Martingale Equity Market

Neutral Strategy

Fund Investment Objectives

A dedicated value manager, Martingale maintains fully invested, industry-neutral portfolios to emphasize individual stock mis-pricing. We buy stocks whose prices are low compared to the value of company fundamentals. We believe that investment success depends on systematic application of stock valuation judgment and rigorous control of portfolio exposure to industry and investment characteristics. This sound investment philosophy has served us well in managing our long/short portfolios. Because our entire investment process takes place in a highly automated, systematic and controlled environment, we are able to monitor trading activity and avoid conflicts of interest in a client portfolio. Our trading activity is fully automated. Further, portfolio management is a multi-stage, functional process through which a theoretical purchase passes before becoming an actual purchase. As a result, no individual employee can administer the entire process by him or herself. Functions are highly independent among all investment professionals. Principal trading has been the predominant method of trading long/short portfolios for the past three years. It has accounted for 100% of trading activity for our Long/Short Market-Neutral Strategy. We believe this is one of our competitive advantages, as we have been able to keep transaction costs extremely low while also obtaining good prices. Our long/short portfolios engage primarily in principal trades, or "blind-bid" trades. Long-only portfolios engage primarily in agency trading. On an agency basis, the uptick rule slows down the trading of short sales so it is more efficient to trade long/shorts on a principal basis. Agency trading makes the long and short positions difficult to keep industry neutral and in balance. The broker does not have an uptick rule when trading its own account, resulting in a substantial comparative advantage in permitting the broker to trade as principal. We view our trading process as a value added operation. Our diligent efforts at keeping transaction costs low adds value to the performance of the account. All principal trading is based on a fair and open competitive bidding process across interested brokers. We generally trade with well-known firms such as UBS Warburg, BNP Paribas, Merrill Lynch, Lehman Brothers and Goldman Sachs. Trading costs have been slightly lower on the principal trades.