Investment Strategy
Research Process
Portfolio Construction
Sell Discipline
Portfolio Management
Value Brochure

Investment Strategy
Our objective is to optimize capital over time. As such we bring an absolute return mindset, rather than a benchmark minded view to this Value strategy. We invest across small-, mid-, and large-capitalization companies. The portfolio will be concentrated in nature, holding between 20-40 companies. We believe the value of a business is best determined by returns on invested capital, not earnings per share.

• Cash flow returns based analysis governs our research and stock selection, and,
• We purchase companies only when our calculated warranted value exceeds the current market price by at least 50%.

Research Process
We look for companies with improving cash flow returns and/or returns above their cost of capital. We search for opportunities across all market capitalizations, with a research emphasis on small- and mid-cap companies. We measure a number of company attributes including;

• Sustainability of the business model;
• Capital allocation strategy;
• Unit economics of the business; and,
• Quality of management team.

Portfolio Construction
Portfolio construction starts from the bottom up, based on individual stock selection. New positions typically start at between 2%-5% weighting. We focus our attention on companies with what we consider asymmetric return opportunities: investment opportunities in which we calculate the upside potential to be a multiple of the downside risk. The portfolio will most often have representation in all three market capitalization segments. Weightings across capitalization segments are a result of:

• Most attractive company specific valuation analysis; and,
• Relative analysis between small-, mid-, and large-cap segment.

Sell Discipline
We consider selling a position for the following reasons:

• Margin of safety no longer exists;
• Cash flow returns deteriorate;
• Company management makes poor capital allocation decisions;
• Stock declines by 15% from cost — take action; and,
• Better opportunity from farm team.

Portfolio Management
 
 
Andrew P. Pilara Jr. (RS) is a co-portfolio manager and an analyst in the RS Value Group. He has managed RS Partners Fund, RS Investors Fund, and RS Global Natural Resources Fund since their inceptions. Mr. Pilara has been responsible for the management of RS Value Fund since January 2001, and has been a member of that Fund's management team since 1999. He also co-manages related separate accounts. Prior to joining the firm in 1993, he was president of Pilara Associates, an investment management firm he established in 1974. He has been involved in the securities business for more than 30 years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary's College.

 
 
MacKenzie B. Davis (RS) is a co-portfolio manager and an analyst in the RS Value Group. He has been a co-portfolio manager of RS Global Natural Resources Fund since January 2005 and a co-portfolio manager of RS Value Fund, RS Partners Fund, and RS Investors Fund since October 2006. He also co-manages related separate accounts. Prior to joining RS Investments in March 2004 as an analyst in the RS Value Group, Mr. Davis spent four years as a high-yield analyst at Fidelity Management & Research Company. Previously, he was a vice president at Fidelity Capital Markets. He was also an analyst at Goldman Sachs & Company. Mr. Davis holds an A.B. from Brown University in mathematical economics and modern American history. He is a Chartered Financial Analyst.

 
 
David J. Kelley (RS) is a co-portfolio manager and an analyst in the RS Value Group. He has been a co-portfolio manager of RS Partners Fund and of RS Value Fund since January 2004 and of RS Investors Fund since its inception. He also co-manages related separate accounts. Prior to joining RS Investments as an analyst in the RS Value Group, Mr. Kelley was a small-cap analyst at Pequot Capital Management from 2001 to 2002. Previously, he had served as an analyst for three years with Crestwood Capital, an ING-affiliated hedge fund group, and spent three years at Goldman Sachs & Company in the mergers and acquisitions department. Mr. Kelley earned a B.A. in history from Yale University and an M.B.A. from Harvard Business School.

 
 
Joseph A. Wolf (RS) is a co-portfolio manager and an analyst in the RS Value Group. He has been a co-portfolio manager of RS Value Fund and of RS Partners Fund since January 2004 and of RS Investors Fund since its inception. He also co-manages related separate accounts. Prior to joining RS Investments in 2001 as an analyst in the RS Value Group, Mr. Wolf was the founder, director, and vice president of corporate development for zUniversity, an affinity marketing company focused on university students and alumni. Previously, he had worked as a senior financial analyst at Goldman Sachs & Company for four years in both the equities division and the strategic consulting group. Mr. Wolf holds a B.A. in medicine and psychology from Vanderbilt University and an M.B.A. from Harvard Business School.

  Value Brochure

Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security.