as of December 31, 2013
Fund Commentary
Information technology (IT) stocks generally rallied during the fourth quarter. Within the S&P 500® Index, the IT sector was the top performer for the quarter.

The Technology Fund posted a total return of 7.14% for the quarter, compared with 10.51% for the Fund's benchmark, the S&P 500® Index. Although the majority of the Fund was invested in the outperforming IT sector, which contributed favorably to relative results, Fund performance lagged the broad-based benchmark due to stock selection. A dramatic slowing in IT spending in emerging markets, which have been key growth drivers for many of the Fund's larger holdings, and ongoing federal budget pressures weighed on earnings. We also believe global uneasiness around the NSA's spying programs could have slowed technology purchase decisions in some countries, hurting the most visible large-cap IT companies.

With muted IT spending, growth rates across subsectors slowed substantially during 2013, as enterprises shifted to new technologies supporting cloud-computing. Internet stocks and next-generation winners, such as Software as a Service (SaaS) companies, outperformed, but valuations are now stretched and leave little room for error.

Although earnings may be volatile for the next couple of quarters, we remain positive on the IT sector and believe the negative sentiment on large-cap legacy technology stocks is overdone, supported by attractive valuations. Historically, IT stocks have been beneficiaries of rising interest rates, which could be a factor in 2014. Long-term, we continue to expect cloud-computing will drive a multi-year technology investment cycle, as enterprises explore new digital business models and cloud-based applications that drive productivity and cut costs.
Investor Profile

If you're a growth-oriented investor intrigued by the appreciation potential of technology-driven companies, you may want to explore the opportunities this Sector Fund offers. It is designed for investors with a long-term time horizon, who are willing to withstand inevitable short-term market swings and who understand the risks and potential rewards of sector investing.

  • Buy stocks that develop, produce or distribute products and services related to technology.
  • Base stock picks on financial condition, market share, earnings growth rates, product leadership or market niches, as compared to competitors, market valuation and price trends.
  • In addition to traditional technology companies, the Fund may also invest in biotechnology, health care and health-care equipment, aerospace and defense and financial administration.
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