The Naos Small Companies Fund is a long/short Australian equity fund investing in stocks outside the S&P/ASX100 Index. The Investment Manager's rationale for focusing on this area of the market centers on its assumption that small companies are often under-researched and are subject to market inefficiencies. This provides the opportunity to purchase securities which trade at a large discount to intrinsic value and have high return potential. Small companies have more volatile earnings and share-price movements, and as such they have the ability to produce high equity market returns. Typically, smaller companies are not held very widely by professional investors, allowing the Investment Manager to acquire holdings more cheaply which have a higher expected return. Stocks are selected where there is a high margin of safety. The margin of safety can preserve capital when a company does not meet its earnings forecast and result in very high returns when a company exceeds its earnings projections. The holding period of stocks in NSCF is much longer than the holding period for NARF. The Investment Manager uses external and internal research sources to identify stocks to include in the long and short portfolios. Additional stock filters pertinent to each security include: short-term timing indicators, macro-economic investment themes, and sector specific themes research.