Via Ron Baron Q3 letter to shareholders.

Healthcare spending has increased dramatically over the past 50 years, both in absolute terms and as a share of GDP. Total healthcare spending is estimated to have reached $2.8 trillion or roughly 18% of GDP in 2012, up significantly from just under 6% of GDP in 1965, the year Medicare was created. Healthcare spending is expected to reach almost 20% of GDP in 2022.

Although there has been a dramatic increase in healthcare spending over the past 50 years, the rate of increase has been notably slower in the past four years. In the years 2009-2012, annual healthcare spending has grown slightly below 4%, significantly below the average annual growth of 6.9% experienced during the 2000-2009 period. The federal government projects national healthcare spending growth in 2013 will remain below 4 percent. The slowdown is partially attributable to the recession in which job losses caused losses of insurance coverage, which in turn caused lower utilization of healthcare services. In addition, structural changes have contributed to the recent slowdown in healthcare spending:

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• Employers have been shifting more of the healthcare cost burden to employees, resulting in higher out-of-pocket expenses for employees, also causing lower utilization of healthcare services.

• Payors have been successful driving greater utilization of lower cost generic drugs instead of more expensive branded drugs.

• Providers have been more focused on reducing preventable health complications during hospitalizations and reducing hospital readmission rates in response to reimbursement rule changes.

• Consolidation among providers has resulted in greater operational efficiencies and increased bargaining power with suppliers.

• There is a shift in reimbursement away from fee-for-service payments and toward greater care coordination and risk- based payments.

• Comparative effectiveness studies may be starting to have an impact on the use of existing technologies and the development and marketing of new technologies that are unable to show cost effectiveness versus less expensive alternatives.

• Companies have introduced tools and services that provide consumers with more pricing transparency and quality data to help manage their own healthcare choices. The crux of the Affordable Care Act (the “ACA”), the most significant legislation impacting the U.S. healthcare system since the passage of Medicare and Medicaid in 1965, is expected to go into effect in January 2014.

The ACA is expected to increase the number of people with health insurance coverage by 11 million people in 2014 and by 27 million people in 2022. The ACA expands health insurance coverage through three provisions:

• The expansion of Medicaid to cover the poorest Americans.

• The creation of health insurance exchanges with subsidies provided for low-to-middle income families who lack employer-sponsored insurance or do not qualify for Medicaid.

• A mandate for the uninsured to obtain coverage.

The Supreme Court ruling on the ACA allowed states to opt out of the law’s Medicaid expansion. As of September 17 th, 29 states are moving toward participating in Medicaid expansion, while other states are either considering participating through alternative expansion models, leaning against participating or not participating. We think over time, more states will participate in Medicaid expansion. Enrollment in health insurance exchanges began October 1, 2013, with coverage beginning in January 2014. Also effective January 1, 2014, insurers will be prohibited from discriminating against or charging higher rates for any individual based on gender or pre-existing medical conditions.

The increase in insurance coverage is expected to drive greater demand for healthcare products and services.

Growth in national healthcare spending is expected to reaccelerate to 6.1% in 2014, 1.6 percentage points faster than would be expected in the absence of the ACA. While expectations for the pace of insurance coverage expansion have moderated over the past year, and the full extent of the expected benefits to healthcare providers could be delayed, we believe that the ACA represents a tailwind for healthcare providers over the next several years and presents significant opportunities for some of the companies in which we are invested.

Several large employers have recently announced significant changes related to their employer-sponsored health benefits. We think these announcements are unlikely to impact companies in which we are invested, and we are actively evaluating investment opportunities related to these developments.

We seek companies that can benefit directly from change in healthcare and that can reduce costs and enhance efficiency while improving patient outcomes. We invest in companies that we believe have open-ended growth opportunities, attractive revenue models, competitive advantages, and talented management teams.

We think hospitals will benefit from increased patient volumes and lower bad debt expense under the ACA. Our investments include Community Health Systems, Inc., one of the nation’s largest publicly traded hospital companies and a leading operator of general acute care facilities in non-urban and mid-sized markets; and Universal Health Services, Inc., a leading operator of acute care hospitals and freestanding behavioral health inpatient facilities in the U.S. We believe these companies are also likely to benefit from the consolidation trend among healthcare providers, driven by continued reimbursement pressures, higher regulatory requirements and the need for more sophisticated IT systems to manage population health. We expect the pace of hospital consolidation will intensify as they seek to bulk up to gain better leverage with payors and extract greater cost savings from vendors while spreading clinical efficiencies and best practices over broader platforms.

Healthcare exchanges, whether run by individual states, the federal government or in partnerships, will require consumer outreach, eligibility, enrollment services and call centers, among other services, which in many cases will be outsourced to commercial providers. We are participating in the expansion of Medicaid and health insurance exchanges through our investment in MAXIMUS, Inc., which is the leading enrollment broker for government health plans and outsourced administrator of social welfare programs in the U.S. and internationally. By 2030, one in five Americans will be over age 65, compared with only one in eight today. We believe many of our investments will benefit from additional healthcare services required by an older population. We highlight our investments in Brookdale Senior Living, Inc., the largest operator of senior living communities offering its residents a full continuum of services, including independent and assisted living and skilled nursing; and Emeritus Corp. a national provider of assisted living, Alzheimer’s, and related dementia care services. Both have significant embedded organic growth through improved rates and occupancy over the next several years, driven by favorable demographics with tightening supply on low senior housing unit starts. With 1.9 million total units, serving a current population of 12 million seniors, the $70 billion industry’s penetration rate is only about 15% and estimated to grow by approximately 35% through 2015. The industry is highly fragmented, with the top 10 providers controlling only about 35% of the U.S.’s senior housing units; both companies have demonstrated an ability to improve operations and generate attractive returns at acquired properties. We believe both companies are trading below the net asset value of their owned assets.

An aging population and a greater number of insured will also increase demand for physician services. We are investors in IPC, the Hospitalist Co., Inc., the nation’s largest dedicated hospitalist company, and an industry consolidator with over 1,200 healthcare professionals providing hospitalist services at about 1,000 hospitals and post-acute facilities in the U.S. IPC is the market

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