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U.S. Market Neutral 
U.S. Market Neutral
Asset Class/Style: U.S. Equity Absolute Return
Analytic Investors' U.S. Market Neutral strategy seeks a total return that exceeds the 3-month LIBOR rate by 5% to 6% annually. The strategy also seeks to maintain overall volatility at 4% or less, as measured by the annualized standard deviation of the monthly returns.

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U.S. Market Neutral GIPS Disclosure
Analytic Investors List of Composites
Investment Process
Product Assets as of 6/30/2010: $420 MM
The U.S. Market Neutral is an outgrowth of the U.S. Core Equity strategy but invests short as well as long.

We use a proprietary multi-factor return model coupled with sophisticated optimization techniques to consistently add value through stock selection. Our models are supported by the continuous research effort of our investment professionals.

Our return model forecasts rational valuations for all securities in the investable universe based on their exposures to stock characteristics (e.g., price-to-earnings) that have a proven impact on security returns. The characteristics ("factors") used fall into a broad range of categories covering both the growth and value spectrums. They include: Relative Valuation, Growth Potential, Historical Return Patterns, Liquidity, and Risk. The difference between Analytic's approach and others is that Analytic considers 70+ stock characteristics simultaneously (there is no screening as our models are designed to "think multi-dimensionally") and employs statistical techniques to objectively determine which characteristics are preferred by the market. Stocks whose characteristics are being favored by the market will have a higher expected return. Our research has shown that, while investor preferences do change, they tend to change slowly over time and tend to persist for up to 36 months. Thus, our valuations are based on a rolling 36-month window and we are not factor "timers" that drastically and frequently change the characteristics that their portfolio is emphasizing. We have been using this stock selection model since 1996.

With the return rankings and risk constraints (described below) as inputs, we use a proprietary non-linear optimization process to determine a portfolio of long and short equity positions that maximizes expected return while keeping expected volatility at less than 4% annualized. Risk constraints are used in the optimization process to create a portfolio with minimal exposure to systematic market and macro-economic factors and to achieve our targeted volatility level. For example, we avoid size (market cap), style, sector, and large individual stock bets as we believe such bets do not pay off consistently. In keeping with our philosophy, our techniques take into account the market's complexity. For example, rather than having a simple hard and fast rule to avoid large stock bets (e.g., "maximum long or short positions of 3%"), we use volatility forecasts to adjust our "maximum holding" rule such that a large movement in any one stock does not significantly impact the performance of the portfolio. This typically translates into a "maximum long or short position of 0.5%" for high volatility stocks and a "maximum long or short position of 3%" for low volatility stocks, but will vary modestly based on the expected volatilities. We also incorporate implementation costs (before executing trades) into our optimization.



Performance
Annualized Returns As of 6/30/2010 
*3 Month returns are not annualized.

Gross and net performance stated above reflects the deduction of brokerage commissions and expenses incurred to manage the portfolio, and the reinvestment of dividends and other income. Gross performance does not include the deduction of investment management fees. Please refer to the full disclosure statement located at the top of this page. Past performance is not a guarantee of future results.

Performance figures are unaudited and subject to change.

All institutional product information has been provided by Analytic Investors, LLC. Any questions about this material or requests for additional information should be made directly to the firm at info@aninvestor.com
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