International Small Cap Growth Commentary

December 31, 2007

The Driehaus International Small Cap Growth Composite outperformed its benchmark, the MSCI All Country World Index ex-USA Growth (the “Index”), by approximately 930 basis points for the quarter. Overall, the global equity markets outperformed the U.S. equity market during the quarter.  However, it remained imperative to have strong stock selection and country exposure in order to maximize investment return.  This translated into an increased allocation to emerging markets as opportunities in select regions became more attractive.

The Strategy benefited from strong stock selection in the Industrials, Consumer Discretionary, and Information Technology sectors compared to the Index.  As a result of accelerating sales and increased earnings growth rates, the Strategy’s two largest overweightings were in the Industrials and Information Technology sectors. The Strategy’s underweighting in the Materials and Consumer Staples sectors detracted from its return; however, stock selection helped offset some of the weaker results.  Also, due to poor forecasts for sales and earnings growth, the Strategy’s two largest underweightings were in the Materials and Consumer Staples sectors. 

From a country perspective, the Strategy’s two largest overweightings were the United States and Hong Kong, and the two largest underweightings were Japan and the United Kingdom. The Strategy’s return, compared to the Index, benefited from an underweight allocation to Japan and stock selection in the United Kingdom. However, the underweight allocation to the United Kingdom detracted from performance.  Due to signs of moderate slowing within these two countries, the Strategy remains underweight in the United Kingdom and Japan. The overweight allocation to United States positively impacted performance relative to the Index. The Strategy remains overweight in the United States and Hong Kong due to their strong earnings growth outlook.

Positions in Switzerland and Argentina were the top contributors to performance during the quarter. Within these countries, the Strategy benefited from holdings in the Industrials, Consumer Discretionary, and Information Technology sectors.

In Taiwan, the Strategy’s underperformance was due to stock-specific news within the Information Technology sector due to weaker than expected earnings, where holdings in the electronic distribution segment detracted from performance. Holdings in the Materials, Telecommunication Services and Utilities sectors also detracted from performance.

NOTES

Sources: Driehaus Capital Management LLC, FactSet, Morgan Stanley Capital International and Standard & Poor’s Global Industry Classification Standard, Russell Indices, and the Wall Street Journal.

The performance numbers represent a composite of international small cap growth accounts managed by Driehaus Capital Management LLC.  These numbers are estimated for the period as all underlying accounts have not yet been reconciled. All rates of return include reinvested dividends and other earnings and are net of fees and brokerage commissions. The performance data shown above represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted.

The Morgan Stanley Capital International All Country World Ex-USA Growth Index (MSCI All Country World Ex-USA Growth Index) is a subset of the Morgan Stanley Capital International All Country World Ex-USA Index (MSCI All Country World Ex-USA Index) and is composed only of the MSCI All Country World Ex-USA Index stocks which are categorized as growth stocks. The MSCI All Country World Ex-USA Index is a market capitalization-weighted index designed to measure equity market performance in 47 global developed and emerging markets, excluding the U.S.

Copyright MSCI 2007. All Rights Reserved. Without prior written permission of MSCI, this information and any other MSCI intellectual property may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an “as is” basis, and the user of this information assumes the entire risk of any use made of this information. Neither MSCI, each of its affiliates nor any third party involved in or related to the computing, compiling or creating of any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages relating to any use of this information.

For additional disclosure on the Composite, please click here.