Investment Process

Cutler Capital's investment team follows a three-step investment process.

Step #1: Value-Based Screen.
Cutler Capital begins its screening process with a weekly review of the universe of convertibles in the Merrill Lynch U.S. Convertible Index.

We identify opportunities that offer:

• Current yield exceeding 2.5%
• Conversion premiums less than 30%
• Yield to maturity exceeding 2.5%

Our screening process has no bias toward a specific industry or market cap.

Step #2: Quantitative Analysis.
Next, we develop an understanding of the security's risk/reward profile i.e. equity sensitivity and downside protection characteristics. This process narrows the potential investment opportunities to 10-15 convertibles.

Step #3: Fundamental Analysis.
Finally, "bottom up" fundamental research is used to evaluate those opportunities which provide an understanding of the underlying security's value, and the risks inherent to the business.

Company characteristics we analyze include:

• Sector
• Balance sheet
• Income growth
• Cash Flow

Only a small percentage of securities considered are deemed to be worthy investments.

When to Sell
We monitor all of our investments and may sell when:

• The underlying common stock becomes overvalued
• The convertible no longer meets our screening criteria
• Industry fundamentals are no longer attractive