Who We Are - President Letters - An SEC Registered Investment Advisor

September 23, 2011

Dear Clients and Friends,

The dramatic increase in frequency and intensity of global weather events provides a fitting allegory to global financial markets. Swelling volatility has provided an affirmation of our cautionary notes and for our moves to provide defensive and bear market-oriented portfolios for our clients.
While you have probably seen news stories with headlines such as ‘Ominous Opening For September’ (WSJ September 3-4, 2011), our concerns remain firmly on the struggling US economy’s potential to move to a recession and the disastrous implications of a European Debt Crisis. While either of these events would be sufficient to drag down stock values, the combination would result in a severe and sudden loss of confidence and devastating global market plunge.

Regarding the fate of the USA, we are teetering on the razor’s edge of beginning a new recession, already carrying the heavy burden of 9%+ unemployment. The recent unemployment report for August showed that our economy posted a goose egg (i.e. “0”) for net new jobs.
As the eloquent Alan Abelson described in his September 5, 2011 article in Barron’s, “The question, they say, is whether in the coming months this “stall speed” economy is sustainable – or, like a 747 doing just 50 mph, the sort of thing that precedes an unwelcome landing.”
The warning signs continue to increase in frequency, dotting the path to a hard landing for the US. In looking at the What’s News headlines from The Wall Street Journal over just a few days, you would not be faulted for being despondent – we have provided a sampling of the recent headlines at the end of this letter.

Of course, there are concerns about not only the willingness, but also the constitutionality, of European Union (EU) countries bailing out their broke EU neighbors. Among the many potential tipping points for a European bank collapse is the potential for Germany to rule that they cannot bankroll the debt of Greece, Ireland, Portugal, Italy or Spain. Such a blow would surely send global markets into turmoil. Even if the German parliament receives the green light from their courts, the German people seem likely to vote for politicians more willing to remove German welfare from the rest of Europe.

In a nutshell, the fate of the Euro, the EU and the European (and global) banking system is precarious at best. As such, any shock to the global banking system could trigger our next ‘Lehman Moment.’

From the 6-month S&P 500 US stock index chart below, the market is already pricing in a rough landing:

We have said it before and we will say it again: When in doubt, take the risk of lost opportunity and not the risk of lost capital.

As active investment managers, we feel that we are well-positioned to execute on opportunities for our clients.

As proof of that, below are the results of our moderate portfolio versus the S&P 500 as of September 22, 2011. It becomes obvious that we deliver!

Please share this information with friends, colleagues or family members that are in need of professional assistance given what we believe is in store for the economy. By the way, we do not charge for an initial consultation.

As always, we welcome your calls and emails. We want to hear from you.

Sincerely,
Barry Cliff
President, AFC Asset Management Services, Inc.
Barry@AFCAssetManagement.com

18310 Montgomery Village Avenue, Suite 440
Gaithersburg, MD 20879
301-588-5000
www.afcassetmanagement.com

Disclaimer
Data details: Client Risk Tolerance is based on a scale with the lowest risk tolerance of “Conservative” and the highest risk tolerance of “Aggressive”. Before June 30, 2001, there was only one program and all clients were considered Moderate at level three (3). (Prior to December 31, 1999, AFC returns were reported quarterly. Any monthly performance charts depicting performance prior to December 31 1999 use a straight-line method between quarterly performance figures where the monthly performance figures were not available.)

Performance details: Upon approval of the President, some clients may be charged an asset management fee less than the published standard fee schedule on Part II of our ADV. The performance of AFC’s managed portfolios excluding all accounts that are under a discounted fee schedule are as follows:

Our performance returns are computed using Advent’s Axys portfolio management software. Axys rounds the programs’ composite time weighted returns to two decimal places. The 10 year return combines three performance reports and the cumulative time weighted return is computed using Microsoft Excel. Reported percentage returns are rounded up if 0.05% or greater and rounded down if less than 0.05%. After 12/31/09, composite returns implemented by Advent’s Axys update for ‘significant cash flows’ per The CFA Institutes Global Performance Investment Performance Standards (GIPS) requirements.

Supporting data in the form of specific monthly performance results since the programs’ inception is available from AFC upon request.

For prospective and current investors, past performance is no guarantee of future results; all investors face the potential for loss with any investment.

Composite performance results represent the total return for the time period indicated net of all fees and commissions charged by AFC, mutual fund companies, and custodians.

Performance results for AFC include reinvestment of dividends, capital gains, and other distributions/earnings.

Performance results do not reflect the actual results for any one investor. Performance results do represent all investors under each Client Risk Tolerance category. Although all investors in a given Client Risk Tolerance category may hold the same mutual funds, individual investors will likely experience returns that are slightly more or less than those reported.

Comparison clarifications:
Actual returns are not adjusted for dividends and capital gains of the Dow Jones Industrial Average (Dow), S&P 500, and NASDAQ Composite (the Indices) for the periods corresponding to those reported. AFC Asset Management Services, Inc.’s (AFC) cited returns are intended only to show how established indices performed over an equivalent time period. AFC portfolios hold mutual funds which, when aggregated, will likely result in a portfolio of stocks, bonds, and other financial instruments that differs from the cited Indices. The S&P 500 is an unmanaged index that is generally considered representative of the U.S. stock market. The performance of an unmanaged index is not indicative of any particular investment. Individuals cannot invest directly in any index. The volatility of the Indices may or may not be representative of AFC portfolios due to differences in the composition of portfolios between the Indices and AFC.

Advisor’s objective:
The objective of the advisor, AFC, is to preserve capital and to invest in mutual funds and exchange traded funds (ETFs) containing stocks, bonds, and other financial instruments when in the sole opinion of the advisor it is felt that the potential return is justified by the risk. AFC may invest in mutual funds and ETFs that sell stocks short and as well as those that invest in market indices. AFC does not guarantee that it will be successful in implementing this strategy.

AFC invites and encourages our current and prospective clients to discuss any of these details with us at any time. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Investment strategies mentioned herein may not be suitable for all investors. Any opinions expressed are given in good faith and are subject to change without notice. All investments are subject to risk of loss. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have a positive or an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute tax advice. This material is not intended for any specific investor and does not take into account your particular financial situation and is not intended as a recommendation of any particular security or strategy to any individual. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and seek professional advice. This document does not constitute an offer of services in jurisdictions where AFC Asset Management Services, Inc. or its affiliates do not have the necessary licenses.