We believe that constructing a concentrated portfolio of quality growth companies will allow us to outperform our benchmark over time. We define quality as companies that enjoy sustainable "moats" around their businesses, potentially allowing companies to grow faster, with higher returns, than their competitors. We believe the market often underestimates these companies’ sustainable competitive advantage periods.

Investment Approach

1 High Conviction Approach: Fundamental research driven approach, investing with conviction in 30 to 40 of our best large cap growth ideas where we believe we have a differentiated view from the market.
2 Innovative Wide-Moat Companies: Seeks companies with sustainable competitive advantages that capitalize on their competitive moat to grow market share globally over a multi-year period. Emphasizes dominant companies driving innovation and change through disruptive technologies, products or business models.
3 Stock Selection Drives Return: Stock-picker's portfolio designed to deliver long-term growth of capital with a high conviction approach. Seeks to use risk wisely, leveraging our best ideas in a concentrated portfolio to drive potential outperformance of the index over time.

Performance

Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. Composite returns are net of transaction costs and gross of non-reclaimable withholding taxes, if any, and reflect the reinvestment of dividends and other earnings.

The gross performance results presented do not reflect the deduction of investment advisory fees and returns will be reduced by such advisory fees and other contractual expenses as described in the individual contract and Form ADV Part 2A.

Net performance results do not reflect the deduction of investment advisory fees actually charged to the accounts in the composite but they do reflect the deduction of model investment advisory fees based on the maximum fixed fee rate in effect for the respective time period. Actual advisory fees may vary among clients invested in the strategy shown and may be higher or lower than model advisory fees. Composites may include accounts with performance-based fees. Returns for each client will be reduced by such fees and expenses as negotiated in any client contract as discussed in Form ADV Part 2A.

For a complete list of holdings as of the most recently available disclosure period, contact us.

Manager Comments (For the quarter ended 12/31/2016)

Our stock selection and overweight to the financial sector was a bright spot for the portfolio. One contributor, Charles Schwab, benefited as the market began to price in higher interest rates. While we are aware that Schwab's earnings are highly levered to rising rates, and at the margins we increased our position sizes in the companies ahead of the recent Fed hike, it's important to note that we do not own these names such as Schwab solely as a call on the direction of interest rates. Rather, as the low-cost provider of wealth management services, we believe Schwab is poised to take advantage of demographic and cultural shifts occurring within the industry.

Stock selection in the health care sector also contributed to relative performance. Celgene was the largest contributor within the sector; the company reported strong earnings, driven by the growth of Revlimid, its multiple myeloma therapy. We believe there will be extended use cases for Revlimid, and we remain encouraged by the potential of several other drugs the company owns. Similar to other biotechnology holdings in our portfolio, we believe the innovative nature of Celgene's therapies, and the long patent protection around them, represent durable growth opportunities.

Some of our stocks were hurt by a broad market rotation from companies tied to secular growth trends toward companies with the potential for improving cyclical prospects. While the market rotation hurt performance in the short-term, we maintain a high level of conviction in the competitive advantages of our companies and secular themes underpinning growth potential for the stocks in our portfolio. The largest detractor in our concentrated portfolio, Amazon, serves as a good example of the types of stocks that were penalized as part of the market rotation. We had trimmed the position during the quarter as it approached our valuation target, but we believe the secular growth trends that have boosted earnings in recent years are firmly in place. Amazon's tremendous scale and distribution advantage allow it to offer fast delivery of retail goods at cheaper prices. Meanwhile, Amazon Web Services is revolutionizing the way companies utilize IT services, using its scale to offer a disruptive pricing model to businesses seeking IT functions in the cloud.

Stock selection in the technology sector, including our position in Activision Blizzard, weighed on performance. A weak release of one of Activision's largest game franchises, Call of Duty, hurt the stock this quarter. Our view of the company remains unchanged. The move from physical game consoles to digital gaming is a long-term tailwind we believe Activision is only beginning to realize. As more gaming takes place on digital platforms, Activision can also sell items to gamers in real-time that boost their in-game performance. Going forward, we also believe Activision can increase monetization of games it acquired from King Digital, a mobile gaming operator, as Activision advertises to those gaming customers for the first time.

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