Letter to Investors

March 2012

www.islainvest.com [email protected] (305) 522-1333

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I'm pleased to report that from the beginning of its fourth year in November 2011 through the end of March, the Tarpon Folio has increased 33.9%, compared to a rise of 16.8% in the S&P 500 over the same period.

The year is off to a good start for us. We've seen two Tarpon Folio holdings, Jefferies Group and Global Ship Lease, each increase 85% over the last four months. Better yet, we've still got room to run. Our newest holding Ultra Petroleum is so cheap that I have to go lay down after I check its quote.

I remain cautiously optimistic about 2012. The valuations of our companies remain very attractive, underlying economic trends are good, and recent employment gains should provide a further boost to the economy this year, as it seems businesses are finally getting serious about investing in their own operations.

That said, it's probably best to emotionally prepare yourself for some short-term headwinds in the broader stock market. Not because of any disturbing overt developments, mind you, but just because it's best not to get too caught up in any market rallies, this one included. The stock market also just notched its best first quarter since 1998, so if nothing else, the coming quarter will no doubt feel a bit subdued in comparison.

While none of the potential issues I'm keeping an eye on will impact the values of our companies, they could temporarily impact their stock prices. So should market sentiment swing again from “unabashedly bullish” to “Mayan-apocalyptic,“ I'd ask you to keep that distinction between price and value in mind.

Potential short-term headwinds include things like first quarter corporate earnings, which companies start to report next week. The bar for those earnings is pretty high. Corporate profits grew 9% in the last quarter of 2011, which is worthy of mention only because any growth rate less than that will likely be interpreted by a breathless media as a “slowdown.” The reality is that earnings will likely still be good, just growing at a slower rate - because of some difficult prior quarter comparisons in a handful of industries and things like the impact on earnings of a reversal in exchange rates. You know, real edge-of-your-seat kind of stuff.

Also, consider yourself unsurprised if the economy looks temporarily weak in the first quarter GDP number that comes out at the end of April. That will be another superficial issue to me, however, in that a soft number will be due in large part to weakness in temporary things like government spending and the balance of trade.

Anyway, enough macro. My point is that the bears could soon come out of their caves, whether due to overblown concerns about first quarter earnings, relatively tepid first quarter GDP growth, or Spanish bond yields.

What would that mean for us? Operations normal, really. The long-term fundamentals haven't changed, and neither have my own long-term views. Our companies still appear very attractive and their future earnings should support further gains in stock price. It's just going to take some time, and there will be bumps along the way.

So despite the potential for some mild near-term headwinds in the stock market, the economy is continuing to slowly improve. As long as that is happening, it seems other investors are realizing that valuations for many companies are still too low. This is good for us. After this recent rally, we also now have more cash in the portfolio than usual, so we can better take advantage of any future declines in stock prices, whatever the reason.

Finally, a bit of administrivia. I will be making a few changes to these letters in the near future, so my next letter to you will be after the second quarter ends in June. As usual, call or email anytime in the interim.

And once a year, within 120 days of the end of IIM's fiscal year, I'm required to deliver to you a free updated Form ADV 2A brochure. So, please consider this your official notice that you may find that PDF here at this link.

Thank you and enjoy the holiday weekend.

- Cale

The Tarpon Folio is an innovative, investor-friendly alternative to the traditional actively managed mutual fund. It's built on a model we call a Spoke Fund®.

It is more transparent, takes more concentrated positions and is significantly less expensive than the vast majority of mutual funds. The portfolio is managed for long-term growth using value investing principles.

Fees are 1.25% of assets annually, assessed on a quarterly basis. Turnover, taxes and trading are minimized in the fund, and investors can customize their accounts in several key ways, including tax preference. Each Tarpon Folio account is also protected by three types of insurance for a maximum of up to $9.0 million

For more information, visit our website.

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Individual results will vary depending on market conditions and investing may cause capital loss. The S&P 500, used for comparison purposes, is significantly less volatile than the holdings of the funds listed. The performance data is net of all fees reflecting the deduction of advisory fees, brokerage commissions and any other client paid expenses. The performance data includes the reinvestment of capital gains.

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