April 2, 2004 — The recent correction was likely a temporary setback, not a reversal of a rising market this year, as domestic equity funds cooled their engines in the first quarter.

The correction was more “a breather,” rather than a case of fundamental problems, said Kenneth Shea, director of global equity research at Standard & Poor’s. For the rest of this year, he predicts the market is likely to advance steadily as a result of several factors, including strong earnings and relatively stable interest rates. Standard & Poor’s Investment Policy Committee forecasts double-digit gains by yearend, putting the S&P 500-stock index at 1230, and the Nasdaq at 2265.

The first quarter was “a quarter with two faces,” but positive trends remain in place for market gains to resume, said Rosanne Pane, Standard & Poor’s Mutual Fund Strategist. The market was boosted earlier this year by a strong economy, while in February and March, market returns were hurt by terrorism, weak U.S. employment figures, and concerns over a possibly shortened business cycle, she noted.

A number of factors, including the weak dollar, jobs, and terrorism fears “whipsawed” investors last quarter, said Mike Magiera, manager of Exeter Tax Managed/A (EXTAX) . Despite volatility, Magiera expects rising fund inflows will support market gains this year. Exeter Tax Managed Fund, a large-cap blend offering, rose 5.2% in the first quarter.

“I am more confident than the average person,” said Kevin Wenck, manager of Polynous Growth Fund/A (PAGFX). Wenck feels positive about the market in the short term because of low inflation and “tremendous” productivity gains. Polynous Growth Fund, a small-cap growth portfolio, was up 4.7% in the first quarter.

First Quarter 2004 Results

Continuing the trend from last year, smaller-cap funds outperformed in first quarter, and in March. In February and March, value took the lead over growth. In the first quarter, all domestic equity fund style categories saw healthy gains, while in March, each category fell, or had just modest rises. Despite the recent correction, the average domestic equity fund slipped 0.62% in March, but rose 3.02% in the first quarter.

Smaller-cap stocks may have disproportionately benefited from low interest rates, while value investments may have gained due to defensive market sentiment, said Standard & Poor’s Shea. He notes investors have traditionally moved toward defensive areas in the second year of bull markets. Pane also notes investors rotated into value areas during the recent correction, becoming concerned about the terrorist attacks, weak job numbers, and declining consumer confidence.

Looking ahead, large-cap and growth areas are likely to regain the lead because of good economic growth, low interest rates, and higher earnings, Pane forecasts. Because of smaller-cap stock gains in recent periods, Shea predicts large caps will outperform as the market undergoes a reversion to the mean.

Fund Investment Style Average Returns

First Quarter

2004 (%)

Large-Cap Growth +1.36%

Large-Cap Value +2.51%

Large-Cap Blend +1.92%

Mid-Cap Growth +3.83%

Mid-Cap Value +4.88%

Mid-Cap Blend +4.49%

Small-Cap Growth +3.96%

Small-Cap Value +5.84%

Small-Cap Blend +5.62%

Domestic Equity Funds* +3.02%

S&P 500-Stock Index +1.56%

Fund Investment Style Average Returns

March 2004 (%)

Large-Cap Growth -1.23%

Large-Cap Value -1.19%

Large-Cap Blend -1.18%

Mid-Cap Growth -0.09%

Mid-Cap Value +1.13%

Mid-Cap Blend +0.04%

Small-Cap Growth -0.16%

Small-Cap Value +0.85%

Small-Cap Blend +0.68%

Domestic Equity Funds* -0.62%

S&P 500-Stock Index -1.64%

Domestic Equity Funds* — First Quarter 2004 Returns

Best Performers Returns (%) Worst Performers Returns (%)

Large-Cap Growth Jundt Opportunity Fund/A (JOPHX) +11.2%

Pioneer Papp Stg Growth/A (PAAFX) -4.2%

Large-Cap Value Nuveen NWQ Multi-Cap Value Fund/A (NQVAX) +7.0%

PBHG Clipper Focus Fund/PBHG (PBFOX) -3.8%

Large-Cap Blend Schwartz Ave Maria Catholic Values Fund (AVEMX) +8.6%

Janus Adviser: Growth Fund/C (JGOCX) -2.2%

Mid-Cap Growth American Heritage Growth Fund (AHEGX) +14.3%

Grand Prix Fund/A (GPFFX) -14.7%

Mid-Cap Value Fairholme Fund (FAIRX) +9.6%

Leuthold Select Industries Fund (LSLTX) +0.1%

Mid-Cap Blend Buffalo Mid Cap Fund (BUFMX) +10.8%

Brazos Small Cap Portfolio/N (BSMAX) -0.8%

Small-Cap Growth Buffalo Small Cap Fund (BUFSX) +15.9%

Thurlow Growth Fund (THRGX) -16.9%

Small-Cap Value Pacific Advisors: Small Cap Fund/A (PASMX) +12.8%

Corbin Small Cap Value Fund (CORBX) -9.5%

Small-Cap Blend AFBA Five Star Small Cap/A (AFCAX) +13.1%

Eaton Vance Tax-Managed Small-Cap Growth1.2/C (EZMGX) -1.3%

Domestic Equity Funds* — March 2004 Returns

Best Performers Returns (%) Worst Performers Returns (%)

Large-Cap Growth American Eagle Twenty Fund (AETWX) +5.4%

Monetta Trust: Blue Chip Fund (MLCEX) -5.2%

Large-Cap Value Elite Growth and Income Fund (ELGIX) +1.0%

Matterhorn Growth Fund (FWLEX) -4.1%

Large-Cap Blend Jundt Twenty-Five Fund/A (JTFHX) +5.3%

Transamerica Premier Index Fund/A (TIIAX) -13.3%

Mid-Cap Growth Jundt Mid Cap Growth Fund/A (JMCHX) +5.2%

Ameritor Investment Fund (AIVTX) -5.9%

Mid-Cap Value CGM Capital Development Fund (LOMCX) +4.6%

Heartland Select Value Fund (HRSVX) -2.3%

Mid-Cap Blend Fountainhead Special Value Fund (KINGX) +2.8%

Yacktman Focused Fund (YAFFX) -3.2%

Small-Cap Growth Jundt US Emerging Growth Fund/A (JEGHX) +4.7%

Kopp Emerging Growth Fund/A (KOPPX) -8.9%

Small-Cap Value CRM Small Cap Value Fund/Instl (CRISX) +4.0%

Bridgeway Micro-Cap Limited Fund (BRMCX) -6.1%

Small-Cap Blend Hancock Horizon Burkenroad Fund/D (HYBUX) +4.5%

Ameristock Focused Value Fund (AMFVX) -4.0%

*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Data as of 3/31/04.