Q:  Would you provide an overview of the firm? A : Dalton, Greiner, Hartman, Maher & Co., LLC is a fundamental, value-driven, equity investment manager. Founded in 1982, the firm currently manages $1.2 billion for institutional and high net worth clients across the capitalization spectrum. We have an ownership centric, team-oriented corporate culture that thrives upon a high level of employee interaction. Our team comprises of nine sector specialists where everyone of us is an analyst or a portfolio manager. We are an autonomous affiliate of Boston Private Financial Holdings Inc and our team is aligned with our investors in that we are owners in the firm, invested alongside our clients across our products. Q:  What are the core principles of your investment philosophy? A : We purchase high-quality companies at compelling valuations. This tradeoff results in superior performance over time. We believe that stocks purchased at prices below their potential value not only protect capital but also offer significant price appreciation, once the market recognizes a particular stock’s potential value. We’re not ‘deep value’, rather we look for profitable businesses with high levels of free cash flow. Q:  How do you implement this philosophy into your investment strategy? A : Our first step is quantitative. We employ a proprietary, multi-factor model that, in short, helps us identify those companies within our universe that have the most compelling financial characteristics. Our primary value screen is enterprise value/EBITDA. For most of our sectors, we have found that to be a robust forward looking value. e use a bottom-up selection process to identify companies that appear to be selling at a discount to our assessment of their potential value. The other factors in deciding which companies may appear attractive are quality of the business franchise, competitive advantage, economic or market conditions, deployment of capital, and reputation, experience, and competence of the company’s management. We invest with a multi-year investment horizon rather than focusing on the month or quarter end data. Basically, we have four building blocks on which we focus on - people, process, incentives, and client service. In terms of process, we target the tradeoff between valuation, profitability and capital efficiency. We are both quality, and relative value investors. Quality refers to our bias toward profitable companies, rather than valuing the sum of the companies parts and being satisfied with that analysis alone. We don’t predict the direction of the stock market. We focus on stock picks instead and we build the portfolio ensuring that we have exposure to all of the individual sectors within the market. The second building block is the investment process which is really the heart of what we do, old fashioned fundamental analysis We spend a lot of time talking to management, working our industry contacts, doing our analysis, valuation, and building models. The third building block is grounded in our incentives. Our individual bonuses at the end of the year are based on how well we outperform our individual sectors, through stock selection and sector weight. Each sector specialist is judged on the alpha they generate, versus their individual industrial sector within the benchmark index. In the case of the AllCap Value Fund, that’s the Russell 3000 Value. Each sector specialist has decision making authority and is evaluated on how well they contributed to the relative performance of the fund. An important note here is that there is no competing for capital within the strategy, since we’re evaluated on alpha versus the industry within the benchmark, not gross contribution. The last building block is the client service. Our client base is broken down into four different buckets, namely, the public fund side, endowments and foundations, corporate money and the largest sector is the wealth management sector which is about 40% of our assets under management. It’s interesting to note that the wealth management sector was de minimis just five years ago. Furthermore, we use a relative performance overlay and stay away from value traps. The thought here is that there is always going to be a group of companies that will outperform their peers, so we want to make sure that we have the capital allocated to the companies that are going to outperform. The fourth quartile of relative price performers over the trailing six months has a high probability, about 70%, or continuing to underperform over the coming year. Q:  What are the characteristics of your investment process? Could you illustrate with a few examples? A : Essentially, we combine quantitative tools with rigorous fundamental analysis to generate excess returns with managed risk. Our focus is simple: we’re trying to target the ideal tradeoff between valuation, capital efficiency, and profitability. This is done, as I mentioned, with a combination of both quantitative and fundamental analysis. Really, what we do is build a great body of research on the roughly 400 ‘buy rated” stocks from our model, and will then own about 35 to 40 of those in the AllCap Value Fund. our We do not attempt to make macroeconomic calls or time the markets. Also, we don’t make large sector bets, either bullish or bearish. We run fully invested, and will own between 75% and 125% of each industry’s weight within the benchmark. For example, if tech is 10% of the Russell 3000 Value, we know that we will own between 7.5% and 12.5% within our portfolios. Our attribution research on ourselves showed that we are very good stock pickers, and add only nominal value through market timing and betting on sectors. So, in 2008, when the benchmark was down well over 30%, and we were down 23.5%, that was attributable to stock picking – what we do best. Each morning, DGHM’s nine sector specialists will review the output of the model – looking for buy rated companies, and for companies outside of our buy target range that are on the move. On any given day, I might have about 30 buy rated companies – I am going to buy 3 or 4 of them within AllCap Value, which is essentially DGHM’s ‘best idea’ strategy. Identifying the buys is, again, driven by fundamental research. This entails analyzing financial data, researching regulatory filings, press releases, transcripts and meeting or visiting the company. Then, we will develop an internal financial model and conduct valuation work on the security. The sector specialist will present their prospective buy to the entire investment team – not for a vote, but for a vetting session that is designed to uncover any flaws in thesis or assumptions. This process is very demanding, but with the depth of experience around the table, it’s important to listen to everyone’s input. You want to know your stuff when you’re making a pitch on a company. Once the investment team has critiqued the idea, if there are no material objections that require further analysis, the sector specialist is free to give their instructions to the trading team to build a position. In AllCap Value, that’s 2.5% minimum initial. With the team structure, and autonomy over buying within sectors by the sector specialists, each product is overseen by a team leader who is responsible for monitoring current positions, maintaining sector, model and cash compliance and conducting monthly product reviews. Also, if a sector specialist wants to allocate capital to a new name, the team leader may take an active role in helping come up with 250 basis points of capital. The team leader on the AllCap portfolio is Jeff Baker, who is our Chief Investment Officer. He keeps a daily view of the portfolio and runs a monthly portfolio review too, looking at all of the relevant metrics - sector weights, cash levels, and model scores. Also, a key focus of that monthly meeting is to evaluate the underperformers in the portfolio – the laggards. We have a stringent automatic sell discipline, overseen by each team leader by portfolio – Jeff will grill us on our laggards. Also, on a one-on-one basis, Jeff will ask us why certain buy rated companies haven’t been bought – just to keep us focused on our key drivers – valuation, capital efficiency, profitability. For example, SunTrust Banks, Inc. is in the portfolio. It is a diversified financial services holding company. When we bought the stock it was trading at half of book value. There were a few reasons for investing in this company. First, SunTrust is the eighth largest depository institution in the United States with a very strong franchise value. Then, in terms of the fundamentals, we were seeing 30 day, 60 day, 90-day delinquencies and balances starting to come down. We also saw the nonperforming assets and net charge-offs level off. So our belief was we would start to see improving credits. Another point of consideration is that SunTrust is a market leader with a strong balance sheet, proven management team, and attractive valuation. This led us to believe that they could get back to a 10% return on equity and the stock should trade up given those metrics. Lastly, SunTrust had taken TARP in addition to raising capital. So, we felt that SunTrust’s balance sheet was in the stronger position, and therefore, a better investment opportunity. Q:  How do you execute your portfolio construction? A : The AllCap Value Fund is a fairly concentrated but diversified portfolio. The portfolio consists of about 35 to 40 stocks from companies that have a market cap of $750 million or up. The portfolio is built bottom up – we don’t make a declaration that, for example, small cap stocks are relatively attractive and decide to allocate 15% of capital there. On the contrary, it’s up to each sector specialist to decide which companies are best for AllCap Value. . As it happens, we are currently more heavily weighted in mid- and large-cap companies within the portfolio. That’s just the byproduct of our identification of the most attractive risk/reward characteristics amongst our companies. The Russell 3000 Value Index is the benchmark of the fund. As for allocation, the minimum or initial position size is 2.5%.and maximum size is 6%. We tend to remain within the 75% to 125% band of the benchmark sector weight while trying to keep cash less than 3% and to remain fully invested. In line with our structure, the sector specialist is the one who has the decision making authority to either underweight or overweight a particular sector. Q:  How would you best explain your sell discipline? A : We sell stocks if our multifactor model indicates that a company no longer possesses the attractive trade off that it did at acquisition, has neared or reached our target valuation, the sector specialist feels the fundamentals are deteriorating, and finally if the stock has consistently lagged its industry peers for a specific time period, it will be automatically sold. This last element of our sell discipline is in place to guard against value traps – that can be a plague for value managers. For instance, Ambac Financial Group, Inc. is a firm that we previously owned in our portfolio. It is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. The reason we liked the stock was because of the percentage of exposure to super-senior tranches and the CDO-squareds that they had on the portfolio but over time it did fall to the bottom quartile. Then our hard sell rule came into effect and prior to the third portfolio review as the stock was still in the bottom quartile, we ended up selling the stock at $66 in the second week of September 2007, which seemed like a fire sale at the time, but the stock cratered in the coming months Q:  What do you consider as risk and how do you manage it? A : We manage risk through diversification by stock, by sector, and even by key person risk with our team structure. Our quantitative model is a helpful tool, identifying strong financial characteristics, and revealing companies with unattractive financials. We favor quality – there is a good deal of empirical research that shows that over market cycles, quality companies perform best. We also keep a close eye on the companies within the portfolio that are underperforming – they are on a relatively short leash. The combination of these tools has been effective, as our upcapture/downcapture ratio versus both the benchmark and the S&P 500 has been strong over time.