In the large-cap value segment of the stock market, represented by the Fund's Russell 1000® Value benchmark, the consumer discretionary, financials and industrials sectors delivered double-digit returns for the quarter. The consumer discretionary sector benefited from growth in consumer spending that outstripped income gains. In the sector, there was strong performance from retailers, as well as companies in the auto and household durables segments of the sector. Continued improvement in credit trends drove the strong performance of the financials sector. While regional banks were among the top performers, insurance companies and Real Estate Investment Trusts (REITs) also participated in the sector's strength. In the industrials sector, aerospace & defense and industrial conglomerate companies were strong performers. The consumer staples, materials and information technology sectors were up mid-to-high single digits, while the performance of the energy, health care, telecommunications services and utilities sectors ranged from negative to slightly positive (low single digits).

In terms of the Fund's relative performance, the materials, financials, information technology, industrials and energy sectors lagged the corresponding sectors of the Russell 1000® Value Index. In the materials sector, the Fund's holdings in the metals & mining and chemicals industries lagged the benchmark. In the financials sector, the performance of REITs and the lack of a position in Citigroup, Inc., a large benchmark holding that was up over 20% during the quarter, hurt relative performance. These negative factors were partially offset by strong performance from other holdings in the financials sector, including many of the Fund's bank stocks and Affiliated Managers Group, Inc. (1.1% of the Fund), which announced two accretive transactions during the quarter.

The performance of the Fund's information technology sector was hurt by the relative weakness of holdings in the software and services areas, and by a position in QUALCOMM, Inc. (0.4%), a communications equipment company. The company's stock was negatively impacted by pricing issues and softening demand for handsets. While the Fund held many strong performing stocks in the industrials sector, including Precision Castparts Corp. (0.5%), which was acquired in January, the sector lagged the benchmark due to the weakness of holdings in the aerospace & defense and industrial conglomerates industries. The Fund's energy holdings underperformed their benchmark for two primary reasons. First, Total S.A. (1.1%), which was up solidly during the fourth quarter of 2009, lagged the integrated group this quarter. Second, two of the Fund's energy services companies, Weatherford International Ltd. (0.5%) and Tenaris S.A. (0.5%), performed poorly due to disappointing earnings.

In contrast to these negative factors, the consumer discretionary, telecommunications services and health care sectors of the Fund showed relative stock selection strength for the quarter. In the consumer discretionary sector, the strong relative performance of holdings in the leisure equipment & products and media segments offset the negative effect of lack of positions in household durables and automobiles. The performance of the Fund's health care sector benefited from an overweighted position in Teva Pharmaceutical Industries Ltd. (2.0%). Teva's stock price was boosted by the announcement of an accretive acquisition of a German generic pharmaceuticals company during the quarter. In the telecommunications services sector, performance benefited from an underweight in Verizon Communications (1.0%).

In the large-cap value segment of the stock market, represented by the Russell 1000® Value Index, the materials and health care sectors delivered the highest returns for the quarter. The materials sector was supported by many strong commodity markets due to demand from Chinese and emerging markets. The health care sector appeared to be boosted by favorable developments in the health care reform legislation process. All other sectors, with the exception of financials, were up solidly in the mid- to high-single digits. We believe that the financials sector of the Russell 1000® Value Index, which posted a negative return, was hurt by some significant capital raising by large banks and also experienced some letdown after realizing such strong returns (over 60% cumulatively) over the prior two quarters.

As for the Fund, the sectors with the strongest relative performance during the quarter were materials and financials. In the materials sector, strong stock selection in the chemicals area was the primary reason for the Fund's outperformance. Celanese Corporation (1.0% of the Fund), a global producer of industrial chemicals, saw strong pricing in the acetyls area, which contributed to the close to 30% price gain for the stock. In the financials sector, strong relative performance resulted from the combination of owning some strong performers and not owning several stocks that experienced significant weakness. As an example, relative returns were boosted by the lack of ownership of Citigroup Inc., which was down over 30% for the quarter. While the company raised close to $20 billion in common equity to pay back government TARP borrowings, it still faced the overhang of the government owning close to 30% of its common equity. The Fund also held many financials that were up nicely during the quarter, including two recent additions: American Express Co. (0.9%) and Simon Property Group, Inc. (0.8%) ‑ which were each up close to 20% for the Fund during the quarter. Other Fund sectors that were neutral for relative performance included telecommunications services, health care and utilities. The relative performance of the health care sector was boosted by strong stock selection among pharmaceuticals. Some recent additions to the managed care area also helped returns. UnitedHealth Group, Inc. (0.7%) and CIGNA Corp. (0.5%) were both up over 20% as it became clear that the health care reform option developed by the Senate would not contain a public plan option.

From an absolute return standpoint, and again very similar to the second quarter, the Fund's Russell 1000® Value benchmark was led by cyclical sectors that have the greatest sensitivity to the economy. The consumer discretionary, financials, industrials, information technology and materials sectors all delivered returns of over 20%. More defensive sectors like consumer staples, health care, telecommunications services and utilities lagged the overall benchmark return. The energy sector also lagged, as valuations reflected higher commodity prices entering the quarter and as inventories of both natural gas and oil continued to rise on weak demand during the quarter.

The Fund's weakest sectors during the quarter, in terms of relative performance, were consumer discretionary, financials and industrials. In the consumer discretionary sector, there appeared to be a strong investor preference for companies whose businesses were the most sensitive to economic growth and whose balance sheets were the most financially leveraged to a recovery scenario. This type of company does not generally meet the criteria for investment in the Fund. Another contributor to the sector's weakness was the purchase of Lowe's Companies, Inc. (0.7% of the Fund) just prior to the company's reporting of disappointing earnings. We continue to hold the position given its attractive valuation, consistent execution and more defensive exposure to improving housing fundamentals compared to other stocks.

The performance of the Fund's financials sector was hurt by an underweight in pure-play asset managers, REITs (real estate investment trusts) and consumer finance companies. While the Fund's exposure to the asset management and consumer finance segments was increased moderately during the quarter, we continue to believe that most REITs look over-priced relative to their overlevered balance sheets and the challenging outlook for commercial real estate. In addition, a few formerly very large financial companies, which we view as very speculative investments and which were not held in the Fund, experienced significant stock price appreciation during the quarter. Among the Fund's holdings, JP Morgan Chase & Co. (5.5%) had strong relative performance, while Bank of New York Co., Inc. (1.7%) reported a disappointing quarter and its stock price suffered.

In the industrials sector, the two biggest contributors to relative underperformance were an overweight in AECOM Technology Corp. (0.7%) and an underweight in General Electric Co. (2.4%). AECOM's stock price lagged during the quarter after making a significant move over the prior four months. The company reported solid, if unexciting, earnings and we believe its valuation still looks attractive. After General Electric's stock made a significant move during the quarter, benefiting from the improved economic outlook, we believe the stock is approaching fair value and that a modest underweight is still appropriate.

In contrast to these negative factors, the Fund benefited from the relative strength of its telecommunications services and utilities sectors. The relative performance of the telecommunications services sector was boosted by an underweight in the wireless area and overweights in AT&T, Inc. (4.0%) and CenturyTel, Inc. (0.8%). The performance of the utilities sector benefited from an overweight of the gas utilities segment and the strong performance of other holdings in that sector. An underweighted position in the multi-utility segment, which includes utility companies that supply different utility services, including electricity and gas, also had a positive impact on relative returns.