EQUITY MANAGEMENT

Within the Public Equity universe, individual stocks possess widely varying characteristics and risk, and we believe that no one stock or class of stocks possessing similar characteristics (e.g., dividend yielding) is appropriate or desirable for every investor. In order to create a well-balanced equity portfolio that reflects individual clients’ investment profiles, we offer several diverse model portfolios. In each case, similar principles guide our investment criteria.

Our equity selection process is grounded on the following principles:

• We seek undervalued stocks using a proprietary quantitative economic model to try and determine a stock’s fair market value versus it’s relative value
• We avoid stocks that we consider speculative, risky, or possess poor business models
• We buy stocks that have defined "Moats" around their business

With respect to any stock purchase, we employ extensive research in advance of any investment decision. Our method is best described as Growth At a Reasonable Price (GARP). We believe the most successful long-term strategy is to buy and hold the stocks of companies whose value should grow at above average rates for the foreseeable future, provided we do not have to pay too high a price for such growth. To identify investment opportunities for our clients, our analysts and portfolio managers combine quantitative and qualitative analyses to identify what we think to be the best long-term investments available. Through a process of elimination, we reduce the universe of stocks to a manageable number of potential opportunities. We examine income statements, cash flow statements, balance sheets and other available data for insight into the true prospects of a business.

We then use a proprietary model to try and determine the stock’s fair market value. Using the fair market value we have calculated, we try and project the stock’s potential return. The stock must have a high absolute potential return and a potential return that ranks high within its sector. If it passes all of these tests, it will potentially be added to our portfolio.

Once a stock is added to a portfolio, our analysts continue to monitor it. We watch for changes in a company’s business and financial condition, its environment and its stock performance. We cease buying positions for new accounts when the potential return is less than 5% (projected by our fair market value estimate) or if a company’s business fundamentals have deteriorated. We sell positions when we assess that the risk is incommensurate with the potential return.

It is our sell discipline that is responsible for sales of equity positions. This discipline relates to observing or foreseeing a deterioration of one or more of the conditions we monitor or to unfavorable and unexpected corporate or environmental events. We also manage risk by reducing individual positions when they become too large in relation to the total portfolio. We are not market timers, and we anticipate holding most positions for periods of several years each. We anticipate that, on average, 1/2 of our positions will be changed each year, implying an average holding period of 2 years for each stock