Emerging Markets Equity Fund

Third Quarter 2008

Emerging market equities were weak in July (-3.2%), weaker in August (-8.2%), and free-falling in September (-17.5%). A combination of faltering global growth prospects and unnerving financial strains were to blame for the broad share price declines. No region within emerging markets escaped the declines. Asia (-24.0%) outperformed commodity-heavy Latin America (-33.0%) and EMEA (-29.1%). Of the larger countries, Brazil and Russia led the decline, each falling 40% during the quarter. In terms of sectors, materials and energy led the decline, posting respective returns of -41.8% and -37.1%, driven by a deteriorating outlook for global growth and a stronger dollar. Consumer staples, telecoms, and health care stocks were the most noticeable outperformers, with respective returns of -17.9%, -19.4%, and -6.0%.

Reversing course from the second quarter, the Fund’s holdings within Russia were the primary drivers of relative underperformance during the quarter. While the decline in commodity prices was the primary cause of the Russian market decline, technical factors such as redemptions and margin-call deleveraging accentuated the drop. Gazprom, Uralkali, and Raspadskaya were the primary detractors during the period. Positions in Anglo American, a South African mining and natural resource company, and Tenaris, an Argentine oil services company, were also among the primary detractors from performance.

On the positive side, holdings in Siam Commercial Bank (Thailand) and Taiwan Semiconductor Manufacturing held up better than the broad markets and contributed positively to relative performance. A small underweight to Brazil, one of the worst-performing markets for the period, also contributed positively.

Trading activity was light during the first half of the period but picked up in September. In Latin America, Rexiter reduced exposure to Brazil by selling mobile operator TIM Brazil, and also took profits on Brazilian airliner Tam following strong share price performance on the back of falling oil prices. In South Korea, Kookmin Bank was sold to fund the purchase of HDFC Bank in India. In China, Rexiter sold China Life Insurance and Yabzhou Coal to add to the Fund’s position in Anhui Conch and to initiate a position in China Railway Construction. There has been no change in the strategic stance of the Portfolio. All trading activity was driven by rebalancing considerations in an attempt to take advantage of relative price discrepancies and perceived market inefficiencies created by the recent volatility.

Looking forward, it appears that growth in the U.S. and Europe has collapsed in the face of the credit crunch. Emerging economies may have proven capable of decoupling from normal cyclical swings in developed economies, but it is unlikely they will be immune from infection if the U.S. and much of Europe fall into a long recession. It is true that strong currencies and current account surpluses give some emerging economies (especially in Asia) the tools to mitigate the impact, but there is a big difference between “mitigate” and “decouple,” and so emerging markets will likely face a period of lower growth. In keeping with their core philosophy, Rexiter is seeking to maintain a fully invested, fully diversified exposure to the asset class. This does not mean they are looking to take risk out of the Portfolio, rather that they are trying to diversify that risk by country and sector.

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 is subject to the risks associated with investments in emerging markets, such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

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.

All MSCI data is provided ‘as is’. The products described herein are not sponsored or endorsed and have not been reviewed or passed on by MSCI. In no event shall MSCI, its affiliates, or any MSCI data provider have any liability of any kind in connection with the MSCI data or the products described herein. Copying or redistributing the MSCI data is strictly prohibited.