FQ U.S. Equity Fund

Third Quarter 2008

The U.S. equity market had a very difficult quarter. The credit crunch wreaked havoc on global capital markets as recession fears compounded the overall fear factor of investors. The third quarter featured unprecedented government intervention in the financial markets, and the market correction has now easily slipped into bear market territory. Although the government intervention has been unprecedented, the degree of market correction we have seen has not been, consistent with other extreme bear markets witnessed previously in the U.S.

 During the third quarter, the Fund lagged the Russell 3000 Index primarily due to weak stock selection within the consumer areas of the market, both discretionary and staples, as well as within the materials sector. Holdings within the energy sector also contributed to the weak performance of the Fund during the third quarter, although the energy holdings within the Index performed just as poorly. The weakness of the energy sector is directly due to the struggles of the global economy, as it appears weakening global growth will have an immediate impact on the fortunes of this sector. The Fund’s holdings of W&T Offshore Inc. and smaller-capitalization stock Complete Production Services were down over 40%. Several natural resource holdings also struggled during the quarter, including Freeport-McMoRan (-51%) and AK Steel Holding (-51%).

On the positive side, several of the Fund’s larger information technology holdings did better than the market, including Hewlett Packard (5%) and Sybase (4%), which each, impressively, yielded positive returns for the quarter despite the fact that technology stocks in general struggled in the face of falling global demand and a strengthening U.S. Dollar. Several biotech holdings also performed admirably during this difficult market environment, including positions in Amgen Inc., OSI Pharmaceuticals Inc., and Invitrogen.

Fund positioning remained very consistent with the positioning in place at the end of the second quarter. The Portfolio continues to be quite defensively positioned, with a majority of exposures, such as value and growth, in line with the Russell 3000 Index. The Portfolio does, however, continue to generally favor lower yielding stocks, while smaller-capitalization issues have begun to look increasingly compelling. On a sector basis, the Fund maintains sector and industry weights broadly in line with the benchmark, consistent with the long-term low tracking error approach of the investment process. Overall, we believe that equities offer a much more attractive risk premium today, as they are now selling at significantly lower valuation levels. Although it has been painful to participate in the correction, we are confident that the economy and the market will overcome this crisis, just as it has overcome past crises. Since calling market tops and bottoms is close to impossible, it is prudent for the patient tax-sensitive investor to stay the course.

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 invests in large-capitalization companies that may underperform other stock funds (such as funds that focus on small and medium capitalization companies) when stocks of large-capitalization companies are out of favor.

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.