Market Sector Update

• The market continued nudging higher, with many indexes setting new all-time highs in late June. Positives include a strong economy creating good company earnings, as well as few signs of inflation.
• However, the market is struggling with high valuations, rising interest rates and lingering disappointment in the Trump administration's inability to deliver on its pro-growth agenda.
• The Russell 1000 Value Index’s (the Fund’s benchmark) return for second quarter was 1.34%. Value did outperform growth in June, but we view this occurrence as part of the short term ebb and flow rather than the start of a trend. As usual, we try to ignore short-term fluctuations and keep our focus on the long term.

Portfolio Strategy

• For the quarter, the Fund had a positive return (before the effect of sales changes) and slightly outperformed the benchmark, largely due to individual stock selection.
• The Fund paid a quarterly dividend of 14.1 cents, which is a 2.61% annual run rate based on the Fund's quarterend NAV. As high current income is one of the objectives for the Fund, we believe the dividend could increase over the next year based on current holdings.
• Holdings in consumer discretionary and energy added the most value. New Fund addition Hanes Brands and a recovery from Limited Brands were among the highlights of consumer stocks. There were few negatives for the quarter with technology and consumer staples being the sectors detracting from relative performance.
• The Fund is overweight in financials where we find value and yield. In these areas, we have been able to find good companies with repeatable business models, generating high rates of free cash flow, and low stock prices relative to our estimation of each company’s true intrinsic value. Often this is due to short-term negative factors, and we become larger owners of a company if we feel those negatives are about to dissipate.
• The portfolio is concentrated less in the areas of utilities, health care and industrials. We believe other sectors offer more compelling value at this point in time.

Outlook

• After eight years and some stops and starts, the U.S. economy has recovered from the recession in 2008 and seems to have settled out in a low single-digit growth area. Recent data has been even more encouraging, with a recovery of jobs and capital expenditures in the energy sector and improvements in the labor market and manufacturing data.
• The next challenge will be for the Federal Reserve (Fed) to tighten its monetary policy. As expected, the Fed raised the key federal funds rate by 0.25 percentage point in June, and we believe an additional rate hike is possible before the end of the year. Slowing the economy and inflation via interest rate hikes is a difficult job however, one we liken to stepping on a rolling egg to stop it without breaking it. History shows a high probability of failure, particularly if raising interest rates too much and initiating a recession. This is something we will watch carefully.
• While the economic forces listed above are clearly important factors, our team’s first approach is at the company level. We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic values. Often this is due to short-term negative factors, and we become larger owners of a company if we feel those negatives are about to dissipate.
• We continue to search for and make investments one company at a time, seeking to benefit clients over the long run.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 2017, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings (%) as of 06/30/2017: Eaton Corp 6.1, MetLife, Inc. 5.3, Marathon Petroleum Corp 5.2, PacWest Bancorp 5.1, Plains All American Pipeline 4.9, Qualcomm, Inc. 4.8, American Capital Agency Corp 4.8,&br;Great Plains Energy, Inc. 4.7, Wells Fargo & Co 4.6, Pfizer, Inc. 4.6.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

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