Small Cap Fund

Third Quarter 2008

The third quarter, particularly the month of September, left an indelible mark on the financial markets and the economy. While the root causes of the credit crisis will continue to be debated beyond the current election cy-cle, the effects have been staggering. In this quarter's difficult U.S. equity market, all size segments were in negative territory. Small-caps performed best, followed by large-cap and mid-cap stocks. The Russell 2000® Index fell -1.1%, the Russell 1000® Index dropped -9.4%, and the Russell Midcap® Index lost -12.9%. In a turnaround of the prior quarter, falling energy and commodity prices resulted in energy and materials being among the weakest sectors in the Russell 2000 Growth Index. Also in a reversal, health care was one of the In-dex's strongest sectors.

The Fund outperformed the Russell 2000 Growth Index for the quarter primarily due to strong stock selection in industrials and technology. To some extent, the aforementioned contributions were offset by weak stock selection in the energy sector and an underweight to health care, which held up better than most sectors during the quarter.

In technology, the Fund benefited from strong stock selection among software and service companies. Shares of SI International advanced 43.5% upon news that this information services company was being ac-quired by Serco Group (our position was subsequently sold during the quarter). SkillSoft, a provider of e-learning courseware, proved its ability to generate free cash flow from a highly visible subscription-based busi-ness while also deriving margin improvement. The stock rose 15.7% for the quarter.

In the industrial space, the Fund also benefited from strong relative stock selection. In fact, the Fund's indus-trial holdings gained an average 1.7% during the quarter, while the benchmark's industrial stocks lost an aver-age of -9.1%. Middleby, a food service equipment manufacturer, gained 23.7% as the company continues to execute well. Middleby has benefited from a well-established, diverse customer base and by focusing on broadening its competitive position through the acquisition and successful integration of quality brands.

In health care, an underweight position versus the benchmark hurt performance, as this sector held up better than most during the period. The Fund's stock selection in health care was mixed. Volcano Corporation shares gained 41.7% as this provider of intravenous ultrasound products reported revenue results exceeding analyst expectations. ArthroCare, a medical device company, issued news indicating their plans to restate revenues from 2006 to present, after their auditor raised issues concerning the company's relationship with its distribu-tors. This severely damaged our confidence in the company's management, and we exited the position. The stock lost 41% while in the Portfolio during the quarter.

By most measures, the recent market turbulence has been unprecedented in both degree and global scope. As this quarter came to a close, the U.S. government's rescue plan was moving toward its passage. However, concerns were rising over the full impact of the plan, and non-U.S. markets began to deal with similar issues. It is during times of such significant dislocations that well-grounded long-term investment principles prove their worth. We believe well-managed companies with distinct competitive advantages that stay the course will be rewarded, as will investors who continue to prudently allocate their assets. As the markets and economy seek secure footing, we remain anchored to our time-tested, bottom-up approach. This commentary reflects the viewpoints of the TimesSquare Capital Management as of 10/13/2008.

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 risks associated with investments in small capitalization companies, such as erratic earnings patterns, competitive conditions, limited earnings history, and a reliance on one or a limited number of products.

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.

The Russell 2000® Index and Russell 2000® Growth Index are registered trademarks of Russell Investments. Russell® is a trademark of Russell Investments. An Investment cannot be made directly into an index.