Capital Markets Summer 2020

Summer 2020

Capital Markets: Observations and Insights

Lasting Change

Lasting Change

At Alger, we believe in the world’s ability to increase productivity and wealth through innovation. Since 1964, we have been investing in companies that have introduced new products or services that have helped push society forward, making businesses more efficient and lives better. These successes are often the result of a combination of groundbreaking research & development and visionary corporate strategy that intersect with a changing world. The external environment is important because society needs to be ready to accept these new innovations, much like a puzzle piece fits into the larger picture. The coronavirus pandemic has accelerated the digital transformation of the economy—years of market share changes have been compressed into just a few months. We believe that many new behaviors that have contributed to this acceleration will stay with us for the foreseeable future. In the pages that follow we detail the lasting change that may arise from this crisis. We are excited about how our existing investments may potentially prosper in the evolving landscape, and as we have done for over 55 years, we are working hard to identify potential new winners and losers that will emerge.

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

Lasting Change The pandemic has impacted us all and as a result it has changed the economic environment. We believe that understanding these shifts is important in identifying successful investments for the future.

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.

11

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 looks more attractive after accounting for low interest rates and changing business models, which generate increased cash relative to earnings.

26

VI

2

I

Old Habits → New Behaviors Lasting Change

I • The coronavirus has impacted all of our lives, created new behaviors, and shifted old patterns at work and home, some portion of which will last even after the virus recedes • Many of these behaviors are investable, such as increased e-commerce, digital payments, and cloud computing driven by work and entertainment at home

II

Lifestyle Changes Since Coronavirus

III

Germany U.K.

U.S.

100%

80%

IV

60%

40%

V

20%

0%

Stayed home more

Applied social distancing

Wore protective face masks

Visited stores less

Traveled less

Shopped online more

Used less cash

Avoided public transport

Worked from home

No Change

VI

Source: Statista Survey of 2,137 respondents from Germany, the United Kingdom, and the United States, released June 2020.

3

I

Physical → Digital Lasting Change

I • We believe companies will increasingly invest in digital transformation and deemphasize physical capital expenditures ‒ Driven by increasing consumer demand for digital commerce, communication, and media as well as the opportunity for productivity improvement

II

The Digital Transformation Marches Onward

Physical Investment

Digital Investment

III

56%

54%

52%

IV

50%

48%

46%

V

44%

42%

Share of U.S. Business Investment

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

VI

Source: U.S. Bureau of Economic Analysis and Alger. Digital investment comprises nonresidential fixed investment of intellectual property products (software and R&D) and information processing equipment. Physical investment comprises nonresidential structures and equipment (ex-information processing).

4

I

Efficiency → Reliability Lasting Change

• We believe global supply chains, built for efficiency and dependent on international trade, are likely to become more domestically oriented to ensure reliability • Faster lead times and less geopolitical risk will ensure better customer service and in some cases national security (e.g., medical supplies and rare earths)

I

II

‒ Technologies such as automation, robotics, and 3-D printing will enable this change

Global Trade Falls Off a Cliff

130

III

Global trade has stagnated since 2018 and declined in this year’s recession

125

120

IV

115

110

V

105

100 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CPB World Trade Monitor Volume

VI

Source: Netherlands Central Planning Bureau. The CPB World Trade Monitor brings together, aggregates, and summarizes worldwide monthly data on international trade and industrial production. Its purpose is to report monthly developments in trade and production at the earliest possible date, covering a sample of countries as large as possible.

5

I

In-person → Virtual Lasting Change

• Spurred by health concerns, but sustained by convenience and enhanced productivity, consumers and businesses are likely to increasingly choose virtual interaction ‒ Examples include: online commerce, e-sports, telehealth, virtual learning, and work from home

I

II

Cloud Computing Market Expected to Keep Growing

400

III

355

350

309

300

Cloud computing drives virtualization

266

IV

228

250

197

200

145

150

V

100

Market in Billions ($)

50

0

2017 2018 2019* 2020* 2021* 2022*

VI

Source: Gartner. *Forecast

6

I

Risk → Safety Lasting Change

I • We believe companies, institutions, and individuals are likely to retain cash cushions for the foreseeable future

‒ Driven by the increased frequency in so-called “100-year” economic storms

II

Institutions Seeking Safety in Cash

Individuals Also Seeking Safety in Cash

3.4

1.6

III

3.0

1.4

2.6

IV

1.2

2.2

($ Trillions)

1.0

($ Trillions)

1.8

Retail Money Market Funds

V

1.4

0.8

Institutional Money Market Funds

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: Investment Company Institute, June 2020.

7

I

Sporadic Stimulus → Coordinated Intervention Lasting Change

• We have entered a period of heightened government intervention, in our view

I

• In this environment, fiscal and monetary policy may work more closely together, essentially monetizing debt issuance

II

U.S. Fiscal and Monetary Stimulus in Response to Coronavirus

$3.0 Trillion

III

$2.9 Trillion

Fiscal and monetary policy working in tandem

IV

V

U.S. Fiscal Stimulus

U.S. Federal Reserve Purchases

VI

Source: Federal Reserve, Deutsche Bank, and Alger. Fiscal Stimulus includes the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, and the Families First Coronavirus Response Act. Federal Reserve purchases is the increase in Federal Reserve assets March through June 2020.

8

I

Consumption → Savings Lasting Change

I • We believe consumers are likely to be increasingly cognizant of economic crises and may save more as a result • Businesses may do the same by retaining more of their cash flow and returning less to shareholders in the form of dividends and share repurchases

II

U.S. Personal Savings as a % of Disposable Income

25%

III

While it will likely moderate, the savings rate may remain higher than it has been

20%

15%

IV

10%

5%

V

0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

VI

Source: U.S. Bureau of Economic Analysis. Three-month moving average through May 2020.

9

I

Biotechnology Obscurity → Spotlight Lasting Change

I • The world is now focused on biotechnology as a key driver of better health care solutions ‒ COVID-19 genome sequenced in less than two weeks vs. five months for SARS

‒ Researchers fully designed a vaccine only hours after receiving the genetic code

‒ Human studies three months after publication of the genome vs. 20 months for SARS

II

As The Cost to Sequence A Genome Has Declined

The Speed And Efficacy of Treatment Has Accelerated

III

$9,047,003

20

$16,712

IV

11.4

$4,211

$942

4.5

3.6

3.1

V

Months To Clinical Trial

Cost Per Human Genome

2007

2011

2015

2019

SARS (2003)

Influenza A/Indonesia (2006)

Influenza A/ California (2009)

Zika virus (2016)

COVID-19 coronavirus (2019)

VI

Source: National Human Genome Research Institute, Biotechnology Innovation Organization, and Statista estimates.

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 Growth

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 always grown (even through this pandemic), averaging nearly 7% annually, while bond coupons do not grow

I

II

Equity “Yield” Is Attractive Relative to Treasuries…

…And Equity EPS Can Grow!

S&P 500 EPS Growth

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

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

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

• Strong relationship between starting valuations and ensuing 10-year returns with current data suggesting equities will outperform bonds over the coming decade ‒ Note that low interest rates and stronger free cash flow generation imply higher multiples relative to history (see pages 26 & 27)

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 = 0.91

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 June 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

The New Moore’s Law Accelerating Innovation

• The dynamic of Moore’s Law increased transistors per integrated circuit from 64 in 1965 to 8.5 billion in today’s smartphones and in the process dramatically changed our lives • Today, key technologies are growing even faster than Moore’s Law, implying even more change in the coming decades than we have ever witnessed

I

II

Growth Rates Characterized by Time to Double

III

24 Months

Slower Growth

Artificial intelligence is growing extremely quickly

18 Months

IV

V

3 Months

Faster Growth

Moore's Law / Transistors DNA sequencing

Artificial Intelligence

VI

Source: Intel, Alger, OpenAI. Doubling time refers to length of time that it takes for number of transistors per integrated circuit, number of DNA Mb sequenced per dollar, and the amount of compute or “training” utilized by AI programs to double. Evaluation periods vary.

15

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.

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 -3% 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 May 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

• While forecasting is extremely difficult, the Senate is the Republicans’ to lose

• Democrats appear likely to retain control of the House

I

II

Senate Signals?

Head of the House?

220

49

193

46

III

IV

5

22

V

Likely Democrat Likely Republican

Toss-Up

Likely Democrat Likely Republican

Toss-Up

VI

Source: Cook Political Report, June 2020.

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

Most Innovative Companies 30%

III

Investing based on politics has not worked

IV

Administration

High Domestic Exposure -5%

V

Excess Return During Current

VI

Source: Alger using FactSet Alpha Testing. November 2016 through May 2020. 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%

-20%

IV

-30%

-40%

Russell 1000 Value / Growth

Cumulative Return

V

-50%

Low P/B

-60%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: FactSet, Kenneth R. French, and Alger. June, 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

Average of 2001 & 2008 Recessions

2020 Recession

III

S&P 500 Growth

S&P 500 Value

S&P 500 Growth

S&P 500 Value

20%

20%

IV

0%

0%

-20%

-20%

V

Change in EPS

Change in EPS

-40%

-40%

0 2 4 6 8 10 12 14 16 18 20 22 24

0 2 4 6 8 10 12 14 16 18 20 22 24

Months After Beginning of Recession

Months After Beginning Recession

VI

Source: FactSet and Alger

23

V

Winners vs. Losers Style Wars

• Analyst estimates suggests Growth fundamentals are far stronger than Value

• Data shows that the spread between economic winners and losers is at historic highs

I

Growth Stocks’ EPS Expected to Outperform

Corporate Sales Dispersion Has Jumped

II

Estimated Long-Term EPS Growth Spread for Russell 1000 Growth Less Russell 1000 Value (bps)

The Rate At Which Sales Are Shifting Between U.S. Companies

1,400

7

III

Higher Sales Dispersion

1,200

6

1,000

5

800

IV

4

600

3

400

Lower Sales Dispersion

2

200

V

1

0

0

2016 2017 2018 2019 2020

2016

2017

2018

2019

2020

VI

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and the University of Chicago Booth School of Business to calculate the Expected Excess Sales Reallocation Rate (left chart); and FactSet. Long-term EPS growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

24

V

Multiples vs. Fundamentals Style Wars

I • The large and widening spread in fundamentals more than offsets the somewhat elevated premium at which Growth stocks trade, making them cheaper per unit of growth

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

175%

3.9x

150%

125%

IV

100%

1.8x

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 6/30/20. 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

21%

III

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

IV

-5%

V

Price-to-Earnings

Price-to-Free Cash Flow

VI

Source: FactSet as of 6/30/2020. 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 6/30/20) but have historically outperformed in the 12 months following the trough of a recession*

I

II

Price-to-Earnings S&P Small Cap 600 / S&P 500

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

40%

38%

III

Large Caps More Attractive

20%

0%

22%

IV

Median

-20%

-40%

Small Caps More Attractive

V

-60%

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 its affiliates as of July 2020. 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 FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Risk Disclosures : Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may 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

29

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 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. Long-Term Government Bond Index is an unweighted index which measures the performance of twenty-year maturity U.S. Treasury Bonds. 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.

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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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