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Small Cap Core

as of 3/31/15

Fund Commentary

Small-cap stocks generally outperformed large-cap stocks (according to Russell benchmarks), led by higher valuation stocks and lower quality issues. The small-cap resurgence may reflect the appeal of more domestically focused U.S. small-cap companies over their larger-cap peers. However, energy stocks continued to drag on the small-cap market. Overall, though, smaller energy companies suffered less than their larger, integrated energy company peers.

The Small Cap Core Fund posted a total return of 4.75% for the quarter, compared with 4.32% for the Fund’s benchmark, the Russell 2000® Index. Stock selection was strongest within the industrials sector and weaker among utilities, telecommunications services companies and real estate investment trusts (REITs). An underweight to the strongly performing but lower-quality-rated biotechnology industry also had a negative effect on Fund performance. However, stock selection within other healthcare industries more than made up for the biotechnology underperformance.

Micro-cap stocks (those with market capitalizations of less than $150 million) outperformed in the Fund, more than offsetting underperformance by similarly sized companies within the index. Companies excluded from purchase in our Fund’s strategy because of their low-quality ratings outperformed, mostly due to strong performance among healthcare (biotechnology) stocks. Performance favored more highly priced stocks relative to book value or earnings (high P/B, high P/E), but it also rewarded higher profitability and margins. The healthcare sector represented an exception to these results, as companies with both high and low profit margins and returns on equity performed well.

Going forward, we will continue to invest in a diverse portfolio of small-cap stocks in a cost-efficient manner. We will continue to seek exposure to micro-cap stocks while seeking to avoid stocks with lower quality characteristics, as indicated by our proprietary quality model.

Not FDIC insured | May lose value | No bank guarantee

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