Q:  What is the investment philosophy behind the fund? A : This fund’s investment philosophy is focused on high quality businesses with experienced management teams and proven records of performance. I additionally look to keep risk low and volatility in check by screening out the higher risk ideas in the investment universe and adhering to strict portfolio construction parameters. My investment philosophy will produce different results in different types of market conditions. In a more speculative market, this fund is likely to lag the more aggressive mid-cap growth funds due to my high quality focus, but history shows that such market cycles typically don’t last very long. At the same time, it’s those same high quality companies that are more reliable and perform better in a difficult market environment. My objective is to provide shareholders with consistently strong long-term results and part of that is making money in good years and not giving it away in down years. Q:  How do you put into practice the investment philosophy of the fund? What is your investment process? A : The fund focuses on industry leaders with strong management teams, as well as companies that have strong financials and low debt on the books. To begin, I only invest in the best players in each field. These are companies with experienced management teams that have achieved leadership status within their industry through solid growth over the years. I am not looking for wannabes or can bees. For example, in the industrial area, the fund is invested in Expeditors International, the leading company in the freight forwarding industry. Additionally, in the healthcare services sector, we hold Health Management Associates, which owns approximately 57 hospitals in the Southeast and is widely regarded by most experts in the medical field as the best hospital operator in the country. Typically, leadership positions in certain industries tend not to change that easily over time, if at all. Take for instance Whole Food Market, Inc., one of my core holdings. They are the world’s largest retailer of natural and organic food and I believe that they will continue to be going forward. I also look for companies with strong financials, including high levels of sustainable earnings growth. Traditionally, proven companies with sustainable advantages are able to achieve consistently strong earnings over long periods of time. The fund’s holdings, on average, will have the highest return on equity and on assets in the industry, in addition to posting high margins and margin expansion. Finally, I focus on companies with low debt and leverage. The average company in the Russell Mid-Cap Growth Index, the fund’s benchmark index, has 37% debt-to-total cap, while the fund’s holdings have 13% debt-to-total cap. Companies with strong balance sheets signifies to me that management knows how to run a business for the long-term. Q:  How do you define and calculate growth? A : One of my primary goals is to invest in companies that can grow their top line sales at least 50% faster than the nominal GDP. That means if the economy is growing at 6%, I expect the fund’s holdings to grow at least a 9%-10% pace. Companies in the fund’s portfolio tend to be growing by 15%-20% in sales. What’s more, we also look for our companies to grow their earnings at least 50% more than the S&P 500 long-term rate, which is between 7% and 7.5%. For the last five years, the fund’s holdings have averaged 24% earnings growth and 22% top line growth. Q:  What is the fund’s universe? Will you comment on your research process? A : My definition of mid-cap ranges from $2 billion to $11.5 billion. Presently, 89% of the companies in the Russell Mid-Cap Growth Index have a market cap between $1.5 billion and $12 billion. If a company doubles it market cap at a quick pace, I could be forced to sell, therefore I focus on midcap companies between $2 billion to $6 billion. We screen out the higher risk ideas from our universe, like foreign securities, IPO’s, high debt companies and concept stocks, and from there, are often left with fewer than 200 viable names from which to choose. After the initial screens, the next step in my research process is management assessment. As I noted earlier, it is my belief that an experienced management team is crucial to the long-term success on any company. I spend a great deal of time talking to various management teams and in my 18 years of doing so; I have learned exactly what I need to focus on. I want to understand more about the core of their business, their competitive advantages and sustainability of growth over the long-term. If I feel satisfied and confident with a company’s management, I will start the fundamental analysis, which includes analyzing valuations and talking to Wall Street analysts. Then, if the stock meets all these criteria, I will put it on my final evaluation list for new additions to the portfolio. The fund will typically hold between 50 and 70 securities at a time. Q:  Could you elaborate on your allocation limits? A : Currently, the largest position in the fund is 2.6% of the portfolio, while the 15th largest is 2.2%. I want to keep the fund well diversified, so I avoid overweighting specific industries. Since I focus solely on industry leaders, there is really no overlapping of industries within the fund’s portfolio. Thus, the fund’s good 2004 performance was not the result of lucky stock picking or overweighting a strong-performing sector. Q:  Could you discuss your sell discipline? A : My primary sell discipline is a fundamental long-term change. I hold companies for the long-term and, in doing so, I am looking for a change such as a significant loss in market share, management change or a severe technological change that may pose a threat to the business. The second component of my sell discipline is valuation, which I use primarily to trim positions. If a company appears highly valued on my proprietary model, I will trim it back. Typically, I do not sell stocks due to high valuations because I have found that great companies will often surprise you in the long run. What looks overpriced today might be fine three years later, however, it is a good discipline to trim these stocks back. I also have my $10 rule, which will not allow me to keep a stock when its price drops below $10 a share. Historical research shows companies that have fallen below $10 a share have rarely recovered and a stock price around $5 may become a high bankruptcy risk. Needless to say, high quality and bankruptcy do not belong in the same sense. Q:  What is the turnover ratio of the fund? A : I consider myself an investor, not a trader; therefore I tend to own companies over longer periods, in most cases for at least 10 years. In addition, I am usually fully invested, keeping the fund’s turnover low. While the target portfolio turnover is from 20% to 50%, the historical turnover has been from 20% to 30%. In our business, we tend to say that past performance does not guarantee future performance, but it is a fact that most good companies remain on a good course, while bad companies usually stay bad. Great companies are not great for one week or one month only. Q:  Will you sum up your risk management controls? A : By focusing on sustainable earnings, an experienced management and good balance sheets, I attempt to take risk out of the portfolio. You also need to maintain a strong discipline in order to sell on valuation and technical issues, as well as follow certain diversification rules. There will always be recessions, but a seasoned management has the experience to lead a company in a depressed economy. My portfolio outperformed in the bear market because industry leaders are always the last companies to be sold off. This translates into significant downside protection for the portfolio. Traditionally, my fund has had better alpha levels than the category average and lower beta than the benchmark, so I am getting higher returns with lower risk.