INVESTMENT PHILOSOPHY (Page 4 of 6 )

Arbitrage and Workout Situations

While our long-term investment holdings generally account for the largest portion of the capital we manage for our investors, participation in arbitrage and workout situations have also been an important part of our operations.

Arbitrage and workout investing involves the pursuit of profit from an announced corporate event such as the sale, merger, recapitalization, reorganization, or liquidation of a company. Financial results from this type of investment operation depend more on a specific corporate action rather than on overall stock market behaviour. This activity features securities with a timetable where we can predict, within a reasonable probability, when we will get how much and what might prevent that from happening. Essentially, to properly evaluate an arbitrage and workout situation, we must answer four questions as follows:

• How likely is it that the promised event will indeed occur?
• How long will our capital be locked up?
• What chance is there that something still better will transpire? (An example would be the emergence of a competing takeover bid)
• What will happen if the event does not take place? (Examples would include anti-trust action or financing glitches)

We only participate in arbitrage and workout situations that have been publicly announced. Also, where possible, we attempt to reduce risk through some sort of hedge. An example of this would occur in the situation where an acquiring company is offering some form of exchange of its shares with a target company. In such a situation, we may sell short the proper ratio of shares to be received from the acquiring company in order to lock in a spread.

The gross profits from most arbitrage & workout investments are normally quite small. However, the predictability of the return coupled with a short holding period usually produces acceptable rates of return. Arbitrage and workout investing typically produces more consistent profits from year to year than our long term investment holdings because the returns are to a large extent irrespective of the course of stock market averages.