Q:  What is your investment philosophy? A: Our investing universe consists only of S&P 500 stocks; we focus our investments on a core group of about 50 stocks that are the “best of the breed” in their sectors out of this universe. Our goal is simply to outperform the S&P 500 Index in the long term; therefore, we try to invest in companies that possess a historical record of consistency. Our investment choices should have consistently outperformed the S&P 500 Index and have consistent earnings growth, while still having solid fundamentals and high likelihood to continue these trends in the long term. Consistency is the key word in our investment philosophy. We believe that superior performance can be achieved while maintaining low operating costs; our expenses are capped at 1.00%, which is well below the Fund’s category average. Q:  What is your perception of consistent earnings? A: When we say consistent earnings, we are looking for companies in our universe of the S&P 500 Index with a historical track record of consistent, steady earnings growth. We do not have a benchmark; we do not specifically look for a 10% or 12% earnings growth per year. We’ll look back at an earnings chart for the last four or five years, if we find consistent positive earnings growth over that period of time while still maintaining a good fundamental evaluation, then the stock might be attractive to us. We try to avoid stocks that have been growing earnings at a great rate but trades at high earnings multiples. For example, Research in Motion has fantastic earnings growth but it also trades at multiples higher than its growth rate. We think that such a company might already be priced to perfection and could disappoint investors if they didn’t meet their projected earnings target. We feel the risk of such a disappointment is greater than any possible upside performance, these are types of investments we try to avoid because they can easily turn into big mistakes. We can be right on 48 out of 50 stocks that are in our portfolio, and if two of those companies have issues and significantly under perform, it greatly increases our chances to underperform the market. For instance, last year was the only year in the last 4 years where we didn’t outperform the market, in large part because we were wrong on a couple companies that we thought were solid but still went through tough times. United Health received negative publicity over the conduct of its CEO, which had nothing to do with the underlying business. We actually bought more stock at the lows and the United Health stock partially recovered. Another sold company, Aetna, also had some minor problems that hurt our overall performance. Had these been companies with high earnings multiples with the same issues, the impact could have been much greater to the Fund’s performance. Q:  Can you walk us through your investment process? A: We screen the S&P 500 Index universe for performance, earnings consistency and valuation for the past five years. We identify companies that have consistently out-performed the Index at least four out of the last five years. This exercise usually leaves us with a universe of about 100 eligible names that we then split according to their sectors and further break down into broad industry groups. For instance, financials comprise about 20% of the S&P 500 index and we might have 20 of them that pass our initial screens. Therefore, if our portfolio is going to be 50 stocks, we pick the best 10 financial stocks so our portfolio is fairly representative of the Index. By doing that, we are not only reducing the exposure to individual sectors, but also getting the “best of the breed” in each sector. Our aim is to end up with a portfolio of 50 names that fairly represents the sector allocation in the S&P 500 Index. Q:  What is the reasoning behind focusing only on the S&P 500 and only on 50 companies? A: We have a small office with limited personnel. We do not have 20 analysts working for us, if we were to open the universe up to all the 8,000 different securities out there, we wouldn’t be able to adequately collect and analyze all of that information. If we can consistently pick the top performers in S&P 500 Index and continue to outperform it, then we are doing well. Q:  What other criteria do you apply in your research process other than consistent earnings and evaluation? A: The first screening process is to ensure that companies have consistent returns. Consistency being the keyword, we do not need a stock that has a 500% return one year and negative returns in other years. We want one that has consistently given positive performance, relative to the S&P 500 Index. Then we look at various fundamentals including the Price/Earnings ratio, the Price/ Sales ratio, and other metrics that might be applicable. We also look at some third party research and consider their opinions; we look at each individual stock’s current situation. We don’t have any specific indicator but just look at the broader picture. In short, we do metrics evaluation, analyze valuation and understand business and competitive dynamics, and review growth outlook. Another important criterion is the ability to pay consistent dividends. For example, we own stock in the tobacco giant Altria, the parent company of Philip Morris. Their US market is stagnating, but they pay a good dividend and we like that. We feel there is also a great deal of value yet to be realized from the proposed spin off of its international unit. Q:  Can you give a couple of examples of stock picks from your research process? A: One of our best investments has been Apple Computer. We initially bought Apple stock in 2003 and added more in 2005. The stock at the time was consistently growing earnings, while not being overpriced. In 2003 the price was in the mid-$20s, it is at $140 now. Recently for the most part, they have had momentum in their product line and they have almost a cult like customer following. It’s still trading at an earnings multiple well below its earnings growth. Their global market share is below 3% and it is just around 5% domestically. Even if they were to increase their market share by 1% every few years, they can keep up with their earnings growth projections. John Deere, the agricultural equipment maker, is a brand very popular with farmers and definitely the “best of the breed” in that area. They have consistent performance and good management. With commodity prices at record levels and farmland prices running through the roof, farmers will continue to buy equipment and machinery. Q:  How do you go about portfolio construction? A: At any point in time, we typically have 50 securities, and we do not overweight any position, as we do not like to take a bet on any one stock. We believe this approach will result in a more consistent performance out of the Fund. Our aim is for our Fund to reflect a broadly diversified portfolio of the “best of breed” in each sector. So typically, with 50 securities we are going to have an equal allocation of 2% in each position. We also re-balance the Fund twice a year. Q:  Do you have a formal rebalancing process and why do you re-balance only twice a year instead of every quarter? A: There is a formal process in place for our first screening where we download the data into an in house computer program, enter all the fundamental information and go from there until we have what we think are the best investment choices. As for the frequency of rebalancing, one main reason why most funds do not outperform the market is because of the management fees and expenses involved in trading is something that is borne completely by the shareholder. We also feel that the more that we adjust the portfolio; the more it is going to hurt our performance. Incidentally, we have one of the lowest expense ratios – our 1% is far below the average for our peers. Q:  What drives your buy and sell decisions? How would you judge a good stock like Countrywide, badly hit due to macro events in the industry? Do you look at macro events or just focus on the company level? A: We are very wary of the technology sector because of the earnings and stock price volatility, generally we have less exposure to the sector; there is no consistency there. Moreover, these companies do not typically pay dividends, which makes them an even less attractive buy for us. Regarding our buy and sell discipline, typically these are limited to when we rebalance the Fund notwithstanding any macro or position specific items that may come up. So if we had owned Countrywide Financial two months ago, we would have been watching that pretty close and we might have just decided to sell it, it’s hard to know for sure since we were fortunate not to own Countrywide. We were lucky and did not have any direct exposure to the credit issues the market has been facing this year. However, typically, such events are rare. We did have a couple of events last year where Aetna and United Health had some company specific issues, by the time those issues became public; we were already looking at losses. When that happens so suddenly, as was the case, the last thing we want to do is sell if we still believe in the company long-term. We might look at this as an opportunity to acquire additional shares. Fifty stocks is still a large number to monitor. Therefore, we frequently run a fundamental analysis and look to see what these stocks have done. Q:  What kind of risks do you face and how do you control them? A: All of our companies are profitable and we will not buy them unless we think they are going to stay profitable. We feel our analysis helps us to better avoid big mistakes by identifying those companies that might have gotten ahead of their fundamentals. If we can avoid these mistakes and instead invest in companies that have shown a more consistent performance and earnings growth, we think we are going to perform much more consistently over the long run. However, probably the most important risk control measure is the diversification that we have. If we are placing no more than 2% in any individual security, any individual position that underperforms will be minimized. We are currently a small Fund; our net assets are about $11 million because we haven’t been actively marketing the Fund. There is lot of room for growth here because our strategy can easily handle large amounts of money. Performance for the Fund has been good; our annualized returns have outpaced the S&P 500 Index by 1% over the 3-year period and 3% over the 5-year period ending July 31, 2007.