The Small Cap Core Fund posted a total return of -8.49% for the quarter, compared with -9.92% for the Fund's benchmark, the Russell 2000 Index. The Fund successfully balanced shifting market trends throughout the period. For example, the balance between the Fund's strategic exposure to the full spectrum of small-cap stocks and a higher-quality bias helped it weather abrupt transitions in market sentiment during the quarter. Our stock selection was positive in all sectors and most favorable in financials (notably capital markets, commercial banks and thrifts and mortgage finance), where avoiding lower-quality issues paid off. Stock selection also led to strong outperformance in the consumer discretionary, energy and healthcare sectors. The contribution from sector allocations was neutral throughout the portfolio.

We will continue to implement a strategy based on our proprietary stock-selection model of emphasizing sustainable growth and healthy value. At the same time, we seek to provide low-cost exposure to the small-cap market to efficiently capture the small-cap premium. We will maintain a strong risk-management process and will seek to minimize transaction costs in pursuit of our investment objectives.

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.