first-quarter gains in more than 10 years. The S&P 500 Index, a broad measure of large cap stock performance, gained 12.59% with dividends reinvested. Financials, technology
and consumer discretionary stocks led the market rally, while utilities stocks declined.
Within the benchmark Russell 2000 Growth Index, consumer discretionary, technology
and health care were the top-performing sectors, while energy and consumer staples
lagged and only utilities declined. In the first quarter, the fund benefited from security selection in the materials, consumer
discretionary, information technology and shop industrials sectors, which more than offsetpoorer performance in health care, financials and energy.
In materials, Solutia, which makes specialty chemicals used in automotive glass and tires,has benefited from the resurgence in auto sales and is the target of an acquisition byEastman Chemical at a significant premium.
Within consumer discretionary, the biggest contributor in the portfolio was Tempur -PedicInternational, which was up significantly in the period. Following the huge success of its
Cloud mattress line, which focused on a previously unaddressed market that preferred a
softer feeling mattress, the company introduced the Simplicity line, which also focuses ona previously unaddressed market for more moderately priced mattresses. Tempur -Pedic
raised its earnings and revenue guidance for 2012 and also announced a share
repurchase program during the quarter.
In information technology, Volterra Semiconductor was the top contributor. The company
makes devices for servers and notebook computers and is benefitting from an overdue
technology refresh cycle. Similarly, firewall and cybersecurity provider Sourcefire
contributed positively.