The Small Cap Value Fund posted a total return of 12.31% for the quarter, compared with 11.63% for the Fund’s benchmark, the Russell 2000® Value Index. Stock selection was the main driver of the Fund’s outperformance, with sector contribution nearly neutral. The strongest positive contributions at the sector level came from the financials, information technology, healthcare and utilities sectors. Stock selection contributed negatively only in the consumer discretionary sector. The Fund also benefitted from its underweight to lower-quality stocks and from strong stock selection among securities our model rated as “buys.” Nevertheless, quality was not a consistent predictor of benchmark performance, as stocks with both the highest and lowest profit margins outperformed, as did stocks with high and low returns on equity. Additionally, stocks with the highest and lowest price-to-earnings ratios underperformed, while the highest quintiles of price to book and price to cash flow outperformed the more deeply valued quintiles. Companies with no earnings lagged, and the Fund’s underweight to these typically lower-quality companies contributed meaningfully to relative performance.

We will continue to seek reasonably-priced, yet profitable, small-company, value-oriented stocks while avoiding stocks of companies we believe are showing signs of distress.

If you're a more aggressive investor looking for the value potential offered by the stocks of smaller companies — those the adviser believes are worth more than is indicated by current market prices — this Fund may be right for you. It is intended for equity investors with an above-average tolerance for volatility who want to diversify their investments and plan to invest for the long term without concern for current income.

• Follow a quantitative, active equity strategy to select stocks based on a statistical analysis of historical relationships among value characteristics, stock prices and market capitalization ranges.
• Use a screening process designed to reduce exposure to stocks with negative fundamental indicators.
• Maintain a highly diversified portfolio, consistent with small-cap value benchmarks, in an effort to reduce the risks associated with any specific stock or industry.