We were very optimistic coming into 2009, but we certainly didn't see the stock market dropping to the 666 level on the S&P 500 Index in early March, a point we can now view as a panic low. What we did get right was that this was going to be a classic stock market rebound and economic recovery, and that it would be in the shape of a V—not a U or W. The stock market confirmed our view in 2009, as most indices gained 65% to 80% off the bottom. This has been the strongest rebound since the 1930s, which is only fitting as the past decade was the worst decade for the market since that time.

The strong rebound is also why we do not believe that the U.S. is going to see a lost decade such as Japan did during the 1990s. We think the U.S. has addressed its banking problems much faster than the Japanese and, demographically, we have the second most favorable population pyramid next to that of India, while Japan has one of the worst. Our contention is that we have already experienced our lost decade. Despite the most reluctant bull market we have ever experienced— bond funds took in a record amount of inflows for 2009—and record low yields we think demand will return to equities in 2010 and 2011.

Yes, the U.S. economy is going to go through a slow deleveraging process. There will be companies whose balance sheets are in great shape that through product innovation will take market share from those companies that took on too much debt. There will be industries that will spawn great engines of growth. We think such opportunities will become evident in firms whose earnings come in above expectations and result in upward earnings revisions. That is what we witnessed during the second and third quarter earnings reports of 2009, and that is what we will expect when we start to see fourth quarter reports coming up in January.

We saw a continuation of earnings coming in well above expectations for companies in the portfolio during the third quarter, as the median holding reported earnings 16.7% above street estimates. This resulted in 2009 earnings estimates increasing 9.3% from the previous quarter and 10.6% for 2010. This followed second quarter results of 16.8% above estimates, which resulted in a 6.3% and 7.1% revision in 2009 and 2010 expectations. There has been a lot of chatter that earnings results within the overall market have been driven primarily by cost cutting. While that may be true, we haven't reached the point where inventories are being rebuilt. When that happens, we believe revenues and earnings should increase given the depth of the purported cost cuts.

In terms of performance, Technology packed the most punch during the quarter. Micron Technology finished the period well on the upside after dropping sharply in October to begin the quarter. Other names such as Corning, SanDisk and Marvell Technologies also turned in stellar performances. The Fund experienced poor breadth in its Consumer Discretionary exposure, as performance lost ground overall despite the huge success of top-holding Ford. Finally, Industrials, led by transportation-related entities such as Delta Airlines and Hertz, added to returns.

In closing, we want to share one theme that we think will be driving capital spending over the next decade, and which we are very excited about. That theme is Mobile Computing, and is the primary reason why the portfolio's Technology exposure is larger than at any time since the Internet mania of the 1990s. Smartphones have been the primary driver of this phenomenon up to this point, but netbook computers and the soon to be introduced tablet PC by Apple are now reinforcing this trend. Smartphones now account for 50% of all units being sold, and in 2010 will penetrate more than 20% of all handsets sold worldwide. It is just not data that is driving this, but numerous other content applications, most notably video. Similar to the early 1990s, we believe that Technology is once again the place to be. That is why the Fund's stake is at more than 40% of assets, ranging in holdings from semiconductor producers and related companies to telecom companies providing more bandwidth capacity to companies benefitting from the flat panel TV boom. In other words, up and down the entire tech food chain.

We have gotten off to a great start to 2010 and we anticipate another stellar quarter of earnings announcements, which we think should translate into better stock performance. In our view, expectations are still too low, which is usually a recipe for higher prices and the ability to add value over time.

Charles F. Mercer, Jr. CFA
B. Anthony Weber
Michael E. Johnson, CFA

January 11, 2010

As of December 31, 2009, Micron Technology comprised 3.12% of the portfolio's assets, Corning – 3.87%, SanDisk – 1.26%, Marvell Technologies – 1.61%, Ford Motor Co. – 4.90%, Delta Airlines – 2.41%, Hertz – 2.39%, and Apple – 0.00%.

Note: Growth stocks are generally more sensitive to market moves and thus may be more volatile than other stocks.

Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.

Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by PFPC Distributors, Inc.