Fund Descriptions
International Value Fund

This Fund is managed by RE Advisers Corporation and subadvised by Mercator Asset Management, L.P. Mercator manages international stock accounts for numerous corporate and public pension plans. Mercator's investment approach is to identify attractive, undervalued securities traded in stock markets outside the U.S. that have good earnings prospects.

Portfolio manager Jim Chaney explains, “Mercator uses screens based on historical data and segregates several hundred stocks in its proprietary database. The stocks in the universe are then ranked from most to least attractive. The most highly attractive stocks would then be subject to fundamental analysis, which seeks to validate projected financial data and considers company, industry, and macro factors.”

Under normal market conditions, at least 80% of the Fund's assets will be invested in at least three foreign countries. While the Fund expects it will invest primarily in equity securities, Mercator might also invest the Fund's assets in fixed-income securities and derivatives, and might invest at times in a relatively limited number of issuers, thereby subjecting the Fund to greater risk than if it would have held a greater number of holdings.

The Fund is suitable for those who want an investment that has the potential to deliver higher returns and have time to recover from a possible setback in the stock market. Also, investors in this Fund should be aware that international investing may involve special risks, such as currency risk and political risk.

Performance

The tables below show the Fund’s average annual and year-to-date total returns for various holding periods compared to its benchmark index. An index is a collection of securities intended to represent some slice of the total securities market.

The bar chart shows the Fund's annual return in each of the last 10 years or for each year since the Fund's inception. This indicates how widely performance has varied year-by-year.

International Value Fund Historical Annual Total Returns

The total returns shown above represent past performance which does not guarantee future results. Investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Investing in international stocks poses special risks, such as currency fluctuations and the fact that international companies have different accounting standards and financial disclosures than are required for U.S.-based companies. Performance information for the International Value Fund (formerly the International Stock Index Fund) reflects its investment experience in the State Street MSCI ® EAFE ® Index Portfolio from its inception through October 16, 2005, in the Vanguard Developed Markets Index Fund from October 17, 2005 to June 9, 2006, and as an actively managed fund subadvised by Mercator Asset Management from June 12, 2006, to period end.

Portfolio Composition

The following tables show how the International Value Fund is diversified and what its top holdings are.

International Value Fund Country Diversification
On 09/30/08  On 06/30/08 Japan 20.7% 18.3% United Kingdom 18.0% 17.5% Switzerland  12.0% 10.6% France  9.0%   7.8% Germany   7.3%  7.7% Spain  6.5%  6.3% Italy   6.1%   7.1% Norway  3.6%  5.3% Singapore  3.4%  2.9% Taiwan  2.5%  2.4% South Korea  2.1%  2.2% Netherlands  1.8%   2.2% Sweden  1.7%  0.9% Brazil  1.7%  1.3% Cash equivalents   3.7%    7.5%  Total 100% 100%

International Value Fund Top Ten Holdings
% of Total Investment at 09/30/08 Telefonica SA 3.8% Nestle SA  REG 3.4% Novartis AG REG 3.2% Mitsubishi UFJ Financial Group, Inc. 2.9% Unilever PLC 2.9% Vivendi SA 2.6% Sumitomo Trust & Banking Co. 2.6% AXA SA 2.6% Taiwan Semiconductor SP ADR 2.5% Toyota Motor Corp. 2.5% Total 29.0%

Fund assets on 12/31/08

$86,932,000

Comparison of Growth

This line graph is a comparison of the change in value of a $10,000 investment in the Fund and the MSCI ® EAFE ® Index.

International Value Fund Growth of $10,000

The International Value Fund’s average annual total returns are net of any fee waivers and reimbursements. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.

Distributions

If this Fund has declared income or capital gains distributions in the current year, they will be listed in the table below.  See Track Earnings Distributions for the Fund's distribution schedule.

International Value Fund 2008 Earnings Distributions
Distribution Type Declaration Date $/Per Share Long Term Capital Gains 06/30/08 $0.0819 Short Term Capital Gains 06/30/08 $0.0355 Ordinary Income 12/31/08 $0.3677

International Value Fund 2007 Earnings Distributions
Distribution Type Declaration Date $/Per Share Ordinary Income 06/29/07 $0.0046 Short Term Capital Gains 06/29/07 $0.0347 Ordinary Income 12/31/07   $0.2864  Short Term Capital Gains 12/31/07   $0.1749 Long Term Capital Gains 12/31/07  $0.1782

Share Price History

This table shows how widely the Fund’s share price has fluctuated over time.

International Value FUND Share Price History

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year End N/A N/A N/A $7.75 $6.33 $8.36 $9.48 $7.79 $9.72 $9.84 $5.26  Year High N/A N/A N/A $10.08 $7.98 $8.55 $9.87 $10.95 $9.84 $11.06 $5.29  Year Low N/A N/A N/A $6.72 $5.76 $5.47 $7.89 $7.79 $7.91 $9.61  $5.13