Q:  What is the history of the Aston/River Road Independent Value Fund? A : Aston Asset Management, LP partnered with River Road Asset Management and launched the Aston/River Road Independent Value Fund on December 31, 2010. I am the portfolio manager of this fund and prior to this I worked as the lead portfolio manager for Intrepid Capital Management's Small Cap strategy. Aston acts as the investment adviser to the fund, while River Road is the sub-adviser responsible for the management of the fund. The fund invests in common stocks and other equity securities of smaller cap companies that we believe are undervalued with the objective of seeking to provide longer term capital appreciation. We are absolute return investors with the flexibility to hold cash when warranted and the readiness to act decisively when opportunities arise. Q:  What core principles guide your investment philosophy? A : Our investment philosophy is based upon the absolute return approach, which is to provide attractive, sustainable returns over the long-term by minimizing downside portfolio risk. Q:  Would you outline your investment strategy? A : The Aston/River Road Independent Value Fund typically invests in companies with market capitalizations at the time of acquisition between $100 million and $5 billion. We employ a value-driven, bottom-up fundamental approach to identify stocks that are trading below their intrinsic value. The fund's equity investments consist mainly of small cap common stocks. We invest in well-managed, financially strong companies trading at compelling prices using our absolute-return strategy. The absolute return objective begins with the security selection. Our valuation process is unique in that our absolute return objective is an essential variable in determining the discount rates used in our valuations. The majority of our valuations are calculated by discounting free cash flow. It is important to select the discount rate that is appropriate for the risk that you are taking. Our view is that you should be taking risk when the returns are in our favor and shy away from the risk when the returns are not. If there are not enough small cap stocks that fit these criteria, we will hold cash and await better opportunities. We do not chase market or index trends. Our focus is more on trying to make money without losing principal. Q:  What is your research process? A : We screen for companies with market capitalization between $100 million and $5 billion and have been profitable over a business cycle. Approximately 300 of the companies from the original universe make it into our list of stocks to select from. In addition, we like to follow companies for a long time before we purchase a stake. From the 300 name focus list we select 30 to 50 securities, which are the highest quality businesses with the most attractive valuations. That is where ideas come from. Essentially, the process is driven by quality and valuation. We want high quality businesses that generate consistent results over time. The fundamental research involves identifying quality businesses where we seek to invest in companies having long operating history, strong established market share, strong balance sheet, good cash flows and businesses with limited operating and financial risk. Valuation is the next important part of the process. The primary valuation method is to determine a company’s on-going value based on discounting its normalized free cash flow. Specifically, we require a 10% to 15% return when discounting future free cash flows to the present value. It is important to stress here that we use higher discount rate than other investors because we want to protect us from the downside and from overpaying for businesses that we like. We also prefer businesses with sustainable growth rates and typically focus on businesses that are mature and growing at 3% to 5%. Our conservative approach protects us and also limits us to businesses that are established and enjoy market leadership in their segments. Finally, we seek companies that can be valued with a high degree of confidence. With strong conviction in our valuations, we believe we can make decisive and opportunistic investment decisions. Q:  Could you illustrate your research process with a few examples? A : ICU Medical, Inc would be a good example. The company is engaged in the development, manufacture and sale of disposable medical connection systems for use in vascular therapy applications. ICU generates a normalized free cash flow of $2.40 a share. When we bought the stock at $36, they had $6 a share in cash with consistent market share and free cash flows and very strong balance sheet. These traits reflected the company had limited operating and financial risk. Moreover, they are market leaders cornering 40% of the market with their CLAVE product, a needleless intravenous connection device. The company’s focus on long-term results, expansion of direct sales force, and opening of a new plant in Eastern Europe led us to believe that the ongoing cash flows were likely to be higher than the current rate. Based on the above metrics, we estimated that this is a business we could buy with a high degree of confidence. Thus, in the final analysis we had $6 a share in cash, $2.40 in free cash flow and the stock at $39, a good investment opportunity. Another example is Aaron’s, Inc., which is a lease-to-own retailer. They also have a great balance sheet and good free cash flow. They have net of debt, about a $1 a share in cash and generate about a $1.70 in free cash flow a share. The company is actually slowing their store growth rate down right now so that free cash flow improves. Several analysts downgraded the company when it slowed down new store opening and worried that the company does not generate enough earnings. However, we perceived that slower growth will help the company to cut down the capital and store openings expense and improve the earnings. We took a contrary view to the market and decided to take a position in the company when others were selling. This is a company that has been misunderstood but has a high quality balance sheet. The stock was trading at $19.60 and the company had $1 a share in cash and earnings per share of $1.50. Moreover, the same-store comparable sales were in the 3% to 5% range and the store traffic is also booming as more people seek to rent then own in the current economic environment. Q:  How do you construct your portfolio? A : We have a relatively concentrated portfolio with 30 to 50 names. Individual weights are usually 1% to 4% on average and the maximum weight we hold in the portfolio is 5%. We reduce the position size as a stock approaches our valuation. Our logic is based on the fact that as the stock increases toward our determined value of the business, the discount is reduced along with the margin of safety. We are driven by our estimate of intrinsic value and if market price catches up to that estimate we are not averse to selling the stock. Even though we have broad industry and sector diversification, there will be periods when certain sectors are avoided. We are absolute return driven fund manager so we do not have a benchmark and prefer to generate returns for our clients in up markets and in down markets. We are focused on not losing money in our fund but investors have used Russell 2000 Index and the Russell 2000 Value Index to evaluate our returns. Q:  What is your perception of risk and how do you contain it? A : Risk is obviously losing money, but there are also different levels such as the operating and financial risk. Operating risk is the volatility and uncertainty of the cash flows of a business. Typically, a high risk company will have lower weight in the portfolio. We also control risk by the discount rate that we apply to the future stream of cash flow. Higher quality businesses with stronger and consistent cash flow are ascribed lower discount rate and businesses with more volatile cash flows and higher debt will be assigned lower debt and higher discount rate to cash flow stream. The proper discount rate is one way to control risk. Furthermore, having accurate and dependable valuations will help reduce the chances of overpaying for a business. We will sell a holding when it achieves the price target or becomes too large in the portfolio. This is another way to manage risk. Another way to mitigate risk is buying businesses that make money throughout the business cycle. We focus on businesses that we believe we can value with a high degree of confidence. These businesses tend to be more mature and have industry leading balance sheets and recurring cash flows. Our belief is that these traits allow us to reduce the overall risk to the portfolio.