Liberty Street Horizon Fund

Investment Strategy

In order to best implement its investment philosophy, Horizon may allocate assets of the Fund across the following Horizon strategies: Core Value, Research Select, Spin-Off, and specialty stocks that Horizon believes maintain the most favorable risk/reward characteristics.

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 therefore 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. Core Value 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 earnings as the result 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 reflect businesses subject to similar conditions. Thus, Core Value holdings frequently contain themes. This presents an opportunity to own shares below what Horizon considers to be intrinsic value, and can represent a second margin of safety in addition to the compounding of book value manifested by the underlying business model.

Horizon's Research Select Strategy. In utilizing its Research Select strategy, Horizon selects a wide variety of investments in the areas of: catalyst driven and event driven opportunities, distressed securities, companies that it believes have certain assets whose true values are not fully reflected on the balance sheets, and securities with pricing anomalies and other areas of inefficiency. Unlike Horizon's Core Value strategy which typically requires a proven history of high and sustainable returns on invested capital, Horizon's Research Select strategy has a higher tolerance for companies that may not have as extensive operating histories. Horizon considers not only a company's current ability to produce high sustainable returns on invested capital but also the company's future potential to increase that rate of return. In many instances, the Fund's Research Select strategy portfolio will include less mature companies in the process of developing superior products or market niches. These companies can be smaller in size and may employ leverage to assist in rapid expansion opportunities or enhance returns on invested capital. In rare instances, companies emerging from bankruptcy may also be purchased in this strategy. Appropriately, the holdings in the Research Select strategy will tend to be more volatile while offering higher return potential given their earlier stage in the business cycle.

Horizon's Spin-Off Strategy. Horizon utilizes its in-house research to identify inefficiencies in the pricing of companies that are at transitory points in their business cycles with a particular focus on corporate divestitures, carve-outs, and other forms of corporate restructurings. In many instances, companies that have been "spun-off" from their corporate parents by way of corporate restructurings may not be followed as closely by Wall Street analysts, which could lead to advantageous disparities between a company's valuation and growth prospects relative to its pricing in the marketplace. Horizon utilizes its extensive in-house research to identify inefficiencies in the pricing of companies that are at such transitory points in their business cycles. The Spin-Off strategy will include companies that may be less mature and smaller in size than Core Value companies, and may include companies that employ leverage to assist in rapid expansion opportunities or enhance return on invested capital. The holdings in the Spin-Off strategy will tend to be more volatile than Core Value holdings, while offering higher return potential given their earlier stage in the business cycle.