The Small Cap Value Fund posted a total return of -9.90% for the quarter, compared with -10.60% for the Fund's benchmark, the Russell 2000 Value Index. The contributions from stock and sector selection were positive during the quarter. Our stock selection was most favorable in the consumer discretionary (led by hotels and restaurants and household durables) and financials (insurance and thrifts) sectors, where avoiding lower-quality stocks paid off. Negative stock selection in the industrials (airlines) sector and among REITs (real estate investment trusts) detracted from performance.

Over time, we believe investors will be rewarded for focusing on companies able to generate sufficient cash flows to finance growth, assuming they acquire the stocks of those companies at attractive valuations. We also believe broad-based risk controls are critical to providing competitive returns without taking on unnecessary risk. We continue to focus on quality small-cap stocks, which our research suggests should lead to favorable long-term performance and higher risk-adjusted returns.

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.