FQ Global Alternatives Fund

Third Quarter 2008

The global credit crunch accelerated as the consequences of the liquidity bubble spread through the financial systems and around the globe. Wall Street became forever changed as panic spread, volatility spiked across all asset classes, stock markets throughout the world collapsed, commodities continued to decline, and corporate credit spreads widened dramatically. Gold soared, and sovereign bonds advanced as fears of a global economic meltdown gripped the market. Notably, the financial markets were affected by conditions inside, not outside, the markets themselves. Prior to August, markets had been reacting to macroeconomic factors and the impact of the housing recession on liquidity. Credit largely depends on the well-researched trust in the counterparty, and if this trust is lost, then credit becomes harder to get. Capitalism is built on credit, and without it, business seizes up. It appears that excessive liquidity, lax lending standards, and perhaps excessive government de-regulation have resulted in just such an environment. Needless to say, the result of the popping of the liquidity bubble has profound consequences for the economy and investment strategies.

The Fund generated positive performance in the third quarter, buoyed by success in the currency and stock country selection dimensions, while the bond country and asset class strategies suffered. On the positive side, the currency selection strategy was highly profitable, due primarily to the long U.S. Dollar and Japanese Yen and the short Australian Dollar positions. The stock country selection strategy saw most of its success generated in July, as short positions to Canada and Hong Kong were successful, as was a long position to the U.S. equity market.

On the downside, performance was disappointing in the bond country selection strategy during the third quarter. Gains due to a successful short position in Canadian bonds and a smaller positive contribution from a long German bond investment were overwhelmed by losses from long positions in Japan and the U.S. and short positions in Australia and the U.K. Performance in the asset class selection strategy was also negative during the third quarter, primarily during September, as the growing tilt toward global equities, which was at least partially driven by relative valuation opportunities, did not work as markets collapsed.

As we enter the fourth quarter, the currency strategy remains the most significant portion of the Fund’s risk budget. The Euro is the most substantial short currency position, a switch from its long position at the start of the quarter. Similarly, the Japanese Yen is now the most substantial long currency position, having risen from a neutral position earlier in the third quarter. Within the stock country selection strategy, current positioning includes strong long positions to the U.S. and milder long positions to Italy and Japan, with most of the risk on the short side to Canada and Spain. Bond market positioning is broadly diversified across long positions in Japan, the U.S., and the EMU, and short positions in the U.K., Australia, and Canada. Finally, the fund’s managers believe that global stock market attractiveness remains ahead of global bond market attractiveness, which drives the Fund to a modest tilt toward global stocks.

This commentary reflects the viewpoints of the portfolio manager, First Quadrant, as of 10/9/08.

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 is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor's ability to pay its creditors.

The Fund may use derivative instruments for hedging purposes or as part of its investment strategy.  There is a risk that a derivative intended as a hedge may not perform as expected.  The main risk with derivatives is that some types can amplify a gain or loss, potentially earning or losing substantially more money than the actual cost of the derivative or that the counterparty may fail to honor its contract terms, causing a loss for the Fund.  Use of these instruments may also involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk and the risk that a fund could not close out a position when it would be most advantageous to do so.

Investments in foreign securities, even though publicly traded in the United States, may involve risks which are in addition to those inherent in domestic investments.

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.