Capital Markets Spring 2020

Spring 2020

Capital Markets: Observations and Insights

Navigating Through a Crisis

Navigating Through a Crisis

Our firm has navigated seven recessions and countless crises, including the Global Financial Crisis, the dot.com bubble burst, the Asian Financial Crisis, and September 11th during our more than 55 years of investing in growth equities. We believe that the lessons learned throughout these events are applicable during this current crisis. First, our experience and research show that innovation grows through all kinds of economic volatility. Second, strong competitive advantages often translate into expanded market shares in times of stress in the economy. Third, in our view, liquidity and balance sheet flexibility are paramount so that great companies can survive and thrive in the inevitable recovery. Throughout these market changing events, equities, and in particular, equities of innovative companies that aggressively capture market share and maintain strong balance sheets, have historically been highly resilient.

We continue to use our time-tested approach to seek companies that we believe are best positioned for uncertain times.

Daniel C. Chung, CFA Chief Executive Officer Chief Investment Officer

Brad Neuman, CFA Senior Vice President Director of Market Strategy

1

Key Observations and Themes

Navigating Through a Crisis We highlight strategies for investing through very difficult economic environments. Innovative companies with strong competitive advantages and solid balance sheets are key to building wealth over time, in our view.

3

I

Lending vs. Owning With interest rates at very low levels, stocks look attractive relative to bonds. We believe equities will outperform fixed income over the long term.

10

II

Accelerating Innovation Innovation is speeding up and changing the way the economy behaves, increasingly driving stock performance.

14

III

The Election In our view, evidence suggests investing in innovation and fundamentals is likely to outperform strategies that attempt to profit from policy changes.

18

IV

Style Wars Powerful structural forces have caused Growth to diverge from Value. Investors looking for a reversion to the mean may be disappointed.

22

V

Valuation Equity valuation may look attractive, particularly after accounting for low interest rates and changing business models, which generate more cash relative to earnings.

26

VI

2

I

Innovation Triumphs Over Economic Volatility Navigating Through a Crisis

I • Innovation flourishes even when the economy languishes ‒ Through the 1918-1919 “Spanish Flu” pandemic/recession, automobiles grew at a double-digit rate, TV ownership increased strongly in the 1950s “Asian Flu” pandemic/recession, and more recently PCs and smartphones grew through recessions

II

Personal Computer Penetration Grew Through Early ‘90s Recession

Global Smartphone Subscribers Grew Through Global Financial Crisis

III

Global Real GDP Index Global Smartphone Subscriber Index Recession

U.S. Real GDP Index U.S. PC Index Recession

500

160

IV

+335%

400

+43%

140

300

120

200

V

+4%

+9%

100

100

80

0

VI

1988

1989

1990

1991

1992

2006

2007

2008

2009

2010

Source: Diego Comin and Bart Hobijn “Historical Cross County Technology Adoption Dataset”; GSM Association; FactSet.

3

I

Balance Sheets Matter Navigating Through a Crisis

• In times of economic stress, we believe strong balance sheets are important:

I

‒ As cash flows decline, companies still able to invest can drive market share

‒ Corporations must not be overly reliant on capital markets to roll over debt

II

Leverage Underperformed in the Coronavirus Pandemic

Leverage Underperformed in the Global Financial Crisis

0%

0% 1%

III

-9% -8% -7% -6% -5% -4% -3% -2% -1%

-1%

IV

-2%

-3% Performance

Performance

V

Cumulative Relative Factor

Cumulative Relative Factor

-4%

VI

Jan-20

Jun-08

Feb-20

Mar-20

Dec-19

Mar-08

Dec-07

Dec-08

Sep-08

Source: Axioma, FactSet. This analysis measures leverage after accounting for overall market sensitivity (Beta) as well as other factors so it is the pure impact of debt/leverage. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

4

I

Competitive Advantage Is Critical Navigating Through a Crisis

I • We believe strong moats or competitive advantages are always important • However, in times of economic weakness, there is often more market share up for grabs, making this attribute of the utmost importance, in our view

II

Performance Based on Degree of Competitive Advantage

III

12.0%

10.5%

Wide moats / strong competitive advantages have outperformed

6.5%

IV

V

No Moat

S&P 500

Wide Moat

VI

Source: Morningstar. 10-year annualized returns for the period ended March 2020. Performance reflects Morningstar indices. Morningstar defines a wide-moat company as having “a sustainable competitive advantage that enables it to keep competitors at bay for an extended period of time.” The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

5

I

Buy into Fear? Navigating Through a Crisis

I • Sentiment is an important factor in assessing the state of, and outlook for, the financial markets. It can be gauged using the VIX Index, which measures the implied volatility of S&P 500 Index options

• At extremes, this so-called “fear gauge” can be a contrarian signal to investors

II

Average S&P 500 Returns After Various VIX Levels

VIX 20-30 VIX 30-40 VIX >40

III

58.0%

45.5%

Higher anxiety has been followed by higher returns

IV

31.9%

21.9%

19.3%

V

5.2%

1 Year

3 Years

VI

Source: FactSet and Alger. Data is for 30 years ending February 2020. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

6

I

Follow the Executives Navigating Through a Crisis

I In most periods, executives of companies are typically selling the stock that has been awarded to them

• But when they are buying en masse , it may well be an important signal for investors

II

Record Insider Buying

2000

III

S&P 500 +33% in next 12-months

1500

Insider buying has marked attractive

S&P 500 +21% in next 12-months

1000

entry points historically

IV

500

0

V

-500

Net Insiders Buying / (Selling)

-1000

VI

Source: InsiderScore, FactSet, Alger. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

7

I

Don’t Overreact Navigating Through a Crisis

I • A significant decline in aggregate earnings can be scary and can potentially move stock prices violently • However, we believe the value of a company (or group of companies) with stable, long- term cash flows should not change much based on short-term cash flow fluctuations

II

Value of $100 Per Year over 30 Years @ 7% Cost of Capital

Value of $100 Per Year After Falling 40% in Year 1 and Gradually Returning to $100 for Years 4 to 30

III

$1,241

-5%

$1,176

IV

A 40% short-term decline leads to only a 5% reduction in long-term value

V

VI

Source: Alger. Both values based on discounted cash flow using 7% cost of capital.

8

I

Take the Long-Term View Navigating Through a Crisis

I • While it is tempting to sell stocks for the relative safety of government bonds, history suggests that stocks have outperformed over the long term ‒ Returns: over 20 year periods, stocks have outperformed bonds by almost 4% annually, which equates to nearly a doubling cumulatively ‒ Risk: equity standard deviation drops from over 10 points more than bonds in one-year periods to less than one percentage point more over 20-year periods

II

Percent of Time Stocks Outperform Bonds

III

100%

82%

74%

Stocks have consistently

67%

IV

outperformed bonds over the long term

V

VI

1-year

5-year

10-year

20-year

Source: Morningstar and Alger. Data is for 1950-2019 based on annual rolling periods. Stocks are S&P 500 and bonds are Ibbotson U.S. Intermediate Term Government Bond Index. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

9

II

Seeking Safety Lending vs. Owning

• Over the past several years, and recently, as a result of the pandemic, investors have been allocating away from equities and into government bonds and cash

I

…And into Cash

Investors Have Plowed Money into Bonds

II

4,500

Stocks

Bonds

1,400

4,000

III

1,200

1,000

3,500

800

3,000 ($ billions)

600

IV

400 ($ billions)

Money Market Funds

2,500

200

Cumulative Fund Flow

0

2,000

V

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Jun-17

Jun-18

Jun-19

Mar-17

Mar-18

Mar-19

Mar-20

Dec-16

Dec-17

Dec-18

Dec-19

Sep-17

Sep-18

Sep-19

VI

Source: Morningstar, Investment Company Institute, Alger. Bond flows include taxable and municipals and stock flows include U.S. equity and international equity—all include passive and ETF flows.

10

II

More Cash in Your Pocket? Lending vs. Owning

• In an unusual occurrence, equity dividend yields are higher than 10-year Treasury yields

I

‒ The last time this occurred, stocks outperformed bonds by ~1,100 bps annually over the following five years* ‒ Over 10-year periods in the past half century, the S&P 500 dividend has grown an average of nearly 6% annually, while a Treasury bond coupon does not grow

II

…But Stock Dividends Can Grow!

Similar Yields…

III

S&P 500 Div Yield 10-Yr Treasury Yield

S&P 500 Dividend Treasury Bond Coupon

10% 12% 14% 16%

12%

10%

8%

IV

6%

0% 2% 4% 6% 8%

4%

2%

V

0%

-2%

Rolling 10-Yr Annual Growth

VI

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Source: FactSet, Robert Shiller, Alger. *S&P 500 returned 17.6% vs. 6.6% annually for the Ibbotson U.S. Long-Term Government Bond Index 11/30/08-11/30/13. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

11

II

An Easy Choice? Lending vs. Owning

• Investors are accepting much lower “yields” for the safety of Treasuries relative to equities but how risky are stock fundamentals over the long term? ‒ Over 10-year periods in the past half century, S&P 500 EPS has grown an average of nearly 7% annually, or over 90%, while a Treasury bond coupon does not grow

I

II

Equity “Yield” Is Attractive Relative to Treasuries…

…And Equity EPS Can Grow!

S&P 500 EPS Treasury Bond Coupon

S&P 500 Earnings Yield 10-Yr Treasury Yield

III

12%

16%

10%

8%

12%

IV

6%

8%

4%

2%

4%

0%

V

0%

-2%

Rolling 10-Yr Annual Growth

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1970

1977

1984

1991

1998

2005

2012

2019

VI

Source: FactSet, Robert Shiller, Alger. Notes: periods used were annual. Equity yield is LTM EPS / Price. Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.

12

II

Many Happy Returns? Lending vs. Owning

• There is a strong relationship between starting valuation and ensuing 10-year returns for both stocks and bonds ‒ Current valuations suggest strong equity performance relative to bonds over the coming decade

I

II

S&P 500 P/E vs. 10-Year Returns

Treasury Bond Yield vs. U.S. Aggregate Bond 10-Year Returns

12%

25%

= month

III

R² = 0.90

R² = 0.75

= current

10%

20%

8%

15%

6%

10%

IV

4%

5%

2%

0%

0%

V

-5%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Bloomberg Barclays U.S. Aggregate Bond 10-Year Annualized Return

5x

10x 15x 20x 25x 30x 35x

S&P 500 10-Year Annualized Return

S&P 500 LTM Price/Earnings

10-Year Treasury Bond Yield

Source: FactSet. Each dot represents the P/E during that month and the returns generated over the subsequent 10 years. The starting P/E ratio is the price divided by the last 12- month earnings per share estimate at the start of each 10-year period measured. Monthly data through March 2020, beginning in March 1990 for stocks and January 1986 for bonds. R-squared is a statistical measure used to analyze how differences in one variable can be explained by the difference in a second variable. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

VI

13

III

Stepping on the Gas Accelerating Innovation

• Data has indicated that innovation is accelerating across many areas of the economy

I

• As a result, new products and services are diffusing through society faster, disrupting businesses at a greater pace

II

Years from Market Entry to 50% Penetration

Years to Reach 1 Billion Users

III

IV

V

VI

Source: Asymco, Visual Capitalist, company disclosures, Alger estimates.

14

III

A New Era Emerges Accelerating Innovation

• Research has shown that technological revolutions occur continuously about every half century ‒ We believe we are in the irruptive phase of a new revolution, the Age of Connected Intelligence, when intelligent computing will be ubiquitous and pervasive

I

II

The Lifecycle of Technological Revolutions

III

IV

V

VI

Source: Carlota Perez, “Technological Revolutions and Financial Capital,” Edward Elgar Publishing, 2002; Alger.

15

III

Growing Intelligence Accelerating Innovation

• With artificial intelligence (AI) further penetrating software and services, it is no wonder companies are increasingly discussing their plans for the technology with investors • However, only a minority of companies are regularly talking about artificial intelligence, indicating we are still in the early innings of the adoption of this technological revolution

I

II

Number of S&P 500 Companies Discussing AI on Earnings Calls

III

80

AI increasingly driving corporate

70

strategy and fundamentals

IV

60

50

V

40

4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20

VI

Source: FactSet and Alger. Trailing 12-month average of number of companies mentioning “artificial intelligence” or “AI” on quarterly earnings conference calls.

16

III

Innovation as Wealth Creator Accelerating Innovation

• Studies have shown and our research demonstrates that the most innovative companies grow their sales, earnings, and stock prices faster*

I

Innovative Companies Have Outperformed Over the Past Decade

II

Most Innovative +6% per year

100%

80%

III

60%

40%

IV

20%

0%

-20%

V

-40%

Cumulative Excess Return

Least Innovative -4% per year

-60%

VI

Source: FactSet. Most/least innovative stock excess performance is derived from highest and lowest S&P 1500 quintiles based on R&D as % of sales, normalized for market value, using one month returns for 10 years ending February 2020. * Baruch Lev and Suresh Radhakrishnan, “The Stock Market Valuation of R&D Leaders.” The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

17

IV

It’s the Economy The Election

• The economy may be a good indicator of whether the incumbent will be re-elected

I

• A recession in the preceding two years has typically indicated a change in the Oval Office

Recession in Past Two Years?

Year

Candidate

Re-Elected?

II

2012

Obama

2004

GW Bush

1996

Clinton

III

X

1992

GH Bush

1984

Reagan

X X

1980

Carter

1976

Ford

IV

1972

Nixon

1964

Johnson

1956

Eisenhower

1948

Truman

V

1944

Roosevelt

1940

Roosevelt

1936

Roosevelt

X

1932

Hoover

VI

Source: Bruce Mehlman: The Roaring 2020s and Alger.

18

IV

Meaningful Policy Changes? Not Without a Sweep The Election

• Republicans appear likely to retain control of the Senate

• Democrats appear likely to retain control of the House

I

Senate Signals?

Head of the House?

II

217

50

193

46

III

IV

25

4

V

Likely Democrat Likely Republican Toss-Up

Likely Democrat Likely Republican Toss-Up

VI

Source: Cook Political Report

19

IV

Something in Common The Election

• Fiscal stimulus and resulting larger deficits, through lower taxes or higher spending, are increasingly acceptable to both parties, as evidenced by the recent coronavirus relief bill

I

‒ This may benefit the entire stock market more than many expect

Republicans

Democrats

II

• Lower Taxes • America First/ Tariffs as Weapons • Border Control • Gun Rights • Pro-Life • Private Sector Health Care • Reduced Regulations

• Higher Taxes; Higher Wages • Coalitions to Work with Allies • More Free Borders

III

Deficit Spending

IV

• Gun Control • Pro-Choice

• Government Health Care • Environmental and Worker Protection

V

VI

Source: Alger.

20

IV

Fundamentals > Politics The Election

• Domestically focused companies that should have benefitted from the administration’s policies have actually underperformed while the most innovative companies outperformed

I

‒ Investors may want to consider secular growth companies irrespective of politics

II

14%

15%

Most Innovative Companies

10%

III

5%

0%

-6%

IV

-5%

High Domestic Exposure

-10%

Cumulative Excess Return

V

-15%

VI

Source: Alger using FactSet Alpha Testing. High domestic exposure is companies in highest quintile of U.S. sales as percent of total sales in S&P 500. Most Innovative Companies are the highest quintile of R&D % of sales in the S&P 500. Both are normalized for sector exposure. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

21

V

Structural Issues Driving Growth vs. Value Style Wars

• Growth stocks have dramatically outperformed Value stocks over the past decade

I

• The driver has been the very weak performance of the Price-to-Book valuation metric, which is used heavily in index classifications of Growth vs. Value stocks • As accounting fails to keep up with the changing economy, book value may no longer be as relevant (e.g., R&D is not capitalized in book value)

II

10%

III

0%

Style classification too dependent upon outdated book value

-10%

IV

-20%

-30% Cumulative Return

Russell 1000 Value / Growth

V

Low P/B

-40%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: FactSet, Kenneth R. French, and Alger through February 2020. Low price-to-book returns are based on the B/P Frama/French factor for the CRSP universe which includes US firms listed on the NYSE, AMEX, or NASDAQ . The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

22

V

Risk Mitigation Style Wars

• Understanding the downside to sales, earnings, and cash flows in a difficult economic environment is key to understanding risk in portfolios ‒ Value stocks have often acted like sailboats that depend on the wind of economic activity, while Growth stocks enjoy a secular motor to help protect against volatility

I

II

Look for Stocks Where Fundamentals May Prove Resilient

III

S&P 500 Growth

S&P 500 Value

S&P 500 Growth

S&P 500 Value

20%

20%

0%

0%

IV

-20%

-20%

-40%

-40%

Change in EPS

Change in EPS

V

-60%

-60%

0 1 2 3 4 5 6 7 8 9 10 11 12

0 1 2 3 4 5 6 7 8 9 10 11 12

Months After Beginning of 2001 Recession

Months After Beginning of 2008 Recession

VI

Source: FactSet and Alger

23

V

The Growth Advantage Style Wars

• Three variables drive P/E multiples: growth, return on capital, and risk

I

• The Russell 1000 Growth Index has higher expected EPS growth, higher return on equity, and lower risk in the form of better balance sheets as compared to the Russell 1000 Value Index

II

Lower Risk

Higher Returns

Stronger Growth

Long-Term EPS Growth

Net Debt / EBITDA

Return on Equity

III

2.8x

29.0%

IV

13.0%

0.9x

11.4%

7.3%

V

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

VI

Source: FactSet as of 3/31/20. Growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

24

V

Oscillating Valuations Style Wars

I • Growth stocks are beginning to look more expensive compared to their Value equity counterparts, but we believe earnings of Value stocks will decline more significantly, potentially reducing the valuation spread over the coming months

II

Russell 1000 Growth vs. Russell 1000 Value PEG Ratio

Russell 1000 Growth Relative to Russell 1000 Value P/E

225%

200%

III

Growth stocks are cheaper relative to long-term growth

1.7x

175%

1.6x

150%

125%

IV

100%

65%

75%

Median: 41%

Value is Attractive

50%

V

25%

Growth is Attractive

0%

Russell 1000 Value

Russell 1000 Growth

1979 1984 1989 1994 1999 2004 2009 2014 2019

VI

Source: FactSet, Bank of America as of 3/31/20. PEG ratio is P/E divided by long-term growth rate. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

25

VI

Cheap Relative to Interest Rates Valuation

• One good way to incorporate interest rates into valuation is to calculate investors’ required rate of return above the prevailing risk-free interest rate ‒ Using the so-called Equity Risk Premium shows stocks are attractively valued relative to their historical average

I

II

Equity Risk Premiums Show Stocks Are Inexpensive

US World

III

10%

Cheaper

8%

6%

IV

4%

2%

More Expensive

V

0%

Estimated Equity Risk Premium

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: Goldman Sachs. Note: The market implied equity risk premium (ERP) is the rate that at each point in time makes the theoretical value from GS Dividend Discount Model equal to the observed market price. U.S. equities are represented by the S&P 500. World equities are represented by a weighted average of MSCI Asia Pac ex-Japan (20%), TOPIX (10%), Stoxx 600 (30%), and S&P 500 (40%).

26

VI

More than Meets the Eye Valuation

I • The stock market looks cheaper on free cash flow than earnings ‒ Companies’ increasing investment in intangible assets (e.g., R&D), that are expensed rather than capitalized, has depressed earnings relative to free cash flow

II

S&P 500 Valuation Relative to Past 25-Year Median

III

Better free cash flow generation makes stocks look cheaper on that metric than earnings

-5%

IV

-19%

V

Price-to-Earnings

Price-to-Free Cash Flow

VI

Source: FactSet as of 3/31/2020. Note: Price-to-earnings is the current market price of a company divided by its last 12 months of earnings. Price-to-free cash flow is the current price of a company divided by its last 12 months of free cash flow.

27

VI

Smaller Capitalization Stocks Look Attractive Valuation

• Underperformance has compressed small cap valuations as compared to history

• Small caps underperformed YTD (through 3/31/20) but have historically outperformed by ~1,400 bps in the 12 months following the trough of a recession*

I

II

Price-to-Earnings Russell 2000 / Russell 1000

Small Caps Have Outperformed in Recoveries Performance One Year After Recession Trough

100% 120% 140% 160%

38%

III

Large Caps More Attractive

24%

IV

0% 20% 40% 60% 80%

Median

Small Caps More Attractive

V

S&P 500

Russell 2000

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

VI

Source: FactSet. P/E is price divided by earnings per share over last 12-months. *Based on S&P 500 vs. Russell 2000 performance after stock market troughs during the past three recessions: 12 months following 10/31/90, 9/30/01, 2/28/09, respectively. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

28

Disclosure

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of April 2020. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security, or any funds managed by Alger. Risk Disclosures : Investing in the stock market involves certain risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance . Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.

Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation.

Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries.

Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd.

Alger Group Holdings, LLC (parent company of FAM) and Fred Alger & Company, LLC are not an authorized persons for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.

Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Fred Alger Management, LLC • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com

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Disclosure

The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market without regard to company size. The S&P 500 Growth and Value style indices are weighted by float market capitalization and they measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The S&P Composite 1500 is an unmanaged index that covers approximately 90% of the U.S. market capitalization. The Russell 1000® Growth Index is an unmanaged index designed to measure the performance of the largest 1000 companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The MSCI AC Asia Pacific ex Japan Index captures large and mid cap representation across 4 of 5 Developed Markets countries (excluding Japan) and 9 Emerging Markets countries in the Asia Pacific region. TOPIX (Tokyo Stock Price Index) is a free-float adjusted market capitalization-weighted index that is calculated based on all the domestic common stocks listed on the Tokyo Stock Exchange First Section. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index. The STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region. The STOXX Europe Total Market Index represents the Western Europe region as a whole. It covers approximately 95 percent of the free float market capitalization across 17 European countries. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad- based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Ibbotson U.S. Intermediate-Term Government Bond Index is an unweighted index which measures the performance of five-year maturity U.S. Treasury Bonds. The Ibbotson U.S. Long-Term Government Bond Index is an unweighted index which measures the performance of twenty-year maturity U.S. Treasury Bonds. The Morningstar Wide Moat Index is a float market cap weighted index of all securities in the Morningstar US Market Index with a ‘Wide Moat’ rating, which are those companies with “a sustainable competitive advantage that enables it to keep competitors at bay for an extended period of time. . The Morningstar No Moat index consists of all securities in the Morningstar US Market Index where Morningstar expects the company to be unable to achieve high returns on invested capital relative to cost of capital and has little to no competitive advantage. The VIX index measure the market’s expectation of future volatility and is based on options of the S&P 500® Index. The indices presented are provided for illustrative purposes, reflect the reinvestment of dividends and do not assess fees and expenses that would have the effect of reducing returns. Investors cannot invest directly in any index. The index performance does not represent the returns of any portfolio advised by Fred Alger Management, LLC and actual client results might differ materially than the indices shown. Note that past performance is no guarantee of future results. Comparison to a different index might have materially different results than those shown. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell ® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is complete or accurate. Beta measures a portfolio’s sensitivity to market movements relative to a particular index; a portfolio with a beta of 1.00 would be expected to have returns equal to such index. Standard Deviation measures how much the portfolio’s return has deviated from its average historical return.

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Fred Alger Management, LLC • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com

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