Q: What is the AmSouth Fund Family? A: We manage a little over $15 billion. Within the mutual fund complex, we have eight equity funds, and we refer to it as a diversified equities strategy. In fact, the tag line on the AmSouth fund complex is “Performance through diversification.” We really believe that investors need to be very well diversified. We think that folks need to have both styles in the large capital arena in their portfolio as well as mid-cap, small-cap and foreign stocks at their disposal. We put all this together for an investor and, as I saIdent, we call it our diversified equities strategy. On the fixed income side, we have a limited-term bond fund, a regular taxable bond fund and a government income bond fund. On the tax-free side, we have a Florida-only tax-free fund, a Tennessee-only tax-free fund and a general municipal bond fund. And then, of course, we have a standard array of prime as well as Treasury money market funds. What asset management here is all about is trying to provide high quality investment products in a very diversified approach to our clients and wrapping around that incredible levels of service and relationship building. Q: What is the smallest individual account you accept? A: The smallest separately managed equity account is $500,000. Q: To add stocks to your approved list, what procedures do you use? A: We divide all the stocks in the S&P 500 among the growth and value teams and rank them 1 through 4, a 1 being a “strong buy,” a 2 being “buy,” a 3 being “hold” and 4 being “source of liquidity” within the portfolio. There are different criteria. For instance, on the value side, the fellow who runs the value team has a “GARP-y” approach to life. He wants to look at good values, but doesn’t want dead money. He is looking for stocks where there should be some kind of catalyst to cause that security to perform well over time as opposed to a “cheap” stock that remains a “cheap” stock and should remain cheap because it might have a broken business model or something else. We also look at whether stocks are being recommended on Wall Street, whether they’ve beaten earnings expectations, some of the technical things that other folks look for, once again trying to see if the stock is actually going to have some kind of a catalyst to move it higher. The growth side is a totally different approach. As you would expect, the key there is earnings. And we’re looking for companies that are generating earnings at a faster pace than what the consensus is looking for. A good example of that strategy is our Capital Growth Fund. I guess the overriding theme is the concept of diversification, but then we’ll be true to each particular style. Q: How fast can you act on an investment decision? A: Immediately! I define for our investors the style box or the investment objective in each one of our funds or each one of our products, like equity income, which is a product rather than a fund. The folks running them have complete authority to make investment decisions within those portfolios, and they don’t have to run any decisions by me. What I am doing is I am constantly reviewing performance on a daily basis. I am reviewing holdings in the portfolios. We are having more formalized monthly meetings. And I am getting monthly reports in terms of characteristics of the portfolio vis a vis the characteristics of the market benchmark, attribution analysis in terms of where the returns are coming from, these types of things. I allow my folks to manage money. I give them the freedom and the leeway to manage the money as long as it is within the style that our clients expect. Q: What’s your take on the mutual fund market for the rest of the year? A: I think we’ll see fund inflows into equities funds largely because of an outlook for a better economy. When you look at the amount of monetary stimulus that is in the pipeline, and now the fiscal stimulus that is being added on top, along with lower energy prices, I think there are a lot of things pointing to the economy doing better in the coming period. On top of that, we’ve got the decline of the dollar, which is going to help as well as the decline in fixed income yields. So we think the economy is going to do better and therefore the stock market is going to do better. We think we will see a pickup of inflows into equity mutual funds for the remainder of this year and into 2004 and we’ll probably see some outflows from the fixed income funds. I think the Bush administration as well as the Federal Reserve has made a concerted effort to reverse investors’ preference for liquidity. It has basically grown out of the three-year bear market and domestic and global terrorist threats. They have done so by increasing the after tax returns on common stocks, by reducing the interest on money market vehicles to 1% or less, and by getting out there and talking about threats of deflation. They have actually led investors to move yields down further on two, five, 10-year and 30-year Treasury instruments also. We think it will be a much better year for the mutual fund industry in 2003 and into 2004 than the last couple have been. Q: What sectors do you think will be the strong points from an investment standpoint? A: There’s a yield mania in the market at the moment, largely for what I just said. The after tax return on common stock income is going up while fixed-income yields are still low. Dividend paying stocks with the potential for growth in dividends is clearly a theme that is going to have some legs. Secondly, I think that on the growth side, technology is the place you have to be with a pickup in the economy and with the replacement cycle. The stuff that was put in place for Y2K is over three years old now, and there continues to be further developments. We think technology could be surprisingly strong. I don’t think it will be like the latter part of the 1990s, but we think technology spending will pick up in the economy, and one of the key reasons is that in a low inflation environment companies can grow their profits by becoming more productive and more efficient. Q: How will the $350 billion Bush tax plan impact investment strategy? A: It will have an impact in a couple of ways. There are two pieces to it. One is stimulus and one is reform. From the stimulus perspective, and there is stimulus in all of the parts, you might not say the dividend relief is all stimulus, but there is some stimulus there. What that will do basically is help the market in general. The other and perhaps more interesting perspective has to do with the reform in cutting the capital gains rate to 15% and then aligning the taxation on dividends to that 15% also. I think there are two things. One, I think the beneficiaries go beyond high dividend paying stocks to companies that generate good earnings, cash flow and non-trivial dividend payouts that will likely increase their dividends payments over time. That’s one issue. The other issue is because the drawback to this legislation is the sunset provision in 2008. We think the provision is long enough to affect corporate behavior in terms of dividend policies. We also think that it is long enough that it is very likely to be re-upped, if you will, by Congresses down the road and made more permanent in nature. We believe that is going to affect corporate behavior. That is, when you have an equal tax rate for dividends and capital gains (i.e. retained earnings), we think companies will view this as a long-term feature of the tax code and will change their behavior accordingly. You will see a return towards a higher dividend payout and less share repurchases, and investors will begin to get a larger part of their return that they had during the 1990s in the form of dividend payments as opposed to solely capital appreciation. From a corporate-governance perspective, that has to be really positive because you cannot do accounting gimmicks to pay a dividend. You’ve got to have the cold, hard cash in order to do that. I do think it will benefit the perceived soundness in investing in common stocks and that we will see dividends become a larger portion of investors’ returns. Q: What’s your take on deflation? A: Here’s my take on deflation. First off, why is deflation showing up? One, since October 1979 the Federal Reserve has obviously done a terrific job of slaying the inflation dragon under Paul Volker and then under Chairman Greenspan, and you can only disinflate just so long until you get to zero or pretty close to zero. Secondly, coming out of the explosion in capacity of the latter part of the 1990s associated to the capital spending binge around Y2K and then followed by a drop-off in demand through the recession and then the heightened geopolitical uncertainty we’ve had the last couple of years, we’ve got a situation where supply is chasing demand in the economy. That has caused disinflation to even accelerate and give off whiffs of deflation. An example is to take a look in the CPI, you take a look at the year-over-year basis on the core goods, so this would be the goods component less food and energy, it’s down 1.8% year-over-year April 2 to April 3. That’s where deflation is showing up in the economy. Why is it a problem? It is a problem because consider any business that carries inventories. I don’t care if you are a manufacturer, wholesaler, or retailer. It’s really tough to do business when the value of your inventories comes out less than when they went in. It is a very difficult business environment. I’ve always referred to there being a sweet spot. To me the sweet spot in inflation is the 2% to 4% range – it’s not so high that it distorts economic decision making, but not so low that you have problems carrying inventory. The other problem with deflation is when consumers expect deflation. They will postpone purchases, and that therefore leads to a vicious cycle of companies needing to lower employment levels of wages, which leads to further decline in demand, which leads to further decline in employment wages, etc. It’s a downward spiral. Those are the two problems with deflation. Q: On Monday, May 26, 2003, the Dow Jones Industrial Average rebounded over the 20% mark from its October 2002 low. That means that all three major stock market indices have done so. Does that mean we are out of the bear market grasp? A: I believe so. If you take a look at what I wrote back on Feb. 1st, I saIdent, “2003 should be the year when common stocks again outperform high-quality, fixed income securities. Both the Bush administration and the Federal Reserve are trying to reverse investors’ preference for liquidity, arising from a three-year bear market and on fears of domestic and global terrorism, by raising the after tax returns on common stocks and by pushing money market rates close to zero. The combination of dividends tax relief, reduction in capital gains tax rate on common stocks, acceleration in the reduction in marginal tax rates and better earnings expected from positive cost cutting, and it could mean that the biggest risk could be in not taking a risk. Accelerating the rate of economic growth, higher common stock prices require risk taking. The groundwork is being laid to bring risk taking back into vogue.” We believe if you go back to July 23, 2002, Oct. 9, 2002, March 11, 2003, with the true low point being Oct. 9, we got a triple bottom and we think the bear market is over. Hopefully, it will not be a runaway bull market because it is short lived. But I think we are in a period of rising stock prices, i.e. that the market is going to have more things, more of the wind at its back than in its face over the coming, let’s say, 12 to 18 months.