Q:  How far back in time do you generally go?

A: We like to have data going back at least 10 years. Occasionally, we’ll find a proxy for the data or another set of data that is similar, but not necessarily as ideal, that can also be used. In this situation, we may analyze the cleaner data that we have and the proxy to gain additional confidence. Bear in mind that we closely monitor the performance of our models once implemented so we don’t become overly concerned with the data limitations.

Q:  Does that mean that any company that has been priced in the last 5 years will be excluded because it hasn’t traded for at least 5 years and thus it doesn’t have the historical data?

A: Yes and no. The idea of a simulation is to go back in time to make a trading decision. Our simulation should look at the companies that are available for purchase or sale at a given point in time. So, if a company doesn’t exist 10 years ago then they would be excluded for the simulation during that year. However, they would become a candidate for purchase or sale when they do come into existence.

Q:  What variables and factors do you look at for the short side?

A: They are similar factor models and just different decision points. The variables are the same, but there may be fundamentally different models. We may treat decreasing earnings momentum differently than we treat increasing earnings momentum.

Q:  What are the compelling reasons to incorporate short securities into the portfolio?

A: Shorting securities allows an additional opportunity to generate alpha. If we are able to find securities that will underperform the market we will be able to pass more alpha to the underlying investors. In addition, the result in short selling will help to reduce volatility and lower correlation to the broad equity markets. If you simply buy a portfolio of securities it’s very difficult or impossible to create the same dynamics.

Q:  Do you follow any benchmark?

A: We follow the major equity market indices because we are managing TFSMX to have lower volatility and a low correlation to them. On the alternative fund side, we do not follow any benchmark in particular, but we keep our eye on the CSFB Long-Short Hedge Fund Index. We also watch the Morningstar Long-Short category average. It’s also worth noting that Lipper has broken out long-short equity funds into those with a static hedge like ours and those that have variable exposure. For a true apples-toapples comparison within the market neutral category, Lipper is a good place to look.

Q:  In terms of your research process, do you combine technical analysis with the fundamental work?

A: No, the factors in our models are fundamental in nature. Everyone sees the term quantitative and thinks technical analysis. That’s just not the case.

Q:  How do you go about building your portfolio?

A: The models drive the security selection but we have additional constraints. While it is not restricted by the prospectus, we have limited our exposure to any single security to 2% of the fund’s assets, and we have limited our sector exposure to 30%. We are not taking any significant sector bets and we are reducing our individual equity risk by being diversified. As an example, at the end of June 2006 the fund held positions in 295 securities and this number is consistent with the historical average.

Q:  How do you break down between the long and short in terms of number of companies?

A: Generally, we have more positions on the long side than on the short side. That’s because the fund has a long bias, plus the securities that we sell short generally are more volatile or have a higher beta than those securities that we hold long. A higher beta for the shorts means that it takes fewer to achieve the desired hedge. At the end of June we had almost $23 million long and $15 million short so the ratio of long to short is about 3 to 2. We had about 179 names on the long side, and 116 names on the short side.

Q:  When do you decide to sell on the long, or cover on the short, side?

A: We will not trim the position just because it has run against us. The decision to close-out a position depends upon why we are holding that position. When new information becomes available, we plug that into our models and if it no longer meets our criteria, we will remove it from the portfolio. We have analyzed various stop-loss techniques in our simulations but have yet to find one that adds additional value.

Q:  So if you are holding short and for some reason the stock goes up 50%, you will still hold it?

A: Yes, the only reason why we would cover a short is if it no longer meets our criteria. Just because a stock has appreciated doesn’t necessarily mean that it will no longer meet our criteria. That being said, we will trim down our exposure to that stock, because we generally follow the constraint of no more than 2% in any individual equity. If we put on 1.5% and the stock ran against us and it is not 3% of the portfolio, we may trim that down a little.