Alger American Asset Growth gas of September 30, 2012 Inspired by Change, Driven by Growth.
Agenda A d1. An Introduction to Alger2. Consistent, Proven, Repeatable Process3. American Asset Growth Fund4. Why Alger y g5. ExhibitsFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
Introduction to Alger I t d ti t AlWho We Are• Growth investors since 1964• Singular focus on growth investment management• Independent, privately held firm• Original, p p g proprietary analyst-driven research y y• More than 30 experienced investment professionals• Currently manages more than $ billion in assets y g $16For Institutional Presentation Purposes Only. Not for Distribution to the Public. 1
The Alger Philosophy Th Al Phil hCompanies Undergoing Positive Dynamic Change Offer the BestInvestment Opportunities High Unit Volume Growth • Growing Demand Earnings/Growth Sell • Strong Business Model • Market Dominance • Free Cash Flow Buy Positive Life Cycle Change • Product Innovation Sell • New Regulations e egu a o s • New Management • Acquisition Buy Coming of Age Slow Growth Established TimeFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 2
Investment Team I t tT CEO, CIO Dan Chung, CFA Portfolio Managers Portfolio Managers Client Portfolio Managers Client Portfolio Managers Jill Greenwald, CFA Patrick Kelly, CFA Greg Adams, CFA Deborah Vélez William Rechter, CFA Kevin Collins, CFA (26) (15) (25) Medenica, CFA (41) (19) Small Cap Capital Appreciation Dynamic Opportunities (16) SMid Cap Spectra Growth & Income Emerging Markets Dynamic Opportunities China-U.S.Analysts – Sector Specialists Energy/ Technology/ Risk Emerging Consumer Health Care Materials/ Industrials Financials Telecom Management Markets UtilitiesAnkur Crawford, Ph.D (8)* Chris Walsh, CFA (15) Maria Liotta (14)* Michael Young (27) Alex Goldman (14) Brian Schulz, CFA (11) Greg Adams, CFA (25) Siang Meng Tan, CFA (17)*John McPeake (18)* Darryl Ah Now, CFA (12) Joel Emery, CFA (16) Eric Richards, CFA (13) Ravi Tanuku (7)* Ankur Javeri (6) Larry Vigus (13) Carla Cantreva-Baessler (19)J.P. Gravitt (11) Michael Melnyk, CFA (13) Soon Hyouk Lee (6) Andrew Merrill, CFA (5) Steven Yang (8)* Steven Thumm (25) David Molnar, CFA (15)Shubho GhoshSh bh Gh h (11) * Peter Kahng P t K h (11) Peter Chang, CFA (9) P t ChBen Reynolds (10) Anna Gurvich (4)*Tariq Chaudhri (2) (X) = Years of investment experience * These analysts also have relevant industry experience. For Institutional Presentation Purposes Only. Not for Distribution to the Public. 3
Alger Analysts Al A l tAnalysts are the foundation of our process• Sector experts – Follow industry as a whole and cover all market caps – “One Team” working on every Alger portfolio 16 – Academic, financial, and industry backgrounds SENIOR ANALYST• We are different: an Analyst-driven culture and process 15 Years* 14 – Renowned Alger Training Program – Continuous collaboration with Portfolio Managers ANALYST 14 Years* – Passionate, disciplined, and creative – Career position: compensation and responsibility equal in level to portfolio managers ASSOCIATE ANALYST 9 9 Years** Average investment and industry experience of Alger investment professionals RESEARCH ASSOCIATE 5 5 Years*For Institutional Presentation Purposes Only. Not for Distribution to the Public. 4
Investment Process I t tPFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 5
Thorough Bottom‐up Fundamental Analysis Th h B tt F d t lA l i Our Analysts provide: • In-depth knowledge of the sector • Comprehensive understanding of a company • Detailed external evaluationFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 6
Developing a Differentiated View D l i Diff ti t d Vi Our Analysts: • Assess company fundamentals using detailed, proprietary financial models – Detailed five-year P&L, balance sheet, and cash flow models – Discounted cash flow analysis – P/E ratio analysis vs. industry and historical ranges • Evaluate potential risk/reward using multi-scenario g growth analysis y • Provide Bull, Bear, and Base case Our Analysts apply proprietary methodology using: • Alger rating system • Q lit ti i Qualitative inputs tFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 7
Multi‐Scenario Analysis M lti S i A l i Includes full five-year models for: • Revenue • Earnings • Free cash flow • Sector and company-specific inputs Alger Analysts develop Bull, Bear, and Base case models f all d l for ll companies they followFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 8
Analyst & Portfolio Manager Dialogue A l t & P tf li M Di l Analyst-Driven Culture • Portfolio Managers challenge Analysts, test conviction • Together they: – Prioritize sector selections – Normalize information across sectors – Apply risk management oversight “At Alger, our Portfolio Managers and Analysts work in close collaboration to drive performance for our clients.” Dan Chung CEO Chung,For Institutional Presentation Purposes Only. Not for Distribution to the Public. 9
Portfolio Construction & Risk Management P tf li C t ti & Ri k M t Buy decisions • Best ideas: Strongest Positive Dynamic Change companies • Highest conviction: Differentiated view supported by proprietary research • Driven by Analysts and Portfolio Managers Sell decisions • Achieved target price • Fundamentals deteriorate • New idea with greater risk/reward potentialFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 10
Portfolio Construction & Risk Management P tf li C t ti & Ri k M t We manage portfolio risk through: • In-depth knowledge of companies • Broadly diversified holdings • Sector, industry, and security limits g • Dedicated risk manager • Portfolio optimizationFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 11
Investment Process I t tPFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 12
Portfolio Characteristics P tf li Ch t i ti MARKET CAPITALIZATION PORTFOLIO LIMITSRange of companies within the 40% maximum in any sectorRussell 3000 Growth Index 20% maximum in any industry 10% maximum in any position SECTOR WEIGHTINGS TRACKING ERRORGenerally participates in all sectors 5% to 8% relative to benchmark historically hi t i ll HOLDINGS CASHTypically around 90-120 positions Frictional; typically less than 5%For Institutional Presentation Purposes Only. Not for Distribution to the Public. 13
Performance P f Alger American Asset Growth Fund Portfolio Update as of 9/30/12 Annualized Returns Since YTD* 1 Year 3 Year 5 Year Inception**Alger SICAV American Asset Growth I 19.1% 31.1% 12.6% 2.5% 4.2%Russell 3000 Growth 16.6% 29.4% 14.7% 3.2% 3.7%Excess Return +2.5% +1.7% -2.1% -0.7% +0.5%Lipper MultiCap Growth 16.0% 24.8% 12.5% 1.2% 2.1%Excess Return +3.1% +6.3% +0.1% +1.3% +2.1%* Not Annualized. **Since Inception: 5/18/07 * Not Annualized. **Since Inception: 5/18/2007 For Institutional Presentation Purposes Only. Not for Distribution to the Public. 14
Portfolio Sector Weights P tf li S t W i htAlger American Asset Growth g As of 9/30/12 Portfolio (%) Russell 3000 Growth (%) Difference (%)Information Technology 30.1 31.8 -1.7Consumer Discretionary 20.3 16.4 3.9Health Care 11.8 12.6 -0.8Industrials 11.1 12.1 -1.0Financials 10.0 4.5 5.5Consumer Staples 7.3 12.1 -4.8Energy 4.3 43 4.2 42 0.1 01Materials 3.0 3.8 -0.8Telecommunication Services 2.0 2.2 -0.2Utilities 0.0 0.2 -0.2For Institutional Presentation Purposes Only. Not for Distribution to the Public. 15
Portfolio Holdings P tf li H ldi Alger American Asset Growth 9/30/2012 Top 10 Holdings Portfolio (%) Apple Inc. 8.2 International Business M hi I t ti lB i Machines C Corp. 3.0 30 Google Inc. 3.0 Amazon.com Inc. 2.8 Express Scripts Holding Co. 2.1 Philip Morris International Inc. 1.9 Pfizer Inc. Inc 1.9 19 Honeywell International Inc. 1.8 eBay Inc. 1.8 Capital One Financial Corp. 1.7For Institutional Presentation Purposes Only. Not for Distribution to the Public. 16
5 Year Performance Statistics 5Y P f St ti tiAlger American Asset Growth 9/30/2012 Characteristic Portfolio Russell 3000 Growth Portfolio Morningstar Ranking (%)* Return 2.46% 3.22% 12 Alpha -0.65 N/A 13 Information Ratio -0.14 N/A 14 Sharpe Ratio p 0.2 0.23 10 Batting Average 53.3 N/A 3 *Morningstar European Open End US Large Cap Growth Equity Universe / Alger American Asset Growth (Class I Shares) For Institutional Presentation Purposes Only. Not for Distribution to the Public. 17
Why Alger Wh AlWhy Alger?• Experienced growth investors since 1964• Independent, proprietary, fundamental research• Vibrant, research intensive culture• Consistent, proven and repeatable p p p process• Focused on our clients’ best interests• Dedicated to helping our clients achieve their investment g p g goalsFor Institutional Presentation Purposes Only. Not for Distribution to the Public. 18
Portfolio Management P tf li M t Daniel C. Chung, CFA g, Chief Executive Officer, Chief Investment Officer, Portfolio Manager Investment experience: 18 years Daniel C. Chung is Chief Executive Officer and Chief Investment Officer. He is Portfolio Manager of the Alger Mid Cap Growth, Alger Health Sciences, Alger Large Cap Growth, Alger SMid Cap Growth, Alger China-U.S. Growth, Alger Analyst, Alger Dynamic Opportunities, and Alger Growth & Income portfolios. Dan joined Alger in 1994 and has 18 years of investment experience. He was named Chief Investment Officer in September 2001, President in 2003, and CEO in 2006. Dan graduated from Stanford University and earned his J.D. from Harvard Law School in 1987. After completing law school, he served a one- -year term as Judicial Clerk for the Honorable Justice Anthony M. Kennedy, United States Supreme Court. He joined Simpson Thacher & Bartlett LLP in New York City in 1989 and earned an L.L.M. from New York University Dan is a CFA charterholder and a member of the CFA Institute University. Institute. Jill Greenwald, CFA Executive Vice President, Portfolio Manager Investment experience: 26 years p y Jill Greenwald is Executive Vice President and Portfolio Manager specializing in small capitalization stocks. She currently manages Alger’s Small Cap and SMid Cap Growth portfolios, including the Alger Growth Opportunities Fund and the Alger Small and SMid Cap Growth Funds. She first joined Alger in 1986 and has 26 years of investment experience. Jill, who returned to Alger in 2001, began her career in Algers analyst program, rising from Research Associate to Senior Analyst. She joined Prudential Equity Investors i 1992 where she was a Di I in h h Director. I 1993 she j i d Ch In 1993, h joined Chase A Asset MManagement where she h h rose from Analyst to Managing Director and Senior Portfolio Manager of Chase Vista Small Cap Equity Fund and Co-Manager of Chase Vista Small Cap Opportunities Fund. She joined J&W Seligman & Co. as a Senior Vice President, Investment Officer and Co-Manager of Seligman Emerging Growth in 1999. Jill graduated with a B.A. from Yale University and earned her M.B.A. at New York University. Jill is a CFA charterholder and a member of the CFA Institute.For Institutional Presentation Purposes Only. Not for Distribution to the Public.
Portfolio Management P tf li M t Patrick Kelly, CFA y, Executive Vice President, Portfolio Manager Investment experience: 15 years Patrick Kelly is Executive Vice President, Portfolio Manager of the Alger Capital Appreciation and Alger Spectra strategies, and Portfolio Manager of Alger Dynamic Opportunities Fund. He joined Alger in 1999 and has 15 years of investment experience. Previously, Patrick was an investment banking analyst with SG Cowen. He began his career at Alger as a Research Associate and completed Alger’s in-house analyst training program. In early 2001, Patrick was promoted to Associate Analyst and Assistant Vice President, and in September of 2001 he was promoted to Senior Analyst. As a Senior Analyst, he was responsible for the Technology sector. Patrick was named Manager of Alger’s multi-cap portfolios in September 2004. He graduated with honors from Georgetown University. Patrick is a CFA charterholder and a member of the CFA Institute Institute. Gregory S. Adams, CFA Senior Vice President, Portfolio Manager, Director of Quantitative and Risk Management Investment experience: 25 years Gregory Adams is a Senior Vice President, Portfolio Manager of the Alger Dynamic Opportunities Fund, g y g g y pp the Alger Growth and Income Funds, and Director of Quantitative and Risk Management. Greg joined Alger in 2006 and has 25 years of experience. Previously, he was Director of Quantitative Research at Lord Abbett & Co., and was responsible for portfolio construction simulation and quantitative stock selection. Over the course of his career, Greg was Managing Director and Portfolio Manager at Deutsche Asset Management and The Chase Manhattan Bank. At Deutsche, where he managed over $10 billion in assets, h was th l d P tf li M t he the lead Portfolio Manager f th U S L for the U.S. Large C Cap CCore F d i l di Funds, including S dd ’ Scudder’s flagship Growth & Income Fund. Greg began his tenure at Chase in 1987 as an equity analyst and was promoted to Co‐Manager of the Chase Vista Balanced Fund and the Chase Vista Growth & Income Fund, managing over $2 billion during his tenure. In 1994, Greg was named Manager of the Chase Vista Large Cap Equity Fund. Greg earned a B.A. in American History from the University of Pennsylvania’s School of Arts & Sciences. He graduated from The Wharton School with a B.S. in Economics and g Finance. Greg is a CFA charterholder and a member of the CFA Institute.For Institutional Presentation Purposes Only. Not for Distribution to the Public.
Portfolio Management P tf li M t Steven Thumm Senior Vice President, Portfolio Manager, Head of Equity Trading Investment experience: 25 years Steve Thumm is Senior Vice President and Head of Equity Trading. He is also Portfolio Manager of the fixed-income portion of Alger’s Balanced Portfolio. Steve joined Alger in 1991 and has 25 years of investment experience. Previously, he worked at Marine Midland Bank as a Vice President in the domestic treasury division and managed the Bank’s domestic funding operations. Steve graduated from Hofstra University. Deborah A. Vélez Medenica, CFA Senior Vice President, Portfolio Manager Investment Experience: 16 years Deborah A. Vélez Medenica is Senior Vice President and Portfolio Manager of the Alger Emerging Markets Strategy and the Alger China-U S Growth Fund She joined Alger in December 2010 and has China-U.S. Fund. 18 years of experience in emerging markets. Prior to joining Alger, Deborah worked at PineBridge and its predecessor, where she rose from investment analyst to portfolio manager to the head of emerging market equities. Prior to PineBridge, she worked as an analyst for Baring Asset Management, Toronto Dominion Bank, and Cambridge Associates. Deborah graduated with an A.B. from Harvard-Radcliffe College, earned her M.A. in International Economics and Latin American Studies from Johns Hopkins School of Advanced International Studies, and earned her M.B.A. at The Wharton School. In addition, Deborah is a CFA charterholder and a member of the CFA Institute.For Institutional Presentation Purposes Only. Not for Distribution to the Public.
Client Portfolio Management Cli t P tf li M t Kevin D. Collins, CFA Senior Vice President, Client Portfolio Manager Investment experience: 19 years Kevin D. Collins is Senior Vice President and Client Portfolio Manager. Prior to his role as Client Portfolio Manager, he was Portfolio Manager of the Income and Growth portfolios and the equity portion of Algers Balanced portfolios. Kevin joined Alger in 1996 as an analyst covering industrials and business services. He has 19 years of investment experience Prior to joining Alger Kevin was an equity analyst at The experience. Alger, Bank of New York. He received his B.A. degree from the University of Pennsylvania and earned his M.B.A. from Northwestern University. Kevin is a CFA charterholder and a member of both the CFA Institute and the New York Society of Security Analysts. William Rechter, CFA Senior Vice President, Client Portfolio Manager Investment experience: 41 years Bill Rechter is a Senior Vice President and Client Portfolio Manager. He joined Alger in 2005 and has 41 years of investment experience. Prior to joining Alger, Bill worked at ING Investment Management as a Senior Vice President and Senior Portfolio Specialist representing the Value, Growth, and International investment teams. Over the course of his career, Bill has been the Chief Investment Officer of Hillview Capital Advisors, Managing Director and Senior Portfolio Manager at SG Cowen Asset Management, and President of Sperry Capital Management Corp. He has also held analytical and portfolio management positions at Value Line, Lehman Brothers, U.S. Trust Company and Manufacturers Hanover Trust Company. Bill graduated with a B.B.A. in finance from the University of Massachusetts and earned his M.B.A. in finance and investments from the New York University Graduate School of Business. He is a CFA charterholder and a member of the CFA Institute.For Institutional Presentation Purposes Only. Not for Distribution to the Public.
Analyst Biographies A l t Bi hiAnkur Crawford, Ph.D. Michael YoungSenior Vice President, Co-Portfolio Manager, Senior Analyst Senior Vice President, Co-Portfolio Manager, Senior AnalystSector: Technology/Telecom Sector: Energy/Materials/Utilities S t E /M t i l /UtilitiInvestment Experience: 8 years Investment Experience: 27 yearsIndustry Experience: 1 year (engineer with Intel Corp.) Alger Tenure: Since 2008Alger Tenure: Since 2004 Education: B.A., Dartmouth CollegeEducation: B.S. , University of California, Berkley; Ph.D., Stanford University Michael J. Melnyk, Mi h l J M l k CFAMaria Liotta Senior Vice President, Senior AnalystSenior Vice President, Portfolio Manager, Senior Analyst Sector: ConsumerSector: Health Care Investment Experience: 13 yearsInvestment Experience: 14 yearsIndustry Experience: 4 years (partner in an optometry p y p y (p p y practice) ) Alger Tenure: 2001-2005, and since 2007Alger Tenure: Since 2010 Education: B.B.A., University of Notre DameEducation: B.S., University of Pittsburgh; B.S. and Doctor of Optometry,Pennsylvania College of Optometry; M.B.A., Joseph M. Katz Graduate Brian Schulz, CFASchool of Business Senior Vice President, Senior Analyst Sector: FinancialsChristopher R Walsh CFA R. Walsh, Investment Experience: 11 yearsSenior Vice President, Portfolio Manager, Senior Analyst Alger Tenure: Since 2004Sector: Consumer Education: A.B., Harvard UniversityInvestment Experience: 15 yearsAlger Tenure: Since 2001Education: B S University of VEd ti B.S., U i it f Vermont tFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
Analyst Biographies A l t Bi hiJohn P. McPeake Joel Emery, CFAVice President, Senior Analyst Vice President, AnalystSector: Technology/TelecomS t T h l /T l Sector: Healthcare S t H lthInvestment Experience: 18 years Investment Experience: 16 yearsIndustry Experience: 6 years (including 5 years as COO, Equity Alger Tenure: Since 2012Intelligence at Thomson Financial) Education: B.S., State University of New York at Plattsburgh; M.B.A.,Alger Tenure: Since 2007 Fordham UniversityEducation: B A Hamilton C llEd ti B.A., H ilt College; M B A N M.B.A., New Y k U i York University St it SternSchool of Business Alex Goldman Vice President, AnalystDarryl Ah Now, CFA Sector: IndustrialsVice President, Analyst Investment Experience: 14 yearsSector: Consumer Alger Tenure: Since 2011Investment Experience: 12 years Education: B.S., Columbia University School of Engineering and AppliedAlger Tenure: Since 2005 Science; M.B.A., Columbia University School of BusinessEducation: M.B.A., University of Chicago J.P. GravittCarla Cantreva-Baessler Vice President, AnalystVice President, Analyst Sector: TechnologySector: Emerging Markets Investment Experience: 11 yearsInvestment Experience: 19 years Alger Tenure: Since 2012Alger Tenure: Since 2010 g Education: B.S., Vanderbilt University; M.B.A., University of Chicago y y gEducation: B.A., Faculdade de Tecnologia de São Paulo; B.A., FundacaoGetulo Vargas; M.B.A., New York University Stern School of BusinessFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
Analyst Biographies A l t Bi hiDavid B. Molnar, CFA Peter Chang, CFAVice President, Analyst Associate AnalystSector: Emerging MarketsS t E i M k t Sector: Industrials S t I d ti lInvestment Experience: 15 years Investment Experience: 9 yearsAlger Tenure: Since 2011 Alger Tenure: Since 2012Education: B.A., Haverford College; Diploma, Economics, London School of Education: B.B.A., University of Michigan Business SchoolEconomics and Political Science; M.A., Fletcher School of Law andDiplomacy,Diplomacy Tufts University Tariq Chaudhri Associate AnalystEric Richards, CFA Sector: Technology/TelecomVice President, Analyst Investment Experience: 2 yearsSector: Energy/Materials/Utilities Alger Tenure: Since 2012Investment Experience: 13 years Education: B.S., University of California at Los Angeles; M.B.A., ColumbiaAlger Tenure: Since 2007 Business SchoolEducation: B.A., Saint Olaf College; M.B.A., Georgetown Shubho GhoshSiang Meng Tan, CFA Associate AnalystVice President, Analyst Sector: Technology/TelecomSector: Emerging Markets Investment Experience: 11 yearsInvestment Experience: 17 years Industry Experience: 3 years (senior financial analyst at InternationalIndustry Experience: 3 years (relationship manager, offshore/onshore Rectifier Corporation, manufacturer of power semiconductors)business at Citibank) Alger Tenure: Since 2011 gAlger Tenure: Since 2010 Education: B.A., University of Delhi; M.B.A. and M.S., University of SouthernEducation: B.S., Indiana University; M.B.A., University of North Carolina California, Marshall School of BusinessFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
Analyst Biographies A l t Bi hiPeter Kahng Ben ReynoldsAssociate Analyst Associate AnalystSector: ConsumerS t C Sector: Technology/Telecom S t T h l /T lInvestment Experience: 11 years Investment Experience: 10 yearsAlger Tenure: Since 2012 Alger Tenure: Since 2011Education: A.B., Harvard University; M.B.A., Stanford Graduate School of Education: B.S., University of Virginia McIntire School of Commerce; M.B.A.,Business New York University Stern School of BusinessSoon Hyouk Lee Ravi TanukuAssociate Analyst Associate AnalystSector: Health Care Sector: IndustrialsInvestment Experience: 6 years Investment Experience: 7 yearsAlger Tenure: Since 2011 Industry Experience: 3 years (director of business development/productEducation: A.B., Dartmouth College; M.B.A., Harvard Business School marketing at Offyx, an application hosting/server-based computing company) Alger Tenure: Since 2008Andrew Merrill, CFA Education: B.S., Columbia University School of Engineering & Applied Science; M.B.A., University of Chicago Booth School of BusinessAssociate AnalystSector: Energy/Materials/Utilities Larry VigusInvestment Experience: 5 years Associate AnalystAlger Tenure: Since 2010 Sector: Risk ManagementEducation: B.S., Boston College Wallace E. Carroll School of Management Investment Experience: 13 years Alger Tenure: Since 2000 Education: B.A., Moravian CollegeFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
Analyst Biographies A l t Bi hiSteven YangAssociate AnalystSector: IndustrialsS t I d ti lInvestment Experience: 8 yearsIndustry Experience: 7 years (senior auditor, KPMG LLP in the healthcareand life sciences sector, and an analyst and strategic planning specialist atStanford University Medical Center)Alger Tenure: Since 2005Education: B.A., Yale University; M.B.A., New York University Stern Schoolof BusinessAnna GurvichResearch AssociateSector: ConsumerInvestment Experience: 4 yearsIndustry Experience: 2 years (financial analyst (hardline, broadline, groceryretailing) at Banc of America Securities, and associate, equity research(gaming, lodging,(gaming lodging and leisure) at Oppenheimer & Co Inc ) Co., Inc.)Alger Tenure: Since 2010Education: B.S., Cornell University School of Hotel AdministrationAnkur JaveriResearch AR h Associate i tSector: FinancialsInvestment Experience: 6 yearsAlger Tenure: Since 2007Education: B.A., New York University College of Arts and ScienceFor Institutional Presentation Purposes Only. Not for Distribution to the Public.
SICAV American Asset Growth Fund Portfolio Manager3rd Quarter 2012 Patrick Kelly, CFA ISINThe following commentary discusses the Class A LU0070176184Alger SICAV American Asset Growth Fund Class I LU0295112097(Class A and I Shares) as of September 30, 2012.Investment GoalThe Alger SICAV American Asset Growth Fund seeks long-term capital appreciation by focusing on companies of any size that show promisinggrowth potential. Investing in companies of all capitalizations involves a risk that smaller, newer issuers in which the Fund may invest mighthave limited product lines or financial resources, or lack of management depth.Average Annual Returns (as of 9/30/2012) Year-To-Date Since 1 Year 3 Year 5 Year 10 Year Not Annualized InceptionClass A (Incept. 8/19/1996) 18.22% 29.84% 11.51% 1.36% 9.01% 7.59%Class I (Incept. 5/18/2007) 19.07% 31.08% 12.64% 2.46% N/A 4.18% Since 8/19/96 5.77%Russell 3000 Growth Index 16.59% 29.35% 14.69% 3.22% 8.57% Since 5/18/07 3.72%Total Annual Fund Operating Expenses (Prospectus Dated December 2011) Without Expense Cap Class A 2.07% Class I 1.13% With Expense Cap Class A 2.07% Class I 1.10%During the year ended December 31, 2011, the Portfolio Manager voluntarily agreed to reimburse the sub-funds if annualized expenses, excluding transactionfees, exceeded 2.90% of average net assets for Class A shares. As of November 2011, the Investment Advisor voluntarily agreed to reimburse the sub-fund ifannualized expenses exceeded 1.10% of average net assets for Class I shares. Past performance is not an indication of future results. The performance figuresgiven are a measure of the change in net asset value (NAV) of the Fund and do not take into account taxes and sales charges. Performance figures are not basedon audited financial statements and assume reinvestment of distributions, if any. For performance current to the most recent month-end, visit www.alger.com.Alger SICAV RecognitionThe Alger American Asset Growth ALipper Fund Awards 2011 Lipper Fund Awards 2010 Lipper Fund Awards 2008Best Equity North America Fund Over Five Years: Best Equity North America Fund Over Five Years: Best Equity North America Fund Over Five Years:Austria • Germany • Spain • Switzerland Spain • France • Netherlands Austria • France • Hong Kong • Germany • SpainLipper Fund Awards are based on the highest Consistent Return as determined by the Lipper Leader methodology for the five-year period ended Dec. 31, 2011. Lipper calculates Consistent Return based on funds’short- and long-term risk adjusted performance relative to their fund classification. Computations include the Hurst-Holder exponent and effec tive return. Lipper is a Thomson Reuters company that provides mutualfund information, analytical tools and commentary. Inspired by Change, Driven by Growth.
Alger SICAV American Asset Growth Fund3rd Quarter 2012Commentary as of September 30, 2012Market EnvironmentExpectations for economic stimulus from central banks in Europe, China, and the U.S. helped support equity markets during the third quar-ter, although the ebb and flow of optimism regarding actions to address the euro-zone debt crisis enhanced market volatility. Concernsover slowing economic growth in the U.S. also weakened investor sentiment. On a positive note, corporate spending discipline offsetthe impact of declining revenues, which allowed many SP 500 Index constituents to post resilient second-quarter earnings. Also duringthe quarter, the Federal Reserve announced plans for a third round of quantitative easing to stimulate economic growth and to supportthe U.S. residential housing recovery. Homebuilders, meanwhile, have reported order growth of 30% to 40% and low-single-digit priceincreases. At the same time, the CoreLogic National HPI in August climbed 4.6% year-over-year and the National Association of HomeBuilders/Wells Fargo Housing Market Index, which measures confidence among home builders, climbed to levels last seen in July of 2006.Strategy ReviewThe Alger SICAV American Asset Growth Fund Class A and I generated a 6.84% and 7.09% return, respectively, for the third quarter of2012, outperforming the Russell 3000 Growth Index. For the year-to-date period ended September 30, Class A and Class I shares gene-rated an 18.22% and a 19.07% return, respectively, outperforming the Russell 3000 Growth Index.Our investment strategy seeks compelling opportunities among companies that can benefit from large-scale trends, including increasingInternet use, economic growth in emerging markets, and an improving U.S. housing market. In addition, we seek companies with attrac-tive cash yields. Cash yield is the total amount of cash returned to shareholders through stock buybacks and dividends divided by acompany’s market capitalization. Many of the Strategy’s holdings have cash yields in excess of 10-year Treasury bonds. During the quarter,we also pursued companies with dominate brands and exposure to quickly growing emerging markets. We continued with that themeduring the quarter, but we continued to maintain reduced exposure to certain companies that are involved in real estate and infrastruc-ture development. We feel doing so is prudent in light of potential economic deceleration among certain emerging market countries.Our theme of pursuing companies that are benefiting from growing Internet use was additive to performance, with Apple Inc., GoogleInc., and Amazon Bay Inc. being among top contributors to absolute performance. Apple is well known for designing and manufactu-ring personal computers, tablets, and portable phones, including the popular iPhone. Its shares declined early in the quarter as inves-tors were disappointed by the company’s quarterly results. Later in the third quarter, however, anticipation of potentially strong salesresulting from the launch of the iPhone 5 supported enthusiasm for the stock. Search engine provider Google, meanwhile, benefitedfrom significant growth in search activity and click volumes, driven by increased mobile search activity and the growth of the Androidecosystem. Investors also responded favorably to the company’s plans for restructuring Motorola Mobility and new product initiativeslike Chrome for iOS, paid listings for Google Shopping, and improved ad formats for YouTube. Amazon, which is the world’s largestonline retailer, also benefited from increasing Internet activity. Its share price initially declined after it posted second quarter results thatillustrated the impact of unfavorable currency exchange rates and one-time charges. Investors eventually focused on the company’sstrong quarterly earnings, however, which supported Amazon share prices. While many Information Technology holdings benefitedfrom increasing Internet use, the sector did have positions, including Lam Research Corp., that detracted from absolute performance.The company provides wafer fabrication equipment and services for manufacturers of semiconductors. Its stock performance weake-ned after the company said it expects slowing economic growth and a decline in capital expenditures by semiconductor companies toadversely impact earnings. Shares of U.S. railroad operator CSX Corp. also detracted from results. CSX shares performed poorly after thecompany said it has experienced slowing volume growth, primarily due to a decline in coal volume and a competitive transportationenvironment. Also detracting from performance was UnitedHealth Group Inc., which is a diversified health insurer and health servicescompany. It posted favorable revenue and earnings growth for the second quarter and it provided encouraging earnings guidance.It also continued its stock repurchase program. Yet, its share price declined during the third quarter, which we believe was a result ofinvestors selling shares for profit taking.Going ForwardEconomic growth has moderated and is expected to remain sluggish which, we believe, is likely to contribute to equity market vola-tility. Concerns over the ongoing euro zone crisis are likely to contribute to volatility. We maintain, however, that those concerns havebeen priced into equities and that equities are attractively valued. At the end of the third quarter, more than 55% of SP 500 Indexconstituents had stock dividend yields that exceeded the yields of 10-year Treasuries. At the same time, many companies are using theirsizeable cash balances and strong free cash flow to return capital through stock buybacks and dividends. As of September 30, the SP500 had a price-to-earnings ratio of about 16 based on the latest 12-month earnings, compared to the 50-year average of about 19.With that in mind, we continue to believe that equities have strong potential for generating attractive performance over the long term.
Alger SICAV American Asset Growth Fund 3rd Quarter 2012 Commentary as of September 30, 2012Top 10 Holdings (as of 9/30/2012) Sector Allocations (as of 9/30/2012)Apple Inc. 8.16% Information Technology 30.10%International Business Machines Corp. 3.04% Consumer Discretionary 20.28%Google Inc. Cl A 2.96% Health Care 11.81%Amazon.com Inc. 2.76% Industrials 11.27%Express Scripts Holding Co 2.10% Financials 9.95%Philip Morris International Inc. 1.93% Consumer Staples 7.31%Pfizer Inc. 1.85% Energy 4.30%Honeywell International Inc. 1.79% Materials 3.00%eBay Inc. 1.77% Telecommunication Services 1.97%Capital One Financial Corp. 1.72% Utilities 0.00%Contribution to Return and Attribution Analysis (for the 1-Year Period as of 9/30/12) Alger SICAV American Asset Growth Fund Russell 3000 Growth Index Attribution Analysis Average Weight (%) Contribution to Return (%) Average Weight (%) Contribution to Return (%) Total Effect (%)Information Technology 26.84 11.10 29.42 9.29 2.07Consumer Discretionary 16.20 5.63 14.94 4.42 1.21Industrials 13.37 4.10 12.76 3.47 0.76Consumer Staples 8.17 2.37 11.88 2.72 0.59Financials 6.30 1.65 4.38 1.32 0.22Utilities 0.00 0.00 0.12 0.02 0.02Telecommunication Services 1.89 0.56 1.37 0.38 -0.03Materials 4.01 1.09 4.87 1.62 -0.19Health Care 11.68 4.08 11.62 3.84 -0.19Energy 8.19 1.16 8.65 2.23 -0.90 Source: FactsetTop Contributors Detractors (for the Quarter ended 9/30/12) Contributors DetractorsApple Inc. New Oriental Ed. Tech. Group Inc. ADSGoogle Inc. Cl A Lam Research Corp.Amazon.com Inc. UnitedHealth Group Inc.Express Scripts Holding Co CSX Corp.Stanley Black Decker Inc. United Parcel Service Inc. Cl B Source: FactSet
About Our Firm Fred Alger Management, Inc. is widely recognized as a pioneer of growth-style investment management. We have been an independent, privately owned firm since our inception in 1964. For more than 45 years, we have had three leaders with one vision: maintaining the legacy and continuity of the Alger Investment Philosophy. We strive to deliver consistently superior investment results for our clients. Investment management is our only business. We believe our independence enables us to remain true to our investment beliefs. Class A shares are subject to a maximum front-end sales charge of up to 6.00%. Class I shares do addition, this fact sheet may not be issued or passed on in the United Kingdom to any person, other not have sales charges. than to persons to whom the fact sheet may otherwise lawfully be issued, unless that person is of The Russell 3000® Growth Index is an unmanaged index designed to measure the performance a kind described in Article 11(3) of the Financial Services Act of 1986 (Investment Advertisements) of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted (Exemptions) Order 1996 (as amended). growth values. The Russell 3000® Index measures the performance of the 3,000 largest U.S. com- Investing in the stock market involves gains and losses and may not be suitable for all investors. panies based on the total market capitalization, which represents 99% of the U.S. equity market. This fact sheet is furnished to you by Fred Alger Company, Incorporated, the distributor of Alger Index performance does not reflect deduction for fees, expenses, or taxes.Investors cannot invest SICAV. This fact sheet is authorized for distribution only when accompanied or preceded by a cur- directly in the index. rent prospectus of the Fund, which contains more information about investment objective, risks, No shares in this Fund may be offered or sold to U.S. persons or in jurisdictions where such offerin- charges, and expenses. Please read the prospectus carefully before investing. Sales of shares in gor sale is prohibited. U.S. persons include citizens or residents of the United States of America. For the Fund, the subject of this fact sheet, are made on the basis of the prospectus only and this fact a proper definition of U.S. Person, see the Fund’s prospectus. Investment in the Fund may not be sheet does not constitute an offer of shares in the Fund. An investment in the Fund entails risks, suitable for all investors. Investors with any doubts with regard to suitability should contact their which are described in the prospectus. Investors may not get back the full amount invested and independent investment advisors. Nothing in this fact sheet should be construed as advice. the net asset value of the Fund will fluctuate with market conditions. Exchange rate fluctuations Important information for UK investors: The Fund does not have a place of business in the United and Fund charges also affect the return to the investor. The holdings are subject to change. There Kingdom and is not authorized under the Financial Services Act 1986 (the “Act”). As a consequence, is no assurance that the Fund’s objectives will be achieved. the regulatory regime governing an investor’s rights with respect to the Fund (and its similarly As of 9/30/2012, the following stocks represented the noted percentages of Alger American Asset unauthorized overseas agents) will be different than that of the United Kingdom. Investors will not, for Growth Fund assets: Apple Inc., 7.03%; Google Inc. Cl A, 2.93%; Amazon.com Inc., 2.67%; Express example, be entitled to compensation under the United Kingdom’s Investors Compensation Scheme. Scripts Holding Co, 2.13%; eBay Inc., 1.72%; New Oriental Education Technology Group Inc. The Fund is an unregulated collective investment scheme under the laws of the United Kingdom and, ADS, 0.00%; Lam Research Corp., 0.69%; UnitedHealth Group Inc., 1.72%; Tangoe Inc., 0.00%; therefore, can be promoted in the United Kingdom only to persons in accordance with the Act and the and CSX Corp., 0.90%. Financial Services (promotion of Unregulated Schemes) Regulations 1991 (the “Regulations”). Accor- The National Association of Home Builders/Wells Fargo Housing Market Index gauges builders’ dingly, this fact sheet may not be distributed in the United Kingdom other than to persons authorized sales expectations and perceptions of current single-family home sales. to carry on investment business under the Act, persons whose ordinary business involves the acqui- sition and disposal of property of the same kind as the property or a substantial part of the property The CoreLogic National HPI tracks sales prices of existing residential real estate. in which the Fund invests and persons permitted to receive this fact sheet under the Regulations. In Fred Alger Management, Inc. • 360 Park Avenue South, New York, NY 1001010.12.12 AASICAV3Q2012 800.992.3863 (Retail) • 800.223.3810 (Institutional) • www.alger.com
Fall 2012 Market Update Earnings Resiliency Creates Attractive OpportunitiesLow trading volumes and, Thomas Edison accumulated over 1,000 patents during his lifetime, a result, in large part, of his legendary work ethic. He exhibited a skill for identifying and pur-more importantly, hope for suing rewarding opportunities and possessed the following keen insight intosignificant stimulus from why many individuals fail to capitalize on opportunities: “Opportunity is missed by most people because it is dressed in overalls and looks like work.” His insightthe U.S. Federal Reserve, is highly relevant to investors because equity markets, we believe, are providingthe European Central Bank, attractive opportunities. Yet, many investors continue to reduce their U.S. equityand other authorities exposure and by holding cash and bond investments with zero real return poten- tial, sit on the sidelines. We aren’t surprised as these are indeed difficult economicallowed equity markets to times and the equity market is challenging.recover from nearly all of In our Spring 2012 Market Update commentary, we said that markets were duethe earlier decline, with for yet another pullback after a 12% rally earlier in the year brought the SP 500 Index above 1400 for the first time since the 2008 Financial Crisis. We believedthe SP 500 again climbing that markets would focus on macroeconomic concerns in China and Europe,above 1400 and gaining deceleration of the U.S. economy, and uncertainty over political elections. In the11.01% for the year-to-date commentary, we also advised our readers that, in our opinion, such volatility could provide yet another buying opportunity in U.S. equities. In the days follow-period ended July 31. ing the publication of our commentary, investors apparently became focused on China, the euro zone, and other concerns, causing the SP 500 to drop 9.58% from May 3 to June 1. For the near term, the selloff in May and June was shorter lived than many investors, including our firm, expected. Low trading volumes and, more importantly, hope for significant stimulus from the U.S. Federal Reserve, the European Central Bank, and other authorities allowed equity mar- kets to recover from nearly all of the earlier decline, with the SP 500 again climb- ing above 1400 and gaining 11.01% for the year-to-date period ended July 31. Corporate Fundamentals and Second-Quarter Results At Alger, we believe that corporate fundamentals ultimately drive market per- formance. Companies, of course, operate within the broader economic environ- ment of the U.S. and the global marketplace. 2012 is, in fact, a key point in this market cycle following the Financial Crisis. While corporate America continues to “outperform” the broader economy, the slowing economy, and uncertainty among consumers and businesses regarding the economy are having a negative influence. In the second quarter, we saw a continuation of challenges to revenue growth across many industries. Economic concerns caused consumers and busi- nesses to act in a predictable fashion: Individuals became apprehensive about spending and businesses became cautious over hiring employees and making1 For more details, see Alger commentary titled “Spring 2012 Market Update.” Inspired by Change, Driven by Growth.
This backdrop of a slow capital outlays. Corporate revenues reflect that trend—on a year-over-year basis, total second-quarter 2012 revenue for SP 500 companies declined 3.71%, accord- growth economy, ing to J.P. Morgan (See Fig. 1). It was the first quarterly decline since the depths of however, is one in which the subprime mortgage crisis. For the quarter, 274 companies issued negative rev- enue surprises, the highest level since the first quarter of 2009, according to we believe our investment FactSet (See Fig. 2). During the second quarter of 2012, 52% of SP 500 companies philosophy is well revised revenue guidance downward, while 48% revised guidance upward. This equipped to thrive. was a continuation, slightly moderated, from the first quarter of 2012, when 60% revised downward. However, the easy growth in revenues and earnings is clearly gone, especially when comparing recent results to the second quarter of 2011, when only 35% of SP 500 companies revised downward. Unlike quarterly earn- ings and revenues during the post 2008 Financial Crisis recession, more recent results reflect stronger economic conditions. As a result, corporations now have harder comparables to beat when evaluating results on a year-over-year basis. Moderating GDP growth is also expected to make it harder for corporations to generate substantial revenue and earnings growth. This backdrop of a slow growth economy, however, is one in which we believe our investment philosophy is well equipped to thrive. Our fundamental investment strategy keeps us focused on finding compelling investment opportunities among companies that are best suited to excel in these challenging times of slow eco- nomic growth and increasing concerns over fiscal policy. By conducting in-depth research, we believe we have potential to find companies that can grow earnings and revenues by gaining market share. As dedicated, long-term growth investors, furthermore, we are attuned to the investment opportunities that challenging economies offer to companies capitalizing on innovation and change. Year-Over-Year Percentage Change in Quarterly SP 500 Revenues Figure 1 2Q12 -3.71 1Q12 6.62 SP 500 Negative Revenue Surprises Figure 2 4Q11 8.25 350 3Q11 11.87 300 2Q11 10.60 Number of Negative Surprises 1Q11 8.63 250 4Q10 6.34 200 3Q10 7.29 2Q10 9.92 150 1Q10 10.91 100 4Q09 9.68 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Source: J.P. Morgan Source: Factset2
A Closer Look at Certain Sectors Encouragingly, manyA closer look at the results announced by companies in a couple of sectors high- companies generatedlights many of the points we’ve made over the years in Alger market commen-taries. No broad “average” or single statement, of course, can summarize the strong bottom-lineresults of a sector as broad as Consumer Discretionary, so we will instead give an results, or at leastoverview of typical earnings reports for the quarter. Warnaco Group, Coach Inc.,and Starbucks Corporation were among companies that announced softness in results better thancustomer spending. Warnaco has brands such as Speedo and Calvin Klein and it many feared.reported weak second-quarter results for Europe and the U.S. Even with positiveperformance in Asia and Latin America, its net revenues declined 5% on a year-over-year basis, which was in line with Warnaco’s expectations. Warnaco manage-ment warned that it is balancing its expectations for new product launches withits outlook for “a muted consumer environment in North America and a softeningglobal macroeconomic.” Fashion accessory leader Coach also reported disap-pointing same store sales in the U.S., where traffic to its factory outlet storesdeclined and discounts were required to entice customers to spend. Coach’sstrong Asia results, fortunately, helped the company increase year-over-year sales12%. Starbucks, meanwhile, said it is bracing for a decline in consumer spendingand it lowered its earnings per share guidance to $0.44 to $0.45 from prior guid-ance of $0.46 to $0.47. For the fiscal quarter ended July 1, Starbucks said it gener-ated a 13% net revenue increase and noted that same store sales in China grewonly 12%, compared to 18% in the prior quarter. Economic softness in Europe,meanwhile, pressured results of many companies such as PVH Corp., which offersCalvin Klein and Tommy Hilfiger merchandise, and Ralph Lauren Corporation,which offers clothing and home decorating accessories. Ralph Lauren manage-ment noted that “the outlook for consumer spending and global economicgrowth remains challenging and we are planning our business accordingly.” Aftera multiyear run of double-digit growth in revenues and earnings, Ralph Lauren’sgrowth may be in the mid-single digits in 2012.Encouragingly, many companies generated strong bottom-line results, or at leastresults better than many feared. We have commented before that this economicrecovery is marked by strong corporate cost controls, resulting in an excellentlevel of profitability and cash flow in well-managed companies. That’s continuedeven as top line revenue growth moderates (overall revenue growth for the con-sumer sector was 5% in the second quarter). For example, discount clothingretailer TJX Companies generated a 24% increase in net income, even though netsales increased only 9%, and restaurant operator Brinker International, Inc. grewnet revenues only 1.5%, but managed to increase net income approximately 12%.For the overall sector, bottom-line results, as measured by net income, increasedless than 1% on a year-over-year basis, which makes the strong earnings of com-panies such as Brinker International and TJX even more noteworthy.One bright spot has been the U.S. housing sector. In our Summer 2011Commentary, we reasoned that the real estate market was close to bottoming. At 3
In our Summer 2011 the time, we believed that increasing affordability of homes would eventually sup- port a recovery in housing. Since then, homebuilder stock prices, broadly speaking, Commentary, we have increased. Looking ahead, we believe the U.S. housing recovery will be a mul- reasoned that the real tiyear trend. Just as the downturn took four to five years to finally bottom, so will the recovery, we believe, take time to unfold. Approximately 750,000 residential units, estate market was close including multifamily properties, are being constructed on an annualized basis, to bottoming. At the which is a very depressed level compared to the typical levels of about 1.5 million time, we believed that new homes built prior to 2008. In some of the most depressed locations, new home building has been down 70% or 80% from peak, and even with a potential 20% to increasing affordability 30% increase over the next few years, would still be well below peak levels. With of homes would extraordinarily low mortgage rates and improving, but still poor, availability of bank financing, we see a long runway for recovery. Second quarter earnings among pub- eventually support a licly traded homebuilders were excellent. We continue to like this area of the U.S. recovery in housing. economy, though we believe that the stocks are due for a pause with many trading at five-year highs as of the publication of this commentary. Since then, home- builder stock prices, Reasons for Optimism broadly speaking, In addition to the Consumer Discretionary examples discussed above, many com- panies have preserved profitability by cutting costs as revenues moderate. Even have increased. with the year-over-year second-quarter revenue decline of the SP 500, earnings grew, granted the increase was less than 1% (See Fig. 3). Also during the second quarter, only 38% of SP 500 companies had earnings misses, even though 52% of companies reported revenue misses. In comparison, the highest number of earnings misses since the first quarter of 2009 was 39%, which occurred in the last quarter of 2011. For that quarter, however, an impressive 64% of companies missed revenue targets. In our assessment, corporate fundamentals remain surprisingly strong, amidst a truly difficult global environment. The caution instilled in corporate management means that earnings and margins, while trimmed in many cases, have remained surprisingly healthy when considering the economic background in the U.S. and SP 500 Earnings Grow Despite Revenue Weakness Figure 3 250 Billions ($) 200 150 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Source: J.P. Morgan4
around the world. With no wage pressures, moderating input costs, and sufficient July 2012 Unemploymentproduction capacity, slowing revenue growth is simply not having a devastating (Seasonally Adjusted) Figure 4impact on corporate earnings or cash flow, which is contrary to the previous fore- Education % of Work Forcecasts of many pundits. At Alger, we continue to maintain—and we believe thesecond quarter illustrates this point—that strong corporate earnings are a Less than high school 12.7durable, not cyclical, aspect of the post 2008 Financial Crisis period. The economy High school graduate, 8.7and corporate revenues, granted, are struggling against a headwind of weak no college 1employment growth in the U.S., but we remind readers that unemployment is Some college or associate degree 7.1highly bifurcated between college- and non-college educated individuals.Among college-educated Americans, unemployment is not an issue and remains Bachelor’s2 degree 4.1 or higherlow at 4.1%, compared to the overall rate of 8.3% (See Fig. 4). Total Unemployment Rate 8.3In April, we reported that we were anticipating a weak job market and noted that (1) Includes persons with a high school diploma or equivalent.significant uncertainty would linger over how equity markets may react to decel- (2) Includes persons with bachelor’s, master’s, professional, anderating corporate earnings. Here, the market has been, in our view, exceedingly doctoral degrees.resilient in the face of slowing growth and lack of any real progress on Europe and Note: Updated population controls are introduced annually with the release of January data.U.S. fiscal policy. In particular, despite the media’s and equity markets’ fixation onevery word, movement, or meeting by European regulators and politicians, and Source: U.S. Bureau of Labor Statisticsthe lack of any substantive action by such actors to address the worsening eco-nomic issues in Greece, Spain, Italy, and other troubled countries in Europe, themarkets have responded quite favorably.It’s clear to us that we have an unusual combination of factors driving a reason-able, though not broad based or high volume, rally off of market lows of June.First, European Central Bank President Mario Draghi in July raised global marketexpectations that the organization may engage in extensive bond buying, or inother words, European style quantitative easing. Second, fear of a collapse of theeuro and the euro-zone economic fallout has created yet another flight to safetythat has caused U.S. Treasury yields to fall to the lowest rates in more than 50years, with 10-year Treasury yields at 1.51% on July 31, 2012 (See Fig. 5). The lowrates are widely recognized as likely being negative after factoring inflation. As aresult, we think U.S. equities have benefitted, albeit ever so slightly, frominvestors shunning additional Treasury buys while fleeing European and emerg-ing markets exposure.Going ForwardWe are pleased by equities’ resiliency, though guessing stocks’ direction based onthe actions of regulatory and political leaders in Europe leaves us, as we were inApril, uneasy. While we would like to think that June represented a short-termbottom for U.S. equities, we continue to think that the current rally, at a minimum,will retest those lows sometime soon because of macroeconomic issues anda lack of clarity over government fiscal policies. However, the data we havegathered and the fundamentals that we have observed in the second quarter are,in our view, an extremely helpful guide of current conditions and conditionsin 2013. 5