Irving H. Picard v. Saul B. Katz et al

Filing 170

DECLARATION of Regina Griffin Completed With Exhibits 31 to 45 in Support re: 162 FIFTH MOTION in Limine To Deem Statements By Sterling Stamos Employees In The Course Of And In Connection With Their Employment By Sterling Stamos As Admissions of The Sterling Defendants.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 31, # 2 Exhibit 32, # 3 Exhibit 33, # 4 Exhibit 34, # 5 Exhibit 35, # 6 Exhibit 36, # 7 Exhibit 37, # 8 Exhibit 38, # 9 Exhibit 39, # 10 Exhibit 40, # 11 Exhibit 41, # 12 Exhibit 42, # 13 Exhibit 43, # 14 Exhibit 44, # 15 Exhibit 45)(Sheehan, David)

Exhibit 40

Í
Eahibit: -)Q
Wit:

Date: '.5. 2_
Subject:

Updated: 11am PST/2pm EST Cc w/Antonis Mistras, DuPont & David
Whtehouse,ML (Peter, Ashok, Kevin O.) Dial-in: 866-637-2663 Passcode:

I.

Leslie Rockwood CSR RPR

04495701 #

Location:

Master Calendar

Start:

1/7/2005 2:00 PM

End:

1/7/2005 3:00 PM

Show Time As:

Tentative

Recurrence:

(none)

Meeting Status:

Not yet responded

Required Attendees:

Peter Stamos; Chris Stamos; Maria Gagne; Scott Whitcher; Ashok Chathra;
Georgette Wong; Samantha Hojo

Resources:

Master Calendar

When: Friday, January 07, 2005 2:00 PM-3:00 PM (GMT-05:00) Eastern Time (US & Canada).
Where: Master Calendar

1/7 Attached are the docs that ML has provided to DuPont -GP

Security

Security

Fund Flip
Dook

Fund

Merketnq
Presentation Supplement
(12-04) .pdf (09-04).pdf
(134kB)
(232kB)

Dial-in: 1-866-637-2663

Passcode: 04495701 #
Background info: DuPont was invested in several hedge funds from 1997 to 1999 as
a way to leverage their in-house trading. They subsequently determined the
strategy to be ineffective and liquidated their holdings. However, DuPont is
cui'rently in the final stages of approval for a new mandate to invest in hedge
It is crucial to begin the process with them as soon as possible in order to best

CONFIDENTIAL

SSMT01238214

SSMSAAI 238214

position Sterling Stamos for one of the two hedge FoPs investments DuPont will
make in 2005. Antonis Mistras is spearheading the hedge fund effort at DuPont and
will be on the call.

Thank you so much

Best Regards,

Scott

Scott Whttcher

tcherSteringStamnscom
http:llwww.sterlingstamos.com

575 Fifth venue
New York, NY 10017

T 2124854370
F 212 485 4371
2400 Sand lilt Road

Mento Park CA 94025
T 85CJ 233 0263

F 650 233 0202

Tiis nessage s Intended ory ror the use or the Addressee and nay contan In mallan that Is PRIVILEGED and
CONFIDENTIAL. It you are not the Intended teciier.t, please tstephor.e or emaIl the sander and delete thIs rneseage and any
attacnrnent from your system. f you are not the Intended recipIent, you must not copy this message or attachment or dlsci3e
the ccnter.ts to any other person.

It you are not an intended recipient of this e-mail, please notify the sender, delete it and
do not read, act upon, print, disdose, copy, retain or redistribute it. Click here for
important additional terms relating to this e-mail.
http:/Iwww. rnl.com/email terms!

CONFIDENTIAL

SSMT01238215

SSMSAAI 238215

From:
Sent:
To:
Cc:
Subject:

Scott Whitcher
Wednesday, January 05, 2005 11:17 AM
Heise, Ashley (IBK-N'Y); Wetterman, Terry (IBK-NY)
Sharma, Ajay (tBK-NY); Gil:ian Peoples; Georgette Wong; Kevin Okimoto
Conference Call With DuPont (lUlemli)

Attachments:

imageool .gif

Ashley I Terry:
Can you please provide the following information in connection with our scheduled conference call this
Friday (Jan. 7) at 2 PM EST:

Conferenc3 call dial-in number

Who will be on the call Irom the prospect and Merrill

As much info about the prospect as possible - especially their hedge fund background I experience

Thank you so much

Best Regards.

Scott

Scoit Whftcher
http://www.sterUnestamos.com

CONFIDENTIAL

SSMT01238216

SSMSAAI 238216

575F '" ie
lew '
1212
F212

-,.'r.J
1

2400
Mento

Ftoatf

942tr

CP

T3

OE

F

-

1....,..

nd.'4 only for the use or the Addre'

If you

ri recipient, píoaso telephone
intended recipient, you must

syster,.

I

contain ¡nformation ta is PRiViLEGED e.
ONF'rh
nder and delete this messego tnd any edachrnent f
uir message or attachment or disclose the contents to miy t&
r'

person.

r

vm follow-up Wui ,ie dial in numbe. -r-

.

From:
Sent:
To:

Heise, Ashley (18K-NY) (a

Wednesday, Decer'

Subject:

Gillian Peoples
Scott Whitcher
': Sterling St

Importance:

i

i]

High

Cc:

i

Gilliaji,

Asstunin
(11:01

boIt»

i

) conflicts, please put this conference rail y
Additional color on the investor ai
.
confirm that this is OK.

Ft 's calendar

r 2:01

FT

toiocki

-

Ashley W. Heise
Priva
Group
Co.

(f2)

rie

(212)

aheisei
Orlginal Message-Whltehouse, David (18K-NY)
From:
Sent: Wednesday, December 15, 2004 11:14 AM
Spencer Potts (spencer...potts)ml.com); Ashley Winn Heise ([e-mail]); David Barrett (davldbarrettiml,com);
To:
"avid Wttehouse (david_whitehouse@micom); Kevin Dunleavy (kevindunIeavyml,com); Mike Ricciardi

[e-mail]); Sean Duff ([e-mail]); Ajay Sharma (Sharma, Ajay (IBK4IY))

ONFI

17

SSMT'T

SSMSAAI2Z

:11

Subject

Sterng Stamos: DuPont

Team,
I just spoke with DuPont and arranged a conference call with Sterling Stamos for

2:00pm on Friday January 7. Ashley you had mentioned this would be a good time to
arrange a call as Peter will be in Menlo - could you please confirm, and I need to send
Antonis Mistras the call-in number and flipbook for the call.
While DuPont is in the final stage of approving internally a mandate to invest in hedge
funds, it is absolutely crucial we get to them as soon as possible in order to best position
ourselves for one of two HFoF investments they will make.

david

If you are not an intended recipient of this e-mail, please notify the sender, delete it and
do not read, act upon, print, disclose, copy, retain or redistribute it. Click here for
important additional terms relating to this e-mail.
http://www.ml.com/email_terms/

CONFIDENTIAL

SSMT01238218

SSMSAAI 238218

STERLING STAMOS
Security Fund, LP.
December 2004

Confidential

CONFIDENTIAL

SSMT01238219

SSMSAAI 238219

Table Contents
Overview of Sterling Stamos
Overview of the Security Fund, L.P.
Investment Pert órmance

Investment Process
Professional s

Summary of Principal Terms
Underlying Portfolio Manager Performance
Sample Portfolio Manager Tracking Report
This document does not constitute an offer to sell, or a solicitation of an offer to bssy tIse limited prinenhip interests described heceir,. No such
citation will be made poor to the delivery ola definitive offenng memorandum and other materials melatag to the matters herein. Beber
offer or
making an investment decision with respect to the pactnerahap, potential investors are advised to read carefully tise offenog nserooran&ini, the limited
partnership agreement and the related subscription documents, and to consult with their tax, legal, and financial advisors.

ibis document does not pitrpoct to be complete *zid is qtaikfteiJ in its entirety by reksrnce to the more detailed discussion contained in the povate
offering memorandum and the .,to.l text oF the limited partnership agteesnenl The General Patiner has the ability in its sole discretion to change
the arrategy described herein.

All petformance information in this document is based on inloanation provided by underlying Portfolio Managers, and all 2004 information is based
on estimates provided by the underlying Portfolio Managers. No representation or warranty is given as lo the accuracy or completeness of the
performance infoanation contained in this document.
ibis document is being provides) to you on a confidential basis solely to asiitt you in deciding whether or not to proceed with a further investigation
of an investment in Sterling Sismos. Accordingly, this document may not be reproduced in whole or n pair, and may not be delivered to any person
without prior wnttas consent of Sterling Stan-ins.

i SteM

CONFIDENTIAL

tarnos

SS MTOI 238220

SSMSAAI 238220

Sterling Stamos
Overview

ii Ster

CONFIDENTTAL

3ta:mos

SSMT01238221

SSMSAAI 238221

Sterhng Stamos
Overview - The Fírm and Its Philosophy
The Sterling Partnership
- Sterling Equities ret estate development nd principal iiìvestments
- Sterling An.ericaii Properties « real esute fuads
- .Anericui
it1ies Cpital l'rcners - private equitY fursds
- Sierkng Spn-t tnd Eertarnnent New York
s ad B.tiokJyì CycJone
- Sterling Stano - iriierated i estment arm of th Steiiiig Partnship
The Sterling Stamos Partnership
- Began s art htv g'rit lxtrter*Itil, or, behalf o the Katr, \'n, aid Stmo fartilict
Now include* oer 125 1 tiiies rtd nearly Sit hedge fiwU
tetger

The Value of Partnership
- Trtt-based rebtiunships built on t nspatency 4ud con
tication
- Âcees: (1>a'd ulgers. sot reing, due (Liligeflee, mncw prrctives
- Unique network; a o11ecth!e íweUígence'
Philosophy
Treat ir .00ís ait
tner and alc»t pm their inteivsis titu
- E sure ltying lX3wCt itt t1t(
- Protect ati.al and seek 'rtsisitrit itoitilive' return (a'soiute rc*urxt t)rieflirate,)fl
- Follow the ehtrgc ot our fouxtders: 'I)o well by doirtg good"

-

2

CONFIDENTIAL

SSMT01238222

SSMSAAI 238222

Sterting Stamos Security Fund, LP.
Overview

ci Strllntunos

CONFIDENTIAL

4

SSMT01238223

SSMSAAI 238223

Security Fund
Overvíew - At tract/ye Asset Class I Attractive Structure
Why The Hedge Fund Asset Class?
- Skitt ased per orwance (vetsus market based)

- Operate in lesa efficnt market apace
- Unconstrained

- Opporrnoic
- Leve
- Interests aligued (Portiolio M nager ia ínvesed alongside ther Limited Parthers)
- Rehnivetv liquid (quarterly)
- His toñcally have genraied opha (investment value aJd)
Why The Hedge Fund of Funds Structure?

-

Reduce trmnd tevel rísk

trougkm diversifica*ion (tow e relamed

h-strategies)

- 'iivate ritsk of single hedge timud manager
- Leverage additional tevd of professional due diligence, porrfolio construction, and monitoring
- Access to hedge funds thic are closed to new inves mrs

- Ax'ss to multiple txige funds tit relatively tow i estruenc tniriimmitn
- Con olida*ed pertkrmance and ax reporting

i Strïaiu

CONFIDENTIAL

s

SSMTO1 238224

SSMSAAI 238224

Security Fund
Overview - Attractive Attributes of the Security Fund
Highlights:
- Div i1ìed; muiti-sirategy, nukí-.inanager
- Low correlation to equity and fved income markets
- Primarily on-directiûnaf very little mihedged equity or fi'ed income market exposure
- iactíctl asset ailocatíon; active; opportunistic
- Nuudkcctioal strc1egic.9. íte r lafive vaInc, event dtivcrL and equity hedged
Investment Objective:
- Preserve capital and enhance wealth. by achieving lon-tcrm absolute returns
- !vIodexae absolute retilFus nf 8' - lO', annually
- faintain low volatility t2/; - JaIfl3i*iIy
Actual Investment Performance (10101102 11/30104):
- Annualicd return of %

- Attuualicd stncIaxd deviation oli 9%
- Ani iabr.«d Sharp« ratio of 37 (using rkk frt'e rate of 13%)
Alternative I Complement to Traditional Fixed Income Investments
- J-hstoricai ecptity-like returns with iss than tixed income-lIke fisk
- Opporrunily to reduce overall investmeil: portfolio risk withoti
ficing return

1

CONFIDENTIAL

s

SSMT01238225

SSMSAAI 238225

Security Fund
Overview - Differentiating Characteristics of the Securìty Fund
Unique Macro Economic Perspective
- Peser Sflos' ixìvohe icnt aa ; ve3Ot to eilt« c 3dexnÍc, poIiiict1, hind privue

tiìtuions

Access to Sterling Equites Experience and Unique Proprietary Sourcing
- Ser[ing Starnos is ;tbk to IL rage Sterling Eqiities' 40 years of alternative investment experience
Access to Closed Funds
- Fund curreruiv vet«d ìn 14 closed funds with tccess tu -sddition& if desired
Alignment of GP and LP Interests
SterIing Stamnos ìs committed o imesm alongside invesirneilt partners (2% of wta Fund assets)

-

Higher Level of Transparency
- Sterhng Siaruos is committed to providing underling Ponfotìo Manager n3.frJrrîvamion

Higher Level of Liquidity

-

(ma.rteii Ii(juidity afte.r ínitiii r,uc year lockup

No Preferential Terms
- AB limited psrmers are subject to ìdeini.cal Fund terms (fees, liquidity)

i SriaK

CONFIDENTIAL

SSMT01238226

SSM SAAl 238226

Sterling Stamos Security Fund, L.P.
Investment Performance

i Stertau

CONFIDENTIAL

lì

SSMT01238227

SSMSAAI 238227

Security Fund
Summary Statistics (10/O 1/02

11/30/04)

SUMMARY STATJSÌ1CS

Fund inception:

October 2002'

Firm Assets Under Management:

$855 Million

Fund Assets Under Management:

$248 Million

Average Annualized Return:

85%

Standard Deviation:

1.9%

Sharpe Raho:

372

Number of Managers:

35

Number of Positive Months:

23

Number of Negative Months:

3

Largest Drawdown:

-0.44%

Sowce. &eding Steno, ani1yì.

Ortoot 2002 nto th. c4fid.1 o(F.g d.i. to oid. mvton.

Sporoib..edon 14,i}foo00o

ii Ste ftffim9S

CONFIDENTIAL

SSMT01238228

SSMSAAI 238228

Security Fund
Comparison of Results (10/O 1/02 - 11/30/04)
Annual Return

Standard Dey

Sharpe Ratio

Socurity Fund

SECURITY FUND PERFORMANCE

$1.200

RETURN! RISK COMPARISON

Security Fu,id
12%

4

$1,150

t.ehrrn PQrtqab
Bondledex

$1,100

,,,

E

6%

6%

$1,050

Secutlty
Fund

10%

Lehme
Aggregate
Bond index

.

I4rnIl Lynch

bi

index

Index

3-Month T-8111

4%

Merrill Lmch

$1,000

3-Menth1411J

$950 +
Sep-02 Oec02 Mer-03

2%
0%

Jun-03

Sep-03 Dec-03 Mer-04

.ktn-04

Sep04

-

0%

LOW RISK

5%

- .-'-"n
10%

15%

20%

25%

10%

Standerd DevIation -----* HIGH RISK

Soune SiedeigSaoo on1y.

Ç.i SerOngStamo

CONFIDENTIAL

SSMTOI 238229

SSMSAAI 238229

Security Fund
Monthly Performance (net of all fees and expenses)
Un3uOited net rebjms

2003

2002

January

070%

February

059%

March

0.46%

April

1.19%

May

1.28%

June

0.52%

July

-0A4%

Auut

0.46%

Seplember

im

October

1.23%

November

0.75%

December

2004

0.88%

..

YTD

9.79%
.

Sowce SerIiog St.mos
October 02 muto the othc.l orftrtg daxe to rnide
Booed on onimole U 0(12/10/04.

1 Strhtms

CONFIDENTIAL

iOto.

lt

SSMTO1 238230

SSMSAAI 238230

Security Fund
Strategy Allocation (As Of November 2004)

CRsh
4%

Emerging MerketE
1%

Equity Hedged
18%

Event Driven
14%

Market Neutral
63%

Souxt: &ebi &tios Inys.

i

eSiamtìs

CONFIDENTIAL

12

SSMT01238231

SSMSAAI 238231

Security Fund
Sub-Strategy Allocation (As Of November 2004)

MarSoel Neutral

Global
Optkns Arbitrage
6%
Convertibte Arbitrage
4%

Equity
Hedge

Aseel Backed Securities

Fbred Inoem. Arbitrage
4%

Moriqaqo Backed Securities
1%

Event
Driven

Slatisticat Arbitrage
5%
Multi-strategy
12%

Equity Market Neutral
2%

Capital Structure Arbitrage
4%
Sourte &eding Sumos amIys$.

2i SrS1io

CONFIDENTIAL

1:3

SSMT01238232

SSMSAAI 238232

Sterling Stamos Security t-und, LP.
Investment Process

II

CONFIDENTIAL

SSM

SMSAAl2

12

33

Investment Process
Macro Economic Analysis

SECTOR
ANALYSES

MANAGER
SOURCING

DUE

DIlIGENCE

RISK/
P( RTFOLIO
MANAGLMEf'4T

ON(0U'JG

M3tITOR4N(

Identify key macro economic trends based upon:
- Fundanentat

- 'Iec1ca1

- I.

id*y

Determine potentiaL investment opportunities and risks among:
-,

Aet ctaset3

- (grphies

1 SterInSiamos

CONFIDENTIAL

SSMTOI 238234

SSM SAAl 238234

investment Process
Sector Analysis

k
MANAGER
SOURCING

MACRO CONO1IC
ANALYSIS

DUE
DILIGENCE

R

4

ONGOING

-

MOÑFTORINE

Determine directional portfolio concentrations to specific hedge fund
strategies based on:

-

CCflOXfli.0 OPPE)3

1i*v 3'

- RiJ< nvi

i SrùSiamos

CONFIDENTIAL

SSMTOI 238235

SSMSAAI 238235

Investment Process
Manager Sourcing

MACRO ECONOMIC
ANALYStE

SECTOR

DUE

ONGOING

k NALYS IS

t)lttGNCE

MON1TORINE

Leverage network and relationships of Sterling Stamos to:

- identify emerging mner
- ()1ii cajciiy with "dosed inongers"
Leverage relationships with investment banks, third-party marketers,
consultants, and research firms to identify Portfolio Managers
utilize industry-specIfic internal network, databases, newspapers, and
magazines to identify prospective Portfolio Managers

1 SrgIr

CONFIDENTIAL

17

SSMT01238236

SSMSAAI 238236

Investment Process
Due Diligence

MACRO ECONOMI(
ANALYSIS

SECTOR

ANALYSI$

"

RISK!
PORTFOLIO
MPNAGLMEN I

MANAGER
SOURCING
Cot;;..

-.

O N GOING

MONsTORING

-

Obtain Information on fund-specific strategy, monthly returns,
performance attribution, and references
Analyze performance, Iiqudìty, and correlations between proposed
Portfolio Manager and existing Portfolio Managers in portfolio
Conduct interviews and on-site visits to gain understanding of:
- Strategy (positioi k''e1 dc;u1)

- f.) erti.oni (dci*io8 i.krig rui(, x cuon, cand í1r*trkictnre)
- Rk nxuLgenezu
- Back cthce i. thatructure
- Other prncedure (eg., portfü1i pricing)

i StergTiaws

CONFIDENTIAL

SSMTOI 238237

SSM SAAl 238237

investment Process
Portfolio & Risk Management

MACRO ECONOMIC
ANALYS)8

SECTOR

AN/.LY$IS

MANAGER
SOURCING

DUE
DILIGENCE

ONGOING

'

MONITOiING

Maintain portfolio exposure limits by:
- Secw.r

- Stcte
- Portc1ie, Mrngsr

- Fa:to.r (crd,

cias, ctyk. ct.)

Monitor each asset class and strategy associated with underlying Portfolio Managers
to determine market opporiunitiés and key events
Compare weekly NAVs from Portfolio Managers with performance of associated
markeUasset class

i1 StrnSInos

CONFIDENTIAL

19

SSMTO1 238238

SSM SAAl 238238

'Investment Process
Porifolia & Risk Management
N
SECTOR
ANALYSIS

MACRO ECONOMIC
ANALYSIS

DUE
DILIGENÇE

MANAGER
SOURCING

Time Serles Analysis

r

ANALYSIS

RISK TOOLS

Portfolio Optimization

ONGOING
MaNir ORINC

run'

C

s;d by .Sr'Ç ed Fut.

n.rnhly

flic

Jata

w Can /cor,.Litii enahss ly Fii&d Miiiatt..toFund M.tuager, %
ai'J t's!l2t.nw.sk4
e

$ke'" 'intl rftÑ)
v*i /(aWy ?YØ

L)'jt';fs.,n C&.rcE 'pp.n

e T)wcv'u eixrd,uIi.n su1 lcdi
Portfolio Value.at-RIsk

tn

e

eIas>n
R

PsthabJy ,1 I.,

limit

t

tno

(s

23 t.ncid

egv Sind Fuad z.eî

y

Yssg

Icts'J tJ

s23ta

bir:.J rnItia»

wcI s&

triC r 'tjod tueh .s Mote Carlo .ii;n

'sst as

Stress!Scenarlo Testing

rd

Ior
and lvsrvcs ta key
Ju,* oihigs v,Lnih.y
.st', (t.g.. RusJsn deul Wtnit1Con) tn builf çiatd" ianaft',

C Qlittv
aast

Style AnalysIs

s

iyk .irfr aii st i'n nhss t'

CONFIDENTIAL

satiIy ìsn1 Ma*tqr's

toa»c at ibjLcon tbt tzft'J 7ate.y ?i aP6 c1%
EtC ctui.tiyit,e* ttt fatto, tilt anaisai. tt tiv*crcnne ur.'g Jrhcr. nf a
peifit fuad tY

i S er

r' aalya dctpc brsb s .n.zig
tr ,hrsr.Ia3
ttIAn;a

4,'tr t'rfnt

diffeene p;ints

St

SSMTO1 238239

SSMSAAI 238239

Investment Process
Ongoing Monitoring

MACRO CQNOMtC
ANALYSIS

SECTOR
ANALYSIS

..NAGER
ÙRCING

RISK!
PORTFOLIO

DUE

DILIGFNCE

QNßQUJ G

AcMÒRic.x

MANAtMEN1

/

Monthly ¡ quarterly conference calls to discuss market conditions and
fund performance with each underlying Portfolio Manager
Review portfolio to assess performance, risk, and allocation on:
- Weeldv basis by PotfuIiu T'asn and Pcncipa1s

- QurterIy bì*i' by Swr1ig Stuno J1%v tkezu (:orniuee

ci Sw1ingStamos

CONFIDENTIAL

21

SSMT01238240

SSMSAAI 238240

Sterling Stamos Security Fund, L.P.

Professions

Srtarto*

CONFIDENTIAL

n

SSMT01238241

SSMSAAI 238241

Professionals
Senior In vestment Team

DvFTMENT

IIILE

EDUCAtION

EXPERiENCE

PROFESSIONAL
t

.tnt...

ttt,

Cft r

tt.

-va

Ahok achra

Portfolio Manager
Patiner

Ur rty,

,.
FL

McKtn,ey & Company
Morgan Stanley
Ch.,c Secrnihen

4

C.aepe Mellon University, RS

ltotsfMA .

ks 1itzn

(;t1t tt4t uvz*U

1J

Saul B. Katz

Prenident olSieding qtiiies
General Paxther

Steeling Equitici

Brooklyn College, lIS

New Yo4 Meta end Broolilyn Cyclone,
Chairman of the Boatel, NS.Llj

CPA

ci SteMigSIamo3

CONFIDENTIAL

SSMTOI 238242

SSMSAAI 238242

Professionals
In vestment Professionals

¡r'WEsTMEN'r

TITLE

EXPERJENCF

IDUCATION

PRO1E.SS1ON.&I.

u

R0hit Km

Boiliont SnItere SoKtson,, Inc.
Aphisoft Service; Co.
Icid Bink, Limited
Ernst & Young, Pnvte Limted

1ndi

s

t

Institute olTedmology, BS

Xavier Institute of Mastagtsnenl, MS
NYU, Leon.rd Stem School o1Btsines; MBA

Hirvt Utvct4 Bh
tet*y.1 bd MS
John Loe

Assodjte

Visa USA

Stenford University, BA

Gutu.com

OtxIe Sds',ab & Co.

tn
Cthrnn L.0

An.]pt

Mrri11 I.yncIi & Co.

Nsnjrng Unroenity, US
Remoto Urevccstty, MS

UCLA, Andernon School of M.s.grnnont, MS

i

CONFIDENTIAL

Siamos

74

SSMTO1 238243

SSMSAAI 238243

Professionals
Other Investment Pro fessíonals
TNVKSIMFNT
IROH1&4IONAL

TITI.E

EXI'ETtIENCF

EDIJCATTON

Spiro Staroo,

Qnef Admiro,tr.bve OIícr

St.,nos A.,o.te., Inc. (SAI)

McGill Uruveroty, BA

C,enrt.I P.rtner

Whitaker Corporation
Atlantic Richfield

HuØscs AunaIt

ief}in,ncial 011icer

RK Cnsulting

Se ton Hail Umvronty, MS

Partner

Kevin Ikrcriooa

Dreyfus Corporation

f bistra University, ¡3RA

Ct'A

Scott Whitcher

Investor Relations
Partner

ci SerSiaios

CONFIDENTIAL

Citigroup
Robertson Stephen.
CoLins Anociatcs

Sas, Francisco State University, MBA
California State University }uikrton, DA

p5

SSMTOI 238244

SSMSAAI 238244

Sterling Stamos Security Fund, LP.
Summary of Principal Terms

i Sterwiamü

CONFIDENTIAL

7i

SSMTOI 238245

SSM SAAl 238245

Security Fund
Summary of Príncipal Terms

Legal Structure:

f.-tk :i(cj(7)

lnve8tor Eligibility:

(,1;,4IiiId

Mínimum Investment:

P,ehp

U3 3'ØXifiOt

tcbtse:

Management Fee:

Perlormance Fee:

3%

Threshold Rate:

3%

High Water Mark:

Lock-up:
Redemptions:
Notice Period:

4 r;

CONFIDENTIAL

Quic*rv
9t1

Liws

'wi Lt.n ?tke

n

SSMTOI 238246

SSMSAAI 238246

Sterling Stamos Security Fund, LP.
Underlying Portfolio Manager Results

i SeStao

CONFIDENTIAL

SSMTO1 238247

SSMSAAI 238247

Security Fund
Underlying Portfolio Manager Resu/ts (through 09/30/04)1
FUND
khi On CD

STRATEGY

IrIc.t

N.ahI

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TUND
STATUS

DATE

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n

ILS%

78

132%

4.3

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lSß%

2.5

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N/A

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13.7%

9.7

162%

12

Leniled

RAIb
Open

8.4%

1.7

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MS Aeb

5M) MM

SSMM

12.2%

3.3

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06
18

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28
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i

Since .nc.piion o(eech Poetfolo Mnger.

2.

Shupe eo , b.,M on 5% nk 1ne

i $erngSto

CONFIDENTIAL

SSMTOI 238248

SSM SAAl 238246

Security Fund
Underlying Port follo Manager Results Continued (through 09/30/04)
STRATEGY

CIIfl_
STRATEGY

Dd

01951',

MANAGER

WNESTMN1
CAPACITr

FUND

MNLIALLZRD
RETURN

STANDARD
DEVIATiON

SHARPS

RATIO'

9.9%

09

12.5%

¿J
1.6

NIA
1./S Cyrcbl

19

Meigor Mb

09

Event

19.9%

1.5

19.7%

22

Clod

12.9%

04

1./S Value

Qoaed

156%

11

1JSMulti

Limited

13.7%

2.2

650MM

19

1;ceiiertist

Limited

Giebel

C.a1

89%

2X1

15MM

24.8%

2.1

950MM

12.6%

05

331a0.1

3.4%

NIA

N/A

4.5%

N/A

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Cub

137MM

Open

Limited

N/A

t;'o

Sauste: Sie bngStmo, na1ysis.
Since iscepuon of oath Ponfobo Manager

Sliaspe r.ào s bed on

oak fue ruse.

i SterlluSianios

CONFIDENTIAL

30

SSMTO1 238249

SSMSAAI 238249

Sterting Stamos Security ru

,

LP.

Sample Portfolio Manager Trackìng R

21 Sterftn:ffi:o

CUNA DENTIAL

31

SSMTO123

SMSAA1 238250

Portfoho Manager Tracking Report
Sample Options Arbitrage Manager

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CONFIDENTIAL

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n

SSMTO1 238251

SSM SAAl 238251

STERLING STAMOS
SECURITY FUND, L.P.

Marketing Supplement
October 2004

[.1 StePIIflJ PtPO8
CONFIDENTIAL

Confidential
SSMTO1 238252

SSMSAAI 238252

Sec'..irI:yF

1:&uuiig Stamos

dL?.

Djs.'1os.ure Statement
Iii.::; i.TCU: FI 1 íflt

'ici::t C(] î

¿: ï

offer to sell, or ¿.

parbneT.:1ïi1D ir.trc.i.: dPcfrIhd hr.rein. No such offer o
morandum and ot
dehv

of aï i offrr 1:i T:ì.ìy

ih:nited

bt.icm wì.11. h nndk prior i:i. tihe

nc t decision

I

the offer
ranc i
ft
i:.he related sub;crÏption documents, arid to consult w
f

ari..:

a

)hl

and

This docu.inniiriIF i.ik:iis riot prirpurt to be complete and is qualified in its e....hraty l:y reference to
the more de::ai.Iad ii.scussïiurï rcintained in the confiderïthil offering memorancIur:n and, the actual
nt The Gem
F r er ha
i
sole
text of the
e herein
dtscretic

p i':

.iïn r.:i:unrent is based on informfflion provided. bvuïi:ui.n]viiig
ri ion is ba
est
s provided
the i
'?r..:
p: esente lion or warranty is given as to the accuracy or competeness
Poi 1f
Virrrrr1.i:H
of the pee:irruian::vr i.:rufrïi.......la. tiofl contained in this docurnient,
Ali

:

1:

ir:

:

r:nïr1i:i.orli ¡ir

ig

Poi

:1.:

This c:lricunrï.e:rii: is being provided to

YOU

on a confldenal basis solely to assist ou in deciding

wheth.ei: er riot to proL:e:s.[ with a further investígilioa of eri investn.vent iii S:::.rriiin.Stiiiaos,
i art, an. may not Ï
Acco
u. be re roL.
, this document
delivere;.i. to arrypersonwithout prior written corisci....t ofSterlin.g5teanos.

2

CONFIDENTIAL

SSMTO12: 253
:Ekïeiie,iA1 2.2'23

Sterling Stamos

Security Fund LP.

Table of Contents

Executive Summary

Fund Performance

Fund Composition
Portfolio Enhancement Opportunity
Senior Investment Team
Investment Process

3

CONFIDENTIAL

SSMT01238254

SSMSAAI 238254

Sterling Stamos

Security Fund LP.

Execulive Summary
Sterling Stamos Security Fund L.P. (the "Fund") has been formed by SP Associates, LLC
("Sterling Stamos") to preserve capital and enhance wealth by achieving long-term absolute
returns. The Fund seeks to accomplish its objective by allocating its assets among a select group
of hedge fund portfolio managers ("Portfolio Managers"), to create a portfolio of hedge funds,
or more commonly referred to as a hedge fund of funds. The underlying Portfolio Managers in
the Fund employ a broad range of primarily non-directional investment strategies, including
relative value, event driven, and equity long/short.

The Fund is supported by a strong investment team and an established infrastructure. The
Fund also benefits from the resources and unique perspectives provided by its association with
Sterling Equities, one of the most experienced alternative investment groups in the industry.
Sterling Stamos is 50% owned by the partners of Sterling Equities and 50% owned by the
partners of Sterling Stamos. Fund investors enjoy access to the experience of the partners of
both Sterling Equities and Sterling Stamos. None of the partners of Sterling Equities will be
compensated by th2 lund (outside of sh&ing in the ownership of the general partnership
interest).

The Fund offers investors a unique combination of differentiating attributes:

Depth of the Investment Team: In addition to having a deep investment team with
considerable experience in selecting Portfolio Managers, Fund investors will also benefit
from the unique perspective of its CEO, Peter S. Stamos. Mr. Stamos has experience in the
private sector, the public sector, and academia. He has served as the chief of Staff and

Chief Economist for a U.S. Senator and has earned awards for teaching excellence at
Harvard University.

Track Record of Investment Performance: Since opening to investors in October 2002, the
Fund has generated strong risk-adjusted returns, and more importantly, has demonstrated
an ability to preserve capital during tumultuous market conditions. Through the period

ending September 2004, the Fund has generated an annualized net return of 8.2%, an
annualized standard deviation of 1.8%, and an annualized Sharperatio of 3.7. _The Fund
targets investment returns, net of all fees and expenses, of between 8% and 10%, with low
annual volatility of between 2% and 4%.

Access to the Investment Expertise and Experience of Sterling Fquities: The Fund has
access to the business expertise of Sterling Equities. Sterling Equities was founded by the
Wilpon and Katz families, who are sophisticated investors with respect to hedge funds,
private equity, and real estate. In addition to providing a perspective that only experience
can generate, the networks of both the Wilpon and Katz families also provide the Fund with
proprietary sourcing and due diligence capabilities.

Access to Top Performing. Closed Hedge Funds: The Wilpon and Katz families have been
active hedge fund investors for 20 years and Sterling Stamos is able to leverage their deep
relationships to access select investment opportunities that may otherwise be closed to the
investment community.
4

CONFIDENTIAL

SSMT01238255

SSMSAAI 238255

Security Fund LP.

Sterling Stamos

Alignment of GP and LP Interests: As of September 2004, approximately 20% of the key
principals' liquid net worth is invested in the Fund. In addition, Sterling Stanios is
committed to maintaining an interest in the Fund such that its investment is approximately
25% of total Fund assets.

Diversification Across Sub Strategie3: As of September 2004, no more than 30% of the
Fund's capital is allocated to any single sub-strategy. The risk-mitigating benefits of

diversification are evident in the Fund, as the underlying sub-strategies have low
correlations to each other. Sterling Stamos continually reviews its Fund asset allocation to
determine the optimal portfolio mix for the current investment environment.

Higher Level Of Transparency: Many hedge fund of funds are resistant to disclosing the
names of the underlying Portfolio Managers in their fund. Sterling Stamos is committed to
providing as much information to its investment partners as practicable, including the
names and the strategies of its underlying Portfolio Managers.
No Preferential Terms: All limited partners are subject to exactly the same Fund terms (i.e.
fees and liquidity).

5

CONFIDENTIAL

SSMTOI 238256

SSM SAAl 238256

Security Fund LP.

Sterling Stamos

Fund Performance
The Fund has generated consistent investment returns in tumultuous market conditions. Since
opening to outside investors in October 2002, the Fund has generated strong nsk-adjusted
returns, and more importantly, has demonstrated the ability to preserve capital. Through

September 2004, the Fund has generated an annualized net return of 8.2%, an annualized
standard deviation of 1.8%, and an annualized Sharpe ratio of 3.7. The Fund targets investment

returns, net of all fees and expenses, of between 8% and 10% with low annual volatility of
between 2% and 4%.

The Fund has been structured primarily to generate moderate absolute returns, regardless of
equity and fboed income market conditions. Many investors view the Fund as an alternative, or
complement, to fixed income exposure. Given that the Fund has been constructed to be
absolute return oriented, it may be true that no ideal "benchmark" exists. However, for
comparison purposes, it is useful to show relevant comparative indices or proxies when
evaluating performance. The chart below shows how the Fund has performed versus the
Lehman Brothers Aggregate Bond Index and the Merrill Lynch 3-Month Treasury Bill Index
since it opened to outside investors in October 2002. The chart on the following page illustrates
the current composition of the Fund by Portfolio Manager and the relevant performance metrics
of each underlying Portfolio Manager.

'. %%,%'-'._'I'
...

- ,.'

,.

.

--w

-,

Security Fund LP.
Lehman Brothers Aggregate Bond Index
MerriII Lynch 3-Month Treasury Bill
t. ' k'
Notes
- art constructed using actual net performance figures for the period October 2(1)2 - September 2(1)4
- Sterling Sismos Seeurity Fund performence &s net of all (ces and expenses

6

CONFIDENTIAL

SSMTO1 238257

SSMSAAI 238257

Security Fund LP.

Sterling Stainos

Fund Composition
Portfolio Manager Description & Investment Performance

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L Since each individual Portfolio Managers inception da te through September 20O4 Sharpe Ratto is based on 50% risk froe rate.

7

CONFDENT1AL

SSMTO1 238258

SSMSAAI 238258

Security Fund LP.

Sterling Stamos

Portfolio Enhancement Opportunity
Integrating an absolute return oriented hedge fund of funds into an existing portfolio of fixed
income and equity can greatly reduce risk without sacrificing return. The goal of absolute
return investing is to consistently generate positive returns regardless of which direction the
fixed income and equity markets move. The impact of stable returns and low correlation is a
powerful result, particularly when considered in the context of an overall investment portfolio.

Stable investment returns are appealing to investors in arty market environment, but are
especially appealing now, considering the volatile markets of late.

The chart below illustrates how the return/risk profile of a traditional fixed income and equity
portfolio can be enhanced when hedge fund of funds are introduced into the portfolio mix:

10.0%

Introducing hedge fund of funds
to a traditonal porifolio of stocks
and bonds can enhance the
effiient fronder opportunity set

---- Traditional Asset Isx (Equity & Fixed Income)
-- Traditional Asset Mix with 20% Fledge Fund of Funds

Notes
- TraditlonaJ

asset mlx is a blend of U.S. equities (S&P 500 Index) and (iS. fixed Income (Lehman Brothers Aggregate Bond Index)
- Hedge fund of funds asset mix is represented by the HER! Fund of Funds Composite Index
-Chart constructed using actual historical performance for the period January 1990 -September 2004

8

CONFIDENTIAL

SSMTO1 238259

SSMSAAI 238259

Sterling Stainos

Security Fund LP.

The Fund's structure, a hedge fund of funds, is an attractive approach for accessing hedge
funds:

Lower Risk: A portfolio, or basket, of hedge funds mitigates the risk of a single hedge fund
manager. A thoughtfully constructed portfolio of hedge funds allocated across low
correlated sub-strategies may lower risk even further.

Efficient Access: Investment via a fund of funds structure is a more efficient means to
accessing the hedge fund space. Replicating a properly structured portfolio of hedge funds
would require large pools of capital and significant resources.

Professional Oversight: Through a hedge fund of funds structure, investors are able to
leverage an additional level of professional sourcing, due diligence, selection, portfolio
construction, and ongoing monitoring.

Access To Closed Hedge Funds: A fund of funds structure is a means to obtammg
exposure to selected hedge funds that may otherwise not be available to investors.

Consolidated Reporting:

A hedge fund of funds structure provides consolidated

performance and reporting.

9

CONFIDENTIAL

SSMT01238260

SSMSAAI 238260

Sterling Stamos

Security Fund LP.

Sterling Stamos Senior Investment Team
The investment team is lead by the firm's CEO, Peter Stamos, and is supported by an
experienced team of professionals. The investment team includes three portfolio managers, five

research analysts, and two portfolio advisors, all sharing the responsibility of sourcing, due
diligence, selection, and monitoring of the Portfolio Managers. Shown below are the names and
backgrounds of the primary portfolio decision makers for Sterling Stamos:
Peter S. Stamos: Mr. Stamos is the Chief Executive Officer of Sterling Stamos and is ultimately
responsible for all investment decisions.
Mr. Stamos was the Chief Executive Officer of Stanios Associates, Inc. (SAI), a healthcare
and technology company that was acquired by Perot Systems, Inc., where he headed the
merger and acquisition practice.
Prior to the founding of SAI, Mr. Stamos was the Chief of Staff and Chief Economist for a
U.S. Senator.

Prior to working in the public sector, Mr. Stamos was a Principal with Booz Allen &
Hami1ton, a Senior Management Consultant with ivlcKinsey & Coripany, and the Managing
Partner of the Doblin Group.

Mr. Stamos taught economics at Harvard Universitywhere he received the Allen Young
Award for Teaching Excellenceand at Stanford University, where he been a guest lecturer
at the Graduate School of Business.
Mr. Stamos serves on several boards and advisory boards, including the Board of Stanford

University Hospitals and Clinics, where he is a member of the Finance and Audit
Committees and is Chairman of the Investment Committee.
Mr. Stamos earned a BA in economics and political science from Stanford University, where
he was a Truman Scholar, received the Sterling Award, and graduated Phi Beta Kappa with
Honors and Distinction. Mr. Stamos received a JD from Harvard Law School with Honors
and a doctorate from Oxford University, where he was a Rhodes Scholar.

Ashok Chachra: Mr. Chachra is the Senior Portfolio Manager for Sterling Stamos and is
responsible for portfolio manager sourcing, due diligence, selection, portfolio construction, risk
management, and on-going portfolio monitoring.

Ptior-t joining Sterling Stamos, he was a Senior Business Analyst with McKinsey &
Company, focusing on assignments in the Financial Services and Healthcare industry
sectors.

Mr. Chachra worked in the high yield loan origination group at Chase Securities as well as
in an analyst role at Morgan Stanley.
Mr. Chachra earned a BS in Business Administration with University Honors from Carnegie
Mellon University.

Ellen bring: Ms. Horing is a Portfolio Manager for Sterling Stamos. She is also a principal of

ETh Corp/Highgate Partners, a small hedge fund of funds, which invests in Portfolio
Managers that employ various investment strategies.
Ms. Hoi-ing served as Vice President and as Director of Research for Gabelli & Co., a money
management and brokerage firm. She also served as an Equity Research Analyst at Weiss,
Peck & Greer and was an Equity Block Trader at Merrill Lynch.

lo

CONFIDENTIAL

SSMTO1 238261

SSMSAAI 238261

Security Fund L.P.

Sterling Stamos

Ms. Horing earned a BA in EcOnomics from the University of Colorado and earned an MBA
in Finance and Accounting from Columbia Business School.

Saul B. Katz: Mr. Katz is a General Partner of Sterling Stamos and is actively involved in the
investment decisions as well as the management of Sterling Stamos.
Mr. Katz is a Co-Founder and President of Sterling Equities. Mr. Katz directs Sterling
Equities' day-io-day real estate operations. Mr. Katz also presides over Sterling Equities'
non-real estate affiliates and subsidiary companies, which range from financial institutions
to manufacturing, consulting, marketing, entertainment and retailing enterprises.
Mr. Katz is President of the New York Mets and the Brooklyn Cyclones.
Mr. Katz serves on the Boards of many nonprofit organizations and institutions in addition
to being Honorary Chairman of the Board of the North Shore Long Island Jewish Healih
System.
Mr. Katz is a Certified Public Accountant with a BS in Accounting, which he earned from
Brooklyn College.
David M. Katz: Mr. Katz is a General Partner of Sterling Stamos and is actively involved in the
investment decisions as well as the management of Sterling Stamos.
Mr. Katz joined Sterling Equities in 1987, where he now serves as Executive Vice President.
Mr. Katzs real estate experience includes the development of commercial and residential
properties, condominium conversions, and the evaluation of acquisition opportunities.
Mr. Katz also presides over Sterling Equities' non-real estate affiliate company Changing
World Technologies (CWT), where he is a Board member. CWT is a bio/energy company
using the thermo-depolymeri.zation process. Mr. Katz also sits on the Board of Renewable

Environmental Solutions, a partnership of CWT and ConAgra foods that is focused on
deploying the TDP in the agricultural market.
Mr. Katz is a Board member of the New York Mets.
Mr. Katz also sits on the Board of various philanthropic organizations. He graduated from
Hofstra University where he earned his BA.

11

CONFIDENTIAL

SS MTO1 238262

SSMSAAI 238262

Sterling Stamos

Security Fund L.P.

Investment Process
Identification and Evaluation of Portfolio Managers
The Fund has combined strict guidelines, discipline, and a consistent approach in its evaluation

of prospective Portfolio Managers. The process begins with a forward-looking approach to
allocate assets across hedge fund strategies, as depicted below, beginning with an overall
macroeconomic and sector analysis:

Macro
Economic
Analysis

Sector
Analysis

Manager

Due

Rislç(

Portfolio
Diience,/ > anagement

Sou«ing

//

Ongoing\
Monitorin>//

Macro Economic and Sector Analysis

Sterling Stamos CEO Peter Stamos, an economist by background, serves in various board and
advisory roles to elite academic, political, and philanthropic institutions in connection with
investment and economic policy. It is within these board and advisory forums that Mr. Stamos
is able to engage in dialogue with many of the most progressive and influential thinkers of our
time regarding global economic dynamics.

integrating the insights of Mr. Stamos, the investment team seeks to identify key macro
economic trends based upon fundamentals, technicals, and liquidity. These results are the
foundation in determining the potential investment opportunities and risks among investment
asset classes and geographies.

The macro policy is a key input to the sector analysis. The investment team determines the
directional portfolio concentrations to specific hedge fund strategies based on the macro
economic opportunity set and various risk analyses.
A macro economic/market sector view is established and integrated into the construction of the
Sterling Stamos portfolios. The investment team's macro economic/sector view continuously
evolves.

Sourcing and Investment Criteria

Prospective Portfolio Managers are identified and sourced through multiple channels,
including, but not limited to, internal contacts, industry contacts, strategic contacts, industry
events, and commercial databases. The investment team leverages its unique network of hedge

fund managers and contacts in order to gain capacity and achieve desired portfolio
construction.

12

CONFIDENTIAL

SSMTO1 238263

SSM SAAl 238263

Security Fund LP.

Sterling Stamos

Transparency of the underlying Portfolio Managers is critical, particularly because Sterling
Stamos generally provides a high degree of transparency to its investment partners. Position
level details of Portfolio Managers, as well as performance and risk metrics, must be accessible
to the investment team on a periodic basis (weekly or monthly).

Prospective Portfolio Managers are analyzed both on a quantitative and qualitative basis. A
sample of the evaluation criteria ore listed below:

Quantitative Analysis: The investment team filters the broad universe of hedge fund
managers to identify "best in class" Portfolio Managers by evaluating quantitative factors
such as:
- Historical performance statistics
- Performance attribution
- Portfolio exposure
- Volatility analysis
- Leverage impact
- Diversification
- Correlation with various market and portfolio factors

Qualitative Analysis: The investment team also evaluates several qualitative factors. For
each Portfolio Manager allocation,

the investment team must first establish an

understanding of the Portfolio Manager and his or her strategy, team, and approach.
Through multiple face-to-face meetings, the investment team seeks to analyze various
aspects of the Portfolio Manager's business including:
- Quality, reputation, and consistency of the management team
- Demonstrated superior investment skills
- Operational capabilities and stability
- Decision-making processes
- Transparency and openness
- Qearly articulated arid repeatable investment strategy
- Consistency of past returns and assets under management
- Amount of personal investment
- Other intangible considerations

The investment team's objective is to construct a "basket" of Portfolio Managers, a hedge fund
of funds, which collectively implements a wide range of diverse strategies, markets, and asset
classes in order to mitigate the exposure to any one strategy, market, or asset class. The
investment team carefully considers the impact of an allocation to a new Portfolio Manager on
the risk/return characteristics of the overall portfolio.

Due Diligence and Monitoring
The investment team actively employs rigorous up-front due diligence on prospective Portfolio
Managers and applies the same rigor to the ongoing monitoring of Portfolio Managers already
in the Fund, A sample of the due diligence process is described below:

13

CONFIDENTIAL

SSMT01238264

SSMSAAI 238264

Sterling Stamos

Security Firnd LP.

Data Gathering! Analysis: Prior to an initial meeting with a prospective fund manager, the

due diligence process starts by gathering information on the fund-specific strategy,
including monthly returns, performance attribution, legal documents, audited financials,
proof of experience, and references for each manager. Performance, liquidity, and
correlations between prospective Portfolio Managers and existing Portfolio Managers in the
Fund are analyzed to identify whether or not to conduct follow-up interviews.
Interviews: Phone interviews and on-site visits are used to gain an understanding of
investnient idea generation, philosophy of investing, investment strategy outlook, portfolio
construction, differentiating factors from peer group, position-level data, decision-making
mies, execution process of trades, quality of team members, portfolio pricmg, and risk
management procedures.

Operational! Business Considerations: Significant emphasis is placed on operational due
diligence, which includes infrastructure quality, risk management protocol, compensation
structure, management size for assets under management, portfolio liquidity, reference
checks, prime brokerage relationships, and access to cred±

Monitoring Considerations: The asset class and strategy associated with the underlying
Portfolio Manager is monitored on an on-going basis to determine market opportunities and
key events. Monthly or bi-monthly performance is compared with the performance of the

associated market/asset class to monitor Portfolio Manager performance against the
opportunity set. Regression analysis, style drift analysis, and value-at-risk analysis are
performed at both the Fund level and the Portfolio Manager level. The investment team
will withdraw the Fund's capital from a Portfolio Manager that it believes has deviated from
its stated investment strategy, or that consistently underperforms versus its peers.
Risk Management

Sterling Stamos uses a broad set of risk management tools as part of its on-going portfolio
monitoring. A sample of the quantitative elements of risk management utilized by the
investment team are described below:

Portfolio Optimization: A modified mean-variance optimization framework by strategy
and Portfolio Manager utilizing historical monthly performance data.

Time Series Analysis: Covariance and correlation analysis is performed to compare the
returns of a Portfolio Manager to its peer group, Portfolio Manager to strategy, and Portfolio

Manager to the overall market. A distribution curve is created to measure skewness and
kurtosis of the performance return stream (a non-normal distribution). Finally, drawdown

attribution and downside deviation/recovery analysis is performed to determine the
Portfolio Manager's ability to recover from losses.

Portfolio Value-at-Risk: Allocation range limits are set by sub-strategy and Portfolio
Manager. These limits are designed to provide a two to three standard deviation adverse
move cushion, assuming normal market conditions. Loss probabilities are determined
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through historical simulation as well as parametric methods such as Monte Carlo
simulation.

Stress / Scenario Testing: Worst case scenario analysis is developed through straining the
covariance matrix, as well as through analysis of historical returns and factor observation
outliers. Qualitative case studies of high volatility periods and adverse moves in key asset
classes (e.g., Russian default, WorldCom) are reviewed to build "what if' scenario testing
capabilities.

Style Analysis:

Style drift and asset allocation analyses help quantify the Portfolio

Manager's performance attribution to the stated strategy and asset class. Factor sensitivities

and factor tilt analysis is performed to determine underlying drivers of a specific fund
manager's performance at different points in time.

Investment Decision

The investment team develops the strategy, sub-strategy, Portfolio Manager, and portfolio
construction recommendations. Investment decisions are made via entire investment team
consensus, with Peter Sta mos having final decision-making authority. An investment
committee meets quarterly to discuss the market environment and Fund allocations.

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