Manager Commentary

As of March 31, 2013

The Russell 2000 Index¹ advanced 12.39% during the first quarter, topping the 10.61% Standard & Poor’s 500 Composite Index (S&P 500)² return. Investors cheered continued economic growth and shrugged off concerns over tax increases and government spending restraint. However, concerns about economic and monetary policies in the U.S., Europe and Asia at times dampened the enthusiasm of investors and executives for stocks in some sectors and business spending, respectively.

Since the March 2009 lows, small cap stocks have increased more than 186% on a cumulative return basis, outpacing large cap stocks by more than 36%³. As we’ve mentioned before, small caps continue to benefit from a higher exposure to the U.S. economy and faster earnings growth. To date, mergers and acquisitions (M&A) activity has been muted. In our view, the environment remains conducive for an acceleration in M&A as revenue growth remains modest, balance sheets are strong, access to capital is available, and confidence is returning to senior management teams.

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¹The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000^® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Investors cannot invest directly in any index.

²The S&P 500 is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. One cannot invest directly in an index.

³Large Caps are represented by the S&P 500 Index (The S&P 500 is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. One cannot invest directly in an index.) and Small Caps by the Russell 2000 Index. For the four year period ended March 31, 2013, the cumulative return of the Russell 2000 index was 185%. for he same period, the return for the S&P 500 was 150%. The S&P 500 Index returns were 10.61% for the three-month period ended March 31, 2013 and 13.96% for the 12-month period ended 3/31/2013. The Russell 2000 Index returns were 12.39% for the three-month period ended 2013 and 16.30% for the 12-month period ended 3/31/2013.