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The Investment Manager will apply no arbitrary criteria with respect to the size, sector or class of the investment in which it will invest.

 

Hedging strategies depending on market conditions, the Company's portfolio may at times be hedged through use of derivative instruments. Portfolio Composition. The Investment Manager will apply no arbitrary criteria with respect to the size, sector or class of the investment in which it will invest. To the extent that significant mispricing between fundamental values and market prices may from time to time be greater in small to medium sized companies (i.e., in "secondary stocks"), or in troubled or "distressed" companies, the Company's portfolio may at times be invested primarily in the securities of such companies. At other times the Company's portfolio may be concentrated in "large capitalization" stocks (i.e., securities of large companies with significant institutional sponsorship).

The Investment Manager is not required to attempt to hedge portfolio positions in the Company and, for various reasons, may determine not to do so. Furthermore, the Investment Manager may not anticipate a particular risk so as to hedge against it. The Company may utilize financial instruments, both for investment purposes and for risk management purposes in order to seek to: (i) protect against possible changes in the market value of the Company's investment portfolios resulting from fluctuations in the securities markets and changes in interest rates, (ii) protect the Company's unrealized gains in the value of the Company's investment portfolios, (iii) facilitate the sale of any such investments, (iv) enhance or preserve returns, spreads or gains on any investment in the Company's portfolios, (v) hedge the interest rate or currency exchange rate on any of the Company's liabilities or assets, (vi) protect against any increase in the price of any securities the Company anticipates purchasing at a later day or (vii) for any other reason that the Investment Manager deems appropriate.

The success of any hedging strategy that the Company may employ will be subject to the Investment Manager's ability to correctly access the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the Company's hedging strategy will also be subject to the Investment Manager's ability to continually recalculate, readjust and execute hedges in an efficient and timely manner. While the Company may enter into hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance for the Company than if it had not engaged in any such hedging transactions. For a variety of reasons, the Investment Manager may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the Company from achieving its intended hedge or expose the Company to risk of loss. The successful utilization of hedging and risk management transactions requires skills complementary to those needed in the selection of the Company's portfolio holdings.

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