KEELEY Small Cap Dividend Value Fund

Investor Class (A) Shares: KSDVX

Institutional Class (I) Shares: KSDIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 3rd Quarter 2017

To Our Shareholders:

For the quarter ended September 30, 2017, The Keeley Small Cap Dividend Value Fund’s net asset value (“NAV”) per Class A share rose 4.34% versus a gain of 5.11% for the Russell 2000 Value Index. Year to date, the Fund gained 4.31% compared with a 5.68% gain for the Russell 2000 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 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.

When we disaggregate the Fund’s performance into the impact from sector allocation and stock selection decisions, both components were minor detractors. The Fund’s positions in the Consumer Discretionary and Consumer Staples sectors led the way in positive performance. Winnebago Industries, Inc. (WGO) and NACCO Industries, Inc. (NC), which we discuss later, drove most of the gains in Consumer Discretionary though they were partly offset by a decline in the shares of Time Inc. (TIME), which continues to struggle with declining circulation and advertising revenues that have not been offset by corresponding growth in online sales. Sanderson Farms (SAFM), the Fund’s only Consumer Staples stock, turned in another strong quarter of earnings and stock price appreciation. Stronger chicken prices and weaker feed costs drove higher profitability.

The outperformance in the consumer sectors was offset by lagging performance in other sectors; specifically, Health Care, Materials, Energy, and Industrials. In Healthcare, the Fund’s position in Chemed Corporation (CHE) declined slightly in the quarter while the sector, which was the strongest performer in the Russell 2000 Value Index, increased 12.5%. The gains in this sector were largely driven by biotechnology stocks. As you might imagine, our investment theme that focuses on dividend-paying small cap stocks does not mesh well with biotechnology names, as there are exactly zero small cap biotech stocks that currently pay dividends. In periods when biotech is strong, it will thus be extremely difficult for the Fund to keep pace with the Healthcare sector. In Materials, Hawkins, Inc. (HWKN) and Commercial Metals Company (CMC), which were two out of the Fund’s three holdings in this sector, declined while the sector increased almost 8%. Hawkins declined on an earnings shortfall, while CMC fell slightly due to higher scrap metal prices and a tough import environment.

The Fund’s lagging performance in Energy partly reversed a couple of good quarters of relative outperformance in the sector. The Fund’s energy holdings tend to be less sensitive to changes in oil prices than the overall Energy sector. With the rise in oil prices during the quarter, the Fund’s holdings were unable to keep up with the Energy sector’s performance within the Russell 2000 Value Index. In addition, a disappointing quarter from energy logistics company World Fuel Services Corporation (INT) added to the Fund’s underperformance. In the Industrial sector, AZZ, Inc. (AZZ) reported disappointing earnings results shortly before quarter end in part due to disruptions from Hurricane Harvey.

The top three performing stocks 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). The company was one of the leading contributors to Fund performance in the second quarter and was the largest contributor in the third quarter. The story remains the same as last year’s acquisition of Grand Design continues to increase Winnebago’s presence in the faster growing towable segment.  In addition, new products have improved the fortunes of its core motorhome business as backlog has improved. Finally, the management team continues to focus on improving the operational side of the business, which we believe will lead to better profitability.

FBL Financial Group (FFG) is a mid-sized life insurance company. It operates under the Farm Bureau Life brand in fourteen mostly Great Plains and western states. Its company-agent model and lower risk approach creates a lower volatility earnings stream which allows it to aggressively return capital to investors. The stock performed well in the quarter due to the rise in longer-term rates and strong second quarter earnings.

NACCO Industries (NC) is a small-cap conglomerate with operations in contract coal mining, small kitchen appliances, and housewares retailing. During the quarter, the company announced and completed the spin-off of its Hamilton Beach Brands (HBB) subsidiary. We believe the separation will draw more attention to the underlying businesses. The coal mining business does not have much exposure to commodity prices as NACCO operates mines on a contracted basis. The Hamilton Beach business should be valued much higher than it was as part of a “coal company”.

The bottom three performing stocks in the quarter were:

Diebold Nixdorf (DBD) is the second largest maker of ATM machines worldwide following its merger with Wincor Nixdorf last year.  The quarter began with large cuts to its 2017 revenue and EBITDA guidance that led to a steep drop in the share price. Diebold seems to have lost share to competitor NCR during the protracted closing of its merger with Wincor Nixdorf. NCR used the uncertainty associated with the transaction and some aggressive pricing to take market share.  The share gains had a large negative impact to NCR’s margins, and NCR has now become more rational in its product pricing. We believe that this has led to a more stable environment where Diebold is starting to win back its lost market share.

Plantronics Incorporated (PLT) is one of the leading makers of communications headsets for office, call center, and consumer applications. The company reported disappointing June quarter results as revenue fell short of expectations. A product transition in its consumer headsets accounted for some of the weakness. In addition, Plantronics saw slower sales in its Enterprise segment as prospects slowed their decision-making to evaluate some new “cloud-based” communications products. Both factors seem transient, but we admit that the timing of their resolution is difficult to pinpoint so this stock could take a couple quarters to sort itself out.

Hawkins Incorporated (HWKN) is a leading specialty chemical distributor operating in three segments: chemical distribution, water treatment, and health and nutrition. During the quarter, the company experienced margin headwinds in the chemical distribution segment, while also being negatively impacted by both revenue and margin pressures within the health and nutrition segment. This led to a significant earnings shortfall.

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-sized companies in which the Fund invests. Thank you for investing alongside us in 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 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 KSDVX as of September 30, 2017 include Winnebago Industries, Inc. (2.48%%), BancorpSouth, Inc.(2.35%), Ensign Group, Inc. (2.28%), Cypress Semiconductor Corporation (2.24%), FBL Financial Group, Inc. (2.22%), Wintrust Financial Corporation (2.21%), KBR, Inc. (2.02%), Berkshire Hills Bancorp, Inc. (2.02%), Primoris Services Corporation (1.96%), and CareTrust REIT, Inc.(1.92%).

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.