Seeking Growth and Income in an Uncertain World

Third Quarter 2011

Richard O. Vandenberg, Jr.

rvandenberg@atlantictrust.com

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3Q113Q11Disclaimer

Atlantic Trust Private Wealth Management includes Atlantic Trust Company, a division of Invesco National Trust Company (a limited-purpose national trust company), and Stein Roe Investment Counsel, Inc. (a registered investment adviser), both of which are wholly-owned subsidiaries of Atlantic Trust Group, Inc. This document is intended for educational purposes only and the material presented should not be construed as an offer or recommendation to buy or sell any security. Concepts expressed are current as of the date of this newsletter only and may change without notice. Such concepts are the opinions of our investment professionals, many of whom are Chartered Financial Analysts® (CFA®). The Chartered Financial Analysts® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S.

There is no guarantee that these views will come to pass. Past performance does not guarantee future comparable results. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Atlantic Trust does not provide legal advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers. To the extent that information contained herein is derived from third-party sources, although we believe the sources to be reliable, we cannot guarantee their accuracy.

Investment Products Offered are Not FDIC-Insured, May Lose Value and are Not Bank Guaranteed.

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3Q113Q11

Slow Growth gets Even Slower

Economy

Consumers Struggling

Real Disposable Personal Income (YoY % Change)Real Consumer Spending (YoY % Change)

Source: Bloomberg, LP, 5/31/11

Inflation Pickup Mostly Due to Higher Energy Prices

CPI Index (YoY % Change)CPI Ex Food and Energy (YoY % Change)

Source: Bloomberg, LP, 5/31/11

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3Q113Q11

Government Debt Remains a Big Problem

Politics and Policy

Federal Debt Held by Public as % of GDP

Source: Congressional Budget Office’s Long-Term Budget Outlook, data after 6/30/11 is projected.

Presidential Re-election and Unemployment

Source: Strategas, 6/30/11

Change in Election Year Unemployment RateM

arg

in o

f R

e-e

lect

ion

Vic

tory

Not Re-elected

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3Q113Q11

May 2011November 2010

QE2 Postmortem

QE2 Focus: Unemployment and Deflation

Source: Bureau of Labor Statistics, 6/30/11

Debt to GDP Ratio, Private and Public SectorsNon-financial DebtTotal Debt

Source: Bureau of Labor Statistics, 6/30/11

Bonds

(YoY Change)

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3Q113Q11

Mini Flight to Quality

Bonds

Investor Preference for Money in the BankSavings and Small-time DepositsMoney Fund Assets

Source: Bloomberg, LP, 6/30/11

Corporate Bond Yield High-yield Bonds (%)Investment-grade Bonds (%)

Source: Bloomberg, LP, 6/30/11

$ B

illio

ns

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3Q113Q11

Despite Mini Correction, Equities Still in Positive Territory

Stock Market

Equities Relatively InexpensiveLong-term Historical Average (18.4)S&P 500 Historical Forward P/E

Global Equity ReturnsS&P 500 Total ReturnMSCI Emerging Markets Total Return

Source: Bloomberg, LP, 6/30/11

MSCI EAFE Total Return

Ind

ex:

12

/31

/10

= 1

00

Source: Thomson Financial, 6/30/11, Average from 6/30/96 to 6/30/11

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3Q113Q11

Large-Cap Equities Remain Attractive

Stock Market

Corporate Profits Recovery Is Complete

Long-term Historical Average ($65.20)S&P Earnings Estimates

Source: Thomson Financial, 6/30/11. Historical estimates are the historical expected (consensus) earnings, It consists of a rolling four-quarter sum expressed as a monthly series.

U.S. Companies: Rising Reliance on Overseas Revenues

S&P 500 Foreign Sales % Total

Source: Strategas, 12/31/09

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3Q11

The Situation in Europe…Disparity Between Core and Periphery

Non-U.S. Equities

Default Risk Rising in Some Countries

December 2010July 11, 2011

Source: Bloomberg, LP, 7/11/11

10-year Bond Yield Spread: Greece Versus Germany

Source: Bloomberg, LP, 6/30/11

(5-year Credit Default Swap Spreads)

%

Bas

is P

oin

ts

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3Q113Q11The Economic Challenge of Our Time

D E B T

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3Q113Q11An Economy on Borrowed Time…

Credit Ratio: Debt vs. GDP

Source: Ned Davis Research, Inc., as of December 2010

Credit Market Debt as % of GDP Average (2005)

Total Credit Market Debt (All Sectors) as a % of the Economy (GDP)

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3Q11

Change in Debt: June 2007 – December 2010

Debt Relocation Rather Than Debt Reduction

Source: Federal Reserve as of December 2010

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3Q113Q11The Cost of Waiting: The Fiscal Gap

Source: Government Accountability Office, as of March 2011

Unfunded Promises

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Cost of the Debt Binge: No Easy Way Out

Massive Debt and the Cost of Fixing the Problem have Long-Term Implications for the U.S. Economy

Slower economic growth

Higher inflation and interest rates

A weak and declining U.S. dollar

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U.S. Dollar: Reserve Currency in Reverse

Real Broad Dollar Index

Real Broad Weight Traded Dollar Average (96.8)

Source: Strategas, May 2011

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U.S. Equity Market: What, Me Worry?

S&P 500 Index

Source: Bloomberg, LP as of April 2011

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A Profit-Led Recovery

Profit Margins Close to a Peak: Now What?

Source: Strategas, as of December 31, 2011

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Investment Strategy in a Time of Unique Challenges

“In a volatile world, opportunities will appear and disappear in short order. Flexibility has to be the watch word.”

-Peter L. Bernstein

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New Challenges, New Opportunities

Successful Asset Allocation Will Require:

Casting a wider net

Being nimble and opportunistic

Embracing growth, avoiding debt

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Where’s the Growth?

IMF Data Mapper: Real GDP Growth 2011

Source: Wolfe Trahan, as of April 2010

10% or more 6% - 10% 3% - 6% 0% - 3% Less than 0% No data

Annual percent change

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Equity Growth Will Mirror GDP Growth

Emerging Markets Equities May Represent 55% of Global Market Cap by 2030

Source: MSCI, Goldman Sachs Global ECS Research estimates as of December 2010

Emerging Markets’ Share of the World

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The Global Balance Sheet Favors Emerging Markets

Public Debt as % of GDP: Developed vs. Developing Economies

Developing Economies Developed Economies

Source: Strategas, IMF Estimates Begin After 2008

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Participating in the Emerging Markets…

Direct Exposure

EM Equities Leading Economic & Earnings Growth

EM DebtImproving Fiscal Trends,

Rising Foreign Exchange Reserves

Indirect Exposure

CommoditiesStrong Demand & Infrastructure

Spending

U.S. Large Caps Rising Sales Exposure to EM Markets

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Expected Returns Favor U.S. Quality & Emerging Markets

GMO 7-Year Asset Class Return Forecasts

Estimated Range of 7-Year Annualized Returns

Stocks

An

nu

al R

ea

l Re

turn

Ove

r 7

Ye

ars

6%

4%

2%

0%

-2%

-4% U.S.Equities

(Large Cap)

U.S.Equities

(Small Cap)U.S. High

QualityEquities

(Emerging)

Int’lEquities

(Large Cap)

Int’lEquities

(Small Cap)

6.5 7.0 6.0 6.5 7.0 10.5+- +- +- +- +- +-

Source: GMO, December 31,2010. *The chart represents real return forecasts1 for several asset classes. These forecasts are forward-looking statements based upon the reasonable belief’s of GMO and are not a guarantee of future performance. Actual results may differ from the forecasts above. 1 Long-term inflation assumption: 2.5% per year.

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Government Bonds: High Uncertainty, Low Yields

Used with permission from Clay Bennett

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Yield Comparison: Bonds vs. Stocks

US 10YR Yield DJIA Income Yield

Ultra-Low Bond Yields

Source: Bloomberg, Estimates Begin After September 2010

Stock Yields Exceed Bond Yields – not Since the 1950s

Yield Comparison: Stocks vs. Bonds

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Risks of Kicking the Can

-10

10

30

50

70

90

110

130

150

2010 2022 2030

% o

f G

DP

Baseline Alternative Ryan Proposal

Extension of most 2001 and 2003 tax cuts until 2020 AMT relief extended Growth in discretionary spending indexed to GDP

Source: Congressional Budget Office, 3/2011

Debt Held by the Public

Alternative Scenario Assumption

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Inflation – No Price / Wage Spiral

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Feb. 1979 - Dec. 1981 Jun. 2007 - Feb. 2011

Energy CPI Personal Income

The “pass-through” from energy to income – 67% then, 27% now Excess capacity in labor and manufacturing

Source: Bureau of Labor Statistics, Bureau of Economic Analysis as of March 2011

Inflation and Wages

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Yield Offers Little Cushion

Impact of Higher Rates on the 10 Year Treasury – Then and Now

February 1979 Current

Yield 9.0% 3.5%

Price Change Given

1% Yield Change-6.5% -8.4%

1 Year Holding Return 3.5% -4.9%

Source: Bloomberg, Atlantic Trust, April 2011

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46 States Faced Budget Shortfalls in 2010

Municipal Markets Focused on State Budgets

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The Response

Fiscal 2010 Fiscal 2011

Revenue Enhancements

22 24

Job/Salary Cuts 31 30

Cuts to Local Aid 20 19

Rainy Day Fund 23 13

Constitutional requirement for balanced budgets in 49 of 50 states

Source: National Conference of State Legislatures, November 2010

Budget Balancing Strategies Employed by Number of States

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Pension Funding

Source: Pew Center on the States, April 2011

Plan Assets as a Percent of Liabilities

101%

51%81%

0%

20%

40%

60%

80%

100%

120%

Ala

bam

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lask

aA

rizon

aA

rkan

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Cal

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Con

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Del

awar

eF

lorid

aG

eorg

iaH

awai

iId

aho

Illin

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Indi

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Iow

aK

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Loui

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Mar

ylan

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Mic

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Mis

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Mis

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Nev

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New

Ham

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Nor

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Bankruptcy as an Option

Chapter 9 of the Bankruptcy Code– Differences with Chapter 11

No states allowed– Arkansas pre-dates current municipal bankruptcy law

Watch the locals– Funding trickles down– High reliance on property taxes– Vallejo, CA– Jefferson County, AL– Harrisburg, PA– Hamtramck, MI– Central Falls, RI– Chowchilla, CA

Source: Atlantic Trust, January 2011

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Defaults: The Historical Record

The 5 year average cumulative default rate for rated municipal issuers from 1970 – 2009:

54 rated municipal issuers defaulted between 1970 and 2009. 42 were in either the Housing or Health Care sectors.

Source: Moody’s, as of February 2010

AAA 0.00%AAA 0.01%A 0.04%Baa 0.08%Speculative Grade 3.43%

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Municipal Market Summary

Significant Challenges and Real Risks

- Credit analysis is crucial

States have the wherewithal to meet near term imbalances

- Revenues coming in ahead of expectations

- Expense cuts, while difficult, are likely

Diversify income sources

- Safety is at a premium

- Income is available from a variety of sources with varying risks

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Diversified Income

With Bond Market Uncertainty High, A Diversified Approach to Income Generation is Advised…

Sector Objective

High Quality Core Fixed IncomeProtection in a deflationary environment,

liquidity

Senior Bank LoansIncome, floating rate coupons, credit

improvement

Emerging Market DebtIncome, currency diversification, credit

improvement

Higher Yielding Equity Strategies Growth & Income Mix; Dividend Growth

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Higher Yielding Sectors

Source: Bloomberg L.P.; Lipper and Alerian Indexes, April 30, 2011