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Letter from Ron RON’S

Letter from Ron RON’S CONFERENCE SPEECH, “EXCEPTIONAL TAKES TIME.” This is the 25 th Annual Baron Investment Conference. Thank you for joining us today. We have held our meetings in this Opera House since 2006. It always thrills me to stand here…just like it inspired McCartney…Streisand…Sting…Rod Stewart…Billy Crystal…Elon Musk…and everyone else who has given electrifying performances in this hall for you. One reason the performances have been electrifying is because of you, our audience, and your response to our entertainers and speakers. So thank you. Two years ago, Reyn Levy, the former Chairman of Lincoln Center, invited Judy and me to be his guests on opening night of Madame Butterfly. I told Reyn I am a rock ‘n roll guy not an opera guy and politely declined. Reyn persisted until finally I told Judy we had to go. “Absolutely not,” she said. “You’ll embarrass me by falling asleep.” When I promised I wouldn’t, she reluctantly said O.K. Minutes after the first aria, though, my attention drifted and despite Judy poking and prodding me, my eyes kept closing. At “halftime,” Reyn invited us to his office and Judy was mortified when he told us we didn’t need to stay for the second half! CLIP: Seinfeld at the Opera Jerry has been my cousin Cliffy’s best friend since they were both six years old. That means I have known Jerry since he was six! I was 17 at the time, so he didn’t seem particularly funny to me... which may be because it takes time to become an exceptional comic…or because as Jerry thinks, Ijustwasn’taverygoodjudgeoftalent. SLIDE: Picture of Jerry and Aunt Bee When we found that Seinfeld clip that aired on November 4, 1992, exactly 24 years ago today, I just had to use it! It made me feel that Cliffy’s mom, my Aunt Bee, who passed away last month at 93, was sending me a message! Aunt Bee loved Jerry…She and Uncle Sam came to my meeting to see Jerry when he performed for us in 2008. I had been asking them to come for years. Like some of you, I suppose, they just came for the entertainment. While the opera’s not my thing, I do like Broadway. HasanyonehereseentheplayHamilton? SLIDE: Hamilton Marquee Raise your hand if you have. Judy and I saw it a few months ago. We thought it was extraordinary. I have always been RONALD BARON CEO AND CHIEF INVESTMENT OFFICER interested in American history, and thought I knew a lot about the founding of our nation. I actually knew very little about Alexander Hamilton, the least celebrated and perhaps along with George Washington, the most consequential, of the Founding Fathers. I had more fun researching this speech with Matt Weiss, than any other. It was surprising to find how relevant Hamilton’s story is today. That is because politics in a divided America in 2016 parallels politics in 1776 when a divided America was fighting for its independence. SLIDE: Exceptional Takes Time I was so inspired by Hamilton, the play, that we chose “Exceptional Takes Time” as the theme for the 2016 Baron Conference. SLIDE: $10 Bill Alexander Hamilton was our nation’s first treasury secretary. He established the financial foundation of America, which enabled our exceptional country to build an industrial, technology, and services economy that is the envy of the world. With only 5% of the world’s population, America produces 22% of the world’s GDP! It just took time. SLIDE: Alexander Hamilton Hamilton was the principal author of our Constitution and The Federalist Papers. If betterknown Founding Fathers Thomas Jefferson, James Madison, and James Monroe had their way, America might still be an agrarian nation of plantations and slave owners. SLIDE: Young Alexander Hamilton Alexander Hamilton was the only Founding Father not born in the Colonies. He was born and raised on the Caribbean island Nevis. Hamilton was orphaned at ten. Born out of wedlock, Hamilton could not attend Anglican Church schools. He instead attended a Sephardic Jewish day school! I’m not making this up! His mother’s books were his only inheritance. Hamilton learned about democracy studying Greek history; about military strategy studying the Roman Empire; and about ethics studying Torah in synagogue. He also learned to recite the Ten Commandments in Hebrew. Historians disagree about whether he could chant the Four Questions. SLIDE: Three Topics My remarks today will address three topics. 1. The Investment Environment. 2. Baron’s Investment Process. 3. Baron Capital. Act I. Environment. “How lucky we are to be alive right now.” Alexander Hamilton. 1776. Act I: Scene 1. America. “The Room Where It Happens” America is great. 4

December 31, 2016 Letter from Ron We didn’t start that way. When the Revolutionary War ended in 1783, our country was bankrupt. The Articles of Confederation loosely linked 13 indebted states that had a difficult time agreeing on anything. Instead of a strong centralized government they were more like members of a squabbling condo board. SLIDE: Del Boca Vista Condo Board SLIDE: Hamilton at Desk Hamilton believed that to form one nation…the federal government needed to assume the war debts of the 13 colonies. This would establish the “full faith and credit” of our government. Hamilton started America’s government from scratch. Hamilton believed credit…a national bank…a stock exchange…free trade…a strong industrial base…and personal and religious freedoms would attract immigrants to our democracy and make America great! He saw the future, and he was right. After the Revolutionary War, many Founding Fathers returned to their homes or travelled abroad while Hamilton remained in New York and worked to draft and ratify the Constitution. In the play Hamilton, when Jefferson returned to America from Paris in 1789, he had one important question for Hamilton: “What did I miss?” AUDIO: Jefferson: “What Did I Miss?” The answer was everything! By the way that guy in the purple is Jefferson, not Prince. Act I: Scene 2. “What Comes Next?” “Industrial Revolution.” 1760-1840. “Technology Revolution” 1990-. SLIDE: Plantation Owners / Agrarian Scene Wealthy plantation owners at the start of the Industrial Revolution 200 years ago were threatened by Hamilton’s vision of an industrialized nation. Similarly, today, fearful factory workers in the midst of America’s “Technology Revolution” believe their jobs are threatened by immigrants and outsourcing. In reality, they’re threatened by robots! In fact, first generation robots are now losing their jobs to next generation robots that are bigger, smarter, faster! SLIDE: Terminator Even the Terminator is getting terminated. AUDIO: “I’ll be back” No…you won’t Arnold. Bigger and better robots are on their way. Were it not for robots and artificial intelligence, there would likely be three times as many factory jobs…but a Ford Focus would cost $60,000! SLIDE: Ford Focus It’s not just factory jobs that are at risk from technology and automation. SLIDE: Brokerages In 1975, stock exchanges ended fixed brokerage commissions. Until then, stockbrokers charged 1% commissions. That means the commission to buy 1,000 shares of Google at $800 per share would have been $8,000! Today it is $7.95! Which is why there are now a lot fewer stockbrokers. SLIDE: Bank Tellers Before ATMs, bank customers needed to wait in long lines to transact with tellers. There are now fewer tellers. SLIDE: Autonomous Vehicles Taxi drivers and long distance truck drivers will soon be replaced by autonomous vehicles…that won’t have accidents…which will also negatively impact auto insurance companies that live on “float.” SLIDE: Medical technology Medical technicians will be replaced by machines that can read x-rays and scans and perform eye examinations better than a human. Robots are already used in surgeries. SLIDE: Chart While changes from technology advances may create challenges today, our standard of living continues to improve, and we expect our children and grandchildren to have much better lives than we do. Life expectancy in America was 46 years in 1900. It is now 80. It has been increasing by three months every year. I for one am a believer. I’m 73 and recently signed a 30-year lease! 65% of children starting primary school today will work in jobs that don’t yet exist! SLIDE: Rust Belt to Startup Cities America’s post-industrial cities like Pittsburgh, Detroit, Cincinnati, St. Louis, and Cleveland used to be called “rust belt” cities. They are now more appropriately labeled “startup cities.” Their resurgent downtowns have rapidly increasing Millennial populations and good jobs growth that offer them a second act. Speaking of second acts…this brings me to ours. Act II. Process. “Wait for it.” Act II: Scene 1. “Non-stop” Playwright Lin Manuel Miranda’s Aaron Burr observed about Alexander Hamilton, “How to account for his rise to the top…Maaan, that man is non-stop.” When referring to Hamilton’s achievements, Miranda remarked, “Just like Shakespeare and the Beatles, how on Earth do you do that with the same 24 hours a day that everybody else gets.” We, too, are relentless and non-stop in researching businesses we believe have potential for exceptional growth. Jobs lost from disruptive technology are re-appearing in next-generation industries. SLIDE: Next Generation Industries Artificial intelligence, robotics, clean energy, big data, and medical technology may be disruptive in the short term, but they are creating jobs, and industries that are hard to even imagine today. SLIDE: Snapchat Could Hamilton have ever imagined steam engines, telephones, airplanes…or Snapchat? SLIDE: Tesla Model S Electrification of transportation will use a lot less energy and dramatically improve our environment. Autonomous driving will eliminate virtually all accidents. Space exploration and colonization of Mars, the science fiction of my youth, may take place within the next decade. SLIDE: Mars Intern We’ve hired a young intern without a family to study this more closely and are hopeful he will return to Earth…one day. SLIDE: Cybersecurity Cybersecurity has been front and center this year following hacking of America by Russia. Just as we need defense on the ground and in the air, we need homeland defense against cyberattacks. This will create business opportunities. Advanced tools and techniques now offer opportunities to reinvent manufacturing. SLIDE: Tesla Robots Next generation plants that Elon Musk refers to as “machines that make machines” will soon become the norm. Act II: Scene 2. Competitive Advantage. 5

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