly through its investment in other collective investment funds
maintained by one or more banks, including Northern Trust Investments, Inc.,
which we refer to as Northern Trust Investments. Effective with the
reorganization of the Stable Asset Return Fund on December 8, 2010, the
benchmark for the Fund is the 3 Year Constant Maturity Treasury Yield.
For the quarter ended September 30, 2011, the Stable Asset Return Fund
experienced a total return, net of expenses, of 0.28%. By comparison, the 3 Year
Constant Maturity Treasury Yield produced an investment record of 0.12% for the
same period. The 3 Year Constant Maturity Treasury Yield does not include an
allowance for the fees that an investor would pay for investing in the
instruments that comprise that benchmark or for fund expenses. Further, the 70%
Ryan Labs Three Year GIC Index / 30% iMoneyNet MFR Prime Institutional Money
Market Fund Average produced an investment record of 0.40% for the period. The
Ryan Labs Three Year GIC Index portion of the combination benchmark does not
include an allowance for the fees that an investor would pay for investing in
the instruments that comprise that benchmark or for fund expenses. For the nine
month period ended September 30, 2011, the Fund experienced a total return, net
of expenses, of 0.81%. By comparison, the 3 Year Constant Maturity Treasury
Yield produced an investment record of 0.64% for the same period while the 70%
Ryan Labs Three Year GIC Index / 30% iMoneyNet MFR Prime Institutional Money
Market Fund Average produced an investment record of 1.36% for the period.
The Stable Asset Return Fund outperformed the 3 Year Constant Maturity Treasury
Yield but underperformed the 70% Ryan Labs Three Year GIC Index / 30% iMoneyNet
MFR Prime Institutional Money Market Fund Average (the historical benchmark
prior to the reorganization of the Fund in December 2010) for the quarter ended
September 30, 2011. The Fund's market to book value ratio increased slightly
during the quarter from 102.0% to 102.8%, reflecting strong performance in the
underlying fixed-income bond portfolios. Security selection emphasizing
defensive, high-quality securities relative to the benchmark, particularly in
corporates, was beneficial. However, the overweight in sectors that trade at a
yield spread over Treasury/agency securities and the corresponding underweight
in Treasury/agency securities detracted from performance during the quarter as
U.S. Government securities were top performers. The credit quality of the
underlying bond portfolios remained high, with 78.8% of the securities rated
U.S. Treasury/agency or AAA.
The Stable Asset Return Fund outperformed the 3 Year Constant Maturity Treasury
Yield but underperformed the 70% Ryan Labs Three Year GIC Index / 30% iMoneyNet
MFR Prime Institutional Money Market Fund Average for the nine month period
ended September 30, 2011. The underlying portfolio's slightly
longer-than-benchmark duration positioning improved performance, as yields
reached historical lows. A flight to safety experienced in fixed-income markets
during the second and third quarter sparked a rally in Treasurys, and
consequently the underlying portfolio's allocations to sectors that trade at a
yield spread over Treasury/agency securities have underperformed on a relative
basis. The Fund's crediting rate of 1.98% as of September 30, 2011 may
experience modest downward pressure going forward as reinvestment rates remain
near historic lows.
Bond Core Plus Fund
The Bond Core Plus Fund seeks to achieve a total return from current income and
capital appreciation by investing primarily in a diversified portfolio of
fixed-income securities.
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For the quarter ended September 30, 2011, the Bond Core Plus Fund, which is
advised with the assistance of Pacific Investment Management Company LLC,
experienced a total return, net of expenses, of 2.90%. By comparison, the
Barclays Capital U.S. Aggregate Bond Index produced an investment record of
3.82% for the same period. For the nine month period ended September 30, 2011,
the Fund experienced a total return, net of expenses, of 5.15%, compared to an
investment record of 6.65% for the benchmark for the same period. The Barclays
Capital U.S. Aggregate Bond Index does not include an allowance for the fees
that an investor would pay for investing in the securities that comprise the
Index or for fund expenses.
The Bond Core Plus Fund underperformed the Barclays Capital U.S. Aggregate Bond
Index for the quarter ended September 30, 2011. Such underperformance was
primarily caused by an overweight to the financial sector, falling interest
rates, sovereign debt concerns in Europe and an underweight to Treasurys. The
Bond Core Plus Fund underperformed the Barclays Capital U.S. Aggregate Bond
Index for the nine month period ended September 30, 2011. The underperformance
was driven by falling interest rates and the sovereign debt concerns in Europe
as well as an underweight to Treasurys.
Large Cap Equity Fund
The Large Cap Equity Fund seeks to outperform, over extended periods of time,
broad measures of the U.S. stock market. The Fund invests primarily in common
stocks and other equity-type securities of larger-capitalization U.S. companies
with market capitalizations, at the time of purchase, of greater than $1
billion.
For the quarter ended September 30, 2011, the Large Cap Equity Fund experienced
a total return, net of expenses, of -14.28%. By comparison, the Russell 1000®
Index produced an investment record of -14.68% for the same period. For the nine
month period ended September 30, 2011, the Fund experienced a total return, net
of expenses, of -8.41%, compared to an investment record of -9.25% for the
benchmark for the same period. The Russell 1000 Index does not include an
allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The Large Cap Equity Fund uses a "multi-manager" approach whereby the Fund's
assets are allocated to two or more Investment Advisors, in percentages
determined at the discretion of Northern Trust Investments. Each Investment
Advisor acts independently from the others and uses its own distinct investment
style in recommending securities. Each Investment Advisor must operate within
the constraints of the Fund's investment objective, strategies and restrictions
and subject to the general supervision of Northern Trust Investments. The
performance of each Investment Advisor may be measured in the context of its own
investment style.
For the quarter ended September 30, 2011, the portion of the Large Cap Equity
Fund advised with the assistance of Columbus Circle Investors (approximately 22%
as of September 30, 2011) negatively contributed to the performance of the Fund,
as well as underperformed the Russell 1000 Growth Index, against which the
performance of this portion of the Fund is compared. The final week of the
quarter accounted for virtually all of the underperformance due primarily to the
European debt crisis. In addition, poor stock selection within the energy,
technology and healthcare sectors contributed to the underperformance during the
quarter.
For the quarter ended September 30, 2011, the portion of the Large Cap Equity
Fund advised with the assistance of C.S. McKee, L.P. (approximately 29% as of
September 30, 2011) negatively contributed to the performance of the Fund, but
outperformed the Russell 1000 Value Index, against which the performance of this
portion of the Fund is compared. The primary drivers of outperformance came from
the financial and technology sectors. Within the financial sector, a large
underweight to the sector, combined with strong individual stock selection,
accounted for the majority of outperformance.
For the quarter ended September 30, 2011, the portion of the Large Cap Equity
Fund advised with the assistance of Delaware Investment Advisers (approximately
26% as of September 30, 2011) positively contributed to the performance of the
Fund, as well as outperformed the Russell 1000 Value Index, against which the
performance of this portion of the Fund is compared. The outperformance was
primarily driven by strong stock selection as well as an underweight to the
financial sector. Relative performance was also aided by an overweight to the
healthcare sector.
For the quarter ended September 30, 2011, the portion of the Large Cap Equity
Fund advised with the assistance of Jennison Associates LLC (approximately 19%
as of September 30, 2011) positively contributed to the performance of the Fund,
but underperformed the Russell 1000 Growth Index, against which the performance
of this portion of the Fund is compared. The underweight positions in the three
worst-performing sectors (materials, industrials, and energy) benefited relative
performance, while stock selection in information technology, energy and
healthcare sectors proved detrimental to performance.
For the nine month period ended September 30, 2011, the portion of the Large Cap
Equity Fund advised with the assistance of Columbus Circle Investors
(approximately 22% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 1000 Growth
Index, against which the performance of this portion of the Fund is compared.
The underperformance was primarily driven by poor stock selection within the
technology and energy sectors.
For the nine month period ended September 30, 2011, the portion of the Large Cap
Equity Fund advised with the assistance of C.S. McKee, L.P. (approximately 29%
as of September 30, 2011) negatively contributed to the performance of the Fund,
but outperformed the Russell 1000 Value Index, against which the performance of
this portion of the Fund is compared. An underweight to the financial sector
proved to be the most significant contributor to performance. Stock selection
within the healthcare sector also made significant positive contributions to
performance.
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For the nine month period ended September 30, 2011, the portion of the Large Cap
Equity Fund advised with the assistance of Delaware Investment Advisers
(approximately 26% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the Russell 1000 Value Index,
against which the performance of this portion of the Fund is compared.
Outperformance was primarily driven by strong stock selection as well as an
underweight to the financial sector.
For the nine month period ended September 30, 2011, the portion of the Large Cap
Equity Fund advised with the assistance of Jennison Associates LLC
(approximately 19% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the Russell 1000 Growth Index,
against which the performance of this portion of the Fund is compared. Strong
stock selection as well as an overweight to the consumer discretionary sector
drove outperformance. Stock selection as well as an underweight to the
industrials and materials sectors also contributed positively to performance.
Small-Mid Cap Equity Fund
The Small-Mid Cap Equity Fund seeks to outperform, over extended periods of
time, broad measures of the U.S. stock market. The Fund invests primarily in
common stocks and other equity-type securities of small- to
medium-capitalization U.S. companies with market capitalizations, at the time of
purchase, of between $100 million and $20 billion.
For the quarter ended September 30, 2011, the Small-Mid Cap Equity Fund
experienced a total return, net of expenses, of -20.76%. By comparison, the
Russell 2500™ Index produced an investment record of -21.22% for the same
period. For the nine month period ended September 30, 2011, the Fund experienced
a total return, net of expenses, of -14.73%, compared to an investment record of
-14.87% for the benchmark for the same period. The Russell 2500 Index does not
include an allowance for the fees that an investor would pay for investing in
the securities that comprise that Index or for fund expenses.
The Small-Mid Cap Equity Fund uses a "multi-manager" approach whereby the Fund's
assets are allocated to two or more Investment Advisors, in percentages
determined at the discretion of Northern Trust Investments. Each Investment
Advisor acts independently from the others and uses its own distinct investment
style in recommending securities. Each Investment Advisor must operate within
the constraints of the Fund's investment objective, strategies and restrictions
and subject to the general supervision of Northern Trust Investments. The
performance of each Investment Advisor may be measured in the context of its own
investment style.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Denver Investment Advisors LLC (d/b/a
Denver Investments) (approximately 14% as of September 30, 2011) positively
contributed to the performance of the Fund, as well as outperformed the Russell
2000 Value Index, against which the performance of this portion of the Fund is
compared. Positive stock selection in healthcare, consumer cyclical and basic
materials sectors drove relative performance.
For the quarter ended September 30, 2011, the portion of the Small Mid-Cap
Equity Fund advised with the assistance of Lombardia Capital Partners, LLC
(approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, but outperformed the Russell 2000 Value Index, against
which the performance of this portion of the Fund is compared. Stock selection
was positive in eight of ten sectors, with consumer discretionary, information
technology and materials driving performance.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Frontier Capital Management Co. LLC
(approximately 10% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Relative performance was driven by positive stock selection, particularly in the
consumer discretionary and healthcare sectors.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of LSV Asset Management (approximately
14% as of September 30, 2011) positively contributed to the performance of the
Fund, but underperformed the Russell Midcap Value Index, against which the
performance of this portion of the Fund is compared. While stock selection
within the financial sector added value, stock selection, particularly in the
technology, consumer staples and energy sectors, detracted from overall
performance.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Allianz Global Investors Capital LLC
(approximately 9% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 2000 Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection, particularly in the information technology, healthcare and
energy sectors, was the primary driver of the underperformance. Sector
positioning, including an overweight to the energy and materials sectors also
detracted from performance.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Riverbridge Partners (approximately
10% as of September 30, 2011) positively contributed to the performance of the
Fund, as well as outperformed the Russell 2000 Growth Index, against which the
performance of this portion of the Fund is compared. Stock selections in the
healthcare sector as well as an underweight to the underperforming energy sector
were the primary drivers of outperformance.
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For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of Systematic Financial Management, L.P.
(approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Value
Index, against which the performance of this portion of the Fund is compared.
The majority of the underperformance was due to weak stock selection in the
information technology and the industrials sectors.
For the quarter ended September 30, 2011, the portion of the Small-Mid Cap
Equity Fund advised with the assistance of TCW Investment Management Company
(approximately 9% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection in healthcare and consumer discretionary sectors were the
largest detractors from relative performance.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Denver Investment Advisors LLC
(d/b/a Denver Investments) (approximately 14% as of September 30, 2011)
positively contributed to the performance of the Fund, as well as outperformed
the Russell 2000 Value Index, against which the performance of this portion of
the Fund is compared. Basic materials, healthcare and consumer cyclical sectors
provided the most significant contribution to performance during the period.
For the period from on or about May 10, 2011 (the date on which Lombardia
Capital Partners, LLC commenced providing investment assistance with respect to
the Small Mid-Cap Equity Fund) to September 30, 2011, the portion of the Small
Mid-Cap Equity Fund advised with the assistance of Lombardia Capital Partners,
LLC (approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, but outperformed the Russell 2000 Value Index, against
which the performance of this portion of the Fund is compared. Stock selection
was positive in eight of ten sectors, with consumer discretionary, information
technology and materials leading performance.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Frontier Capital Management Co.
LLC (approximately 10% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the Russell Midcap Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection was positive in eight of ten sectors, with consumer
discretionary, information technology and materials leading performance.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of LSV Asset Management
(approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Value
Index, against which the performance of this portion of the Fund is compared.
While stock selection within the financial sector added value, stock selection,
particularly in the technology, consumer staples and energy sectors, detracted
from overall performance.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Allianz Global Investors Capital
LLC (approximately 9% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell 2000 Growth
Index, against which the performance of this portion of the Fund is compared.
Stock selection in the healthcare and industrials sectors as well as an
overweight to energy detracted from relative performance during this period.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Riverbridge Partners
(approximately 10% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the Russell 2000 Growth Index,
against which the performance of this portion of the Fund is compared. Stock
selection within the healthcare sector as well as an underweight to the energy
sector contributed to positive relative performance. Stock selection within the
information technology sector also contributed to returns.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of Systematic Financial Management,
L.P. (approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the Russell Midcap Value
Index, against which the performance of this portion of the Fund is compared.
Stock selection in the information technology, energy and industrials sectors
was the primary contributor to underperformance. Sector allocation also
detracted from performance as an underweight to utilities served as a headwind
with investors seeking the perceived relative safety of these stocks against an
uncertain macro-economic backdrop.
For the nine month period ended September 30, 2011, the portion of the Small-Mid
Cap Equity Fund advised with the assistance of TCW Investment Management Company
(approximately 9% as of September 30, 2011) positively contributed to the
performance of the Fund, but underperformed the Russell Midcap Growth Index,
against which the performance of this portion of the Fund is compared. Positive
stock selection in the consumer staples, energy and information technology
sectors was slightly offset by negative stock selection in the consumer
discretionary and financial sectors during the period.
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International All Cap Equity Fund
The International All Cap Equity Fund seeks to provide long-term growth of
capital through a diversified portfolio of primarily non-U.S. equity securities.
The Fund seeks to achieve, over an extended period of time, total returns
comparable to or superior to broad measures of international (non-U.S.) stock
markets.
For the quarter ended September 30, 2011, the International All Cap Equity Fund
experienced a total return, net of expenses, of -19.04%. By comparison, the
Morgan Stanley Capital International ("MSCI") All-Country World ("ACWI") ex-US
Index produced an investment record -19.85% for the same period. For the nine
month period ended September 30, 2011, the Fund experienced a total return, net
of expenses, of -14.65%, compared to an investment record of -16.80% for the
benchmark for the same period. The MSCI ACWI ex-US Index does not include an
allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The International All Cap Equity Fund uses a "multi-manager" approach whereby
the Fund's assets are allocated to two or more Investment Advisors, in
percentages determined at the discretion of Northern Trust Investments. Each
Investment Advisor acts independently from the others and uses its own distinct
investment style in recommending securities. Each Investment Advisor must
operate within the constraints of the Fund's investment objective, strategies
and restrictions and subject to the general supervision of Northern Trust
Investments. The performance of each Investment Advisor may be measured in the
context of its own investment style.
For the quarter ended September 30, 2011, the portion of the International All
Cap Equity Fund advised with the assistance of Altrinsic Global Advisors, LLC
(approximately 22% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the MSCI Europe, Australasia,
Far East ("EAFE") Value ND Index, against which the performance of this portion
of the Fund is compared. Stock selection in the financial, consumer
discretionary and healthcare sectors provided the greatest positive impact on
relative performance.
For the quarter ended September 30, 2011, the portion of the International All
Cap Equity Fund advised with the assistance of Eagle Global Advisors LLC
(approximately 14% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the MSCI EAFE Growth ND
Index, against which the performance of this portion of the Fund is compared.
Exposures to the financial, industrials and energy sectors were the lead
detractors from performance. From a country perspective, performance was hurt by
an underweight to Japan and an overweight to Germany and Canada.
For the quarter ended September 30, 2011, the portion of the International All
Cap Equity Fund advised with the assistance of First State Investments
International Limited (approximately 22% as of September 30, 2011) positively
contributed to the performance of the Fund, as well as outperformed the MSCI
Emerging Markets ND Index, against which the performance of this portion of the
Fund is compared. Outperformance was driven by stock selection as well as an
underweight position in China. Stock selection in the materials sector was also
a positive contributor to performance, particularly the position in AngloGold
Ashanti, a South African mining company.
For the quarter ended September 30, 2011, the portion of the International All
Cap Equity Fund advised with the assistance of LSV Asset Management
(approximately 23% as of September 30, 2011) negatively contributed to the
performance of the Fund, as well as underperformed the MSCI EAFE Value ND Index,
against which the performance of this portion of the Fund is compared. While
sector selection added value, overall stock selection detracted from relative
performance. Though stock selection was strong in the consumer discretionary,
industrials and telecommunications sectors, this was more than offset by weak
selection in the materials, utilities and financial sectors.
For the quarter ended September 30, 2011, the portion of the International All
Cap Equity Fund advised with the assistance of Martin Currie Inc. (approximately
15% as of September 30, 2011) negatively contributed to the performance of the
Fund, as well as underperformed the MSCI EAFE Growth ND Index, against which the
performance of this portion of the Fund is compared. The primary negative impact
on returns came from stock selection in Europe, with sector allocation
essentially a neutral contributor for the quarter. Within Europe, an underweight
exposure to consumer staples proved to be the greatest detractor from relative
performance.
For the nine month period ended September 30, 2011, the portion of the
International All Cap Equity Fund advised with the assistance of Altrinsic
Global Advisors, LLC (approximately 22% as of September 30, 2011) positively
contributed to the performance of the Fund, as well as outperformed the MSCI
EAFE Value ND Index, against which the performance of this portion of the Fund
is compared. Stock selection in the financial, consumer discretionary and
healthcare sectors provided the greatest positive impact on relative
performance.
For the nine month period ended September 30, 2011, the portion of the
International All Cap Equity Fund advised with the assistance of Eagle Global
Advisors LLC (approximately 14% as of September 30, 2011) negatively contributed
to the performance of the Fund, as well as underperformed the MSCI EAFE Growth
ND Index, against which the performance of this portion of the Fund is compared.
Exposures to the financial, industrials and energy sectors were the lead
detractors from performance for the period. From a country perspective,
performance was hurt by an underweight to Japan and an overweight Germany and
Canada.
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For the nine month period ended September 30, 2011, the portion of the
International All Cap Equity Fund advised with the assistance of First State
Investments International Limited (approximately 22% as of September 30, 2011)
positively contributed to the performance of the Fund, as well as outperformed
the MSCI Emerging Markets ND Index, against which the performance of this
portion of the Fund is compared. Outperformance was primarily driven by stock
selection in the financial sector. The overweight in the telecommunications
services sector contributed positively, especially China Telecom which
outperformed as it continued to deliver strong results. Stock selection in
Taiwan was also a positive contributor to performance.
For the nine month period ended September 30, 2011, the portion of the
International All Cap Equity Fund advised with the assistance of LSV Asset
Management (approximately 23% as of September 30, 2011) positively contributed
to the performance of the Fund, but underperformed the MSCI EAFE Value ND Index,
against which the performance of this portion of the Fund is compared. While
sector selection added value, overall stock selection detracted from relative
performance. Though stock selection was strong in the consumer discretionary,
industrials and telecommunications sectors, this was more than offset by weak
selection in the materials, utilities and financial sectors.
For the nine month period ended September 30, 2011, the portion of the
International All Cap Equity Fund advised with the assistance of Martin Currie
Inc. (approximately 15% as of September 30, 2011) positively contributed to the
performance of the Fund, as well as outperformed the MSCI EAFE Growth ND Index,
against which the performance of this portion of the Fund is compared.
Outperformance was entirely driven by stock selection as sector allocation was
negative. Stock selection was strongest in the consumer discretionary and
materials sectors but was also positive in information technology, healthcare,
telecommunication and energy sectors. From a country perspective, Europe made
the biggest contribution, while Japan was the primary detractor from
performance.
Bond Index Fund
The Bond Index Fund seeks to replicate, after taking into account Fund expenses,
the total rate of return of the Barclays Capital U.S. Aggregate Bond Index by
investing generally in securities included in such Index. The Barclays Capital
U.S. Aggregate Bond Index is representative of the domestic investment-grade
bond market.
For the quarter ended September 30, 2011, the Bond Index Fund experienced a
total return, net of expenses, of 3.65%. By comparison, the Barclays Capital
U.S. Aggregate Bond Index produced an investment record of 3.82% for the same
period. For the nine month period ended September 30, 2011, the Fund experienced
a total return, net of expenses, of 6.01%, compared to an investment record of
6.65% for the benchmark for the same period. The Barclays Capital U.S. Aggregate
Bond Index does not include an allowance for the fees that an investor would pay
for investing in the securities that comprise that Index or for fund expenses.
The performance of the Bond Index Fund for the quarter and nine month period
ended September 30, 2011 was consistent with the Barclays Capital U.S. Aggregate
Bond Index after taking expenses into account.
Large Cap Index Equity Fund
The Large Cap Index Equity Fund seeks to replicate, after taking into account
Fund expenses, the total rate of return of the S&P 500® by investing generally
in securities included in such Index. The S&P 500 represents approximately 75%
of the U.S. equity market based on market capitalization.
For the quarter ended September 30, 2011, the Large Cap Index Equity Fund
experienced a total return, net of expenses, of -14.07%. By comparison, the S&P
500 produced an investment record of -13.87% for the same period. For the nine
month period ended September 30, 2011, the Fund experienced a total return, net
of expenses, of -9.22%, compared to an investment record of -8.68% for the
benchmark for the same period. The S&P 500 does not include an allowance for the
fees that an investor would pay for investing in the securities that comprise
that Index or for fund expenses.
The performance of the Large Cap Index Equity Fund for the quarter and nine
month period ended September 30, 2011 was consistent with the S&P 500 after
taking expenses into account.
All Cap Index Equity Fund
The All Cap Index Equity Fund seeks to replicate, after taking into account Fund
expenses, the total rate of return of the Russell 3000®Index by investing
generally in securities included in such Index. The Russell 3000 Index
represents approximately 98% of the U.S. equity market based on market
capitalization.
For the quarter ended September 30, 2011, the All Cap Index Equity Fund
experienced a total return, net of expenses, of -15.40%. By comparison, the
Russell 3000 Index produced an investment record of -15.28% for the same period.
For the nine month period ended September 30, 2011, the Fund experienced a total
return, net of expenses, of -10.33%, compared to an investment record of -9.90%
for the benchmark for the same period. The Russell 3000 Index does not include
an allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The performance of the All Cap Index Equity Fund for the quarter and nine month
period ended September 30, 2011 was consistent with the Russell 3000 Index after
taking expenses into account.
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Mid Cap Index Equity Fund
The Mid Cap Index Equity Fund seeks to replicate, after taking into account Fund
expenses, the total rate of return of the S&P MidCap 400® by investing generally
in securities included in such Index. The S&P MidCap 400 includes 400 companies
and represents approximately 7% of the U.S. equity market based on market
capitalization.
For the quarter ended September 30, 2011, the Mid Cap Index Equity Fund
experienced a total return, net of expenses, of -20.07%. By comparison, the S&P
MidCap 400 produced an investment record of -19.88% for the same period. For the
nine month period ended September 30, 2011, the Fund experienced a total return,
net of expenses, of -13.57%, compared to an investment record of -13.02% for the
benchmark for the same period. The S&P MidCap 400 does not include an allowance
for the fees that an investor would pay for investing in the securities that
comprise that Index or for fund expenses.
The performance of the Mid-Cap Index Equity Fund for the quarter and nine month
period ended September 30, 2011 was consistent with the S&P MidCap 400 after
taking expenses into account.
Small Cap Index Equity Fund
The Small Cap Index Equity Fund seeks to replicate, after taking into account
Fund expenses, the total rate of return of the Russell 2000®Index by investing
generally in securities included in such Index. The Russell 2000 Index is
comprised of the approximately 2,000 companies in the Russell 3000 Index with
the smallest market capitalization and represents approximately 10% of the
Russell 3000 Index total market capitalization.
For the quarter ended September 30, 2011, the Small Cap Index Equity Fund
experienced a total return, net of expenses, of -22.04%. By comparison, the
Russell 2000 Index produced an investment record of -21.87% for the same period.
For the nine month period ended September 30, 2011, the Fund experienced a total
return, net of expenses, of -17.51%, compared to an investment record of -17.02%
for the benchmark for the same period. The Russell 2000 Index does not include
an allowance for the fees that an investor would pay for investing in the
securities that comprise that Index or for fund expenses.
The performance of the Small Cap Index Equity Fund for the quarter and nine
month period ended September 30, 2011 was consistent with the Russell 2000 Index
after taking expenses into account.
International Index Equity Fund
The investment objective of the International Index Equity Fund is to replicate,
after taking into account Fund expenses, the total rate of return of the MSCI
ACWI ex-US Index by investing generally in securities included in such Index.
The MSCI ACWI ex-US Index consists of approximately 1,870 securities in 44
markets, with securities of emerging markets representing approximately 24% of
the Index.
For the quarter ended September 30, 2011, the International Index Equity Fund
experienced a total return, net of expenses, of -20.77%. By comparison, the MSCI
ACWI ex-US Index produced an investment record of -19.85% for the same period.
For the nine month period ended September 30, 2011, the Fund experienced a total
return, net of expenses, of -18.04%, compared to an investment record of -16.80%
for the benchmark for the same period. The MSCI ACWI ex-US Index does not
include an allowance for the fees that an investor would pay for investing in
the securities that comprise that Index or for fund expenses.
The performance of the International Index Equity Fund for the quarter and nine
month period ended September 30, 2010 was consistent with the MSCI ACWI ex-US
Index after taking into account expenses and the effect of a fair value pricing
adjustment made by the underlying collective investment fund in which the Fund
invests. For further information regarding the International Index Equity Fund's
use of fair value pricing, see the section entitled "Information with Respect to
the Funds-Valuation of Units" in the Collective Trust's Annual Report on Form
10-K.
Real Asset Return Fund
The investment objective of the Real Asset Return Fund is to provide capital
appreciation in excess of inflation as measured by the All Items Less Food and
Energy Consumer Price Index for All Urban Consumers for the U.S. City Average,
1982-84 = 100 through investment in a diversified portfolio of primarily
Treasury Inflation Protected Securities, commodity futures and real estate
investment trusts.
The Fund seeks to achieve its objective by investing indirectly in various index
or other collective investment funds maintained by State Street Bank and Trust
Company, which we refer to as State Street Bank. During the quarter ended
September 30, 2011, these funds were comprised of the SSgA/Tuckerman REIT Index
Non-Lending Series Fund, the SSgA U.S. Inflation Protected Bond Index
Non-Lending Series Fund and the SSgA Dow Jones UBS-Commodity IndexSM Non-Lending
Series Fund. The composite benchmark for the Real Asset Return Fund is the
composite investment record of the benchmarks for the three underlying asset
classes to which the Real Asset Return Fund allocates assets. During the quarter
ended September 30, 2011, the composite benchmark for the Real Asset Return Fund
was comprised of the Dow Jones U.S. Select REIT Index, the Dow Jones-UBS
Commodity Index and the Barclays Capital U.S. Treasury Inflation Protected
Securities Index and was weighted based on the Fund's target allocations to the
asset classes to which these underlying benchmarks relate.
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For the quarter ended September 30, 2011, the Fund experienced a total return,
net of expenses, of -4.59%. By comparison, the composite benchmark produced an
investment record of -4.34% for the same period. For the nine month period ended
September 30, 2011, the Fund experienced a total return, net of expenses, of
0.00%, compared to an investment record of 0.71% for the benchmark for the same
period. None of the indices comprising the composite benchmark includes an
allowance for the fees that an investor would pay for investing in the
securities that comprise such indices or for fund expenses.
The performance of the Real Asset Return Fund for the quarter and nine month
period ended September 30, 2011 was consistent with its composite benchmark
after taking expenses into account.
Retirement Date Funds
The Retirement Date Funds provide a series of diversified investment funds each
of which is designed to correspond to a particular time horizon to retirement.
Each Retirement Date Fund has an initial investment strategy representing
specific risk and reward characteristics that take into account the remaining
time horizon to the most conservative investment mix. The longer the time
horizon to the year in which a Retirement Date Fund will reach its most
conservative investment mix, the greater is the Retirement Date Fund's initial
risk and potential reward profile. The Lifetime Income Retirement Date Fund
seeks to avoid significant loss of principal for investors who are considerably
beyond their retirement date and is comprised primarily of bonds and
shorter-term high-quality debt instruments to provide stability and income
(although such Fund also has a target equity exposure of 30%). The 2010
Retirement Date Fund currently seeks to provide a blend of capital appreciation
and stability of principal for participants retiring in or around the year 2010.
The 2020 Retirement Date Fund currently seeks to provide a mix of long-term
capital appreciation and stability of principal for participants planning to
retire in or around the year 2020. The 2030 Retirement Date Fund currently seeks
to provide mostly long-term capital appreciation for participants planning to
retire in or around the year 2030 and is comprised mainly of stocks with higher
growth potential. The 2040 Retirement Date Fund currently seeks to provide
long-term capital appreciation for participants planning to retire in or around
the year 2040 and is comprised mainly of stocks with significant growth
potential.
The Retirement Date Funds seek to achieve their objectives by investing in
various index or other collective investment funds maintained by State Street
Bank. During the quarter ended September 30, 2011, these funds included, in the
case of some or all of the Retirement Date Funds and in varying allocations, the
SSgA U.S. Long Government Bond Index Non-Lending Series Fund, the SSgA U.S. Bond
Index Non-Lending Series Fund, the SSgA U.S. High Yield Bond Index Non-Lending
Series Fund, the SSgA U.S. Short-Term Government/Credit Bond Index Non-Lending
Series Fund, the SSgA U.S. Inflation Protected Bond Index Non-Lending Series
Fund, the SSgA S&P 500® Index Non-Lending Series Fund, the SSgA Global All Cap
Equity ex U.S. Index Non-Lending Series Fund, the SSgA S&P MidCap ® Index
Non-Lending Series Fund, the SSgA Russell Small Cap® Index Non-Lending Series
Fund and the SSgA/Tuckerman Global Real Estate Securities Index Non-Lending
Series Fund.
The composite benchmark for each of the Retirement Date Funds is the composite
investment record of the respective benchmarks for the underlying asset classes
to which each Retirement Date Fund allocates its assets from time to time.
During the quarter ended September 30, 2011, the respective benchmarks
comprising the composite benchmarks included some or all of the Barclays Capital
U.S. Long Government Bond Index, the Barclays Capital U.S. Aggregate Bond Index,
the Barclays Capital U.S. High Yield Very Liquid Index, the Barclays Capital 1-3
Year Government/Credit Index, the Barclays Capital U.S. Treasury Inflation
Protected Securities Index, the S&P 500, the MSCI ACWI ex-US IMI Index, the S&P
MidCap 400, the Russell 2000 Index and the FTSE EPRA/NAREIT Global Developed
Liquid Index and were weighted based on each Fund's respective target
allocations to the asset classes to which such benchmarks relate.
For the quarter ended September 30, 2011, the Retirement Date Funds experienced
a total return, net of expenses, of -4.45% for the Lifetime Income Retirement
Date Fund, -3.44% for the 2010 Retirement Date Fund, -6.50% for the 2020
Retirement Date Fund, -9.62% for the 2030 Retirement Date Fund and -13.37% for
the 2040 Retirement Date Fund. By comparison, the composite benchmark for each
Retirement Date Fund produced an investment record of -4.15%, -3.17%, -6.17%,
-9.22% and -13.00%, respectively, for the same period. None of the indices
comprising the composite benchmarks includes an allowance for the fees that an
investor would pay for investing in the securities that comprise such indices or
for fund expenses.
The performance of each Retirement Date Fund for the quarter ended September 30,
2011 was consistent with its respective composite benchmark after taking into
account expenses.
For the nine month period ended September 30, 2011, the Retirement Date Funds
experienced a total return, net of expenses, of -0.84% for the Lifetime Income
Retirement Date Fund, 0.49% for the 2010 Retirement Date Fund, -2.25% for the
2020 Retirement Date Fund, -5.26% for the 2030 Retirement Date Fund and -9.08%
for the 2040 Retirement Date Fund. By comparison, the composite benchmark for
each Retirement Date Fund produced an investment record of -0.07%, 1.28%,
-1.52%, -4.55% and -8.32%, respectively, for the same period. None of the
indices comprising the composite benchmarks includes an allowance for the fees
that an investor would pay for investing in the securities that comprise such
indices or for fund expenses.
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The performance of each Retirement Date Fund for the nine month period ended
September 30, 2011 was consistent with its respective composite benchmark after
taking into account expenses and the effect of participation in securities
lending.
Target Risk Funds
The Target Risk Funds provide a series of diversified investment funds each of
which is designed to correspond to a particular investment risk level. Each
Target Risk Fund has an investment strategy representing specific risk and
reward characteristics. The Conservative Risk Fund seeks to avoid significant
loss of principal and is comprised primarily of bonds and shorter-term
high-quality debt instruments to provide stability and income (although such
Fund also has a target equity exposure of 26%). The Moderate Risk Fund seeks to
provide long-term capital appreciation and current income. The Aggressive Risk
Fund seeks to provide long-term capital appreciation for participants and is
comprised mainly of stocks with maximum growth potential.
The Target Risk Funds seek to achieve their objectives by investing in various
index or other collective investment funds maintained by State Street Bank or an
affiliate of Northern Trust Investments. During the quarter ended September 30,
2011, these funds included, in the case of some or all of the Target Risk Funds
and in varying allocations, the SSgA Russell All Cap® Index Non-Lending Series
Fund, the SSgA International Index Non-Lending Series Fund, the SSgA Global
Equity ex U.S. Index Non-Lending Series Fund, the SSgA/Tuckerman REIT Index
Non-Lending Series Fund, the SSgA U.S. Bond Index Non-Lending Series Fund, the
SSgA U.S. Inflation Protected Bond Index Non-Lending Series Fund, the NTGI
Collective Short Term Investment Fund and the SSgA Dow Jones UBS-Commodity Index
Non-Lending Series Fund.
The composite benchmark for each of the Target Risk Funds is the composite
investment record of the respective benchmarks for the underlying asset classes
to which each Target Risk Fund allocates its assets. During the quarter ended
September 30, 2011, the respective benchmarks comprising the composite
benchmarks included some or all of the Russell 3000®Index, the MSCI EAFE Index,
the MSCI ACWI Ex-US Index, the Dow Jones U.S. Select REIT Index, the Barclays
Capital U.S. Aggregate Bond Index, the Barclays Capital U.S. Treasury Inflation
Protected Securities, the Merrill Lynch 3-Month T-Bill Index and the Dow
Jones-UBS Commodity Index and were weighted based on each Fund's respective
target allocations to the asset classes to which such underlying benchmarks
relate.
For the quarter ended September 30, 2011, the Target Risk Funds experienced a
total return, net of expenses, of -2.09% for the Conservative Risk Fund, -8.58%
for the Moderate Risk Fund and -13.78% for the Aggressive Risk Fund. By
comparison, the composite benchmark for each Target Risk Fund produced an
investment record of -1.78%, -8.23% and -13.38%, respectively, for the same
period. For the nine month period ended September 30, 2011, the Target Risk
Funds experienced a total return, net of expenses, of 1.66% for the Conservative
Risk Fund, -4.69% for the Moderate Risk Fund and -9.60% for the Aggressive Risk
Fund, compared to an investment record of 2.37%, -3.93% and -8.85%,
respectively, of the respective composite benchmark for the same period. None of
the indices comprising the composite benchmarks includes an allowance for the
fees that an investor would pay for investing in the securities that comprise
such indices or for fund expenses.
The performance of each Target Risk Fund for the quarter and the nine month
period ended September 30, 2011 was consistent with its respective composite
benchmark after taking expenses into account.
Balanced Fund
Certain assets contributed to the Program are held in the Balanced Fund.
However, the Collective Trust no longer offers Units in the Balanced Fund.
The Balanced Fund seeks to achieve, over an extended period of time, total
returns comparable to or superior to an appropriate combination of broad
measures of the domestic stock and bond markets. The Fund invests in publicly
traded common stocks, other equity-type securities, medium- to long-term debt
securities with varying maturities and money market instruments.
For the quarter ended September 30, 2011, the Balanced Fund experienced a total
return, net of expenses, of -7.61%. By comparison, a combination of the Russell
1000 Index and the Barclays Capital U.S. Aggregate Bond Index, weighted 60%/40%,
respectively, produced an investment record of -7.56% for the same period. For
the nine month period ended September 30, 2011, the Balanced Fund experienced a
total return, net of expenses, of -3.00%, as compared to an investment record of
-3.00% for the benchmark for the period. The Russell 1000 Index and the Barclays
Capital U.S. Aggregate Bond Index do not include an allowance for the fees that
an investor would pay for investing in the securities that comprise the Indices
or for fund expenses.
For the quarter ended September 30, 2011, the equity segment of the Balanced
Fund, which is invested through the Large Cap Equity Fund, outperformed the
Russell 1000 Index. For the nine month period ended September 30, 2011, the
equity segment of the Balanced Fund, which is invested through the Large Cap
Equity Fund, outperformed the Russell 1000 Index. Please refer to the discussion
of the investment performance of the Large Cap Equity Fund for such periods,
above, for a description of the performance of the equity segment of the
Balanced Fund for such periods.
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For the quarter ended September 30, 2011, the debt segment of the Balanced Fund,
which is invested through the Bond Core Plus Fund, underperformed the Barclays
Capital U.S. Aggregate Bond Index. For the nine month period ended September 30,
2011, the debt segment of the Balanced Fund, which is invested through the Bond
Core Plus Fund, underperformed the Barclays Capital U.S. Aggregate Bond Index.
Please refer to a discussion of the investment performance of the Bond Core Plus
Fund for such periods, above, for a description of the performance of the debt
segment of the Balanced Fund for such periods.
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