Q: What is the investment philosophy of the fund? A: We think that the market is highly inefficient and there are tremendous opportunities that can be exploited. We do not believe in the concept of passive investing. Whatever market index you are targeting, we believe it can be beaten by a lot over time, not just by one or two percentage points. We invest in a diversified portfolio of domestic stocks that we think present the most favorable potential for capital appreciation. We employ a bottom-up investment approach because we think that if you buy the right companies at the right price the stock will outperform the market. Q: How does your investment philosophy translate into the actual investment strategy? A: Our approach has been time-tested for two decades with our personal investments, and has been documented in our prospectus. Our investment strategy is based on two important things - growth in earnings and revenue growth and the price you pay. We review the financial statements of companies to identify those that report substantial sales and earnings growth. We also calculate a price to earnings ratio using our proprietary formula and we aim to find companies whose earnings multiple has decreased substantially over the prior twelve months. Then we focus on earnings per share growth, earnings guidance, and the balance sheet of the individual companies. We are looking at the quarterly profits - not only do we like them to be growing year over year but we want them to be increasing sequentially, too. We are looking for quarterly earnings growth of 25% year over year and annual sales growth of 20%. Q: Do you look at the trailing 12-month earnings or the forward earnings? A: We don’t just look at the trailing 12-month earnings because we think that they are stale. We do not put all the weight in the forward earnings because they are not in the bank yet. We take a blend of the trailing 12-month earnings, the forward earnings and the current quarter earnings, extrapolated. We look at the GAAP and the fully diluted earnings. We also compare current earnings with the fully diluted from last year. No stock goes in the fund if it didn’t have the minimum 25% earnings growth but we do not exclude anything. We invest in all of the market capitalization tiers, from small to large-cap stocks. The smallest stock in the fund has a $13 million market cap and the largest stock is Exxon Mobile, which is also the largest stock in the US by market cap. Q: What is unique about your screening process? A: In a nutshell, we focus on individual stocks with strong growth potential that are currently undervalued as we believe that these stocks can offer good returns whether the market is up or down. Our investment strategy is very disciplined – all the stocks that qualify, regardless of style or company size, have to meet a number of established criteria. Historically, this screening process has helped us identify future winners long before the market. When we say we are a “go-anywhere fund”, we really mean it. Some people say that too, but they won’t buy a $10-million market cap, they won’t buy a bulletin board stock or a pink sheet stock. We don’t invest in stocks that you cannot sell. We might not like the bid we get but there is a bid on everything we buy. We believe that our proprietary multistep stock screening process helps us identify companies poised for 100% growth within 12 months. From our analyses of over 9,000 stocks each quarter, we select what we believe to be the fastest growing companies at extraordinarily low prices that meet our specific growth criteria and valuation characteristics. We believe that a majority of mutual funds really offer nothing unique or special. They are essentially “closet indexers” which hug very close to whatever index they are trying to beat, usually tracking within a percent or two either way of the index. Because of this, you’ve witnessed many advisors and investors throwing in the towel and giving up to just use Exchange Traded Funds, versus really looking for managers who try to add real value with active management. We believe over time, our process over a market cycle will provide investors a fighting chance to outperform the markets, although we offer no guarantee of such performance as only time will show how our fund delivers. We revisit all 9,000 earnings reports every quarter. We are looking at 36,000 reports every year. It is not as time consuming as you think because the minute we don’t see the earnings up 25%, we go on to the next report. We just have to get to 500 or 600 companies out of the 9,000 and then we can really start dissecting them one by one. Q: What drives your buy decisions? A: We are looking to buy stocks at about half the value of what they are worth and sell them when they trade at or above their intrinsic value. We are not looking to hold these stocks if they trade above our estimated value. When we buy a stock we have to truly believe that it has the ability to double. For example, when Dell Computer went public and issued its first quarter earnings report, it qualified under our system and went in our portfolio. The stock was $8 and it quickly went to $16 and was sold. It was never purchased again because it never re-qualified. Q: Could you describe your sell discipline in more detail and perhaps illustrate it with a historical example? A: We employ a strict sell discipline in order to minimize loss and free capital for new, high-potential positions. When we come to work, the first thing we want to watch is the stocks we own. We look at the news on every single company before the market opens. We do this with the help of a computer; we also read newspapers, cut earnings reports and dissect press releases. We’re checking our 200 stocks six times a day to see if there’s any reason we should sell any of them. One stock that we sold was Schering- Plough Corp. (SGP). We decided to sell it after it reported a loss for the quarter and the year hurt by charges from its purchase of a biotech company. The quarterly results were better than the analysts had expected and the company’s shares rose but still we sold the stock as it no longer met our criteria. Most money managers will find it more logical to hold onto a stock that has doubled as it might have further upside but we believe that it is better to sell because doubles are just so important. If you don’t take them, they can just evaporate because there is no guarantee that those gains will continue. However, our investment model permits repurchasing a stock later if it again meets the criteria and qualifies. Q: Do you believe in stop losses? A: No. We have a lot of stocks we buy and they just go straight down with no news and no reason. That doesn’t bother us at all. Stop losses just don’t make any sense if you like the stock, why you would allow yourself to be stopped out. In nine out of ten cases you’d sold a great stock just because the markets are volatile. Q: How exactly do you calculate the price to earnings ratio with your proprietary formula? A: I cannot disclose much detail because this is what we call ‘the secret sauce’ of our money management model. Given our formula on the P/E ratio, basically we are going to forget about what happened in the past. The formula is not a fixed formula - it has pieces to it and the pieces can click in and click out. It’s very important how you do the valuation part of the equation. Sometimes when we apply the formula all we have is the trailing earnings and the quarterly performance. If a company meets our valuation screen, given what we know and what we have to work with, it will obviously meet somebody else’s valuation screen too. We can see what is happening on the stock chart and this is without anybody recommending it as ‘buy’, ‘sell’ or ‘hold’. We believe that every company, no matter how little it is, gets discovered when it starts doing well. It is going to get on somebody’s radar, and nine times out of ten when a stock is added to coverage, it’s added as a ‘buy’. You don’t pick it up unless you are excited. We do not target stocks that aren’t followed but we are not afraid of little companies that have no analyst covering it. Q: What kinds of risk do you monitor and what do you to mitigate it? A: We are not nervous about the stock market in general as we can’t control that. We worry about what we can control. We worry about company news and if we have some kind of fact that worries us, even though it could be our interpretation, we sell. We believe that in this way we avoid the big blow ups that can ruin a fund because the managers fall in love with the story. Coca Cola, for example, is back at the same price it was ten years ago. People were smart when they bought it and for the first five years they were geniuses. Then, basically, they have tied up a large amount of capital for ten years in something that’s not making them any money. The stock is up a little or down a little and Coca Cola is not exhibiting the same qualities as it did 15 years ago. Obviously, they have fallen in love with the stock and they don’t have a very good sell discipline. We miss a lot of the downside because we are out so fast but this is our number one risk control tool. You cannot eliminate the risk the minute you put your toe in the stock market, but you can reduce portfolio risk overall by having high minimum hurdles of profit and sales growth. Even in the best diversified fund, you are 90% at risk, if not 100%, because there is no guarantee Wall Street opens tomorrow. Stocks can go up violently and they can go down violently and investing in stock is inherently risky. As soon as you go out of a T-bill, a certificate of deposit or a money market fund, you are at risk.