Common Stock

Long term we believe that well selected common stocks offer superior total return potential to all other financial investments. Our investment discipline therefore searches for value in traditional common stock investments. The philosophy on which our investment discipline is predicated is not in itself unique. Our value approach is based on the assumption that money will ultimately flow into investments that offer the highest relative return for the lowest relative investment.

In selecting common stocks we consider such factors as the profitability of the company, which we judge by its return on total capital, the ratio of price to cash flow per share, earnings and cash flow momentum, and dividend yield as well as other fundamental factors. After applying our criteria to over 1600 stocks on the three major exchanges, we develop a list of securities we believe are undervalued, or as we call them, SELECTVALUES. We then focus our in-depth analysis on these companies. The SELECTVALUE securities are monitored and ranked on a continual basis allowing us to discover issues that are under-valued and, equally important, issues that are overvalued and potentially subject to price correction. This is an active process, and reflects current prices and fundamental statistics for our stock universe.

A SELECTVALUE portfolio normally consists of the 30 most undervalued stocks from our analysis. The fundamentals and valuation of each company in the portfolio are revised weekly to reflect the latest actual and forecast earnings. Changes in our holdings are the result of changes in the company's fundamentals or by a significant change in price of a security. To remain in the portfolio a company must continue to improve its underlying fundamentals in line with the action of its market price. If it does not do so, an issue with greater value replaces it. The advantages of the SELECTVALUE discipline are:

• All stocks are evaluated by the same criteria and methodology.
• The discipline is based on an objective analysis of fundamental factors and enhanced by in-depth security analysis.
• A clear identification of those issues that are undervalued by our criteria.
• A rational time to sell a stock and replace it with another undervalued issue.

We believe the SELECTVALUE discipline, consistently applied in an objective manner, will result in superior long-term investment success without assuming unnecessary risk.