Multi Cap Growth Summary

Gus Scacco
Managing Director

AG Asset Management's Multicap Growth portfolio increased 1.5% on a net of fee basis in the second quarter of 2008 relative to the 1.5% gain in the Russell 3000 Growth. On a year to date basis, the portfolio has declined 12.7% versus the Russell 3000 Growth which has declined 9.0%. The second quarter was one in which volatility declined relative to the first quarter, but remained above historical levels. As the quarter progressed, early cyclicals started to outperform as the Federal Reserve continued to lower interest rates; however, conflicts in the Middle East and the continued energy demand from emerging markets pushed the price of oil above the $125 mark on its way to $140+. The rise in energy prices put upward pressure on input costs and cut into discretionary spending. Investors became more cautious with risks now moving from slowing growth to prospects of a continued upward move in prices. Another factor that caused investor concern was the availability of both corporate and consumer credit. Credit issues still remain, but risks diminished relative to the prior quarter.

As was stated above, inflationary risk has increased due to non-monetary factors that aren't as influenced by traditional Federal Reserve tools. It may become necessary for Congress to pass further fiscal remedies in order to right the mortgage markets and allow freer capital flows in the future.

At the close of the second quarter the portfolio maintained an overweight in energy, utilities and materials while underweight financials and information technology.

We had been positioned for a move in early cycle equities that could have benefited from the amount of stimulus that was expected to be injected into the system. In spite of the added stimulus, we anticipate that the bottoming process will be one that shows an ongoing high level of volatility and pain from continued deterioration in earnings and economic factors. Our experience reminds us that equities traditionally discount out future expectations, which are now focused on higher prices and slower growth in the near future.

Disclosure Statement