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 33

Subject:

Updated: 11am PST/2pm EST Cc w/Antonis Mistras, DuPont & David
Whitehouse,ML (Peter, Ashok, Kevin O.) Dial-in: 866-637-2663 Passcode:
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; Chtis Stamos; Maria Gagne; Scott Whitcher; Ashok Chachra;
Georgette Wong; Samantha Hojo

Resources:

Master Calendar

When: Friday, January 07,20052:00 PM-3:00 PM (GMT-05:00) Eastern Time (US & Canada).
Where: Master Ca'endar

*-*--*--*-*--*--*-,*-*-*
1/7 Attached are the docs that ML has provided tö DuPont -GP

Security
Fund Flip

Security
Fund
Marketing

eook
Presentation Supplement
(12-04).pdF

(O9-04).pdF

(232k8)

(131kB)

Dial-in: i-866-637-2663
Passcode: 04495701 #

Background info: DuPont was invested ú several hedge hinds from 1997 to 1999 as
a way to leverage their in-ho use trading. They s ubsequenfly determined the
strategy to be ineffective and liquidated their holdings. Howevei; DuPont is
currently in the final stages of approval for a new mandate to invest in hedge
FoEs. It is crucial to begin the process with them as soon as possible in order to bes

CONFIDENTIAL

SSMT01238214
SSMSAAI 238214

pot ilion Sterling Stamos for one of the two hedge FoFs 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 Whitcher
swhtche rSteriln9St,i 11053.00 m
http://www.sterlingstamos.com

575 flfth Avenue
New York, NY 10c17

T 2i24&34370
P212 '155 4371

240G Sand Hill Road
Menlo Park, CA 94025
T 650 233 0263
F 650 23:3 0202

This message s intended onty fo the use of the Addressee and niey contain information that is PRIVILEGED and
CONFIDENTlAL. f you are not the intended rcipient, pleas telephone or email the sender and delate this message and any
ttlacnrnent from your system. if you ale not the intended recipient, you must not copy this message or attachment or disclose
the contents to any other person.

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. CUck here for
important additional terms relating to this e-mail.
http://www.ml.com/email_terms/

CONFIDENTIAL

SSMT01238215

SSMSAAI 238215

From:
Sent:
To:

Subject:

Scoff Whitcher
Wednesday, January 05, 2005 11:17AM
Heise, Ashley (IBK-NY); Wetterrnan, Terry (IBK-NY)
Sharma, Ajay (IBK-NYI; Gillian Peoples; Georgette Wong; Kevin Okirnoto
Conference Call With DuPont (Merrill)

Attachments:

irnageOoi .gif

Cc:

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

Conference call dial-in number

Who will be on the call from the prospect and Merrill

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

Thank you so much

Best Regards,

Scott

Scott Whitcher
swhitcher©Sternc1stamoscorn
http:I/www.sterli ngsta m os.cam

CONFIDENTIAL

3SMT01238216

SSMSAAI 238216

575 Fifth Avenue
New York, NY 10017

T 2124604370
F212.165 4371
2400 Sarrd liii Road
Menlo Park, CA 94025
T 650 233 0263
F 650 233 0202

Tl',s messaoe is intended only for the use of the Addressee and may contain information that is PRiVILEGED and CONFIDENTIAL.
If you are not the intended recipient, presse Isiephone or email the sender and delete this message end any e#achment from your
system. If you ai-e not the fntend-d recipent you rust not copy this niessace or attoohinent or disclose the contents to any other
person.

12/15

Will follow-up with the dial in number -GP

From:
Sent:
To:
Subject:

Heise, Ashley (16K-NY) [[e-mail]]
Wednesday, December 15, 2004 8:18AM
Gillian Peoples
Scott Whitcher
FW: Sterling Stamos: DuPont

Importance:

High

Cc:

Guitan,
Assuming no conflicts, please paL this conference call with DuPont in Peter's calendar for 2:00pm EST
(11:00am PST). Additional color on the investor and why it is important Lo lock in a call now is attached
below. Please confirm that this is OK.

Thanksl
Ashley

Ashley W. Heise
Private Equity Group
Merrill Lynch & Co.
[phone] (phone)
[phone] (fax)
a_he is e @ml. corn

Original Message-----

From:
Whitehouse, David (18K-NY)
Sent: Wednesday, December 15, 2004 11:14 AM
To:
spencer Potts (spencer,,[e-mail]); Ashley Winn Heise ([e-mail]); David Barrett ([e-mail]);
David Whitehouse ([e-mail]); Kevin Dunleavy (kevin_dunleaw©nl.ccm); Mike cciardi
([e-mail]); Sean Duff ([e-mail]); Ajay Sharma (Sharma, Ajay (18K-NY))

CONFIDENTIAL

SSMT01238217

SSMSAA'1238217

Subject:

SterJing Stanios: 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 cali-fn 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:II'.wvw.mI.comlemail_termsl

CONFIDENTIAL

6SM101238218
SSMSAAI 238218

STERLING STAMOS
Security Fund, LP.
December 2004

Z1 tDFIUîAt

CONFIDENTIAL

Confidential

SSMT01238219

SSMSAAI 238219

F Tab'e Contents
Overview of Sterling Sternes
ii

Overview of the Security Fund, LP.

gp Investment Performance
gp Investment Process

Profeselonals

Sunimary of Principal Temis
e Underlying Portfolio Manager Performance
e Sample Portfolio Manager Tracking Report
This document does not constitute an offer ta sell, ora sohcntarion ofen offer to buy the limited partnership interests described herein. No such
offer or solicitation will be rnadc pnor to the delivery of a definitive offrong memorandum and other matron's relating to oho mattem heroin. Before
making an investment decisnon with respect to the partnership, potential investors see advised tn read earefutly the cffenngrnenaarandum, the limited
partnership agteernont and the related subscoptaon documents, and to consult with their tax, legal, and linoncial adwsors.

This document does not purport tobe eom2lere and is qualified in its entirety by reference to the more detailed discussion contained in the private
offermg memorandum and the actual tear ot the limited partners hi p agreement. The General Partner han the ability in its sole discretion to change
the strategy descobed herein.
All perfonnsnee information in this document is based on information provided by underlying Portfolio Managers, and a11 2W4 infonnation is based

on estimates prended by the underlying Portfolio Managers. No represenoason or warranty in given as to the accuracy or completeness of ilse
performance information contained in thin document.
This document is beingprovided to you tneon fidentisl baos solely te asost youindeoing whether or noi to proceed with a lurch er investigation
of an invesunent in SteelingStamos. Accnrdssgly, this documesr may net he reproduced in whnleor,n pan, and may not he delivered to any person
without p nur wollen conscrit ofSterlirig Stasnos.

ç-i

CONFIDENTIAL

SSMTO1 238220

SSI\J1SAAI 238220

Sterfing Stamos
Overview

ci

CONFIDENTIAL

SSMT01238221

SSMSAM 238221

Sterling Stamos
Overview The Firm and its Philosophy
The SterUn Partnership

- Stehnc t4) ;:iec real estate (levdûpn%eflt and. p

- Suring A cikee Prerties xea estate fwtds
- Arra-ri an eeodtks Cap{ta Parmers p.dvste eqnitv A
- ser;ing Saets and Emettaìnmxe.w - New od ?4ts and
SeriÀng Steetue -- intecrc-ed invesnr3ent arm or t1r. Sellng Fan

te The SterUng Stamos Partnership
- l3egaxt ces an rnsnx8.ent paxtnerslnp ox; bctai
- Nc,ts xnch.des cver 125 n;ìlles tn,d nearly 50 dge fund. xc;g

3.e,

nXX?S loen

The Value of Partnership
- 'ITfleer4)c;sed re1a;:lcnshtos huít on ansp:a;e;

i CO,3C:ttiO3.

- A C5 Clos. ed retrae gore, e ocian du e 4*

r;ucxC; oex>ectir

- Uniqoc reavarlq a «coHecefte itxt:ethgetce"
e

Philosophy
- Treat net' ewes as pa:rtners an
- 1:raa re staying percer in rho
- Pr <eu capiral and eeeic<;x ;lerer;t, posith'e rewrx;s (nirsointe rerun; orienta
- Fo:Onwhe el wege of oar lot edere: "Do well by dcixeg good"

ri

WA

CONFIDENTIAL

t4

Ct5

SSMT01238222

SSMSAAI 238222

Sterflng Stamos Security Fund, LP.
Overview

ci

CONFIDENTIAL

SSMT01238223

SSMSAAI 238223

Security Fund
Overview - Attractive Asset C/ass /Attractive Structure
n Why The Hedge Fund Asset Class?

S iPwed pex» a1cr (vetnus n3ar',ce tsed)
- Ope<ae in Lesa eLlicient maret space
- Unconstcaiaed
-

-

Lever
eresta alignec! (Portòh

1

w.age.r is íaested alongside their .Ucx3ired Partners)

- Reiativehr %icrnicl (querorety)

-

ïSløtc-aiiy have gneraree alpha (invesrmenr vahje ach»

n Why The Hedge Fund of Funds Structure?

- R.ecl,81e. ftnd lev el. r sIc th cong díverdficatíon. (kw: cocte)e ed &th-strareeies)

-

itigate .tsic of single h.edrze Ñnd. ;nanager
- Leverage additional Level of nrofrssional dte diigtnce, pOItft?liO construetron. and monitodmg
- Access to hedge fnnds thar are dosed tn new iu estocs
- Accec&c so xva:thirde hedge funds; at xdevei low jus «atmen;. 3n{x;inmm
- Cc soiithsed pe brrnar.ce and tas. reponing

n

CONFIDENTIAL

SSMT01238224

SSMSAM 238224

Security Fund
Overview - Altra ctive Attributes of the Security Fund
t& Highghts:
- i) nifieci; r.C&i-&rategv, nti1uan?er
- Low correlation to eouity and fixed income murkets
- Primarily "nor directionaL ....ver-v little uohedged equity or fixed income mavket exposure

- 1atc asset

ocatk!n ncrie', opp<ìrtu*t;c

-

s trate gCs rtCie ít '

oni<'r ;>fl:;

jrnc3

hivestment Objective:
- Presen'e capital and enhance weak by achieving leag-tenn absolute returns
- Mo derei:e absolute re rm)s o:f 9% 10% un tali
4Oi
lain rain :'wrnlacithv ei 2
urrurafly

-

Actua' kiveetment Performance (10101/02-11130/04):
-. Annualized. return
- Annualized standard devi
- y.Lasahzed Sharp e ratio o13.7 (raring a 1

Afternathse / Compement to Trathtiona Fixed kicome nvestments
- Ï-iisrodcrd equity-like returns with less than iïze.d income-lUre risk

- Oj ortuuuvto reduce o e rit invesenrew: portfolio risk wIthonE: saath iciug re earn

ci

CONFIDENTIAL

SSMT01238225

SSMSAAI 238225

Security Fund
Overview - Differentiating Characteristics of the Security Fund
a Unique Macro Economic Perspective

- Iittr Sto' ixs;cd'tme3st OS 88

EÏviSOr to e&E« eo<kxiíc, POIt5aL «Sd onç:u:o HW5Ì3>C

Access to Sterling Equities' Experience and Unique Proprietary Sourcing
- Ser1ing Stancs í able to kvw-nge Sterhnz Eqoith' 40 years of dternath'e invesunent experience

s Access to Closed Funds
- Fond curendv invested in 14 dooed ii ode wi.h access to o

M)

a Alignment of GP and LP Interests

- S er1iruz St:oxzoa is committed to iasee oIctrcsidc i:svesxuoat paraxers (25% of tct;t Fund osso re)
a Higher Level of Transparency

-

&cerU3:u'r Staates is co omitted to presi

OrtO>íO> (%4mnatier j. fonaaiian

a Higher Level of Liquidity
- Cntnerly Iiquichtt' altre íoitiat
a No Preferential Terms
- All limited partners are

sect ro id 8icd Fund tomme (fees. ïiqthdiwj

Ç

CONFIDENTIAL

SSMT01238226

SSMSAAI 238226

Sterflng Stamos Security Fund, LP.
Investment Performance

ci

CONFIDENTIAL

SSMT01238227

SSMSAAI 238227

Security Fund
Surnrnaiy Statistics (10/01/02 - 11/30/04)

SUMMARy BTATISTCB

Fund Inception:

October 2002'

Firm Assets Under Management:

$855 Million

Fund Assets Under Management:

$248 Million

Average AnnuaUzed Return:

8.5%

Standard Deviation:

19°/o

3haq

372

Ratio:

Number of Managers:

35

Number of Positive Months:

23

Number of Negative Months:

3

Largest Drawdown:

-0.44%

Source: Srering Stamos analysis.

October 2002 marks the oftidsi offeringdsse ro outside investoir.
Sharpe ratio is based on 1.5% dek free mie.

ç-1

CONFIDENTIAL

SSMT01238228

SSMSAAI 238228

Security Fund
Corn panson of Results (10/01/02

11/30/04)

Annual Return
-- j rk IXt

-

Standard 0ev

'

-

SECURITY FUND PERFORMANCE

Sharps Ratio
.

_i

RETURN! RISK COMPARISON

$1.200

Security Fund

e-,-

SI-Ito

Bond Index

SI_100

/\ í'--

51.050

It

-t
s

/

-e-e'

-(

5 8%

t

Naudaq
Index

Lehman
Aggregate

Bondlndex
5&P 500
Index

Merrill Lynch
3-Month T-ahi

e'

4%

Merrill Lynch
3-Monlh T-Bu'

51.000

Security
Fund

10%

Lehman ggregata

2%

0%

$950
Sep-02

Duc-02

Mar-OS

Jun-03

Sep-03

0cc-03 Mer-04

Jan-04

Sep-04

0%

LOW RISK

5%

10%

15%

20%

25%

30%

Standard Devlallon -----ßxr HIGH RISK

Source: Sterling Strenna analyuia.

Çj [c: IÇfl.

CONFIDENTIAL

t1

ía

SSMTO1 238229

SSMSAAI 238229

Security Fund
Monthly Performance (net of all fees and expenses)
Unaudiled net returns

2002

January

2093

2004

0.70%

1

February

0.59%

Q 9n

March

0.46%

031%

April

1.19%

041%

May

1.28%

June

0.52%

July

-0.44%

024%

August

0.46%

0 49«4

September

1.77%

.

October

021%

1,23%

OE45%

November

1 0&%

0.75%

i 61%

December

0 19%

0.88%

VID

9.79%

Source: Sterling Sum'roo snulyriu.

t.
2,

CONFIDENTIAL

October 2002 marks the oIES! offering date to outside investors,
Based on estimate as of 22/10/04,

SSMT01238230

SSMSAAI 238230

Security Fund
Strategy Allocation (As Of November 2004)

Cash
4%

Emerging Markets
1%

Equity Hedged
18%

Event Driven
14%
Market Neutral
63%

Source: Sterling Scanne anujysis.

ci

CONFIDENTIAL

SSMT01238231

SSMSAAI 238231

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

ç
Global

-(

Market Neutra!

Cash
4%

Options Arbitrage
6%

Emerging Markets
1%

Convertible Arbitrage
4%

LIS Multi
15%

Equity
Hedge

US Velue
2%

US Generalist
1%

a

Asset Bucked Securitics
25%
Fb<ed Income Arbitrage
4%

Mortgage Backed Securities

f Event

1%

5%

Event
Driven

ç

US Credit
3%
Distressed Debl
6%

Statistical Arbitrage
5%
Multi-Strategy
12%
Equity Market Neutral
2%
Capital Structure Arbitrage
4%

Source: SterlirigStumos snulysia.

ci

CONFIDENTIAL

SSMT01238232

SSMSAAI 238232

Sterling Stamos Security Fund, LP.
Investment Process

ci

CONFIDENTIAL

SSMT01238233

SSMSAAI 238233

nvestment Process
MaciD Economic Analysis

SECTOR
ANALYS1$

MANAGER
SOURCING

DUE
DILIGENCE

RISK?
PO RI FO U O

MANAGEMENT

ONGOING
MONTORWJG

/

dent ify key macro economic trends based upon:

-

Determine potntiaI investment opportunities and risks among:
- Ass et dasses

- Geogrnphks

CONFIDENTIAL

SSMT01238234

SSMSAAI 238234

Investment Process
Sector Analysis

MACRO EÇONONflO
ANALYSIS

MANAGER
SOURCING

DIJE
LULIGENCE

RISK?

ONGOING
MONITORING

PORTFOUO
MA NAGE M NT

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

- M c z.cxcxníc z>p)or 3ity
- .Rsk nv3i

CONFIDENTIAL

SSMT01238235

SSIV1SAAI 238235

Investment Process
Manager Sourcing

MACRO ecQroMIo
ANALVSS

SECTOR
ANALYS'S

DUE

DILIGENCE

R1SK?

ONGOING

PORTFOLiO
MA NAO EN NT

MONITflRING /

/

//

Leverage network and relationships of Sterling Stamos to:

-

identit\? riergo4 snan2ers

- Obcia çapacj:-9 with "dosed n QflC
Leverage relationships with investment banks, third-party marketers,
consultants, and research (irms to identify Portfolio Managers
s Utilize industry-specific internal network, databases, newspapers, and
magazines to identify prospective Portfclio Managers

ç-j

CONFIDENTIAL

S3MT01238236

SSMSAAI 238236

Investment Process
Due Diligence

MACRO ÇONOMIC
ANALYSIS

SECTOR
NALYSI$

MANAGER

PORTFOLIO
MANAGEI1ENT

$OURCII'JG

ONGOING
Ty1ONITORINO

/
Obthin information cm fund-specific strategy, monthly returns,
performance attribution, and references
Analyze performance, liquidity, and correlations between proposed
Portfolio Manager and existing Portfolio Managers in portfolio

a Conduct interviews and on-site visits to gain understanding or:
- Suai:egv(positha ieve.l det;U)
) ettí>rts (ii<:í;iou rmilvix3g r;dj_

- Rk

c3t)n. ax;d x3txkI<:txr)

gcnxe1x

- 13ck fke if

cre

- Other prûcedure (e.g, portfolio prícirg)

ci

CONFIDENTIAL

SSMT01238237

SSMSAAI 238237

Uivestment Process
Poitfolio & Risk Management

SECTOR
ANALYSIS /

MACRO ECONOM!O
A NA LYS

MANAGER
SOURCING

DUE

ONGONG

PIUGENCE

MON TO RIN G

/
Maint&n portfolio exposure limits by:

Stnttegy

-

Pordcìic>

<rls

arger
dLçsi.

e)

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

cil

CONFIDENTIAL

S3MT01238238

SSMSAAI 238238

investment Process
Podo f10 & Risk Management

MACRO ECOt4OMC
ANALYSIS

SECTOR
ANALYSIS

DILIGENCE 4

-

RISK TOOLS

PortfolIo OptimizatIon
si

ST

C. is li, _çnc 5 Ictnçrtò.t:s>çs a ossi vair y

i)

ayibsatioz t5rras soap

ta

is

<s

asia)

cl

datai

flottais1 araisakast contusions)
ca '- a liso _tat wail ass

so chas-a M colo Cas s-las stcs.iarlisay

\isiio,st sas 'sis sc,aa.sab:c ai.;

r -selopod tbroasg.c_rsaacvrslie ab 'a
ass-nih nt:tsars. 5 cae_si

sçtstr ..sbns,asdens

stilissta;

tb aasli tasti vase Rase at's tasas -sí buds solasils ta pass 's da staid ;vivc'rsa-. assiS sers io iev

S:a.g. it usai aso debt ail
_ISatd'sai s.ss

ta

Slcswses

rsah;sílilo l osad tais-ode cd si sic- o ds I; itata riras I

:nsss.rai sirs_I asosdssa o; It
LI

STyle

salai

dia. assail at

tlik1Coasa8

b si Id TOI :t$' acetase.

s-as

s't aslissearka st asfissia si .a.dsq sas: ti Tip 1-': said Mats;'sgt'sds

r,s.-e-Poas.oas;Ce,çtrrtissia:as to tissa stated sxsarcan'a-.od raspar clati

ti

CONFiDENTIAL

-lasaasssot, lo-

Psaca.tli -r a-cu<r limita-, ....s b yatr.s.tay sod ¡lisas-sl Ma rocs5tr ssivroa..3

ay. assnsycanic roelas os.l

ri èbab
tA

ifssn..l Mat n ices-Lobs.. ori

) ra,xd s,ss;o astI -li std os. sand doava salit dia c-sat:t.ssjacactsvs:at sa salyti t

devizstia,rs ads--:: asear, os a' (a attori ¡es
SS

Style Analysis

stv_:ya.ad ìb sad M saRca ta ti li-aitata

Nísa o- ?a.Tiass cca cspt t ,zsstbeats; sad ri

to-ti tsn.st litt
58

Stress/Scenario TesUng

a

r.s4 cal rasen bi y 1,a losan ocas datas.

ta

Portfolio Value-at-Risk

L.jt-

QNQØING
MONITORING

ANALYSIS
Ta

Time series Analysis

4"a 41

DUE

MANAGER
SOURCING

Fact_s.---:esasitiviries asas..1 ds-:tor ails sse, tisait to d -:lcraOro'a s. traIra l'sa o dssrcss:-- st as
sapsaci lisa f ndm-_cssalirt'as ps ali' 5's,ro es; art di fteesoat pasias l.a

20

SSMT01238239

SSMSAAI 238239

Investment Process
Ongoing Monitoring

MACRO ECONOMIC
ANALYSIS

SECTOR
ANALYSIS

MANAGER
SOURCING

DUE
DUJGEWCE

RISK!
PORTFOLiO
MANAGEMENT

c Monthly I quarterly conference oal!s to discuss market conditions and
fund performance with each underlying Portfolio Manager
Review portfolio to assess performance, risk, and allocation on:
- Wtddy has by Portfolio iersn n<J Princ.ipaìs

-

Swriirg Staruos Yncestruem ;otnnidee

r4 S

CONFIDENTIAL

SSMT01238240

SSMSAAI 238240

Sterfing Stamos Security Fund, L.P.
ProfessonaIs

ci

CONFIDENTIAL

SSMTOI 238241

SSMSAAI 238241

Professiona's
Senior In vestment Team

INVESTMENT

EXPKaUENCE

EDLCATION

Stançe ,'psocatos ir., (SA»
li S Sconce ßsll &d1
& Cornpnv

Sran1or Uaitet$A

PRCiE'ESSIC)NAL
Stasmot

Clac! E.s,,otve OThçtr
Marts

gParrseer

OIord tJruveeast»DShaJ

Eareted Vnwethy JI

SMctflsmdtea

Pe,Sçbclss

Dbins croup

Thstnrsn Scholar

l4vvard Ucayerasty, Dryt of Econenaca
Portfolio Manager

MclCnsey & Conapary

Partner

Ashok Chachos

Morgan Stanley

Carnegie Mellon University, US

Chase SceuLides

Hgexa Parma,

Columbia Ueaveita,MB.\

Gebells &Ces

Colotec Unweearç S

Wer', ['toit & Crer

BilenT Hoc

Lan

Bd tal cl

conoinie'

Me mU Lynch

President ofSterling Equities

Sterling Equities

Brooklyn College, ES

GeneS ['seriner

Saul B. Kara

New York Mere and Brooklyn Cyclones

CPA

chairman of the Board, NS-Li)

xesu5a e VPofSl4rigqusties
Gcc\tQ tarb,.c

Sttrta,Equitîçe
Qaeon Ws44 TecpncIoves

Ed.

Nei Yc& Melt

ci

CONFIDENTIAL

SSMT01238242

SSMSAAI 238242

Profess io na Is

Investment Professionals

INVESTMENT
PROttESStON:U.

TITLE

EDU(AT1ON

EXPERIENCE
Mggtt Starnuto

Rohit Kuensr

Assodate

N'{tJ, Leesee'd Stern School of suuc, RS

MensE 140.ch&Co
Goldean sirlat 8;

Cethy Tie

%r1rtonSthot4 MM

Bolliarst Software Solmions, Inc.

Indian Institute ofTechnology, BS
Xavierinstitute of Management, MS
NYU, Leonatd Stem School ofBusmess, MBA

AlphasoftServires, Co.
[cid Bank, Limited
Ernst & Young, Pdvate Limited

Havnd Utervrnste BA

alrL Ranj íodd

Ur,acc'st of Csosbndge, MS
John Lee

Assodate

Stanford University, BA

Visa USA

Guna,com
Chatles Schwab & Co,

ted Cowpkdt

Catherine L,u

Analyst

WhsSc;cnee

Ñs'41st

Merrill Lynch & Co.

$rssaforal lirevçr ty4TtA

Nenjing Universityt, BS

Renn,io University, MS
UCLA, Anderson School of Management, MS

a

CONFIDENTIAL

SSMT01238243

SSMSAAI 238243

Professionaís
Other In vestment Professionals
E XPE E NC E

INVEST MENT

EDUCATION

StociaoEqcanse
Neps York MLtS andlknoùwsCyr$000e

Ucaeres) Ófl4schtesn, SS

PRO PESSTONAL

PredtClgon

Cha

norcr{sn Eusisrs

General Pastier

t

L Cti

ar4

t,rnnn Cotynratitt, l3sad
Spiro Staznos

ChiefAdeninistra6ve Of]leer
Genera] Partner

Chin semnr

Chs.Qcsng Qfieec

MeG,ll University, BA

Stanios Associates, roc. (SAI)
»Thitalcer Corporation
Atlantic Richfield
Hughes Aircraft

L Satisfit

$tan&rd l,Jniveesssy,8A

Oxfutij U!ssaccsy, MA

Srtsnsn Cregitno

US Enssrn,fientaI tiotecteosi

raac7

fncrnnsn4 l.huscctyoEJapen fiLA
Newton Tatjm S4sul'

bt$nhele
ChiefFinancia] Officer
Partner

RK Consulting

Beton l-la1] University, MS

Dreyfus Corporaon

I-lof,tra University, UBA
CPA

ICosan Ótassuctts

Front Ofttit Meeger
latlsse

Rola,aetat Sleplins
Mflvseti

Sasita tiaras lJrssvest), BE

Scott 'QThitcher

Investor Relations
Partner

Cni group

San Francisco Statt University, MBA
California State University Fullerton, BA

Kevin Barcolona

Robertson Stephens
Collins Associate,

25

CONFIDENTIAL

SSMTO1 238244

SSMSAAI 238244

Sterling Stamos Security Fund, LP.
Summary of Principal Terms

ci

CONFIDENTIAL

SSMT01238245

SSMSA.A1 238245

Security Fund
Summaty of Principal Terms

Loca! Stncture:

r)øh 3(t)(?) Usniç{

Investor Eflgibiiity:

Q,;i( :d iIt,c ber

Minimum Investment:

LIS SSOO,OO9

Management Fee:

4; pet

Performance Fee:

Threshold Rate:
High Water Mark:

Yes

Lock-up:
Redemptions:
Notice Period:

CONFIDENTIAL

da

pdor 'i

flgko

SSMTO1 238246

SSMSAAI 238246

SterUng Stamos Securily Fund, LP.
Undedying PortfoHo Manager Results

ci

CONFIDENTIAL

SSMTO1 238247

SSMSAAI 238247

Security Fund
Underlying Portfolio Manager Results (through 09/30/04)1
STRMSOY
Market
Neutral

SUOSTRATES?

PUNO
SIANA(30R

STATUS

FUND

INCEO'I;ON
DATE
993

INVEOTMONT

ANNUALSZEO
RETURN

CAPACITY

Opsora Arb

$

Closed

Convert ArO

A

Open

9O$

IS

Closed

.0992

A

Closed

9lls

3001,04

13

Limited

.997

350MM

OISMNI

C

Open

201%

100MM

D

Open

1021

Asset Backed

SHARPS
RATIO

j3 7V,

0%

2-S

1.350MM

Opec'

106%

sas

1.0

1,800MM

25M2',l

204%

4

3.8

OMM11 8"

s

2.8

132 6

bZ,

43

2frMkrt

118b

44%

2,5

200MM

Opes.

N/A

N/A

NIA

10MM

13 7',

3%

97

Closed

5002

2,200 MM

A

Closed

.19199

100 01M

D

Open

5201

5011MM

Open

Open

19'19

SSMM

Ops

2

81'.

C
MSS Arb

DO's'IATION

SUsfli

1.000 MM

E

FlArb

STAN0MJO

122%

k

16.2/,

C

0qisi MIN
Cap Stoica Arb

1,000 MM

4,600MM

dMIrt

17.3's

6$t

1.8

Open

1999

2,500 MM

Opes.

9-re

Zfl

1.7

2994

3,200MM

ASpen

175's

0 70e

1.9

S?aed

53

350MM

2914M

4.0O

84%

-03

Closed

A

L999
fLOOr

Open

MulU-Strategy

Opon
Closed

Slaristloil Arb

1991e

9,856MM

ClasSd

1S.9_'.

SsS/e

2.8

Open

1997

300 MM

Qpc,1

17,7 s

004"

Li

nÔS

816A

23

Limited

--500MM

10.4",

.03-141.

-

Source: Sterling Scorto, aolslyois.

Since ince2dort ofende Portfolio Manager.

SlaaeperalioisbosedonS'/.dsk freerace.

ç

CONFIDENTiAL

29

SSMTO1 238248

SSMSAAI 238248

Securfty Fund
F Underlying Portfolio Manager Resu/ts Continued (through 09/30/04)1

Uisessod

iNCEPTION
GATE

ANNUALIZED

SIANOARO

RETURN

DEVIOTION

A

Limitad

90MW

9.9%

54%

0.9

Closed

4000 MIsst

119'fsl'4

125%

S%

1V

Open

142MM

Open

15.6%

tsP%,

1.6

9)

SUO-.

STRATEE?

PUNO STATUS

C

Event
Driven

FUNI)
MANAGER

B

STRATEQY

Open

220MM

Open

10.4%

U/A

NIA

1

AUS°
-

500MM

INVESTMENT
CAPACITY

SHSAPE
RATlO

Closed

11100

600MM

510MW

19.0%

72%

1.9

Merger Arb

A

Open

ows

325MM

Qp4n

6.2%

9,9%

0,9

Event

A

Open

120MM

19.9%

52%

1.5

Open

650 54M

19.7%

58%

22

C

Closed

6200MM

162%

5-Q'fl

1.9

A

Closed

1992

251MM

12.9%

399%

0.4

Closed

1995

2,500MM

15.6%

9%

1.1

A

Limiled

2002

200MM

210MM

13.7%

9.9%

2.2

II

Limited

OSTe

137MM

Limstud

C

Open

9X14

15MM

Closed

2992

900MM

Limited

2534

33MM

N/A

NIA

N/A

L/S Credit

-

L/SGeneralLct

L/SVslus
L/S Muid

Global

Emerging Miels

Cash

Cash

A

9MM

-

02

2.0

24.6%

9.5%

2.1

lliklIet

12.5%

1- 1%

0.5

Wattled

2A%

5'9%

N/A

45%

57%

NIA

8.9%

Source: Steeling Slernoe analysis.

I.

Since inception olearia Portfolio Manager.

2-

Shaspe ratio is based su 5/e risk fcos rare.

Zi SIIPUsIftamnr

CONFIDENTIAL

210

SSMT01238249

SSMSAAI 238249

Sterling Stamos Security Fund, LP.
Sample Portfoflo Manager Tracking Report

CONFIDENTIAL

SSMT01238250

SSMSAAI 238250

Portfollo Manager Trackhig Report
Sample Options Arbitrage Manager
*t .**sstqma
x--'I, id!l0H10l%* SORS
505*0(0117
ieslo".leelO0s1 oteejooedbeslOplisSOhdloeO

4cs,rrohIeeaohoeo2oIi7oPso44heer

1,01544* 1h«hls
1445154

6ee03r0

Jlh(eei,hee.l p!thOSOiIplRll ISiS ISO 00*3. The

11h05 s04034, 500*1910*0590'-

hhoeor03
155.0*10,

Io,

ROS e,oiiisoR1sO 41001501 IsoSli 041010 17521e

dM15101

11ol*er

i. ,th.14oaiylRo 131017

*4
AcROL. Us 3.OM.LR00010II

SI OliLot

L000sp

Hohe

P50101(00

COoed

Hico WIrer Mss

Nie Ihhe Fee

Mnlmunhlnoeolm ed

0000*05

003411*I004110qLl.hiy

000odly (Dee SII

00*091*000 00110e F0154

45 5e,,

50.0

(09600%

I
JoIAeooepHdNovo.o
Xfl'T'«'

Mel *eri44eyohio
'en
Pet
o4*
.00040000sooao.s0000see

iSis-osa soso

1*04
3*03
2505

010%

00490

100

2il

0340e

00*0 iui%+405.f101(4
eio 40000 eIS
0*00
oso
00.0 001'S
000**'SiloHsbçezo*ice iioot, lie' roo
000%

00310e

0000e

0054
oc'bjdoesok-o.o 1*1101 15ess.i.sò-eo+r*Sooeoel*

3004
100*
1*0

310'

90050000%

00%btL%3i5'e50flb01%

1500e

leet

(0OL000SI.0*4l9500.esOO
l0000%l100.10lol000.525*

1*07
risoS
5q41

000
eso

00(10

(Dl

1000

iso

0&t
000

lo-o

o4%

0100

toOl

'oblio
0o

4 00%
00410%

00%

000004,40,

Isolo

11903s0400*04.M

00000iOi60000I4(Oo
Silt .000-o 704'
bR-o

0010

io' 4Obio50100'SNOO'oM%0000440l.

0142%
0040%
7010%
1417%
1410%

03.74%

ROide 0301 0000000

1307%
'.00%

010iliOyAo000t.Seooleleo
0130000135114000e

67403e 400400*4 ReleeS 000004

AnIooe Noode Relven 150704

Leogoel Oenledoo7

Leegesi Recose4 PoleO
3601oo.000Le,000I 31645005e

CONFIDENTIAL

Il"%

000073109e1000040

loO,.

AnnuiOhi 001040034 11113e

ci

100%

50096

0 0%

015400

10055000000 101000545K III

i0os

VID
403%
900%
0101%

2.05%
1.21%
'2.52%

.1.40% e P*etlookAoedho
0 0 000000e OSsIS,
.004% %PeeOL,oeiooedloe

32

-

SSMT01238251

SSIVISAAI 238251

STERLING STAMOS
SECURITY FUND, L.P.

Marketing Supplement
October 2004

çi
CONFIDENTIAL

Confidential
SSMT01238252

SSMSAAI 238252

Security Fund L.P.

Sterling Stamos

Disclosure Statement
This document does not constitute an offer to sell, or a solicitation of an offer to buy the limited
partnership interests described herein. No such offer or solicitation will be made prior to the

delivery of a definitive offering memorandum and other materials relating to the matters
herein. Before making an investment decision with respect to the partnership, potential
investors are advised to read carefully the offering memorandum, the
ted partnership
agreement arid the related subscription documents, and to consult with their tax, legal and
financial advisors.

This document does not purport to be complete and is qualified in its entirety by reference to
the more detailed discussion contained in the confidential offering memorandum and the actual
text of the limited partnership agreement. The General Farther has the ability in its sole
discretion to change the strategy described herein.
AI! performance information in this document is based on information 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 to the accuracy or completeness
of the performance information contained in this document.

This document is being provided to you on a confidential basis solely to assist you in deciding
whether or not to proceed with a further investigation of an investment in Sterling Stamos.

Accordingly, this document may not be reproduced in whole or in part, and may not .be
delivered to any person without prior written consent of Sterling Stamos.

2

CONFIDENTIAL

SSM101238253

SSMSAAI 238253

Security Fund L.P.

Sterling Stamos

Table of Contents

Executive Summary

Fund Performance

Fund Composition
Portfolio Enhancement Opportunity
Senior Investment Team
Investment Process

j
CONFIDENTIAL

SSMTO1 238254

SSMSAAI 238254

Sterling Stamos

Security Fund L.P.

Executive Summary
Sterling Stamos Security Fund LP. (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, arid 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. Fi.ind 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 the Fund (outside of sharing 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

ief 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 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%.

Access to the Investment Expertise and Experience of Sterling Equities: 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 fanülies 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

S3MT01238255

SSMSAAI 238255

Sterling Stamos

Security Firnd L.P.

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 Stamos is
conmtitted to maintaining an interest in the Fund such that its investment is approximately
25% of total Fund assets.

Diversification Across Sub-Strategies: 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.

gher 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 Ftmd terms (i.e.
fees and liquidity).

5

CONFIDENTIAL

SSMT01238256

SSMSAAI 238256

Sterling Stamos

Securily Fund L.P.

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 risk-adjusted
returns, arid more importantly, has demonstrated the ability to preserve capital. Through

September 2004, the Fund has generated an annualized net retum 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 fixed 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 Bifi 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.

Performañea Corppanscn Chart
$1.20

Secunty Fund L P
Lehman Brothers Aggregate Bond Index
"MerrIll Lynch 3-Month Treasury Bill
Notes;
- chart constructed using actual net performance figures for the period October 2002 - September 2ffl4
- Sterling Stantos Security Fund performance is net of ali fees and expenses

6

CONFIDENTIAL

SSMTO1 238257

SSMSAAI 238257

Security Firnd L.P.

Sterling Stamos

Fund Composition Portfolio Manager Description & Investment Performance
WçrtMiw

traagy/
$tth4lrats

Portfah
Mo nais'

lactfn

Maoagr'

teMar

thtder Mgint
(Slat t,thoas)

Aomatdit'ed
,etstrn'

DeVEattoiY

Strarpe
Ratto5

lwstketfleiitrat
OptIons Arb

Manager A

1993

1,000

137%

3 1%

Convertible Are

Manager A

Cpen

1988

1,350

10,6%

5.5%

l_o

Convertible Arb

Manager B

Closed

1992

1,800

20.4%

4.1%

3,5

Asset Backed

Manager A

Closed

1996

300

11.8%

2.4%

2.8

Asset Backed

Manager B

LImitad

1997

350

13.2%

1.9%

4.3

Asset Sacked

Manager C

Open

2001

loo

15.8%

4.4%

2.5

Asset Backed

Manager D

Cpen

2004

200

rs1a

n/a

rile

Asset Backed

Manager E

Closed

2002

1200

13.7%

0.9%

9,7

Fixed Income Arb

Manager A

Closed

199g

100

15.2%

3.5%

3.2

Fixed Income Ait

Manager B

Open

2001

500

8.4%

2.0%

1.7

Fixed Income Ait

Manager C

Open

1999

58

12.2%

2.2%

3,3

MBS Aid

Manager A

Open

1998

1,000

10.4%

9.5%

0.6

Statistical Arb

Manager A

Closed

2001

4,000

17.3%

6.9%

1_8

Mu t i-St re tegy

Manager A

Open

1993

1,500

9.7%

2.8%

1.7

Multi-Strategy

Manager B

Open

1994

3,200

17,5%

6.7%

1.9

Multi-Strategy

Manager C

Ctoaed

2003

350

4.0%

3.4%

-0.3

Multi-Strategy

Manager D

Ctosed

1990

g,aoo

15.9%

3.9%

2.8

Equity M/N

Manager A

Open

1997

300

17.7%

11.4%

1,1

Cap Struct Arb

Manager A

Limitad

2002

500

22.6%

8,1%

2.2

Distressed

Manager A

Lrrni ad

1993

500

g 9%

54%

0_9

Distreased

Manager B

Ctcsed

I ggg

4,aoo

12,5%

4.5%

1.7

Distressed

Manager C

Open

199g

142

15.8%

6,7%

1,6

Distressed

Manager O

Open

2004

220

10,4%

n/a

Na

LIS Credit

Manager A

Cloaed

2002

600

19,0%

7,2%

1.9

''','1

4

-

Margar Arb

Manager A

Open

1995

325

5-3%

3-5%

0,9

Event

Manager A

Open

2000

120

19,9%

9,5%

1.5

Event

Manager B

Open

2001

850

19,7%

6,8%

2.2

Event

Manager C

Closed

1956

6,200

16.2%

5-9%

i

1.9

-

i

i

-

LIS Otneratiat

Manager A

Closed

1993

200

12.9%

18.9%

0.4

L/S Value

Manager A

Ctosed

199g

2,500

15.6%

9.3%

1.1

US Mutti

Manager A

Limited

2002

200

13.7%

3-9%

2.2

US Multi

Manager B

Limited

2003

137

8.9%

2.0%

2.0

Open

2004

15

24.8%

96%

L/S Multi

21
'i

Emarging Markets

Manager A

Closed

1993

900

12,5%

14.1%

0.5

Note:
1. Sülce each individual Portfolio Manager's inception date through September ZoütSharpe Rado ts based on 5,0% riskfree rate.

7

CONFIDENTIAL

SSMT01238258
SSMSAAI 238258

Sterling Stamos

Security Fund L.P.

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 any market environment, but are
especially appealingnow, 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:

Efficient Frontier Chart

Introducing hedge fund of funds
to a tradWonal portfolio of stocks

's'

and bonds can enhance the
efficient frontier opportunityset

7*5%

20%

40%

?0%

50%

100%

120%

140%

180'fa

Risk (Standard Deviation)
-eTraditionai Asset Mix (Equity & Fixed Income)
t--Traditionai Asset Mix ith 20% Hedge Fund of Funds
Notes:
- Traditional asset mix isa hiend nf US. equities (S&P500 Index) and US. fixed income (Lehman Brothers Aggregate Bond Index)
Hedge fund of funds asset mix is represented by the HFRI Fund of Funds Composite Index
- Chart constructed using aduni hisiorical performance for the period January 1990- September 2004

8

CONFIDENTIAL

SSMT01238259

SSMSAAI 238259

Sterling Stamos

Security Fund L.P.

The Fand's structure, a hedge fand 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 fand of funds structure is a means to obtaining

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

3SMT01238260

SSMSAAI 238260

Sterling Stamos

Security Fund L.F.

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
backgTounds 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 Exectitive Officer of Stamos 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 SAL 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 &
Hamilton, a Senior Management Consultant with McKinsey & Company, 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
Conm-iittees 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.

Prior to 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 Horing: 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. Horirig 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.

10

CONFIDENTIAL

SSMT01238261

SSMSAAI 238261

Security Fund L.P.

Sterling Starnos

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 Farther 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-to-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 Health
System.

Mr. Katz is a Certified Public Accountant with a ES 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. Katz's real estate experience includes the development of conmiercial 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-depolymerization 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

3SMT01238262

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:

\\

Due
\\ Manager
Analysis 7/ Sourcing // Diligence
Sector

RiSW

Portfolio
lanagemen

On-gothg\
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. lt 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 thvementopporthnihes 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

CONFUJENTIAL

SSMT01238263

SSMSAAl238283

Sterling Stamos

Security Fund L.P.

Transparency of the underlying Portfolio Managers is critical, particularly because Sterling
Stamos generally provides a high degree of transparency to its investment parthers. 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 nwnthiy).

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

Ouantitative 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

Oualitative 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 arid stability
- Decision-making processes
- Transparency and openness
- Clearly articulated and 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

Security Fund L.P.

Sterling Stamos

Data Gathering/Analysis: Prior to ar 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
Fand 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
investment idea generation, philosophy of investing, investment strategy outlook, portfolio
construction, differentiating factors from peer group, position-level data, decision-making

rules, execution process of trades, quality of team members, portfolio pricing, 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 credit.

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 perforthance 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 ils 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
14

CONFIDENTIAL

S3MT01238265

SSMSAAI 238265

Security Fand L.P.

Sterling SEamos

through historical simulation as well as parametric methods such as Monte Carlo
simulation.

Stress I Scenario Testing: Worst case scenario analysis is developed through straining the
covariance matrix, as well as through analysis of historical returns arid factor observation
outliers. Qualitative case studies of high volatility periods and adverse moves iii 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 Stamos having final decision-making authority. An investment
committee meets quarterly to discuss the market environment and Fund aliocations.

15

CONFIDENTIAL

SSMT01238266

SSMSAAI 238266