Q: What is your investment philosophy?

A: We believe that dividends are an important part of total returns and investors should capture capital gains and dividends. Most investors look to benefit from the rise in stock prices and ignore dividends. Historical analysis shows that over the long term, dividends have accounted for approximately 40% of the total return in equities.

Q: How do you translate this philosophy into an investment strategy?

A: Our primary objective is to achieve a high level of current dividend income that qualifies for the reduced federal income tax rates created by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Next, we focus on total return for long-term capital growth. In a nutshell, our goal is to provide both a high level of qualified dividend income plus a positive total return.

Q: What differentiates you from your peers?

A: We began planning the strategy of the fund on May 28, 2003, literally on the day when the tax rates for dividends were lowered from ordinary income to a maximum rate of 15%. At that time there were very few products to take advantage of this significant tax break and we thought that investors will benefit if we can manage a fund that can generate dividend yields that are substantially higher than the yield from the S&P 500 index.

We do not just “chase dividends”.We look to invest in great companies that are returning cash to shareholders. This is true for the special dividends as well, where we look for companies that are returning a large amount of one-time cash to shareholders, but that we believe are strong companies with appreciation potential.

One of our most important characteristics is that we are about 30-40% international. We are invested in about 15 countries outside the U.S. Dividends overseas tend to be significantly higher than in the U.S. If a country has a tax treaty with the U.S, the dividends may qualify for the preferential tax rate.

Q: How do you handle the currency situation where a lot of European bank stocks are yielding high rate of dividend but have exposure to risky loans?

A: We own a handful of international banks. We've selected the ones that we think have the brightest business outlook. As fundamental investors we select international banks but we also believe in the long-term secular decline of the U.S. dollar.

We were un-hedged until the very end of last year. When the Fed started cutting rates aggressively, we decided to hedge about 50% of our currency exposure. We purely hedged our exposure to the international currency trade and we didn't put on any futures or trades regarding betting on the dollar or currency futures. We recently closed out these hedges as we believe the dollar may stabilize in the near term following the aggressive actions of both the U.S. Federal Reserve Bank and the U.S. government fiscal stimulus package to try to boost the U.S. economy.

Q: What benchmark returns correlate to your portfolio?

A: With our yields so significantly higher than anybody else's it's extremely difficult to find a peer group. We like to be multi-cap when we look for opportunities plus we invest globally. You are really buying our fund for the very high dividend income and the capital appreciation and we have not found any benchmark that tracks our strategy well.

Q: How do you achieve your investment objective?

A: The Fund utilizes three separate portfolio strategies - Dividend Capture, Value with a Catalyst, and Growth and Income strategy. Guided by the 61-day holding period that the tax regulations specify, we seek to turn over one part of the portfolio to increase the gains in the portfolio beyond four quarterly dividend payments. We focus another part of our research toward identifying financially strong companies that offer capital appreciation potential along with stable dividend. The third strategy aims to identify companies undergoing a business turnaround.

We employ a team-management approach to try to achieve a double-digit total return from tax advantaged dividend income and capital appreciation.

The Dividend Capture is where we are generating the majority of the dividend yield. Then we balance that with our value and our growth strategies. We look for stocks where there might be high dividend yields because the earnings and stock prices are depressed for some reason and we expect a turnaround or a catalyst to get those earnings and stock prices to recover.

Right now, with the way the market's been beaten down, you see a lot of high yielding stocks and therefore, we see a lot more value in the market than we did six to nine months ago but we don't like to buy a dividend for the sake of a dividend. We always prefer to invest in stable and sound businesses.

Our growth and income strategy is where we screen for stocks that might have lower dividend yields but we see very good earnings growth and capital appreciation potential. We usually like to screen at about 15% earnings growth outlook and a minimum of about a 1% dividend yield.

Q: What kind of selection criteria do you apply?