Q: Would you tell us about the history of Meeder Financial? A: Meeder Financial was established in 1974 in Columbus, Ohio, as an investment management firm that worked primarily with individual investors and small retirement plans. Today, the company has grown to manage and advise over $5 billion in assets. Meeder serves the needs of individual investors as well as corporate and institutional investors through retirement plans, private account management, variable annuity overlay management, cash management, and mutual funds. Q: How do you define your investment strategy? A: The Quantex Fund™ employs a quantitative investment strategy based on a proprietary model which selects stocks that meet both our market cap and sector concentration. The stocks generally fit in the small- and mid-cap range of the market. Our proprietary model is based on the investment principle that investing in oversold areas of the market allows us to avoid overpaying for stocks. Moreover, selecting from stocks that meet our multiple criteria from these oversold sectors further provides us with a margin of safety. Q: Would you describe your stock selection process? A: Our stock selection process is 100% quantitative. Guided by our proprietary model we focus on those sectors of the market that are trading significantly below their historical norms. We are different from most fund managers in that we do not stray from our investment discipline. We strictly follow the selections that are generated by the model. Our investment model has guided us for over two decades by highlighting the stocks and market sectors that are out of favor. Each year, our model determines the appropriate market cap range and the stocks that fit within that range. Historically, the average market cap range is between $3 and $4 billion. Stocks are screened for inclusion or removal from the Fund’s portfolio on an annual basis. We update our model annually to establish the appropriate market cap range. Once that is determined, we sell the stocks that have either risen above the market cap range or trade below it, and we add new stocks that meet the range criteria. The securities held by the Fund are generally held for a long-term period, resulting in low portfolio turnover. Q: What is your buy-and-sell discipline? A: We buy a few “rising stars,” but the vast majority of new stocks that come into the portfolio are what we call “fallen angels.” For example, at the beginning of 2009 the stocks that were added to the portfolio were down 66% in 2008. Although they were recognized names, they were out of favor at that time. Stocks in the portfolio whose value has grown or fallen out of the predetermined market capitalization range are sold Additional reasons for selling a stock from the portfolio could be relative appreciation, mergers, or bankruptcy. Q: Can you explain what “Rising Stars” and “Fallen Angels” are, according to your model? A: The stocks owned by the Fund fit into two categories: “Rising Stars” are stocks of smaller capitalization companies with the potential to perform well on both an absolute and relative basis. Generally, they are stocks that have risen into the market cap range and whose prices have increased from the previous year. “Fallen Angels” are stocks of larger capitalization companies whose prices have declined in recent years but are poised for a possible rebound. In other words, they are stocks that are out-of-favor and trading at a discount. Q: How do you carry out your research? A: We examine a pre-screened universe of stocks that fit within the market cap range determined by our proprietary model. For instance, if our model indicates that utilities and airlines are favorable, then we will review companies in these sectors that have fallen more than they should have, as long as they fit within our market cap range comfort level. We begin the research process with the sectors and drill down to the leading, oversold, or out-of-favor companies within those sectors. The primary focus is on sectors, while the secondary focus is on stocks within a particular sector. We strictly adhere to our investment model. If the model prompts us to be in a few very specific sectors, we will follow that discipline. In a similar fashion, if the model dictates that we avoid specific sectors, even if they are popular now, we will follow that discipline as well. Q: What is the objective of your investment model? A: The objective of this model is to create a portfolio that seeks to outperform small and mid-cap stocks. Our benchmark is an equal blend between the Russell 2000 Index and the S&P 400 Mid-Cap Index. Q: How do you construct the fund’s portfolio? A: At the beginning of the year, we select exactly 100 stocks for inclusion in the Fund with each stock representing 1% of the total Fund. The Fund is diversified across all major industry sectors with no minimum or maximum industry exposure. At no time will we turn over the entire portfolio. We select market cap range based on the model results, and then we select stocks from that market cap range. Historically, we turn over less than one third of the stocks in the portfolio. Although we may add or subtract from the number of stocks currently held, we start the portfolio with equal weights among all our holdings. Essentially, we may have the same stocks but the weights may change at the beginning of the year, resetting to 1% maximum per stock. Q: Can you explain why the model has worked so well over the past two decades? A: Mid- and small-cap stocks have significantly outperformed the broad market over the past 20 years. Furthermore, our model has historically guided us to select stocks in undervalued areas of the market while at the same time avoiding overpriced sectors. When the Fund begins to get out of sync with the rest of the market, it is often forecasting a potential change in the direction of the market. Another interesting aspect of the Fund is that when the market is coming out of a severe decline, our portfolio tends to lead on the upside. We saw that happen quite clearly in 2009. Q: How do you allocate cash resulting from acquisitions and bankruptcy? A: If a stock gets acquired for cash, we reinvest the cash received into the next highest ranked stock meeting our selection criteria. Q: Do you have any views about risk? How do you manage it, through the model or outside the model? A: First of all, we do not incorporate cash or fixed income instruments into the portfolio. Second, we control risk by never investing more than 1% in any one stock when we reconstitute the portfolio at the beginning of each year. Additionally, our model directs us to the oversold sectors of the market, which provides us with a margin of safety and provides downside protection.