The Fund registered double-digit returns for the quarter, underperforming its benchmark, the Russell 1000 Growth Index. All 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 health care sectors contributed most to gains. Relative to the benchmark, stock selection decisions in technology and industrials detracted from returns. Selections among energy, health care and financials companies benefited returns 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.

Prospects for economic growth boosted shares for technology companies, which outperformed the broad market for the quarter. The rally favored the stocks of networking equipment, computer hardware and semiconductor companies over those that develop software and produce telecommunications products. In this environment, the Fund’s holdings in Qualcomm and Oracle declined amid lagging sales for cell phones and enterprise software. Qualcomm reported disappointing quarterly earnings. The company makes a number of key third-generation wireless products, including its MSM, or mobile station modem, chip sets. Oracle, like many of its peers in the enterprise software market, saw sales wane as businesses sought to cut costs. The Fund’s holdings in chipmakers Intel and Applied Materials benefited returns.

In the industrials sector, shares of defense contractor Lockheed Martin, the largest supplier of information technology to the U.S. government, fell on news of falling profits from pension-related charges and challenges in its information-systems business. The Senate approved an amendment to cancel $1.75 billion that had been set aside by lawmakers to purchase seven additional copies of the F-22 jet aircraft made by Lockheed and Boeing.

Among energy stocks, higher oil prices triggered share price increases for the Fund’s holdings in exploration and production companies. Independent oil and gas company Ultra Petroleum performed well in this environment confirming guidance for its annual natural gas and crude oil production. Although natural gas prices have not rebounded to the extent oil has, natural gas producer EOG Resources performed well on positive reports of the company’s efforts to boost its oil production using the same technology that made it one of the largest independent natural gas producer in the U.S. The Fund’s underweighting of large, integrated oil companies also benefited relative returns as those companies tend to underperform exploration and oilfield services stocks during periods of rising crude oil prices.

In the financials sector, the Fund’s holdings in an array of financial services companies, including national insurers, asset managers and diversified financial services firms, contributed to gains for the quarter. Shares of Aflac advanced as the company reported higher revenues from its Japanese operations. The company provides supplemental life and health insurance in the U.S. and Japan, where such services are not covered by Japanese healthcare. The company also reported improvement in its brand-building initiatives in the U.S. as well its focus on providing retirement services for the baby boomer market. Investment management firm Blackrock delivered strong returns exhibiting momentum in the market and strength in its diversified business model.