Dear client: We have now closed on the third quarter of 2016 and thought it would be a good time to revisit our investment management philosophy.

GSB Wealth Management’s Investment Philosophy:
The majority of our client portfolios will contain a mix of common stocks, fixed income, and cash. The weightings within these three major assets classes are determined by seven investment objectives, ranging from conservative to aggressive. Conservative objectives will normally have relatively high weightings in fixed income while aggressive objectives will lean heavily toward common stocks. Mutual funds may be utilized for specific strategies where we see added value and cannot replicate such strategies by purchasing individual securities. However, cognizant that utilization of mutual funds adds an additional layer of fees through the mutual fund’s internal management expense; we strive to employ only those mutual funds having no front or rear loads, no 12B-1 fees, and relatively low expense ratios. We believe that the majority of our clients, many of whom have already accumulated a substantial nest egg, are most interested in growing their assets when markets are in their up cycle, but more importantly preserving principal when markets are in their down cycle. As such, our first priority is preservation of capital.

Fixed Income Philosophy: We believe that fixed income investments are the anchor in a well- diversified portfolio. As such, we invest in high quality instruments with full faith that interest and principal will be paid on schedule in any economic environment. Portfolios will typically be invested in many different issuers and maturity dates to ensure thorough diversification. In today’s economic environment, we do not believe investors are being adequately compensated to invest in longer term fixed income instruments; hence most of our portfolios are short to intermediate term in nature. This is not to say we are averse to adding lower quality bonds to a portfolio when appropriate. An example was in 2008 and 2009 when the fixed income market went through an unprecedented period of volatility, not dissimilar to equities and the general economy. Many investment grade bonds depreciated in price as the economy went through extreme distress and the level of market fear was as high as any time in recent memory. Looking to take advantage of this fear, selected purchase of some of these affected investment grade bonds potentially allowed one to garner an above average yield to maturity, while also providing equity like returns as the bonds appreciated in value when market fear subsequently subsided.

Equity Philosophy: We believe that commons stocks are the primary growth engine for a diversified portfolio and should have some representation in most, if not all portfolios. Common stocks have outperformed most other asset classes over long periods of time as common stock ownership is essentially a call on the growth of earnings and/or dividends of the U.S. economy and other developed countries. Growth of principal via common stock ownership has also provided an effective hedge against the erosion of purchasing power over time by way of inflation. We believe in thorough diversification within the equity portion of a portfolio via ownership of 35 to 40 individual companies. We do not attempt to “index” our equity portfolios by mimicking the sector weightings of well- known indices such as the S&P 500 stock index. Such a strategy, while providing good theoretical diversification, will tend to shadow the performance of the market in good times as well as bad, such as 2008-2009. Instead, we are “bottom up” stock pickers, focusing on individual companies based on the quality of their franchise and future potential for earnings and dividend growth. We are, in essence, looking for companies with an “economic moat”, or those business characteristics that lead to the sustainability of a thriving franchise over time while limiting the ability of competitors to profitably enter or sustain themselves in the business. Identifying such companies is the first part of the exercise. The second part is determining the appropriate price to pay for franchises of this caliber. Our team’s long tenure in the investment management business has allowed us to develop purchase and sale disciplines based on the current valuation of a company and how that valuation compares to competitors in the same economic sector or other companies of similar quality. It is one thing to identify quality merchandise, and another ascertaining what to pay for it. We often look to “go against the grain” by purchasing quality companies when they are out of favor on Wall Street for reasons we deem as temporary. This often allows us to invest in a good franchise when it is temporarily selling for below intrinsic value. Many successful historic equity investments have been made by identifying quality franchises, then purchasing them when they are selling for below intrinsic value. As the company continues to grow, not only do we benefit from that growth but also from the valuation expansion that can happen as the stock once again becomes favored by the investment community. Our long term approach and bias to quality will in many cases result in a relatively low level of portfolio turnover, and as a result, the minimization of realized capital gains tax exposure. We encourage you to contact us should you have any questions or comments.

Sincerely, the GSB Wealth Management Team

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