Q:  What is your philosophy in terms of managing money? Why do you believe in it? A: Our philosophy is based on earnings expectations drive stock prices. We stick to buying the companies with improving earnings dynamics and we avoid companies if we have concerns about their future earnings prospects. We believe that earnings are the essence of the stock market – the companies with good earnings see their stock price go up, while the companies with poor earnings see their stock price go down. If we compare Apple to Dell in 2005, Apple was up over 100% based on the strong earnings dynamics associated with the iPod. Dell Computer, an equally good company, saw its stock go down 30% when it began to miss earnings for the first time in several years. Risk control is also a crucial part of our philosophy. First, we remain fully invested at all times. Second, we are sector neutral to the S&P 500 in the Core Growth Portfolio, because we believe that it's stock selection that generates attractive returns over time, not sector rotation. Inevitably, investors get overinvested in a top sector, like technology in 2000, and they are under-invested at the bottom. We also have a disciplined methodology to evaluate stocks. Stocks in the portfolio must meet the criteria of favorable quantitative ranking, favorable fundamentals, and favorable technicals. If any of these is violated, the stock is out of the portfolio immediately. Staying independent is another important aspect of our firm’s commitment to putting the interests of clients first. We've seen what happens when somebody sells to a big insurance company or to a big bank. For us independence means spreading the ownership so that everybody feels involved with the success of the firm. We have 96 employees and 82 of them are equity owners. Equity ownership also gives us the best opportunity to retain the talented professionals on the team. Senior members of the investment team have worked together for more than 12 years. Q:  How does Turner Core Growth differ from the other large growth funds? A: First, this truly is a growth fund. Even though we are sector neutral to the S&P 500, the characteristics of the portfolio very much resemble the Russell 1000 Growth index. Actually, our portfolios tend to have higher P/E than the Russell 1000 Growth index, but they also have higher growth rates. Our PEG ratio tends to be a little more attractive than the growth index. Second, we make sure that we have good exposure to mid-cap stocks, which have performed extraordinarily well over the last several years. We include stocks in our large-cap portfolio once they reach a market cap of $3 billion. Our capitalization never falls below 70% of the benchmark, so there isn't a capitalization drift, but we do highlight mid-cap stocks as a key value-added component. That’s why we have very strict capacity constraints on this product. The Core Growth portfolio caps out at about $12 billion. It is unusual for large-cap growth products to cap out at those low levels, but we want to make sure that we’re able to move in and out of mid-cap stocks. Q:  How would you define your strategy? Is it pursuing growth at a reasonable price? A: The sector diversification results in a few companies that can be considered GARP but most of our stocks tend to be pure growth stocks. If we were to define GARP, the earnings projections would be crucial. For example, we are comfortable owning a stock at 40 times earnings, as long as we believe the company’s earnings can grow at 40% per year. We’d rather own a stock with a PEG ratio of 1 than the stock of a company with a PEG ratio of 1.7. It may be trading at only 17 times earnings, but if its growth rate is 10%, then we’d consider it more expensive than the stock with the higher P/E. Q:  What is your approach in terms of stock selection? A:We have a very disciplined stock selection methodology. You’ll never see a violation of style in our portfolios, meaning that the characteristics are remarkably consistent through all types of markets. We fully understand that some markets favor growth, while some don’t. In general, the stocks must meet three criteria. If any of those are violated, they’re out of the portfolio immediately. The criteria include a quantitative model, technical analysis, and fundamental analysis. The vast majority of the input into the decision making is fundamental analysis. As analysts within the sectors, we like to find rapidly growing companies within rapidly growing industries. They tend to be the leaders within the industries and also have managements with vision. To find these type of companies we visited over 500 company managements last year. We have a model that we have used since we opened our doors in 1990 and we’ve enhanced over the years to make it highly predictive. The model ranks stocks by sector and size, but accounts that the factors predictive of large-cap healthcare stocks can be quite different from the factors predictive of small-cap financial services, for example. It is a model that each of the analysts uses to focus on the top-ranked stocks. Q:  And what would be a good reason to sell a stock? A: As growth managers, we have an immediate sell discipline, meaning that we sell stocks at the first sign of earnings concerns. We never violate that rule at our firm and we’ve had it in place for a long time. From a fundamental standpoint, it means selling if we feel that a company is going to miss earnings or if earnings deteriorate. Over the years we’ve learned that the gap between growth and value is really large and we don’t want to own a stock when it is adjusting from growth to value. From a quantitative standpoint, the valuation can get a little too high. We’ll capture that and it might be a reason to sell. On a technical basis, if the stock begins to underperform relative to the sector, that might be a sell signal. Q:  Is there a specific reason for overweighting mid-caps or you go where you find value? A: If we let them enter the portfolio at $3 billion market cap, then we have the opportunity to capture growth as if they become $10 billion companies at some point. Chico’s, Coach, Marvell, and Broadcom, are probably the best examples of that. There are other midsize companies, like Williams-Sonoma and Ralph Lauren in the consumer segment, or Micron in technology, that have done reasonably well, but they don’t have the explosive growth of Broadcom, Marvell, Chico's or Coach. A few new mid cap stocks we have are Scientific Games, with market cap of $2.9 billion and Gamestop, a relatively recent IPO, which merged with Electronic Boutiques. In technology, now we have F5 Networks and Salesforce.com. When we put mid-cap stocks in the portfolio, it is because we believe they can become big-cap stocks over time. Q:  How is your team structured? A: In growth equity, there are 16 of us who do this full-time. It is a unique approach because we are both analysts and portfolio managers. While I am the lead portfolio manager on our large-cap growth products, I’m also a member of the tech and telecom teams. William McVail, our lead small-cap growth manager, is a member of the consumer team. We all sit in a central investment center to make sure the team has open and immediate communication. Because we focus on small, mid, and largecap stocks, many stocks in the large-cap portfolios are the companies that we’ve analyzed when they were small or midcap stocks. The compensation of every member is based on how we perform as analysts and portfolio managers. That strengthens the team concept and also the concept of putting the client first. If the large-cap portfolio is doing well and I’m doing my job effectively, that also means that all analysts within their sectors are doing their job well. Q:  How do you approach portfolio construction? A: We use restrictions, such as a 5- percent limit on individual positions. Occasionally, we’ll be higher than that, especially with larger companies, but generally we wouldn't overweight a stock more than 2% of its benchmark weighting. That’s how we keep the stock in check and the portfolio diversified. If a company is about $3 billion in market cap, which is our entry point, it would typically represent 0.5% of the portfolio. As that stock grows to $4, $6, or $10 billion, we would go up to 0.75% and then to 1% or 1.25%. Q:  Can you give us a few examples in which your research process helped you identify stocks and some examples of stock picks that did not work out for you? A: Marvell Technology is a classic stock for us. The company came public in June 2000 and I remember sitting with the management and saying that if they are able to execute their strategy, Marvell is going to be highly successful. They just had outstanding engineering; they were developing chipsets for the emerging segments of technology, notably communications. They had a dominate position in the HDDs used for laptops and then they moved to the MP3 players. The company was founded by a family and there wasn’t venture capital stock continually flooding the market place. Then they brought in a good CEO because they were good at chip making and needed somebody who was good at running the company. It's executed perfectly throughout. The stock went way up after the IPO, then came down, but they’ve never missed earnings expectations. I’m amazed how they continue to design for the new emerging technologies - now it is a chipset for wireless LAN that is supposedly the best in the marketplace. That’s what we continually look for. Yes, we want the earnings to be good, but we’re always looking at design wins. We bought it when capitalization was $1.5 billion and now it is about $18.5 billion. We like today as much as we liked it when it became public. Q:  Did you hold on to Marvell's stock during its collapse? A: Technology was a challenge when all those companies were collapsing, but this is one that kept delivering throughout. For the most part we were there, but there was a point where we stepped aside a bit. We view the bubble bursting as a situation that every other generation experiences and when weird things happen. Now our goal is to identify the next Marvell. Most stocks in our portfolio are those that our analysts feel that they could come back to the office five years later and find them at much higher price. We are glad to buy companies like Micron or AMD, which just have a good product cycle and can go up 50% or 100%, but at the end of the day, they aren’t the stocks that will grow consistently over a five-year time frame. Q:  What kind of risk do you perceive, measure and control? A: We’ve got three broad risk concepts. Above all is the portfolio structure, being fully invested and sector neutral, then comes diversification and position size based on capitalization. Second, we have a daily risk report on the portfolio characteristics in terms of P/E, growth rate, BETA, capitalization, etc. It shows our biggest overweights and underweights. Third, there are weekly and monthly attributions reports from of our client service team. On a quarterly basis, we have a thorough meeting about where performance is coming from, where we are detracting, or if and how portfolio characteristics have changed.