A pension director is conducting a periodic review of three funds that are part of a diversified pension fund. All three funds are large-capitalization diversified equity funds, benchmarked to the S&P 500 Index. Last years performance and risk measures for the three funds, the S&P 500 Index and 1-year T-bills are given in the table below:

	S&P 500 Index	1-year T bills	Fund 1	Fund 2	Fund 3
Returns	12.0%	2.0%	14.9%	12.5%	15.8%
Beta	1	0	1.1	0.9	1.2
Volatility	10.5%	0.5%	10.6%	8.5%	11.2%
Tracking Error	0%	X	1.7%	2.6%	1.5%

What is the most appropriate performance measure and which fund performed the best? a. Treynor ratio, Fund 1 b. Sharpe ratio, Fund 2 c. M2, Fund 2 d. Between 4 and 5