The Income Equity Fund posted a total return of 10.72% for the quarter, compared with 10.61% for the Fund’s benchmark, the S&P 500® Index. The largest contributors to the Fund’s relative outperformance included company selections in the information technology, consumer staples and consumer discretionary sectors. Our company selections in the energy, health care and materials sectors detracted from relative performance. From an asset allocation perspective, the Fund’s allocation to convertible holdings, which lagged materially during the quarter’s powerful stock market rally, detracted from relative performance, due to the more-defensive nature of these securities.

The Fund continues to seek equity-like returns with more income and less volatility than the benchmark and low turnover. While convertible securities are important equity substitutes and help us achieve these objectives, the supply of high-quality convertibles remains low in the continued-low interest rate environment. This has prompted us to invest more heavily in large-cap common stocks, particularly companies with attractive dividend payments.

Looking ahead, we will continue to focus on bottom-up security selection, focusing on valuation. New issuance in the convertibles market is unlikely to improve until interest rates begin to rise.

If you are a moderate-risk investor looking for a relatively high level of current income, but don't want to forego the capital appreciation potential of the stock market, you may like this Fund.

• Select securities with the potential to generate high current yields, such as dividend-paying common stocks, preferred stocks and convertible securities, as well as selected fixed income securities.
• Maintain a conservative, broadly diversified portfolio of companies with strong prospects for growth and appreciation potential.
• Analyze the upside/downside ratio of individual securities in relation to the underlying stocks in an effort to identify those issues that are priced to have more exposure to the upside.