Investment Process

I. Investment Policy

Our investment process begins with the development of an investment policy. A comprehensive review of the client's financial situation is undertaken to determine risk tolerance, objectives, income and liquidity needs, and time horizon. This excercise provides a framework for the creation and implementation of an appropriate investment strategy including determining asset allocation.

II. Portfolio Construction

• Equity portfolios typically contain 30-35 stocks, reflecting the best ideas of the firm at all times. In addition, mutual funds and ETF's may be used selectively.
• Cephus focuses on growth stocks selling at reasonable valuations of Price/Earnings, Price/Sales and Price /EBITDA.
• Cephus focuses on quality companies with demonstrated financial strength, i.e. strong cash flow, low debt and sound balance sheet.
• Stock selections reflect companies possessing superior fundamental characteristics.
• Mutual funds are chosen for superior management, low cost, tax efficiency and diversification.
• Cephus utilizes high quality bonds to produce reliable income streams.
• Cephus concentrates in short and intermediate bond maturities to minimize interest rate risk.

III. Investment Offerings

Core Equity: Core Equity is our portfolio management strategy designed for investors seeking an allocation of equities and cash instruments. We concentrate on finding 30-35 high quality companies at reasonable prices, with established and defined growth characteristics. Our research discipline is designed to identify companies with strong balance sheets, consistent earnings growth, positive cash flow, and sound management. We build positions strategically based upon current valuations and long-term prospects. Our top-down sector assessments along with our bottom-up stock selection determine stock and industry portfolio weightings. Equities are appropriately diversified by sector, market capitalization and "core vs. opportunistic" holdings. Mutual Funds and ETF's are utilized to achieve similar targeted equity exposure.

Fixed Income: CCM's Fixed Income strategy attempts to produce reliable income streams with high quality bonds while maximizing after tax returns.

• U.S Governments and Agencies
• Municipal Debt
• Corporate Debt
• Convertible Bonds/ Preferred Stocks
• International Bonds
• Closed-End Bond Funds

Concentrating on several sectors of fixed income facilitates portfolio diversification and allows us to take advantage of yield spreads between sectors as they emerge during volatile times. Our fixed income investment criteria are primarily total cash on cash return, credit quality, sector weightings, and interest rate anticipation. As relative valuation discrepancies emerge between fixed income asset classes, we take advantage by changing our relative sector weightings. Interest rate risk is mitigated by concentrating on short and intermediate maturities.

Balanced Management: Balanced Management is our portfolio strategy designed for investors seeking a strategic allocation of equities, fixed income and cash. At our discretion we may also use mutual funds to achieve these objectives. The balanced portfolio is designed to fulfill the total wealth management goals of an individual, family or small institution. The allocation of equities and fixed income is customized and established in consultation with the client (based on goals, expectations, risk tolerance, income needs, tax liabilities and time horizon), and is adjusted over time as needs change. The equity portion of the account is focused on high-quality companies with substantial appreciation potential. The fixed income portion is designed to provide maximum income from interest and dividends, with minimal risk of loss of capital. Controlling risk is the key element in managing a balanced account.

Separate Account Consulting (SAC): SAC is our portfolio strategy designed for substantial investors with multiple strategy needs or fiduciary responsibilities. In this program, Cephus has access to over 100 institutional money managers who, collectively, offer more than 250 separate account solutions. Our goal is to identify and employ investment managers and strategies with superior results and consistency over the long term. Our due diligence focuses on a wide range of search criteria including: multiple year performance, Sharpe ratio, Alpha, R-squared, tracking error, manager tenure and beta. Our manager research is based on Effron PSN, owner of the Plan Sponser Network (PSN), a national database of high quality, in-depth data on domestic and global investment managers. Our goal is to employ managers that have an understandable investment process that is consistently applied, and whose performance results consistently outperform style-specific indexes and peer group benchmarks. Sophisticated reporting capabilities make this program ideal for foundations, endowments and corporate retirement plans.