Investors continued to overlook stock fundamentals during the quarter, as they have for most of the year. This was largely due to the peripheral noise in the market created by concerns over the stability of both the economy and the financial infrastructure to which both Wall Street and Main Street are hostage. As a result, the Fund's focus on high-quality stocks with above-average and consistent earnings growth did not result in strong relative returns, and the Fund lagged its S&P 1000® benchmark for the quarter. Typically, investors reward companies reporting earnings that meet or exceed expectations, while penalizing those whose earnings fall short of expectations. That was not the case during the third quarter. During the quarter, 80% of the stocks in the Fund announced earnings that met or exceeded expectations, while 20% reported earnings disappointments. In each category, 21% of the stocks experienced price appreciation. This is contrary to the historical norm where positive earnings announcements have been a key driver of positive stock price momentum and disappointing earnings have generally resulted in stock price declines.

In terms of sector allocations, the Funds' overweight in the energy sector and underweights in the consumer discretionary and financials sectors had a negative impact on relative performance. The financial sector provided the greatest challenge to the Fund during the quarter, with erratic price movements occurring as each chapter of negative news was announced. The sector cycled through troughs and peaks to end the quarter in positive territory, with the financial sector of the Index showing stronger performance than the Fund's financial holdings. It is important to note however that almost 50% of the Fund's holdings in this sector achieved positive returns ranging from 5.4% to 28%. Life and health insurers boosted the Fund's relative performance, while the Fund's holdings of asset managers and custody banks showed relative weakness.

In an unusual move, the Securities and Exchange Commission (SEC) issued an emergency order relating to the short sale of certain securities. Since this Fund makes limited use of short sales, we are subject to the restrictions. However, the order is temporary and only applies to financial companies. As of quarter-end, the temporary restrictions had not resulted in any changes in our positions. Our strategy is robust and sufficiently flexible to allow us to continue to effectively execute the Fund's investment strategy while complying with the emergency order.