Liberty Street Horizon Fund

Investment Strategy

The majority of the Fund's assets are managed using Horizon's core value strategy. In addition, portions of the Fund's asset will be managed by Horizon using its research strategy, and also may be invested in specialty stocks that Horizon believes maintain the most favorable risk/reward characteristics. Horizon may allocate assets of the Fund across the above strategies in order to best implement its investment philosophy.

Horizon's Core Value Strategy relies on extensive proprietary in-house research to identify companies possessed of very particular, often distinctive and typically underappreciated business models. The strategy focuses on businesses that tend to be relatively protected from severe price competition or technological obsolescence and which, as a consequence, Horizon believes, can sustain a high return on equity. Horizon does not screen for quantitative value measures. Horizon often invests in out-of-favor companies, applying its research capabilities to distinguish between permanent and transitory problems, and exercises the patience to await the resolution of the latter. Selections are not constrained by arbitrary or non-investment considerations and, so, will include a variety of market capitalizations as well as companies located outside the U.S., though typically the majority of stocks will tend to be larger U.S. companies. Portfolio holdings will not ordinarily include shares that rely on a catalyst, thereby avoiding what is often referred to as the "value trap". Rather, holdings reflect a focus on a company's ability to continue to compound financially as the result of the relatively defended nature of its core business. Horizon's security selection is based upon a strategic and financial analysis of each individual company, or, in the popular idiom, "bottom up". However, as unusually favorable risk/reward opportunities are often the product of dislocation in a particular sector, weightings can incorporate businesses subject to similar conditions. Core Value portfolios have contained allocations of up to 25% or more in an area in which a dislocation or misapprehension has created attractive discounts. This presents an opportunity to own shares below what Horizon considers to be intrinsic value.

The Research Strategy was originally designed to provide professional investors a way to more aggressively capitalize on Horizon’s unique and extensive research capabilities. Unlike the Core Value holdings, which typically require a business capable of high and sustained returns on invested capital, the Research Strategy utilizes a wider variety of opportunities: it has a higher tolerance for companies that might not have as extensive an operating history; it will include catalyst- and event-based opportunities, distressed securities, companies possessed of hidden assets, non-traditional security types, and the like. The strategy may consider companies with a business model that is deemed to have the capacity to produce high future returns on capital – as in the case of less mature companies in the process of developing a superior product or market niche — but which have yet to evidence such results. These companies can be smaller in size and might employ more leverage to assist in rapid expansion opportunities or to enhance returns on equity capital. In many instances, the investment opportunity has been due to significant questions by Wall Street surrounding the going-concern status of a company. It has also included companies emerging from bankruptcy. Accordingly, the Research Strategy holdings may be more volatile, while offering a higher potential return, given their higher perceived risk.