Real Estate Securities Fund

Third Quarter 2008

The broader equity markets fell sharply during the quarter. The Dow Jones Industrial Average declined -3.71% and the S&P 500 Index declined -8.37% on a total return basis, as damage from the global credit crunch spread, pushing the global economy to the precipice of recession. Through September 30, REITs have outperformed the broader equity markets as investors have sought the perceived safety of hard assets, high current yields, inflation protection, diversification, and low correlation with other assets.

Within the Dow Jones Wilshire REIT Index, returns by sector were quite disparate. The health care and specialty sectors rose by over 20%, while industrials fell more than 15% and regional malls and hotels declined by more than 7%. Sector selection helped relative performance, but this was more than offset by a negative contribution from stock selection during the quarter. The biggest positive contributors to the Fund's relative performance from sector selection were an underweight to the industrial and hotel sectors and an overweight to the health care and triple net lease sectors. Individual stock selection in the regional mall, office, and hotel sectors hurt relative performance, while stock selection in the shopping center, apartment, and storage sectors helped. Urdang has positioned the Portfolio with defense as the top priority. Positions are concentrated in REITs that it believes are less likely to be impacted by the slowing economy and credit crunch. The Fund is overweight high-quality REITs with low leverage, limited near-term maturities, and well-located real estate leased on a long-term basis.

Urdang remains very cautious in light of the worsening credit crunch and global economy and believes it is not an understatement to suggest we are in the midst of the worst financial crisis in the post-war period. With the capital markets frozen and the macro-economy deteriorating at an accelerating pace, some investors' fears has morphed into panic. Volatility remains at unprecedented levels, and the global stock, bond, and real estate markets are in uncharted waters. REITs are not immune from the strong macro headwinds, but it is comforting that real estate's stable cash flow and long leases bridge short-term economic volatility. Additionally, many REITs employ moderate leverage and have healthy balance sheets with well-laddered maturities.

Real estate's traditional virtues — stable inflation-protected cash flow, high current yield, enhanced diversification, and low correlation with other asset classes — have attracted capital as many investors have fled greater uncertainty and a worse outlook in other sectors. Turmoil in the rest of the economy has bolstered interest in REITs, as investors seek the relative shelter of hard assets and real property. The REIT market began discounting weaker commercial real estate fundamentals, the credit crunch, and a possible recession last year. As such, current valuations appear more reasonable. Concern about rising interest rates, rising risk premiums, rising capitalization rates, deteriorating demand, and dwindling earnings growth are all valid, but limited real estate supply growth and healthy dividend yields offset some of the concern.

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 special risk considerations similar to those associated with the direct ownership of real estate. Real estate valuations may be subject to factors such as changing general and local economic, financial, competitive and environmental conditions.

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.