Q:  What is your investment philosophy and how does it differentiate your Funds? A: The SmartGrowth Lipper Funds are the result of our attempt to blend asset allocation with exchange traded funds, and aim to provide for an optimal portfolio solution for investors looking for growth, while balancing risk at the same time. Our investment philosophy for these Funds stems from our beliefs and observations about investor needs and behavior. After the bear markets between 2000 and 2002, we saw investors moving towards asset allocation oriented products like target maturity funds, lifestyle funds, and separately managed accounts. We also saw the emergence of a relatively new product, the exchange traded fund, and we acknowledged its diversification potential, transparency, tax efficiency, and low cost. We approached several different market data providers in the industry, and we selected Lipper, a Reuters Company, to turn our idea into reality because of its renowned research in the mutual fund and the ETF space. We have great respect for Andrew Clark and his research team, and we believe that they have introduced a groundbreaking methodology to the asset management community. A main differentiator of the SmartGrowth Lipper Funds is that they are target risk funds, not target maturity funds. Their underlying indexes are created and managed by Lipper based on the assumption that not all investors have the same financial resources or objectives. As you probably know, that is a big difference with target maturity funds, because target risk funds like the SmartGrowth Lipper Funds seek to generate maximum potential return for different levels of risk. For example, a 60-year old investor may be eager to take on a little bit more risk in his IRA than in the outside accounts, while a target maturity fund doesn’t necessarily address that. Another key differentiator is that the Lipper indices don’t set any artificial constraints on top of each portfolio. They don’t define a balanced portfolio as being 55% in equities and 45% in bonds, and then optimize below those constraints. Overall, Lipper evaluates every available ETF and arrives at a subset of ETFs through an unbiased and quantitative process. The indices may include commodity-oriented, currency-oriented, traditional asset class, or geography ETFs, in a diversified portfolio that has enough uncorrelated underlying securities to deliver the diversification that most investors are looking for. Q:  Could you explain in more detail the classification of target risks? How are the separate risk categories defined? A: Lipper has launched five different target risk indices, which range from very conservative to aggressive growth. Andrew Clark, the head of research at Lipper, has often said that the standard deviation of the very conservative category would be about 10%, while the deviation of the aggressive growth category would be no greater than 20%. Obviously, the three indices in the middle would fall in between. At Hennion & Walsh, we have launched three open-ended mutual funds, the SmartGrowth Lipper Funds that track the conservative, the moderate, and the growth-oriented indices of Lipper. While all the indices are growth oriented, some of them take on more risk in the portfolio with the goal of providing more growth potential. Q:  How would you describe the typical investors who would take advantage of these funds? Who is the product most appropriate for? A: I truly believe that the SmartGrowth funds can be beneficial for virtually any household portfolio. They could be a core portfolio or a satellite holding depending upon each investor’s goals, but they certainly could fit into any investor portfolio to some degree. After all, everyone is looking for and needs some diversified growth in their portfolio. Even if your portfolio is concentrated in fixed income, you still need to maintain the purchasing power of your dollars (i.e. keep up with inflation) and to build in some diversification. Investors need to remember that all asset classes do not move in lock-step with one another. In June, for example, rates were rising and bond prices were going down, while equities went up with both the Dow Jones and the S&P 500 surpassing their all-time highs. The SmartGrowth Lipper Funds would fit the needs of investors at the early stages of their investment careers, who are looking to take on risk in the portfolio, but don’t know what stocks to pick, how to time the market, or how to use ETFs effectively. Investors who rely on fixed income may need some inflation hedge built into their portfolio. These investors often don’t understand the equity market and are afraid of the volatility associated with it, so our Funds would provide a viable solution for them. An investor who actually has an IRA, or an old 401K rolled over into a traditional IRA, may be looking for growth. He/She may not know what stocks to pick and are afraid to try and time the market so they might select the SmartGrowth Lipper funds to help address their specific needs. In essence, this is an actively managed portfolio of passive securities. Our Funds provide investors with Lipper’s independent and professional research that guides their portfolios, active management that updates the portfolio on a quarterly basis and strives to keep the Indexes and associated index tracking Funds positioned to outperform without taking on too much risk. Q:  What is the rationale behind creating and supporting the underlying Lipper indices? A: I would certainly recommend that you speak with Andrew Clark of Lipper as well, but as I understand it Lipper begins the process by evaluating every available ETF in the U.S. marketplace. It applies initial selection criteria, which consist of four key components. First, they eliminate the ETFs that haven’t been active for at least six months. Liquidity is another important criteria and Lipper requires at least one million shares traded per day at this point in time. Then they look at the expense ratios to select the ETFs with lowest expenses. The final cut is the highest correlation to the underlying index. That process narrows down a current universe of about 600 ETFs down to about 200 ETFs. Then, they perform a statistical routine factor analysis to narrow down the universe of ETFs even further. Through that analysis they arrive at the smallest number of ETFs that explains the variations in the larger remaining set of ETFs. At its conclusion, the universe of ETFs further declines to approximately 39 ETFs. The next step is to perform a mean variance optimization (“MVO”) of these final 39 ETFs to create an optimal combination of ETFs for each portfolio. These combinations aim to deliver the maximum potential return for the quarter within each of the different risk profiles. This process is run at the end of each quarter. There’s no subjectivity, no predictive element, and no human emotion involved in the selection of the ETFs or the construction of the portfolio. The process follows a strict methodology and it is probably worthwhile to point out that Lipper has applied for a federal trademark for this methodology. Q:  How do you construct the portfolio based on the Lipper ETF indexes? How does the transition from an index to a fund occur? Do you mirror the Lipper indices entirely? A: A lot of this information can be found in Funds’ Prospectus, which I would strongly encourage any potential investor to read before making a decision to invest. A copy of the Prospectus can be obtained by calling 888-465-5722 or downloading one at http://www.smartgrowthfunds.com We track the Lipper indices and we stay as close as possible to those indices. One of the great features about the composition of the Lipper ETF indices is that the new ETFs that come into the marketplace provide the opportunity to build diversification into a mutual fund that was difficult to achieve before. There are so many new ETFs for different market niches, geographies, currencies or commodities and even more in the pipeline as I understand it. In fact, there are so many ETFs in the marketplace now, almost to the point of saturation, that advisors and investors alike have become confused in terms of not only how to differentiate them but also how to use them effectively in portfolios. With the ETFs, you even have the opportunity to build hedging strategies. There are ETFs available now that actually allow you to short certain indices, which you generally would not see in a mutual fund. Unlike a traditional equity manager, we don’t have to pick the right stocks in our space and diversify them. Using the Lipper Funds, we can pick 14 different ETFs in 14 different sectors, geographies, or asset classes and gain exposure to 2000 or 3000 different underlying securities. That basis provides very interesting portfolio modeling opportunities for us. Q:  Could you give us some background information on your company? How did you arrive at the decision to provide these specific types of funds? A: Hennion & Walsh, with our principal headquarters located in Parsippany, NJ, opened its doors back in 1990 and was founded by partners Richard Hennion and William Walsh. The foundation of the firm rests in conservative fixed-income investing with a specialty in tax-free municipal bonds. That conservative philosophy extended over to the growth/Equities side of the business, when they hired me three years ago to build the conservative growth component to our client portfolios. Combining asset allocation with ETFs was a natural extension of that philosophy. We manage 13 different proprietary unit investment trusts (“UITs”) under the brand name SmartTrust, which range in investment objective from tax-free income to taxable income to growth to a combination of growth and income. We also offer fee-based managed money programs to individual investors as well as small-mid sized company 401(k) plans. These managed money programs offer access to diversified portfolio solutions through mutual fund wrap portfolios and separately managed accounts. Finally, we now have the SmartGrowth Lipper Mutual Funds to offer as another conservative growth investment option. However, this product is not designed only for our clients; rather, it responds to a particular need we see in the marketplace. To this end, we have hired SEI Investments Distribution Co. to serve as the Distributor for the Funds and we are working in partnership with them to get the Funds up on many of the leading platforms in the industry for Brokers and Advisors to access. Q:  Looking at the big picture, where do you believe the majority of investors belong in terms of demographics, income, wealth, or asset class? A: Target Maturity Funds have a pre-set strategy that is the same for all investors in certain age bracket, regardless of their specific demographics, needs, or resources. Yet, when investors aren’t forced into that type of “one size fits all” structure, in other words, when they are allowed to pick their own asset allocation strategies, often working closing with their Financial Advisors, they tend to select a moderate or a growth portfolio, regardless of their age. To this end, I believe that the majority of new deposits into asset-allocation funds go into the growth-oriented or the moderate asset allocation strategies. The SmartGrowth Lipper Funds allow investors to work with their Financial Advisors to determine the most suitable risk profile for their particular needs. Of course, if an investor starts with a growth oriented fund, that doesn’t mean that he/ she wouldn’t be able to move into the Moderate or the Conservative Fund if the need arises in the future. To reiterate, one of the important features of our Funds is that they are not predetermined to provide a certain weighting in high-level asset classes, such as bonds and equities, and then constrained to optimize only in the traditional sub-asset classes. Rather, the SmartGrowth Lipper Funds provide exposure to more niches, sectors, currencies and commodities than you will see in most other target maturity or asset-allocation lifestyle products sold in the market today.