Capstone's Global Equity Income strategy pursues its objective through investment in U.S. and non-U.S. dividend-paying stocks that have demonstrated above-median yield, increasing dividends and favorable earnings growth. We invest in the common stocks of companies that represent a broad spectrum of the global economy. Although the strategy invests primarily in large cap stocks, it is also able to invest in mid-cap and small-cap stocks. The non-U.S. investments are primarily in the form of depositary receipts which are U.S. dollar-denominated instruments representing securities of non-U.S. issuers that are traded in the U.S. and in non-U.S. markets. The benchmark for the strategy is the S&P 500 Index.

Dividends are an important part of investment returns. The strategy invests in global companies whose dividend yield, dividend growth and earnings growth exhibit positive attributes which are the characteristics that we believe lead to strong performance over time.

Capstone employs a three-step process that combines this dividend income style with relative risk-controlled portfolio construction. This process initially creates an investment universe comprised of dividend-paying domestic and international stocks drawn from widely recognized equity indices.

• First, we identify securities having dividend yields above their sector medians. Then those securities are    screened for positive dividend and favorable earnings growth.
• Second, a relative risk-controlled portfolio is constructed that attempts to match the characteristics of the S&P 500 Index.
• Finally, a review of the portfolio securities with respect to their latest fundamental information is conducted. Any security that fails the review is removed and the portfolio construction is repeated until all holdings satisfy the review process.

A Quantitative Approach:
Our Investment Universe consists of cash dividend paying domestic and International Stocks drawn from the S&P 1500 Index and the S&P ADR Index. We then identify Securities with the following characteristics:

• Dividend yield above sector median
• Payout rate less than 100%
• Positive dividend growth: 3 years
• Favorable relative earnings growth: 3 years

A fundamental security review is then conducted which includes:

• Cash flow
• Likelihood of corporate restructuring
• Profitability trends
• Earnings growth trends

This analysis results in a diversified portfolio of 55-65 holdings, of which 30% - 50% are in International.

WHY INVEST IN DIVIDEND PAYING STOCKS?
The benefits of dividend paying stocks are numerous. When you invest in dividend paying stocks you combine risk reduction, corporate strength and corporate management standards among several other solid reasons why dividends play such an important role in long term growth of capital.

It is a widely accepted fact that dividend paying stocks are less volatile than non dividend payers and the overall market. In order to pay dividends, a company must have strong earnings and management must be optimistic regarding the long term corporate path. These signs all point towards long term confidence and strength.

WHY INVEST GLOBALLY?
Dividend Income and Capital Appreciation!

Global Investing takes advantage of dividend income and capital appreciation opportunities unavailable to domestic-only investors. Foreign markets’ share of world market capitalization has increased dramatically over the past 30 years during a time when the U.S. share of world market cap shrank dramatically. Many of the worlds largest, most profitable companies are based outside of the U.S., and some of the world’s most important industries are dominated by non-U.S. companies.