Performance Reporting

Keeping you informed

Feedback is critical to maintaining a strong relationship with you and providing the kind of results you expect. "Keeping score" - or continuously reviewing your portfolio's performance - helps us determine whether it is meeting your financial needs now, as well moving in the right direction for the future.

Our clients receive the customary reporting that would be expected from any securities brokerage account, such as trade confirmations, monthly statements and information available through online access, but we offer the added benefit of personal service. We are always a simple telephone call or e-mail away, and can answer any questions or concerns you may have.

In addition to traditional reporting, clients who utilize one or more of our fee-based portfolio management programs receive an additional report on a quarterly basis. This report includes:

• Asset allocation, as of the end of the quarter.
• Performance for the most recent quarter, calendar year-to-date, trailing twelve months and account inception-to-date. Account performance is also compared with relevant benchmarks for the comparable period.
• Portfolio appraisal as of the end of the quarter.
• Realized gains and losses for the calendar year-to-date.

These reports can also be customized to accommodate specific needs you may have. We believe that keeping you informed is a critical element in the service we provide.

Know Your Portfolio Manager

Do you know your portfolio manager? If you invest through mutual funds and/or "separate accounts" managed by large institutional money managers you probably will never meet the portfolio manager and discuss your individual preferences, concerns or objectives.

Perhaps it doesn't really matter. After all, managed portfolios tend to target specific styles and objectives. You can choose between a growth portfolio, a value portfolio or a blend of the two. You can also select from large-cap, mid-cap or small-cap portfolios. But is it enough to simply match your objectives to the fund objectives and send your money to someone who will never know you?

We believe there is significant value in knowing and working directly with your portfolio manager. After all, your life changes from month to month and even day to day. It's important that you have an Advisor who is in touch with you and who stays up-to-date with those changes so that your portfolio will reflect your needs.

And while mutual fund or separate account managers' typical objectives are to produce an attractive track record within a defined style box, our objective is to manage your money for you, regardless of where that takes us. The difference may seem subtle, but in the long run, can be significant.

Separately Managed Accounts (SMAs) may not be appropriate for all investors. SMA minimums are typically $100,000 and greater, thus SMAs may be more appropriate for affluent investors with $300,000 or more to invest. While diversification may be achieved within an individual SMA, due to holdings typically numbering between 20 and 70 securities, it is recommended that clients utilize multiple SMAs with varied investment disciplines (growth, value, large-cap, mid-cap, etc.) to achieve greater diversification. It is important to review investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager. In making an investment decision an individual should utilize other information sources and the advice of his or her financial advisor. All investments carry a certain degree of risk and no one particular investment style or manager is suitable for all types of investors. Statements made herein should not be considered forward looking, and are not guarantees of future performance of any investment.

Evaluating Quality

Webster's Dictionary defines quality as: "a. Superiority of kind; b. Degree or grade of excellence." Our investment philosophy is built on the belief that superior companies can be identified and are likely to continue to produce excellent results in the future.

Quality is, of course, an illusive and subjective concept. To help make the process of determining quality as concrete and objective as possible, we look for indications of excellence in a company's financial record and balance sheet. Specifically, we examine company information to find:

• Industry leading profit margins,
• High levels of cash flow relative to industry norms,
• A strong balance sheet and
• Positive trends in each of the above.

Growing revenue and earnings are considered to be positive but are not essential to our assessment of quality. Growth is measured, year by year, on a per-share basis and we favor organic growth over growth through acquisitions.

Price Discipline

Our first objective is to own great companies. The second is to avoid paying too high of a price to acquire them. Paying a high valuation for a company raises the level of risk for an investor because any disappointment could lead to a harsh correction. Conversely, buying a stock for a low valuation reduces risk as the market has assigned a less optimistic outlook for the company and it will, therefore, be less prone to disappointment. In this context, valuation discipline is used primarily as a risk management tool.

The factors we consider when determining our view of a stock's valuation include:

• Price to sales ratio,
• Price to earnings ratio and
• Dividend yield (if applicable).

These factors are measured against norms for the company's industry and in comparison to the company's historical trading patterns. We also employ a forward-looking valuation process designed to estimate growth levels that are implied in the current price. We then compare this with historical and anticipated growth to determine if the current valuation is reasonable.

Valuation indicators are only used as negative indicators, meaning we never start with a search for cheap companies then buy stocks simply because they are currently trading for a compelling valuation. Instead, we begin by searching for high quality companies and use our valuation measures to determine if we should buy or hold these companies.