Market Commentary - 4th Quarter 2007

 Frederic M. Smoak, CFA Euclid Investment Advisory, LLC

 Jobs, jobs, jobs

 The past is prologue for the future, but sometimes the lesson can be hard to discern. There can be cross-currents, conflicting theories, tensions that confuse the outlook for the future and create uncertainty in the directions of the markets. In the past, the US has been the ‘engine’ pulling world economic growth. Our consumerism and imports have allowed many countries to develop their economies and attain a more prosperous life for their citizens. This has been good for the world economy, but was only possible because the dollar was strong. Now that the dollar has fallen, the US economy should be exporting more, and meeting more internal demand from our own resources. If that produces enough jobs to offset the loses, the economy and the markets can continue to make gains Regardless of the near future, a consistent policy for investing remains soundest course to secure financial independence. The one year returns for NERT’s model portfolios are very good – the longer periods equally so. Past performance cannot guarantee future returns, but consistent, well-designed program is attainable through NERT by any participant.

 Fixed income had an excellent quarter as investors reassessed the likelihood of Fed easing. The odds of a recession have risen, and with them, the odds of a Fed easing. Money center banks traditionally fund much of their activity by inter-bank borrowing. The sub-prime mess continues to roil the credit markets requiring the direct injection of funds by the central bank. Corporate debt continues to lag, but this is normal. Credit quality weakens as business activity slows. Spreads widen to reflect the increasing chance of default. But this is also an opportunity to pick up good companies cheaply

 The 4th quarter completed the reversal of fortune the markets had been experiencing. Growth was by far the better place to be, and large stocks outperformed small. Still, this was not a market of sectors but of individual stocks. The tech sector’s performance was driven by Google, Intel, and Apple – not a broad based rise. Going forward, individual company prices will be even more determined by their performance and potential. The economy is expected to remain weak, but some companies will continue to grow, either through exports, taking market share, or because their niche grows. In this environment, large companies with better access to capital and more resources should outperform their smaller competitors. NERT’s equity offerings are broadly diversified to take advantage of opportunities where they exist. The performance of the model portfolios this year shows how investors can profit from even stressful times.

 The NERT models are designed as diversified portfolios to capture the major market sectors and a variety of management styles. They are offered to simplify typical participant needs for diversified, risk-adjusted portfolios. The models are rebalanced on a regular basis to maintain a consistent risk posture and asset allocation. Investors should ascertain that the risk inherent in the portfolio is appropriate for their needs. When you compare the model portfolios to the indices, you can see the benefits of diversification and rebalancing in both return AND risk. The NERT model portfolios are designed to allow any investor to participate in proven ways to reduce risk and improve returns. Recent returns demonstrate the importance of rebalancing and diversification.

	QTR	1 Year	3 Years
Returns	0.0%	0.3%	0.3%
Russell 1000 Growth	- 0.0%	0.1%	0.1%

Artisan Partners International Series I - Artisan Partners International Series I had another good quarter. Many other country’s markets were affected as ours were, but Artisan had a very good performance in a difficult environment.

	QTR	1 Year	3 Years
Returns	0.1%	0.3%	0.2%
MSCI EAFE	- 0.0%	0.1%	0.2%

PIMCO Bond Fund (PFOAX) - The PIMCO Bond Fund (PFOAX) seeks the maximum total return from investing in fixed income securities outside the US that is consistent with capital preservation. The fund’s foreign currency is hedged so returns are dependent on interest rate and monetary policy differentials.

	QTR	1 Year	3 Years
Returns	0.0%	0.0%	0.0%
Merrill Lynch Global Broad Market	0.0%	0.1%	0.0%

Vanguard S&P 500 Index Fund (VFINX) - The Vanguard S&P 500 Index Fund (VFINX) mimics the performance of the large-cap market and seeks to hold transaction cost and fees to a minimum. This fund is a core holding of NERT providing low-cost exposure to the large-cap market.

	QTR	1 Year	3 Years
Returns	- 0.0%	0.1%	0.1%
S&P 500	- 0.0%	0.1%	0.1%

Vanguard Wellington Fund (VWELX) - The Vanguard Wellington Fund (VWELX) is balanced fund owning both domestic equities and bonds. Wellington’s diversification worked well as bond performance improved as stocks declined.

	QTR	1 Year	3 Years
Returns	- 0.0%	0.1%	0.1%
60% S&P 500/40% Lehman Aggregagte	- 0.0%	0.1%	0.1%

Wells Fargo Advantage Corporate Bond Fund(STCBX) - The Wells Fargo Corporate Bond Fund (STCBX) invests in investment grade, non-government bonds. Corporate bonds, which had benefited from closing and historically tight spreads have lagged this year as the sub-prime debacle highlights credit risk again. This fund has minimal, if any, exposure to sub-prime mortgages.

	QTR	1 Year	3 Years
Returns	0.0%	0.0%	0.0%
Lehman Aggregate	0.0%	0.1%	0.0%

Wells Fargo Advantage Securities Fund (STVSX) - The Wells Fargo Government Bond Fund (STVSX) continues to invest in securities issues by the US government or its agencies. This sector rallied during the quarter and into the new year as the weak economy pressures the Fed to cut rates.

	QTR	1 Year	3 Years
Returns	0.0%	0.1%	0.0%
Lehman Aggregate	0.0%	0.1%	0.0%

Principal Real Estate Fund - Euclid continues to recommend all participants look carefully at this fund as way to diversify, reduce risk and improve portfolio performance. Real estate is an integral part of many institutional accounts today. While this fund has minimal exposure to sub-prime, a slowing economy will affect real estate returns adversely.

	QTR	1 Year	3 Years
Returns	0.0%	0.1%	0.2%
	0.0%	0.0%	0.0%

FBR Small Cap Fund - FBR Focus (FBRVX) provides participants exposure to mid/small cap companies in both the growth and value sectors. Performance of this sector is far more volatile than larger stocks. Uncertain conditions often hit smaller companies harder.

	QTR	1 Year	3 Years
Returns	- 0.0%	0.0%	0.1%
Russell 2000	- 0.0%	- 0.0%	0.1%

Pioneer Cullen Value Fund (CVFCX) - Pioneer Cullen (CVFCX) invests in mid-cap as well as larger companies with a value orientation. This was a hard quarter and year for this sector, but Cullen has done a good job of negotiating a difficult market to give positive performance.

	QTR	1 Year	3 Years
Returns	- 0.0%	0.1%	0.2%
Russell 1000 Value	- 0.1%	- 0.0%	0.1%