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 2017

To Our Shareholders:

For the quarter ended September 30, 2017, The Keeley Mid Cap Dividend Value Fund’s net asset value (“NAV”) per Class A share increased 6.32% versus a gain of 2.14% for the Russell Mid Cap Value Index. Year to date, the Fund has appreciated 8.68% compared to the 7.43% gain in the Russell Mid Cap Value Index.

Commentary

The momentum of positive economic growth in the second quarter of 2017 continued through the third quarter. Despite the economy showing sequentially improving ISM (“Institute for Supply Management”) and employment data, the market appeared concerned that the “party was over” as comments from global central banks regarding the end of global quantitative easing dominated headlines in July. Whether it was the Federal Reserve (the “Fed”) looking to initiate a runoff of its balance sheet, the Bank of England hinting at rate increases, or the European Central Bank suggesting it was nearing the end of its bond buying, investors grappled with the scenario of an end to “peak” quantitative easing. As if to telegraph proper expectations, the Fed has regularly conveyed its intent for “measured” rate increases, tempered according to future data or persistent low inflation. Yet, fears of higher rates and the corresponding economic impact led to a weakening dollar and a decline in the yield on the 10-year Treasury from 2.27% to 2.13% by the end of August. As in the second quarter, these concerns rewarded larger cap growth stocks with outperformance versus small and mid-cap value. Altogether though, we do not see this scenario as destabilizing, but rather supportive and indicative of a healthy, growing economy that will ultimately benefit the Fund and its holdings.

The global economy continues to demonstrate its first synchronized economic expansion in many years, supported by stabilizing commodity prices and steadily climbing industrial output. Second quarter GDP grew at an annualized rate of 3.1%, which was the strongest result in over two years. This GDP growth is being propelled by the consumer, with little assistance from corporate spending as business leaders patiently wait for clarity on the structure and timing of President Trump’s promised policy changes.

Ironically, it took the unfortunate force of a string of destructive hurricanes to give Washington a wake-up call that collaboration was necessary to move forward. Unexpected to Republican leadership, President Trump cut a deal with Democrats to extend the debt ceiling, avoiding any government shutdown and any risk in the government’s ability to fund disaster relief. It was a clear signal of willingness to ensure that government action does not derail economic expansion. Add to this the urgency from Washington to get a tax reform package passage before year end, and the market re-embraced the Trump reflation trade. A reversal of the prior two months ensued with small cap value stocks, as companies with the most exposure to a rebounding US economy and those with the highest corporate tax rates, outperformed larger cap, growth companies.

Capping the quarter, September’s reading for the ISM manufacturing index topped a thirteen year high with the rise in the new orders index being consistent with strong corporate earnings and capital spending. These events sketched the picture of a resilient economy in the face of hurricane disruption, spurring the markets steadily higher.

The third quarter of 2017 was the best quarter for the Keeley Mid Cap Dividend Value Fund on a relative basis since its inception in 2011. From a macro standpoint, the increase in interest rates that we saw during the quarter was a slight tailwind as the Fund’s interest-sensitive holdings mainly benefit from rising rates. In addition, the Fund was helped by the fact that smaller mid-cap stocks outperformed larger ones and dividend-payers outperformed stocks that do not pay a dividend. The Fund benefitted from an unusually wide disparity between the number of stocks with big moves higher vs. big moves lower. Only three stocks declined more than 10% in the quarter while twenty rose more than 10%. With the Russell Mid Cap Value Index up only 2.14%, this was a favorable mix for the Fund.

One way we look at performance is to disaggregate it into the impact from sector allocation and security selection decisions. Because we attempt to manage the portfolio in a relatively sector-neutral manner, relative performance is generally driven by security selection. This past quarter followed that script, with some minor sector allocations, primarily Healthcare and Telecommunications, contributing positively as well.

The Fund’s holdings outperformed in all but one of the eleven sectors that comprise the Russell Mid Cap Value Index; the lone underperformer being Materials. The Utilities, Information Technology, Financials, and Healthcare sectors each added more than 50 basis points of relative performance in the quarter through stock selection. In some sectors, such as Utilities, one stock (NRG Energy - NRG) made up the lion’s share of the outperformance. In most sectors, however, the gains were distributed amongst several stocks.

Whereas last quarter, we noted that much of the Fund’s underperformance came from retail and retail real estate, this quarter we saw stocks benefit from a variety of drivers. Several stocks benefitted from transactions. Some were new announcements: Scripps Networks Interactive (SNI) announced a sale to Discovery Communications (DISCA); and Autoliv (ALV) announced it was looking at spinning off its active safety business. In other cases, companies continued to execute on prior restructuring initiatives: NRG announced the results of its business review committee; and FMC Corporation (FMC) progressed toward closing its acquisition of DowDuPont’s (DWDP) agricultural chemicals business. Other stocks, such as Harris Corporation (HRS) and Ameriprise Financial (AMP) moved higher on strong earnings and rising expectations, while others, such as Spirit Realty Capital (SRC), bounced back from stock price weakness earlier in the year. We are encouraged that so many factors contributed to the Fund’s outperformance.

The top three performing stocks in the quarter were:

NRG Energy, Inc. (NRG) is an independent producer of electricity with a portfolio of 44 Gigawatts (GW) of conventional generation and 4.8GW of renewable assets, wholly-owned and through its controlling ownership in NRG Yield (NYLD).  As is the case with restructuring stories, NRG’s stock performance has been lumpy, yet overall very positive. The stock was a top contributor in the first quarter driven by the company’s debt and cost reduction plan exceeding expectations. However, NRG was the third worst detractor in the second quarter despite activist investors taking an equity stake in the company, recommending two new Board members, and laying out a plan for additional cost savings above the $500 million already achieved. Short-term hiccups comprised of higher than expected advisory fees related to the formation of a Business Review Committee spurred by the activists as well as warmer weather caused the company to miss earnings. The stock rebounded strongly in the third quarter on news that the Board of Directors accepted a 3-Year Plan presented by the Business Review Committee. This plan entails further cost and debt reduction plus business simplification, essentially reinforcing our initial analysis that the stock price was trading at a significant discount to the value of NRG’s individual businesses.

HollyFrontier Corporation (HFC) is one of the leading independent refining companies in the US. Its facilities are located inland and therefore primarily refine domestic crude oil. Slower US crude production growth and OPEC production curbs have worked down excess crude and fuel inventories in the US. Hurricane Harvey accelerated this process as it shut down many of the refineries along the US Gulf Coast. This reduction in output led to higher gasoline and diesel fuel prices and wider differentials between US and imported crudes. Because its own refineries were not impacted, HFC’s stock price benefitted, and we expect to see an earnings benefit in the company’s September quarter results.

FMC Corporation (FMC) is a specialty chemical company focused on agricultural chemicals. At the end of the first quarter, FMC agreed to swap its personal care products business for a large part of DowDuPont’s agricultural chemicals business. The stock reacted well to the announcement at the time and has continued to grind higher as the various items necessary to close the deal have been resolved. The deal is expected to close in early November, and we remain optimistic about its impact on FMC’s business. In addition, the company announced that it plans to spin off its lithium business in the first half of 2018. This would make FMC a pure-play agricultural chemicals company, consistent with our general corporate change theme, and could ultimately unlock hidden value in the company’s lithium business.

The bottom three performing stocks in the quarter were:

Foot Locker (FL), a global retailer of athletically inspired shoes and apparel, continued to struggle in the third quarter as earnings fell far short of expectations, comparable sales declines worsened, especially in June and July, and store traffic fell at a mid-single digit pace.  In addition, investors have become more concerned about perceived secular headwinds facing retailers, particularly competition from online participants such as Amazon. While we acknowledge the headwinds, we believe the stock has overreacted to such concerns.

AmeriSourceBergen (ABC) is one of the largest distributors of branded, generic, and specialty pharmaceuticals. Its stock lagged in the third quarter after the company reported lackluster second quarter earnings.  ABC lowered its revenue guidance for the balance of the year, due to slower brand price inflation, and saw a lower-than-expected tax rate mask relatively weak operating trends.  In addition, investors were disappointed that AmerisourceBergen held fast to its previously stated view that generic drug pricing will decline in the high single digits, and that generic deflation isn’t improving.  We remain confident that AmerisourceBergen has a superior book of business to its peers, that it trades at a reasonably attractive valuation and that it has several other businesses, such as animal health, that can help drive future growth.

Vulcan Materials (VMC) is a leading supplier of aggregates, asphalt, and concrete for the infrastructure and construction industries. During the quarter, the company was negatively impacted by weather, which caused aggregate shipments to fall 12% in impacted markets. This led management to reduce full year EBITDA guidance.  Looking forward, weather will likely be a negative factor again given that two hurricanes (Harvey & Irma) made landfall within its service territories.  On the positive side, overall aggregate pricing and the company’s gross profit per ton continue to improve.  Management expects the weather impact to be temporary, and it reiterated its positive long-term outlook.  We agree with management and anticipate a much better 2018.

Conclusion

We remain cautiously optimistic as we approach year end given synchronized global economic growth, prospects for lower corporate taxes, and a slightly weaker dollar. Taken together, we view these items as a positive for the small and mid-sized companies in which the Fund invests. Thank you for investing alongside us in the Keeley Mid 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 January 31, 2018.

This summary represents the views of the portfolio managers as of 09/30/17. 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, 2017 include FMC Corporation (2.41%), Lincoln National Corporation (2.39%), Air Lease Corporation (2.31%), Comerica Incorporated (2.21%), Iron Mountain, Inc. (2.19%), BOK Financial Corporation (2.15%), HollyFrontier Corporation (2.05%), DXC Technology Co. (2.01%), Cigna Corporation (1.96%), and Oshkosh Corp (1.94%).

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.