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The second quarter of 2010 was a tough and volatile period for the equity markets overall. During the first few weeks of the quarter,
the Fund lagged its benchmark as the stock market continued its rally from earlier in the year. When the market later became
spooked by the “Flash Crash”, as well as a number of concerns, including the sovereign debt crisis in Europe, U.S. financial services
reform and disappointing domestic employment growth, the Fund started to outperform as its holdings of higher quality companies
declined less than those of the benchmark. Although the Fund made up for much of the ground lost earlier in the quarter, the Fund
lagged slightly behind its Russell 1000® Value benchmark for the quarter.
All ten sectors of the Russell 1000® Value Index posted declines for the quarter, with most sectors down double-digits. In fact, only
three of the more defensive sectors - consumer staples, telecommunications services and utilities – fell by only single-digits. The
materials sector had the most negative performance, presumably due to concerns about slowing growth in China. More surprising
were the double-digit declines in the consumer discretionary, industrials and information technology sectors, where U.S. companies’
earnings surprises and outlooks generally continued to be strong. In contrast, the weak performance of the health care sector was
accompanied by reports of weaker than expected outlooks by many companies in the sector, due to the negative impact of health
care reform on their expected earnings. We expect financial companies to experience similar cuts to expectations during the second
quarter earnings season, due to the government-driven financial reform that is currently being finalized.
For the Fund, the consumer discretionary, industrials and telecommunications services sectors had the strongest relative performance
for the quarter. In the consumer discretionary sector, relative outperformers included Hasbro, Inc. (1.9% of the Fund) and Time
Warner Cable, Inc. (1.9%). Hasbro was up due to another strong quarter and rumors of a private equity firm buyout. The earnings
stability and operating cash flow of Time Warner Cable proved to be relatively attractive to investors as questions resurfaced
regarding the health of the U.S. consumer. The strong relative performance of the Fund’s industrials holdings was primarily due to an
underweighted position in industries that would be considered more deeply cyclical (and which we considered to be overpriced), an
overweighted position and good stock selection in the electrical equipment industry, and positive performance from machinery stock
Cummins, Inc. (0.8%). Cummins’ strong performance was driven by another quarter of solid earnings that beat estimates and
improving sentiment towards the trucking industry. In the telecommunications services sector, an over-weighted position in Qwest
Communications International, Inc. (2.7%), which received a buyout offer from CenturyLink, Inc., was the primary reason for relative
strength.
In contrast to these positive factors, the financials, consumer staples, health care and utilities sectors of the Fund showed relative
weakness for the quarter. The underperformance of the Fund’s financials holdings was driven by relative weakness in the commercial
banks, diversified financial services and capital markets industries. Among the bank holdings, weak performance from regional
banking company BB&T Corp. (1.2%) and an underweighted position in Citigroup, Inc. (0.3%) were contributing factors to the
underperformance. An overweighted position in the asset management segment of the capital markets industry also hurt relative
performance, as the declining equity market contributed to weaker earnings outlooks for these companies. In the consumer staples
sector, stock selection within the household products industry and the Fund’s holding of CVS Caremark Corp. (1.5%) contributed to
relative weakness. For CVS Caremark, a short but very public dispute with Walgreen regarding participation in the CVS Caremark
pharmacy benefit manager national retail network contributed to a sharp stock price decline. While the companies mended their
relationship fairly quickly, CVS’ stock price did not fully recover. In the health care sector, Teva Pharmaceutical Industries Ltd. (1.6%)
was weak, seemingly due to concerns over the environment for European generics pricing.
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Past performance does not guarantee future results. The Fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a prospectus and summary prospectus, click here. Read the prospectus and summary prospectuses carefully before investing.
RISKS: Equity securities (stocks) are more volatile and carry more risk, but generally provide greater return potential than investments in certain other securities, like high-grade fixed income securities. Large-cap stocks generally have less volatility than smaller-cap and certain specialty securities, such as technology investments. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. The Fund may concentrate its investments in one or more economic sectors. When the Fund’s investments are concentrated, market or economic factors affecting these sectors could have a significant effect on the Fund’s value. The Fund may invest up to 25% of its assets in foreign securities, which involve additional risks due to currency fluctuations, economic and political conditions, and differences in financial reporting standards.
Fund holdings mentioned in the Quarterly Commentary are as of 5.31.10 and the percentages shown are based on net assets as of that date. Fund holdings are subject to change and should not be considered purchase recommendations. There is no assurance that the securities mentioned remain in the Fund’s portfolio or that securities sold have not been repurchased.
The Russell 1000® Value Index is a capitalization-weighted index that measures the performance of those Russell 1000® companies (the 1,000 largest companies in the Russell 3000® Index, an index representing approximately 98% of the investable U.S. equity market) with lower price-to-book ratios and lower forecasted growth rates. You cannot invest directly in an index, securities in the Fund will not match those in the index, and performance of the Fund will differ. Although reinvestment of dividend and interest payments is assumed, no expenses are netted against an index’s returns.
Munder Funds are distributed by Funds Distributor, LLC 07/10
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John F. Kreiter, CFA
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| Senior Portfolio Manager |
| BBA in Business Administration from Northwood University |
| MBA in Finance from Wayne State University |
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Joined Munder Capital Management in 1995
| Years of Experience:20 |
| Focus:Member of Munder Capital's Large-Capitalization Value, Mid-Capitalization Value and Multi-Capitalization Value portfolio management teams, and co-manages the Munder Large-Cap Value Fund. Focuses on security analysis and selection with an emphasis on the energy, industrials, basic materials and the consumer discretionary sectors and participates in portfolio strategy and administration. |
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Joseph W. Skornicka, CFA
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| Senior Portfolio Manager |
| BA in Financial Administration from Michigan State University
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| MBA from the University of Michigan |
| Started with Comerica, Inc. in 1988. Joined Munder Capital in 1995 as a result of the merger with Comerica and its investment subsidiaries. Left Munder in 2001; rejoined firm in 2004.
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| Years of Experience:22 |
| Focus:Member of the team responsible for managing the Large-Capitalization Value, Mid-Capitalization Value and Multi-Cap Value investment strategies at Munder Capital, including the Large-Cap Value Fund and co-manages the Asset Allocation Fund-Balanced. Provides idea generation and research support in the financial services sector for other equity strategies at Munder Capital. |
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Kenneth A. Smith, CFA
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| Senior Portfolio Manager |
| BBA from the University of Michigan |
| MBA from the University of Chicago Graduate School of Business |
Joined Munder Capital Management in 1996. Left Munder in 1998; rejoined firm in 1999.
| Years of Experience:15 |
| Focus:Member of Munder Capital’s Large-Capitalization Value and Multi-Cap Value portfolio management teams, focusing on the technology and telecommunications industries. Also co-manages the Munder Internet Fund and the Munder Technology Fund. |
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| Munder Funds distributed by Funds Distributor, LLC. |
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