Chicago Equity Partners Mid-Cap Fund

Third Quarter 2008

All major U.S. market indices remain near bear-market territory for the year. The S&P 500 posted its fourth consecutive quarterly loss, with a return of -8.4% for the third quarter. Not only have the well-publicized negative returns in the financial sector (-29.2% in 2008) hurt the S&P, but so have returns from the telecommunication (-29.5%), utilities (-20.3%), and industrials (-21.0%) sectors. No S&P sector has posted a positive return on a year-to-date basis. Operating earnings remained in negative territory on a year-over-year basis, with a trailing one-year figure of -16.0% on a per-share basis. The story was similar for the mid-cap (S&P 400) and small-cap (S&P 600) benchmarks, with the notable exception of the financial sector (-6.8% and -5.8%, respectively). The mid- and small-cap universes have less exposure to the credit market ills that affected the money-center and mortgage-heavy banks in the S&P 500.

After delivering in-line second quarter performance, the Fund in the third quarter returned to the challenging environment we experienced in the second half of 2007 and the first quarter of 2008. Much of the Fund's relative underperformance during the period can be attributed to stock selection concentrated in the industrials, financials, and materials sectors. Flowserve (-34.9%) and AK Steel (-62.4%) were the primary detractors within industrials and materials, respectively. Within financials, relative results came more from a lack of exposure to strong-performing REITs than from specific holdings in the Fund that produced poor performance. The dislocations in the market that we have been discussing over the past several quarters, which have been the root cause of our model's inverse behavior, are much more apparent now.

We expect our model to successfully discriminate top-performing stocks in a challenging environment, as investors typically focus on at least one of our factor groups (valuation, quality, momentum, and growth). However, we are not experiencing these results from our model/factor groups. It is now becoming quite apparent that the challenges of the current environment are anything but "typical." The convergence of several issues (such as years of excess liquidity resulting in over-leveraging and increasing defaults) is now the center of attention. This has created an environment in which macro events rather than company-specific fundamentals are driving stock market performance. As a result, continued short-term performance volatility can be expected. We believe that the stocks we hold in the Portfolio are of high quality and expect they will outperform over the long term as the market returns to focus on fundamentals and not emotion.

As we noted last quarter, our research and experience has shown that periods of underperformance lead to longer periods of outperformance. We believe the dislocations in the current market bring great opportunities for the future. Our firm remains strong, we continue to have stability in our investment team, and we remain committed to our time-tested investment disciplines.

This commentary reflects the viewpoints of the portfolio manager, Chicago Equity Partners, as of 10/10/08.

Investors should carefully consider the fund's investment objectives, risks, charges, and expenses before investing. For this and other information, please call 800.835.3879 or download a free prospectus. Read it carefully before investing or sending money.

The performance shown represents past performance and is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. From time to time the advisor has waived fees or reimbursed expenses, which may have resulted in higher returns. The listed returns and yields on the Fund are net of expenses and the returns and yields on the indices exclude expenses. Current performance of the Fund may be lower or higher than the performance quoted.

The Fund or Strategy is subject to risks associated with investments in mid-capitalization companies, such as erratic earnings patterns, competitive conditions, limited earnings history, and a reliance on one or a limited number of products.

Any sectors, industries, or securities discussed should not be perceived as investment recommendations. The views expressed represent the opinions of Managers Investment Group and are not intended as a forecast or guarantee of future results. Any securities discussed may no longer be held in an account’s portfolio. It should not be assumed that any of the securities transactions discussed were or will prove to be profitable, or that the investment recommendations we make in the future will be profitable.

Unlike the Fund, the Index is unmanaged, is not available for investment and does not incur expenses. Please see Index Definitions for all our funds' benchmarks.