Lebenthal Asset Management Equity Investment Philosophy Philosophy: As investment managers, we want our clients to understand the thought process by which we invest their assets. We invest in great businesses, with solid balance sheets run by superior managers. Our time horizon is long – ideally we will hold a stock for at least five years. We place great value on flexibility, innovation, and intellectual honesty in our security analysis. Great Businesses: Great businesses are profitable with natural moats to competition. Moats to competition can take many forms: superior brand recognition, unique technology that cannot easily be copied, or core competencies based on long-running experience. Profitability means the ability to generate free cash flow. Free cash flow is cash that can be distributed to shareholders by share repurchases and/or dividends. If not returned to shareholders, free cash flow can be invested in new growth opportunities for the business. On the other hand, cash generated solely to fulfill capital expenditure needed to keep the business running (i.e. maintenance capex), but not growing in new directions, is not a part of shareholders’ distributable profits. Solid Balance Sheets: A solid balance sheet need not be debt-free. A great business with no debt may, and often does, mean that the profits are being shared by too many shareholders. Owners of great businesses (that’s you and I) would much

rather pay a relatively low expense to bond holders for the use of their capital, and keep more of the pie for ourselves. Note the importance of a great business to this assertion: the business has to generate profits well above the fixed rate due the bondholders. This brings us to important points on balance sheet strength: unsecured debt and equity compensation. Unsecured Debt: Debt is best viewed as balanced by an asset. The asset should, in fact must, generate a return greater than the interest rate on the debt. Sometimes the most attractive debt is that secured by hard assets, for instance a leasable fleet of trucks, railroad cars, airplanes, etc. What is troubling, however, is unsecured debt on a balance sheet. In essence, the asset backing unsecured debt is the undifferentiated earning power of the corporation as a whole. Such an asset can be real in the case of large, investment-grade companies. Think of a pharmaceutical company. Its earning power stems from the brain trust of its laboratories and the moxie of its sales force. However, unsecured debt can be lethal to small companies. A seemingly small disturbance in operations or economic conditions can cut off small companies’ access to financing when they most need it. Therefore, we prefer companies with debt secured by assets and we will usually avoid small companies with unsecured debt.

Equity Compensation: Although the world has diversity of opinion on whether share-based compensation should be expensed or not, we do not. It is absolutely an expense and an insidious one at that. We pay close attention to the rate at which companies issue shares as compensation. Some is necessary to retain key employees. But inordinate share issuance is a sign of poor corporate management. It’s the problem of the fixed numerator, which doesn’t change, divided by a denominator that’s expanding. The company’s profits remain the same, but dividing those profits by a growing number of shares dilutes the shareholders’ portion of profits. And when a company offsets its option issuance by buying back its shares in the open market and touts it as “return of capital” to the stockholders, it’s corporate self-deception, at best. Great Managers: Great is more than just what reaches the eye of the beholder. Here are some of the things we look for. Productivity: how much of the company’s performance can be traced to management as opposed to market conditions, the economy, momentum, etc.? Excellent managers inspire their workforces. This shows up in higher-than-industry-average revenue per employee. When we find a great business (as defined above) with the founder still at the helm – we get excited. By definition they are great managers. We also evaluate managers by the amount of their personal wealth

invested in the company. For this purpose, shares held outright are more telling than stock options, as the latter do not expose their owners to the same downside risk. Qualifying a manager as “great” is one of the most important decisions a portfolio manager can make. After all, it is the management team with whom we trust our capital. Portfolio Construction: Our target number of holdings is twenty securities. Concentrated enough to feel the impact of superior research. Diversified enough to manage risk. Two-thirds to three-quarters of the dollar value in a portfolio will be invested in mid- to large-cap stocks. The remaining assets will be deployed in small- to mid-cap stocks. Our due diligence involves significant field research including visits with company management, market research, discussions with competing companies, surveys of clients, and so on. The small size of the Alexandra & James portfolio allows us to invest in smaller companies from which our larger competitors are excluded by their liquidity needs. It is in this under-covered arena that market inefficiencies can sometimes become very pronounced, creating opportunities for investment outperformance.

Flexibility, Innovation, and Intellectual Honesty: Our investment philosophy -- find great businesses that are profitable with a moat to competition, generating free cash flow, and well-run -- is a starting point in analyzing and investing in securities. Not an inviolate absolute. We will have investments that don’t meet one or more of our philosophy criteria. Innovation is as important to the investment manager as it is to the corporate manager. You will see us try new things. However, one has to be very careful in such investments, which leads us to a discussion of the “Sell Discipline.” There will be securities we bought that did meet our criteria – in theory -- and were a mistake for one reason or another. Perhaps the valuation was incorrect, or the business model encountered an unforeseen risk. Whatever the cause, when we spot a mistake, we will be as open minded about selling a position as we were to buying it. In our eyes, what distinguishes a great portfolio manager is the speed with which he or she spots a material change in an investment and sells the position. To do this requires great intellectual honesty. It demands that the manager not fall in love with a stock, or rather, his own intellect in selecting it. It requires courage and honesty to admit a mistake. It is vital to do so in managing investments.

Summary: There are many investment styles, products and managers available to you as an investor. We are glad to offer our investment philosophy to new and existing clients. We hope it helps distinguish what is different about our portfolio. We are always open to feedback on the philosophy and our investments.

PortfolioManagerBioJames“Jimmy”LebenthalPresident,LebenthalEquityAssetManagement.JimmyjoinedthefamilybusinessinAugust2007andisinchargeofequityportfoliomanagementatAlexandra&James.AfteracareerintheUSNavyNuclearSubmarineProgramandearninghisMBAfromWharton,JimmyhasspenthisWallStreetcareeratGoldmanSachsinPrivateClientServicesandasapartneratthemoneymanagementfirmofLevyHarkins.AsPresidentofEquityAssetManagement,hebringshisequityportfoliomanagementexpertisetorunningourAllCapConcentratedEquityPortfolio.JimmyandhiswifeCherylhavetwochildren,AvalonandJamesandresideinPawling,NewYork.JimmyservesasaTrusteefortheMizzentopDaySchoolinPawlingNY,andisavolunteerattheYorkvilleCommonPantry.ThePantryisthelargestnonsectarianneighborhoodbasedproviderofemergencyfoodinNewYorkCity.Fee Schedule. Lebenthal Asset Management’s fees for managing equity assets are based on the amount of assets under management:

Market Value Fee First $5,000,000 1.50% Next $5,000,000 1.25% Over $10,000,000 1.00%