Keeley Mid Cap Value Fund manager commentary for the first quarter ended March 31, 2015.

In the first quarter of 2015, the KEELEY Mid Cap Value Fund (KMCVX) climbed 2.74 percent compared to a 2.42 percent increase for the Russell Midcap Value Index. Over the six month period ended March 31, 2015, the Fund rose 3.60 percent compared to an 8.62 percent increase for the Russell Midcap Value Index.

Keeley Mid Cap Value Fund

Over the past six months, performance dispersion across all ten economic sectors was very high and active stock selection and portfolio allocation amongst those sectors had a decided impact on the Keeley Mid Cap Value Fund’s results during this period. For example, three sectors (financials, consumer discretionary, and health care) all produced double digit returns over the past six months, while energy fell over 28 percent. Industrials, technology, and materials, which represent over 25 percent of the benchmark index, returned only 5.75 percent, 5.01 percent, and 0.99 percent, respectively. The Fund trailed the benchmark index over the past six months due in large part to stock selection in the financials and industrials sectors, as well as an overweight position in the lagging energy sector. However, strong stock selection in the materials sector made a positive contribution to the Fund’s results over the past six months, and we trimmed the Fund’s holdings in poor performances, leading to its outperformance relative to the benchmark index for the first quarter of 2015.

Keeley Mid Cap Value Fund

The Fund’s overweight position in energy had a negative impact. After making a positive contribution for much of 2014, the Fund’s holdings succumbed to the pressure from the abrupt price decline in the commodity.

Keeley Mid Cap Value Fund’s Largest Detractor

Within that sector, Continental Resources (CLR) was the Keeley Mid Cap Value Fund’s largest detractor over the past six months after it traded down sharply in the wake of plummeting oil prices and the company’s decision to cut its cap-ex budget by $600 million. The stock declined 34 percent and cost the portfolio 77 basis points of performance during this six month period. The Fund continues to hold Continental despite concerns over its hedging strategy and the impact it may have on the company if the price of oil remains at current levels.

The financial sector also proved to be challenging over the past six months. Holdings in the sector were negatively impacted by the Fund’s lack of interest rate sensitive positions, as REITs did exceptionally well. The Fund’s lack of REIT exposure is consistent with our process, as we believe those companies do not possess the catalyst/corporate restructuring characteristics that we seek. Given a possible move by the Federal Reserve to raise interest rates, we were surprised by the strength in interest rate sensitive stocks in 2014. Almost all industry groups with yield performed well for the year, and certain areas, such as REITS, were extremely strong, boasting returns in excess of 30 percent for the year. Stock selection in financials also had a negative impact, and the Fund’s largest detractor in the sector was Genworth Financial (GNW), which fell over 33 percent and cost the Fund 61 basis points of return. The company is taking far longer than expected to turnaround its Long Term Care (LTC) business, which was the root of a disappointing earnings release. We elected to sell the position due to near and long-term uncertainty.

Keeley Mid Cap Value Fund’s Best Performer

The Keeley Mid Cap Value Fund’s best performer over the past six months was AmerisourceBergen Corp. (ABC), which climbed over 47 percent and added 111 basis points of performance.

The pharmaceutical services company easily exceeded earnings expectations in the first quarter of 2015 and also raised its earnings outlook for the rest of the year. The company experienced strong drug unit sales and saw specialty sales jump by 26 percent. A contract with Walgreens that was established last year was a significant driver of the drug sales gains and we believe that relationship should continue to foster growth over the long-term.

Sincerely,

John L. Keeley,
Lead Portfolio Manager

Jr. Brian R. Keeley
Co-Portfolio Manager

Kevin M. Chin
Co-Portfolio Manager

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change.