Market Commentary as of 3/31/2008
Market Action
For the fourth quarter in a row, large-cap indices outperformed small-cap indices, with the Russell 2000 Index besting the Russell 1000 Index by roughly a half of a percentage point. During the first quarter of 2008, the Russell 2000 Growth Index underperformed the Russell 2000 Value Index by more than six percentage points, with Technology and Telecommunications suffering the most. Neither trend was particularly favorable to the Fund's strategy.
Broadly speaking, stocks exhibiting strong earnings quality and short-interest covering performed well, while companies with solid cash flows and improving analyst recommendations underperformed during the first quarter. Fundamentals, liquidity, and the Federal Reserve Board continued to influence the capital markets heavily, forming a vicious cycle observable during the last year:
Fundamentals decline 
stocks react liquidity is stretched and, in some cases, insolvency is threatened or occurs. This triggers additional negative liquidity events among other highly levered firms stocks react the liquidity crisis leads to Fed intervention stocks react intervention and liquidity feed back into fundamentals, causing fundamentals to be affected by the negative impact of inflation and dollar devaluation on the one hand and the positive impact of easy money on the other stocks react …
As a result, the US is likely on the fringe of or is currently in a recession, and economic deterioration is likely to continue for a while. It is unclear whether the US dollar will hold or whether inflation can be contained.
Winners and Losers
The Fund underperformed its Russell Midcap Growth Index benchmark by nearly two percentage points during the period. Holdings in the Consumer Discretionary and Utilities sectors outperformed on a relative basis, while those within Energy and Financials lagged. In absolute terms, all sectors were negative, with six sector groups delivering double-digit losses.
Individual standouts included Steel Dynamics and L-3 Communications. Steel producer Steel Dynamics benefitted as flat-rolled steel pricing strengthened and scrap processing results improved, while L-3, a leading supplier of military and security electronics, reported strong fourth quarter results and raised its revenue guidance for fiscal year 2008 thanks to better-than-expected sales.
A position in HMO firm Humana contributed negatively to performance as the company experienced higher-than-expected claims volume and admitted to an error in its Medicare drug plan benefit, resulting in an unfavorable financial outcome in the near-term. In addition, lender Thornburg Mortgage detracted heavily from performance owing to its inability to meet margin calls by its revenue repurchase agreement lenders, bringing into question the company's ability to continue as a going concern.
Overall, the portfolio remains overweight Industrials and Utilities and underweight Technology and Consumer Discretionary.
ClariVest Asset Management
San Diego, CA
Note: Small and Mid-cap stocks are generally riskier than largecap stocks due to greater volatility and less liquidity.
The views expressed above are for informational purposes only and is not intended as investment advice. Since the date of the commentary, economic, market conditions and the portfolio manager's views may have changed.
As the fund is actively managed, the securities as presented do not represent the current or future composition of the portfolio.
Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.