KEELEY Mid Cap Dividend Value Fund

Investor Class (A) Shares: KMDVX

Institutional Class (I) Shares: KMDIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 4th Quarter 2016

The fourth quarter capped off a remarkable year of 2016. After a rocky start in January and early February, the market steadied after it became clear that the Federal Reserve (Fed) would not be raising rates as quickly as investors feared. The advance survived some mid-year jitters resulting from the surprise result of the UK Brexit vote and some late-year worries about the U.S. Presidential election. Overall, the market was up all four quarters. The 12% gain in the S&P 500 was better than the long-term averages, but the real excitement was in smaller company stocks and in value stocks. The Russell MidCap’s 14% gain outpaced that of the large caps. Within mid-cap stocks, the Russell MidCap Value index’s 20% gain far outstripped the 7% increase for the Russell MidCap Growth index; the widest gap since 2001. Much of the gain for the year, and the outperformance of mid-cap and value stocks, came in the fourth quarter as the Russell MidCap Value index was up 5.5% in the quarter vs. a 3.8% increase for the S&P 500.

Financials were particularly strong in the fourth quarter. The election of Trump with his proposals for lower taxes, higher rates, and lower regulation drove a 19% gain in the sector within the Russell MidCap Value index. Rising interest rates may pose challenges for high dividend yielding stocks in Consumer Staples, Real Estate, Telecom, and Utilities sectors. The first two sectors actually declined in the fourth quarter. In addition, the uncertainty surrounding the Affordable Care Act (Obamacare) and potential reforms by the new administration led to declines in Health Care stocks. In our view, the U.S. economy looks relatively healthy – GDP gained 3.5 percent in the third quarter (its best quarterly change in two years), and the unemployment rate closed 2016 at 4.7%. We are also encouraged by generally positive earnings growth and believe that companies should see positive growth in revenues and earnings in 2017.

For the fourth quarter of 2016, the Keeley Mid Cap Dividend Value Fund outperformed the Russell Midcap Value Index, gaining 7.26% versus 5.52%. The bulk of the Fund’s success this quarter came from overall stock selection, although a small overweight in the Financials sector led to positive contribution from sector weighting. The notable sector this quarter was Financials, which was the Index’s best performer, and the Fund benefited from both its overweight exposure and strong stock selection. In addition, the Fund’s performance was helped by good stock selection in Utilities, Consumer Staples, Health Care, Materials, and Consumer Discretionary sectors. Of the eleven sectors, only three held back relative performance: Technology, Real Estate, and Energy.

The Fund’s three largest contributors were all Financials as investors flocked toward the group as the outlook for lower taxes, higher interest rates, and less intrusive regulation improved with the election of Donald Trump as the next President. Lincoln National (LNC) and Voya Financial (VOYA) are both life insurance companies and benefit from rising rates. The stock prices also moved higher on hope that the new administration will delay or roll back some provisions of the recently enacted Department of Labor Fiduciary Rule.

Comerica Incorporated (CMA) was also driven by the strong tailwind in Financials as it is one of the banks likely to benefit most from an increase in interest rates. In addition, the increase in oil prices we have seen in the second half of the year reduces risk in the bank’s energy loan portfolio.

Rising interest rates had a detrimental effect on a number of the Fund’s Real Estate Investment Trusts (REITs). The top detractors this quarter included Spirit Realty Capital (SRC) and Iron Mountain (IRM). The stocks of “triple-net” REITs such as Spirit tend to be sensitive to changes in sentiment about the direction of interest rates as they are the most financing-like of REITs often committing to leases of 5-10 years or more. Iron Mountain is also a REIT, but its weakness was likely more driven by its exposure to a rising dollar and a larger impact on results from some required divestitures.

Technology company Dolby Laboratories (DLB) stock performed well in the first nine months of the year, but gave back some of its gains in the fourth quarter after it provided initial fiscal 2017 that was a little below expectations.

We look ahead with cautious optimism. Some of the most visible policy priorities put forth by the new President on the campaign trail (cut taxes, increase infrastructure spending, reduce regulation) could lead to the continuation of growth or an acceleration in the growth rate of the economy. This would be very supportive for stocks and likely small-cap stocks in particular. On the other hand, his protectionist tone could lead to similar actions elsewhere which would slow growth. Furthermore, stronger growth and higher rates in the U.S. would likely drive even more strength in the dollar which would hurt some industries. Finally, the strength in the market over the last year has increased valuations broadly and significantly in some sectors. If the President’s legislative agenda gets bogged down in Congress and some of the positive changes come more slowly or fail to materialize, the market would be more vulnerable to profit taking.

One of the aspects of the quarter that we find most encouraging is that the Fund was able to keep up in a strong market where interest rates were rising. We do not necessarily expect to keep up when the market is strong and we would be irresponsible not to worry some about the impact of rising rates on a portfolio of dividend paying stocks. In fact, one of the questions we have received most frequently from investors over the years is “How will the Fund do when rates rise?”. We have always believed that it would do well because we do not focus on “income” stocks. Instead, we use dividends as evidence of a company’s ability to generate cash, a commitment to capitalize the company conservatively, and a hint that the company’s management team wants to reward shareholders consistently. We believe those are attractive characteristics in any interest rate environment.

As always, thank you for your support of the Keeley Mid Cap Dividend Value Fund.

KEELEY Mid Cap Dividend Value Fund Standardized Performance Information

The performance reflected herein is for the Class A shares without load. "Without load" does not reflect the deduction of the maximum 4.50% sales fee (load), which reduces the performance quoted. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Most current performance data may be obtained at www.KeeleyFunds.com.

The Fund's adviser has contractually agreed to waive a portion of its management fee or reimburse the Fund if total ordinary operating expenses during the current fiscal year as a percentage of the Fund's average net assets exceed 1.29% for Class A Shares and 1.04% for Class I Shares. The waiver excludes expenses related to taxes, interest charges, dividend expenses incurred on securities that a Fund sells short, litigation and other extraordinary expenses, brokerage commissions and other charges relating to the purchase and sale of portfolio securities. The waiver is in effect through January 31, 2017.

This summary represents the views of the portfolio managers as of 12/31/16. Those views may change, and the Fund disclaims any obligation to advise investors of such changes. For the purpose of determining the Fund's holdings, securities of the same issuer are aggregated to determine the weight in the Fund. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual securities.

Risks: Smaller and medium-sized company stocks are more volatile and less liquid than larger, more established company securities. Additionally, dividend paying investments may not experience the same price appreciation as non-dividend paying investments. Portfolio companies may also choose not to pay a dividend or it may be less than anticipated.

Prior to investing, investors should carefully consider the Fund's investment objective, risks, charges and expenses as detailed in the prospectus and summary prospectus. To obtain a prospectus or a summary prospectus, call us at 800.533.5344 or visit www.keeleyfunds.com. The prospectus/summary prospectus should be read carefully before investing.

Performance attribution is commonly used to measure the quality of the separate decisions that go into the management of an investment portfolio compared to a benchmark index. This analysis tries to isolate the effect and measure the return contribution of market allocation, which analyzes the positive/negative impact of a portfolio's allocation to groupings such as geographic regions or market sectors, and stock selection, which analyzes the positive/negative impact of the portfolio manager's security ownership and weighting decisions within a wider grouping. The performance attribution data in this quarterly commentary was prepared by Keeley-Teton Advisors, LLC ("Keeley-Teton") using the following constraints: (1) Fund portfolio holdings are as of the beginning of each day; index constituents are as of the end of the day. That means that the Fund's holdings are not included until the day after acquisition (when it is included in the portfolio as of the beginning of the next business day), and a portfolio holding that is sold is included in the analysis through the end of the day on which it is sold, and that the values at which securities are included in the analysis are the values as of the beginning of the day. For the index, securities are included at their values at the end of the day. (2) The securities values used in the analysis are the prices used by Keeley-Teton Advisors, LLC ("Keeley-Teton") in its internal records for the Fund and the prices used by the index provider for the benchmark index. If a price from either of those sources is unavailable, pricing information from FactSet is used. Pricing information from the index provider or from FactSet may differ from the pricing information used by Keeley-Teton Advisors, LLC ("Keeley-Teton"). (3) For the purpose of assigning portfolio security holdings to a particular sector and/or industry, Keeley-Teton Advisors, LLC ("Keeley-Teton") assigns the securities in accordance with the sector and industry classifications of the Global Industry Classification Standard (GICS) developed by MSCI and Standard and Poor's (to the extent available) as a primary source and FactSet (to the extent available) as a secondary source for this information. In the event Keeley-Teton Advisors, LLC ("Keeley-Teton") securities information vendors do not classify a security's issuer to a particular sector or industry or if the published classification appears to be incorrect, Keeley-Teton Advisors, LLC ("Keeley-Teton") may classify the security's issuer according to its own judgment, using other securities information vendors, the company description and other publicly available information about the company's peer group. Sector and/or industry classifications may change over time. The attribution information provided in this commentary includes summaries of attribution by market sector. Attribution is not precise and should be considered to be an approximation of the relative contribution of each of the sectors considered. The information on performance by sector reflects the aggregated gross return of the Fund's securities. Contributions to the Fund's performance by sector (computed as described above) were compared against the contributions to the aggregate return of the stocks comprising the index, by sector, as reported by FactSet Databases. Holdings returns for this commentary are calculated as total returns, which reflect any dividends or income earned during the period. Prior to 9/30/16, holdings returns were based upon price percentage change.

The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by Keeley-Teton Advisors, LLC ("Keeley-Teton"). Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Data provided for performance attribution are estimates based on unaudited portfolio results. Performance contributors and detractors were not realized gains or losses for the Fund during the quarter. Market performance presented solely for informational purposes. The S&P 500 Index is designed to act as a barometer for the overall U.S. stock market. The index is unmanaged, consisting of 500 stocks that are chosen on the basis of market size, liquidity, and industry grouping. The S&P 500 is a market value weighted index with each stock’s weight in the index proportionate to its market value. The Russell 2000® Value Index is an unmanaged index that measures the performance of the small-cap value segment of the U.S. equity universe and includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000® Index is an unmanaged index that measures the performance of the smallest 2,000 companies by market capitalization of the Russell 3000® Index. The Russell 2500® Value Index is an unmanaged index that measures the performance of the small to mid-cap value segment of the U.S. equity universe and includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500® Index is an unmanaged index that measures the performance of the 2,500 smallest companies by market capitalization of the Russell 3000® Index. The Russell Midcap® Value Index is an unmanaged index that measures the performance of the mid-cap value segment of the U.S. equity universe and includes those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap® Index is an unmanaged index that measures the performance of the 800 smallest companies by market capitalization of the Russell 1000® Index. The Russell 1000® Index is an unmanaged index that measures the performance of the 1,000 largest companies by market capitalization of the Russell 3000® Index. The Russell 3000® Value Index is an unmanaged index that measures the performance of the broad value segment of the U.S. equity universe and includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies by market capitalization. These Index figures do not reflect any deduction for fees, expenses or taxes, and are not available for direct investment. Securities in the Fund may not match those in the indexes and performance of the Fund will differ. The KEELEY All Cap Value Fund, KEELEY Small-Mid Cap Value Fund, KEELEY Small Cap Value Fund, KEELEY Small Cap Dividend Value Fund, and KEELEY Mid Cap Dividend Value are distributed by G.distributors, LLC.

The top ten holdings of KMDVX as of December 31, 2016 include BOK Financial Corporation (2.62%), Lincoln National Corporation (2.39%), Comerica, Inc. (2.19%), CIT Group, Inc. (2.07%), Air Lease Corporation (2.02%), Iron Mountain, Inc. (1.99%), Voya Financial, Inc. (1.99%), Vulcan Materials Company (1.98%), HollyFrontier Corporation (1.97%), and Computer Sciences Corporation (1.89%).

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund before investing. The prospectus, which contains more complete information about this and other matters, should be read carefully before investing. To obtain a prospectus, please call 888-933-5391 or visit keeleyfunds.com.