The Fund registered double digit returns for the quarter, outperforming its benchmark, the Russell Midcap 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. In absolute terms, holdings in the technology, consumer discretionary and materials sectors contributed most to gains. Stock selection in the consumer discretionary, industrials and materials sectors paced outperformance of the benchmark. Fund exposure in the financials and health care sectors provided the lowest contributions to relative performance of any sectors.

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 consumer discretionary sector, better-than-expected sales and profits throughout the sector suggested improving consumer confidence in the economy. In this environment, the share price of casino operator Las Vegas Sands rose. Analysts raised ratings and stock price targets, noting that the casino operator stands to gain from a potential public offering of stock in a project it is co-developing in Macau. Gaming in the enclave, the only place in China where gambling is legal, offers some of the best growth prospects for the industry. Shares of Priceline.com also climbed, benefiting from an analyst upgrade. The analyst noted that although leisure travel has been up largely because of promotions and discounts, there are signs of stabilization in the overall travel sector.

In the materials sector, shares of Ashland, a chemical and construction materials company, rose with analysts citing positive sales trends. The company is positioned to benefit from an economic recovery due to significant operating leverage and robust cash flow. The company’s sales in Europe were stronger than usual during the period, particularly in its water and performance materials businesses.

In the financials sector, shares of the commercial lender CapitalSource, which transformed itself from a real estate investment trust to a bank in January, fell on news of a loss for the second quarter. The company’s stock came under pressure after announcing a quarterly loss due to soaring provisions for loan losses and an accounting charge. CapitalSource said a recent amendment and extension of its syndicated bank facility significantly reduced its debt maturities for 2009 and 2010.

In the health care sector, uncertainty resulting from public debate over the provision of health services in the U.S. suppressed returns. Shares of St. Jude Medical, producer of cardiovascular medical devices, fell in this environment despite positive results in clinical trials and reaffirmed earnings estimates.