The Small Cap Core Fund posted a total return of 12.34% for the quarter, compared with 12.39% for the Fund’s benchmark, the Russell 2000® Index. Strong results in the healthcare and industrials sectors and among real estate investment trusts (REITs) in financials drove small-cap performance. The telecommunications services, materials and utilities sectors lagged, but all sectors had positive returns. As intended, stock selection dominated the Fund’s performance, rather than sector or style biases. Stock selection was strongest in the healthcare sector, particularly in the pharmaceuticals and equipment segments. This was partially offset by modestly negative stock selection in the industrials sector. The Fund also benefitted from an overweight position in the micro-cap segment. We generally avoid lower-quality companies, which in the first quarter performed similarly to the higher-quality issues. Rallies among lower-quality, more-volatile stocks were offset by subsequent declines, as macro influences triggered performance differences. Valuation metrics were inconsistent in predicting performance. For example, deeper valuation stocks in the price-to-earnings metric outperformed; conversely, richer valuation stocks as measured by price to book were winners.

Going forward, we will continue to invest in a diverse portfolio of small-cap stocks, including those within the smallest segments of the market, in a cost-efficient manner. At the same time, we will seek to avoid stocks with lower-quality characteristics, as indicated by our proprietary quality model.

If you're a more aggressive investor looking for the growth potential offered by the stocks of smaller companies this Fund may be right for you. The Fund employs a quantitative-managed, core style investment approach. 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 an active quantitative, core equity strategy to select stocks based on a statistical analysis of historical relationships among small-cap 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 core benchmarks, in an effort to reduce the risks associated with any specific stock or industry.