as of December 31, 2013
Fund Commentary
Growth stocks as measured by the Russell 1000® Growth Index posted another strong quarter to close out 2013 with one of their best calendar-year returns (+32.3%) in the last two decades. The market rallied despite a prolonged U.S. government shutdown, rising interest rates and Federal Reserve transitions of leadership (Ben Bernanke to Janet Yellen) and policy (tapering of quantitative easing). Stronger employment and housing market data and a growing belief the economy is finally healing helped fuel the market gains. The fourth-quarter rally was broad based, with all 10 economic sectors posting positive returns.

The Large Cap Growth Fund posted a total return of 10.35% for the quarter, compared with 10.44% for the Fund's benchmark, the Russell 1000® Growth Index. Stock selection was especially strong in the technology and consumer discretionary sectors, but it detracted from performance in the industrials sector. An underweight in consumer staples also yielded positive results, while the Fund's modest cash position created a performance drag in the face of a strong market rally.

We remain optimistic toward large-cap growth stocks. With a global economic recovery finally taking hold, earnings and other fundamentals will validate recent multiple expansion. Large-cap growth stocks as a whole remain well below their long-term valuation averages, suggesting potential for continued multiple expansion and above-average growth. We believe the market may underestimate the duration of the Federal Reserve's commitment to keep short-term rates at or near zero as the economic expansion matures. The mid-to-late stages of economic recovery historically have been the most favorable environment for growth stocks, as equity risk premiums fall and earnings-per-share growth narrows from cyclical recovery to secular growth companies. Supported by a broad market rotation out of bonds, we see plenty of fuel for the cycle to play out accordingly.
Investor Profile

If you fit the profile of a more aggressive investor able to accept greater volatility in exchange for higher potential return than is offered by the Growth Equity Fund, you will want to consider this Fund as a core holding for your portfolio. Because companies with these characteristics often retain their earnings, investors should expect low to no dividends.

  • Combine top-down, theme-driven approach with bottom-up fundamental stock selection to construct a portfolio of primarily large-cap growth stocks.
  • Select stocks with emphasis on growth potential, quality of earnings and management experience.
  • Seek to provide long-term capital appreciation for investors looking to participate in longer-term investment themes, which may contribute to increased volatility.
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