b'Market Value Growth of System Assets 1(in billions)$40$35 $34.08$30.72 $31.35$30 $29.39$28.00$25 $23.27 $23.52$22.33$20.64$20 $18.53$15$10$5$015-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23 23-24 24-251 Based on the most recent final valuations of each fiscal year and supersedes earlier annualreport exhibits.INVESTMENT ENVIRONMENTOver the one-year period ending June 30, 2025, global financial markets experienced significant volatility, shaped by shifting monetary policy, geopolitical tensions, and evolving trade dynamics. Despite these headwinds, risk assets delivered strong returns, particularly in the first half of 2025 as investor sentiment improved following a series of policy adjustments and economic resilience across key regions.The Federal Open Market Committee (FOMC) shifted to a more accommodative stance in late 2024, cutting the Federal Funds Rate by 100 basis points over three meetings. The rate stood between 4.25% and 4.50% by year-end. Inflation moderated throughout the year, with the headline Consumer Price Index (CPI) falling from 3.4% in December 2023 to 2.7% by June 2025. However, inflation expectations for 2025 remain elevated, with the Organization for Economic Co-operation and Development (OECD) projecting 4.2% headline inflation across member countries.In the United States, equity markets posted robust gains for the fiscal year, with the Russell 3000 Index returning 15.30% (in Q2 2025 alone, it returned 10.99%). Market performance was driven by a rebound in mega-cap growth stocks, particularly in the technology sector, which benefited from renewed optimism around artificial intelli-gence (AI) and easing monetary policy. However, while overall performance for the year was strong, Q1 2025 saw a sharp pullback due to trade policy uncertainty and concerns about foreign competition in AI, with the Russell 3000 declining -4.72% for the quarter.SECTION 4INVESTMENTS 97'