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To: Ponzio Capital Clients

From: Joe Ponzio

Date: July 15, 2010

Re: Quarterly Letter to Clients

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Dear Partners,

If I had to give a name to each quarterly letter, this one would be called But Not Without Pain. Ill explain

why in this letter. Also, you may also want to see my thoughts on the European debt crisis at F Wall

Street.

Ponzio Capital Investment Performance

Your account is a separately managed account as it is a separate account in your name, held at

Interactive Brokers. At any time, you can log in to Interactive Brokers to view your positions and

transactions, add or withdraw funds, generate reports and more.

Ponzio Capital Composite Performance Summary1

DJIA NASDAQ S&P 500Ponzio Capital

(net to clients)

1/1/2010 - 3/31/2010 +4.8% +5.9% +5.4% +7.4%

4/1/2010 - 6/30/2010 -9.4% -11.8% -11.4% -12.8%

1/1/2010 - 6/30/2010 -5.0% -6.6% -6.7% -6.4%

Housekeeping

In my last letter, I told you that we were in the process of setting up online account access through the

Ponzio Capital website. Unfortunately, this project has been scrapped for now. Though their trading

technology is top-notch, Interactive Brokers does not have a good system for distributing data to portfolio

management software or websites (due to their security concerns).

As much as I would have preferred to offer you a simpler, more user-friendly interface through the Ponzio

Capital website, our hands are tied for now. If Interactive Brokers begins distributing data in a secure,

developer-friendly way, I can assure you that well bring this project back to life.

The Markets

When the first quarter closed, I had stated the following in my quarterly letter:

The broad stock market indices advanced again through the first quarter of 2010, with

the S&P 500 adding 5.4% (including dividends) through March 31st. For many, this has

been a hold your breath rally in stocks - buy or hold and hope that we dont see a

correction, or trade frantically to stay nimble in the markets.

1

Market indices returns include dividends. Ponzio Capital return is net of all fees and expenses. Individual client results vary. Pastperformance is not indicative of future results. Results less than one year are actual, not annualized.

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The chickens came home to roost. Though I was not surprised to see the markets fall, I didnt have any

positions that I wanted to dump in anticipation of a correction. Some of our stocks held up very well and

are even trading higher (as of July 14) than where they were on March 31 (BBEP +4.7%, PETD +21.9%,

GIS +1.9%, WINN +4.5%); some have been clobbered (IPSU -23.1%, KND -30.6%, TSO -15.7%).

Over the long-term, I expect our results to be largely independent of the broad markets. I benchmark our

results against the markets for comparison purposes only; however, over the long-term, I expect that we

will outperform the markets by a satisfactory margin, net of all fees and expenses.

Value Investing In Volatile, Flat Markets This Stuff Works

In my opinion, a period of ten or twelve months is too short a timeframe to judge investment results.

Considering, though, that almost every position at the firm has been purchased in the past 18 months, its

worth discussing given the recent market melt-down. (With the exception of permanent positions like

Coca-Cola or Walmart, every position held by clients has been purchased at some point in the past 18

months, either at Ponzio Capital or by me while at Meridian. Though I am limited by law in what I can

discuss about my performance at prior firms, I can discuss what follows here.)

On September 15, 2009, I sent a letter to clients introducing them to BreitBurn Energy Partners (BBEP)

and Petroleum Development Corporation (PETD) two new positions I purchased in their portfolios. I am

including that letter with this one so that our newest clients can read the full story on the purchase.

Since our original purchase, the S&P 500 has advanced 5.8% (including dividends) while BBEP and

PETD have advanced 40.9% and 71.9%, respectively. Another such position is Volt Information Sciences

(VOL), purchased in July of last year and up roughly 4% more than the S&P 500.

Its easy to look at these past purchases and think, Why didnt we buy more? or, I sure would have

liked to get in on thatone! Though I do not want to count our returns until they are realized, Il l use them

for illustrative purposes to explain why I continue to ignore the markets and their volatility. None of these

positions were/are held without a certain degree of pain particularly in the first few weeks/months/

quarters after we purchase them:

Petroleum Development Corp was up 30% in the month after I first purchased it versus 4.5% for the S&P500. I looked really smart that month. Two weeks after that, it was down 24% a full 19.5% more than

the markets, and below the September 15th price. Up and down it went, giving gains and then taking

them away not bit by bit, but 20% and 30% at a time over the course of a few short weeks. Today, were

significantly higher than we were just nine months ago...but not without pain.

BreitBurn made me look dumb, then smart, then reallydumb, and then smart again. Two weeks after I

bought it, it was down more than 3% in an up market. A few weeks later, we were up 18% 15 points

over the markets 3% return. Two months after that, our BreitBurn purchase was sitting at an 8% loss

versus a 6% gain for the S&P during that time. Today, were significantly higher than we were just nine

months ago...but not without pain.

Volt Information Sciences made me look like a genius, then an idiot, then a genius...then an idiot. Withinweeks of our original July 2009 purchase, we were up nearly 80%...then down 34%...then up 64%...and

back down again. Today, were higher than we were a year ago and marginally higher than the return of

the S&P 500...but not without pain.

So...Buy and Hold or Trade Like Mad?

This, of course, causes one to ask, With results like these, wouldnt it be better to trade in and out of

these stocks rather than buy and hold? You bet! If, of course, we can trade in the rearview mirror. When

buying smaller companies like these, one should expect a certain degree (even extreme) volatility.

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I really liked BreitBurn at $11.00, and continued to like it up to about $14.50 per share.

Thats why I added some for many existing clients, and happily opened positions for

new clients. BreitBurn is currently our largest stock position at the firm.

As I write this on April 5, 2010 (this letter is written over the course of a few days),

BreitBurn is trading at $15.23 per share. I doubt that I will continue to add to our

position at these levels as I think the company is still cheap, but not cheap enough to add

more money (based on my goal of trying to find you significantly undervaluedopportunities).

With BreitBurn, I had (have) a lot of conviction enough to add at prices well above where we first started

purchasing it. The same was true with Wells Fargo in the first quarter of 2009 I liked it at $22, really

liked it at $18, and lovedit at $11 for clients that still needed more.

Four months ago, I was adding new positions with moderately high conviction (no more or less conviction

than I had in Petroleum Development Corp in September 2009). Today, the markets and individual stocks

are cheaper; so, I have a choice add to existing positions or open some new ones.

Right now, Im looking at three new ones that might provide more value and more conviction than some of

our existing, beat down stocks. Should I add any (or all) of these, Ill use cash or sell some of the lower

conviction/less value stocks, regardless of whether we are up or down on them. At the end of the day, my

goal is to have you (us) invested in the stocks offering what I perceive to be the greatest value.

Portfolio Cross-Section

Due to the length of this letter (including the BreitBurn/Petroleum Development email that follows), Ill skip

the position discussion in this letter and will instead send out separate letters that discuss the individual

positions we hold.

Look for a follow-up to this next week. As always, if you have any questions, please dont hesitate to e-

mail me.

I appreciate your referrals and your trust,

Joe Ponzio, Managing Partner

Ponzio Capital Inc.

Tel: (800) 520-2124

oe Ponzio, Managing Part er

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This is a letter Joe sent to clients while he was still at The Meridian Business Group.

September 15, 2009

To My Partners,

On Friday we added two new companies to your portfolio. As they are both in similar industries (oil and

natural gas), I figured I'd cover them in a single e-mail. As always, if you have any questions, please don't

hesitate to call or e-mail me.

The Commodities Crash

Both BreitBurn Energy Partners (BBEP) and Petroleum Development Corporation (PETD) generate

profits based on the price of oil and the price of natural gas, both of which are "commodities." Every day,

you use commodities in your regular life - from the orange juice you drink in the morning to the gas you

put in your car.

You will likely remember when gas prices soared last summer and the media was talking about the"record profits" being made by big oil companies. That was because the price of oil - the commodity -

soared from $70 per barrel in 2006 to nearly $150 per barrel by July of 2008. Because the cost to extract

the oil from the ground didn't grow as quickly, oil companies were making bigger and bigger profits as the

disparity between the price of oil and the cost to extract it widened.

Eventually, the price of oil - along with many other commodities prices - collapsed late last year when the

economy came to a screeching halt. You may not have been following the commodities; however, you

likely noticed gas prices fall from $4 to under $2 - the result of the drop in oil from almost $150 to near

$30. Accordingly, that put pressure on the profits of oil companies. As an example, Exxon Mobile

generated $14.8 billion in profits in the three months ended June 30, 2008 when oil was just nearing its

peak price. In the three months ended June 30, 2009, the company generated $3.9 billion in profits, down

74% as oil was coming off its near-$30 price.

The time to buy commodities-based companies is when the price of the underlying commodity is cheap.

In time, if the price of the commodity returns to a more "normal" level, the company should generate

additional profits. In the stock market, the prospects of higher profits generally pushes stock prices up.

Your Companies

Both PETD and BBEP make their money based on the price of oil and natural gas. As the commodities

collapsed, so did their stock prices. And that's what piqued our interest, as the commodities were cheap

and the prospects for future profits look good.

BBEP owns oil and natural gas fields, hires independent contractors to extract the commodities, and then

sells it - ultimately distributing the excess cash it generates to investors. The collapse in oil prices pushed

BBEP's stock price down from the mid-$20s in 2008 to as low as $5.25. Because the company doesn't

physically extract the commodities, it can control its capital expenditures and costs very well. It generates

gobs of excess cash which it is currently using to pay down debt.

I see no reason why BBEP would go out of business, but if it did, the company is sitting on about $2

billion worth of proven oil and natural gas reserves. In liquidation, the company is worth about $23 per

share at today's commodities prices. And while I think that the price of oil is in a fair range right now,

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natural gas seems to be very cheap based on (i) historical prices and (ii) an overabundance of supply

with low demand. Natural gas - now at about $3.25 - was well over $7 two years ago and peaked at $13

last year.

When the supply starts to dwindle, the price of natural gas will likely rise causing both BBEP and PETD to

generate greater profits, and causing BBEP's properties to be worth even more.

PETD is also an oil and natural gas company; however, PETD actually extracts the commodities as well.

The thesis on PETD is the same - if natural gas prices return to a more "normal" level, PETD will likely

see an increase in both profits and assets. Should the company not survive the wait (though I see no

reason it wouldn't), it could be liquidated in an orderly fashion for significantly more that today's purchase

price.

What We're Looking For

Both of these companies are attractive to me because they have the dual component to them - the

prospects of significantly greater profits and more valuable assets should the price of natural gas rise,

and the safety of profits and assets in oil.

If the coming winter proves to be extremely mild, consumers may not use much natural gas which would

ultimately cause supplies to dwindle at a slower pace and cause natural gas's price to rise more slowly. If

not, we may see natural gas's rise come more quickly.

The plan is to hold these companies for two years unless the fundamentals for oil and/or natural gas

begin to fall dramatically again. I think that these are very attractive companies at $70 oil and $3.00

natural gas; but, almost no oil and gas company could survive long at $30 oil and $1.00 natural gas.

If you have any questions, please feel free to call or e-mail me. As always, I want you to be as

comfortable with your investments as we are.

As always, if you have any questions, please let us know.

Joe Ponzio, Co-Founder

The Meridian Business Group