Chou Associates Fund

• The Fund's objective is to provide long-term growth of capital by investing primarily in equity securities of US and foreign businesses considered by the Manager to be undervalued. The Fund may invest in the equity securities of Canadian businesses.
• Investments may include common and preferred shares, convertible debentures, government and corporate bonds and short-term indebtedness.
• Unitholder approval is required in order to change the fundamental investment objectives of the Fund.

The investment process followed in selecting equity investments for the Funds is a value-oriented approach to investing. This involves a detailed analysis of the strengths of individual companies, with much less emphasis on short-term market factors. Far greater importance is placed upon an assessment of a company's balance sheet, cash flow characteristics, profitability, industry position, special strengths, future growth potential and management ability. No more than 35% of the net assets of the Fund, at the time of purchase, will be invested in equity securities of Canadian businesses.

The investment strategy follows strong disciplines with regard to price paid to acquire portfolio investments. The level of investments in the company's securities is generally commensurate with the current price of the company's securities in relation to its intrinsic value as determined by the above factors. That approach is designed to provide an extra margin of safety, which in turn serves to reduce overall portfolio risk.

Once an investment is made, the Fund is expected to be a patient, long-term investor, which results in low portfolio turnover, reduced transaction costs and deferred realization of accrued capital gains. Portfolio holdings are typically concentrated within a limited number of companies, usually 25 to 35 per Fund portfolio. This helps to maintain awareness of corporate developments and communication for each company.

The Manager may decide to maintain a larger portion of the Fund's assets in short-term fixed income securities during periods of high market valuations and volatility. This temporary departure from the Fund's core investment strategy may be undertaken to protect capital while awaiting more favourable market conditions.