Third Quarter 2009

In the third quarter of 2009, Czech, Hungarian, Turkish and Polish equity indices outperformed the MSCI Emerging Europe 10/40 index, which rose 31.57 percent in U.S. dollar terms, while the Russian equity market underperformed. The best-performing sectors were financials, consumer discretionary, and materials, while energy, utilities, and healthcare were among the laggards.

Strengths

• The fund was overweight industrials, and they delivered a strong performance during the quarter on a rebound in economic activity.
• Real estate companies came off distressed valuation levels on the signs of renewed activity in the sector and outperformed the broader market, contributing to the performance of the fund.
• Industrial confidence in the Czech Republic improved for the seventh consecutive month in September, continuing to provide a more positive outlook. Order book levels show an increase in industrial activity, supported by an improvement in Germany.
• Russian oil production reached 10 million barrels per day, surpassing that of Saudi Arabia, for the top spot in the world.

Weaknesses

• Being underweight financials detracted from the performance of the fund. During the quarter, financials continued to outperform, even after having reached premium valuation levels.
• The fund was overweight industrials, which underperformed during the quarter amid investor uncertainty whether pick-up in economic activity was a sign of genuine recovery or a temporary effect of restocking.
• Large cap names in the energy sector underperformed, despite positive fundamentals.

Opportunities

• Improved relations between Russia and the U.S. may result in U.S. investors’ improved perceptions of the balance of risks and opportunities in Russia’s stock market.
• The resolution of the Alfa-Telenor stand-off is an important breakthrough in the investment climate, as the conflict was seen as one of the key problems in the sphere of Russia’s corporate governance.

Threats

• German Chancellor Angela Merkel's Christian Democrats and the Free Democrats, which are in coalition after the recent election, are both hostile to Turkey's accession to the European Union.
• The Czech Republic may be facing negative export growth and narrowing trade surplus next year, as the effects of car incentives in Germany, which boost Czech auto production, disappear.

Past performance does not guarantee future results.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The MSCI Emerging Markets Europe 10/40 Index (Net Total Return) is a free float-adjusted market capitalization index that is designed to measure equity performance in the emerging market countries of Europe (Czech Republic, Hungary, Poland, Russia, and Turkey). The index is calculated on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax). The index is periodically rebalanced relative to the constituents' weights in the parent index.

Holdings in the Eastern European Fund as a percentage of net assets as of 9/30/09: Alfa-Telenor 0.00%