Q:  What is the history and objective of the fund? A : Founded in 1911 in New Orleans, Villere & Co. has operated continuously for almost a century by four generations of the Villere family. We are a registered investment advisor with over $1 billion in assets under management. The firm launched the Villere Balanced Fund, the first independent no-load mutual fund in New Orleans, on September 30, 1999. The no-load fund, with assets of about $80 million, keeps between 60% and 70% of the portfolio in stocks, with the remainder in bonds and cash. The Villere Balanced Fund focuses on long-term capital growth, consistent with preservation of capital and a balance of current income. Q:  What are the core beliefs of your investment philosophy? A : The fund seeks to invest in small-cap stocks that are out of favor. To this end we pay attention to undervalued assets and growth potential unrecognized by the investment community. We search for companies with sustainable growth that can provide above-average returns during periods of market strength and help to preserve capital during periods of market weakness. Q:  How does your philosophy translate into the fund’s investment strategy? A : The fund invests in a combination of common stocks of domestic companies with a minimum market capitalization of $150 million at the time of purchase, as well as high-quality fixed-income obligations. It invests 60% to 70% of assets in equity securities selected primarily for their growth potential, and 30% to 40% in equity and fixed-income securities selected primarily for their income potential. Other factors that we take into account are a low debt-to-equity ratio, a low price-to-earnings ratio, strong earnings potential and a recognizable quality of earnings. What we want to see is how corporate management demonstrates its ability to create or develop characteristics unique to its industry. We generally invest in companies that do not have too much debt but do make a bet on future flows. Q:  What are the various steps in your research process? A : On the whole, we like to be thorough and complete in our research. Not only do we use public information on a particular company such as annual reports, prospectuses, 10-Ks, and press releases, but we also interview management about their strategies and plans. In fact, we like to monitor corporate activities very closely. We choose to work with the brokers who provide the best research and introduce us to different ideas. Once we like an idea, we inevitably visit the company. Just over the past 12 months we have visited 80% of the companies that we have invested in. Further to our initial research, we meet company management on a monthly basis. With the advent of electronic communications in all of their different formats it is a lot easier to keep up with what management is doing, what the competitors are doing, and what the market is generally doing for that particular product or service. Q:  Could you give a few examples to better illustrate your research process? A : We purchased shares of 3D Systems Corporation, whose machines create three-dimensional plastic models with the touch of a few buttons in a process called stereolithography. They produce designed objects from a vat of liquid which has been made cheaper and accessible to the everyday person. The current CEO of the company took a while to understand the industry, get the right people and move the company from California to South Carolina. Also, they have made a number of good acquisitions along the way. The interesting thing about the stock is that a year ago it was a non-starter. Though we have now been associated with the stock for more than a decade, it had not been living up to our expectations by that time. Moreover, it was a new industry but we were believers in that stock, which is now growing quite steadily. The company has presence all over the world and we are exposed to different currencies and economies. Another holding that did well for us is Garmin Ltd., the provider of navigation, communication and information devices and applications. There were a lot of interesting factors regarding Garmin, especially that there was not much competition post-9/11. Furthermore, we met their Chief Executive Officer, who realized that satellites would be accessible to the public soon and the global positioning system (GPS) was going to be able to pinpoint more accurately. When these changes occurred, Garmin evolved as a new industry which has been successful ever since. What we liked about Garmin was that they were user-friendly and the company had a strong management team with successful marketing and no debt. They were a new company in an industry that virtually nobody understood. However, from a price-to-earnings standpoint the stock of the firm got widely overvalued, at which time we decided to sell the stock. Q:  How do you execute your portfolio construction? A : We have a concentrated portfolio with about 20 names from a pool of 40 or 50. Sometimes we may stay with a name longer than we should. Our belief is that we can get international diversification by owning companies that may be domestically headquartered but get their revenues from outside of the U.S. We have very low turnover of about 20% in our advisory portfolio and mutual fund. We buy a position that is about 5% of the account and once something gets to 10%, we trim it down to 8%. For our mutual funds, we use the Lipper Bond Index as the benchmark, but for the advisory side our benchmarks are the S&P 500 Index and the Russell 2000 Index. Q:  How do you define risk and what do you do to contain it? A : We measure risk in terms of volatility and how much volatility each client is prepared to have his portfolio. In terms of risk control, we do not want to allocate in the portfolio based on the sector allocation in the S&P 500 index. But by the same token we want to understand where those sectors are and what the weighting is. If we feel that there are opportunities, we will overweight or underweight the index as we think is appropriate.