At a Glance

• Primary Benchmark: Russell 2500^TM Value Index.
• We expect to add value primarily through stock selection.
• We typically invest in 65-95 companies.
• The market capitalization of each of our holdings, at purchase, will be consistent with the capitalization range of the Russell 2500 Value Index (as of the latest index "reconstitution").
• Cash and cash equivalents generally account for less than 5% of portfolio assets, although our cash position may vary based on the level of portfolio trading.

Objective

We seek to outpace the long-term total returns of the Russell 2500 Value Index.

Investment Process Summary

Our investment philosophy draws on the work of the groundbreakers in value investing, through today's respected value investors, and rests on several fundamental tenets. Our interest is in valuing a business, not a stock certificate. Therefore, we value businesses and approach the research process as a private buyer might. A key element of our investment process is the determination of a business' intrinsic value, which becomes a significant basis for buy and sell decisions in our portfolio. Central to this determination is the belief that the worth of a business is based on the cash it returns to the owners. A business' intrinsic value is dynamic and, therefore, may change over time—it can be created and destroyed. In our view, growth and value investning are not mutually exclusive concepts, since "value" is a product of market interactions relating to price while "growth" is a business characteristic. Finally, our decision-making process is based on what we perceive as absolute rather than relative valuations.

Idea Generation

The SMID Cap team screens its universe using several quantitative screens primarily targeted to valuation. Based on the screens, the team selects candidate stocks to be subjected to a thorough fundamental review. Candidate ideas are also drawn from participating in company visits, analyst calls, media sources, and our own analysis, among other sources. An attractive valuation is typically a 30-40% discount from the intrinsic value as determined by the team.

Fundamental Analysis

There are many elements to the analysis that we bring to bear on each company and they are applied on a case-by-case basis. However, several factors are consistent across all of the fundamental analysis we do. First, we apply considerable detail in understanding each business' ability to generate cash. In this regard, we maintain the mindset of a private owner of the business. Second, we carefully study the management's philosophy regarding the deployment of cash flows and the investment of shareholders' capital. We look for managements who prudently deploy capital to increase shareholder value, either through allocation to high return on capital investments or other shareholder friendly uses. Additionally, we pay a great deal of attention to balance sheets. Our preference is to own businesses with conservative, under-leveraged balance sheets, although we will own companies employing debt if it is consistent with the industry's capital structure and if, in our view, there is sufficient cash flow to comfortably cover interest obligations, even in a downturn. During their fundamental analysis, the team members will assess a company's business risk (including competitive advantage and trend in margins), financial risk (debt levels), price risk (relative price strength), and management risk (management's track record) to help determine the inherent margin of safety built in between the current valuation and the team's assessed intrinsic value.

Sell Discipline

Sell decisions are typically prompted by a number of factors:

• Objectively, stocks are sold when we believe they reach, or are near, our estimate of intrinsic value;
• Stocks may be sold if, in our determination, the underlying fundamental condition of the business has deteriorated to the point that is no longer attractive. This implies a certain level of judgment and the decision rests with the portfolio manager, however not without significant input from the analyst involved;
• We may sell one holding to purchase another that is deemed of greater potential. As an example, a stock that is trading at a 15% discount to its intrinsic value could be sold to purchase another that is trading at a deeper discount—40%, for instance.

Typical Investment Guidelines

FACTOR		GUIDELINE
Maximum Stock Weightings At Purchase		5%
Maximum Industry Weighting At Purchase		20%
Maximum Sector Weighting At Purchase		35%

Characteristics, holdings and sector weightings are subject to change and should not be considered as investment recommendations, a forecast or guarantee of results. Investments in small- and mid-capitalization companies may involve a higher degree of risk and volatility than investments in larger, more established companies. Cash is typically invested in money market or custodian STIF accounts, but may be invested directly in Treasury bills or other appropriate money market instruments.

Representative Portfolio Characteristics (as of 9/30/2008)*

CHARACTERISTICS	BRANDYWINE	R2500V
Price/Earnings	11.8	13.9
Price/Book	1.5	1.3
Price/Cash Flow	7.0	7.7
Dividend Yield (%)	1.9	2.5
Avg. Market Cap ($B)	2.6	2.1
Holdings	89	1,665
Turnover (% last 12 months)	17.8	-

Top Ten Holdings (as of 9/30/2008)*

COMPANY	WEIGHT (%)	COMPANY	WEIGHT (%)
Comtech	3.6	Nash Finch	2.2
Conmed	2.9	Cash America Int'l	2.1
Washington Federal	2.5	Foundry Networks	2.1
Silgan Holdings	2.3	Owens-Illinois	2.1
Borgwarner	2.2	Arch Capital	2.0

* Supplemental Information. Data as of 9/30/2008. R2500V = Russell 2500 Value Index.

Please refer to our GIPS compliant presentation, which includes performance footnotes, fee schedules, index descriptions and disclosures. The data represent the aggregate characteristics of all securities held in the representative portfolio, an actual commission account not subject to taxation. Data is obtained from FactSet and Russell. Small capitalization companies may present risks such as lack of product diversification, potentially insufficient capital resources, and greater exposure to business and economic cycles. It should not be assumed that investments in any top ten holdings listed were or will prove to be profitable. Top ten holdings may no longer be held in client portfolios. The holdings of any particular account may vary based on any investment restrictions applicable to the account. This information is for illustrative purposes only, is subject to change at any time and should not be considered investment advice or a recommendation to buy or sell any particular security. In accordance with Rule 206(4)-1 under the Investment Advisors Act of 1940, upon request, we will furnish you with a list of all recommendations made by Brandywine within the immediately preceding twelve months. There is no guarantee that holding securities with relatively high (or low) price-to-earnings, price-to-book, or price-to-cash flow will cause the portfolio to outperform its benchmark or index.

The Russell 2500™ Value and Russell 2500™ Indexes are trademarks of the Frank Russell Company.

Russel™ is a trademark of the Frank Russell Company.

Representative Sector Weights (as of 9/30/2008)*

* Supplemental Information. Data as of 9/30/2008. R2500V = Russell 2500 Value Index.

The data represent the aggregate characteristics of all securities held in the representative portfolio, an actual commission account not subject to taxation. Data is obtained from FactSet and Russell. Sector weights are included for informational purposes only and should not be perceived as investment recommendations. It should not be assumed that investments in any sectors listed were or will prove to be profitable. The sector weights of any particular account may vary based on any investment restrictions applicable to the account. Small capitalization companies may present risks such as lack of product diversification, potentially insufficient capital resources, and greater exposure to business and economic cycles.

The Russell 2500™ Value and Russell 2500™ Indexes are trademarks of the Frank Russell Company.

Russel™ is a trademark of the Frank Russell Company.

Quarterly Portfolio Manager Commentary (as of 9/30/2008)

You should not assume that investments or strategies discussed in this commentary were or will be profitable, or that the investment decisions Brandywine Global makes in the future will be profitable or equal to the investment performance discussed in this commentary. The data and information presented in a Brandywine Global commentary is believed to be accurate and reliable as of the date recorded. Brandywine Global will not undertake to update the data and information presented at a later date. This commentary may not reflect the current views of the featured speaker and may not reflect current or sudden market activity.

Annualized Composite Returns (as of 9/30/2008)

PERIOD	GROSS	NET	R2500V	R2500	EXCESS GROSS RETURN
					R2500V	R2500
QTD	-6.67	-6.89	-1.22	-6.72	-5.45	0.05
YTD	-18.97	-19.56	-9.48	-14.29	-9.49	-4.68
1 Year	-24.25	-24.98	-15.79	-17.99	-8.46	-6.26
3 Year	-1.23	-2.16	0.60	0.91	-1.83	-2.14
5 Year	8.57	7.55	9.00	8.12	-0.43	0.45
7 Year	10.84	9.80	10.46	9.22	0.38	1.62
10 Year	12.46	11.41	9.95	9.04	2.51	3.42
Since Inception** 10/1/1996	12.45	11.40	10.56	8.52	1.89	3.93

Calendar Year Composite Returns (as of 9/30/2008)

YEAR	GROSS	NET	R2500V	R2500	# of ACCTS	MARKET VALUE ($MM)	FIRM ASSETS ($MM)	STD. DEV. (%)
2008	-18.97	-19.56	-9.48	-14.29	13	697	37,570	0.33
2007	1.92	0.96	-7.27	1.38	13	923	49,208	0.23
2006	16.49	15.41	20.18	16.17	13	1,013	39,241	0.22
2005	8.81	7.79	7.74	8.11	13	853	26,332	0.13
2004	22.26	21.13	21.58	18.29	15	843	18,547	0.30
2003	52.47	51.08	44.93	45.51	15	783	12,680	0.58
2002	-8.02	-8.89	-9.87	-17.80	12	464	7,990	0.43
2001	15.38	14.30	9.74	1.22	10	326	7,772	0.28
2000	26.40	25.24	20.79	4.27	5	88	6,683	0.00
1999	9.08	8.06	1.49	24.15	1	60	6,583	0.00
1998	-0.75	-1.69	-1.92	0.38	1	47	7,327	0.00

Data as of 9/30/2008. R2500V = Russell 2500 Value Index, R2500 = Russell 2500 Index.

** Supplemental Information.

Organization: Brandywine Global Investment Management, LLC (the "Firm") is a wholly owned, independently operated, subsidiary of Legg Mason, Inc. The Firm has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). For the periods July 1, 2000 through June 30, 2006, the Firm has been verified by Kreischer Miller. A verification includes assessing whether the Firm (1) complied with the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) designed its processes and procedures to calculate and present performance results in compliance with the GIPS standards. Kreischer Miller has also performed an examination of the composite performance presentation from the composite Inception Date through June 30, 2006. A composite examination includes testing a specific composite in order to assess whether that composite's performance presentation is, in all material respects, in conformity with the GIPS standards. Copies of the verification and composite examination reports are available upon request. Disclosed total firm assets represent the total market value of all discretionary and nondiscretionary, fee-paying and non-fee-paying assets under the Firm's management. Composite Description: The Small/Mid Cap Value Equity Composite (the "Composite") inception date is October 1, 1996. The Composite creation date is October 1, 1996. The Composite includes separate, fully discretionary, fee-paying accounts with no minimum value requirement and no investment restrictions invested in the firm's Small/Mid Cap Value Equity strategy. The strategy invests in small-to-mid capitalization stocks (typically consistent with the capitalization range of the Russell 2500 Index) that are, in the portfolio team's opinion, inexpensive relative to the company's intrinsic value and results in approximately 60 - 90 positions. The Composite returns are benchmarked to the Russell 2500® Value and Russell 2500® Indexes. The Russell 2500 Value Index offers investors access to the small to mid-cap value segment of the U.S. equity universe. It is constructed to provide a barometer of the small to mid-cap value market. The Russell 2500 Index offers investors access to the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap and is constructed to provide a comprehensive barometer for the small to mid-cap segment of the market. The Russell 2500 includes the smallest 2500 securities in the Russell 3000. Performance Calculation: Preliminary data, if so noted, reflects unreconciled data for the most recent reporting period. Portfolios are valued daily on a trade date basis and include dividends and interest as well as all realized and unrealized capital gains and losses. Return calculations at the portfolio level are time-weighted to account for periodic contributions and withdrawals. Performance results are calculated on a before tax, total return basis. Prior to July 1, 2007, portfolios were included in the Composite beginning with the first full quarter of performance through the last full quarter of performance. After July 1, 2007, portfolios are included in the Composite beginning with the first full month of performance through the last full month of performance. The Composite returns consist of size-weighted portfolio returns using beginning of period values to weight the portfolio returns. Monthly linking of interim performance results is used to calculate quarterly and annual returns. Composite valuations and returns are computed in U.S. Dollars ("USD"). The results are presented in USD or in other currencies (to accommodate overseas investors), the latter by converting monthly USD returns into other currency returns using the appropriate currency returns. Gross returns reflect the deduction of trading expenses. Net of fee returns reflect the deduction of trading expenses and the highest investment management fees charged within the composite membership as stated in the fee schedule below. Composite dispersion is calculated using the asset-weighted standard deviation method for all portfolios that were in the Composite for the entire year. Composite dispersion is not presented for periods with five or fewer portfolios. The number of accounts and market values are as of the end of the period. Past performance is no guarantee of future results. A complete list describing the Firm's composites as well as any additional information regarding the Firm's policies for calculating and reporting performance results is available upon request. Fee Schedule: Institutional Client Separate Account Management Fee Schedule (Minimum investment $10 million): 0.900% on the first $20 million; 0.800% on the next $30 million; 0.700% on the next $50 million. Institutional Client Commingled Account Management Fee Schedule (Minimum investment $1 million): Delaware Business Trusts 0.950% flat fee on all assets. Additional information on the Firm's fee schedule can be found in Form ADV Part II which is available upon request.

Portfolio Team

Edward A. Trumpbour
Managing Director & Portfolio Manager

Ed is portfolio manager for the Absolute Value Equity portfolios. He joined the firm in 1996, bringing 15 years of industry experience with him. Previously, Ed was with Delaware Investment Advisors, a subsidiary of Delaware Management Holdings, as vice president and senior portfolio manager with the firm's institutional large cap value team. Also while at Delaware, he launched the Delaware Value Fund (renamed Delaware Small Cap Value Fund), a Morningstar Five-Star rated fund investing in small and mid capitalization equities (1985-1996). Additionally, Ed served as an analyst with Gabelli Asset Management (1984-1985). He earned an M.B.A. in Finance from the Wharton School of the University of Pennsylvania and a B.S.B.A. in Finance from Georgetown University. Ed is a member of Brandywine Global's Executive Board.

Rastislav Berlansky, CFA
Portfolio Manager

Rasto is a portfolio manager and securities analyst for the Absolute Value Equity portfolios. His experience in private equity proves valuable in the estimation of the intrinsic value of a business enterprise, and he is particularly adept at interpreting complex accounting structures. Rasto joined the firm in 2003. Previously, he was an analyst with LLR Partners, Inc., a leading private equity firm (2000-2003), and a senior associate for PricewaterhouseCoopers, LLP (1998-2000) in its corporate valuation group. Rasto is a CFA charterholder and earned a B.S. in Business Administration from Villanova University in 1998, graduating summa cum laude.

Gregory P. Manley, CFA
Portfolio Manager/Research Analyst

Greg is a portfolio manager for our Domestic Microcap strategy and provides research support for the other Absolute Value Equity portfolios. He uses a blend of fundamental and quantitative analysis to identify undervalued assets and businesses that have the potential to return to a more appropriate valuation. During his career at Brandywine Global, Greg has served as a fundamental and quantitative analyst as well as the lead trader for the Diversified Value Equity portfolios. This diverse experience has helped him develop a unique skill set and a fresh approach to value investing. Greg joined the firm in 2000. Previously, he was with Trinity Investment Management as a securities trader (1996-2000). Greg holds the Chartered Financial Analyst designation and earned a B.A. in Accounting from Pennsylvania State University. He is a member of the CFA Society of Philadelphia and the CFA Institute.

William M. Roach
Group Product Specialist

Bill is the group product specialist for the firm's Absolute Value Equity portfolios. As an investment professional in this role, he is the primary point of contact for selected accounts and provides administrative support to the investment team. Bill joined the firm in 2003, bringing with him 24 years of industry experience. Previously, he was a senior investment analyst for The Vanguard Group (2000-2003); senior equity analyst for DuPont Capital Management (1996-1999); partner/portfolio manager/analyst & director of marketing for Cashman, Farrell & Associates (1990-1996); portfolio manager & vice president for Smith Affiliated Capital Corp. (1989-1990); senior portfolio manager and vice president of marketing for Hutton Capital Management (1986-1989); account executive for Merrill Lynch, Pierce, Fenner and Smith & Thomson McKinnon Securities (1982-1986), and controller for Bill Rodgers & Co. (1979-1982). Bill graduated cum laude with a B.A. in Political Science from Boston College.

Michael W. Shergalis
Research Analyst

Mike serves as a research analyst for our Absolute Value Equity portfolios. His investment approach reflects his background in private market analysis, assessing the value of a business to a strategic or financial buyer. Based on this approach, Mike surveys the investment landscape looking for significant market misjudgment while always seeking a margin of safety. He joined the firm in June 2005, bringing with him 13 years of industry experience. Previously, Mike was a founding member of Dunmore Advisors, LLC (2002-2005); an equity research analyst with Iridian Asset Management LLC (2000-2002); manager of corporate valuations with Pricewaterhouse Coopers LLC (1998-2000); a senior associate with Coopers & Lybrand LLP (1994-1998), and a financial analyst with MAC Financial Valuation/MAC Advisors, Inc. (1993-1994). He earned a B.A. in Economics from the University of Pennsylvania.

Eric S. Jacobson
Research Analyst

Eric serves as a research analyst for our Absolute Value Equity portfolios. His approach can best be described as contrarian, searching for companies with long track records that are trading at a discount to their intrinsic value. Eric joined the firm in August 2005. Previously, he was with Franklin Templeton Investments as an analyst (2001-2005); Decision Resources, Inc. as an analyst and research program manager (1997-1999), and Caro Research, Inc. as a research assistant (1996-1997). Eric earned an M.B.A. in Finance and Health Care Management from the Wharton School at the University of Pennsylvania and a B.A. in both Economics and History from Washington University.

John R. Edelman
Equity Trader

John is the lead trader for the firm's Absolute Value Equity portfolios and a primary trader for the Wealth Management Group channel. He is also responsible for providing support to the Diversified Value Equity portfolios. John joined the firm in 1999, bringing with him nine years of industry experience. Previously, he was with Southcoast Capital as an institutional equity trader (1996-1999), and PNC Bank as a financial analyst (1989-1996). John earned an M.B.A. in Finance from St. Joseph's University and a B.A. in Finance and Accounting from Lehigh University.