PORTFOLIO MANAGEMENT

When we assume the management of an existing portfolio we work closely with the client to identify his or her investment parameters including risk tolerance and performance expectations. In constructing the portfolio we begin by allocating the assets between the two fundamental components of ‘appreciation’ and ‘income’ and by employing both traditional and alternative investments.

We avoid building portfolios today with only stocks and bonds, because the limitation of traditional securities often results in lower yields while offering less protection against market turmoil and inflation.

Investment Focus

We look for companies with strong and growing cash flow that will sustain a high or increasing level of dividends/distributions. In addition, we take advantage of special opportunities where we see particular value and expect extraordinary capital appreciation. In our search for opportunities, our investment parameters are relatively unconstrained:

• We are unconstrained by market capitalization; we will invest in small or large companies as long as there is sufficient trading volume.

• We are unconstrained by geography; we invest globally as long as we have access to a sufficiently developed market.

• We are unconstrained by benchmark composition. We do not compare our sector weightings to any benchmark. We may overweight or underweight sectors depending on our view of expected performance of our companies and our view of the economy and the market.

• We are unconstrained with regard to idea generation; potential investments may come to us from any source. We are avid readers. We do not inappropriately discount thoughts from Wall Street’s sell-side. And while we may use a variety of financial screens, we are beholden to no black box.

• We select securities following “bottom up” fundamental analysis, considering macro-economic and geo-political factors and market trends. We add securities to the SSI strategy if we believe they meet our criteria for total return considering both income and potential capital appreciation.

Considerations in Portfolio Management

Leverage

We use no leverage in the strategy. This may limit returns in times of rising markets, but it limits losses and preserves capital in times of market declines.

Insurance/Hedging

We may hedge our exposure to certain of our investments in commodities or to the markets in general through long positions in Exchange Traded Funds (ETFs). We do not hedge using derivative instruments such as futures or options on futures.

Holding Size

Typically we target each security to represent 4% to 5% of the total holdings, resulting in a portfolio of 20 to 25 names. Individual holdings may vary substantially as we may choose to under– or over–weight specific securities.

Sale of Securities

We sell securities out of the portfolio when:

• They have met our performance objectives and/or future objectives no longer meet our targeted yield and/or capital appreciation objectives, or

• There is a change in the macro-economic environment that alters our view of the Company’s attractiveness or its ability to perform in that environment, or

• There is a change internally within the Company in strategy or structure that alters our view of the Company’s expected performance or attractivenes

Following each company’s quarterly performance report, or more frequently, we re-evaluate our expectations for the security. The Company must continue to meet our expectations for a high level of cash distributions or capital appreciation in order to continue to be held in the strategy. Our evaluation is forward–looking. We have no backward-looking discipline for selling a security following a threshold level of losses or gains.