KEELEY Small Cap Dividend Value Fund

Investor Class (A) Shares: KSDVX

Institutional Class (I) Shares: KSDIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 1st Quarter 2018

To Our Shareholders:

For the quarter ended March 31, 2018, the KEELEY Small Cap Dividend Value Fund’s net asset value (“NAV”) per Class A share fell 2.55% versus a decline of 2.64% for the Russell 2000 Value Index.

Commentary

Volatility came back to the stock market in the first quarter of 2018 after a long hibernation. The S&P 500 Index bolted out of the starting gates to deliver a 5.7% return in January, the best start to the year since 1997. This built on the strong end to 2017 and was largely due to enthusiasm for US tax reform, which lowered taxes for most companies by a significant amount.

The S&P 500 Index’s February’s 3.7% decline was nearly as historic, as it snapped a 15-month winning streak for the Index. This was the longest string of consecutive monthly advances since the 1970’s. March then brought further declines which resulted in a 0.8% decline in the S&P 500 Index for the quarter. Smaller stocks fared better with the Russell 2000 Index down only 0.1% and the Russell Mid Cap Index down 0.5%. We believe this is because smaller companies generate approximately nineteen percent (19%) of their revenue overseas, whereas the mid to larger sized companies Index generate approximately thirty-nine percent (39%) of such revenue overseas. Growth stocks outperformed value stocks in all size classes.

Two threats to the story of synchronized global growth have been simmering in the background: trade wars and inflation. These risks moved to the forefront during the quarter as inflation picked up and the United States proposed tariffs on a wide range of imported goods; some targeted at specific countries (China) and others at specific industries (steel and aluminum). The choppiness was exacerbated by the multi-year shift of fund flows to computer-driven passive investing. Exchange traded funds (ETFs) accounted for as much as forty percent (40%) of total stock trading on market decline days.

Investors have worried about trade wars since President Trump initially campaigned on his intention to “renegotiate” NAFTA and “tear it up” if a new deal could not be struck. Both as a candidate and as President, he has continued to hammer away at the concept that the US trade deficit should be closed by implementing various trade actions against countries that run a trade surplus with the US. The rhetoric was matched by actions during the quarter as the Administration proposed several rounds of tariffs. While some have led to further negotiations, others have been met with an equivalent response. The US-China trade conflict seems most worrisome and has the potential to disrupt the economy and inject some unanticipated inflation into the system. At this point, it seems like both sides are attempting to work out a deal, but the risk of disruption remains.

On the inflation front, wage growth accelerated in January to two point nine percent (2.9%), the strongest gain since mid-2009, and the Consumer Price Index (CPI) topped analyst estimates, holding to an above two percent (2%) trend. Incoming Federal Reserve chairman Jerome Powell concurred that “inflation is moving up to target.” Yields on two to ten year US treasury notes began a sharp, upward move as inflation fears and higher rates were both incorporated into market outlooks. Generally, economists expect four Federal Reserve interest-rate hikes in 2018 and four more in 2019. Although recessions tend to occur when there is an over-tightening of monetary policy, we do not envision this in the near term.

Broadly considered, the global economy continues to demonstrate the first synchronized economic expansion in many years, supported by stable commodity prices and steadily climbing industrial output. Much the same is reflected domestically, yet with added drivers such as recently enacted corporate tax reform.

The current bull market marked its ninth anniversary in March 2018. Despite the length of the advance, we do not believe that valuations appear stretched at this point. In fact, we think that they actually became more reasonable in the first quarter of 2018. While partly due to the decline in share prices, we believe that upward earnings estimate revisions on the heels of the cut in the corporate tax rate had a bigger impact. Earnings estimates for the S&P 500 Index rose eight percent (8%) since year-end, while they also increased eight percent (8%) for the S&P Mid Cap 400 Index and six percent (6%) for the S&P Small Cap 600 Index. We believe the more favorable revision pattern for large caps vs. small caps arises largely from the weaker dollar. At the end of the first quarter of 2018, the S&P 500 Index traded at 16.4x forward EPS vs. 18.3x at the end of 2017. Moreover, this multiple has averaged 15.7x since 1998. For the S&P Small Cap 600 Index, these measures were 17.2x, 18.8x, and 16.0x, respectively. If the economy remains on track, and we do not get a negative surprise on the geopolitical front, current valuations should not inhibit further share gains.

While the Fund outperformed the Russell 2000 Value Index during the quarter, we generally expect to outperform by more than we did in a falling market. A couple of headwinds held back performance. First, dividend-paying small-cap stocks fell more than non-dividend-paying small-caps: losing 3.0% vs. 2.0%. Second, and partly related, was the strength in small-cap biotechnology and pharmaceuticals stocks, none of which pay dividends.

Overall, both sector allocation and stock selection slightly contributed to performance. The sector allocation impact was spread broadly with no overweight or underweight contributing much, while the stock selection impact was more narrowly focused. Leading the good side was the Financials sector, which added nearly two hundred basis points (200 bps) to relative performance. Much of this outperformance came from one stock, Virtu Financial (VIRT, discussed below) which rose more than eighty percent (80%) during the quarter. The rest of the Fund’s financial holdings, however, also did well, as fifteen of twenty-one stocks outperformed the sector. Technology was a second area of strength as good performance in Plantronics (PLT) and Cypress Semiconductor (CY) provided a boost. At Plantronics, the announcement of the Polycom acquisition drove the share price higher, while Cypress benefited from a strong fourth quarter 2017 earnings report and a good near-term earnings outlook.

Industrials and Consumer Discretionary detracted from the Fund’s performance. Within Industrials, Macquarie Infrastructure (MIC, discussed below) led the downside after a surprise dividend cut. KBR (KBR) continued its struggles with a large oil & gas project and lackluster bookings. In Consumer Discretionary, Winnebago (WGO) was the leading detractor in the sector and in the Fund as a whole (more discussion later) and largely drove underperformance in the sector.

The top contributors in the quarter were:

Virtu Financial (VIRT) is one of the largest independent market-makers in stocks, bonds, and commodities. While the volatility in the market is disconcerting to investors, it is great for business at Virtu. Higher volumes and wider spreads make trading more profitable. In addition, the fourth quarter was the first quarter that included the acquired Knight trading business. The two factors together (volatility and the Knight acquisition) provided a significant boost to earnings and gave investors a glimpse at the earnings power of the combined company.

Ensign Group (ENSG) is a provider of healthcare services in the traditional skilled nursing, assisted & independent living, and home health and hospice markets.  The main focal point of the company’s strategy is acquiring and turning around underperforming operations, and the company has been very acquisitive over the past few years.  Recently, the company posted solid operating metrics, and the market is starting to realize the potential of accelerating profits as the company continues to improve these facilities.  Additionally, this strategy could provide the catalyst for the company to grow faster than industry peers.

Delek US Holdings (DK) operates four refineries in Texas, Oklahoma, and Louisiana. Last year, it acquired competitor Alon USA and has been working hard to integrate the company and rationalize certain acquired assets and costs. During the first quarter it made progress on this front as it bought in a small public MLP (master limited partnership) that Alon had sold to the public. It also sold some second-tier assets. Despite this external activity, the company continued to deliver solid operating results.

The three largest detractors in the quarter were:

Winnebago Industries (WGO) is one of the leading manufacturers of motorized and towable recreational products (motorhomes, travel trailers, and fifth wheel products). After being one of the top contributors for the past few quarters, Winnebago ended up on the bottom as the market grew concerned about a potential peak in the current RV cycle and potential margin pressure from rising commodity costs.  Winnebago and others in the industry anticipate another strong year of growth and do not see rising commodity costs being a major issue.  With this recent pullback, the stock is attractively priced and sets up a favorable risk/reward situation.

Macquarie Infrastructure Corporation (MIC) is a holding company with significant investments in fuel and chemicals storage tanks, airport operations, and utilities and renewables. After more than four years of consistently raising its dividend every quarter, Macquarie decided to cut it and more aggressively reinvest capital in its businesses. This caught the market by surprise, and the stock fell more than thirty percent (30%) on the day of the announcement.

SemGroup Corporation (SEMG) owns and operates energy infrastructure assets such as tank farms, pipelines, and gas processing plants. The stock declined in the quarter after the company produced solid fourth quarter 2017 results, but offered a more cautious outlook than expected for future EBITDA and dividend growth. Much of the shortfall from expectations relates to asset sales the company has completed or is pursuing. It plans to use the transaction proceeds to reduce leverage.

Conclusion

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

KEELEY Small 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, 2019.

This summary represents the views of the portfolio managers as of 03/31/18. 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 KSDVX as of March 31, 2018 include Chemed Corporation (2.50%%), Cypress Semiconductor Corporation (2.44%), Delek US Holdings Inc. (2.38%), Wintrust Financial Corporation (2.34%), Ensign Group, Inc (2.25%), BancorpSouth Bank (2.24%), Winnebago Industries, Inc.(1.99%), FBL Financial Group, Inc. Class A (1.99%), Berkshire Hills Bancorp, Inc. (1.90%), Silvercrest Asset Management Group, Inc. Class A (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.