KEELEY Mid Cap Dividend Value Fund

Investor Class (A) Shares: KMDVX

Institutional Class (I) Shares: KMDIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 3rd Quarter 2019

To Our Shareholders:

For the quarter ended September 30, 2019, the Keeley Mid Cap Dividend Value Fund’s net asset value (“NAV”) per Class A share rose 1.32% compared with a 1.22% gain for the Russell Midcap Value Index. Year-to-date, the Fund is up 17.36% compared with a 19.47% gain for the benchmark.

Commentary

Summer is usually a fairly quiet time of year, but the third quarter was anything but quiet. While the market was relatively calm, the cross-currents in the economy and on the political landscape continue to make the outlook cloudy. The trends from last quarter continued as we saw another Fed rate cut, the trade conflict between the U.S. and China churned on, and growth in economies around the world slowed. On the positive side, consumer confidence, as measured by the University of Michigan’s Consumer Sentiment Index, remained steady in July before dropping in August and then strengthening in September. Gains in jobs and incomes helped to offset some of the uncertainty over trade issues. Other positive signs for the U.S. economy included strong growth in housing starts and the labor force participation rate ticked up in August to 63.2% -- a level that matches recent highs posted in early 2019. Meanwhile, some less-encouraging data included lackluster job gains in August, with nonfarm payroll growth well below expectations. In addition, ISM U.S. manufacturing Purchasing Managers’ Index declined for a second straight month in September and the 47.8% reading was the lowest since June 2009.

Two issues that had been simmering on the back burner moved forward during the quarter, one domestic and one international. The domestic issue is the effort in the House of Representatives to impeach President Trump. There is no question that impeachment would introduce to the market yet another element of uncertainty. The international issue involves the recent attack on a major Saudi oil production facility.

The equity market, as measured by the S&P 500 Index, was up 1.2% in the third quarter and is now up 18.7% through the year’s first nine months. Larger cap stocks continue to outperform small caps, with the Russell 1000 Index gaining 1.4%, in the quarter, while the Russell 2000 Index lost 2.4% and the Russell Midcap Index landed in between with a 0.5% gain. For the first time this year, Value outperformed growth, although it did so only in small cap and mid cap. Large cap growth stocks continue to beat large cap value stocks and were the best performing style category.

Meanwhile, bond market yields continue to fall with the 3-month US Treasury bill yield falling 24bps to 1.88% and the 10-year bond falling 32bps to 1.68%. The yield curve inverted in the second quarter for the first time since 2007 and remained inverted in the third quarter. In the commodities markets, gold was up 2.8%. Oil fell 3.0% in the quarter.

When the year began, we were optimistic about the outlook for the market. The fourth quarter 2018 market slump had lowered valuations to a very attractive level. Furthermore, we thought the factors that led to the fall (trade wars and the government shutdown), would be resolved. The government shutdown was short-lived, but the trade conflict lingers. The trade disputes had led to some of the softness in the economic numbers in the U.S. and abroad. Over this same time period, the market has been strong with solid double-digit gains across the board. As a result, valuations have moved up, but the only segment where valuation is below its long-term average is small-cap value, while mid-cap value is a little above its long-term average.

Portfolio Results

We are pleased to report that the Keeley Mid Cap Dividend Value Fund outpaced its benchmark in the quarter, representing an improvement from the performance in the first half of the year.

Sector Allocation and Stock Selection were both positive contributors to performance, The Selection impact was positive in four sectors and negative in four and a push in the other three. The best-performing sectors were the Materials, Health Care and Communication Services sectors, with good contributions from the Consumer Staples sector as well. The sectors that lagged the most were Financials, Energy, and Utilities.

Gains in the Materials sector were broad-based, with five of the Fund’s six holdings significantly outperforming the index. The top contributors there were Vulcan Materials and RPM International, both of which posted strong revenue and earnings growth, and Huntsman Corporation.

Although the Health Care sector was negative for the quarter – owing to continued fears of greater government influence on several aspects of the industry – the Fund posted a positive return in the sector. The gains were led by Universal Health Services, but each of the Fund’s five holdings outperformed the sector.

The Communication Services sector is another sector where the index posted negative performance for the quarter, but the Fund returned close to 9%. Both of the Fund’s stocks in the sector, Cinemark Holdings and Nexstar Media Group, posted solid gains.

The Consumer Staples sector was the third best performing sector in the benchmark, but the Fund’s Consumer Staples holdings performed even better. Packaged foods company Conagra Brands and leading French fry producer both generated double-digit gains in the quarter.

The Financial sector was the largest detractor on a relative basis for the Fund during the third quarter. The weakness was most pronounced at Virtu Financial, which declined almost 24% owing to diminished market volatility, which is a leading driver of profitability for the firm.

Energy was the weakest sector in the Russell Midcap Value Index in the quarter and the Fund’s holdings did even worse. Natural gas companies Cabot Oil & Gas and EQT led the way down on weaker natural gas prices. Because both stocks were amongst the Fund’s biggest detractors, we discuss them below in the Let’s Talk Stocks section.

The Utilities sector was the second-best performing sector in the Russell Midcap Value index. While the Fund’s holdings in the sector performed well, they did not keep up. The primary reason for this was the 10% decline in National Fuel Gas. The company is not only a gas utility, it is also a natural gas producer and, as we noted in the last paragraph, that was not a good place to be.

During the quarter, the Fund added five new positions and one holding was converted due to a merger (Total System Services was acquired for stock by Global Payments).

Let’s Talk Stocks

The top three contributors in the quarter were:

Sabra Health Care REIT (SBRA - $22.96 – NASDAQ) is a Healthcare REIT focused on Skilled Nursing facilities (SNF) and Assisted Living and Independent Living facilities. The market rewarded Sabra’s second quarter of in-line results as the company has been plagued by missteps and industry woes since the acquisition of Care Capital Properties in August 2017. Investors are starting to become comfortable with management’s focus on fixing the credit quality of the company by cleaning up the portfolio and improving the balance sheet to maintain investment grade ratings. Underlying trends remain favorable and with management’s focus shifting back towards growth should continue to help close the significant valuation gap with peers.

Brixmor Property Group (BRX - $20.29 – NYSE) is a real estate investment trust that owns grocery-anchored shopping centers. The company has been in the midst of a multiyear transformation aimed at sharpening its portfolio. These efforts have included reducing the number of markets in which the company operates, increasing the number of redevelopments that it is undertaking and swapping out certain anchor tenants for better ones. During the quarter, Brixmor shares outpaced broader REITs as investors became bigger believers in Brixmor’s accelerating rental income and profit growth in the coming quarters. The company’s healthy 6% yield also has drawn some investor interest.

Vulcan Materials Company (VMC - $151.24 – NYSE) is a leading producer of aggregates and other construction materials (asphalt, concrete, and calcium) for use in infrastructure and buildings. The company reported an excellent quarter despite significant weather headwinds posting double-digit revenue and EPS growth. Aggregate pricing environment remains very robust and management expects an improvement in the asphalt segment as input costs moderate. The outlook remains very positive as end-markets remain strong with continued strength in aggregate pricing. Outlook could improve further if there is any progress in Washington on a new Federal Highway bill.

The three largest detractors in the quarter were:

DXC Technology (DXC - $29.50 – NYSE) is one of the world’s largest providers of information technology services. DXC saw several setbacks in the quarter which drove the share price lower. The first was disappointing fiscal first quarter financial results. While the company has done an admirable job cutting costs, it has been unable to stem its revenue declines. It also lowered its full fiscal year (ends March) outlook. The second setback was the retirement of CEO Mike Lawrie. While new CEO Mike Salvino comes with an excellent track record and is probably better suited to lead the company at this stage of its evolution, concerns arose that new management may have to ramp up spending in order to stabilize revenue growth.

EQT Corporation (EQT - $10.64 – NYSE) is a natural gas focused exploration and production company operating in Appalachia. The company experienced a highly visible proxy fight in early July which resulted in dissident shareholders taking control of the board and executive suite. While we were supportive of the winning side in this fight, it appears investors are thinking changes to the cost structure may take longer than expected to realize especially after the new management reduced headcount a month after taking over.

Cabot Oil & Gas (COG - $17.57 – NYSE) is one of the lowest cost producers of natural gas in North America. Investors were spooked at capital spending which came in above expectations when the company reported 2Q19 results. However, the reasoning for the higher Capex was for the company to acquire adjacent acreage enabling COG to drill longer laterals at superior economics. Furthermore, this is a company already returning cash to shareholders at a time when few industry participants can.

Conclusion

In conclusion, thank you for your investment in the KEELEY MidCap Cap Dividend Value Fund. We will continue to work hard to justify your confidence and trust.

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 February 28, 2020.

This summary represents the views of the portfolio managers as of 09/30/19. 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 September 30, 2019 include Air Lease Corporation Class A (2.02%), Brixmor Property Group, Inc.(1.93%), Sabra Health Care REIT, Inc. (1.89%), BWX Technologies, Inc. (1.88%), Vulcan Materials Company (1.87%), FMC Corporation (1.82%), Discover Financial Services (1.74%), Hudson Pacific Properties, Inc. (1.72%), NRG Energy, Inc. (1.72%), Oshkosh Corp (1.70%).

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 800-422-3554 or visit keeleyfunds.com.