Bay II Resource Partners,


Fund Investment Objectives

The objective is to deliver absolute returns and market out-performance through profitable investments long and short, in all markets; and, to serve our partner's financial interests as if they were our own, valuing integrity above expediency in all areas of our business. The investment philosophy of the Fund is long-term, not trading, utilizing a three year investment horizon. We believe taking a longer-term view than the markets is a primary determinant of above market performance. The Funds' approach is supported by primary research, in-depth due diligence, and focused industry/sector knowledge. Put simply, we believe sound investing is lining up as many things as possible in one's favor. In a probabilistic world, we work to put the probabilities in our favor. For us, that means aligning 1) as many as possible of the critical company fundamentals in our favor: management, market position, financial strength, etc., 2) a significant valuation opportunity, 3) the timing or catalyst that will cause our view of the fundamentals to play out, 4) the industry sector direction in our favor, plus 5) a sound overall long/short positioning and 6) a sustainable portfolio (as to position sizes, sector diversification, etc.). The firm's approach centers on aligning sector direction with detailed bottom-up stock selection allocating capital to advantaged strategies and away from (shorting) disadvantaged ones. The Fund seeks to short companies which are expected to decline 50% over the next three years and to go long those companies that are projected to at least double over that time period. Assets are allocated short / long based on long-term, fair value ranges of the S&P 500, NASDAQ, and Russell 2000 composite indices. Ninety percent confidence bands are developed under regression analysis of the historical returns of these indices. As the indices move toward the high end of their confidence bands, the funds will have a net short bias. At the mid-point, we will be net long and at the lower end of the range, we will be decidedly net long (at cost, max net/long: 130L/10-20S; max net short: 20L/90S; at midpoint of regression ranges: 100L/50S).