"Perhaps the greatest risk of all is not taking a risk!"

The axiom holds true throughout our lives as we balance the risks of our actions against potential benefits. In the realm of investing, risk refers to the possibility of an adverse outcome in an effort to achieve our goals and objectives for monetary gain. Risk is the possibility of loss of capital by making an investment that has a chance for success and also a chance for failure.

For the average investor with capital to manage, the stock market has historically offered the best potential rate of return over the long term. Not investing funds or investing them in a fashion that will achieve returns no better than inflation will result in the loss of purchasing power in the long run. If you choose to employ your funds to gain value over time, you must take some risk.

At KING, our goal is to achieve capital appreciation for our clients while minimizing the associated risk. We "manage risk" in our investment practices through a number of methods, each designed to reduce our exposure to risk while retaining our chance for good returns.

Investing Horizon - The stock market is never static. It is always in motion, swinging with investor sentiment as investors react to the latest economic conditions, market news, rumors and reported company performances. The volatility in the stock market induces risk, but it also provides the opportunity for exceptional gain. Investing in the stock market on a short-term basis has a high level of risk because at any time even a good company's stock can go up or down. We believe that an investor in the stock market should have an investment horizon of at least five years in order to mitigate market volatility over time.

Industry Diversification - For a period of time, any industry or market segment can be adversely affected by unforeseen influences. By diversifying stock holdings across industries or market sectors, the overall risk of such factors can be reduced. KING's research staff has extensive experience in a broad range of industries allowing us to effectively diversify the stocks we hold.

Diversification of Holdings - Holding multiple companies in an investment portfolio theoretically reduces individual stock risk. It is accepted in the industry that an investor has less risk of loss if he invests in several companies rather than just one. We believe that our opportunity for gain is improved by investing in several companies.

Buying Right - A subtle issue in managing risk in stocks is buying a stock at the right price in the beginning. Our objective is to purchase a company's stock when we can buy at a bargain; that is, below what we consider a company's intrinsic value. When buying at a sharp discount, the risk of significant loss may be reduced and our chances for gain may be increased.

Minimizing Speculation - Perhaps the greatest risk for the average investor is making an investment decision on an incomplete understanding of a company's fundamentals. Although all investing in the stock market has associated elements of speculation, basing an investment solely on the latest news, a neighbor's recommendation, or emotion is more speculation/gambling than investing. Our analytical, business-valuation methodology is designed to eliminate as much speculation and emotion as possible. Before we acquire a company's stock we strive to uncover, analyze and understand the real facts and fundamentals that drive the company and with that, derive its underlying intrinsic value.

Monitoring Performance - After acquiring a company's stock, the company must be carefully monitored while in our portfolios. We do not just "buy and hold" for we believe that is the same as buying and ignoring. Our sell discipline is clearly defined and strictly adhered to.

Balancing Individual Stock Risk - Investing in any stock has its inherent risk. Disciplined analysis serves to reduce speculation, but all risk cannot be eliminated. Through experience we judge the amount of remaining risk and potential rewards associated with each stock.
Risk management includes the following strategies:

1. KING limits the percentage of any individual stock in a portfolio and will
diversify among various industries.).
2. Price objectives are set for each stock at the time of purchase.
3. Stocks are closely monitored and changes are made, if necessary.
4. KING adheres to a strict buy/sell discipline. We evaluate securities for sale as fundamentally as we do for purchase. Our primary reasons for selling a security are:

• Price objectives are met
• More attractive alternatives are found
• Fundamentals change

A secondary consideration is price deterioration versus a broad market index. Our sell discipline is driven by fundamentals, but poor relative performance may cause a stock to be considered a candidate for sale.

We are particularly careful about purchasing stocks of companies that are highly leveraged, with little or no free cash flow.

Gaining in the Market - We approach all investments with preservation of capital as a key priority. We work just as hard in managing risk as we do in investing for gain. If we err, it will tend to be on the side of caution in our investment process.