August 2021TO: LIMITED PARTNERS OF SEMPER VIC PARTNERS, L.P.Semper Vic Partners, L.P. results for Second Quarter 2021 appear below, along withcumulative performance since L.P. conversion in July 1990. Partnership results are presentednet of advisory fees or related GP capital allocation and are compared to market indices whosereturns include reinvested dividend income:INVESTMENT PERFORMANCEHalf Year 2021Second Quarter 2021First Quarter 2021Since L.P. Inception7/16/1990 – 6/30/2021CumulativeCompound AnnualSemper VicPartners, 6.6%10.5%Investment Position and OutlookSeveral recent conversations which I have had over the past several months helped formthe core of my Second Quarter 2021 Semper Vic Partners, L.P. quarterly/mid-year letter toinvestors. Attached please find your full report on Semper Vic Partners, L.P.’s holdings andperformance, both historic and through Mid-Year 2021. Semper Vic Partners, L.P. advancedroughly 11.0 percent and 13.9 percent in Second Quarter and Mid-Year, respectively. Now letme share with you some recent thoughts shared with a handful of investors.I do hope that the following observations on these four relatively weighty topics provideyou with a deep sense of my optimistic investment position and outlook. First and foremost,

I was reminded, through a conversation with an investor involved with a foundation, of theimportance and history of my 20-year-long involvement with Environmental, Social, andGovernance (ESG) issues. She shared how vividly she remembered how much attention I placedon ESG issues during those early days. Second, I was reminded of my most recent investment,Alibaba, by several conversations with investors who sought an update on our portfolio’s“newest member.” Third and fourth, I was asked by one of our partners over the course of thepast several weeks what my thoughts were on two of our top three portfolio holdings – BerkshireHathaway (14 percent of portfolio weighting) and Nestlé (10 percent of portfolio weighting).I look forward to sharing with you why and how I and all of my colleagues at GardnerRusso & Quinn hold in such esteem the growing consideration we have for carbon emissions,Diversity, Equity, and Inclusion (DEI), ESG, sustainability, etc., for the three companies onwhose shares’ prospects I elaborate.“Waste is Waste”Some months ago, I heard from an investor who works for one of our portfolio holdings.Following our initial discussions catching up with family, friends, and colleagues, ourconversation turned to a host of really big items casting long shadows over today’s investmentbusiness. The discussion focused upon the growth in investor interests at all levels onDEI, ESG, sustainability, and carbon footprint.The above collection of important issues have ascended loftily to new levels ofimportance in most conversations with fund managers. The investigations into DEI, ESG, andsustainability etc., permeate throughout entire organizations and engage an increasing amount ofour meeting time as investors, both with our best practices consultants, and with our institutionalinvestors desiring to know what steps their managers take to pursue best practices, oversight ofwhich is entering the purview of the SEC. We also discussed ways in which we as investmentadvisors set forth our expectations for our portfolio company management teams regarding ourexpectations for our portfolio company managers’ best practices.By way of update, please know that we spend an increasing amount of our time focused onsuch concerns. We largely invest in a unique and highly attractive set of global consumer goodscompanies. These companies sell branded goods to a consumer who increasingly cares about howtheir consumption impacts the environment and society. Our investment considerations must takeinto account the sustainability of consumer demand if Gardner Russo & Quinn is going to continueto earn our investors’ trust. I am personally involved, along with our entire research team andcompliance team, with whether and how our portfolio companies are making necessaryinvestments to maintain their brand equities.One major area of portfolio company focus involves greenhouse gas emissions.Investing to reduce greenhouse gas emissions is good for the environment and resonates withportfolio company consumers. For this reason, our third largest portfolio company, Nestlé, haspledged to halve its emissions by 2030 and achieve net zero emissions by 2050, efforts whichwill cost them CHF 3.2 billion!!!2

We understand that the consumer is not only focused on greenhouse gases, but also theimpact that the use of plastic can have on the environment. We celebrate Nestlé’s business-ledstrategy to spend CHF 2 billion to reduce their use of virgin plastic by one third and “boost themarket for food-grade recycled plastics.” Nestlé believes these investments are necessary if theywant their consumer to continue to believe their “products are indispensable.” As investors, wefeel the same way.ESG and DEI considerations can support a positive element of a thesis point or can be ameaningful source of potential opportunity (and risk). We take everything, including ESG andDEI, into consideration when researching companies. For example, our portfolio company,Unilever, under its “Taste Not Waste” campaign has committed to halving food waste in itsdirect global operations both from factory to shelf by 2025 and reviewing their own productportfolio to ensure that it helps drive waste from the entire global food channel. Suchcommitments are broadly valued by consumers of Unilever’s products.We have found over the years that our efforts to appeal broadly to our consumers at manyof our portfolio companies have been enhanced as our portfolio companies seek more diverseand non-traditional backgrounds among their workforce. Such diversity allows our companies tostay better in touch with fast-moving demands from consumers and customers whose businessesare filled with employees who are diverse and come from less traditional backgrounds. Wevalue diversity in employees from non-traditional backgrounds at Gardner Russo & Quinn, as wecontinue to invest in our own search for new firm members. Our efforts in both supervising ourportfolio companies and in seeking to grow our own business are guided increasingly by thegoals expressed in well-defined principles of DEI.In addition, our second largest portfolio company, Mastercard, has shown enormousleadership in both DEI and ESG. As for ESG, Mastercard, for example, has pledged to reach netzero emissions by 2050. However, we also highly value Mastercard’s pledge to bring 1 billionpeople and 50 million micro and small businesses into the digital economy by 2025. Mastercardis uniquely positioned to build this value for society. Mastercard, in addition, works tirelesslyaround the globe with governments and other partners to develop and design payment systemproducts that help lift up the lives of the poor, unbanked consumers. Such consumers previouslyfaced extreme challenges through all aspects of their efforts to fund daily needs.Mastercard’s stored value cards should be celebrated for both their domestic and theirincreasingly global efforts to improve payment systems and, in so doing, improve consumers’lives. Mastercard’s understanding of how such measures can transform lives has been enhancedby the more diverse and less traditional workforce which has been assembled under the pastdecade of their extraordinary Chief Executive Officer, Ajay Banga’s leadership.As you will see in the attached documents, there are tremendous efforts made byGardner Russo & Quinn, as well as the portfolio companies in which we have long-standinginvestments, to ensure that we remain deeply committed to the journey of ever increasingconsideration of ESG and DEI in our company’s selection of investments and our selection ofcompanies in which to make investments on your behalf.3

While our portfolio companies, whether Nestlé, Unilever, Mastercard, etc., recognizedthat to retain their “license to trade” from their customers and consumers, they also recognizethat their products and their ESG and DEI policies can also be financially rewarding. Mostnotably, this arises in the field of employee recruitment. In today’s hyper-charged world, withefforts to recruit valued coworkers from the millennial generation, our ESG-minded companiesfind that those very same consumers whose needs they increasingly respect and serve are alsoincreasingly becoming their new employees. Socially conscious job candidates are increasinglytoday attracted to similarly minded firms that elevate social, economic, and diverse causes.In addition to sharing with you a handful of those above-mentioned best practices whichexist throughout our portfolio, we also look forward to communicating valued updated insights toyou and to all our investor base. Gardner Russo & Quinn intends to provide, on an ongoing basis,updated descriptions of best practices announced by our portfolio company managements that aredesigned to allow them to better focus on meeting the goals and objectives of increasinglyimportant DEI, ESG, sustainability, etc. We will forward to you such announcements, along withcommentary about potential impact such announcements will have on the lives of local consumers,customers, and society at large. It will be our goal to provide you with specifics, both ambitionand amount spent, about the extraordinary capital allocations that will most assuredly continue tocome forth from companies who, as we referred above, are already individually posting amountsas high as CHF 5.2 billion, in the case of Nestlé, to address today’s most pressing environmental,social, and humane challenges.In addition to comments above, I include summaries of steps which our portfoliocompanies have announced regarding DEI, ESG, sustainability, threats to global water, etc. Ourresearch team maintains these files to better equip us in tracking our companies’ compliance withboth the spirit and the law of DEI, ESG, sustainability, etc.You will note the extensive reach and breadth of projects underway. All companiesdiscuss efforts underway to drive forward DEI and ESG. You see companies like Pernod Ricardannouncing equal pay by 2020. Pernod Ricard as well is taking steps designed to reduce wastedplastic. Pernod Ricard realized that they included 400 tons of plastic in their bottle closuresystem for just one brand, Beefeaters, which they have eliminated following review of the lackof consumer utility provided by such plastic usage. Imagine across their entire brand portfoliojust how much waste is removable!!!Unilever deserves credit for delivering transformational advertising for its iconic Dovebrand through its “Real Beauty” campaign. The Real Beauty advertising campaign, whichstarted several years ago, focuses on empowering the next generation of women to embrace apositive self-image and acceptance of their potential by using “real women” in their advertising,not models, thus breaking with traditional advertising imagery.Other companies announced steps to secure their global supply chains. Nestlé recentlyannounced that over 50 percent of its key ingredients will be sourced through regenerativeagricultural methods by 2030.4

All of our consumer goods companies participate in other similar audit services to assurecompliant-sourcing practices are implemented and effective. Most importantly, in all of thecauses addressed above and in hundreds of other products sourced globally throughout ourportfolio companies, we cannot stress enough that their practices today will be obsolete bytomorrow, as companies find new ways to reduce waste. Our companies gain financially inmany cases from sharing in the same efficiencies and effectiveness which drive them today intheir search for ESG and DEI best practices. We look forward to celebrating with you news offuture advances in best practices underway at Gardner Russo & Quinn.I was delighted when my colleague mentioned that she already knew of my commitmentto observing ESG goals given our conversation from nearly 20 years earlier. At that time, Idescribed to her that I believed that, for our best-in-class senior managers of our portfoliocompanies, the best were those managers who dedicated their time and efforts engaged inredesigning and re-examining ways of doing business to ensure that whenever possible they werethoughtful in their approach to the types of issues as those which arise increasingly today forbest-in-class ESG and sustainability practices.I explained how better managers recognize little distinction between running efficientlyand running effectively, for the environment and for the corporate bottom line. “Waste is waste”– polluting discharge is really just a problem awaiting a solution as to how to adopt field bestpractices to reduce, with both profit and the environment in mind, conduct that is both “wasteful”economically and ecologically.Heineken, which has been a top 10 Semper Vic Partners’ portfolio company for over20 years, provides a wonderful example of an ESG-mindful corporation. Heineken not onlydescribed the goal of environmental best practices but they also gave countless examples of howthey have discovered ways to eliminate waste. In one example, Heineken struggled with adverseecological impact of overheated waste water from the brewing process. Their solution was towrap with cold water coils the brewing tanks, in which temperatures reached such scaldingtemperatures. Once wrapped, all incoming cold water flowed around the drums filled withoverheated water discharge. By the time the cold water traveled around the entire barrel’sdiameter, the cold water had been passively heated from having the cold water wrapped tightlyaround the same barrels that previously had simply left heated discharge untreated. Theeconomics of this solution made sense – fewer environmental fines for overheated waterdischarge and less purchase of oil previously purchased to purposefully heat up water rather thanto simply remove the now once heated water from its tank.Heineken took similar steps in countless other ways. For beer packaging, Heineken seekseverywhere they have sufficient market share and route density to use reusable bottles, not virginglass containers. Reusable glass bottles, identical in look and shape to virgin bottles (thoughslightly scuffed by machine handling), can be reused as often as 40 times, driving down the costper bottle to fractions of the cost of cans or of one-way, non-reusable bottles. Waste is wasteful.Heineken’s margins enjoy the benefit of using reusable bottles in an effort to reduce the ecologicimpact.5

Finally, Heineken recently has begun hiring small lot farmers in Africa and in parts ofSouth America to develop beer brewed from locally sourced ingredients, most notably sorghumand cassava. While slightly less full-bodied than beer based on barley and malt, this locallysourced beer nonetheless competes well against the locally home-brewed sorghum beer that, inmany instances, can be lethal if the villagers fail to ensure agrarian standards. Adherence to suchstandards allows for production at fractions of cost of full-priced Western beer. Successfulengagement of agricultural resources entitles Western brewers to greater profits based onreduced excise taxation on the locally produced beer-like beverages. Heineken has recentlytaken ESG standards to an even higher level, pioneering work on their award-winning, lowalcohol/no alcohol substitute for beer – removing 4.5 percent alcohol, while delivering a viablebeer substitute with just under 0.5 percent alcohol by volume.As early as the 1990s, I began celebrating portfolio companies such as Heineken for theiradherence to a doctrine that “waste is waste.” Such companies are aligned with the hunt forbetter practices, eliminating the need to directly treat costly discharge from less innovative orless thoughtful competitors. More importantly, examples abounded even 20 years ago, when wefirst met, that drove better results for the environment and the economy involving firms whichpursue best practices.It is hard to believe that it was over eight months ago that I wrote about our newinvestment which we had initiated late last year, Alibaba. As I mentioned at the time, I had longadmired access Alibaba provides Western investors across a host of consumer productscompanies to Chinese commerce and economy.Alibaba has long provided exposure to China’s foremost commerce hubs, especiallythrough the form of Taobao and Tmall (especially its Luxury Pavilion collections). Withroughly one billion Chinese average annual consumers and roughly 260 million additionalconsumers outside of China, it is hard to imagine shopping in China without involvement in onemanner or another with Alibaba.Alibaba’s focus on serving the needs of both merchants and consumers alike has allowedit to deliver its e-commerce at amongst the lowest take rate of any leading retailers. Alibaba alsoprovides investors access to China’s leading cloud business. Alibaba, in efforts to betransparent, has reported its cloud segment separately since 2017.By reporting cloud results separately, Alibaba allows investors to measure the substantialextent to which Alibaba has exercised both the “capacity to reinvest” as well as Alibaba’smanagement’s “capacity to suffer.” Alibaba’s management team enjoys the “capacity to suffer”as the result of protection from Wall Street’s disruptive censures as a result of protectionprovided them by Alibaba’s founding shareholder, Jack Ma.6

During decades of Alibaba’s greatest growth, Mr. Ma evidenced a preference for takingon projects which, more often than not, eroded reported profits as investments he selected forgreatest long-term growth in intrinsic value on a per share basis burdened reported profits in thenear term.In addition to attractive businesses which possessed the ability to reinvest internally,Alibaba was well capitalized. In late 2020, as we sized up our potential investment interest inAlibaba, we realized that Alibaba had a rock-solid balance sheet and financials in general. Notonly did Alibaba have nearly 71 billion in cash and short-term securities within the company,but they also had investments in a portfolio of over 100 independent, digitally disruptive start-upcompanies. While most start-up investments are in Chinese companies, there are portfoliocompanies that also include non-Chinese start-up businesses. Finally, Alibaba currently has overa 30 percent interest in Ant Financial, which at the time of our initial investment research hadbeen recently valued at over 300 billion of estimated value.Ant Financial’s valuation declined sharply over ensuing months as efforts to embrace“safer” financial capital requirements weighed heavily on near-term reported results.Alibaba was valued at a modest multiple of EV/EBITA of just over 10 times, quitemodest considering the ability the company possessed to reinvest its current, mature segmentfree cash flow into new regions and into new product and service extensions.We also agreed internally that we would keep the position weighting relatively modest(between 2.5 percent and 3.0 percent). We recognized back in late November that the autocraticmoves available to China’s Communist Party head and head of the People’s Liberation Armywere vast, required no public authorizations to exercise, and could prove to be terminallycrippling of one or many of those wonderful companies with substantial competitive moats thatexist at such attractively low valuations within Alibaba.I described to investors late last year my thought process of investing in a company’sshares which possessed multiple business gems, that serve in many instances as the only way thatconsumers could obtain such goods or services, even though such businesses confrontedpolitical, economic, and regulatory headwinds. Alibaba had businesses that provided brands andproducts that consumers believe they cannot do without and could only obtain through Alibaba’sentities.We had witnessed three or four such major pushes for reforms autocratically announcedin China as we prepared for our initial investment in late 2020. Indeed, it was the existence ofsuch unbridled autocracy which we felt was responsible for driving down the share price to thelevel which we felt, for the first time, could justify a modest investment in Alibaba shares. Werecognized risks of confiscation, closure, etc., by executive fiat existed, but reasoned that Chinawould eventually recognize how much they needed the Western-style, modern retail, and arobust innovation pipeline such as that which Alibaba had long provided China.I have proved to be flat-footed in light of near-term performance thus far on our Alibabainvestment. The shares have declined over 25 percent since our first investment. However, few7

could have imagined the pace and appetite of regulatory declarations and investigations sincelate last year. Since November 2020, there have been over 40 major decrees threatening to stripcompanies of products, power, etc. The same 40, in some instances, commenced initiatinginvestigations for antitrust breaches, data breaches, and threats to financial stability (like theentirely unanticipated dismembering of Ant Financial, which started so much of the use ofrecent, heavy-handed autocratic measures). Alibaba has even been fined over 2 billion for pastbehavior that regulators deemed to have had an antitrust impact.Fortunately, Alibaba had ample resources to meet the fine and to begin to espouse theneed for future protections to prevent others (largely Alibaba’s competitors) from having theongoing ability to price future products at their “stores” at prices below their own costs.“Disinfectants”Many of the demands President Xi Jinping and his associates have levied have served asdisinfectants designed to combat toxic risks that have risen over decades of business misconduct.The government has set in motion steps which, if complied with, will in many instances makeAlibaba’s long-term business run more smoothly once the dust settles. Below are some ideas asto how the disinfectant, even though autocratically delivered, may ultimately lead to morehealthy business practices:1. Ant Financial. Ant Financial has had an illustrious run as it was for decades treated as asubsidiary of Alibaba. Indeed, Alibaba relied so heavily on Ant Financial to provide its shopperswith unsecured credit that it potentially contributed in the Chinese markets to systemic risk.Ant Financial was using traditional Chinese capital to fund their consumer purchase loansand was able to underwrite with limited financial reserves. More importantly, there were nocredit checks available at the time to even begin to measure risks which Ant Financial presentedby the time it reached its peak just prior to its collapsed IPO. Ant Financial had a credit scoringsystem untested in a recession. Regulators did not know if Ant Financial’s security would workin a downturn and feared the rapid growth of such loans. Today, Alibaba actually benefits fromthe financial system protection against Ant Financial’s prior risks of lending with little idea ofcredit risks. Ant Financial today shares the credit check business with the Chinese government,an outcome that should eventually stabilize Chinese capital markets.2. Data Security. Given growth in sophistication for internal use of data which Alibabaretained from its consumer transactions, Alibaba quickly became the largest data source inChina. The government resented having inferior data. One area of Mr. Xi’s current pressures isapplied to allowing the government to secure better and more competitive data. Given theChinese government’s paranoia of Alibaba’s data reaching improper users, Mr. Xi has led forreforms that tighten up the potential for random, unsupervised use of data. As standards for datause increase, Alibaba will most likely enjoy their historic ability to deliver more targetedmarketing and in so doing yield better long-term business success.The government fears loss of data to non-Chinese. This fear surfaced with DiDi, whoserecent IPO the Chinese government attempted to forestall so that essential data would not leak in8

the open process of going public. The government’s efforts to limit data collection, at present,should enhance Alibaba’s effectiveness moving forward as the illicit use of consumer datadiminishes with measures intended to comply with tighter government standards.3. Below Cost Pricing. As Alibaba reported its recent quarterly results, Alibaba announcedthat it would be spending all its incremental income this year on new technology and newservices. One area in which this will likely help clean up business will involve reduced pressurefrom the very low cost competitors who offer products for sale below their own costs.Pinduoduo is the biggest such competitor, at present, with high subsidies and pricing well belowcost. Alibaba believed that over the recent period of industry scrutiny regarding below costpricing, its competitive position should improve as the government’s tightened demand shouldhelp drive better business practices.4. Future Investment. Alibaba’s Vice Chairman announced at their recent quarterly resultsmeeting that they would direct all their incremental income this year to investments both directas well as alongside of industry colleagues. They focused on investing in new technology tosatisfy government pressure designed to insist that firms deepen and broaden technologyinvestments.5. No More “Choose One from Two.” One practice which is being cleaned up via thedisinfectant of new practices involved the removal of delivery of food/meals by the eliminationof the “Choose One from Two” campaign. In this campaign, two potential competitive deliveryfirms agreed amongst themselves which firm would get which delivery orders. Onceestablished, that firm would thereafter rely on just one supplier. Historically, this practice wasdesigned to make logistics less complicated. Consumers “Choose One from Two” and will stickwith the same delivery provider, unlikely to switch providers over time. The fact is, however,that over time the delivery system that comes with such shipments should be more available forAlibaba as previously unbreakable choices were set permanently at the outset.6. Increase War on Counterfeit. The war on counterfeit involves ongoing battles that shouldallow Alibaba to compete more effectively, once there are fewer available, low price counterfeitsin the marketplace. Alibaba’s business is based on the merchant taking on enormousresponsibilities for the authenticity of products, etc. Ultimately, there will be ongoing steps fromgovernment reform that will lead to more economic logistics and more robust inspection toassure that the consumer receives authentic goods and services.7. Academic Expectations. Academics really matter in China as controversy over twoextraordinary efforts requested from some recently proposed reforms will highlight. First andforemost was the assault upon the gaming industry leader, Tencent. The episode commencedwith a recognition that the amount of time youth spend before video games (aka “opium of theyoung”) was not healthy nor likely to land one’s child a spot at Harvard. At the same time,however, there was investor fear that Chinese companies involved with providing learning-basedtutorials were making children unnecessarily neurotic about education testing. On the one hand,administrators attempted to outlaw excessive video gaming as it diminishes chances ofacceptance at Harvard. At the same time, other college applicants are today being denied accessto tutorials which allegedly overly stress students applying to the next level of education. Both9

the video game leading company, Tencent, plus a large number of tutorial companies, whoseshares publicly trade, have gained sharp erosion in their market values as a result of these recentattempts to enhance academic outcome by removing distractions and reducing stress.Mr. Xi and his administrative officers have directed reform aimed at improper financingpractices (cf. Ant Financial), data security, below cost pricing, “Choose One from Two”anti-competitive distribution practices, and disruption to academic preparations (eliminate/reducevideo conferencing and severe restrictions on high pressure college admission prep courses.)The above-mentioned steps are just a handful of those (over 40 to date) that have beenpromulgated since November alone.Alibaba has exposure both through directly owned divisions and through their 100-plusportfolio of venture funded start-up businesses. As the leader in so many of its businesses, it isour belief that the disinfectant that presently is being administered to China’s businesses, socialnetworks, and political networks will eventually result in a world wherein the clear marketleaders (like Alibaba) will eventually go from strength to strength as business practices becomemore fair and less cut throat competitive. Sanguine about the pace at which reforms andimprovements will show up in benefits for Alibaba shareholders, we are not the least bitsanguine about the extent to which Alibaba’s shareholders should financially benefit from suchreforms.We are going through a period when headline risk drives share price. For example,The Wall Street Journal and the Financial Times recently reported that SoftBank, a global leaderin Chinese FinTech investing, has recently decided to cut additional investments into the ChinaTech market until the Chinese technology sector “calms.” There is, nonetheless, undoubtedlysystemic selling by global shareholders to eliminate evidence from their portfolio reports ofAlibaba’s recent underperformance. I show just a few examples above of the fi

Diversity, Equity, and Inclusion (DEI), ESG, sustainability, etc., for the three companies on whose shares’ prospects I elaborate. . Unilever deserves credit for delivering transformational advertising for its iconic Dove brand through its “Real Beau