Historic Rally
Following the substantial declines in U.S. equity markets in 2008 and early in 2009, the markets staged one of their most significant rallies of the past 100 years. From its low on March 9, 2009, the S&P 500 Index rallied 64.8% through the end of the year, as many of the worst performing stocks from 2008 led the market in 2009. For both the quarter and year, the Fund participated in the rally with returns that exceeded the S&P 500, though performance trailed the Russell 1000 Growth Index. During the past two years of extreme market volatility, however, the Fund has meaningfully outperformed both benchmarks.

After strong relative returns in 2008, the portfolio's holdings in Consumer Staples lagged the market for both the fourth quarter and the year. Despite that recent lackluster run, we added to a number of positions in the sector, including PepsiCo, Colgate-Palmolive, Costco, and Wal-Mart. We increased the portfolio's position in PepsiCo twice during the quarter following weakness in the stock after the company's disappointing third quarter earnings report, that included lower than estimated revenues and ongoing weakness in its North American Beverages unit. The company should generate strong mid-teens earnings momentum through 2010 on the back of deal synergies that should enable the company to reinvest and shore up North American beverages and expected strong results internationally and in the Frito Lay division.

We added to Colgate-Palmolive as earnings estimates began moving up following the company's third quarter earnings report. The company has numerous levers to pull to bolster already solid organic growth rates, including cost savings, foreign currency, lower pension expense and share repurchases. We anticipate a broad-based recovery in nonfood items, easing deflation, and a sticky customer base will benefit Costco even as the economy improves. Wal-Mart reported a positive earnings surprise and raised guidance with continuing improvement in its expense controls and very good inventory management. In addition, the company reported positive traffic and market share trends both domestically and internationally. Conversely, we sold CVS Caremark from the portfolio after the stock reached the $30s. Although the company hit its earnings target in the third quarter, management disclosed that there were further unexpected account losses at its pharmacy benefit management (PBM) division.

The portfolio's weighting in Technology fell between that of the Russell 1000 Growth and the S&P 500, explaining in large part its relative contribution to returns as that sector outperformed during the quarter. The Fund lagged the Russell and outgained the S&P as we trimmed Apple, Google, and Visa as their individual position sizes reached 5% of assets.

A compelling valuation and our strong conviction for the outlook for the coming year led us to add to chipmaker and wireless technology firm Qualcomm. We think that rising smartphone penetration and chipset end user share gains at Nokia, Motorola, Research in Motion and potentially Apple, fueled by the increasing global adoption of 3G technology, supports this thesis. In addition, a major expansion into tangential markets led initially by netbook computers, followed by an increasing number of wirelessly connected consumer electronic devices like eReaders (e.g. Kindle), digital cameras, personal navigation devices (PNDs), and handheld TVs should aid revenues.

We trimmed Research in Motion early in the quarter, on weakness, owing to concern about the flood of new competitive smartphone devices entering the market. We subsequently increased the position twice after the company reported a strong November quarter with above consensus results and guidance. We believe that there is an opportunity for price/earnings multiple expansion in the stock as the smartphone market goes mainstream. The firm continues to be well-positioned to lead the charge with a wide range of attractively priced, full-featured devices and a growing number of consumer and business applications.

Holdings in the Consumer Discretionary and Financials sectors also lagged the benchmarks, modestly detracting from relative performance. Both McDonald's and TJX companies were increased during the period, the former due to a compelling valuation and our expectation that earnings momentum will improve with a lower dollar and lower input costs. TJX Companies is enjoying accelerating same-store sales comparisons and increased traffic, the first time the company has experienced this during a recession. Over time, we believe that TJX deserves a higher valuation due to its broad customer appeal, strong value emphasis, and growth opportunities both domestically and abroad. Both of the Fund's Financial holdings declined during the quarter. We expect JP Morgan Chase to be among the first to raise its dividend, however, and the company is positioned well should higher interest rates materialize.

Healthcare Delivers
Most of the Fund's Healthcare holdings experienced strong returns for the quarter, and we added to the portfolio's stakes in Allergan, Gilead Sciences, and Merck during the period. Allergan was increased following a third quarter earnings report that showed improved eye care sales, a well-defended BOTOX share, and new product launches driving better than expected sales and gross margins. Gilead lagged the market in 2009, which resulted in a compelling relative valuation. In addition, we anticipate positive catalysts in 2010, including the release of data from the company's next-generation HIV pipeline, as well as the very high probability that the National Institutes of Health (NIH) would recommend earlier treatment initiation for the revised HIV guidelines. The latter occurred prior to the end of 2009. Further analysis of the American Heart Association's other cholesterol-modifying trials reaffirmed our confidence in the long-term resilience of Merck's cholesterol franchise.

Favorable stock selection within Energy also positively contributed to performance. We reduced the stake in Occidental Petroleum as it approached our estimate of fair value. In addition, we believe the price of oil is likely to remain in a trading range. Although the earnings cycle for oil service companies is likely bottoming, there could be some disappointments as companies move through the trough of the cycle. Thus, we trimmed Schlumberger as well.

Industrials performed in line with the Russell 1000 Growth for the quarter, thus positively aiding returns relative to the S&P 500. Holdings of note included Fluor and 3M. Fluor had been weak since we reduced the portfolio's position in August given tough earnings comparisons and a moderation in new project awards. The stock offered solid valuation support late in the fourth quarter, however, and we added back to the position on the expectation of new project awards as we get into 2010, with additional confidence in the durability of the economic cycle. We increased the stake in 3M believing that the stock can continue to move up over the intermediate term as fundamentals improve on the back of further gains in international recoveries. More than two-thirds of 3M’s sales are international, and we believe foreign currency translation benefits will accrue.

Outlook
Despite the major rally we have already experienced, attractive fundamentals point to higher share prices in the year ahead. Inflation and interest rates should remain low, and we expect the global recovery to continue. In addition, we anticipate that the Federal Reserve will remain accommodative in order to support the financial markets and promote economic growth. An overdue stock market correction may occur in 2010 once investors become overly enthusiastic about the market's prospects. We would view that development as a bull market correction, however, and expect the market to move subsequently higher with the global recovery.

We see the outlook for large-cap growth stocks as favorable, particularly for the high-quality secular growers the Fund owns. In contrast to many firms whose estimated 2010 earnings will still be below their previous peak levels, these companies are expected to achieve record levels of earnings in 2010. The growth rates on anticipated 2010 earnings for high-quality companies also appear more assured due to their significant global economic exposure. In addition, the valuations of these firms are more reasonable in comparison with the many lesser quality issues that rebounded sharply in 2009 from depressed levels and that now appear fully valued based on 2010 earnings estimates. Lastly, the high-quality secular growers we prefer have a consistent record of above-average dividend growth and currently offer unusually attractive dividend yields in an environment of relatively low interest rates for both short- and long-term fixed income investments. In conclusion, we are optimistic about the prospects for the Fund’s holdings in 2010.

Montag & Caldwell Investment Counsel

As of December 31, 2009, PepsiCo comprised 4.13% of the portfolio's assets, Colgate-Palmolive – 3.17%, Costco – 3.31%,Wal-Mart – 4.22%, Apple – 4.43%, Google – 4.63%, Visa – 3.93%, Qualcomm – 4.39%, Research in Motion – 3.40%, McDonald's – 3.97%, TJX Companies – 2.89%, JP Morgan Chase – 2.95%, Allergan – 3.04%, Gilead Sciences – 3.31%, Merck – 3.64%, Occidental Petroleum – 2.35%, Schlumberger – 3.61%, Fluor – 2.05%, and 3M – 3.05%.

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.