Q:  How do you go about building your portfolio?

A: We would like to be opportunistic buyers and we know what we want to buy. Since we have a very low portfolio turnover rate, there are a lot of companies that we have in the portfolio where we want to build position size, and we will try to use the weakness in stocks or the market to be opportunistic buyers.

The mutual fund has enjoyed a steady cash flow for its entire history of almost six years now. That means that at any point in time the percentage of our existing positions is diminishing to the extent that new cash keeps coming in.

About $6.5 million of that cash flow goes towards buying existing positions within the portfolio. The portfolio in the first quarter, for instance, went from $102 million to $112 million, an increase of $10 million. And about $6.5 million of that was net shareholder purchases and the rest was appreciation. So basically 90% of that $6.5 million went to maintaining the structure and the percentage allocation.

Q:  What is the size of your biggest holdings? Do you look at any benchmark?

A: The top five holdings range in size from 2.57% to 2.87% of the total portfolio. The portfolio has a total of about 50 stocks in it. Within our peer group that’s considered reasonably concentrated, although not concentrated enough for us. We’d like to have perhaps 10% fewer names in the portfolio.

We do not manage, weight, or allocate against any market benchmark. We are just looking for “best in class” companies as investments. However, almost by default, we use the S&P 500 Index as a benchmark for performance comparison, because it is a broad index that most managers use.

Q:  What kind of risks do you monitor and what do you do to mitigate them?

A: We generally would not put more than 5% of the portfolio at cost into a security. In reality, we normally limit positions to 2.5%- 3.0% at cost.

As a multi-cap growth fund, at the end of 2006 we had 39.4% of portfolio in large cap, 44.6% in mid cap, 8.6% in small cap and 7.4% was in cash reserves, which is a higher percentage in cash than we normally carry. Right at the end of the year, we had some purchases in the fund come in, so cash came in and built up the reserves right at the end of the quarter.

Over the last year or so, we have decreased the allocation in small cap from 16% percent to 8.6% and we have increased the large cap from 34% to 39%. With the new funds received late in the year, we increased large cap allocation by 5%. The shift over the course of the year was to build large cap at the expense of small cap. Over the history of the fund, the mid-cap area has had the highest allocation.

In our opinion, the greatest risk to our investments is loss of management credibility. We try to identify managements that tend to under-promise and over-deliver.

Q:  How would you describe your sell discipline?

A: In situations where fundamentals change, we will eliminate the companies. Our research is intended to identify companies that have a sustainable high growthrate over a long period of time so we are trying to buy companies where that's likely to happen.

When there’s an issue and the company is light on revenues, margins or earnings, we try to figure out whether this is failure to execute on the part of management or something that is exogenous to the company that it had no control over. If management failed to execute in a significant way, we’ll most likely sell the position. If the “miss” resulted from exogenous factors, we try to determine whether this is going to be a permanent change or not. If it’s a permanent change, then we take the exogenous factors seriously, and we would consider getting out of the situation.

If we made an investment for reasons “A, B, and C”, and subsequently find that we are holding the position for reasons “X, Y, and Z”, then we are probably rationalizing a mistake and will consider the investment a sale candidate.

If we feel that the tide has turned for the companies we own, we will exit from our positions. But if we think that Wall Street concerns about the industry and the company are overblown or short-term focused and there are still solid long-term growth prospects in the technology, or business or marketplace, we will hold onto our positions.

For instance, there’s been some concern with pricing and competition in the GPS space. But we feel that GPS technology is going to find more and more applications, many of which have not yet been discovered, and we believe that our three companies in this space will continue to be market leaders in their niches. Two of our top five performers in fiscal 2006 were the GPS stocks.