The Fund invests primarily in equity securities, principally common and preferred stocks, of small cap companies. We define small cap companies as those with market capitalizations that fall within the range of the Russell 2000® Growth Index, provided that if the upper end of the capitalization range of that Index falls below $2.5 billion, we will continue to define those companies with market capitalizations between the upper end of the range of the Index and $2.5 billion as small cap companies. As of December 31, 2014, the range of the Index was $31 million to $7.3 billion, but it is expected to change frequently.
The Subadviser uses a bottom-up approach by first identifying companies that meet the Subadviser's strict fundamental criteria and then performing a qualitative review on each identified company to select companies for inclusion in the Fund's portfolio. This means that the Subadviser's individual stock selections primarily determine the Fund's sector weightings. The Subadviser's research also may include initial personal interviews and continuing contacts with company management.
In selecting stocks for the Fund's portfolio, the Subadviser looks for companies that it believes possess the following characteristics:
In addition, the Subadviser prefers companies that it believes possess the following qualitative characteristics:
Under normal market conditions, the Fund expects to invest in approximately 75 to 85 companies with at least 80% of its net assets, plus borrowings for investment purposes, in a diversified portfolio of small cap equity securities.
Market and issuer risk: Securities markets are volatile and can decline significantly in response to adverse market, economic, political or regulatory developments, which may lower the value of securities held by the Fund, sometimes rapidly or unpredictably. Additionally, an adverse event, such as an unfavorable earnings report, may depress the value of a particular issuer's stock.
Growth style risk: Over time, a growth oriented investing style may go in and out of favor, which may cause the Fund to underperform other equity funds that use different investing styles.
Selection risk: The Subadviser's judgment about the attractiveness, value and potential appreciation of a particular security may be incorrect.
Small cap risk: The Fund's performance may be more volatile because it invests primarily in small cap stocks. Smaller companies may have limited product lines, markets and financial resources. They are usually less stable in price and less liquid than those of larger, more established companies. Additionally, small cap stocks may fall out of favor relative to mid or large cap stocks, which may cause the Fund to underperform other equity funds that focus on mid or large cap stocks.