Greenstone Value Opportunity Fund, LP 

 
 
September 2010 
Dear Partner,

Greenstone’s estimated, unaudited performance through September 30, 2010 is presented below:
2008 2009 2010
Month Quarter Year Last Cumulative
January + 2.81% + 0.54% Ending to to 12 Since
February - 2.93% + 0.22% 9/30/2010 Date Date Months Inception
March + 9.04% + 6.20%
April + 5.36% + 4.00% Greenstone VOF* + 3.17% + 7.71% + 6.83% + 11.71% + 50.29%
May + 4.03% - 5.25%
June + 0.42% - 6.38% S & P 500 + 8.92% + 11.29% + 3.88% + 10.15% + 2.00%
July - 0.12% + 4.24%
August + 5.96% + 0.30% Nasdaq Composite + 12.18% + 12.62% + 5.17% + 12.74% + 15.34%
September + 2.18% + 3.17%
October + 1.47% - 1.35% Russell 2000 + 12.46% + 11.29% + 9.11% + 13.34% + 2.53%
November + 1.87% + 1.00%
December - 0.87% + 4.88% Greenstone S&P 500
YTD + 2.46% + 36.46% + 6.83% Standard Deviation 3.60% 7.10%
Sharpe Ratio (0.50%) 1.76 0.14
*Returns are net of all fees and expenses for the fund as a w hole. Individual returns may vary due to timing and other differences. Inception date is October 1, 2008.  
For the month of September, Greenstone returned +3.17% net of fees and expenses, which compares
to the S&P at +8.92%, the Nasdaq at + 12.18%, and the Russell at +12.46%. We feel the Fund’s risk-
adjusted performance for the month was acceptable considering a net long exposure of around 52%,
and a reasonable cash position. Our Sharpe ratio improved to 1.76 (from 1.52 at the end of Q2)
versus the S&P at 0.14. During the third quarter, the S&P was up +11.29%, the Nasdaq was up
+12.62%, and the Russell was up +11.29%, which compares to Greenstone at +7.71% net of fees and
expenses.

If we could sum up the third quarter in one word it would be ‘sentiment’. As managers and
custodians we try, and hopefully manage, to remain relatively emotionless, which is important
considering our view that the market could remain range-bound for the next several years. In
contrast, the third quarter proved to have wild swings in market sentiment. Investors have flip-
flopped dramatically, from a fearful and anxious little boy one minute (August) to an exuberant girl
skipping through the fields without care the next minute (September). Even the financial press has
coined a new phrase to describe the market action: risk on/risk off. In other words, like flipping a
light switch, investors either want risky assets (stocks, risk on), or they don’t (fixed income, risk off).
These wild swings, with little to no room for a middle ground, are a little too exaggerated for us.

With a market that is either extremely bullish or extremely bearish (i.e. no middle ground), it
appeared to us as though we entered a period of being short-term oversold during the quarter. We’ve
expressed it before, but high frequency trading and the sheer number of quantitative participants in
the market have helped exasperate these wild swings in the broad indices, which has in turn impacted
the underlying sentiment. We tried to take advantage of these volatile swings over the quarter,
picking up companies trading at low multiples of free cash flow or tangible assets. We may not know
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when the market will eventually recognize the value for many of our investments, but we do feel very
strongly about knowing where the downside is. This allows us to price in the appropriate
upside/downside risk in order to take a position.

More recently, as the markets rallied hard in September, we began trimming some of our long
positions that had incredible upside moves, and we have been adding new short positions. Going
forward we will continue to decrease our long exposure if the market heads toward earlier year highs
of 1218 on the S&P. We’d likely bring the Fund’s net long exposure down toward zero as the S&P
approaches this 1200-ish level. In spite of the chatter about the Fed’s plans to implement QEII, and
how this might continue to drive up the prices for risk assets, and in spite of how good the technicals
may look, it does not make fundamental sense to us that the market should trade at a premium to the
long-term average P/E multiple in the current environment. At the end of the day, we are in a global
economic environment of slow growth, high unemployment, and historic uncertainty, and valuations
for stocks must come back to some multiple of earnings or cash flow. Above 1200 on the S&P, it is
our opinion that stocks will be trading at a significant premium to historical averages, and we plan to
position the portfolio accordingly.

Portfolio

In terms of diversification within the fund, no industry makes up more than 18.5% of AUM, only
three industries are above 10% (Energy, Technology, and Industrials), and our largest individual
position is no more than 9.5% of AUM. It is also interesting to point out that our top ten positions
(which are 68% of our long portfolio) generate more than 50% of their underlying individual
company revenues in countries outside of the mainland United States. Large cap and mid cap
companies make up roughly 25% of the long portfolio.

At quarter’s end we had net long exposure of approximately 52%. We have approximately 70%
gross long equity exposure, with short equity exposure of 18% (delta adjusted). We have been asked
by several people, mainly institutions, why we sometimes hold such high levels of cash
(approximately 30%)? Our response is generally shaped like this: “We like holding a cushion of cash,
leaving ample room to participate in a market correction.” This is because a) we think the
environment requires it, b) we want to take advantage of new opportunities without having to sell
other positions or lever the fund, and c) even though we now have a two-year track record, our style
and personality deem it preferable for us to provide some margin of safety for us and our limited
partners. In short, while we may underperform in an up market, it is our goal to outperform in
declining markets, and which should allow us to outperform over the long-term. Basically, we do not
view it as a sin to hold cash.

3949 Maple Avenue, Suite 480, Dallas, Texas 75219

Largest Positions:

Our 5 largest positions at September 30th, as measured by absolute value of capital deployed at
market, are presented in the following table:

Security Ticker % of NAV Comment

Chinese manufacturer of ceramic tiles for Tier II & III housing. Stock trades
China Ceramics Co. Ltd. CCLTF 9.50% for < 2X FCF and EV/EBITDA, and around 1X earnings. 20%+ growth
potential. Warrants exchanged 4:1 for common stock in Sep.
Offshore driller with 60 rigs. Stock trades at 5x EV/Ebitda and 7.5x
Noble Corporation NE 5.90% Mkt Cap/FCF. Pristine balance sheet, stock buyback program in place.
Recent acquisition of Frontier Drilling strengthens deepwater program.
Parent of Hawaiian Airlines. Trading at < 2X Ebitda & 3.7X FCF. Company
Hawaiian Holdings, Inc. HA 5.70% has net cash, and a reasonable fuel hedging program. Recently implement-
ed a stock buyback program. Expanding destinations to Asia/Pacific.
Company operates a fleet of double hull crude tankers. Stock trades at
DHT Holdings Inc. DHT 4.90% less than tangible book value. Significant cash position, and will use FCF
to enhance balance sheet or make acquisitions. 10% dividend yield.
iPath S&P 500 VIX An ETF that tracks market volatility with short-term futures contracts on
Short-Term Futures VXX 3.50% the CBOE Volatility Index (VIX). Generally trades in an inverse
relationship with the S&P, and is a position that mirrors short exposure.

Credit

We currently hold no long credit positions. As fixed income securities have been bid up by investors
looking for the “safety” of yield, prices have risen to levels where there is more downside than
upside, in our view. While the Fed’s plan for further quantitative easing to stimulate the economy
may generate continued demand for yield securities, potentially for quite some time, we feel the
music will stop at some point and prices could come crashing down as everyone heads for the door
at once. In addition, dividend yields on solid, mid and large-cap equities are in many cases equal to,
and sometimes exceeding, the yields on the same issuer’s bonds. When this happens, we believe the
equity instruments generally offer a superior risk/return proposition for investors searching for
income.

Because of the current yield environment, we have started putting on some small short positions in
the credit space, primarily on 10 and 20-year Treasuries.

Equities

Greenstone expects to generate profit from Companies in our portfolio because they produce free
cash flow in their underlying businesses. This in turn will eventually be reflected in a higher share
price, or distributed as dividends to us as holders. The greatest challenge for us is to maintain the
requisite patience, discipline and judgment to buy only when prices and multiples are attractive and
to sell when they reach their predetermined intrinsic value. While this is a straightforward strategy,
it requires a great deal of hard work, unusually strict discipline, and longer-term investment horizon
than other investors.

3949 Maple Avenue, Suite 480, Dallas, Texas 75219

Currently, several of our larger equity positions have yet to prove out our underlying theses (see
discussion of patience in the above paragraph). In fact we feel our top five positions have not even
begun to work. But if Greenstone can follow a consistently disciplined and rigorous approach, we
feel comfortable over time the underlying theses will play out, and the returns will come. Outside of
our top five positions, we did have several investments work for us over the course of the third
quarter:

• Sauer-Danfoss (SHS) – we sold our whole position, primarily because of the quick run up of
the stock. Farm equipment and machinery should continue to do well (1. see 2010 outlook
for crop yields and prices, 2. historically high farmer cash receipts and low debt/asset levels),
and is definitely at or near the trough of the business cycle. Having said this, we are not sure
how sticky the shareholder base is (i.e. other hedge fund holders) outside of Danfoss’s
majority position. In addition, our cost basis was well below Danfoss’s $14 bid earlier this
year, and we felt the need to take the profits given to us.

• Superior Industries (SUP) – we have halved the position. Given our fundamental diligence
and conversations with management, we believe the company should report good 3Q10
earnings, and Alcoa earnings last week reaffirms a positive outlook for the auto/aluminum
wheel rim sector. However, the position was getting large and we like to take profit
considering a 40%+ gain in a relatively short period of time.

• Lynas Corporation (LYC.AX) - Rare earth mineral gem (pun intended) that we’ve traded
around since our inception. It is interesting to now see Morgan Stanley and JP Morgan own
20%+ of the company. We sold down 50% of our position in the recent run up, and because
the company recently presented in NYC. Given the company’s cash needs before full
production, perhaps there is a future financing in the cards, which might offer another
opportunity to get back in at lower levels.

Along with the above, we initiated several new positions over the quarter, such as TTT, BSQR,
NOOF, and MSFT, to name a few. Some of these positions are particularly small and illiquid, but
please know that all but one of our small/illiquid positions is sized appropriately in the portfolio. We
also feel the net cash/share for TTT, BSQR, and NOOF give some underlying floor to these micro
names.

Microsoft (MSFT) does not fit into the small/illiquid category, and is a position we would feel very
comfortable taking to 5%+ of AUM at the right purchase price. We talked about the upgrade cycle
and Windows 7 extensively in our July 2009 letter (if you want to see this, let us know). In David
Letterman style, here are our top 10 reasons why we like MSFT:

#10 we still believe the upgrade cycle has barely begun, and we could see a software
tax credit.
#9 the valuation is roughly 6X Ebitda and FCF (consensus 2010 estimates of $25
billion in FCF).
#8 a dividend yield of approximately 2.5%, and this could see further increases once
the dividend taxation levels become clearer.
#7 the company has a phenomenal balance sheet.
3949 Maple Avenue, Suite 480, Dallas, Texas 75219
 #6 Xbox Live membership is now over 25 million subscribing members.
#5 with the YHOO search relationship, MSFT has realized it is the only natural public
buyer and can continue collaborating without being forced to “pay up.”
#4 Windows phone 7 is getting great reviews and we expect Windows tablets in 2011
will get similar reviews and demand as we shift to being a more handheld and
tablet-focused world.
#3 enterprise and PC spending continue to grow.
#2 ex-CFO and ‘Kiwi’ Chris Liddell built out a world class finance team and we’ve
been impressed by the opportune tapping of the credit markets; with the recent
issuance of $6 billion in long-term debt we could see an increase in the pace and
size of the stock buyback and dividend programs.
and, drum roll, please………………
#1 We’d also argue that the stock has some margin of safety in a declining market
with funds hiding in the balance sheet/name (think XOM during the 2008-09
crisis).

Shorts:

Greenstone is structured as a long / short fund primarily because we are risk averse, and preservation
of capital is the cornerstone of our investment philosophy. We try intently to avoid losses;
consequently we have the responsibility to structure the portfolio and position ourselves to survive
and even prosper under any market direction. As a result, we have begun increasing our number of
short positions and our overall short exposure as the market has crept upwards through the 1150
level on the S&P.

VXX, which is a new “short” position we put on late in the third quarter, offers exposure to a daily
rolling long position in the first and second month VIX futures contracts and reflects the implied
forward volatility of the S&P 500 index. Essentially we’re betting that volatility has some floor in
this environment, and that it is highly likely that we get a reasonable spike in volatility going
forward. If we look at a 4-year chart of the VIX, we see spikes from 20 to 30, or essentially a 50%
return when volatility begins to increase. With this form of protection, we feel there is some
downside protection, because volatility is clearly not going to zero given the current environment we
are in. In comparison, outright short positions theoretically have unlimited upside (i.e. downside
risk). We feel a position in VXX, or in VXZ (the medium-term futures ETF), while not perfectly
correlated to the VIX, will provide us some downside projection when fear creeps back into the
market, and the market turns south again.

Some individual shorts currently on the books include CPTS, CDZI, MTN, FXY, TLT, and IWM.

Vail Resorts (MTN), which operates ski resorts and luxury hotels, is a new short that we have
recently put on. This is primarily due to what we found in the last several years of 10-Ks (last K
filed 9/23/10), where we note 40%+ increases in defaults on new units, real estate sales were off
80% in 2008, and 60%-70% on 2009, and real estate held for sale is up 50%+ year-over-year. The
company also has high fixed costs, labor, and maintenance capex, primarily because of weather and
3949 Maple Avenue, Suite 480, Dallas, Texas 75219
the location of their plant and property. We also don’t feel that the company has a high degree of
pricing power in the sale of tickets, no matter how you package the sales programs. The current
valuation is more than 9X Ebitda, 18X FCF, and the company has a tangible book of less than
$30/share. When discussing valuation, we also note that forward Ebitda estimates from analysts,
and even the company’s Ebitda guidance, are below the $221 million 3-year average we use in our
model. The risk to our short is the run-off in the company’s construction capex, or increased real
estate sales. Given these risks, we plan to scale into the short in several transactions. However, even
though borrowing rates are at unprecedented lows, we wonder how many people are thinking about
adding a vacation home, given near-term macroeconomic uncertainty and a 26-year high in
unemployment.

Housekeeping

We’re visiting New York and Baltimore next week, meeting with existing and potential new limited
partner investors. As we’ve mentioned in past, word of mouth is our best form of introduction. If
you feel there is anyone we should meet on our East Coast travels, please let us know.

As for an update on our offshore fund, we had our first New Zealand institution commit to the fund
starting November 1. We are extremely happy to have them on board. Both New Zealand and
Australian currencies have had a great run against the US dollar and are at yearly highs, with the
Australian dollar at almost par with the United States. We’d encourage others who have been
contemplating investing in the offshore fund to use these multi-year currency highs to your
advantage.

And, finally………………GO RANGERS!!!!!!!!!

Once again we thank you for the trust your investment in Greenstone represents. If you have any
questions, comments, or ideas you’d like us to look at, please feel free to call Tim Stobaugh at 214-
780-0975, or Chris White at 214-780-0986.

Greenstone Value Opportunity Fund, LP is a long-biased, deep value fund that focuses on bottom-up
fundamental research across capitalizations and asset classes. Our goal is to acquire securities
trading at very low multiples of tangible assets or visible free cash flow.

3949 Maple Avenue, Suite 480, Dallas, Texas 75219

Disclosure
This report is provided to you on a confidential basis for informational purposes only. This report is
not intended as an offer or solicitation for the purchase or sale of any interest in any fund sponsored
by Greenstone Capital Management Partners, LP, including Greenstone Value Opportunity Fund, LP
(the “Fund”). Such offer could only be made pursuant to the terms of a Confidential Private
Placement Memorandum describing such offer.

Interests in the Fund have not been filed or registered with, or approved or disapproved by, the
Securities and Exchange Commission. The interests will be offered pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended (the “Act”), and applicable
state securities laws for non-public offerings.

Offerings and sales of interests in the Fund will be made solely to “accredited investors” as that term
is defined in the Act. An investment in the Fund involves substantial risks and is suitable only for
those persons who can bear the economic risk of the loss of their entire investment and who have
limited need for liquidity in their entire investment. There can be no assurance that the Fund will
achieve its investment objective.

Past performance is not a guarantee of future results. This presentation is incomplete and does not
include all of the information necessary for a decision to invest in the Fund. Historical performance
and statistical information contained within this presentation is obtained and/or derived from sources
thought to be accurate, but not guaranteed as to accuracy.

Performance numbers are estimated based on a theoretical investment in Greenstone Value

Opportunity Fund, LP. The return on the investment is calculated from the first day of each
respective period until the last day of the respective period. All returns are compounded and include
reinvestment of dividends and all other earnings.

The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. It is weighted by
market value, and its performance is thought to be representative of the stock market as a whole. The
index selects its companies based upon their market size, liquidity, and sector. The index can not
invest in short positions.

The Nasdaq Composite is a stock market index of all of the common stocks and similar securities
(e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market,
meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the
performance of stocks of technology companies and growth companies. Since both U.S. and non-
U.S. companies are listed on the NASDAQ stock market, the index is not an exclusively U.S. index.

The Russell 2000 Index is an index that measures the performance of the 2,000 smallest companies
in the Russell 3000 Index. The Russell 2000 Index offers investors access to the small-cap segment
of the U.S. equity universe. The index can not invest in short positions.

The returns and volatility of the indices displayed may be materially different than those of the Fund,
and the Fund’s holdings may differ significantly from the securities that comprise the indices. The
indices are disclosed to allow for comparisons to well-known and widely recognized indices, and
may or may not be appropriate for performance comparisons. Investors cannot invest directly in
indices.
3949 Maple Avenue, Suite 480, Dallas, Texas 75219