Q:  What is your investment philosophy? A : Mirzam Asset Management started The Mirzam Capital Appreciation Fund in 2007 for those investors who want to shun companies that reward executives with stomach churning compensation packages. The philosophy of the fund is to seek long-term capital appreciation by investing in equities that reflect long-term growth characteristics, generate strong free cash flow, earn high returns on capital, and possess sound business models and competitive advantages. Q:  How do you strategize this philosophy? A : We believe that if you do your own due diligence, remain price sensitive and limit portfolio turnover, then you can achieve long-term capital appreciation. We use a disciplined due diligence process to identify businesses with competitive advantages, sound financials, strong free cash flow and a talented management team committed to their companies, often demonstrated by significant stock ownership. Q:  Would you describe your research process? A : We thoroughly examine publicly available documents such as SEC filings, especially proxy statements as they give us real insights about management’s commitment to shareholders. Once we narrow down our search to a few companies that meet our investment criteria, we do a detailed analysis of both qualitative and quantitative information to check the business models, financial performance and general soundness of the investment proposition. We summarize our findings in an internal report to ensure we fully understand the nuances and risks involved. If these stocks trade at a significant discount to their intrinsic value as determined by us, we will pull the trigger. If not, we remain patient. Q:  Do you invest only in U.S. common stocks? A : We search for the world’s best companies, with an emphasis on large caps. Because of our focus on executive compensation, we have found great companies with modest compensation packages in places such as Canada, Norway, Switzerland and Luxembourg, among others. We are authorized to invest in common stocks and common stock equivalents like rights, warrants and convertible securities, American Depository Receipts or Global Depository Receipts, REITs and securities of other investment companies that invest primarily in equities; including other mutual funds, ETFs and closed-end funds. Q:  Could you give us a few examples to illustrate your research process? A : Let us take Nestle SA for instance. This is a 140-year old Swiss company. Their coffee brand Nescafe accounts for nearly 23% of the global coffee consumption. They operate the company with the precision of a Swiss watch, making everything from milk to pet food. Our research also revealed the company’s investment in Alcon, the eye-care company. We found hidden value locked up in this investment, especially if Novartis were to exercise their put options, as they in fact did. As a consequence, we also did extensive due diligence on Alcon. Nestle pays a healthy and consistent dividend. We compared Nestlé’s performance to that of Procter & Gamble. Nestlé won hands-down. Another example would be Teva Pharmaceutical Industries Limited. This is an Israeli company and global pharmaceutical firm specializing in the development, production and marketing of generic and proprietary branded drugs as well as active pharmaceutical ingredients. They have 34 plants around the world and they currently have about 18% of market share in the U.S., which they expect to increase to about 30% by 2012. With governments taking an increasing role in universal healthcare, generics are the way forward. Q:  How do you construct your portfolio? A : We take a bottoms-up approach while constructing a portfolio. It is easier said than done, but we want to buy at a price that offers an attractive margin of safety. We want to own a decent position in each name, but not more than 5% of the portfolio. Once we buy, we want to hold the stock for a long time, which means our portfolio turnover is very low. Because of the egregious use of stock option compensation in the tech and banking sectors, we normally do not venture into these two sectors. We also consider the innovation risk in the tech sector, which makes it very difficult to predict how a disruptive technology could impact a specific company. The banking sector is full of insiders who are bent on enhancing their pay packages at the cost of shareholders. We have also had issues with the way they use the accounting rules to prime earnings. Approximately 20 positions in the fund accounts for 60% of the value and the top ten holdings account for roughly 37% of the portfolio. We also limit the concentration of a stock to a maximum limit of 5% at the time of purchase. The normal range of the concentration is 1% to 1.5% on the low end. Q:  What is your sell discipline? A : Our strategy is buy and hold so the intermediate risk is market volatility. We do the risk control upfront with our due diligence process. We don’t make any investment unless we see it as a compelling long-term position. If at any point in time, a company’s business model changes or issues in its industry put long-term return at risk we would exit the position. We also consider whether a new investment opportunity needs to be added to the portfolio or used to replace a one with inferior investment characteristics. We want to maintain a fairly concentrated position in quality companies. Q:  How many holdings are there in the fund now? A : Currently, we have 58 names and the number of holding ranges from 45 to 70 names. Q:  What is your benchmark? A : We benchmark ourselves to the S&P 500 Index. Q:  Is there any limit to your market cap? A : We do not have market cap limitations but in general, we shy away from some of the smaller cap names because they often lack competitive advantages and fare poorly in times of recession. Q:  Since you have positions worldwide, do you undertake a hedging strategy? A : We do not hedge any of our currency positions. We leave it to the companies to manage their currency risks internally. Q:  How do you perceive risks in your fund and how do you mitigate them? A : We do the risk control for the downside upfront through our extensive due diligence process and cautionary buying. We monitor our holdings closely and keep abreast of industry trends and company specific risks. We carefully examine how management allocates capital and are wary of acquisition- driven strategies. We also consider capital allocations to stock repurchases that merely mop up dilution caused by stock option programs as a hidden form of compensation. If we adjust free cash flow for these kinds of repurchases, in most cases, there is not enough free cash to justify an investment. Due diligence is the best risk management tool.