Q:  What is your investment philosophy? A: Our philosophy is more of a common-sense approach that is contrary to what a lot of investors consider the proper way to make money. We disagree with the age-old philosophy that you should buy a mutual fund and sit on it forever and ride it up and down with the market. We have three main guidelines. Our strongest belief is that it’s better not to lose money by being conservative, than to try and make it up with a large gain. Sometimes this isn’t popular because it means that we have to sit out high volatility periods with large chunks in cash as our prospectus allows and this makes some investors impatient. But sometimes being heavily weighted in cash is the best longterm approach. Secondly, history tells us that market patterns tend to repeat themselves. A good working knowledge of how the markets, particular sectors and funds have reacted in the past is better than trying to predict the future. Third, I believe that there are right and wrong times to own a fund and that active management, through buying and selling different funds in various sectors, is a better way to beat the index averages. When there is a particularly hot sector you can rest assured that I’m probably not looking at buying that. I would rather hope I already own it and am ready to sell it and take a profit. As a mutual fund of funds we’re not necessarily looking at holding a particular fund or sector because each mutual fund is a diversified portfolio. We’re not interested in looking at them and holding them for 3 to 5 years. We’re looking at them more or less from a 3-month to 18 to 24- month period. We don’t take advantage of the whole cycle but we try to avoid the ride down and take advantage of part of the ride up. Q:  What are the key elements of your investment process? A: We have a two-part process. History plays a large part in our strategy. We’ve created a model that looks back 30, 40 and 50 years, on certain funds and indexes. We search the investment universe by the fund categories and the various sectors to identify historical trends and patterns as to what sectors to buy and when to buy them. Using this model we will buy a sector when it looks like it’s at a short-term historical low, that it appears to be undervalued and is poised to provide a positive return, based on past history. The second part of the process starts when we decide which sector we’re interested in. We examine all the mutual funds in that sector and/or category and we’ll narrow it down. Then we’ll take a closer look at the top performing 25 funds in that sector starting from a 15 year period and working down to 10, 5, 3 and 1 year periods. We’ll look at funds that show consistency in all of those time periods and we’ll make sure that they show up every year for 10 years in that top 25 position. From there we’ll narrow it down to the funds that show up in the top five. We’re looking for managers that have been consistent in outperforming their sector or category. From there we’ll look at the particular securities that each of these funds owns. Then we’ll look at their 52-week highs and lows and we’ll try to identify the funds that have the greatest potential to go back to their 52-week highs. Then we will ensure that the funds that we invest in have the same management because if a fund has changed managers recently, you can’t count on the same thing happening in the future. Q:  Sometimes the various sectors and underlying funds you look at do not disclose the holdings in time and they could be about 30 to 90 days late. Do you have a way around that? A: You can only know what the holdings are as of the most recent published information. We’re following these different mutual funds and we’re consistently tracking their historical investments. We are looking at them from quarter to quarter to identify some of their main core holdings for the investment style they have used in the past. But you may not know exactly what the fund holds today and that is a distinct disadvantage in buying a mutual fund. Q:  What are the key elements of your research process? A: We do all of the research in our office, and we will look at each particular fund. Their most recently published portfolio holdings are the only thing that we have to go on. We use several proprietary software programs that help us narrow down and identify the securities that we’ve been looking at, and it helps as it shows that there is certainly a right and a wrong time to own any particular security. We have the entire mutual fund universe to choose from. We haven’t limited ourselves to any certain family of funds because we’re able to buy load funds under a load waiver provision. If you limit yourself to only no-loads funds or single family funds, your choices are narrow and many of the funds that you’ve eliminated because they have a load are the top performing funds in their category. By eliminating that bias, we have an advantage. Q:  Are you also looking at fixed income funds? A: Yes, we are. Our prospectus allows us to have up to 80% in bonds and/or cash at any point in time. So, if you looked at our portfolio in the past, you would have seen several quarters when we were heavily in bonds and/or cash. We use the same process to research bond funds. Q:  What has been the historical division among cash and equities and fixed income funds? A: We are considered to be a conservative allocation fund and we have roughly 50% of the portfolio in cash or bonds. We are also a balanced fund, within the conservative allocation category, so we will always have a healthy position in that cash/bond side. Q:  How does your research process take into account the situation where the commodities that remain dormant, such as metals and oils and other energy products, for almost 10 - 15 years and suddenly start appreciating? Is your research process proactive or does it miss this cycle? A: We will certainly miss the great ride up, but we will take advantage of parts of that ride. If you had looked at our portfolio in March of this year, you would have seen that we had some holdings in the energy sector. You would also see that we took advantage of some of the real estate rides, also we did in fact have some precious metals probably during two of the last quarters in the last 365 days. We certainly won’t be heavily weighted in those areas but we’ll be in there. We are totally committed to being conservative, and my only long-term objective is to attempt to have a profitable year, year in and year out. On April 1, 2002 when we started the fund, it was the beginning of one of the biggest falls down in the stock market’s history and yet, 12 months later we finished with less than a 2% loss, while the Dow and the S&P and the NASDAQ were down 20% to 30%. It was a terrible time to start a fund, but our investment philosophy, which I had developed over the prior 30 years working with individual clients, served us well. It’s the same philosophy we’ll use in the future. We’re happy to take whatever ride up we can in the energy or the precious metals or the real estate. We just want to take our profits and avoid the ride down. Q: How many funds do you have and how long do you generally hold them? A: In March we had about 55 to 58 different funds in all nine categories - the small, mid, large, growth, value and blend. We were in all of the major sectors - precious metals, energy, utilities, real estate. Q:  What kind of risks do you perceive in your fund and how do you try to mitigate them? A: There have been times in the past when you would have seen 50% or 60% of our portfolio in bonds or cash because we felt that the market was in a volatile period. Right now the market is fairly volatile so we’ve got our portfolio arranged in a defensive position. In attempting to manage our risk, we believe that there’s a right time and a wrong time to be weighted in any particular mutual fund or sector, and that there’s a right time to be heavily weighted in cash. If you look at that philosophy, you’ll see that preserving capital is paramount to what we’re trying to do with our fund even if it means that we have to give up some of the gains to attempt to protect the shareholder’s money. That’s what we will do. One measure of volatility is standard deviation. If you look at our standard deviation, you will see that it is 5.5, which is extremely low. Adversely, if you look at a standard deviation of a NASDAQ type of fund, for instance, you would see a number in the high 30’s. For the Dow and the S&P 500, you would be somewhere between 8 and 10 or 11, on a short-term basis and a 10 or 15 on a longer-term basis. If we can achieve a positive return and have 60% of the volatility of the broad market, we have got our risk under control. Q:  Do you only look for certain kinds of risks such as portfolio risk or a security risk and do you actively go about measuring it and how do you control it? A:We’ll look at historical patterns to help us make that decision. At the end of last year we had substantial holdings in the small-cap area. When we bought those small-cap funds, we knew that they were going to be holdings of less then six months. Smallcaps generally do very well in the first quarter of every year, as compared to the Dow or the S&P, and we had a nice percentage in the small-cap area. We took advantage of that ride up and at the end of June we had a completely different portfolio. Q:  Why have fund of funds become so popular in recent years from your perspective? A: When we started our fund, there were about 150 fund of funds and today, with all the different share classes, there are actually 1,700 but, if you eliminate the different share classes, there are over 500 fund of funds. It has been one of the fastest growing segments of the mutual fund industry percentage-wise. In the last four years, we have gone up almost 500% in the number of funds. Retail investors who do not want to be investment managers can benefit from this diversified investment approach. They want somebody to make the decisions for them and that’s why these fund of funds have become so popular.