global index management index bulletin

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1 global index management index bulletin second Quarter 2012 Summary In this issue: Seeking Low Volatility Index Construction Matters MSCI s Annual Market Classification Review A Missing Opportunity China A-Shares MSCI Semi-Annual Review Russell Reconstitution 2012 Fixed Income Index Update Moody s Downgrade of Italy & Introduction of ESG Index Series Second Quarter 2012 Global Performance Summary Northern Trust Global Investments 50 South La Salle Street Chicago, Illinois Greg Behar Investment Strategist Global Index Management Alain Cubeles Investment Strategist Global Index Management Stefanie Hest Investment Strategist Global Index Management Keith Carroll Portfolio Manager Global Index Management Steven Santiccioli Portfolio Manager Global Index Management Teresa Leung Product Management Global Index Management David Alongi, CFA Portfolio Manager Fixed Income Kristen Lewis Product Management Fixed Income Seeking Low Volatility: Index Construction Matters Investors search for greater risk-adjusted returns and the growing acceptance of indexing has led to new, alternatively weighted indexes that aim to capture specific exposures. One of these is the reduction of volatility. Investors examining the various low-volatility indexes and products need to understand the potential applications and various investment implications within their portfolios. While the objectives index providers have sought in constructing low-volatility, risk-weighted, or minimum-volatility indexes are similar, the index vendors have taken different approaches to construct these indexes. As a result, low-volatility indexes display different characteristics, which invariably leads to differences in volatility and returns across various indexes. Comparing returns for low-volatility indexes can be challenging because the capitalizationweighted benchmark is unique for each index family. Therefore, performance differences around low-volatility indexes can arise from two distinct sources: different criteria each vendor uses to construct a low-volatility index and simply from the different construction rules each vendor uses to create its parent index. At a high level, we analyzed the characteristics of three of the many low-volatility index series: MSCI Minimum Volatility MSCI Risk Weighted S&P Low Volatility As the table details, the most critical difference among these indexes is in the construction optimized versus heuristic. MSCI Minimum Volatility uses an optimization approach to target the lowest level of portfolio variance, subject to different constraints in order to keep characteristics in line with the corresponding cap-weighted index. The optimization constrains the index at the security, sector, country and risk-factor levels relative to the parent cap-weighted index. In addition, turnover is capped at 10% for each rebalance. Utilizing a different methodology, MSCI Risk Weighted and S&P Low Volatility indexes weight securities using the inverse of their volatility. The S&P strategy excludes more-volatile stocks, while the MSCI Risk Weighted approach includes all stocks in the universe. In both cases, these indexes weight the least-volatile names the highest and the most-volatile names the lowest. While northerntrust.com Global Index Management Index Bulletin Update 1 of 12

2 The most critical difference among these indexes is in the construction optimized versus heuristic. the construction approaches for the MSCI Risk Weighted and S&P are transparent and designed to meet a low-volatility objective, they do not take advantage of correlations between individual stocks, which could potentially drive volatility even lower by capitalizing on diversification from securities that have lower correlations to each other. The MSCI Minimum Volatility approach may not be as transparent, but the optimization process factors in different risk-related aspects, which may lead to an overall more risk-efficient portfolio. We would note that the lower number of stocks relative to the cap-weighted parent index tends to result in higher tracking error. index series comparison MSCI Minimum Volatility MSCI Risk Weighted S&P Low Volatility Construction Optimized Heuristic Heuristic Weighting Minimize the index s absolute volatility, subject to constraints Securities weighted based on the inverse of their variance Securities weighted based on the inverse of their standard deviation n Individual stocks: Lower of 1.5% or 20x the cap-weight; Min 5bps n Country and sector: +/ 5% or 3x the cap-weight n +/ 0.25 standard deviations relative to Barra risk factors of parent index, except for volatility factor n Turnover: Maximum 10% one-way turnover per rebalance No constraints No constraints Constraints Security Selection Holds a subset of securities in parent index Includes all securities in parent index Includes least-volatile stocks (100 for S&P 500, 200 for developed markets) Rebalance Semi Annually (May & November) Semi Annually (May & November) Quarterly (Mar, Jun, Sep & Dec) Market Coverage Developed and emerging markets Developed and emerging markets Developed and emerging markets Although this overview only considers the more basic elements of index construction, it highlights the need for investors to thoroughly understand the characteristics of any index strategy they are considering so they recognize the factors that drive performance and can make educated investment decisions. For an example of recent performance of low volatility indexes, see the Alternatively Weighted Index Performance table on page 9 of this bulletin. northerntrust.com Global Index Management Index Bulletin Update 2 of 12

3 Korea and Taiwan will remain classified as emerging markets and will remain under review for potential reclassification next year. MSCI will continue to classify both Qatar and UAE as frontier market countries. MSCI will add Greece to the list of countries for potential reclassification to emerging market. MSCI s ANNUAL MARKET CLASSIFICATION REVIEW Every June, MSCI publishes the results of its annual market classification analysis after its discussion with the global investment community. The findings note potential market reclassifications for the countries under review and potentially add any new countries to the list considered for review for the coming year. Potential Reclassification to Developed Markets MSCI focused its review on Korea and Taiwan and determined that both countries will remain classified as emerging markets and will remain under review for potential reclassification next year. Developed markets are characterized by highly efficient and mostly standardized operating practices. Korea and Taiwan, however, exhibit operational inefficiency related to the lack of currency convertibility, absence of an offshore currency market and absence of currency trading outside of local market hours in both nations. Potential Reclassification to Emerging Markets Similar to its December 2011 announcement, MSCI will continue to classify both Qatar and UAE as frontier market countries but will continue to consider both countries for reclassification as part of its 2013 annual review. While both countries were under review in June 2011, MSCI extended the review of both Qatar and UAE to December 2011 to allow institutional investors more time to assess the recent changes to the operational frameworks in these markets, including implementation of a new deliver-versus-payment model. MSCI highlighted the positive developments on the Qatari equity markets; however, stringent foreign ownership limits of Qatari companies remain a concern. New Countries Under Review MSCI will add Greece to the list of countries for potential reclassification to emerging market. The MSCI Greece index currently consists of two index constituents, no longer keeping the country in line with the developed market size requirements. As of June 30, the weight of MSCI Greece in the MSCI World index was 0.02%. In additional to the size of the market, Greece is still the only country within the developed market where in-kind transfers and off-exchange transactions are prohibited. Other operational efficiencies measures such as short selling and stock lending are not well-established. MSCI will review Morocco as a potential country to be considered for reclassification to the Frontier Market index, as it currently meets the size and liquidity requirement. However, the country has only three constituents, so the liquidity will be monitored for the 2013 review. A missing opportunity china a-shares As part of the annual country classification review, MSCI noted a few important changes to the accessibility of the market in China. In December 2011, a renminbi qualified foreign institutional investor (RQFII) was introduced, allowing both institutional and retail investors to gain additional exposure to the China A market. The China Securities Regulatory Commission (CSRC) in April of this year also increased the quotas applied to the qualified foreign institutional investors (QFII) and RQFII programs. While the institutional investment community is encouraged by the recent enhancements to the investability in China, MSCI will continue to monitor the improvements in northerntrust.com Global Index Management Index Bulletin Update 3 of 12

4 accessibility before it considers adding the China A share market to the country review list and the possibility of adding the market to the global index series. A-shares are shares of Chinese incorporated companies trading on the Shanghai or Shenzhen stock exchanges which are quoted in Chinese renminbi and only available for mainland residents or international investors under the QFII program. The China A-shares, as represented by the CSI 300 index, tend to have low correlation historically against other world indexes such as MSCI World, MSCI Emerging Market and S&P 500. Understanding the China A Market International investors can gain access to the Chinese economy by obtaining exposure across A- shares, B-shares, H-shares and other classes of stock relating to Chinese-centric companies with offshore listings. In mainland China, there are two stock exchanges Shanghai and Shenzhen. A-shares are shares of Chinese incorporated companies trading on the Shanghai or Shenzhen stock exchanges which are quoted in Chinese renminbi and only available for mainland residents or international investors under the Qualified Foreign Institutional Investors (QFII) program. Qualified institutional investors can access the A-shares market by applying for their own QFII license or through an asset manager that is a license holder and has been granted a quota for local investment. B-shares are also listed on the Shanghai or Shenzhen stock exchange and are denominated in either U.S. or Hong Kong dollars. Trading B-shares is restricted to non-mainland residents and mainland residents with legal foreign currency accounts. Investors can also gain exposure in China by investing in H-shares and red chips, which are traded on the Hong Kong Stock Exchange and are quoted in Hong Kong dollars. Any asset allocation seeking comprehensive exposure to China will require an allocation to China A-shares. However, foreign investors are only allowed to purchase China A-shares through a quota program. Currently, investors who do not have the quota can seek to gain exposure through table 1: Market Cap Breakdown All China Market Current Base Case Full-open Case China A-Shares 78% 80% 86% HK-listed China (H+Red) Ratio (onshore/ offshore) 22% 20% 14% 3.5:1 4.0:1 6.1:1 Source: WFE, Bloomberg, FactSet, MSCI, Goldman Sachs Global ECS Research estimates Table 2: Correlation of China A-Share to Global Indexes Index CSI 300 CSI Correlation of China A-share to Global Indexes S&P 500 S&P MSCI World MSCI World MSCI EM MSCI EM Hang Seng Hang Seng Source: Bloomberg (for the period of 31 May 07 to 31 May 12) the purchase of H shares or red-chips which only represent 22% of the total China market capitalization, as Table 1 shows. Hence, 78% of China exposure hasn t been captured by the international investor community. It is expected that the market capitalization of China A-shares will increase even further in the future. By 2020, this percentage is estimated to be up to 86% assuming the Chinese economy is fully liberalized. If not, the China A-Shares will still make up of 80% of China s total market capitalization in Year 2020 (Table 1). The Chinese A-shares present a favorable diversification opportunity for international investors. As northerntrust.com Global Index Management Index Bulletin Update 4 of 10

5 If CSI300 were added to the MSCI Emerging Market, total Chinese securities would make up 33% as opposed to the existing weights of 18% in the MSCI emerging market index. illustrated in Table 2, the China A-shares, as represented by the CSI 300 index, tend to have low correlation historically against other world indexes such as MSCI World, MSCI Emerging Market and S&P 500. This is mainly a result of the capital control the Chinese government imposed that prevents Chinese A-shares from being included in the world indexes. The CSI300 consists of 300 stocks with the largest market cap and liquidity from the A-share universe traded on the Shanghai and Shenzhen stock exchanges. If China A-shares were included in the MSCI All Country World index, they would account for 3% of the investible universe. Similarly, if CSI300 were added to the MSCI emerging market, total Chinese securities would make up 33% as opposed to the existing weights of 18% in the MSCI Emerging Market index. Hence, if investors seek access to the A-share opportunity set, they can meaningfully increase their investment opportunity set within their portfolios. MSCI SEMI-ANNUAL REVIEW May 2012 The objective of the MSCI semi-annual index review is to reflect changes in market structure due to performance, initial public offerings (IPOs), de-listings and corporate events. Based on the new market size-segment cutoffs, current constituents were re-weighted and newly eligible companies were identified, resulting in additions, deletions, float and share changes to the indexes effective at the close on Thursday, May 31, Two-way turnover was 2.46% versus 1.72% in November In the Emerging Markets Index, 23 securities were added and 20 deleted, resulting in a 0.77% increase in market capitalization. Two-way index turnover was 4.42% versus 3.28% in November MSCI Developed World Summary Based on the review, 44 companies were added to the World Index, while 25 were deleted. Of the additions, 33 companies were migrations from the Developed World Small Cap index. Two-way turnover was 2.46% versus 1.72% in November Of the 44 additions, 25 were in the North American region, 14 were in Europe and five were in Asia-Pacific. Of the 25 deletions, four were in the North American region, 18 were in Europe and three were in Asia-Pacific. The largest weight increase by country was France (+0.065%) and the largest decrease was Japan ( 0.048%). On a sector basis, real estate had the largest increase (+0.118%) while energy had the largest decline ( 0.087%). On a net basis, the number of constituents in the MSCI World Index increased by 19 names to 1,629 securities with a market capitalization of US$24.1 trillion. The MSCI World Small Cap index saw 163 security additions and 219 deletions, resulting in one-way index turnover of 5.88% versus 2.9% in November Of the 163 additions, 92 were in North America, 35 in Asia-Pacific and 36 in Europe. Of the 219 deletions, 104 were in North America, 44 in Asia-Pacific and 71 in Europe. The largest country increase in weight was Canada (+0.36%) and the largest decrease was the United States ( 0.90%). On a net basis, the number of constituents in the MSCI World Small Cap index decreased by 56 names to 4,448 securities with a market capitalization of US$3.65 trillion. MSCI Emerging Market Summary In the Emerging Markets index, 23 securities were added and 20 deleted, resulting in a 0.77% increase in market capitalization. Two-way index turnover was 4.42% versus 3.28% in November Of the 23 additions, 11 were from the Asia-Pacific region, while nine were from Latin America and three from Europe and the Middle East. Of the 20 deletions, 10 were from the Asia-Pacific region, while seven were from Latin America and three from Europe and the Middle East. The largest country increase in weight was China (+0.25%) and the largest decreases were in Mexico ( 0.20%) and India ( 0.20%). On a sector basis, banks had the largest increase northerntrust.com Global Index Management Index Bulletin Update 5 of 10

6 (+0.269%) while telecommunications had the largest decline ( 0.289%). As a result of the review, the number of constituents in the emerging markets index increased by three names to 820 securities, with a new market capitalization of US$3.6 trillion. There were 79 security additions and 140 deletions from the Emerging Markets Small Cap index, resulting in one-way index turnover of 7.65%. Of the 79 additions, 66 were in the emerging markets Asia, four in Latin America and nine in Europe and the Middle East. Of the 140 deletions, 108 were in the emerging markets Asia, nine in Latin America and 23 in Europe and the Middle East. The largest country increase in weight was Malaysia (+0.50%) and the largest decrease was Thailand ( 0.60%). On a net basis, the number of constituents in the MSCI Emerging Markets Small Cap index decreased by 61 names to 1,825 securities with a new market capitalization of US$466 billion. As enhancements to the Russell methodology were made over the last few years, turnover stayed fairly steady. Figure 1. Russell Index Turnover Index RUSSELL RECONSTITUtION 2012 The annual Russell reconstitution occurred at the close of trading on June 22, Over the last few years, Russell has made methodology changes to the index series to reduce the turnover at the annual reconstitution. Such changes included adding IPOs on a quarterly basis, implementing a buffer between the Russell 1000 and Russell 2000 and banding for the style indexes. This year Russell made one rule change that affected the structure of companies in the index rather than the composition of the index. Real Estate Investment Trusts (REITs) and Publicly- Traded Partnerships that generate Unrelated Business Taxable Income (UBTI) would no longer be eligible for inclusion. As a direct result of this rule change, several companies changed their company structure and filings to avoid being removed from the index. While preliminary reviews identified anywhere from eight to 12 companies that generated UBTI within the index, Russell only removed two companies at the final review The most noteworthy addition to the Russell index this year was Facebook, as it was the largest company added to the Russell indexes at a weight of 0.09% in the Russell 1000 index. While 2012 Turnover 2011 Turnover 2010 Turnover 2009 Turnover Russell % 4.1% 7.4% 3.3% Russell % 4.5% 7.8% 3.9% Russell 1000 Growth 30.1% 32.5% 46.2% 36.3% Russell 1000 Value 29.7% 33.0% 46.1% 39.8% the IPO gained much attention when it debuted May 18, 2012, average trading volumes started to decline heading into the Russell rebalance. The stock price fell 28.68% from its IPO price of $38.00 to $27.10 on June 8, 2012, the Russell announcement date. Facebook rose to $33.05 on the effective date of the rebalance, a return of 21.96% from announcement, but still a loss from the IPO price in May. This increase from the announcement date was a primary contributor in the return of the Russell 1000 additions. Russell % 19.1% 19.0% 24.8% Russell 2000 Growth 48.7% 51.9% 55.5% 58.8% Russell 2000 Value 42.7% 42.0% 47.9% 54.0% Russell SC Completeness 9.1% 12.1% 21.2% 7.8% Source: Bloomberg, JP Morgan, Northern Trust Turnover summary As enhancements to the Russell methodology were made over the last few years, turnover stayed fairly steady. Figure 1 highlights the turnover over the last few years. The Russell 1000 turnover in 2010 was larger than normal due to the addition of Berkshire Hathaway and several Benefit Driven Incorporation companies. northerntrust.com Global Index Management Index Bulletin Update 6 of 12

7 Figure 2. Russell Index Performance Basket # of Stocks Return 2012 Return 2011 Return 2010 Return 2009 R1 Additions % 1.36% 2.43% 3.27% R1 Deletions % 1.68% 0.44% 7.81% R2 Additions % 1.44% 1.82% 8.80% R2 Deletions % 1.07% 0.49% 13.20% R1 -> R % 1.65% 1.30% 7.86% R2 -> R % 0.92% 0.21% 5.24% Source: Bloomberg, JP Morgan, Northern Trust Figure 3. Russell 1000 Index Performance (Effective and Announcement Date) Basket 1- day return Direction Return since 6/8 R1 Adds 2.73% 15.30% R1 Deletes 0.56% 5.88% R % 0.53% Direction R1 Add R % Right 14.77% Right R1 Delete R % Right 6.41% Right R1 Add R1 Delete 3.29% Right 21.18% Right Source: Bloomberg, JP Morgan, Northern Trust Figure 4. Russell 2000 Index Performance (Effective and Announcement Date) Basket 1- day return Direction Return since 6/8 R2 Adds 0.66% 1.36% R2 Deletes 0.18% 4.16% R % 0.78% Direction R2 Add R % Wrong 0.59% Right Performance The performance on the effective date June 22, 2012, was mixed between the Russell 1000 and Russell Performance of the additions to the Russell 1000 was driven primarily by the addition of Facebook. The two deletions from the Russell 1000 were down on the day, so the overall performance was considered right way with the additions outperforming the deletions. The Russell 2000 performance was wrong way on the effective date, with Russell 2000 additions having a larger drop in performance than the deletions, which were also down that day. Similar to the rebalance trade in 2011, the wrong way performance could indicate that interest in the Russell reconstitution continued growing, which could imply that market participants in the Russell 2000 reconstitution extended beyond that of the index managers. Beyond the effective day performance, the performance of both the Russell 1000 and Russell 2000 changes from the announcement was right way, with expected index buys outperforming the benchmark and the index sells underperforming the benchmark. Early positioning of index managers may account for some of this performance. Non-index participants are also a likely source of this performance. The non-index participants unwinding these positions in the Russell 2000 index is one reason the effective date performance went wrong way. Details of the performance are exhibited in Figures 3 and 4. As the marketplace and participant interest continue to evolve, developing the appropriate implementation strategy is a crucial factor in the success or failure of the annual Russell rebalance. R2 Delete R % Right 4.93% Right R2 Add R2 Delete 0.48% Wrong 5.52% Right Source: Bloomberg, JP Morgan, Northern Trust northerntrust.com Global Index Management Index Bulletin Update 7 of 12

8 FIXED INCOME INDEX UDPATE Italy government inflationlinked bonds will no longer be eligible for the flagship Barclays WGILB and EGILB index families, and will be removed at July month-end. Moody s Downgrade of Italy On July 13, 2012, Moody s downgraded the sovereign rating of Italy to Baa2, from A3. Following this downgrade, Italy government inflation-linked bonds will no longer be eligible for the flagship Barclays World Government Inflation-Linked (WGILB) and Barclays Euro Government Inflation-Linked (EGILB) indexes. Therefore, Italy will be removed from the affected indexes at July s month-end rebalancing. To merit inclusion in the flagship inflation-linked indexes, the index credit rating (which is determined by the middle rating methodology) must be at least A3/A- for eurozone markets. Italy sovereign bonds now have an index rating of Baa1, according to the middle rating methodology. Summary of key points: Italy government inflation-linked bonds will no longer be eligible for the flagship WGILB and EGILB index families, and will be removed at July month-end. Italy government inflation-linked bonds will also be removed from composite indexes subsets of the WGILB, for example Euro + Japan + UK + US government inflation-linked bond index. Italy s weight in the WGILB is 5.9% and 29.5% in the EGILB, as of July 12, 2012, close. Italy inflation-linked government bonds will continue to be eligible for the Global Inflation- Linked and Euro-Inflation-Linked (Series-L) indexes. Note that the Series-L inflation-linked family uses a lower minimum credit threshold of Baa3/BBB- or higher using the middle rating methodology. Therefore, Italy s recent downgrade to Baa2 by Moody s will not affect eligibility for the Series-L inflation-linked indexes. Nominal Treasury/Government indexes are unaffected by the Moody s downgrade, as the middle rating remains investment grade. The Euro Treasury, Euro Government and Euro Term (Series-B) indexes as well as the flagship Aggregate indexes all require a minimum credit rating of Baa3/BBB or higher, using the middle rating to merit inclusion. Barclays and MSCI Inc. announced a partnership agreement to create a family of co-branded Environmental, Social & Governance (ESG) fixed income indexes Introduction of ESG Index Series In May, Barclays and MSCI Inc., announced a partnership agreement to create a family of co-branded Environmental, Social & Governance (ESG) fixed income indexes to help institutional investors apply ESG investment strategies to their bond portfolios. The ESG fixed income indexes will be co-branded and independently marketed by both firms. These indexes will be aimed at asset owners and managers with ESG commitments, such as UN PRI (United Nations Principles for Responsible Investing) signatories, who have exposure to fixed income investments that require a benchmark which integrates ESG factors. MSCI and Barclays plan to meet with asset owners, asset managers and investment consultants to understand their plans for integrating ESG factors into their investment policies. The consultation process is intended to ascertain which ESG strategies are most relevant to investors and to define the methodologies of the new indexes. northerntrust.com Global Index Management Index Bulletin Update 8 of 12

9 Alternatively Weighted Index Performance Total Return % (USD) as of 6/30/12 QTD YTD 1 YR Volatility/Risk/Risk+Factor U.S. Indexes S&P 500 Low Volatility Index 3.66% 8.07% 14.26% MSCI U.S. Minimum Volatility Index 2.48% 8.79% 12.45% Russell 3000 Defensive Index 0.31% 8.76% 10.00% MSCI U.S. Risk Weighted 1.04% 8.12% 4.98% Global Indexes MSCI ACWI Minimum Volatility Index 0.48% 6.07% 4.72% MSCI ACWI Risk Weighted Index 4.72% 5.42% 6.11% Equal Weight/Alternatively Weighted U.S. Indexes S&P 500 Equal Weight Index 4.04% 8.08% 0.12% Russell 1000 Equal Weight Index 5.05% 6.07% 3.34% Global Indexes MSCI ACWI Equal Weighted Index 7.54% 5.28% 12.47% MSCI ACWI GDP Weighted Index 6.51% 5.15% 11.64% Dividend U.S. Indexes S&P 500 Dividend Aristocrats Index 0.67% 8.91% 10.30% Dow Jones U.S. Select Dividend Index 1.41% 6.54% 10.50% MSCI U.S. Investable Market High Dividend Yield 0.76% 6.77% 10.08% FTSE U.S. High Dividend Yield Index 0.12% 8.07% 10.44% Global Indexes S&P Global Dividend Opportunities Index 6.22% 1.28% 12.63% Dow Jones Global Select Dividend Index 2.86% 4.47% 5.63% MSCI World High Dividend Yield 1.70% 3.33% 1.58% Fundamental U.S. Indexes FTSE RAFI U.S Index 3.2% 7.7% 2.0% Russell Fundamental U.S. 3.61% 7.05% 0.94% MSCI U.S. Value Weighted Index 4.12% 7.96% 1.95% Global Indexes FTSE RAFI All-World 3000 Index 6.90% 3.08% 10.69% FTSE RAFI Developed 1000 Index 6.39% 3.16% 10.02% Russell Fundamental Global 7.52% 2.62% 10.72% MSCI World Value Weighted Index 7.08% 3.92% 9.71% Source: Dow Jones, FTSE, Russell, MSCI, S&P w northerntrust.com Global Index Management Index Bulletin Update 9 of 12

10 2Q 2012 Performance summary as of june 30, 2012 QTD U.S. Dollar Return Net Total Return % Trailing 1-Year U.S. Equities S&P S&P S&P Russell Russell Russell Russell 3000 Growth Russell 3000 Value Dow Jones Total Market Index Global Indexes MSCI World MSCI EAFE MSCI Europe ex. UK MSCI United Kingdom MSCI Asia Pacific ex. Japan MSCI Japan MSCI Emerging Markets MSCI ACWI MSCI ACWI ex. US MSCI ACWI ex. US IMI MSCI Developed Market ex. US Small Cap MSCI Emerging Market Small Cap S&P Frontier Market Extended Alternative Benchmarks FTSE EPRA/NAREIT Global Index Dow Jones-UBS Commodity Index U.S. Fixed Income BC Aggregate BC Govt/Credit BC Govt/Credit Intermediate BC High Yield 2% Cap BC TIPS BC 1- to 3-Month T-Bills Global Fixed Income Citigroup Euro Govt Bond Citigroup World Govt Bond Source: Northern Trust, MSCI, S&P, Dow Jones, Barclays northerntrust.com Global Index Management Index Bulletin Update 10 of 12

11 FOR MORE INFORMATION For additional information please contact the Global Index Team northerntrust.com Global Index Management Index Bulletin Update 11 of 12

12 Important Information There are risks involved in investing including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and models do not promise any level of performance or guarantee against loss of principal. This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions expressed are current as of the date appearing in this material only and are subject to change without notice. This report is provided for informational purposes only and does not constitute investment advice or a recommendation of any security or product described herein. Indices and trademarks are the property of their respective owners. All rights reserved. Information intended for use with institutional investors only. Past performance is not necessarily a guide to the future. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Index performance is based upon information provided by the index providers. Indexes and trademarks are the property of their respective owners, all rights reserved. There are risks involved with investing, including possible loss of principal. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor s individual circumstances. Opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed. Asset management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Ltd., Northern Trust Global Investments Japan, K.K., The Northern Trust Company of Connecticut and its subsidiaries, including NT Global Advisors, Inc., and investment personnel of The Northern Trust Company. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a branch in China regulated by the China Banking Regulatory Commission. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. In Singapore, Northern Trust Global Investments Limited (NTGIL), Northern Trust Investments, Inc. and Northern Trust Company of Connecticut are exempt from the requirement to hold a Financial Adviser s License under the Financial Advisers Act and a Capital Markets Services License under the Securities and Futures Act with respect to the provision of financial services. In Australia, NTGIL is exempt from the requirement to hold an Australian Financial Services License under the Corporations Act 2001 in respect to the provision of financial services. NTGIL is regulated by the FSA under U.K. laws, which differ from Australian Laws. northern trust 2012 northerntrust.com Global Index Management Index Bulletin Update 12 of 12 Q (8/12)