The Fund registered double digit gains for the quarter, performing in line with the benchmark Russell 1000 Growth Index. Most stock sectors finished higher for the quarter, extending the upturn that began in early spring as signs of an economic recovery remained mixed. On an absolute basis, holdings in the technology and consumer discretionary sectors contributed most significantly to gains and contributed positively to relative returns. Stock selection decisions in the health care, industrials and consumer staples sectors detracted from performance versus the benchmark.

Capital Markets

U.S. equity markets advanced solidly in the third quarter, adding to gains for the year and recovering more of the value lost in the 16-month bear market that ended in March. Although economic growth remained subdued, investors showed newfound enthusiasm for riskier assets, bidding up stock prices especially in the beaten-down financials and materials sectors. During the quarter, value and growth indexes spanning all capitalization segments recorded double-digit returns with value stocks somewhat more in favor. Among growth indexes, all sectors registered positive returns with stocks in the technology and consumer discretionary sectors contributing most significantly to gains. Telecommunications and utilities stocks posted positive returns but underperformed growth indexes.

In the health care sector, uncertainty resulting from public debate over the provision of health services in the U.S. suppressed returns. Shares of medical laboratory operator Quest Diagnostics declined in the period on concerns of slowing profit growth and expectations that lab operators may get lower prices for their services next year due to an expected cut in Medicare payment rates. In this environment, shares of health benefits provider Wellpoint and pharmaceuticals holding Eli Lilly also weakened.

Among industrials stocks, shares of the engineering and construction firm Fluor Corp. fell in the period after the company posted a steep decline in quarterly profits. Volatility in commodity prices and uncertainty in government infrastructure projects contributed to the decline. Fluor remains a best-in-class engineering and construction company with a healthy backlog.

Among consumer staples stocks, shares of milk processor and distributor Dean Foods fell in the period. The company reported higher second-quarter profits but sales fell compared with the same period last year. Dean raised its full-year 2009 profit outlook as the company continues to cut costs and stay competitive.

A number of the Fund’s technology holdings contributed positively to relative performance as tech stocks extended the gains from recent quarters amid expectations that business and consumer spending may continue to show signs of improvement. Shares of computer chip designer Marvell Technology, computer storage company EMC and the specialized technology services firm Lender Processing Services all outperformed in the period on improving fundamentals. Lender Processing, which provides integrated technology and services to the mortgage and real estate industries, reported record second quarter earnings.

Within the consumer discretionary sector, shares of worldwide clothing retailer Polo Ralph Lauren climbed in the period as the company reported solid second-quarter results that beat analyst expectations. The company is expected to benefit from an anticipated pickup in retailers’ orders after cutbacks in the past year. Shares of Priceline.com also climbed in the quarter, benefiting from an analyst upgrade. The analyst said although leisure travel has held up largely because of promotions and discounts, there are signs of stabilization in the overall travel sector.

We expect equity returns to moderate in coming quarters as a subdued economic expansion limits top-line growth for companies. In such an environment, one characterized by scarce growth, investors typically will pay a premium for shares of companies that deliver sustained improvements in free cash flow. Our investment philosophy and process focus on identifying reasonably valued companies with improving fundamentals likely to lead to possible earnings growth. This approach and discipline has proven rewarding for long-term investors and we remain confident that it will continue to identify and capture compelling opportunities.